WALKER v FORBES.6 [2017] NZHC 2694

WALKER v FORBES.6 [2017] NZHC 2694 [3 November 2017]IN THE HIGH COURT OF NEW ZEALANDCHRISTCHURCH REGISTRYI TE KŌTI MATUA O AOTEAROAŌTAUTAHI ROHECIV-2012-409-002486[2017] NZHC 2694BETWEEN ROBERT BRUCE WALKERFirst PlaintiffPROPERTY VENTURES LIMITED (InReceivership and Liquidation)Second PlaintiffFIVE MILE HOLDINGS LIMITEDThird PlaintiffAND AUSTIN JOHN FORBESFirst DefendantHearing: 1 November 2017Appearances: J B M Smith QC and K Francis for PlaintiffsW J Palmer for First DefendantSecond Defendant in personR Raymond QC for Third DefendantM J Wallace for Fifth DefendantJ Moss for Sixth DefendantJudgment: 3 November 2017JUDGMENT OF LANG J[on application by plaintiffs for particular discoveryand pre-commencement discovery]This judgment was delivered by me on 3 November 2017 at 3.30 pm,pursuant to Rule 11.5 of the High Court Rules.Registrar/Deputy RegistrarDateALISTER SPEDDING JOHNSTONSecond DefendantGORDON LEWIS HANSENThird DefendantADOLF DE ROOSFifth DefendantDANIEL JAMES GODDENSixth DefendantVERO LIABILITY INSURANCELIMITEDThird Party[1] This proceeding is due to be the subject of a 12-week trial commencing on12 February 2018. It involves claims by the liquidators of several companies againstthe former directors of those companies.1[2] The plaintiffs have now sought particular discovery of any insurance policiesheld by the defendants. They also seek the same information by way of pre-commencement discovery in anticipation that they will need to commenceproceedings against the insurers of the defendants under s 9 of the Law Reform Act1936 (the LRA).[3] The second, fifth and sixth defendants have reached agreement with theplaintiffs regarding the outcome of the application. They have agreed to provide theplaintiffs with declarations confirming they hold no relevant policies of insurance.Once the declarations have been provided the plaintiffs will not seek any further orderand will not seek an award of costs against those defendants.[4] The first defendant, Mr Forbes, has also reached agreement with the plaintiffsand no further order is required.[5] The third defendant, Mr Hansen, acknowledges that he holds an insurancepolicy. He has declined to provide the plaintiffs with any details of that policy. Theapplication has therefore proceeded solely in respect of the insurance policy held byMr Hansen.The application for particular discovery under r 8.19[6] Rule 8.19 of the High Court Rules provides:8.19 Order for particular discovery against party after proceedingcommencedIf at any stage of the proceeding it appears to a Judge, from evidence or fromthe nature or circumstances of the case or from any document filed in theproceeding, that there are grounds for believing that a party has not discovered1 Claims against other parties, including the companies' auditors, have now been settled anddiscontinued.1 or more documents or a group of documents that should have beendiscovered, 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, theparty's best knowledge and belief as to when the documentsceased to be in the party's control and who now has control ofthem; and(b) to serve the affidavit on the other party or parties; and(c) if the documents are in the person's control, to make those documentsavailable for inspection, in accordance with rule 8.27, to the other partyor parties.The plaintiffs' arguments[7] Mr Smith for the plaintiffs submitted that in applying r 8.19 the Court neededto bear in mind r 1.2. This states that the objective of the High Court Rules is "tosecure the just, speedy, and inexpensive determination of any proceeding". Mr Smithsubmitted that the combined effect of rr 1.2 and 8.19 was to require the Court in thepresent context to adopt a broad approach to discovery obligations. In particular, itenabled the Court to look beyond the pleadings and to take into account the ability ofthe plaintiffs to enforce any judgment they might obtain.[8] Mr Smith acknowledged that the traditional view has been that the ambit ofdiscovery is governed by the pleadings. In the present case this would precludediscovery of the insurance policy because none of the issues raised in the pleadingsrelate directly to the policy.[9] Mr Smith candidly acknowledged that the preponderance of authority both inNew Zealand and overseas is presently against the proposition that a defendant to aproceeding should be required to disclose details of any insurance policy that mightrespond to the plaintiff's claims. He submitted, however, that most of these cases weredecided some time ago, and it is now appropriate that the Court take a "fresh look" atdiscovery in the present context. He submitted that many of the policy argumentsunderpinning earlier judgments may no longer be valid.