Category: Dispute Resolution

Trust disputes often arise due to differing views and personalities amongst trustees and/or trustee misconduct.  In many cases, by the time a trustee comes to see us, the trust is not operating effectively or legally.  Common examples are where the Trust is being run by the chairperson in an almost dictatorial way, or one or more trustees are no longer involved in trustee meetings and decisions.

Sometimes a ‘problem trustee’ is willing to retire, and retirement and replacement simply happens via the trust deed.  But often that is not the case, or there are other issues, such as capacity issues, that prevent retirement or removal via the trust deed.  In those situations the High Court often needs to step in.

The High Court’s jurisdiction around trusts is supervisory and includes ensuring the effective operation of trusts.  Trustees can be removed and appointed in the High Court via the Trustee Act and also through the Court’s “inherent jurisdiction”, or general ability to do so as a supervisory and superior Court.  The latter being in certain circumstances.

The Court may remove trustees if satisfied that, if the trustees were to continue as they are, the trust would not operate effectively.  Considering removal of a trustee is not necessarily about whether breaches of trust have been committed, although trustee misconduct is a factor that the Court would take into account.  Hostility between trustees and beneficiaries and/or trustee misconduct may lead to removal if it prevents the effective operation of the Trust.

Where a trustee is removed via the Court’s inherent jurisdiction a trustee can be removed and not necessarily replaced.  In considering whether or not to appoint a new trustee, the Court considers the following:

• Is the trust running properly?
• Can the trust be left to resolve matters on its own?
• If not, should a new trustee or trustees be appointed?

If the Court is satisfied that the power to appoint new trustees under a trust deed is unlikely to be exercised fairly and objectively, having regard to the interests of the beneficiaries, it is likely that the Court will step in.

Beneficiaries as well as trustees can make applications to the High Court asking the Court to exercise its inherent jurisdiction.  However, the Court will not do so lightly and, before the Court will act following an application by a beneficiary, the beneficiary must show that actual or potential loss will otherwise be suffered.  There are also limitations in terms of the types of applications the Court will allow in this context.

Inter-trustee disputes can be tricky to manage and/or resolve.  If your trust is not operating as it should, either because of inter-trustee disputes or issues or otherwise, we are here to help.

If you would like further information please contact Daniel Shore on 07 958 7477.

There have been a number of Court decisions in recent years in which it has been found in one way or another that assets of a trust can be accessed for the purposes of a relationship property division.

One of the notable recent cases is Clayton v Clayton, which was the subject of my November 2016 article.  In that case the assets of the trust became part of the relationship property pool because the provisions in the trust deed essentially gave Mr Clayton full power over the trust’s assets.  This meant that he was able to make decisions that were not necessarily in the best interests of the beneficiaries and that could have been solely to serve his own interests, including transferring all of the trust property to himself.

Trust assets have also been classed as relationship property in situations where the trusts have existed for some years, prior to the commencement of the relevant relationships, and in many cases have been family trusts.  In these cases “constructive trusts” have been found by the Courts to exist – trusts created by law over certain assets, including existing trust property, essentially because that is the “right thing to do”.  One of the most recent leading cases of that nature is the Court of Appeal case, Vervoort v Forrest & Ors [2016] NZCA 375.

Vervoort v Forrest & Ors – background

In the Vervoort case the William Duffy Family Trust (the “trust”) was formed well before the parties began their 12 year relationship.  At the time of the hearing the trust owned significant assets in both New Zealand and Fiji.  Mr Duffy, or the trust, also had a number of other assets, including shares in various companies.  Given his/the trust’s significant financial resources and the fact that Ms Vervoort was not in paid employment, from an early stage in their relationship Mr Duffy provided the funding for their lifestyle.

After having relationship issues for some years, the parties eventually separated and negotiated a settlement of their relationship property issues.  One of their agreements included a payment by Mr Duffy to Ms Vervoort of $327,000.  However, despite that purported settlement, proceedings were ultimately brought by Ms Vervoort against Mr Duffy.

Ms Vervoort’s relationship property claim included arguments that she was entitled to a share of certain trust property.  One of those arguments included that a constructive trust had been created in her favour over a lifestyle block in Auckland, which the parties lived in for a period with two of Ms Vervoort’s sons and one of Mr Duffy’s.

