TORBAY HOLDINGS LIMITED v NAPIER and NAPIER [2014] NZHC 1198

TORBAY HOLDINGS LIMITED v NAPIER and NAPIER [2014] NZHC 1198 [30 May 2014]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV-2012-404-7660[2014] NZHC 1198BETWEEN TORBAY HOLDINGS LIMITEDFirst PlaintiffTORBAY REST HOME LIMITEDSecond PlaintiffAND DUNCAN JOHN NAPIER andSARA ANN NAPIERFirst DefendantsDUNCAN JOHN NAPIER andSARA ANN NAPIER andCHRISTOPHER JOHN DAVISas trustees of the NAPIER FAMILYTRUSTSecond DefendantsCIV-2013-404-1406BETWEEN DUNCAN JOHN NAPIER ANDSARA ANN NAPIERFirst PlaintiffsDUNCAN JOHN NAPIER andSARA ANN NAPIER andCHRISTOPHER JOHN DAVISas trustees of the NAPIER FAMILYTRUSTSecond PlaintiffsAND SANDSPIT BAY HOLDINGS LIMITEDDefendantHearing: 6 May 2014Appearances: D P H Jones QC for PlaintiffsS J Tee for DefendantsJudgment: 30 May 2014JUDGMENT OF ASSOCIATE JUDGE BELLThis judgment was delivered by me on 30 May 2014 at 2:30pmpursuant to Rule 11.5 of the High Court Rules....................................Registrar/Deputy RegistrarSolicitors:Sellar Bone, Auckland, for PlaintiffsMorton Tee & Co, Takapuna, for Defendants[1] This decision is on cross-applications for further discovery. The defendants apply under r 8.17 of the High Court Rules for a variation of the original discovery order and under r 8.19 for discovery of documents that they say should have been disclosed. The plaintiffs apply only under r 8.19. The defendants also challenge theplaintiffs' claim of confidentiality for some documents.[2] After the hearing the plaintiffs filed a memorandum explaining that further documents in their control had come to light. I have taken that into account in my decision.Background[3] The first plaintiff owns and the second plaintiff operates a rest home. The current director of both companies is Mr Michael Single. Duncan and Sara Napier used to be but no longer are directors of the company. The second defendants, trustees of their family trust, are shareholders. The Napiers worked in the rest home up to 2012, Mr Napier as part-time manager and financial controller, Mrs Napier as nursing manager. The plaintiffs allege that Mr and Mrs Napier misappropriated funds of Torbay Rest Home Ltd amounting to $1,937,741.31 and of Torbay Holdings Ltd amounting to $70,133.51. The money taken out of Torbay Rest Home Ltd is said to comprise $1,612,443.83 for unauthorised cheque payments, $312,869.00 for unauthorised remuneration and $12,428.48 for unauthorised transfers. The funds taken out of Torbay Holdings Ltd are said to comprise $24,330.00 for payments to third parties, $24,981.80 for cash cheques, and $20,822.23 for cheques made out to Mr Napier.[4] The plaintiffs allege that some of the funds misappropriated by the defendants went into a property the second defendants owned at Sandspit Road, Warkworth, and later into the purchase of a property at Whangaripo Valley Road, Wellsford and the construction of a house there. The plaintiffs' causes of action arefor money had and received, for an institutional constructive trust in the Whangaripo Valley property and for damages for extra payments the plaintiffs made to theCommissioner of Inland Revenue. The statement of claim expressly disclaims any allegation of impropriety on the part of Mr Davis, a professional trustee.[5] In defence, the defendants say that all the payments were for corporate purposes and not for their personal benefit.[6] At this stage, pleadings on both sides are general. Greater focus is required. Both sides accept this. It is anticipated that amended pleadings on both sides will be filed and served once discovery issues have been sorted out.[7] At the start of the proceeding it was accepted that this case required tailored discovery. That was entirely appropriate given the allegations of fraud and dishonesty.1[8] Associate Judge Abbott made orders for tailored discovery in his minute of 23 May 2013. He ordered the plaintiffs to give tailored discovery in terms of a letterof the defendants' lawyers of 14 May 2013, and the defendants to make discovery interms of paragraph 7 of the plaintiffs' memorandum for the conference. AssociateJudge Abbott also recorded that, in light of allegations that financial information of the plaintiffs was stored on a laptop computer in the first defendants' possession, thehard drive of the computer should be cloned and a copy of the clone placed in safe keeping. Directions were given for documents in the computer to be extracted.[9] As further background to these applications, it is helpful to understand eachside's case. In part, the plaintiffs will rely on records of payments debited to the plaintiffs' bank accounts, especially cash cheques and other cheques which were cashed through the defendants' bank account, cheques made out to the defendantspersonally, overpayments of remuneration, and payments for services and products not required by the plaintiffs. Having established that, they will then throw the evidential burden onto the defendants to explain the basis for these payments.[10] The plaintiffs have also obtained evidence showing that some payments were made to third parties, with whom they have no business connection, but who may1 High Court Rules, r 8.9(c).have supplied goods and services to the defendants or have some association with the defendants. Payments made to bodies within the area of the former Rodney District Council were given to illustrate this.2 In addition, the plaintiffs intend to prove their case by an assets accretion approach following methods used by the Inland Revenue Department when making default assessments in the absence of returns made by taxpayers. The plaintiffs plan to show that the assets owned by the defendants cannot be explained away by normal income, or by the assets they owned before they started working for the plaintiffs. In the absence of any other plausibleexplanation, the plaintiffs will say that the likely explanation for the defendants'increased assets is funds taken from the rest home.