[10] Mr Smith pointed out that the traditional prohibition on the defendant beingrequired to provide details of his or her financial position is already undermined bythe existence of interlocutory remedies such as Mareva injunctions and Anton Pillerorders. This demonstrates that a defendant may be required to provide informationabout such issues at an interlocutory stage even though they are not directly raised bythe pleadings.[11] Mr Smith submitted that the making of an order was necessary because it wasnot in the public interest for a plaintiff, and in particular a liquidator, to be required toproceed with a lengthy and expensive trial in circumstances where any judgment waslikely to be of limited value because of the inability of the defendant to meet it. Healso submitted that it was not in the public interest to require a litigation funder to fundsuch a proceeding, and that there was similarly little point in the Court being put tothe time and expense of producing a judgment that could never be enforced becausethe defendants did not have the means to meet it.[12] Next, Mr Smith submitted that if no order was made there will be a significantimbalance between the degree of information the plaintiffs and litigation funder havebeen required to provide regarding their financial position and that provided by MrHansen.[13] Mr Smith also contended that the disclosure of the information would notprovide the plaintiffs with an illegitimate advantage in relation to settlementnegotiations because no insurer was likely to settle for an amount greater than that forwhich it perceived the insured may be liable to the plaintiffs. Furthermore, hesubmitted that disclosure of the information would assist in producing a settlementbecause it would provide the plaintiffs with accurate information regarding the abilityof the defendant to meet the claim. This in turn would inform the plaintiffs' decisionas to whether they should proceed to trial.Decision[14] I have not summarised Mr Raymond's arguments in opposition to theapplication because I largely rely upon them in determining the application and thereis no point in setting them out twice.[15] In short, I have concluded that the existing authorities in both New Zealandand other Commonwealth jurisdictions are firmly against the proposition that theplaintiffs seek to advance, and there is no justification for extending such a well-established principle.[16] In New Zealand, the position was summarised clearly by Asher J in BodyCorporate 187242 v Auckland City Council.2 In that case the plaintiff sought discoveryof all documents relating to any professional indemnity and/or public liabilityinsurance policies held by a defendant. As in the present case, the application wasmade in circumstances where the parties were involved in settlement discussions. Theplaintiff acknowledged, as do the plaintiffs in the present case, that knowledge of thedefendant's insurance position would assist them with the negotiation process.[17] Asher J observed that the benchmark against which to measure relevance wasthe pleadings because documents will only be discoverable if they are referable to theissues raised by the pleadings.3 In the case before him, as in the present case, thepleadings did not disclose any issue relating to the defendant's insurance. For thatreason the documents were neither relevant nor discoverable.[18] The same approach has been taken at Supreme Court level in New South Walesand South Australia.4 In Queensland the courts appear to have been prepared torequire defendants to provide details of insurance cover in appropriate cases.5 InEngland the plaintiffs' approach found favour in the High Court in Harcourt v Griffin,6but not in subsequent cases.72 Body Corporate 187242 v Auckland City Council HC Auckland CIV-2005-404-1597, 20 July2006.3 At [20].4 Beneficial Finance Corporation Ltd v Price Waterhouse (1997) 9 ANZ Insurance Cases 61-630(Supreme Court of South Australia); Commonwealth Bank of Australia v ACN 076 848 112 PtyLtd [2015] NSWSC 666.5 Treadstone Developments Pty Ltd v The Salisbury Group Pty Ltd (in liq) [2014] QSC 109;Company Solutions (Aust) Pty Ltd v Dennis [2004] QSC 379.6 Harcourt v Griffin [2007] EWHC 1500 (QB).7 West London Pipeline and Storage Ltd v Total UK Ltd [2008] EWHC 1296 (Comm); XYZ vVarious Companies [2013] EWHC 3643 (QB); Peel Port Shareholder Finance Company Ltd vDornoch Ltd [2017] EWHC 876 (TCC)..