Constructive trusts and contributions

In considering whether a constructive trust did exist, the Court set out the requirements for a constructive trust from the case Lankow v Rose.  The four key features are:

• Direct or indirect contributions to the property;
• The expectation of an interest in the property;
• That such expectation is a reasonable one; and
• That the defendant should reasonably expect to surrender an interest to the claimant.

The Court added that the contributions need not be monetary and that they have to have caused the acquisition, preservation, or enhancement of the owner partner’s assets, whether directly or indirectly.

Ms Vervoort argued that she helped Mr Duffy find the Auckland property, she helped to redecorate and refurbish a cottage that was on the property and that she maintained the property by cleaning it regularly, maintaining the house and gardens, the swimming and spa pools and caring for the animals.  Mr Duffy did some work around the property but was inhibited by a severe knee problem.

The Court’s decision

In deciding whether or not a constructive trust existed the Court considered a number of other similar cases.  In doing so it was acknowledged that it would not be common for rights and obligations under an express trust to be subject to a constructive trust –  that it would take something exceptional before the Court would find it “unconscionable” for a trustee to be allowed to follow the trust.  It is clear from the Court’s analysis of those cases that in successful constructive trust claims the claimant will have contributed to assets of the express trust and their value will reflect those contributions.

Although in the Vervoort case the Court considered that it was possible that a constructive trust claim could exist, Ms Vervoort’s claim failed.  This appears to be because of a lack of evidence in terms of her contributions to the Auckland property.  No attempt was made in her evidence to show any increase in the value of trust assets, she was not in a position to put money into the trust properties, and the Court did not consider her work and help to be a great contribution to the value of the assets.  Mr Duffy was at least partially retired and there was no indication that her support of him assisted him in building or maintaining his assets.

Also relevant was that Ms Vervoort had the benefit of living in houses or apartments owned by the trust throughout much of the parties’ relationship and had enjoyed extensive travel.  Against that background the Court considered that any entitlement under a constructive trust in Ms Vervoort’s favour would likely be significantly less than the settlement of $327,000 she had already received.

Lessons

Common cases in which constructive trusts have been argued and upheld include cases in which the family trust owns a farm property and the son/daughter and their spouse operates the farm and carries out improvements to it over a number of years.  In some cases promises have been made, and in others the settlors’ intentions have not been clear but the key features of a constructive trust have nonetheless been made out.

The lesson in this is to make sure that, if the intention is not for an interest in the relevant property to be passed on, any significant or ongoing contributions made to the property are clearly recorded and explained (for example, a non-monetary contribution could be made in lieu of paying rent).  The reason for this is to remove any argument that there was any expectation of an interest in the property in return for those contributions.

If you would like further information please contact Renika Siciliano on 07 958 7429.

For many years, trusts have been used as a form of asset management and/or asset protection.  They are still very much a useful tool for this, however, the recent Supreme Court case of Clayton v Clayton is a warning that trusts can potentially be “busted” in certain circumstances.

Clayton – trust issues

Clayton v Clayton was a case that centred on the division of the Claytons’ property after they separated and later divorced.  The Court had to consider a wide variety of issues, including issues regarding the validity of trusts and whether trust property was, in fact, relationship property.

This was significant because, over the course of the relationship, Mr Clayton had built up a successful sawmilling business, which was owned and controlled by trusts and companies in New Zealand and the United States.  The underlying argument of Mrs Clayton throughout the Clayton proceedings was that certain trust property was in fact relationship property and should be part of the Claytons’ relationship property asset pool that was to be divided between them.

Vaughn Road Property Trust

One of the trusts involved in the appeals before the Supreme Court was the Vaughn Road Property Trust (“the VRPT”).  The VRPT was somewhat unusual as Mr Clayton was the settlor, principal family member, sole trustee and discretionary beneficiary, and his powers as principal family member and trustee were broad and free from the normal fiduciary obligations in family trust deeds.  Those powers included one that allowed Mr Clayton to appoint or remove discretionary beneficiaries (“the power of appointment”).  Mrs Clayton and their two daughters were also discretionary beneficiaries and the daughters were the final beneficiaries.

Court of Appeal decision

The Court of Appeal had found that the power of appointment was relationship property.  This was on the basis of an incorrect interpretation (as held by the Supreme Court) of the power of appointment as allowing Mr Clayton not only to remove discretionary beneficiaries but also final beneficiaries.  If that had been the case, he could have essentially appointed the VRPT property to himself, and dealt with it as if it was his own personal property, bringing it within the Property Relationships Act 1976 (“PRA”) definition of property.  Given the VRPT was set up during the Claytons’ relationship, the Court of Appeal held that the VRPT property was relationship property.