[11] On the other side, the defendants do not seem to contest that bank accounts of the plaintiffs were debited with the payments in question. Their case at the hearingwill be that the payments can be explained as being for the purposes of the plaintiffs'business. For that, they say that they require access to documents of the plaintiffs which will bear out their case.[12] It is understandable therefore that both sides seek extensive discovery.Discovery principles[13] Pleadings determine relevance.3 In determining relevance, it is the case of the party seeking discovery that must be assumed to be true, not that of the party from whom discovery is sought.4 Discovery should be proportionate to the subject matter to the proceeding.5[14] It is helpful to keep in mind the combined effect of rr 8.17 and 8.19. Rule 8.17 allows the court to vary the terms of a discovery order if attempted compliance shows a need for a variation or a change of circumstances justifies reconsideration. Rule 8.19 allows the court to order further discovery if there are grounds for2 Torbay is on the North Shore, the former Rodney District was further north.3 New Zealand Rail Ltd v Port Marlborough New Zealand Ltd [1993] 2 NZLR 641 (CA) at 644.4 Edward Bray The Principles and Practice of Discovery (Reeves & Turner, London 1885) at 18. For a more recent authority, see Paul Matthews and Hodge M Malek Disclosure (4th ed, Thomson Reuters, Cornwall, 2012) at [5.09].5 High Court Rules, r 8.2(1)(a).believing that a party has not discovered documents that should have been. The rules may be invoked when a party contends that further discovery is required. Both rules give the court a discretion whether to order further discovery. The court will take into account whether the orders sought are proportionate to the subject matter of the proceeding. Generally, if the court is persuaded that the additional discovery sought is relevant and proportionate, it will be a rare case that does not come within one or other of the rules. As Associate Judge Osborne noted in Southland Building Society Ltd v Barlow Justice Ltd, discovery may be an evolving process under which the parties recognise the need for refinements to original directions as the case requires.6 He gave both rules a wide construction.[15] Given the nature of this case, there is good reason for requiring extensive discovery on both sides. For the plaintiffs, the defendants should disclose documents that bear on whether they misappropriated company funds. The way the defendants used any proceeds of company cheques must be material. The court should not take a niggardly approach in requiring disclosure in the interest of establishing whether there were misappropriations.[16] Equally it is important that the plaintiffs make full disclosure to the defendants to ensure that they have ample opportunity to make out their defence. Much of their defence turns on accounting matters and documents likely to be withinthe plaintiffs' control. There is a risk of injustice if the plaintiffs were to press theircase by asserting presumptions as to misappropriation and requiring the defendants to justify use of funds at the same time as the plaintiffs held undisclosed documents that could vindicate the defendants.The defendants' application[17] In introduction, Mr Tee acknowledged that the defendants would justify the expenditure and show that it was for proper corporate purposes. Part of thedefendants' application had been founded on advice by a forensic accountant as tothe documents that would be required to form the basis for expert evidence.6 Southland Building Society Ltd v Barlow Justice Ltd [2013] NZHC 1125 at [24]-[30].[18] He also said that the defendants, as shareholders, had pressed for an audit of the company but that Mr Single and other shareholders had resisted this. So far as this discovery application is concerned, that is a red herring. There are provisions in the Companies Act which shareholders can invoke to obtain orders for the accounts of a company to be audited. But that is outside the scope of the present applications which are required only to ensure that there is a proper disclosure of relevant documents for this proceeding.[19] I take the classes of documents sought by the defendants, beginning with those in the application under r 8.19.Resident Comfort Fund ledgers[20] The plaintiffs' affidavit of documents discloses 164 documents under this head. Mr Napier says that these are only expense cards. The documents he is after are said to be a series of triplicate copy books which were kept in storage in the basement at the rest home at the time he left. He believes there were about 300 in all. These books are said to be detailed and to include expenses for residents, including the costs of their medical visits, pharmaceuticals and other purchases by them. They are said to be relevant as showing cash advances the plaintiffs made to cover expenses for residents – which were then reimbursed. He wants disclosure of these ledgers to refute the allegation that cash advances made to patients were for thedefendants' own benefit.[21] Mr Single's response for the hearing was that there is nothing further to disclose. He said that the ledgers that were found had been filed incorrectly and were located in the process of reviewing other company records. He believed that the Napiers removed the ledgers that were filed in the correct place. He said that the plaintiffs cannot provide further documents unless they were computerised, and he isaware that records were stored on the defendants' computers.