[19] Furthermore, I consider that the application amounts to an attempt to requireMr Hansen to provide information regarding an aspect of his financial position. Aplaintiff does not have any right to obtain such information other than in circumstanceswhere the plaintiff can demonstrate a real risk that the defendant is dissipating his orher assets. In those circumstances a plaintiff may obtain a Mareva injunction or AntonPiller order but that will be subject to close supervision by the Court. There is nothingin the present case to indicate the existence of circumstances that justify a departurefrom usual principles.[20] In addition, I do not consider that the objective set out in r 1.2 extends tosettlement negotiations that take place outside the Court's procedures. It is designedto govern the process by which a proceeding is managed through to determination bythe Court.[21] I also take it to be for the plaintiffs and the litigation funder to determinewhether it is worthwhile pursuing the defendants through to judgment. They mustmake that assessment based on their view of the merits of their claim, together withsuch knowledge as they can glean of the financial position of the defendants. In theabsence of co-operation by the defendants, however, that knowledge is unlikely toinclude details of insurance cover that may respond to the claim.[22] Likewise, I do not accept Mr Smith's submission regarding the unjustifiedimbalance between the information provided by the plaintiffs and the litigation funderregarding their financial position and that provided by Mr Hansen that will be createdif the application is refused. The information that the plaintiffs and litigation funderhave been required to provide is a direct consequence of the involvement of thelitigation funder and the impact that this has on the proceeding as a whole. Inparticular, it has arisen within the context of the need for the plaintiffs to providesecurity for the defendants' costs. There is in any event no general requirement thatthere be a degree of balance between the level of information that parties provide inrelation to their respective financial positions. This factor does not support theplaintiffs' argument.[23] I take a similar view of the submission that the court should not be burdenedwith lengthy trials in which the defendants will never be able to satisfy the judgment.The role of the courts is to determine the cases that come before it. They mustundertake that task without consideration of the likely value of the judgment to theparties. Many judgments are entered against defendants who have no prospect ofsatisfying them. It is not for the courts to consider whether it is worth their whiledetermining such cases.[24] It follows that I do not consider there are any policy factors that would justifya shift from the established principle that the issues raised by the pleadings remain thetouchstone of relevance for the purposes of discovery.[25] The application under r 8.19 is dismissed.The application under r 8.20 for pre-commencement discovery[26] Rule 8.20 provides as follows:8.20 Order for particular discovery before proceeding commenced(1) This rule applies if it appears to a Judge that—(a) a person (the intending plaintiff) is or may be entitled toclaim in the court relief against another person (the intendeddefendant) but that it is impossible or impracticable for theintending plaintiff to formulate the intending plaintiff's claimwithout reference to 1 or more documents or a group ofdocuments; and(b) there are grounds to believe that the documents may be or mayhave been in the control of a person (the person) who may ormay not be the intended defendant.(2) The Judge may, on the application of the intending plaintiff madebefore any proceeding is brought, order the person—(a) to file an affidavit stating—(i) whether the documents are or have been in theperson's control; and(ii) if they have been but are no longer in the person'scontrol, the person's best knowledge and belief as towhen the documents ceased to be in the person'scontrol and who now has control of them; and(b) to serve the affidavit on the intending plaintiff; and(c) if the documents are in the person's control, to make thosedocuments available for inspection, in accordance with rule8.27, to the intending plaintiff.