ZW 2 Pty Limited v Kennerley

[2022] NSWSC 314

Supreme Court

New South Wales

Medium Neutral Citation:

ZW 2 Pty Limited v Kennerley [2022] NSWSC 314

Hearing dates:

17 March 2022

Date of orders:

22 March 2022

Decision date:

22 March 2022

Jurisdiction:

Common Law

Before:

Lonergan J

Decision:

(1) The defendants’ notice of motion filed on 25 February 2022 is dismissed.

(2) The defendants are to pay the plaintiff’s costs of the defendants’ notice of motion.

(3) The defendants are to pay the plaintiff’s costs of the plaintiff’s notice of motion filed on 25 February 2022.

Catchwords:

PROCEDURE – discovery – must be relevant to a fact in issue – no question of principle

Legislation Cited:

Uniform Civil Procedure Rules 2005 (NSW)

Cases Cited:

Commonwealth of Australia v Northern Land Council (1991) 30 FCR 1; 103 ALR 267

Lees v Kennerley [2020] NSWSC 630

Texts Cited:

J.W. Carter, Carter’s Breach of Contract (2nd ed, 218, LexisNexis Butterworths)

Category:

Procedural rulings

Parties:

ZW 2 Pty Limited (Plaintiff)
Gillian Kennerley (Defendant)

Representation:

Counsel:
R Carey (Plaintiff)
S Brennan (Defendant)

Solicitors:
Allens Solicitors (Plaintiff)
Christopher M Edwards Solicitors (Defendant)

File Number(s):

2021/00224886

Publication restriction:

Nil

Choose an item.

Judgment

1. In these proceedings the plaintiff seeks possession of land at Grose River Road, Grose Wold, (the Property), judgment in a sum of money over $2 million plus interest, costs and interest on costs, as well as various declarations as to the meaning and effect of documents signed by the parties relating to the property.

2. The statement of claim dated 6 August 2021 alleged that there was an Event of Default under the Acknowledgement of Debt and Guarantee and Indemnity (the Acknowledgment) and related Mortgage Terms Deed (the Deed), so the sum is due and failure to pay it is a breach of the Deed. An alternative claim is made for overdue interest payments in the amount $94,843.74.

3. The defendants do not admit there was any Event of Default, and say that even if there was, it was of such a minor character and consequence that when determining the contractual positions of the parties, in accordance with the doctrine of de minimus, it should be disregarded. In the alternative it is pleaded that the parties are obliged by the Acknowledgement and the Deed to act in good faith and the plaintiff in commencing these proceedings has not acted in good faith.

4. The plaintiff joins issue with the defendants’ assertions in its Amended Reply.

5. The first defendant and a Ms Belinda Lees, a former officeholder of the plaintiff, were formerly registered proprietors of the property as tenants in common. The property had been purchased to pursue equestrian activities together, but after disagreements, their business relationship came to an end.

6. There was litigation about that in the Equity Division of this Court in 2019. Judgment was given and orders made in May 2020: Lees v Kennerley [2020] NSWSC 630. The proceedings were not without complexity and related to an option agreement and collateral deed created to settle a dispute over the property.

7. These current proceedings arise out of a series of agreements entered into following the delivery of the judgment.

8. The issues before for me for determination on 17 March 2022 comprised:

1. Costs of the plaintiff’s (resolved) notice of motion for discovery.

2. The defendants’ notice of motion for discovery.

Costs regarding the plaintiff’s notice of motion for discovery

9. In the context of case managing the proceedings in the possession list, issues arose regarding discovery. Discussions proceeded in the background for some months. I was informed that the discussions did not resolve the issue and so the plaintiff filed a notice of motion on 25 February 2022 seeking orders for discovery of two specified categories of documents.

10. On 2 March 2022 the defendants notified the plaintiff that they no longer opposed the discovery sought. Consent orders were entered to that effect on 10 March 2022.

11. The plaintiff seeks its costs, having been wholly successful on that application, on the basis that costs should follow the event. The defendants say that they should not have to pay costs because, although “unnecessary and time wasting” when that material would ordinarily be expected to be part of the defendants’ evidentiary material, it acceded to the application to be practical and not waste further Court time.

12. Uniform Civil Procedure Rules 2005 (NSW) (“UCPR”) r 42.1 establishes the general rule that costs follow the event. However, the Court has full power to determine by whom and to what extent costs are to be paid and on what basis. This wide discretion must be exercised on a principled and judicial basis and must not be arbitrary. Costs are to compensate the successful party, not to punish the unsuccessful party.

13. UCPR r 21.2 provides for orders for discovery:

21.2 Order for discovery

(1) The court may order that party B must give discovery to party A of—

(a) documents within a class or classes specified in the order, or

(b)  one or more samples (selected in such manner as the court may specify) of documents within such a class.

(2) A class of documents must not be specified in more general terms than the court considers to be justified in the circumstances.

(3) Subject to subrule (2), a class of documents may be specified—

(a) by relevance to one or more facts in issue, or

(b) by description of the nature of the documents and the period within which they were brought into existence, or

(c) in such other manner as the court considers appropriate in the circumstances.