[22] Mr Single swore the plaintiffs' affidavit of documents. He deposed to havingmade diligent enquiries to find all documents. Mr Napier referred to evidence of records having been removed from the rest home, but Mr Single explained this onthe basis that the documents were removed for the purpose of the proceeding, not for the purpose of destruction.[23] I place no value on Mr Single's supposition that the defendants have thedocuments. That is no more than speculation.[24] During the hearing I raised with the parties the suggestion that Mr Napier be allowed to inspect the rest home premises himself on an order under r 9.34. He seemed to know where to look for the documents. I was allowing for the possibility that even though Mr Single may have made a diligent search for documents, they may have been placed somewhere where he had not looked. It is not unheard of for records to be found in places where they might not ordinarily be expected. See the facts in Industrial Group Ltd v Bakker.7[25] After the hearing the plaintiffs filed a memorandum in which they advised among other things that they had made a further search. More documents had been found in the basement. They would be copied and disclosed.[26] In reply the defendants accepted the point but still sought the opportunity for Mr Napier to search the premises. I agree. My confidence that I could rely on Mr Single's assertions that there are no more documents to be disclosed is weakened.[27] I will make an order under r 9.34 that Mr Napier is to have the right to go into the rest home premises to look for the documents the defendants seek in their application, but which the plaintiffs have not disclosed so far. I expect the parties to confer as to the protocols to apply to his visit. The protocols will require him to give notice, and to be accompanied while on the premises. Any documents he locates are to remain in the control of the plaintiffs, and the plaintiffs will be required to make disclosure of those documents to the defendants. While I expect the good sense of the parties to work out some viable arrangement, leave is reserved to come back to the court if further directions are required. The plaintiffs will need to address this class of documents in a fresh discovery affidavit.7 Industrial Group Ltd v Bakker [2011] NZCA 142 at [15]-[21], (2011) 20 PRNZ 413.Company bank statements[28] The plaintiffs' affidavit of documents has disclosed bank statements forcheque accounts. They say that the bank statements provided will reflect any cash- flow demands on the companies. Mr Napier, however, says that the plaintiffs alsohad loan accounts. He says that the plaintiffs' affidavit of documents shows onlysome of the bank records, which give only summary details of loan accounts. He requires fuller disclosure of the bank records relating to these loan accounts because he contends that under the loans from the banks, the plaintiffs were required to make accelerated reductions in the loans which have a bearing on the liquidity position of the company and therefore the need for the defendants to resort to cash payments.[29] In response, Mr Single says that the documents are not relevant. From theplaintiffs' point of view, they may not be relevant. For the defendants, they seem to be, at best, only marginally relevant, but I cannot exclude them as totally irrelevant. The plaintiffs are likely to have control of these documents, at least from their banks. I rule that they should be discovered.Deposit schedules[30] Mr Napier says that deposit slips disclosed by the plaintiffs are for the period from 2 October 2000 to 6 May 2008 and do not cover the entire period of the claim. He says that there are other deposit slips outside that period. He has noted that there are deposit slips missed in the sequences.[31] For the hearing, Mr Single said that the deposit schedules and deposit books were held by the Napiers, and had not been returned and that the defendants had not disclosed them. He said that the plaintiffs later obtained copies of a small number of documents from the bank.[32] The plaintiffs' memorandum after the hearing does not say expressly whetherdeposit schedules were found in the search of the basement, but to deal with that aspect, the plaintiffs should address the matter in a supplementary affidavit and Mr Napier may include these documents in his inspection under r 9.34.Subsidised resident approval notifications[33] Mr Napier says that these are letters from the Department of Social Welfare confirming the start date of the amount of subsidy for residents. They are relevant because they establish, in many instances, that the plaintiffs met the costs of residents until the subsidies were approved. Some of the cash cheques in issue are said to have been used to meet expenses of residents pending approval of subsidies. On the other hand, Mr Single rejects the contention that the plaintiffs were to meet the costs of residents pending approval. It was families of residents who met these costs.[34] I accept that the documents may be relevant to the defence of the defendants.The plaintiffs' memorandum after the hearing does not say expressly whether thenotifications were found in the search of the basement, but to deal with that aspect, the plaintiffs should address the matter in a supplementary affidavit and Mr Napier may include these documents in his inspection under r 9.34.Resident sundry charge sheets[35] Mr Napier explains that these listed all resident expenses and summarised them in the form of invoices which were typically attached to the copy of the resident comfort fund ledger prepared for each resident. He says these records are in the basement.[36] For the hearing Mr Single denied that these documents existed. He contended that the Napiers must have removed them.