Body Corporate 198245 v Wong

[2012] NZHC 792

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2010-404-7992 [2012] NZHC 792

BETWEEN  BODY CORPORATE 198245

Plaintiff

ANDYOCK KIONG WONG AND MEI YOKE CHONG

First Defendants

ANDPINE DEVELOPMENTS LIMITED Second Defendant

ANDCHAO LAU HUANG AND BEN BONG Third Defendants

CIV-2010-404-6184

AND BETWEEN             BODY CORPORATE 198245

Plaintiff

ANDCREATION INVESTMENTS LIMITED (IN LIQUIDATION)

Defendant

Hearing:         20 March 2012

Counsel:         T J G Allan for Plaintiff

A J Steele for Defendants

Judgment:      26 April 2012

RESERVED JUDGMENT OF ASSOCIATE JUDGE SARGISSON (Interlocutory Hearing)

This judgment was delivered by me on 26 April 2012 at 5.30 pm pursuant to

Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar

Solicitors:

Grove Darlow, P O Box 2882, Auckland

Date ..........................

Martelli McKegg Wells & Cormack, P O Box 5745, Auckland

BODY CORPORATE 198245 V WONG AN CHONG HC AK CIV-2010-404-7992 [26 April 2012]

[1]      The defendants have made application for an order for particular discovery against the plaintiff. [1]

[1] Rule 8.19 provides for such orders. It states:

Order for particular discovery against party after proceeding commenced

If at any stage of the proceeding it appears to a Judge, from evidence or from the nature or circumstances of the case or from any document filed in the proceeding, that there are grounds for believing that a party has not discovered 1 or more documents or a group of documents that should have been discovered, the Judge may order that party—

(a)    to file an affidavit stating—

(i)  whether the documents are or have been in the party's control; and

(ii) if they have been but are no longer in the party's control, the party's best knowledge and belief as to when the documents ceased to be in the party's control and who now has control of them; and

(b)   to serve the affidavit on the other party or parties; and

(c)     if the documents are in the person's control, to make those documents available for inspection, in accordance with rule 8.27, to the other party or parties.

[2]      The defendants require leave to make the application as it was filed on 23

December 2011, after the setting down date.  The defendants therefore seek an order under r 7.18 giving leave.

[3]      Both applications are opposed.  The plaintiff contends that leave should not be given as the application is made far too late in the proceeding, but even if leave is granted that there are insufficient grounds to order particular discovery.

[4]      I proceed on the basis that it is appropriate to consider the substance of the application and then to determine whether any orders that might otherwise be warranted should not be granted for reasons of undue delay or prejudice to the plaintiff.

Background

[5]      The plaintiff is the Body Corporate of a unit development called The Ridge located in Parnell Road, Auckland.  The Ridge (comprising eighteen residential and seven commercial units) suffered from leaky building syndrome.  The development has undergone several different sets of repairs.  A number of owners of the units and

the Body Corporate commenced proceedings for the purpose of recovering the costs

of repair from those whom they asserted were liable for the problem.   Those proceedings were eventually resolved at mediation.  The defendants were either not party to the proceedings or withdrew as parties before their conclusion.

[6]      The plaintiff engaged several consultants for the purpose of managing the remedial works and determining the allocation of the costs between private and common costs and the apportionment of the common costs.  Materially, Alexander & Co, building surveyor, was engaged as certifier of the cost claims for the works, and Maltbys, quantity surveyor, was tasked with the cost of determining the allocation of the costs to private and common costs.  Crockers, the Body Corporate secretary over the relevant period, undertook the task of preparing what is referred to as the Final Washup.  The Washup, completed in August 2010 is in a spreadsheet referred to as the Final Washup Calculation.

[7]      There are two  further  related  proceedings,  arising out  of the defendants’ concerns about the allocation of private and common costs and their refusal to pay common costs levied against them. The proceedings, brought by the Body Corporate, are against:

(a)       Creation Investments Ltd (in liquidation) and filed in CIV2010-404-

6184; and

(b)      Y K Wong and M Y Chong (first defendants) and Pine Developments

Ltd (second defendant) and filed in CIV2010-404-7992.

[8]      In these further proceedings the Body Corporate seeks to recover unpaid levies for the defendants’ share of the cost of repairs.  The plaintiff’s case, broadly, is that each owner has had its own “private costs” allocated to it, plus a proportion of the common costs.  The proportion of common costs is based on the owner’s legal title pursuant to the terms of a scheme ordered by the Court under s 48 of the Unit Titles Act 1972.  The plaintiff says that, in accordance with the terms of the scheme, the following has been provided to each proprietor: a final report of the repairs eventually undertaken as part of the scheme; the cost of those repairs; and how it apportioned those costs.  It says it was always the case that the common costs of the

repairs would be determined by Maltbys and would be levied on an interim basis against the twenty five units equally, but re-apportioned in the Final Washup on a unit entitlement basis.