Supreme Court decision

The Supreme Court had to reconsider this, among other matters.  In the Supreme Court Mr Clayton contended that, as he did not actually hold a power allowing him to remove the final beneficiaries, he would always owe fiduciary duties to them and, on that basis, his powers under the VPRT Deed could not be relationship property.  The Supreme Court agreed with this and found that the power of appointment alone was not relationship property.

However, the Supreme Court found that the power of appointment, when combined with other personal powers under the trust deed (including the power to allocate all of the trust capital to any one beneficiary, to bring forward the vesting date, to appoint and remove beneficiaries, and a broad resettlement power) amounted to relationship property, as they were not constrained by any fiduciary duty.  Despite the Court of Appeal’s error, the Supreme Court found that this “bundle of powers” still ultimately gave Mr Clayton the power to appoint all of the VRPT property to himself.

On that basis, the Supreme Court held that the bundle of powers constituted an interest in personal property for the purposes of the PRA definition of property and that the value of the bundle was equal to the value of the VRPT assets.

Could your trust be busted too?

This case makes it clear that certain powers provided for by a trust deed can be relationship property if the exercise of those powers is not constrained by a fiduciary duty or duties.  Put another way, if a trustee, for example, could exercise a power under a trust deed without due consideration for the duties owed to beneficiaries, that power is likely to be regarded as an interest in personal property for the purposes of the PRA.

Although Clayton v Clayton involved the Supreme Court’s consideration of PRA principles, including the PRA definition of property, the Court’s decision also touched on principles relevant to the general law.  This leaves open the possibility of “trust busting” in other contexts based on this case, such as to make trust assets available to the creditors of a settlor and/or creditors of a trustee.  On that basis, it may be timely to have your lawyer review your trust deed to help guard against the risk of your trust being busted too.

If you would like further information please contact Renika Siciliano on 07 958 7429.

Restraints of trade and franchise agreements go hand in hand.  Typically, they will try to prevent the franchisee from trading in a similar industry, and for a fixed area and period, after the franchise period comes to an end.  They will also prevent the former franchisee from approaching or “soliciting” the customers/clients that it had over the franchise term.

While soliciting has always been a difficult term to apply, the advent of wider marketing tools such as LinkedIn, add further to the challenge.

The High Court recently delved into the issues in Mike Pero (New Zealand) v Krishna.  Here the mortgage broking franchisor, took urgent action in the form of an injunction, to prevent Mr Krishna from soliciting the franchisor’s (“MPNZ”) customers.

MPNZ took exception to the existence of Mr Krishna’s LinkedIn profile as it referred to mortgage broking. In fact, MPNZ sought an order that Mr Krishna be arrested for contempt of Court on the basis the profile was in breach of the interim orders the Court had already made.

The Court approached the issue on the basis of whether the LinkedIn page amounted to Mr Krishna “directly or indirectly canvassing, soliciting or attempting to solicit any customer of MPNZ”.

The High Court ultimately determined that the mere existence of the page did not amount to soliciting “as a client would need to be actively searching for Mr Krishna in order to find the information”.  Then, even if they did find the profile, that page did not amount to Mr Krishna urging or entreating a client to do business with him.

This was perhaps a surprising decision for a number of reasons:

• A fundamental function of LinkedIn is to enable engagement with customers/clients;
• Presumably a significant portion of Mr Krishna’s network were connections made during his time as a franchisee of MPNZ;
• LinkedIn proactively pushes information to connections and possible connections.  Therefore, even if Mr Krishna had simply removed any reference to MPNZ (as he was potentially required to do at the end of the franchise term), LinkedIn may well have notified that development to his network.

It should be noted that MPNZ’s lawyers sought to cross-examine Mr Krishna in relation to his LinkedIn profile, however procedurally this was not appropriate.  Cross-examination may well however have resulted in a clearer illustration of how Mr Krishna stood to benefit from his continuing profile.

The reality is that non-solicitation in an age of LinkedIn poses many challenges:

• Geographical boundaries do not really apply;
• Short of a profile being deleted, an individual’s networks are likely to be updated when a franchise relationship ends;
• The proactive approach of LinkedIn can bypass the intent typically required to establish soliciting.

