PAE (NEW ZEALAND) LIMTIED V BROSNAHAN, CARTER, AND PATTINSON HC WN CIV 2005-485-843

PAE (NEW ZEALAND) LIMTIED V BROSNAHAN, CARTER, AND PATTINSON HC WN CIV 2005-485- 843 3 September 2007IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY CIV 2005-485-843BETWEEN PAE (NEW ZEALAND) LIMTIED Plaintiff AND MARK DAVID BROSNAHAN, MICHAEL RALPH CARTER, and WAYNE ALBANY PATTINSON Defendants Hearing: 3 September 2007 Appearances: D D Vincent and D G Dewar for Plaintiff J D Palmer and P T Dorrans for Defendants Judgment: 3 September 2007 at 5:45 p.m.JUDGMENT OF ASSOCIATE JUDGE GENDALLThis judgment was delivered by Associate Judge Gendall on 3 September 2007 at 5:45 p.m. pursuant to r 540(4) of the High Court Rules 1985.Solicitors: Mr D Vincent/Mr D Dewar, Thomas Dewar Sziranyi Letts, Solicitors, Wellington Mr J Palmer/Mr P Dorrans, Russell McVeagh, Solicitors, Wellington[1] This proceeding is set down for a five day trial commencing Monday next, 10 September 2007 at 10:00 a.m. [2] Today an urgent application for further and better discovery filed by the plaintiff came before me for hearing. This application was opposed by the defendants. [3] The plaintiff's application was heard as a matter of urgency this morning and now given the very short timeframe before the trial of this matter on 10 September 2007 I give my judgment as a matter of urgency. [4] The plaintiff's amended application seeks orders noted in that application as follows: a) that it (the plaintiff) be given leave to take this interlocutory application after the setting down date; b) the defendants make available for inspection the laptop computer of Mr Carter that he had in his possession before leaving the employment of PAE and which he continues to have in his possession; c) the defendants list and make available for production all relevant information contained on the laptop computer, including such information that would enable a forensic computer analyst to analyse the historical use of that computer between 2004 and the present date; d) that the costs of and incidental to this application be awarded to the plaintiff. [5] The defendants' opposition to this application provides broadly that: a) leave should not be granted for the application as it has been filed after the setting down date of 30 July 2007 and in addition theplaintiff has been aware of the laptop since September 2005 and referred to this in correspondence between the parties' solicitors right up to October 2006. In addition, it is inappropriate for leave to be granted as to do so would, according to the defendants, inevitably prevent this matter from proceeding to trial on 10 September 2007; b) further, all relevant information has been discovered by the defendants and finally the orders proposed are not appropriate. [6] The broad grounds advanced by the plaintiff in support of this application are: a) the plaintiff discovered on the evening of 23 August 2007 the fact that Mr Carter still possessed the laptop computer that was in his possession whilst working at PAE; b) the present application could not have been made any earlier than Friday 24 August 2007; c) the laptop contains highly relevant information of a nature that the defendants have been seeking from the plaintiff and which has not to date been discovered by the defendants; d) pursuant to r 322 the Court has the power to order the production for inspection of any "property"; e) the laptop is property in the possession of the defendants that ought to be produced for the proper determination of any matter in question in the proceeding; and f) the issue in question is whether the defendants have further back-up data available. It is also needed to assess the source and credibility of information produced by the defendants in the proceeding.[7] As I have noted, the present application has been brought on for urgent hearing. Mr Carter, the second named defendant, has filed an affidavit sworn 31 August 2007 in support of the defendants' opposition to the present application. This affidavit also is in response to the affidavit of Mr Peter Derek Leslie sworn 28 August 2007 filed by the plaintiff in support of the application. [8] The plaintiff's discovery application is brought generally pursuant to r 300 High Court Rules which together with r 295 requires that documents "relating to any matter in question in the proceedings" must be discovered. That is, to be discoverable, the documents in question must be relevant and in addition any order is also subject to the requirement of r 300(2) that it is necessary at the time. [9] As to relevance the long established test is that of Brett LJ in the Peruvian Guano Company case ((1882) 11 QBD 55 (CA)). [10] In addition, the order for inspection sought by the plaintiff here is made pursuant to r 322 High Court Rules which reads:322 Order for inspection, etc.