Body Corporate 207624 v Grimshaw & Co
[2022] NZHC 634
•31 March 2022
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV 2018-404-2107
[2022] NZHC 634
BETWEEN BODY CORPORATE 207624
Plaintiff
AND
GRIMSHAW & CO
Defendant
Hearing: 11 March 2022 (by VMR) Appearances:
D M Salmon and A G Holden for the plaintiff P Hunt and J N Smith for the defendant
Judgment:
31 March 2022
JUDGMENT OF CAMPBELL J
This judgment was delivered by me on 31 March 2022 at 2:00 pm pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar
BODY CORPORATE 207624 v GRIMSHAW & CO [2022] NZHC 634 [31 March 2022]
Introduction
[1] Body Corporate 207624 (the Body Corporate) is the body corporate for the apartment and hotel building in Takapuna known as Spencer on Byron. It sues its former solicitors, Grimshaw & Co (Grimshaw), for breach of contract and negligence in relation to the distribution of funds that the Body Corporate had been paid in settlement of other litigation relating to defects in the building.
[2] The proceeding was set down for trial for three weeks commencing on 12 July 2021. Shortly before commencement of the trial the Body Corporate sought an adjournment. On 6 July 2021, Moore J vacated the trial and allocated a new trial date.
[3] Grimshaw sought wasted costs for the late adjournment. In a judgment dated 30 September 2021, I awarded Grimshaw wasted costs in the sum of $67,544.75.1 The Body Corporate promptly paid those costs.
[4] The Body Corporate applies to recall my wasted costs judgment, and for an order that Grimshaw repay the costs with interest. It says that Grimshaw had not disclosed a large number of discoverable documents and so was not ready for trial. The Body Corporate says that, had I been aware of Grimshaw’s lack of readiness, I would not have awarded Grimshaw wasted costs.
Background
[5] The Spencer on Byron suffered weathertightness defects. In July 2007, the Body Corporate claimed against various defendants for the cost of repairing the defective common property. Some, but not all, unit owners also brought claims as second plaintiffs in that litigation for the cost of repairing defects in their units.
[6] Grimshaw acted for the Body Corporate and the second plaintiff unit owners in that litigation. In 2010, Grimshaw prepared a Conduct and Distribution Agreement (CDA) for the Body Corporate and the second plaintiff unit owners. The CDA purported to govern the distribution of any settlement proceeds, and to avoid later disputes over entitlements to settlement proceeds. All settlement proceeds, including
1 Body Corporate 207624 v Grimshaw & Co [2021] NZHC 2608 at [18].
for the Body Corporate’s common property, were to be allocated to the second plaintiff unit owners.
[7] The CDA was prepared while the Unit Titles Act 1972 was in force. In 2011, the Unit Titles Act 2010 (the UTA 2010) came into force. The Body Corporate says the effect of s 54 of the UTA 2010 was to vest ownership of common property in the Body Corporate, with all unit owners (including those who were not plaintiffs in the litigation) being beneficially entitled to the common property as tenants in common.
[8] The leaky building litigation settled in December 2013 for $20,050,000. The settlement proceeds were held by Grimshaw from January 2014. The Body Corporate says that at that time Grimshaw confirmed that the CDA was to govern distribution of the proceeds.
[9] Shortly thereafter, Mocles Holdings Ltd (Mocles), the largest unit owner in the Body Corporate, claimed an interest in the settlement proceeds. Mocles was not one of the second plaintiff unit owners and had not participated in the litigation. It asserted its interest on the basis that it was a member of the Body Corporate. Other non- plaintiff unit owners soon followed suit. Given the dispute, Grimshaw did not distribute the proceeds. It filed an interpleader. The interpleader was not resolved until April 2016.
[10] The Body Corporate claimed against Grimshaw, saying the firm had negligently failed to advise the Body Corporate to amend the CDA to reflect the UTA 2010. It said Grimshaw had instead positively advised the Body Corporate that the CDA was a proper basis for distribution. The Body Corporate said Grimshaw’s negligence delayed the ability to apply the settlement proceeds to the remediation of the building. The Body Corporate claimed damages for the increased cost of building work caused by the delays, as well as the cost of the interpleader.
