Samoan Outrigger Hotel Ltd v Samoa Realty & Investment Ltd [2001] WSSC 30 (15 November 2001)

IN THE SUPREME COURT OF SAMOA
HELD AT APIA

BETWEEN

THE SAMOAN OUTRIGGER HOTEL LTD
a duly incorporated company having its registered office at Vaiala.
Plaintiff

AND

SAMOA REALTY AND INVESTMENTS LTD
a duly incorporated company having its registered office at Apia.
Defendant

Counsel: R Drake for the plaintiff
S Hazelman for the defendant

Hearing: 13 November 2001
Judgment: 15 November 2001

JUDGMENT OF SAPOLU CJ

In my judgment delivered on 7 November 2001 on the defendant’s motion for particular discovery, I asked counsel to make further submissions on the question of the relevance or otherwise of the documents whose discovery were opposed by counsel for the plaintiff on the ground such documents were irrelevant as not relating to any matter in question in the proceedings between the parties. These documents are in items I, III, IV, V, VI, VIII, XII, XIII and XIV of the schedule to the motion for discovery.

The test whether a document is relevant in a discovery sense is whether it may advance the case for the party seeking discovery or damage the case for his adversary or may fairly lead to a train of inquiry to either of these two consequences: Compagnie Financiere et Commercials Du Pacifique v Peruvian Guono Co (1882) 11 QBD55; Thorpe v Chief Constable [1989] 2 A11 ER 827, 829, 833; Comalco NZ v Broadcasting Standards Authority [1995] 3 NZLR 468, 470, 471. It was clear from the submissions by counsel that as far as the test for relevance in a discovery sense was concerned, they relied only on the first and second limbs of the test, namely, that a document is relevant for the purpose of discovery if it may advance the case of the party seeking discovery or damage the case of his adversary. Counsel did not expressly rely on the third limb of the test, that is, whether a document may fairly lead to a train of inquiry which may advance the case of the party seeking discovery or damage the case of his adversary. However, in the course of her submissions counsel for the defendant appeared to have placed implicit reliance on the third limb. With the test for relevance in a discovery sense in mind, I turn now to deal in turn with the items of documents for which discovery is sought according the order they are listed in the schedule to the defendant’s motion for discovery. I will not deal with those items of documents that counsel for the plaintiff has agreed to discover and for which an affidavit of documents has been filed and served on counsel for the defendants. These are the documents listed in items II, IX, X and XI.

Item 1

Under item 1, the defendant is seeking discovery of all tax invoices, receipts, estimates, proposals and correspondence made by the plaintiff to builders, plumbers, electricians, painters, building suppliers and handymen. Discovery is also sought of tax depreciation schedules for tax deductions on assets purchased by the plaintiff and were advanced by the plaintiff from the Inland Revenue Department in its tax returns from the year 1994 to date.

Apart from these documents, the defendant is also asking under item 1 for the plaintiff to account for all renovations and costs expended by the plaintiff on capital improvements to the demised premises and for purchasing furnitures, fixtures and fittings with which to operate its bed and breakfast accommodation for guests business. Evidence of the insurance value of the same are also being sought.

I must say at once that the process of discovery provided under the Supreme Court (Civil Procedure) Rules 1980 relates to the discovery of documents. It does not relate to a request for information as made by the defendant here for the plaintiff to account for all renovations and costs expended on capital improvements to the demised premises and for the purchase of assets such as furnitures. Neither is a request for the insurance value of such assets a discovery of documents. The plaintiff is therefore not required in an application for discovery of documents to respond to such requests for information.

As for documents proper, counsel for the plaintiff submitted to the Court that the invoices, receipts and tax depreciation schedules sought to be discovered under item 1 have already been discovered as they are included in the plaintiff’s affidavit of documents dated 30 October 2001 which has been filed and served on the defendant’s counsel. That being so, she said it is unnecessary in these proceedings to make a further order for the discovery of those documents. I accept that.