(4) An order for discovery may not be made in respect of a document unless the document is relevant to a fact in issue.

14. Rule 21.2(4) provides that the relevant test for ordering discovery is that the documents sought must be relevant to a fact in issue. The authorities suggest that this test is not restrictive. The discovery obligation does not however extend to a merely speculative possibility or suggestion that a document may contain relevant material: see Commonwealth of Australia v Northern Land Council (1991) 30 FCR 1; 103 ALR 267 at [290]; [1991] FCA 416.

15. Whilst the pragmatics of the defendants’ position is understood regarding the prospect that relevant documents may feature as part of the defendants’ evidentiary material, it would be wrong to assume that everything relevant that a plaintiff may wish to know that may be contained in a relevant document in the defendants’ possession, will form part of the defendants’ statements.

16. Discovery is directed to disclosure of relevant documents which a defendant may not want to, or need to, deploy in its case but that the plaintiff may wish to know about. It provides a mechanism for provision of a verified list of documents so that the plaintiff can further prepare its case based on an understanding of documents that exist that are relevant to facts in issue.

17. The defendants resisted discovery but then acceded to it a week after the plaintiff went to the expense and costs of filing a notice of motion.

18. In the circumstances outlined, costs should follow the event and so the defendants should pay the plaintiff’s costs of its notice of motion filed on 25 February 2022.

The defendants’ notice of motion for discovery

19. The defendants seek discovery from the plaintiff of the following three categories of documents:

1. All documents from valuers or other qualified persons containing statements or advice to the effect that delay in regularising the development of the horse arena would affect the value of the property securing the mortgage.

2. All documents evidencing loss, distress, or inconvenience suffered by the plaintiff as a consequence of the alleged Event of Default.

3. All correspondence between Belinda Lees, Former Director of the Plaintiff, or her agents or representatives on the one hand and the Hawkesbury City Council on the other hand, concerning the Grose Vale property from 2014 to present, including but not limited to correspondence touching upon or affecting approval for the horse arena.

20. The plaintiff objects to orders requiring discovery of those documents because they are not relevant to any fact in issue. Further, the documents described in category 3 are within the possession, custody and power of a third party and not the plaintiff.

21. The affidavit of Mr Edwards, solicitor for the defendants, and the written and oral submissions made on behalf of the defendants as to the relevance of the documents they seek was a little difficult to follow. The material was said to be relevant to the issue raised in the Defence that in filing the proceedings, the plaintiff has acted contrary to its obligation to act in good faith.

22. It seems that categories 1 and 2 are aimed at demonstrating that the asserted Event of Default caused no damage to the plaintiff.

23. If that is the forensic purpose, as counsel for the plaintiff correctly argued, that is not relevant to any fact in issue as no claim is made for loss of the type referred to in categories 1 and 2.

24. If it is directed to an argument that the de minimis argument advanced by the defendants can be demonstrated by proof that no damage was suffered, that too is not a relevant matter.

25. The de minimus rule is directed to an analysis of the nature of the departure(s) from contractual requirements, not the extent of the damage any such departure(s) may be said to have caused.

26. As stated in J.W. Carter, Carter’s Breach of Contract, (2nd ed, 2018, Lexis Nexis Butterworths) at 2-05:

[2-05] The de minimis rule. Notwithstanding the rule that performance must be exact, the law does not regard minute departures from contractual requirements as involving a failure to perform. This is known as the ‘de minimis rule’.

The de minimis concept is, however, a very narrow one. Only a minute or entirely trivial difference will be regarded as de minimis. Any discrepancy beyond that will amount to a failure to perform.

27. The defendants say that the plaintiff has seized on a minor delay to enforce the contract, despite knowing no real damage has been caused to it. Implicit in the defendants’ approach is that the plaintiff, in seeking to enforce its rights under the contract, is somehow acting in bad faith because no identifiable damage can be demonstrated.

28. This is a rather strained position to be taking and one that seems to be outside the confines of the doctrine. More fundamentally, it is only speculation on the part of the defendants that there will be any documents responsive to the descriptions in categories 1, 2 and 3 or that any such document will contain material that is even arguably relevant.

29. Given that position, discovery of those categories of documents should not be permitted.

30. Category 3 has a separate problem in that it seeks correspondence between Belinda Lees and third parties. The evidence tendered by the plaintiff stated that Ms Lees no longer has any role with the plaintiff and so it cannot be said that the documents are in the custody, care and control of the plaintiff. The reference to “her agents or representatives” in category 3, obscures the issue of custody, power and control. This is an additional basis upon which the application fails.

Orders

31. I make the following orders:

1. The defendants’ notice of motion filed on 25 February 2022 is dismissed.

2. The defendants are to pay the plaintiff’s costs of the defendants’ notice of motion.

3. The defendants are to pay the plaintiff’s costs of the plaintiff’s notice of motion filed on 25 February 2022.

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Decision last updated: 28 March 2022