[11] Grimshaw denied the allegations. It said it was not negligent, that the CDA was a reasonable mechanism by which to distribute the settlement proceeds, that the CDA was unaffected by the passing of the 2010 Act, and that the changes the
Body Corporate says should have been made to the CDA would not have prevented the dispute over the settlement proceeds from arising.
The adjournment and the wasted costs judgment
[12] The proceeding was set down for a three-week trial commencing on 12 July 2021. On 5 July 2021, the Body Corporate applied for an adjournment, on the ground that its senior counsel was unavailable for trial.
[13] Grimshaw responsibly accepted that the trial would need to be vacated. On 6 July 2021, Moore J vacated the fixture and allocated a new trial.
[14] Grimshaw sought wasted costs on the basis that it had incurred significant costs in preparation for the vacated trial, and much of those costs would be incurred again for the new trial. In my judgment, I ordered the Body Corporate to pay Grimshaw wasted costs in the sum of $67,544.75.
[15]The wasted costs judgment has not been sealed.
The Body Corporate’s application for recall
[16] The Body Corporate says it was implicit in Grimshaw seeking wasted costs, and an implicit assumption in my judgment, that Grimshaw was ready for trial.
[17] The Body Corporate says it is now apparent that Grimshaw was not ready for trial. This is because Grimshaw has, since my wasted costs judgment, discovered an additional 1,800 documents — about 15 per cent of its discovery. As at the date of the originally scheduled trial, Grimshaw had failed to disclose those documents, either for unexplained reasons or because it had mistakenly marked the documents as privileged.
[18] The Body Corporate says that, had I known that Grimshaw was not ready for trial, I would not have awarded Grimshaw wasted costs. I should therefore recall my judgment and order Grimshaw to repay the costs the Body Corporate has paid.
[19] Grimshaw says most of the undiscovered documents are irrelevant to the proceeding. A small minority of them are “peripherally relevant”. It therefore says it
was ready for trial. It says that, in any case, the Body Corporate could have raised Grimshaw’s alleged lack of readiness before I delivered my wasted costs judgment, and so any lack of readiness does not provide a basis for recalling the judgment.
Events relating to the discovery issues and Grimshaw’s alleged lack of readiness for trial
[20] In order to understand the parties’ respective positions on the recall application, it is necessary to set out a chronology of events relating to Grimshaw’s discovery issues and therefore alleged lack of readiness for trial.
[21] On 14 May 2021, Grimshaw nominated documents for the common bundle for the then upcoming trial. Its nominations included 27 documents that Grimshaw had not provided for inspection (26 of which it had not discovered). The documents were provided to the Body Corporate on 18 June 2021.
[22] The Body Corporate sought an assurance that Grimshaw had discovered all relevant documents. On 25 June 2021, Nation J held a pre-trial conference. His minute from that conference recorded the Body Corporate’s concern about discovery and directed Grimshaw to respond to that concern by 30 June 2021.
[23] On 1 July 2021, Grimshaw’s solicitors wrote to the Body Corporate’s solicitors. They said there had been an error in not discovering some documents but that they “do not consider that there are other documents that need to be discovered that have not been”.
[24]The trial was vacated on 6 July 2021.
[25] On 12 July 2021, the parties filed memoranda for a call in the Duty Judge list. The Body Corporate’s memorandum noted that it had made enquiries of Grimshaw as to whether there were any other relevant documents not yet discovered and that it was likely to bring a discovery application if it was not satisfied with Grimshaw’s response.
[26] On 20 July 2021, Grimshaw filed a memorandum seeking wasted costs. The Body Corporate responded on 3 August 2021 and Grimshaw filed further submissions on 11 August 2021.
[27] On 17 August 2021, the Body Corporate’s solicitors wrote to Grimshaw’s solicitors in response to the latter’s letter of 1 July 2021. This included:
You have not explained why you consider there are no other documents that need to be discovered. It appears that there are other documents. … It is improbable that, in a discovery of over 10,000 documents, all documents withheld in error were also included in your client’s nominations.
Please confirm what steps were taken to identify that the 27 undiscovered documents that were nominated were the only 27 undiscovered documents.
[28] On 9 September 2021, Grimshaw’s solicitors responded to that letter. They said they were reviewing discovery and anticipated filing and serving an updated affidavit of documents. They said that would take some weeks, with the timing made more difficult by the then COVID-19 lockdown (which started on 17 August 2021).
