Body Corporate 207624 v Grimshaw & Co
[2021] NZHC 16
•26 January 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2018-404-2107
[2021] NZHC 16
BETWEEN BODY CORPORATE 207624
Plaintiff
AND
GRIMSHAW & CO
Defendant
Hearing: 8 December 2020 Appearances:
D Bigio QC and A G Holden for the Plaintiff P Hunt and J Heard for the Defendant
Judgment:
26 January 2021
JUDGMENT (No.2) OF ASSOCIATE JUDGE R M BELL
This judgment was delivered by me on 26 January 2021 at 3:00pm
pursuant to Rule 11.5 of the High Court Rules
…………………………. Registrar/Deputy Registrar
Solicitors/Counsel:
David Bigio QC, Shortland Chambers, Auckland. Wilson Harle (A Holden), Auckland, for the Plaintiff
McElroys (P Hunt/J Heard), Auckland, for the Defendant
BODY CORPORATE 207624 v GRIMSHAW & CO [2021] NZHC 16 [26 January 2021] (No.2)
[1] Grimshaw & Co, the defendant, applies for particulars of two aspects of the body corporate’s claim and for further discovery. This is its second discovery application.1
[2] Grimshaws filed its application before the close of pleadings date, 30 November 2020. The case is to be heard for three weeks beginning 12 July 2021. The body corporate’s evidence is due on 22 February 2021. Grimshaws’ is due on 3 May 2021.
[3] I require the body corporate to give particulars on the first aspect, but not as extensively as Grimshaws sought. The second aspect is better dealt with by directing experts to confer. I direct the body corporate to file a further discovery affidavit to address one part sought by Grimshaws and to formalise informal disclosure it has made.
The particulars application
[4]The defendant seeks two particulars:
(a)Conduct and distribution agreement
The terms and provisions of the alleged valid and effective conduct and distribution agreement (CDA) which it is alleged ought to have been included in the CDA, including the terms provisions which would have been in an amended CDA and the manner in which the amended CDA would have provided for distribution of the settlement sums.
(b)Increased costs of remedial work
What local body requirements increased repair costs by reference to the:
(i)Local body requirements;
(ii)Dates the requirements came into force;
(iii)Steps the plaintiff was required to take associated with the local body requirements;
1 Body Corporate 207624 v Grimshaw & Co [2020] NZHC 34 is the first.
(iv)Additional cost which it is alleged was incurred in respect of each alleged local body requirement.
[5] There was no dispute as to the grounds on which the court orders particulars. The principles laid down in Price Waterhouse v Fortex Group Ltd and Platt v Porirua City Council were cited.2 I add one aspect. The purpose of requiring particulars is to make one side adequately inform the other of the case that it will set out to prove at trial, but it is not to make that side state another case that its opponent would wish it to make out.
[6] As background to the particulars application, I repeat my description of the case in my earlier discovery decision:3
[1] … Grimshaw & Co, the defendant firm of lawyers, acted for the body corporate and unit owners in a major leaky building case for the multi-level unit title development at Byron Avenue, Takapuna, Auckland known as Spencer on Byron. At the start of the case the Unit Titles Act 1972 was in force. Grimshaw & Co replaced other lawyers who had started the claim in 2007 with only the body corporate as plaintiff. On Grimshaw & Co’s advice, unit owners were added as second plaintiffs.4 Not all the unit owners were plaintiffs, but all owners were levied to pay the costs of the proceeding. In 2010 Grimshaw & Co prepared a “Conduct and Distribution Agreement” between the body corporate and plaintiff owners in the proceeding for the distribution of the settlement proceeds.5 Unit owners who were not plaintiffs were not parties to the agreement. During the proceeding, some owners sold but remained plaintiffs. They could not claim for costs of repair. Instead, they made claims for loss of value. Some plaintiffs discontinued.
[2] The leaky building case settled in 2013 and the law firm received the settlement proceeds. By then the Unit Titles Act 1972 had been repealed and replaced by the Unit Titles Act 2010.6 Differences arose how the settlement proceeds should be applied between the body corporate, the plaintiff owners and owners who had taken no part in the proceedings. Grimshaw & Co began an interpleader proceeding for directions how to divide the settlement proceeds. The matter was resolved at mediation. In April 2016 the court approved the terms for payment of the settlement proceeds.7
[3] The body corporate says that the conduct and distribution agreement was invalid and unenforceable. (I add that another way of putting its case is that the agreement was not fit for purpose.) It did not provide for owners who were not plaintiffs yet still asserted claims on the fund, nor for plaintiffs who
2 Price Waterhouse v Fortex Group Ltd CA 179/98, 30 November 1998, Platt v Porirua City Council [2012] NZHC 2445. See also High Court Rules 2016, r 5.26.
3 Body Corporate 207624 v Grimshaw & Co [2020] NZHC 34, at [1]-[23].
4 There were over 200.
5 The agreement is called a “settlement agreement” but both parties referred to it as a conduct and distribution agreement. That is a better description.
6 It came into force on 26 June 2011.
7 Body Corporate 207624 v Grimshaw & Co [2016] NZHC 715.
had sold their units. It was no use when the settlement proceeds were to be divided. The body corporate’s case is that Grimshaw & Co ought to have reviewed the agreement and recommended that it be amended, given changes in circumstances: the addition of claims for loss of value and the effect of the Unit Titles Act 2010 coming into force.
[4] The body corporate says that the time taken to resolve the division of the settlement proceeds delayed the start of remedial works. If funds could have been used at the start of 2014, the estimated repair costs were in the order of $26,000,000. The remedial work started in May 2018 and is now estimated to cost $37,500,000.