While the above issues can perhaps be addressed by robust and specific restraint of trade clauses, technology will continue to impose challenges on franchisors seeking to restrict former franchisees.

Daniel is a Director in our Dispute Resolution Team and can be contacted on 07 958 7477.

Many people may not realise that there is a separate process for dealing with retirement village disputes.  This process is set out in the Retirement Villages Act 2003 (the Act) and the Retirement Villages (Disputes Panel) Regulations 2006 (the Regulations).  Essentially, certain types of retirement village disputes can be dealt with under this process.  The decision-maker(s) is a disputes panel, appointed by the operator of the relevant retirement village (“disputes panel”).

This article summarises some key information regarding the retirement village dispute process, such as: the types of disputes that can be dealt with by a disputes panel; how to initiate a retirement village dispute; the appointment and role of a disputes panel; and information on timeframes and costs.  The article concludes with comments on some of the issues with the current process, which may be addressed following a review of the Act currently being conducted by the Retirement Commissioner.

Types of disputes

There are particular types of disputes that qualify for the retirement villages disputes process, which are set out in the Act.  These can be disputes between retirement village residents (a “resident”) or between a resident and a retirement village operator (an “operator”).

Examples of disputes between residents that qualify for the retirement village disputes process are disputes affecting a resident’s right to occupy their unit.  It appears, however, that the majority of disputes that are contemplated for the retirement villages disputes process are disputes that arise from decisions made by an operator.  Examples include decisions relating to or affecting:

• A resident’s occupation right or right to access services or facilities;
• Charges for outgoings that are payable under the resident’s occupation right agreement; and
• Charges or deductions imposed because the resident’s right to live in the unit has ended.

A dispute notice relating to those types of decisions can be issued by a resident or an operator.  A resident can include a former resident and the personal representative of a resident, such as a family member or a friend.

A resident can also issue a dispute notice regarding an alleged breach of a right referred to in the Code of Residents’ Rights (which is set out in the Act) or the Retirement Villages Code of Practice 2008 (which has been published by the Ministry of Business, Innovation and Employment). A resident cannot issue a dispute notice if the dispute concerns any health or disability services.

There is no monetary limit on disputes that can be taken to a Disputes Panel, as long as the dispute satisfies the criteria set out in the Act.

Initiating the disputes process

To initiate the disputes process, the initiating party issues the other party with a dispute notice.  A dispute notice must be in writing and must include the following:

• The decision(s) or matter(s) that the dispute notice relates to;
• The person(s) the dispute notice is issued against;
• The grounds on which the dispute notice has been issued; and
• The efforts that have been made to resolve the dispute.

There are no fees for issuing a dispute notice.

There are specific timeframes that need to be followed in issuing a dispute notice.  Generally:

• If the initiating party is an operator, a dispute notice cannot be issued unless the resident concerned has first been notified, reasonable efforts have been made by the operator to resolve the dispute and 20 working days have passed since the resident was notified.  The dispute notice also needs to be given within six months after the resident concerned was first notified of the dispute; and

• If the initiating party is a resident, a dispute notice cannot be issued until the dispute has first been referred to the complaints facility and 20 working days have passed since that referral.  The complaints facility is a facility that must be run by an operator for dealing with complaints by the residents.  Where the initiating party is a resident the dispute notice generally needs to be issued within six months after the 20 working day timeframe.

The six month timeframe can be extended by agreement.

Appointment of the disputes panel

Once a dispute notice has been issued, the operator has 20 working days from the date of receiving or giving the dispute notice to appoint one or more independent people to sit on the disputes panel.  The operator must consult the other parties to the dispute before making an appointment.

The Disputes Panel members are chosen from a list of persons approved by the Retirement Commissioner.  There are particular rules around the appointment of a disputes panel in what are called disposal disputes.  These are disputes concerning an operator’s breach of a resident’s occupation rights agreement or code of practice in disposing of a residential unit.  With disposal disputes:

• the operator must appoint at least three members to the panel; and
• the chair must be a retired Judge or have held a practising certificate as a barrister or solicitor for at least seven years.

Other than that, there are no rules around the numbers of members that must be appointed to determine a retirement village dispute.

What happens next?

After the Disputes Panel has been appointed, the operator must provide the Retirement Commissioner with a copy of the dispute notice and copies of all of the documents relating to the appointment of the Disputes Panel members.  The operator must also provide a copy of the dispute notice to the village’s statutory supervisor in certain circumstances.