[29]On 30 September 2021, I delivered my wasted costs judgment.
[30] On 21 October 2021, Grimshaw discovered 189 new documents. In a letter of 12 November 2021, Grimshaw’s solicitors said few of those documents fell within any of the categories in the tailored discovery order and that they were being discovered out of an abundance of caution.
[31] On 7 December 2021, the Body Corporate applied to recall my wasted costs judgment.
[32] On 15 December 2021, Grimshaw discovered a further 1,650 documents. Its solicitors said these were being provided in response to requests by the Body Corporate and “to avoid unnecessary argument”.
[33] On 17 February 2022, Gareth Lewis, a partner of Grimshaw, made a further affidavit of documents. Mr Lewis had made Grimshaw’s earlier affidavit of documents in November 2019. The February 2022 affidavit listed the additional documents that Grimshaw had discovered in the preceding months. Mr Lewis
explained that there had been errors in the preparation of his earlier affidavit of documents. There is no suggestion that Mr Lewis was personally at fault in respect of those errors.
[34] For completeness, I record that throughout this period Grimshaw raised concerns with the Body Corporate’s compliance with its discovery obligations. I regard those matters as irrelevant to this recall application. Any non-compliance by the Body Corporate may have meant it was not ready for trial. But it is not in dispute that the Body Corporate was (for other reasons) unready. As will become apparent, what is in dispute in this application is whether Grimshaw was ready for trial.
Legal principles
[35]Rule 11.9 of the High Court Rules 2016 provides:
11.9 Recalling judgment
(1)A Judge may recall a judgment given orally or in writing at any time before a formal record of it is drawn up and sealed.
[36] The discretion to recall an unsealed judgment will be exercised only in the three categories identified in Horowhenua County v Nash (No 2):2
(a)where since the hearing there has been an amendment to a relevant statute or regulation or a new judicial decision of relevance and high authority;
(b)where counsel have failed to direct the Court’s attention to a legislative provision or authoritative decision of plain relevance; and
(c)where for some other very special reason justice requires that the judgment be recalled.
[37] The Body Corporate relies on the third category of case. It says new facts have become known after my judgment that would have informed my decision to award
2 Horowhenua County v Nash (No 2) [1968] NZLR 632 (SC) at 633; and Saxmere Co Ltd v Wool Board Disestablishment Co Ltd (No 2) [2009] NZSC 122, [2010] 1 NZLR 76 at [2].
Grimshaw wasted costs. Where the Court gives judgment while operating under a significant misunderstanding of fact, the Body Corporate says justice requires the judgment be corrected.
[38] Mr Salmon QC, for the Body Corporate, relied on the Court of Appeal’s decision in Murren v Schaeffer.3 Murren concerned a successful appeal against the refusal of the High Court to make freezing orders. The freezing order application sought to restrain any proceeds from an anticipated sale of property pending resolution of the primary claim. The application contemplated that security interests registered over the property would take priority before the freezing order took effect, but sought to exclude from that priority secured debts owed by the defendant to his former wife, Ms Schaeffer (a non-party). It was argued there was reason to doubt the bona fides of those debts.4
[39] Apparently having been alerted to these suspicions belatedly, Ms Schaeffer filed evidence shortly before the hearing in the Court of Appeal. At the hearing, the appellants accepted that the impugned debts should be accorded priority. The Court ordered that Ms Schaeffer was entitled to indemnity costs. It did so on the understanding that Ms Schaeffer had become aware that her security was not being accepted only shortly before the hearing.5
[40] The appellants subsequently learnt that Ms Schaeffer and her solicitors had been aware of the issue for some time before the hearing. The appellants applied to recall the judgment insofar as the Court had awarded indemnity costs to Ms Schaeffer.