(1) The Court may, for the purpose of enabling the proper determination of any matter in question in any proceeding, make orders, on terms, for— (a) The inspection of any property: (b) The taking of samples of any property: (c) The making of any observation of any property: (d) The measuring, weighing, or photographing of any property: (e) The making of any experiment on or with any property: (f) The observation of any process. (2) An order under subclause (1) may authorise any person to enter any land or do any other thing for the purpose of getting access to the property. (3) In this rule property includes any land and any document or other chattel, whether in the ownership, possession, custody, or power of a party or not.[11] Orders for inspection are only to be made where they are for the purpose of enabling the proper determination of any matter in question in the proceeding. Putanother way, the inspection must be relevant to the issues in dispute in that proceeding: McDonald v Hoggard (HC AK, M242/93, 11 April 1994, Master Kennedy-Grant). [12] Once the threshold jurisdiction has been established exercise of the discretion in favour of an order is likely: Wheelans v Hayes (1986) 3 NZCLC 99,789. [13] Orders which follow are to be made on appropriate terms. In situations where the orders sought are as far reaching as Anton Pillar orders the Court may require the same undertakings and precautions: Overseas Containers Ltd v George H Scales Ltd (HC WN, CP395/86, 22 September 1986, McGechan J). [14] Turning to the present application before me there are three issues to be determined: a) should leave for this application be granted to the plaintiff under r 438AA? b) if leave is granted, should an order for inspection of the laptop be made under r 322? and c) if the answer to a) and b) above is "yes", then what is the appropriate form of the order? [15] I turn now to consider each of these matters.Should leave be granted?[16] Rule 438AA(1) states:(1) No statement of defence or amended pleading or affidavit may be filed, and no interlocutory application may be made or step taken, in the proceeding after the setting down date without the leave of the Court.[17] Here the setting down date was 30 July 2007. The present application was made after that date. The plaintiff contends because it was not until the evening of 23 August 2007 that the fact that Mr Carter still possessed the laptop computer that was in his possession whilst working at PAE and that this laptop actually contained potentially highly relevant information came to the knowledge of the plaintiff. [18] This is disputed by the defendant who argues that the present application has been unnecessarily delayed and could have been brought at the latest in October 2006 when correspondence concerning Mr Carter's laptop between counsel for the parties was being exchanged. [19] Without wishing to labour this point, I am satisfied that leave should be granted here in terms of r 438AA. The issues concerning the second laptop held by Mr Carter are complex indeed. As I see it the interests of justice here fall on the side of granting the plaintiff leave to bring the present application. There does seem some strong indication that initially the plaintiff was led to believe that this second laptop held by Mr Carter was kept only for his personal use and not for business purposes and therefore any requirement to inspect it earlier was unnecessary. That situation seems to have changed somewhat given recent events. [20] An order is made therefore granting leave to the plaintiff to bring this application in terms of r 438AA.Should an order for inspection of the laptop be made under r 322?[21] In opposing this application the defendants contend that it is a purely speculative one and no grounds exist for believing that the defendants have failed to disclose any discoverable documents or that the material stored on Mr Carter's laptop has not already been provided to the plaintiff. [22] In response the plaintiff contends directly that a strong suspicion exists that Mr Carter's laptop is likely to contain significant year end back-up information for the LMC business in question here (and in particular a back-up of the LMC debtors' schedule) and that certain data may even have been altered since being copied ontothis laptop. Debtors figures are relevant here as the plaintiff's claim is that it paid too much for the CPS business it purchased because the defendants deliberately and dishonestly increased those debtor figures. [23] These contentions are disputed by the defendants. [24] Notwithstanding this, what is clear here from Mr Carter's own affidavits (sworn 27 July 2007 and 31 August 2007) are the following: a) As to the current state of his laptop, at paragraph 29 of his 31 August 2007 affidavit he deposes:Yesterday, that is Thursday 30 August 