Once appointed, the Disputes Panel then conducts the whole dispute resolution process.  The panel is responsible for:

• Deciding what additional information they need;
• Holding a pre-hearing conference with the parties;
• Making arrangements for a hearing, including giving the notice of hearing to the parties;
• Conducting a hearing;
• Reaching a decision and notifying that decision in writing;
• Providing all the relevant papers, documents and other material to the Retirement Commissioner.

The Disputes Panel must hold a hearing unless the applicant withdraws the dispute notice, the parties agree not to have a hearing or the Panel refuses to hear the dispute.  A Disputes Panel can only refuse to hear a dispute if it considers that:

• The dispute is frivolous or vexatious or an abuse of process;
• The dispute should be heard by a Judge; or
• It has “any other sufficient reason” not to hear it.  In this case the operator must appoint another Panel to hear the dispute.

The operator is responsible for paying the costs incurred by the Disputes Panel, including their fees and expenses, such as a travel costs.  Each party has to pay for their own legal costs and is also responsible for paying for the costs and expenses of their witnesses.  The Disputes Panel may, however, award some or all of the costs and expenses incurred to any party, or to the operator if there is a dispute between residents.

The decisions of Disputes Panels are enforceable in the Courts.  They can also be appealed within 20 working days of the decision to either the District or High Court.  The appeal is a rehearing and the decision of the Court hearing the appeal is final.

Comments on process

There are a number of issues with the retirement villages disputes process.  The main issue in my view is the jurisdiction of a disputes panel, which, in a monetary sense, is limitless – beyond that of a District Court.  This is quite unusual and is problematic without additional protections being put in place, such as minimum requirements for panels deciding higher value disputes.

Another issue is the power imbalance between an operator and a resident.  In every retirement village dispute the operator is responsible for appointing the disputes panel.  Yes, the operator must consult with the other party(s) before appointing the panel, but there are no rules around what that means in the Act or Regulations, and there is no requirement for an agreement to be reached.  This is a huge advantage for operators, who can choose whichever panel member(s) they want to decide a dispute that they are involved in.

That said, there are some provisions that disadvantage operators too, such as the requirement that they pay all of the costs of the disputes panel.  There is the possibility that another party with be ordered to pay those costs, but there are no guarantees of that.  Even so, this does not negate the huge disadvantage to a resident in the appointment of the disputes panel.  Residents would likely prefer to share the disputes panels’ costs if the appointment of disputes panels had to be by agreement.

The Retirement Commissioner is apparently investigating some of the issues with the current system so changes may be on the horizon.

If you would like further information please contact Gerard Rennie on 07 958 7429.

Every time a lawyer is approached by a client about a dispute that they need assistance with, one of the first questions that should be asked is whether or not there are any limitation periods that may apply.  A limitation period can be an absolute defence, which could either prevent a plaintiff from making a claim or get a defendant out of a claim.

There are various limitation periods to consider.  The main “go tos” for civil matters are the Limitation Act 1950 (“1950 Act”) and the Limitation Act 2010 (“2010 Act”).  In contract claims or tort claims (e.g. negligence) the Act that will apply will depend on when the act or omission the claim is based on occurred.  If it occurred on or before 31 December 2010 then it will be the 1950 Act that will apply.  If it occurred on or after 1 January 2011, the 2010 Act will apply.  Determining which Act will apply is a key first step as there are certain advantages to a plaintiff of having a claim fall under the 2010 Act.

1950 Act

Under the 1950 Act, the limitation period for contract or tort claims is six years “from the date on which the cause of action accrued”.  The date the cause of action accrued is different in each case.  For example, for a claim based on breach of contract, the period starts from the date of breach, regardless of whether or not any loss has been suffered at that date.  With negligence, however, the limitation period starts from the date damage is caused as a result of a breach of duty.

There are limited exceptions under the 1950 Act.  Except in the case of specific acknowledgements or part payments that may have been made, the only exception in the 1950 Act is in the case of fraud or mistake.  If fraud or mistake is proven, the limitation period does not begin to run until the plaintiff has discovered the fraud or the mistake, “or could with reasonable diligence have discovered it”.  It is difficult to prove fraud or mistake to the extent necessary for the limitation period under the 1950 Act to be extended – there is a high test to meet.  Fraud, in particular, is a serious allegation, which should not be made without strong evidence.