[41] With the new information, the Court considered Ms Schaeffer would have had ample opportunity to contact the appellants’ lawyers before the hearing to clarify the legitimacy of her secured debts. The Court was therefore satisfied that it had been operating under a misunderstanding of the true situation, and that this misunderstanding had been of considerable significance to its costs decision.6
3 Murren v Schaeffer [2019] NZCA 34.
4 At [2].
5 At [3]–[6].
6 At [12]–[14].
[42] The Court then asked itself whether, had it been apprised of the true situation, it would have made an award of indemnity costs. The Court concluded it would not have done so.7
[43] The Court was satisfied that these circumstances fell within the third of the Horowhenua County v Nash (No 2) categories — namely, a very special reason justifying recall. Importantly, the Court said recall was justified even though the Court had not been intentionally misled. It sufficed that the effect had been that it was misled. It had made the costs order consequent on a mistaken understanding of the relevant facts. Justice required the situation be corrected.8
[44] The Court accordingly granted the recall application and quashed the indemnity costs order, replacing it with an award of scale costs.9
[45] Mr Hunt, for Grimshaw, directed me to two authorities that he said were relevant to the recall jurisdiction. The first was the Supreme Court’s decision in Commissioner of Inland Revenue v Redcliffe Forestry Venture Ltd.10 He relied on the following passage concerning the fraud exception to the finality of litigation:11
Where the claim alleging fraud is based on allegations concerning facts discovered since the judgment concluding the litigation, it must be shown they were not discoverable with reasonable diligence at the time of the previous proceeding. The same requirements of freshness, materiality and cogency that are imposed for admissibility of new evidence on appeal must be met. Evidence that was available at the time of trial, and could reasonably have been adduced, will only be considered in special circumstances.
[46] Redcliffe was not concerned with the recall jurisdiction. It was concerned with the jurisdiction of the Court to revisit final judgments on the basis of fraud. The recall jurisdiction is not limited to cases of fraud (see above at [36]), as Murren v Schaeffer illustrates.
7 At [15]–[18].
8 At [19].
9 At [20]–[23].
10 Commissioner of Inland Revenue v Redcliffe Forestry Venture Ltd [2012] NSC 94, [2013] 1 NZLR 804.
11 At [33].
[47] Nonetheless, I accept that the quoted passage expresses an important principle concerning the finality of judgments, and that that principle is relevant also to the recall jurisdiction. Final judgments generally cannot be challenged on the basis of facts12 that the challenging party could reasonably have put forward at the original hearing. Expressed in terms of the third of the Horowhenua County v Nash (No 2) categories, there is unlikely to be a very special reason justifying recall if the challenging party is relying on facts that it knew, or with reasonable diligence could have known, at the original hearing.13
[48] The second authority Mr Hunt relied on was Herron v Wallace.14 That case concerned the inherent jurisdiction of the Court to recall or rescind a perfected (that is, sealed) judgment. I consider Herron is inapplicable here. My wasted costs judgment remains unsealed and the present recall application is brought under r 11.9 of the High Court Rules. As Herron itself states, where a judgment has been sealed, r 11.9 has “no application”.15 It suffices to say that the test that applies in this case differs from the test that applied in Herron.
[49] In summary, in the present case, I consider that in determining whether for some “very special reason” justice requires that the judgment be recalled, the following questions arise:
(a)In making the wasted costs award, was I operating under a significant misunderstanding of the relevant facts?
(b)Had I been apprised of the correct facts, would I have made the wasted costs order?
12 The position is different for matters of law, as the first two categories of Horowhenua County v Nash (No 2) [1968] NZLR 632 (SC) show.
13 In Murren v Schaeffer [2019] NZCA 34, for example, the appellants could not have known at the time of the original hearing that Ms Schaeffer had been alerted by a third party that her security was not being accepted.
14 Herron v Wallace [2016] NZHC 2426, (2016) 23 PRNZ 620.
15 At [16].
(c)Is the Body Corporate relying on facts that it knew, or with reasonable diligence could have known, before I delivered my wasted costs judgment?16
In making the wasted costs award, was I operating under a significant misunderstanding of the relevant facts?
[50] The basis for making a wasted costs award is that the default of party A has caused costs incurred by party B to be wasted. Where, as here, party A’s default has led to the adjournment of a trial, that default will cause party B’s costs to be wasted only if party B was itself ready for the trial. If party B was not ready for the trial, its costs were going to be wasted regardless of party A’s lack of readiness, and so party A’s default will not have been causative.
[51] Party B, being the party seeking the wasted costs award, bears the onus of showing that party A’s default caused costs to be wasted. Party B therefore bears the onus of satisfying the Court that it was itself ready for trial.