[9]      In their statements of defence, the defendants take issue with the plaintiff’s apportionment of the cost of repairs undertaken under the scheme.  They plead, by way of general denial, that they are not liable for the costs claimed.  They also plead by way of affirmative defence that the levies apportioned to them, as claimed in the statements of claim, are incorrect and unlawful in that:

(a)      The  apportionment  contravenes  s  33  Unit  Titles Act  1972  which requires “that such repair costs be allocated to those unit owners who receive the substantial benefit from those costs”, whereas the plaintiff levied the defendants the cost of repairing common property in accordance with unit entitlement.[2]   The defendants also rely on rr 3.8

[2] Section 33 states:

Recovery of money expended for repairs and other work

Where the body corporate does any repair, work, or act which it is required or authorised by or under this Act or by or under any other Act to do (whether or not the repair, work, or act is done pursuant to any notice or order served on it by a local authority or public body) but the repair, work, or act is substantially for the benefit of one unit only, or is substantially for the benefit of some of the units only or benefits one or more of the units substantially more than it benefits the others or other of them, any expense incurred by it in doing the repair, work, or act shall be recoverable by it as a debt in any Court of competent jurisdiction in accordance with the following provisions—

(a)         So far as the repair, work, or act benefits any unit by a distinct and ascertainable amount, the proprietor at the time when the expense was incurred and (subject to the provisions of section 36 of this Act) the proprietor at the time when the action is instituted shall be jointly and severally liable for the debt; or

(b)         So far as the amount of the debt is not met in accordance with the provisions of paragraph (a) of this section, it shall be apportioned among the units that derive a substantial benefit from the repair, work, or act rateably according to the unit entitlements of those units, and in the case of each such unit the proprietor at the time when the expense was incurred and (subject to section 36 of this Act) the proprietor at the time when the action is instituted shall be jointly and severally liable for the amount apportioned to that unit:

Provided that, if the Court considers that it would be inequitable to apportion the amount of the debt in proportion to the unit entitlements of the last-mentioned units, it may apportion that amount in relation to those units in such shares as it thinks fit, having regard to the relative benefits to those units.

and 38 of the Body Corporate Rules to the same effect.

(b)The costs of repair to the balconies and patios of some residential units and walkways have been treated as common property repair costs that should have been allocated to the residential units that benefited from them.  The defendants say that some internal “private property” structural repair costs have also been treated in this way;

(c)      There  are  25  units  and  the  individual  apportionment  schedules prepared by Maltbys do not equal the amount of $2,810,444.00, which was used by the plaintiff to levy the defendants.

[10]   The defendants rely on a similar affirmative defence in relation to the apportionment of consultants’ fees and other costs of $1,768,412.  The defendants also contend that the plaintiff has failed to apply an arbitration award issued on 30

November 2008 to the effect that consultants’ costs be levied on a unit entitlement basis until completion of repairs, but thereupon be apportioned between private and common property.[3]   They allege that there are invoices that suggest that some repair work that is included in the common consultancy costs was for private work, and that costs of the apartment owners’ private court action, may have been classified as a common cost.   They also allege that some other disputed levies may duplicate

levies already paid from the Body Corporate’s Sinking Fund and operating levies.

Application for further and better discovery

[3] The defendants allege that the plaintiff has discovered a schedule of costs totalling $1,768,412 (GST exclusive) which it purports to have incurred for consultancy and other costs, but that the total for the discovered invoices falls short by approximately $55,000 (GST exclusive).

[11]     In their application the defendants seek orders requiring the plaintiff to file and serve an affidavit that:

(a)       States whether the documents comprised in six categories set out in a

schedule  to  the  application  are  or  have  been  in  the  plaintiff’s

possession or control (and lists the documents); and

(b)If the documents are no longer in the plaintiff’s possession or control, states the plaintiff ’s best knowledge and belief as to when they ceased to be in the plaintiffs control and who now has control of them.

[12]     The categories of documents are described in broad terms.   The grounds relied on are essentially that the documents are relevant, and have not been discovered.  The defendants also rely generally on the affidavits of Mr Van Delden, the liquidator of Creation, and Ms Kapua, a legal secretary employed by the defendants’ solicitors.