2010 Act

With the 2010 Act, however, although the limitation period is still six years for claims in contract and tort, the Act also includes a “late knowledge date”, which is the date on which the claimant “gained knowledge … or ought reasonably to have gained knowledge of” certain facts.  These include the fact that the relevant act or omission has occurred, and that either the defendant was responsible in some way, or involved.  If the late knowledge date applies, this will be the case even if the six year limitation period has expired.  There is, however, a 15 year longstop limitation period, which means that a claim cannot be brought after 15 years have passed from the date of the relevant act or omission (“2010 Act longstop”).

Limitation periods in construction matters

Aside from determining which Limitation Act applies, there can also be issues with reconciling the general limitation periods under the Limitation Acts with limitation periods prescribed in other Acts.  For example, in construction matters, there are two other relevant additional limitation periods to consider – the 10 year longstop limitation period in the Building Act (“the Building Act longstop”) and the 10 year eligibility period in the Weathertight Homes Resolution Services Act.

The Building Act specifically states that the 2010 Act applies to civil proceedings arising from “building work” and the performance of a function under the Building Act (or a previous Act) relating to building work.  Therefore, on the face of it, the limitation periods for contract and negligence claims of this nature are no different to other types of contract and negligence claims – six years from the date of breach/the date of damage (depending on late knowledge, which, as noted, extends the limitation period for up to 15 years after the date of the relevant act or omission).  What is not clear from the Building Act, however, is how that fits with the Building Act longstop provision.  That is the provision in the Building Act that “no relief may be granted in respect of civil proceedings relating to building work if those proceedings are brought against a person after 10 years or more from the date of the act or omission on which the proceedings are based”.

Essentially, the New Zealand Courts have applied a “reasonable discoverability” test to negligence claims involving latent building defects.  With those claims, because they are to do with economic loss, time runs from the date that the defect or damage is discovered, or should reasonably have been discovered.  That is because that is when the value of the building is affected.  The Building Act longstop was created to put a limit on how late a claim could be made based on the reasonable discoverability test.  The 2010 Act longstop does not affect this.

Finally, there is also the 10 year eligibility period under the Weathertight Homes Resolution Services Act (“WHRS Act”).  This is essentially to do with whether or not a leaky building claim can be brought in the Weathertight Homes Tribunal – a specialist tribunal set up to resolve leaky building claims faster than possible in the Courts.   To be eligible, the dwellinghouse/unit, for example, must have been “built” (or the relevant alterations must have been made) before 1 January 2012, and within 10 years before an application for a WHRS assessor’s report is made (which is the first step in the Tribunal process).

There has been much debate around when a property is “built” for the purposes of the WHRS Act.  This has resulted in numerous WHRS Act applications being denied, at least initially, resulting in the need for further submissions/litigation in order to get claims accepted.  However, the Supreme Court has recently determined that the eligibility period under the WHRS Act should only exclude claims that are barred by the longstop period.  This will result in fewer issues around eligibility.

Conclusion

As can be seen from this article, figuring out which limitation period(s) apply to a particular matter is not necessarily straightforward.  Whether you think you may have a claim or a claim has been made against you, we recommend that you seek legal advice to make sure there are no limitation periods that apply.  We can assist with this and also guide you through making or defending claims under the Building Act and WHRS Act.

If you would like further information please contact Daniel Shore on 07 958 7477.

General overview of discovery

Discovery is a significant part of the litigation process in which the parties disclose relevant information to each other prior to the commencement of the trial.  Although parties are often unwilling to provide information that will be useful for the other side, their discovery obligations will usually compel them to disclose it, as there are limited categories of documents that are exempt from being disclosed.  Part of our role as lawyers is to ensure that these discovery obligations are clearly understood by our clients.

In a High Court proceeding, discovery obligations are imposed on the parties to a dispute by way of a discovery order issued by a Judge under the High Court Rules (“HCR”).  Under a standard discovery order, obligations will include making a reasonable search for documents, taking early steps to preserve relevant documents and co-operating with other parties to ensure the burden and cost of discovery is proportionate to the issues at stake.  It is important to ensure that the discovery order is complied with satisfactorily, as failure to meet the obligations may result in documents being ruled inadmissible or parties being held in contempt of court.