(3) An application under subclause (2) must be by interlocutoryapplication made on notice—(a) to the person; and(b) to the intended defendant.(4) The Judge may not make an order under this rule unless satisfied thatthe order is necessary at the time when the order is made.[27] The plaintiffs seek disclosure of the details of Mr Hansen's insurance coverunder r 8.20 on the basis that they may wish to bring a claim directly against his insurerunder s 9 of the LRA. They say it is not possible for them to formulate that claimunless they know the identity of the insurer and the terms of the policy. The fact thatthe plaintiffs have applied for the information under r 8.20 distinguishes this case fromthe situation in Body Corporate 187242, where the plaintiff did not rely upon r 8.20 inmaking its application.[28] I accept that jurisdiction exists to make the order that the plaintiffs seek. Theissue is whether I should exercise my discretion in their favour.[29] Several factors persuade me that I should not. First, it now seems reasonablyclear that Mr Walker learned of the existence of the insurance policy as a result ofinformation disclosed in communications sent on a without prejudice basis duringrecent settlement negotiations between the plaintiffs and the defendants. I consider itwould be wrong in principle and very close to an abuse of the Court's procedures ifthe plaintiffs were now to be permitted to obtain orders under r 8.20 based oninformation obtained in that way.[30] Secondly, Mr Smith submitted that the Court needed to approach this aspect ofthe application bearing in mind the principles recently enunciated by the SupremeCourt in BFSL Ltd v Steigrad.8 That case was concerned with the issue of whether aninsurer could make payments under an insurance policy to meet legal costs incurred8 BFSL 2007 Ltd v Steigrad [2013] NZSC 156; [2014] 1 NZLR 304.in defending a claim when the policy was subject to an existing charge in favour ofthe claimant under s 9(1) of the LRA. The Supreme Court held that the payments weremade at the risk of the insurer because of the existence of the statutory charge. I seenothing in that decision to assist the plaintiffs' argument for present purposes.[31] Thirdly, Mr Hansen's insurer is aware of the plaintiffs' claims. There is alsono suggestion that Mr Hansen will fail to make a claim on his policy if he is found tobe liable to the plaintiffs, and there is no indication that the insurer intends to declineany claim that Mr Hansen might make in that event. In addition, the policy is nowsubject to the charge created by s 9(1) of the LRA. All of those factors suggest thatany application for leave to commence a proceeding directly against the insurer wouldbe of little or no practical utility to the plaintiffs at this late stage in the proceeding.[32] This leads me to conclude that the plaintiffs are not genuinely considering aclaim against Mr Hansen's insurer. Rather, they have another motive for seeking togain access to details of the policy. This is to be found in the following paragraph ofthe reply affidavit that Mr Walker filed on the day before the hearing:23. Finally, I wish to make it clear that it is not the sole purpose of theplaintiffs' application to aid them in settlement negotiations. Anotherconsideration of equal if not greater concern is the need for theplaintiffs to avoid the costs of pursuit of a judgment which if obtainedis unable to be enforced due to lack of insurance held by any judgmentcreditor, the various defendants being individuals who otherwisewould not be expected to have assets sufficient to meet a judgmentdebt equalling even a small fraction of the plaintiffs' claims.[33] I consider this paragraph places the application in its true context. Theplaintiffs want to obtain details of the policy to assist them in the settlementnegotiations and to assist them to determine whether it is worth pursuing Mr Hansento judgment. Neither of those objectives relates to a proposed claim againstMr Hansen's insurer. It follows that I do not consider the plaintiffs are genuinelymotivated at this stage to commence a proceeding against the insurer, and thatdisclosure of the details would instead be for other purposes.[34] These factors lead me to exercise my discretion against making the order thatthe plaintiffs seek under r 8.20.Result[35] The applications for particular and pre-commencement discovery aredismissed.Costs[36] Mr Hansen has succeeded and is entitled to costs on the application on acategory 2B basis together with disbursements as fixed by the Registrar.Lang J