[37] The plaintiffs' memorandum filed after the hearing advised that invoices hadbeen located. I apply the same approach as with other similar documents. The plaintiffs should address the matter in a supplementary affidavit and Mr Napier may include these documents in his inspection under r 9.34.Mr Single's diaries[38] The plaintiffs disclosed only those parts of Mr Single's diaries that related tohis contact with Mr Napier. Mr Napier contends that other diary entries need to be disclosed, to show that Mr Single was actively involved in the running of the resthome and was aware of the defendants' practices.[39] In response, the plaintiffs say that this was not within the scope of the original orders for tailored discovery. There is nothing in the correspondence whichformed the basis for Associate Judge Abbott's order to show that the matter was to beso confined. But, even if it were (and perhaps the matter had been agreed by counsel orally), disclosure of the diaries should be made under r 8.17. Parts of the diary the defendants wish to see are relevant to their defence. The only parts of the diary to be disclosed are those which bear on the rest home business. Other parts of the diary may be covered up as being irrelevant.[40] Following the hearing the plaintiffs' memorandum advised that the dairieshave been revised and entries that relate to the plaintiffs will be copied and provided. The original diaries will be available for supervised inspection at the offices of theplaintiffs' solicitors. The defendants' reply did not take issue with that. I take it thatthe matter is now resolved and further orders are not required.Records of cash advances to staff[41] Under this head, Mr Napier says that cash advances were made to staff on a regular basis during the relevant periods. He says that these were recorded and staff members would confirm receipt when deductions were made from their pay. In response, Mr Single says that this practice was completely unknown to him and he contends that it is a fiction. The defendants filed a further affidavit showing that the practice did occur. The defendants have shown a basis for believing that such documents do exist. The plaintiffs will have to address this in their supplementary affidavit. Mr Napier may include these documents for his inspection under r 9.34.Additional documents sought by the defendants[42] Now for the documents sought by the defendants under r 8.17.Receipt books[43] Mr Napier says that the receipt books are held in the basement. He says that they are relevant because they confirm the extent of income received directly from residents. They are also relevant because in many cases they are said to record cases where the plaintiffs advanced cash to residents, recorded in their Resident Comfort Fund ledgers, which was then reimbursed by payments received from the residents. He says that this accounts for a large proportion of the cash cheques which the plaintiffs allege the Napiers retained for their own benefit.[44] For the hearing Mr Single said in response that there is nothing further to disclose. He says that the ledgers that were found had been filed incorrectly and were located in the process of reviewing other company records.[45] The plaintiffs' memorandum filed after the hearing advised that receipt books had been located. I apply the same approach as with other similar documents. The plaintiffs should address the matter in a supplementary affidavit and Mr Napier may include these documents in his inspection under r 9.34.Cheque stubbs of the companies' accounts or copies of paid cheques[46] Under this head, the defendants seek cheque stubbs because they say that the stubb narration is relevant to explain how the funds were applied, in particular to show that cash cheques were for company purposes rather than for their own benefit. Mr Napier believes that they are in the basement.[47] For the hearing Mr Single said that apart from one partially used chequebook obtained on 27 April 2012, the plaintiffs no longer have any chequebooks and he believes that the Napiers have them. He noted that the plaintiffs have already provided a spreadsheet detailing a large number of cheques written, which had to begenerated manually because there were no chequebooks or stubbs other than the one he has referred to.[48] The plaintiffs' memorandum after the hearing did not address the matter ofcheque stubbs. I allow for the possibility that they may come to light on an inspection under r 9.34. The plaintiffs will need to address them in a supplementary affidavit of documents.[49] The defendants also make the point that if the cheque stubbs are not available then the paid cheques would be relevant. That is because although they were cash cheques, it would be possible to trace through those cheques the collecting bank, and the customer of that bank. It appears that many of the paid cheques relate to theperiod 2011/2012. I accept that the paid cheques, held by the plaintiffs' bank, arewithin the control of the plaintiffs and therefore discoverable.[50] In their memorandum following the hearing the plaintiffs advised that it hadbeen ascertained that the plaintiffs' bank had already sourced and provided allcheques drawn on the accounts during the relevant period. All cheques would beavailable for disclosure. The defendants' memorandum in reply acknowledged that they had been provided. As that has now been attended to, orders are not required.Reimbursement analysis sheets[51] Mr Napier says that reimbursement analysis sheets were kept in a ringbinder in the basement, they were prepared weekly, and comprised a summary of expenses and a summary of reimbursements due to the plaintiffs from residents. He says that they are relevant as showing that funds were applied for the benefit of the plaintiffs rather than the defendants.[52] Mr Single said for the hearing that the plaintiffs have already provided what little exists of these sheets.