When non-party discovery is typically required

Although the discovery obligations are intended to apply only to the parties to a proceeding, sometimes a party will struggle to articulate their claim or defend their position without having access to documents which are held by somebody who is not a party to the proceeding.

Non-party discovery is a useful tool for obtaining relevant information from somebody that is not a party to the dispute.  Although non-party discovery represents an intrusion on the privacy of the non-party, who is just a bystander to the proceeding, it is an intrusion that is necessary in order to enable litigants to present their case effectively.  The costs for the non-party of producing the information are typically met by the party effecting the order.

It is common in overseas jurisdictions for non-party discovery to occur by way of subpoena, however in New Zealand non-party discovery can also be provided for by an order for discovery both before proceedings are commenced or after proceedings are commenced.  The test under HCR 8.21 is whether the material would be discoverable if the non-party was in fact a party to the proceeding.  In other words, would the information be considered relevant and therefore discoverable if it were held by a party to proceedings?

Case summary

It is often upsetting to be the recipient of a non-party discovery order, particularly when the non-party is forced to disclose information that is particularly valuable or private.

Vector Gas and Ors v Contact Energy Limited and Ors [2014] NZHC 3171 was a case where a non-party discovery order was made that related specifically to sensitive information about market prices in the energy generation industry.

The applicants were all parties to the Kapuni Gas Contract (the “Contract”) and the respondents were other participants in the gas market in New Zealand.  The Contract provided for price adjustments and the applicants, being unable to agree on a price, appointed arbitrators to set a fair and reasonable price instead.  An application was made pursuant to the Arbitration Act 1996, which imported the test under HCR 8.21, to have the respondents reveal the prices which they had set in analogous contracts (the “Information”). Unsurprisingly, the respondents opposed this application.

Re Dickinson [1992] 2 NZLR 43 was the leading New Zealand case on non-party discovery which saw the Court unanimously decide in favour of disclosure, despite the information being sensitive.  In applying this reasoning to an order under HCR 8.21, Justice Kos emphasised that Re Dickinson was intended to create principles of general application and as such could not be confined to its own context.

Justice Kos also read into NCR 8.21 an implied qualification that the disclosure must be necessary.  In other words, available sources must be incomplete or unreliable and the documents sought must make a real difference as opposed to a marginal one.

The “apparent relevance” test from Santos Ltd v Pipelines Authority of South Australia (1996) 66 SASR 38 (SCSA) was then applied to the Information.  The premise of this test is that when considering an application for non-party discovery, the Judge will often not be in a position to determine the ultimate question of relevance and can only assess the apparent relevance of the documents sought through reference to the issues in the dispute and by taking into account the competing contentions of the parties.

Finally, adequate confidentiality measures must be put in place before an order will be made.  Justice Kos considered that as long as each individual permitted to view the Information was recorded as an approved person and compelled to sign a confidentiality undertaking that restricted discussions about, or dealings with, the Information, this would be adequate protection.

Justice Kos concluded that each of the tests for non-party discovery was satisfied and that an order should be made.  Any remaining confidentiality risks must be tolerated in the interests of justice.

Practical tips for people that are not a party to proceedings

This case demonstrates that the apparent relevance test adopted in New Zealand applies equally to information sought by way of an order under HCR 8.21 as it does to information sought by way of subpoena, even when the court’s role is only to assist in an arbitration.

From a more global perspective, the New Zealand courts have demonstrated a consistent approach in making sensitive, yet necessary, information held by a non-party discoverable, provided the information is protected by adequate confidentiality protocols and the burden it would impose on the non-party is not unreasonable.

Non-parties should remain vigilant of the wide scope of an order made under HCR 8.21 and avoid contesting an order simply as a knee-jerk response.  Conversely, this case highlights that non-party discovery is an avenue of discovery that litigants should consider to ensure that they have all relevant information before putting forward their case at trial.  Both litigants and non-parties should bear in mind that the information sought must be necessary and that the costs of discovery must be proportionate to the issues at stake.

If you would like further information please contact Daniel Shore on 07 958 7477.

An unfortunate fact of life is that people occasionally end up in dispute with one another.  Sometimes these can be big, and other times it can be over small amounts or issues.  When the latter happens, it is not always economical to engage a lawyer to help resolve the issues and often people are left feeling like there is no remedy.  The Disputes Tribunal is aimed at providing access to justice and assisting people in these situations.