As for any correspondence between the plaintiff and the builders, plumbers, electricians building suppliers and handymen, counsel for the plaintiff in the course of her submissions told the Court that after a search of the plaintiff’s records, the plaintiff does not have any such correspondence. That being so, the proper course to take is that if the defendant believes that the plaintiff has or sometime has had in his possession, custody or power of any correspondence as mentioned or a class of such correspondence which relates to a matter in question in these proceedings, then appropriate application should be made under r.91 of the Supreme Court (Civil Procedure) Rules 1980. At this stage of proceedings there is no belief shown on the part of the defendant that the plaintiff has or has had any of the correspondence sought to be discovered and for which counsel for the plaintiff has told the Court that the plaintiff does not have such correspondence.

Discovery sought under item 1 is therefore denied.

Item III

Under item III, the defendant is seeking discovery of all receipts, including all guest receipt books, bar sales books, reservations books, daily sales sheets including accommodation, bar, laundry, dive tours, car rentals etc, guest signature and comments books, computer records of all those documents as well as all spread sheets, word documents, and all accounting and any other computer documents.

Counsel for the plaintiff told the Court that the plaintiff does not operate a dive tour or rental car business at all. Therefore the plaintiff does not have any document for any such business. As for the receipt books, account books for the bar and laundry, guest sign in book and reservations book for the current period, counsel for the plaintiff told the Court that the plaintiff has these documents. However, with the exception of reservations book which the plaintiff has agreed to discover, counsel for the plaintiff opposed discovery of all the other documents saying they are not relevant to the defendant’s cause action for breach of the tenancy agreement shown in its amended statement of defence and counterclaim. In response to this particular issue, counsel for the defendant submitted that under the amended lease agreement dated 18 October 1996 it was agreed between the plaintiff and the defendant that the plaintiff would provide tenants receipt books and account books for the purpose of calculating rental.

Referring first to the defendant’s course of action for breach of the tenancy agreement, one of the allegations made is that the plaintiff has failed to provide to the defendant its monthly financial statements and VAGST returns as stipulated under the terms of the lease agreement. Relief is then sought for outstanding rental due at the rate of $12,250 per month.

Under the lease agreement dated 17 October 1994, it was agreed that the plaintiff was to pay a base rent of $1,500 per month to the defendant. In addition, it was agreed that the plaintiff was to pay to the defendant a percentage rent per month which is to be calculated as a percentage of the plaintiff’s gross monthly sales. It is for this purpose that the plaintiff is required under the lease agreement to provide copies of its monthly VAGST returns to the defendant to enable the defendant to verify that the amount paid for percentage rent is correctly calculated as a percentage of the plaintiff’s actual gross monthly sales. Then by an amended lease agreement dated 18 October 1996, it was further agreed between the plaintiff and the defendant that in addition to the VAGST returns, the plaintiff was also to provide to the defendant its monthly financial statements which include profit and loss accounts and balance sheets. Counsel for the defendant told the Court that when the lease agreement of 1994 (as amended in 1996) expired in 1997, the defendant was allowed to continue in the demised premises on a monthly tenancy basis under the same covenants as contained in the expired lease. So the obligation of the plaintiff to provide monthly VAGST returns and financial statements still subsists under the monthly tenancy for the purpose of verifying the percentage rent the plaintiff is required to pay.

Given these tenancy arrangements and the fact that one of the grounds in support of the defendant’s cause of action is that the plaintiff has failed to provide VAGST returns and financial statements as required under the lease and the monthly tenancy, I am of the clear view that the plaintiff should discover these documents as relevant. These documents are also relevant to the defendant’s claim for outstanding rent which must include percentage rent calculated on the basis of the plaintiff gross monthly sales. However, the plaintiff has already discovered its VAGST returns in its affidavit of documents dated 30 October 2001. So no further discovery should be ordered for those documents.

Leave, however, has been reserved to the defendant to apply further if the said affidavit of 30 October 2001 is incomplete in respect of any document or documents. As for the financial statements which include balance sheets and profit and loss accounts, the plaintiff is ordered to discover those documents within seven days if they have not already been discovered in the two affidavits of documents it has already filed and served.