[52] Where, as here, an adjournment is granted shortly before a trial, the need for party B to establish it was ready for trial will seldom receive attention. If party B applies for wasted costs, party A and the Court will generally assume that party B was ready. But in applying for wasted costs party B implicitly represents that it was ready for trial.
[53] I certainly understood Grimshaw, in asking for wasted costs, to be representing that it was ready for trial. Grimshaw had made this explicit in a memorandum that it filed on 5 July 2021, in response to the Body Corporate’s request for adjournment. Grimshaw said that its trial preparation “otherwise has been completed”.
[54] Consequently, when I awarded wasted costs to Grimshaw, I was satisfied that Grimshaw had been ready for trial at the time of the adjournment. It was on that understanding that I awarded Grimshaw wasted costs.
16 Usually this question would be asked by reference to the date of the original hearing. Grimshaw’s application for wasted costs was determined on the papers. The Body Corporate could, at any time up to the time I delivered judgment, have raised new facts for my consideration. For that reason, in this case I have asked this question by reference to when I delivered my judgment.
[55] To be clear, by “ready for trial” I mean that I understood Grimshaw was ready for a properly conducted trial. Relevantly, a properly conducted trial means one where the parties have complied with their discovery obligations, or where if there is any last-minute discovery (as often happens in complex litigation) the other party has a fair opportunity to deal with it.
[56] I now know that Grimshaw has discovered about 1,800 further documents since the July 2021 trial was vacated. There is a dispute between the parties as to the relevance of these documents. Grimshaw says the documents are of only peripheral relevance (for instance, because many of them are virtually identical to documents it had already disclosed), that few of them are within the categories in the tailored discovery order, and that it discovered them only out of an abundance of caution. The Body Corporate says some of the documents have high probative value.
[57] To resolve this dispute over the relevance of the recently discovered documents would require me to conduct a mini-trial. That is not appropriate on a recall application. Nor, had I been alerted to these issues when adjudicating on Grimshaw’s application for wasted costs, would I have conducted a mini-trial to assess the documents’ relevance and therefore Grimshaw’s readiness for trial. I would have been of the view that those assessments could only properly be made by the trial judge after trial.
[58] In summary, given what I now know about the discovery issues, there is serious doubt that Grimshaw was ready for trial. This is significantly different from my understanding of Grimshaw’s readiness when I awarded wasted costs.
[59] I conclude, therefore, that in making the wasted costs award, I was operating under a significant misunderstanding of the relevant facts.
Had I been apprised of the correct facts, would I have made the wasted costs order?
[60] As I have said (at [57]), if I had been alerted, when adjudicating on Grimshaw’s application for wasted costs, that Grimshaw had an additional 1,800 documents to discover, I would not have attempted to resolve the dispute over the relevance of the
documents and therefore over Grimshaw’s readiness for trial. Those matters would have seemed to me to require assessment after the substantive trial.
[61] I therefore would not have been satisfied that Grimshaw had been ready for trial. Consequently, I would not have made the wasted costs order. Instead, I would have reserved the question of wasted costs for determination after the substantive trial.
Is the Body Corporate relying on facts that it knew, or with reasonable diligence could have known, before I delivered my wasted costs judgment?
[62] Grimshaw contends that the Body Corporate knew, or should have known, of the discovery issues before the wasted costs judgment and failed to bring them to the Court’s attention. It says it is therefore not open to the Body Corporate now to revisit my decision.
[63] The Body Corporate did not know the extent of the discovery issues when I delivered my wasted costs judgment. It knew there were 27 documents that had not been disclosed until a few weeks before trial (the documents in Grimshaw’s nominations for the common bundle). On 17 August 2021, the Body Corporate’s solicitors expressed the view that it was improbable that those were the only documents that had not been disclosed. But that does not mean that the Body Corporate knew there were other undisclosed documents. It did not know that almost 1,800 further documents were to come.
[64] The next question is whether the Body Corporate could, with reasonable diligence, have known of the extent of Grimshaw’s discovery issues. In that respect, two matters bear noting. First, the Body Corporate had no obligation to check that Grimshaw was complying with its own discovery obligations. Secondly, solicitors have an important role to play in discovery.17 Concerns about compliance with discovery obligations are typically conveyed through solicitors. If one party’s solicitor states that they consider those obligations have been complied with, the other party’s solicitor, and the other party, should be entitled to rely on that.