[53] The plaintiffs' memorandum after the hearing does not expressly addressthese sheets. Again, I apply the same approach as with other similar documents. Theplaintiffs should address the matter in a supplementary affidavit and Mr Napier may include these documents in his inspection under r 9.34.Transfer of licence to occupy agreements[54] Mr Napier explains that these documents are relevant because between one resident quitting an apartment and another one taking occupation, the companies would typically refurbish the unit. He says that these costs would be charged against the estate of the departing resident and would form part of the final rebate calculation available. Accordingly, he says that they are relevant to explaining expenditure by the plaintiffs. Mr Single denies possession of the documents and denies their relevance.[55] Mr Single's denial of relevance does not count. It is the defendants' case that they can show a relevant corporate purpose for the expenditure by reference to these agreements. They should therefore be disclosed. It appears that Mr Single may nothave turned his mind to the relevance of these agreements. The plaintiffs'supplementary affidavit will be required to address whether they are in the control of the plaintiffs.Armstrong Murray files and schedules of refurbishment costs[56] Armstrong Murray is the law firm who apparently acted on the transfer under each occupancy agreement. The relevance is said to be that the agreements and settlement statements will show refurbishment costs which Mr Napier says are relevant to the claim as properly showing expenses and running costs of the plaintiffs during the relevant period. After discussion, the plaintiffs advised that the relevantfiles are at the offices of the plaintiffs' solicitors for this proceeding, and that thesettlement statements for the transfers would be available for perusal. No order is required on this aspect.[57] As to the schedules of refurbishment costs, Mr Napier says that these were kept in the basement. Mr Single denied that they are in the control of the plaintiffs.The plaintiffs' memorandum after the hearing does not say expressly whether theywere found. I apply the same approach as with other similar documents. The plaintiffs should address the matter in a supplementary affidavit and Mr Napier may include these documents in his inspection under r 9.34.Ministry of Health audit report[58] There is no dispute as to the existence of this document or that it is in the control of the plaintiffs. The plaintiffs deny its relevance, but Mr Napier says that the report is relevant as confirming that the premises were well-maintained and to a high standard. He relies on the report to refute the suggestion by the plaintiffs that the premises had been neglected or run down because of cash-flow difficultiescaused by the defendants' defalcations. The document is relevant and should bedisclosed.Valuation of Warren Glassey[59] Mr Napier says that the document is relevant as it contains a detailed analysis of the financial operation and comparison of income and expenses with other similar businesses. It is relevant as it details individual expenses and records it as being similar to like businesses. He relies on it as tending to contradict the plaintiffs'allegations that large sums have been misappropriated.[60] Mr Single denies its relevance and says that the defendants have a copy anyway.[61] On the defendants' theory of the case, I find that the valuation is relevant and it should be disclosed.Confidentiality claim[62] In their affidavit of documents, the plaintiffs claimed confidentiality for certain documents, restricting their access to the lawyers acting for the defendants but not allowing the defendants personally to see these documents. Paragraph 9 ofthe plaintiffs' affidavit of documents says:In Part3 of the Schedule I list the documents that are in my control and for which I am claiming confidentiality.[63] Part 3 of the Schedule lists these categories of documents:(a) The residents' comfort ledgers.(b) Plaintiffs' bank statements and all documents and correspondence between the plaintiffs' bankers including funding applications andborrowings.(c) Deposit schedules showing details of all cheques banked.(d) Subsidised residents' approval notifications.(e) Mike Single's phone records.[64] If a claim for confidentiality is to be made in an affidavit of documents, the affidavit must state any restrictions proposed to protect the claim to confidentiality.8Case law also establishes that if confidentiality is claimed, an evidential basis for the claim must be made.9 In this case the plaintiffs have made no attempt to justify the claim as to confidentiality. In submissions, I was told that some of the matters are patient records so that privacy considerations are relevant.[65] The defendants explain that the restrictions create inconvenience. An undertaking by the defendants not to use the documents except for the purposes of the litigation was proposed. Mr Napier also says that he is in any event aware of the identity of most of the patients and he would have nothing to gain.[66] I can appreciate that medical records ought not to be disclosed, but the matters in issue are accounting materials. In that regard, I can see little difference, in a case involving alleged defalcations by shareholders and directors, between theprivacy interests of, say, customers of a builder's merchant and residents of a resthome.8 High Court Rules, r 8.15(2)(f).9 Port Nelson Ltd v Commerce Commission [1994] 3 NZLR 435, (1994) 7 PRNZ 487.[67] To the extent that accounting records relating to residents of the rest home are relevant to this proceeding, they should be disclosed. It goes without saying that, once disclosed, the defendants can use them only for the purpose of the proceeding. Given that the defendants have offered to give express undertakings to that effect, I see no need to impose greater restrictions for confidentiality.