[13]     Ms Kapua’s evidence relates to an email from Alexander & Co Ltd to the Body Corporate secretary.   The email refers to progress payment schedule No. 27 from Alexander & Co Ltd and shows an image of a C.D. that has written on it “The Ridge variation”.  Ms Kapua deposes that progress payment 27 and the documents contained on the C.D. have not been discovered and that she understands that they are relevant to the proceeding.

[14]     The concern about these materials was not pursued at the hearing.  I need not deal with it further.

[15]     Mr  Van  Delden  deposes  to  the  reasons  why  he  believes  the  documents described in the six categories of documents are relevant and have not been discovered.

[16]     I deal with each of the six categories in turn.  I begin however by referring to the rules that govern the application.

Rules of Discovery

[17]     The defendants rely on the former rule 8.24.  It is replaced by r 8.19, the new rule that came into force on 1 February 2012.  Putting aside minor differences that are not material for present purposes, the two rules are essentially the same.

[18]     Under both rules, it is for the applicant to establish grounds for a belief that another party is in possession of a document or class of documents that relate to any

matter in the proceeding. The test under the old rule as to whether a document was relevant, in that it related to a question in the proceeding, was an expansive one as set out in Compagnie Financière et Commerciale du Pacifique v Peruvian Guano Co,where the court stated:[4]

[4] (1882) 11 QBD 55 at 63:

It seems to me that every document relates to matters in question in the action which not only would be evidence upon any issue, but also which, it is reasonable to suppose, contains information which may — not which must

— either directly or indirectly enable the party requiring the affidavit either to advance his own case or to damage the case of his adversary. I have put in

the  words  ‘either  directly  or  indirectly’ because,  as  it  seems  to  me,  a

document can properly be said to contain information which may enable the party requiring the affidavit either to advance his own case or to damage the

case of his adversary if it is a document which may fairly lead him to a train

of inquiry which may have either of those two consequences.

[19]     The expansive test held that a document was discoverable if it might be relevant to any matter in question in the proceeding, or if it might fairly commence a chain of enquiry leading to relevant documents.[5]    The recent amendments to the High Court Rules, which apply as from 1 February 2012, change the test for an “adverse documents test” and direct relevance approach.   The four categories of documents that are discoverable under the new r 8.7 are:

[5] M v L [1999] 1 NZLR 747 at 750

(a)      documents on which the party relies;

(b)      documents that adversely affect that party’s own case;

(c)      documents that adversely affect another party’s case; and

(d)      documents that support another party’s case.

[20]     If proceedings are filed and discovery orders are in place before 1 February, discovery continues in accordance with the existing discovery order.   However, if one of the parties wishes to amend the existing order, pursuant to new r 8.17, the Court has power to determine the application in accordance with the new discovery

rules.

[21]     There was no suggestion at the hearing that discovery orders in place before

1 February were not for expansive discovery under the Paruvian Guano approach, or that those orders should not stand.

The six categories of documents

[22]     The six categories of documents, set out in the schedule to the application are referred to as Category 1 to Category 6 documents.  The extent to which they require consideration was narrowed somewhat by discussion with counsel at the hearing, though not through any identification of particular individual documents that demonstrably remains undiscovered.  The case for particular discovery remains very general in its terms.

[23]     Counsel  for  the  defendant  confirms  in  his  submissions  in  reply  that  no discovery is sought for documents already discovered.  Counsel also confirms that the defendants’ position is that though they do not agree with the Body Corporate committee’s approach to the Final Washup, they do not seek to re-apportion or challenge the figures and certifications produced by the experts in relation to the apportionments during construction.    Rather, they wish to understand what adjustments were made in the Final Washup process to the earlier (and undisputed) apportionment work and why those adjustments occurred.  He submits the plaintiff appears not to have supplied all of the likely documentary confirmation of why they occurred.

[24]     There ought to be, counsel submits, supporting underlying documents, emails or whatever else was committed to writing to explain the adjustments.  Verification to the original apportionments is also sought.  These would be held, he submits by committee members or Crockers which was tasked in its role as Body Corporate’s secretary, with preparing the Final Washup.  He contends that it ought to be a simple matter for the Body Corporate committee members to disclose, for instance, any emails that they sent or received dealing with adjustments to the apportionments in the time in which the final adjustment schedules were created.  Such documents he submits, would be within the control of the Body Corporate and discoverable by it. That the individuals may no longer be committee members or employed by the Body

Corporate or paid for their services “is beside the point”.  It is the nature of the work and who they do their work for that dictates the issues of discoverability.

Category 1 documents

[25]     These documents relate to a schedule that was compiled by Maltbys for the leaky building litigation.   The document is entitled “Schedule 14 – final remedial works claim schedule”.   The defendants have a copy of the schedule in their possession but say they need to see all documentary material supplied to Maltbys to produce the schedule.