17 This is reflected, for instance, in the discovery obligations placed on solicitors by r 8.13 of the High Court Rules 2016.
[65]After the Body Corporate’s solicitors raised concerns about the disclosure of
27 previously undiscovered documents in Grimshaw’s bundle nominations, Grimshaw’s solicitors responded on 1 July 2021 that they “do not consider that there are other documents that need to be discovered that have not been”. The Body Corporate and its solicitors were entitled to rely on that.
[66] The Body Corporate nonetheless remained concerned. In its memorandum dated 12 July 2021, the Body Corporate raised the possibility that it may not be satisfied with Grimshaw’s response. On 17 August 2021, the Body Corporate’s solicitors wrote to Grimshaw’s solicitors in response to the latter’s letter of 1 July 2021. It will be convenient to repeat relevant parts of that letter:
You have not explained why you consider there are no other documents that need to be discovered. It appears that there are other documents. … It is improbable that, in a discovery of over 10,000 documents, all documents withheld in error were also included in your client’s nominations.
Please confirm what steps were taken to identify that the 27 undiscovered documents that were nominated were the only 27 undiscovered documents.
[67] Grimshaw’s solicitors responded to that letter on 9 September 2021, saying they were reviewing discovery and anticipated filing and serving an updated affidavit of documents in a few weeks, with timing being difficult because of the lockdown.
[68] That the Body Corporate had residual concerns with Grimshaw’s compliance does not mean that it could, with reasonable diligence, have known of the extent of that non-compliance. Grimshaw’s solicitors’ letter of 9 September 2021 (which has to be read in the context of the earlier assurance of 1 July 2021) gave no indication that there were a very substantial number of documents still to be discovered.
[69] As at the date of my wasted costs judgment, all that the Body Corporate knew, or could have known with reasonable diligence, was that Grimshaw was going to provide an updated affidavit of documents.18 The Body Corporate had no reasonable means of knowing how many additional documents were to be discovered or whether they would cast doubt on Grimshaw’s readiness for trial.
18 The Body Corporate also knew of the 27 documents nominated for the common bundle. But these did not affect readiness for trial, as they were discovered some weeks before trial.
[70] I therefore find that the Body Corporate is not relying on facts that it knew, or with reasonable diligence could have known, before I delivered my judgment.
Conclusion, replacement order and costs
[71] Given my answers to the above questions, justice requires that I recall my judgment awarding wasted costs to Grimshaw.
[72] In place of that award, it is appropriate (for the reasons set out at [60]–[61]) to reserve the question of wasted costs for determination by the trial judge after the substantive trial.
[73] Given that recall, it is also appropriate to order Grimshaw to repay to the Body Corporate the sum of $67,544.75 that the Body Corporate paid under my judgment. The Body Corporate is also entitled to interest on that sum under s 10 of the Interest on Money Claims Act 2016, from 13 October 2021 (the date on which the Body Corporate paid Grimshaw).
[74] The Body Corporate is entitled to costs on its application. It sought reasonable costs on a solicitor-client basis. Claims for indemnity costs are made too readily.19 This is far from a case where indemnity costs are warranted. Costs on a 2B basis, with an allowance for second counsel, are appropriate.
Result
[75]I grant the Body Corporate’s application for recall.
[76] I recall my judgment in Body Corporate 207624 v Grimshaw & Co of 30 September 2021. In place of the order at [18] that the Body Corporate is to pay Grimshaw wasted cost in the sum of $67,544.75, I reserve the question of wasted costs for determination by the trial judge after the substantive trial.
19 Grimshaw also sought indemnity costs, on the basis the recall application was clearly unmeritorious. Both parties had exaggerated views of the merits.
[77] I order that Grimshaw repay to the Body Corporate the sum of $67,544.75, together with interest on that sum under s 10 of the Interest on Money Claims Act 2016, from 13 October 2021 until the date on which that sum (and all interest) is paid in full.
[78] Grimshaw is to pay the Body Corporate’s costs of this application on a 2B basis, with an allowance for second counsel.
Campbell J
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