[68] Similarly, the remaining documents for which confidentiality is claimed are ordinary business records. They do not have the element of confidentiality which the Court of Appeal had in mind in Port Nelson Ltd v Commerce Commission. On the basis that the defendants are to give express undertakings not to use the documents in Schedule 3 of the affidavit of documents for any purpose except the litigation, the confidentiality claim for the documents in Part 3 of the schedule of the affidavit of documents is set aside.Plaintiffs' application for discoveryCorrupted files[69] The plaintiffs list certain files from the defendants' list which they say requirea hard copy or a PDF version. There is a practical problem. The defendants engagedspecialists in electronic discovery to take documents from the defendants' computer. Documents were originally stored electronically but were not available in hard copy versions. The plaintiffs complain that on the defendants' discovery being madeavailable on a compact disc, they have been unable to obtain copies of the particular listed documents. The files are said to be corrupted in some way.[70] Following discussion in court, a solution emerged. It was agreed that both sides should have access to the clone held by the independent third party. Each side would instruct their computer experts to extract the relevant documents from the clone. The parties will need to work out protocols to be followed: both sides will need to have access to the clone; the results are to be disclosed to each other side;only documents relevant to the plaintiffs' claim against the defendants are to be madeavailable and to be used by the plaintiffs. I expect the parties to be able to work out protocols themselves, but I will reserve leave to seek further directions if required.If this process does not produce decipherable copies of the documents in the list, the matter is to end there. The defendants are not required to bring into existence documents which they do not have.[71] The rest of the plaintiffs' application goes to documents which they say thedefendants should have disclosed but have not.Bank statements[72] The plaintiffs require the defendants to provide copies of all bank statements from all banks to the defendants over the relevant period. So far the defendants havedisclosed only bank statements in their actual possession. The plaintiffs' point is thatthere are further statements held by the defendants' bank and those statements are also in the defendants' control.[73] The defendants do not object. They accept that the relevant bank statements can be obtained. They will make copies available to the plaintiffs. There is the question of costs. As this is discovery required to be made by the defendants, the starting position is that the defendants should pay the costs of the banks in making the statements available. There is no reason for shifting those costs. This is not a manifest injustice case under r 8.22.[74] It is accepted that all bank statements of the defendants for the material periods are relevant. For example, they will go to show whether the defendants personally received the benefit of the payments in issue in this case. While it is understood that the only bank in question is the ASB Bank, the first defendants are required to make the disclosure on the basis of all bank accounts in their names.[75] As for the second defendants, bank accounts of the trust are to be disclosed, but Mr Davis, a professional trustee, is not required to disclose bank statements for other bank accounts operated by him. That is because the plaintiffs have expressly disclaimed any suggestion that Mr Davis was personally involved in any misappropriation of the plaintiffs' funds.[76] The plaintiffs have identified those statements that they have already received. The discovery direction does not apply to the ones already disclosed.Credit card statements[77] A similar approach applies to credit card statements as for bank statements. The defendants are only required to show all ASB Visa statements for the period 1 January 2005 to 1 January 2009, plus any Visa statement from other creditor card companies, including ASB, American Express, BNZ and Westpac. These are relevant, but Mr Davis is only required to disclose those in his capacity as a trustee of the third defendants. The credit card statements are relevant to showing whether payments the defendants made were funded by the plaintiffs.Financial statements and tax returns[78] The period to be covered is 31 March 2005 to 31 March 2013. Mr Tee did not object on the grounds of relevance. He said that the financial statements for the trust had already been given. Tax returns could be accessed from the Inland Revenue Department and the Napiers' accountant. The returns would only go back to the2006 financial year. Others were unlikely to be held, given the seven year rule for keeping records for tax purposes.General ledger printout for Torbay Rest Home and Torbay Holdings[79] The relevance of those documents in the proceeding is clear. Mr Napier saysthat these are the plaintiffs' documents and have been retained by them. He says the original documents were given to the company accountant, Scott Williams, for each financial year. He makes the point that affidavits sworn by Mr Single exhibited copies of ledger records showing that the plaintiffs hold them. On the other hand, Mr Single notes that on discovery the defendants disclosed a number of MYO files including general ledgers. He contends that the defendants must hold other general ledger records.