[26]     At  the  hearing  counsel  for  the  plaintiff  submitted  that  the  schedule  is privileged but that even if that is not the case, the underlying documentation used to put the schedule together is of no relevance to the matters in issue in the current proceedings.   It was compiled for the earlier private litigation of the apartment owners for settlement purposes.

[27]     Putting aside the issues of privilege, I accept that the real matters at issue in the current proceedings are not with the compilation or contents of Schedule 14.  Nor are they with Maltbys’ final allocation of repair related costs to the unit owners.[6]

Rather, the matters at issue concern adjustments made to Maltbys’ final allocation by Crockers to produce the Final Washup Calculation in August 2010.[7]     More particularly, what is in issue is the impact that such adjustments have on the levies made on the defendants and whether the adjustments are properly charged to them. In these circumstances, counsel submitted, the basis on which the defendants rely for an order for discovery of the Category 1 documents is ill founded. I agree.

[6] These are set out in the document referred to as Maltbys’ Final Summary Spreadsheet.

[7] Crockers was the Body Corporate Secretary at the time and was responsible for preparing the Final Washup and apportionment.   It no longer holds the office as secretary, and has been replaced.

[28]     Furthermore,  even  if  Schedule  14  were  of  some  marginal,  or  greater relevance to matters in issue, as counsel for the plaintiff was also at pains to point out, all of Maltbys’ documents for the entire repair project have been discovered.

Without wishing to overstate the position taken by counsel for the defendants, he

appeared to accept at the hearing that such was the case and there is no basis for an order for discovery of the Category 1 documents.

Category 2 documents

[29]     The documents the defendants seek in this category are described somewhat broadly as “any schedules or other documents of revision/variation” that may have been prepared by Alexander & Co and Maltbys “after Maltbys had apportioned 1-27 schedules, likely around November 2009” and “any other documents” that evidence such changes to the figures that Maltbys allocated.

[30]     The concern of the defendants is the same as the concern they raise in respect of category 1 documents; why adjustments were made in the Final Washup to the final apportionments of repair costs made by Matlbys.   The description of the documents indicates that the defendants particularly want documents prepared by Alexander & Co and Maltbys, but also seek “any other documents” of revision or valuation.

[31]     The  request  for  documents  from  Maltbys  and  Alexander  &  Co  can  be disposed of briefly.

[32]     Ms Taggart of Maltbys deposes that there was no schedule of revision ever created.  Relevantly, she explains that the overall common property cost certified by Alexander & Co of $2,810,444 has been used in the Final Washup Calculation, but points out that Maltbys’ Final Summary Spreadsheet allocates those costs across the

25 units whereas the Final Washup reallocates those costs on a unit entitlement basis and adds GST. Mr Leightley, a former member of the Body Corporate committee and the subcommittee tasked with managing the remedial process, deposes that the Body Corporate has never received a schedule of revision.

[33]     At the hearing counsel for the defendants appeared to accept that there could be no grounds for an order in respect of such documents prepared by Maltbys or Alexander & Co. He was prepared to accept that, had documents of this description been prepared by Maltbys or Alexander & Co, they would have been included in the

discovered documents.  The concession is properly made.  The evidence discloses no basis for the belief that there has not been full discovery of the documents prepared by these experts.

[34]     What  remains  in  issue  therefore  is  whether  there  is  a  case  for  ordering particular discovery of revision/variation documents that others possibly prepared. Who such others might be is not specified in the application, that Counsel submits that any underlying explanatory documentation would likely be held by Crockers as once the repair works were completed, Crockers did not adopt the earlier and undisputed apportionments set out in Maltbys’ schedules when preparing the Final Washup Calculation.  Crockers, he submits, presumably relied on a revision schedule prepared by someone and “may still seem to hold documents sought in this application”.

[35]     However, Ms Tiang of Grove Darlow, the solicitors for the Body Corporate, deposes to the effect that she has made enquiries with Crockers for the purpose of obtaining all relevant material that Crockers holds relating to The Ridge. The enquiries related to both hard copy and electronic files.  What Crockers provided, however, contains no sets of working papers or calculations that correspond with the defendants’ request.  There would be, as counsel seemed to accept at the hearing, no purpose to be served by ordering particular discovery in respect of Crocker’s documents in these circumstances.  The plaintiff has taken reasonable steps to obtain all relevant documents from Crockers.  The defendants have not established grounds for the belief that there are undisclosed documents that belong to this category.