As for the receipt books, sales books, reservations book, daily sales sheets and the guests signature book and comments book, discovery is unnecessary, unless there is something in the VAGST returns and financial statements which makes further discovery of those documents necessary. The defendant may then further apply under r.91.

Apart from the guests signature and comments books, the other documents such as receipt books, sales books are the source materials from which the financial statements are prepared. So what eventually appears in the financial statements originals from receipt books, sales books and other such documents mentioned. The agreement in the lease is also for the plaintiff to provide financial statements for verification of percentage rent and not the source materials for those financial statements. I am also mindful of what counsel for the plaintiff said that this information is commercially sensitive as the defendant is now operating the same kind of business as the plaintiff right next door to the plaintiff. In other words the plaintiff and the defendant are now neighbouring competitors in the same market.

As for the guests signature and comments books, I cannot see the relevance of those books to those proceedings. Discovery is therefore denied of those comments. Likewise computer records or other computer documents – discovery is denied in respect of those documents.

Thus under item III, the documents to be discovered by the plaintiff are its financial statements, that is, profit and loss accounts and balance sheets. Those documents should be discovered within seven days unless they have already been discovered in the two affidavits of documents already filed and served by the plaintiff. The plaintiff is also to discover its reservations book for the current period which counsel for the plaintiff has agreed to discover.

Item IV

The documents sought to be discovered under item IV are copies of all monthly financial statements, receipt books and accounting books from 18 October 1996. Also included under item IV are bank statements, all correspondence, reports, schedules and data provided to bankers, suppliers or any other creditor as well as financial and operating reports given to shareholders, directors, banks, other creditors, government agencies and VAGST returns.

Counsel for the plaintiff told the Court in her submissions that other than the plaintiff’s monthly financial statements which have been discovered in the plaintiff’s list of documents dated 1 October 2001, the plaintiff does not have any of the other documents sought to be discovered under item IV. That being the case, if the defendant believes that contrary to what counsel for the plaintiff told the Court the plaintiff has or some time has had in his possession custody or power any of the documents counsel for the plaintiff said the plaintiff does not have, and such document relates to a matter in question in these proceedings, then appropriate application should be made under r.91.

At this stage of proceedings, no discovery is ordered under item IV.

Item V

Documents sought to be discovered under item V are balance sheets and profits and loss reports prepared by the plaintiff according to generally accepted accounting practices since 31 July 1994. Counsel for the plaintiff has told the Court that the plaintiff’s financial statements have already been included in its supplementary list of documents dated 30 October 2001.

Counsel for the plaintiff also told the Court in the course of her submissions that the plaintiff’s business is only a small business and the plaintiff prepares its own financial statements. Those financial statements have been sent to the Inland Revenue Department for tax assessment purposes and accepted by the Inland Revenue Department without objection. The defendant wants to discover financial statements prepared in accordance with generally accepted accounting practices whatever that means. There is no evidence before the Court to show whether the plaintiff’s financial statements are prepared according to generally accepted accounting practices or not. If not and the Court is to grant the defendant’s application, then this case cannot move a step further until the plaintiff has compiled with an order that the plaintiff discovers financial statements prepared according to generally accepted accounting practices since 1994. That may take some time but the defendant is in a hurry to reach a prompt resolution of this case.

However, the process of discovery is concerned with documents which are or have been in the possession, custody or power of a party. It is not concerned with documents that an applicant for discovery wants the other party to have but are not and have never been in the possession, custody or power of that other party. So it is wrong for the defendant to use the discovery process to demand the plaintiff to provide financial statements prepared according to generally accepted accounting practices if the plaintiff does not have and never had such documents in his possession, custody or power. That will be using the discovery process for a purpose different from that stated in the Supreme Court (Civil Procedure) Rules 1980. I will not therefore order discovery of the plaintiff’s financial statements on the basis that discovery is sought by the defendant. In saying so, I am not implying that the plaintiff’s financial statements are not prepared according to generally accepted accounting practices because there is no evidence to show whether they are or are not.