[80] It is not possible to say that one deponent should be preferred over the other. The defendants will be required to make a further affidavit as to discovery on other matters. By way of making sure, I will direct the defendants to include in that affidavit whether they hold documents under this head.Trust Account statements from Armstrong Murray for:(a) purchase of 7018 Whangaripo Valley Road;(b) purchase of 1026 Sandspit Road, and(c) sale of 1026 Sandspit Road.[81] Apparently the records for the purchase of Whangaripo Valley Road and the sale of Sandspit Road are or can be given, but the purchase of 1026 Sandspit Road is said to have taken place in 2003. While the conveyancing file may not be available, it is understood that the trust account records of the lawyers who acted on the transaction can be accessed to show how that purchase was funded. Access to those trust account records is to be provided.Building invoices, receipts and other materials relating to the construction of the house at 7018 Whangaripo Valley Road[82] Under this head, the plaintiffs point to their own discovery which shows that they have obtained extensive documents as to expenditure by the defendants. In paragraph 26 of his affidavit of 1 May, Mr Napier says:I did keep the file when we were building in 2011. It is not complete but I can provide those documents which I have retained.Clearly documents under this class in the control of the defendants ought to be disclosed.[83] Similarly the defendants are to disclose – to the extent that they have not done so already - all documents relating to their borrowings to fund both the purchase of Whangaripo Valley Road and also their development and building expenditure there.Loan documents relating to advances made to Sandspit Bay Holdings Ltd[84] In proceeding CIV-2013-404-1406, a parallel case, the second defendants are claiming against Sandspit Bay Holdings Ltd for advances not repaid. Sandspit Bay Holdings Ltd is apparently associated with the plaintiffs in some way. The plaintiffs say that they want documents to show the source of the funds used for the advances to Sandspit Bay Holdings Ltd. They say that that is relevant to their assets accretion approach, to show that the likely source of the funds was the plaintiffs.Documents evidencing income or assets acquired over the relevant period by the defendants[85] The relevant period is 2005 to 2012. Taken to extremes, this could be disproportionate. At the hearing I proposed that some minimum sum be fixed for assets acquired. I suggested $1,000. Both sides went along with that. Over the relevant period the defendants are to disclose documents for the acquisition of assets where the asset is worth more than $1,000. The documents evidencing income will include all sources of income, whether they have been disclosed in returns made to the Commissioner of Inland Revenue or not. For example, by way of argument only,if the defendants' case will be that they had winnings in Lotto or at the races to explain their expenditure, they will need to produce documentation to show it.All trust account ledgers and other documentation held by any legal, accounting or other financial entity or service relating to any financial transactions involving the first and/or second defendants.[86] The plaintiffs are after the trust account records of Armstrong Murray, accounting records held by the accountant Mr Williams, and any similar records held by other professionals. The defendants claim to have disclosed some of the trust account records already. For fullness, they are required to give an authority to Armstrong Murray to disclose to the plaintiffs any trust account records of the plaintiffs. Similarly, there should be an authority given to Mr Williams to provide to the plaintiffs - to the extent not already done – all financial records of the defendants.Copy of the trust deed and other documents relating to the establishment, operation or financial dealings of the second defendant.[87] There was no objection to providing the trust deed. Mr Tee indicated that these documents were to be obtained from Armstrong Murray.Balance of cheque/deposit books for Torbay Rest Home Ltd but in particular the period 2005-2012[88] The defendants deny holding these documents, and note that the plaintiffshave the power to obtain them via their bank. For completeness, the defendants'supplementary affidavit will address these documents.Balance of Torbay Rest Home Ltd invoices[89] The defendants deny holding such documents and say the plaintiffs holdthese. For completeness, the defendants' supplementary affidavit will address thesedocuments.Information relating to the Napiers mortgage repayments and/or servicing and all improvements and/or maintenance and/or expenses[90] This is intended to catch any documents not otherwise requisitioned andwhich could be relevant to the plaintiffs' assets accretion approach. For completeness, the defendants' supplementary affidavit will address these documents.Cost shifting[91] Both sides referred to the expenses of discovery that they had incurred already, apparently implying that if the other side wanted to probe so extensively it should pay the costs. I accept that the costs have been substantial. Nevertheless the nature of the case requires extensive discovery by both sides. That does not mean that there should not be any cost shifting orders. I am not satisfied to the manifest injustice standard under r 8.22 that the costs of discovery should be adjusted at this stage. Having said that, both sides may see that there can be advantages in co- operating on discovery so as to save costs all round. This decision should not standin the way of the parties working out alternative ways to deal with the outstanding discovery.Orders[92] The parties have already made arrangements to deal with some classes ofdocuments, so that orders do not now seem necessary. Those are Mr Single's diaries,paid cheques and files of Armstrong Murray. While I do not make any orders for those documents, leave is reserved to apply further if any difficulties arise.