[36]     Counsel submitted that there may yet be documents held by individuals that were not formally tabled at meetings of the Body Corporate committee or subcommittee.  He said documents could well have been exchanged by the members of the Body Corporate’s subcommittee that have not been discovered.  He submitted that it is conceivable that the members may have their own working papers, or emails or notes.  The submission did not address how such documents have, or may have, any material bearing on why Crockers made its apportionments in the Final Washup.  If  the  documents  are  not  among  Crockers’ documents  it  can  only  be assumed that Crockers did not act upon them.

[37]     There  is  another  more  general  reason  why  I  am  not  satisfied  that  it  is appropriate to make orders for the discovery of documents under this category. It is for the applicant to establish the grounds for the belief that a party has not discovered particular documents that it should have. For the purpose the documents must be described  with  some  specificity.    Here  the  documents  are  ill  defined  and  the discovery that is sought is unduly broad.  The application grounds do not raise so much as a suggestion that another or other could have prepared relevant revision documents.  Materially, counsel did not attempt any analysis of the evidence to show that there is a sound evidential foundation to treat the application as one whose lack of specificity might cured by the evidence.   The foundation for the necessary belief has not been established.

Category 3 documents

[38]     The documents that the defendants include in this category are described as “the list of codes and amounts, and any supporting paperwork for how the plaintiff ’s claim for common property repairs of $2,810,444.57 is comprised”.

[39]     Given counsel’s indication that the figure of $2,810,444.57, apportioned by Matlbys for the common property repairs, is not disputed, and that all of Maltbys’ documentation has in any event been discovered, I am satisfied that there is no basis for the necessary belief that would justify an order for particular discovery under this category.

Category 4 documents

[40]     In this category the defendants seek documents described as “accounts and transaction reports...including journals and resolutions from 2003 to August 2011” relating to the Body Corporate’s use of its Sinking Fund as an alternative means of funding for costs of or associated with the repairs. It is the position of the Body Corporate that it had to resort to this fund because of the defendants’ failure to meet their levies as the work progressed.  The defendants are concerned that they are not re-levied for amounts that the plaintiff has effectively levied them for already, by the use of the fund.  They want confirmation that the correct credits have been provided

to each owner. Mr Van Delden points out that under the rules of the Body Corporate, its books of account should show details of transactions relating to use of the Sinking Fund.

[41]     It is not suggested in the evidence given on behalf of the Body Corporate that the books of account that record the transactions are not relevant or that they have been discovered. I am satisfied that they should be discovered.  If the transactions have not been recorded in the books of account then the Body Corporate should advise the defendants accordingly.

[42]     If there are undiscovered resolutions in the Body Corporate’s minutes relating to the use of the Sinking Fund they should also be discovered.

Category 5 documents

[43]     This category relates to Crockers’ Final Washup calculation document that was produced in August 2010 and the Body Corporate committee’s resolution approving the Final Washup document.  What the defendants seek is all documents including working papers used to prepare, or that evidence approval of, the Final Washup calculation whether held by the Body Corporate, its secretary or former secretary, or any present or former committee members.

[44]     I have dealt with this part of the application in the course of dealing with the application relating to Category 2 documents.

Category 6 documents

[45]     Under this category the defendants seek “working papers” and “explanations for the reversal entries in the unit owners’ statements of accounts sent with the Final Washup statement, the document authorising these reversals, and all interest calculation spread sheets derived therefrom”.

[46]     The basis for the reversal entries in these statements of accounts is explained by Mr Leightley in his affidavit evidence and the need for further discovery was not pressed at the hearing. I need not deal further with this part of the application.

Result

[47]     The application for particular discovery is declined, save in the respects set out in the orders that follow.  I see no real prejudice to the plaintiff in making the orders, as  they are essentially limited  to  entries  in  its minute book  and  certain resolutions. These are the orders:

(a)       The defendants are given leave under r 7.18.

(b)The plaintiff is to file and serve an affidavit as to whether there are undiscovered:

(i)entries  made  in  its  books  of  account  to  show  details  of transactions relating to use of the Sinking Fund for the repair costs and any related costs, and

(ii)      resolutions in its minutes relating to such use of the Sinking

Fund.

(c)       If there are such documents they are to be identified in the affidavit.

Copies  of  the  documents  are  to  be  provided  to  defence  counsel forthwith.

(d)      If there are no such documents the plaintiff is to depose to that effect.

(e)      Given  that  the  trial  is  imminent,  the  matters  to  be  dealt  with  by affidavit   in   the   above   orders   may   be   satisfied   initially   by memorandum, and the affidavit provided at trial.

[48]     Costs are reserved.  If counsel cannot agree on costs they may be raised with other costs issues at trial, subject to any contrary direction by the trial judge.

Associate Judge Sargisson