As the plaintiff has already discovered the documents under item V in its affidavit of documents dated 30 October 2001, no further order for discovery is made.

Item VI

Discovery is sought under item VI of the plaintiff’s income tax returns submitted to the Inland Revenue Department for the years 1999 and 2000. Counsel for the plaintiff told the Court the plaintiff does not have income tax returns. So no discovery is ordered. If, however, the defendant believes the plaintiff has or has had any of these documents in his possession, custody or power then application may be made r.91 provided the documents are relevant.

Item VII

The documents sought to be discovered under item VII are the financial and tax records, rent, correspondence and any other documents with Claus Hermansen’s dive tours as well as the excursions of Hermansen, his employees and agents which operate from the demised premises.

Counsel for the plaintiff told the Court in the course of her submissions that the plaintiff does not have any of the documents sought to be discovered under item VII as Claus Hermansen does not have any dive tours and excursions business at all. Discovery is therefore denied under item VII. If the defendant has information to warrant applying under r.91 then it may do so.

Item VIII

The documents sought to be discovered under item VIII are all the financial and tax records, rent correspondence and documents with Seven Seas Car Hire Ltd, its officers, directors and employees.

Counsel for the plaintiff told the Court in the course of her submissions that the plaintiff does not have any of the documents sought to be discovered under item VIII and in any event those documents do not relate to any matter in question in the proceedings between the plaintiff and the defendant. Given this indication from counsel that the plaintiff does not have any of these documents, the Court makes no order for discovery. The defendant may apply under r.91 if such is warranted by circumstances known to the defendant.

Item XII

The Court has already dealt with most of the documents sought to be discovered under item XII and need not repeat what has already been said about the discoverability or otherwise of those documents. The further documents sought to be discovered under item XII which have not been included under any other item are all communications by the plaintiff with the defendant concerning capital improvements to the demised premises including a list of all tenants who worked on the demised premises as well as an accounting of all compensation received by such workmen.

Counsel for the plaintiff told the Court that the plaintiff does not have any of the documents sought to be discovered under item XII. That being so no discovery is ordered. The defendant is to apply under r.91 if that is warranted in the circumstances.

I must, however, point out again that the discovery process as contemplated under the Supreme Court (Civil Procedure) Rules 1980 is not intended to be used as a vehicle for requesting information. Here it appears that the defendant is requesting the plaintiff to provide a list of those tenants who worked on the demised premises and an accounting of the compensation they received. That suggests a request for information to be prepared and given by the plaintiff to the defendant. Discovery is however, concerned with documents that are or have been in the possession, custody or power of a party to litigation proceedings. It is not concerned with documents that “are not or have not been” in the possession custody or power of a party but the applicant for discovery wants the other party to prepare and give to him.

Item XIII

The Court has already dealt with the documents sought to be discovered under item XIII when dealing mainly with the documents sought to be discovered under item I and need not repeat the same exercise here. In any event these documents have already been discovered by the plaintiff.

Item XIV

Discovery is sought under item XIV of all documents, correspondence, financial records and projections to directors, shareholders etc in connexion with obtaining a new location including rental etc for the plaintiff as well as the plaintiff’s offers and negotiations to lease or purchase several specified properties.

In my view these documents are not relevant to any matter in question between the parties in these proceedings and therefore should not be discovered. The question of whether the plaintiff should yield up possession of the demised premises to the defendant is not simple and straight forward. There are a number of legal issues to be considered such as relief against forfeiture, equitable estoppel and restitution for unjust enrichment pleaded in the plaintiff’s amended statement of claim. Discovery is denied under item XIV.

Conclusion

The documents which the plaintiff has been ordered to discover should be set out in an affidavit of documents to be filed and served within seven days.

If the defendant wants to apply further under r.91 as suggested in this judgment, it should do so within seven days if the circumstances warrant such an application.

Costs reserved.

This matter is adjourned for re-mention on 26 November.

CHIEF JUSTICE

Solicitors:
Drake & Co. for the plaintiff
Stevenson & Mitchell for the defendant