2007, I was working at Transfield. I had been using my laptop on and off throughout the day. When I turned my laptop on at 4:30 p.m., an error message appeared on the screen. I tried to start the computer several times, but without success. I went to see Mr George Henry at his home. Mr Henry works at Advantage Computers in Palmerston North. Mr Henry initially told me that it appeared to be a problem caused by the Windows operating software. I told Mr Henry to take a copy of the hard disc before he did anything to the computer. Mr Henry tried to copy the data but was only able to copy the directories. The files on the hard disc were not able to be accessed and copied. I left the laptop with Mr Henry overnight to give him time to remedy the problem. This morning I spoke to Mr Henry again. Mr Henry told me that the hard disc in the laptop had failed. I told Mr Henry that I wanted the hard disc back. I now have the hard disc. It is wrapped in plastic bubble wrap at my home.b) The timing of this computer crash is unfortunate to say the least. I do not conclude that it implies any "foul play" on the part of any party. Suffice to say, however, that if, as I understand Mr Carter's position to be, this laptop contains no information which has not already been disclosed to the plaintiff as relevant to this proceeding then there should be little concern on the part of the defendants to an appropriate and protected inspection of the laptop. c) Next, it seems from contentions put to me by counsel for the plaintiff that in his 31 August affidavit Mr Carter for the first time acknowledges that in using two laptops at PAE, the second laptop was for both business and personal use. Apparently it had been suggestedbefore now that the second laptop had been used only for personal use. d) Also in his 31 August 2007 affidavit Mr Carter acknowledges that in earlier discovery attempts he had "mislabelled" a range of documentation and "this mislabelling was a mistake". This he contends, however, does not advance the defendants' case in any way. e) Again, in his 31 August 2007 affidavit Mr Carter notes that he "removed all matters relevant to PAE from his second laptop", except for material related to LMC as he continued to act as a director of that company. Before me, Mr Palmer for the defendants acknowledged that the LMC data is relevant to this proceeding and should be discovered. He contended that all LMC data had been discovered but acknowledged that this did not occur until quite recently – much later than it should have. Again, the plaintiff suggests that this must raise some questions concerning Mr Carter's actions and his present acknowledgement and changed position regarding the second laptop. f) At paragraph 22 of his 31 August 2007 affidavit Mr Carter acknowledges specifically that there was an error in his earlier affidavit dated 27 July 2007. g) The annexures noted as "B" and "D" to Mr Carter's 31 August 2007 affidavit contain an LMC "audit trail by debtor" and an LMC "user log by user name". These documents were clearly printed out on 27 August 2007 and 29 August 2007. It was suggested that this audit trail by debtor list and user log would have come from Mr Carter's second laptop – presumably only a few days before it "crashed". In my view some examination of the laptop to verify these matters is clearly appropriate here. A central issue in this case will be the source of and credibility of the financial data put forward by Mr Carter in support of the debtors figures he provided to his accountant who produced the crucial 31 March 2004 accounts.[25] Before me counsel referred to the decision in Tyco Flow Pacific Ltd v Grant and Others (HC AK, CIV 2003-404-4121, 18 March 2005, Associate Judge Sargisson). In that case in not dissimilar circumstances to those prevailing here, orders for inspection of certain computers pursuant to r 322 were made. [26] In considering that case, counsel for the defendant contended that the present situation is one that is quite different. In Tyco he noted that the application was triggered as two e-mails deleted from a computer by a defendant were recovered by the plaintiff. This implicated the defendant in that they showed in some way he was connected to a competing business and further because two non-disclosed e-mails were in existence "there could be more". [27] It was the defendants' contention that the present situation is entirely different from this. He suggested there is nothing here to suggest that any grounds exist for a similar suspicion. He characterised the present application as being merely a fishing expedition and said it was really an unjustified eleventh hour application which may also delay the allocated trial of this matter next week. [28] To a significant extent I disagree with the defendants characterisation of the present application. Whether