The Disputes Tribunal

The Disputes Tribunal (“the Tribunal”) is a forum for hearing and determining disputes without requiring the assistance of lawyers.  The responsibility of preparing and attending a hearing will fall on the parties themselves.  The focus of the Tribunal is on practical dispute resolution and not technical legal analysis.

The Tribunal can hear most claims in relation to contract or tort, provided it is in relation to the destruction, damage or recovery of property.  The upper limit of any claim that can be heard by the Tribunal is $15,000 (or $20,000 by agreement between the parties), although there is currently a proposal to increase this agreed upper limit to $30,000.

Lodging a claim

In order to lodge a claim in the Tribunal, you must file an application with a filing fee (the amount of which depends on the amount of your claim) at your local District Court.  Alternatively, claims can be filled out and submitted online and you can even apply online for a rehearing.   Once you begin a claim online it must be completed; you cannot save your progress and return to the application later.

To avoid delays, it is important that your claim is filled out correctly.  Commonly, parties fail to correctly identify the parties involved or interested in the proceeding.  For example, claims may refer to an employee or director of a company rather than the company itself that was party to a contract.   Parties may also fail to include an important element of their claim in the claim form, causing the element that was not included to be deemed outside the jurisdiction of the Tribunal and therefore unable to be resolved at that particular hearing.

Defending a claim

When a claim is lodged against you, you will receive a notice informing you of what the claim is about and when it will be heard.  It is in your best interest to consider whether you settle the claim, attend and defend the hearing or lodge any counterclaims.   If you choose to lodge a counterclaim, both claims are typically heard at the same time.

Preparing evidence

Careful preparation of the evidence in support of your claim or defence is important to successfully bringing or defending a claim in the Tribunal.  Having accurate and relevant evidence will strengthen your case.  It is useful to create a timeline of events relating to the claim.  It is very important to include evidence to support the value or issue of what you are claiming (for example, quotes, invoices, receipts or bank statements and photographs).  It is also good practice to provide copies of all the evidence you intend to present at the hearing to the other party and to the referee before the hearing begins.

What to do before the hearing

After you have lodged a claim, or a claim has been lodged against you, a hearing will typically be scheduled within six weeks.  We set out below some points which you might consider in preparing for the hearing:

• Make sure that you have read the notice of hearing (check the time, date and location of the hearing).  If you do not turn up, it is likely that the hearing will still proceed with the risk of an order being made in your absence.
• If the hearing date is not suitable, contact the Tribunal as soon as possible to ask if a new date can be allocated.  You are more likely to obtain a new date for the hearing if you have strong grounds for not being able to attend on the original date.
• Organise a support person to attend the hearing to help you sort through your evidence or remind you of important points.
• The Tribunal aims to settle the claim by agreement between the parties during the hearing, so consider the basis on which you would settle and be prepared to negotiate.  With any Tribunal hearing there is a chance that the referee will not make an order in your favour.  When considering whether or not to settle, you should consider the strengths and weaknesses of your position and what you would accept to resolve the dispute.

It is important to notify the Tribunal if settlement occurs at any stage, particularly prior to hearing.

The hearing process

The hearing will begin with the referee outlining the procedure and rules for the hearing.  Both parties will then present their evidence during which the referee will ask questions about the evidence being presented.

Following this, any witnesses giving evidence at the hearing for the claim or defence will be called into the room separately.  After a witness has presented their evidence, the other party will have the opportunity to ask the witness questions.

The referee will then explain to both parties the relevant law and issues that need to be determined to resolve the dispute.  If you do not understand the law or the issues that the referee outlines, let the referee know.

When the issues have been worked through and both parties have a better understanding of their position, the referee will often ask whether the parties are willing to settle the dispute on their own terms.  Depending on the circumstances settlement may be the best option, so be aware of the strengths or weaknesses of your position throughout the hearing and how that may affect your decision to settle.

At the conclusion of the hearing and if settlement is not reached, the referee will not immediately issue a decision but will instead take time to further consider the evidence that has been presented by both of the parties.  The referee’s order and reasoning will be sent to the parties approximately two weeks after the date of the hearing.

What you can do

The Tribunal is an accessible dispute resolution option for the general public.  While lawyers are typically not able to appear in the Tribunal, our Dispute Resolution Team is able to assist with the preparation of claims or review of submissions for the process.

If you would like further information please contact Daniel Shore on 07 958 7477.