[93] I make these orders on the defendants' discovery application:(a) By 27 June 2014 the plaintiffs shall file and serve a supplementary affidavit of documents in which they shall state whether the following classes of documents are or have been in their control; and if they have been but are no longer in their control, their best knowledge and belief as to when the documents ceased to be in their control and who now has control of them; but this order does not require them to list documents that they have already disclosed in any previous affidavit of documents:(i) resident funds comfort ledgers;(ii) bank statements;(iii) deposit schedules;(iv) subsidised resident approval notifications;(v) resident sundry charge sheets;(vi) records of cash advances to staff;(vii) receipt books;(viii) cheque stubbs;(ix) reimbursement analysis sheets;(x) agreements to transfer licence to occupy;(xi) schedules of refurbishment costs;(xii) Ministry of Health audit report; and(xiii) Warren Glassey valuation.(b) Duncan Napier may enter and inspect the rest home premises of the plaintiff to look for documents within the above order. His inspection is to follow protocols agreed by the parties (for example, as to prior notice of the visit to be given, time of visit and being accompanied by a representative of the plaintiffs), or, failing agreement, fixed by the court. Any documents found by Mr Napier shall remain in the control of the plaintiffs, and must be disclosed in a new affidavit of documents.(c) Upon the defendants giving express written undertakings to use thedocuments disclosed in the plaintiffs' affidavits of documents only for the purpose of the proceeding, the plaintiffs' claims to confidentialityin the documents in part 3 of the schedule to their affidavit of documents will be set aside and there will be no extra restrictions on the ability of the defendants, their lawyers or expert witnesses retained by them to inspect those documents.(d) Leave is reserved to apply for further directions.[94] I make these orders on the plaintiffs' discovery application:(a) As to the files on the compact disc provided by the defendants, which the plaintiffs have not been able to copy, both sides are to instructtheir computer experts to extract the relevant documents from the clone held by the third party, following protocols agreed by the parties or, in the absence of agreement, fixed by the court.(b) By 27 June 2014 the defendants shall file and serve a supplementary affidavit of documents in which they shall state whether the following classes of documents are or have been in their control; and if they have been but are no longer in their control, their best knowledge and belief as to when the documents ceased to be in their control and who now has control of them, but this order does not require them to list documents that they have already disclosed in any previous affidavit of documents:(i) bank statements, but in the case of the second defendants, only bank statements of the trust. Mr Davis is not required to disclose bank statements for other accounts he operates;(ii) credit card statements, but Mr Davis is required to disclose only credit card statements in his control as trustee of the Napier Family Trust;(iii) financial statements and tax returns not already disclosed and only for those years for which records have been retained;(iv) general ledger print outs for both plaintiffs;(v) trust account records from Armstrong Murray for the purchase of 7018 Whangaripo Valley Road, the purchase of 1026 Sandspit Road and the sale of 1026 Sandspit Road;(vi) building invoices, receipts and other documents relating to the construction of the house at 7018 Whangaripo Valley Road,including documents relating to the defendants' borrowings tofund the purchase of the Whangaripo Valley Road property and their development and building expenditure there;(vii) loan documents relating to advances made to Sandspit Bay Holdings Ltd;(viii) documents evidencing acquisition of assets worth more $1,000 between 2005 and 2012;(ix) documents evidencing income received between 2005 and 2012;(x) the trust deed of the second defendants and documents relating to the establishment, operation and financial dealings of the trust;(xi) any cheque books and deposit books for Torbay Rest Home Ltd for the period 2005-2012;(xii) any invoices of Torbay Rest Home Ltd; and(xiii) to the extent not specified or covered in this order, such otherdocuments that relate to the defendants' mortgage paymentsand payments for improvements and maintenance of their properties.(c) The defendants are to provide the plaintiffs with authorities addressed to their lawyers, accountants and any like professionals who acted for them between 2005 and 2012 to disclose to the plaintiffs records of transactions the defendants entered into.(d) Leave is reserved to apply for further directions.Costs[95] Both sides have succeeded on their applications. I invite counsel to confer as to costs. If they cannot agree, memoranda may be filed. The party filing first should do so within 10 working days of this decision, with 5 working days for the other party to reply.[96] I give these further timetabling directions for the proceeding:(a) If interrogatories are to be given, they are to be delivered by 11 July 2014 and answered by 31 July 2014.(b) The last day for filing and serving an amended statement of claim is1 August 2014.(c) The last day for filing and serving an amended statement of defence is15 August 2014.(d) The close of pleadings date and the last day for filing and serving any reply to the statement of defence is 1 September 2014...................................................Associate Judge R M Bell