there may be anything of relevance on Mr Carter's laptop remains to be seen. In the present circumstances, despite the considerable complexity and confusion which appears to have surrounded this whole issue, I am satisfied that even on his own contentions and present actions, Mr Carter has himself put in question whether the laptop may contain material of relevance which should have but has not been disclosed. The financial data and debtors information clearly relates directly to matters in question in this case. [29] Before me Mr Palmer for the defendant in his own words contended there was nothing in the circumstances here to show any "smoking gun" material may exist to justify an inspection of the laptop in question. Although that may ultimately prove to be the case, I remind myself that the present substantive proceeding involves allegations by the plaintiff of fraud and dishonesty on the part of Mr Carter and the other defendants. That said, the only way to dispel any real doubts which, in my view, do exist here over the laptop and its contents (given also that the laptop hasunfortunately "crashed" at this eleventh hour) is for an order for inspection by computer experts retained by both the plaintiff and the defendants to occur. [30] For all these reasons, in my view the jurisdictional requirements for an order under s 322 are met here. Such an order would enable the proper determination of a relevant matter in question in this proceeding. And given this, an order is now to follow in the exercise of the Court's discretion. [31] That said, the plaintiff's present application succeeds. Orders will follow as sought in the plaintiff's application with certain amendments.Form of the orders[32] The following orders are now made: a) By 9:00 a.m. on 4 September 2007 the defendants are to make available to the plaintiff for inspection the laptop computer of Mr Carter that he had in his possession before leaving the employment of PAE and which he continues to have in his possession, together with the hard disc wrapped in plastic bubble wrap to which Mr Carter refers at paragraph 29 of his affidavit sworn 31 August 2007. b) In addition, by 1:00 p.m. on 4 September 2007 the defendants are to list and make available for production all relevant information contained on Mr Carter's laptop computer including such information that would enable the plaintiff's forensic computer analyst to analyse the historical use of that computer between 2004 and the present day. c) The inspection of the laptop computer referred to in para a) above is to proceed as follows: i) the laptop computer is to be made available for initial inspection by the plaintiff's computer consultant, Mr Jorgensen, who is only to inspect the laptop in the presence ofa solicitor appointed by the defendant for this purpose (if the defendant wishes to avail itself of this opportunity and advises the plaintiff of this by 9:00 a.m. on 4 September 2007); ii) this inspection is to be conducted by 4:00 p.m. on 5 September 2007. The appointed solicitor to attend the inspection on behalf of the defendants (if any) is to be available for attendance at this inspection at all reasonable times between 9:00 a.m. 4 September 2007 and 4:00 p.m. 5 September 2007. d) Mr Carter is to comply with all reasonable requests to enable the plaintiff's expert to clone the hard drives of the laptop and/or the hard disc. e) Leave is reserved to the plaintiff or the defendants to seek the intervention of the Court if there is any disagreement over any such requests. f) Throughout, Mr Jorgensen, the plaintiff's computer expert, is to keep confidential at all times and is not to use or disclose to any person any material from the laptop and/or the hard drive which is not relevant to the present proceeding. g) By 10:00 a.m. on 6 September 2007 Mr Jorgensen, the plaintiff's computer expert, is to file and serve a report of his inspection findings in the form of a brief of evidence in this proceeding. h) By 9:00 a.m. on 6 September 2007 the laptop and the hard disc are to be return to the defendants who are then to have the opportunity to have their own computer expert carry out a similar inspection. If this occurs then any report of his findings from the defendants' computer expert is to be filed and served in the form of a brief of evidence by 4:00 p.m. on 7 September 2007.i) The plaintiff is to bear the costs of Mr Jorgensen's inspection of the laptop and hard disc and the defendants are to bear the costs of any inspection of the laptop and hard disc they require by their own computer expert. [33] Leave is reserved for any party to apply to the Court on two (2) hours notice for any clarification which may be required with regard to any of these orders. [34] As to costs, these are reserved. ______________________________ Associate Judge D I Gendall