[5] The body corporate claims as damages the costs in dealing with the interpleader proceeding ($128,000), the costs of taking part in the mediation ($13,000), fees charged by Grimshaw & Co for the interpleader proceeding ($80,000), commission charged on the settlement sum while it was held in Grimshaw’s trust account ($45,000); and the increase in remedial costs (estimated at $11,360,000). The body corporate gives credit for interest on the settlement sum. It sues Grimshaw & Co for breach of contract and/or negligence.
[6] As well as denying liability generally, Grimshaw & Co pleads these affirmative defences:
(a)limitation under the Limitation Acts 1950 and 2010;
(b)contributory negligence;
(c)failure to mitigate;
(d)settlement; and
(e)res judicata.
As part of its case Grimshaw & Co puts causation in issue. Even if it was negligent, it did not cause all the losses claimed by the body corporate.
[7]It admits these facts (among others):
(i)It drafted the conduct and distribution agreement. The agreement’s terms are not in dispute.
(ii)It advised former owners to change their claims to loss of value and amended the pleadings accordingly.
(iii)It advised the body corporate to ratify the agreement.
(iv)It advised the body corporate to distribute the settlement proceeds according to the agreement.
(v)It did not advise the body corporate to change the agreement.
The conduct and discovery agreement
[8] More about the conduct and distribution agreement. That is not only to help understand the discovery applications, but also to comment on the
basis for the body corporate’s criticism of the agreement and of Grimshaw & Co for not recommending that it be reviewed.
[9] The agreement is between the body corporate and the unit owners who became plaintiffs in the proceeding – called “Proprietors”. Owners who were not originally parties to the agreement could become parties by signing up, paying their share of legal and professional fees and being added as plaintiffs. The agreement establishes a settlement committee to run the proceeding and to settle it. That is the “conduct” part of the agreement. The distribution part includes these provisions:
4Settlement funds
4.1Any distribution will be subject to the terms of the settlement.
4.2The balance of the settlement proceeds (“the Net Settlement Proceeds”) shall be held in an interest-bearing account with a New Zealand bank account nominated by the settlement committee pending distribution.
4.3Any monies/levies (including penalties and interest) due and owing from any Proprietor and/or plaintiff to the body corporate shall be deducted from that Proprietor’s contribution towards the cost of repairs as per the apportionment procedure in clause 4.5, and prior to any distribution in clause 4.6.
4.4All outstanding reasonable legal and experts’ costs incurred in the conduct and settlement of the Proceeding will be paid from the settlement proceeds.
4.5After appropriate deductions, as set out in clauses 4.1, 4.3 and
4.4 above, the Net Settlement Proceeds plus any accrued interest will be apportioned amongst the Proprietors according to the unit entitlements as set out in Deposited Plan 207624 and put towards each Proprietor’s contribution towards the cost of repairs to Spencer on Byron.
4.6In the event that the Net Settlement Proceeds are less than the amount required to repair the development, the balance required to pay for the repairs will be met by the raising of levies by the body corporate in accordance with the unit entitlements as set out in Deposited Plan 207624.
4.7In the event that the Net Settlement Proceeds are greater than the amount required to repair the development, the balance remaining after payment of the costs of repairs is to be distributed to the Proprietors in accordance with the unit entitlements as set out in Deposited Plan 207624.
[10] Under the agreement the settlement proceeds are held by the body corporate for the second plaintiffs beneficially to be allocated among them according to their unit entitlements. The body corporate will carry out repairs meeting the costs from levies imposed on all owners, not just plaintiffs. Non-
plaintiff owners will also be levied for the costs of repairs but will not receive any credit for any share of the settlement proceeds allocated to them.
[11] When the agreement was prepared, apparently all the plaintiffs were owners (rather than former owners). The agreement made no provision for plaintiffs who sold before settlement.
[12] As part of the background, there was a repair scheme under s 74 of the Unit Titles Act 2010. The scheme authorised the body corporate to impose levies for repairs but did not deal with distribution of settlement proceeds.8
[13]Sections 9 and 13 of the Unit Titles Act 1972 provided:
9 Common property
(1)The common property shall be held by the proprietors of all the units as tenants in common in shares proportional to the unit entitlement in respect of their respective units:
provided that nothing in this subsection shall affect the interests among themselves of the proprietors of a stratum estate in an individual unit.
(2)While the same person is proprietor of all the units, subsection
(1) shall apply as if there were different proprietors for each of the units.
(3)The proprietors of all the units may sell or lease part of the common property or may grant an easement over the whole or any part of it.
…
13 Actions by and against body corporate
(1)The body corporate shall be capable of suing and being sued in its corporate name and of doing and suffering all that bodies corporate may do and suffer.
(2)Without restricting the generality of subsection (1), the body corporate may sue for and in respect of damage or injury to the common property caused by any person, whether that person is a unit proprietor or not.
[14] While the body corporate did not own the common property, it could sue for damage to the common property.9 Because it did not own the common property, it would be accountable to the unit owners for any funds it received on account of damage to the common property. That is all the unit owners, not just the plaintiffs. It is therefore arguable for the body corporate that there were problems with the agreement right from the start because non-plaintiffs could require the body corporate to account to them for their share of the
8 The application for the scheme was made in November 2011 under CIV 2011-404-7460.
9 North Shore City Council v Body Corporate 188529 (Sunset Terraces) [2010] NZSC 158, [2011] 2 NZLR 289 at [57]-[58].
proceeds of the settlement, so that they could enjoy the same credits towards repair levies as the other owners.
[15] I was advised that at the time of the agreement it was assumed that damage to the complex could be apportioned 50 per cent more or less to common property and 50 per cent to damage to unit properties. In the light of more recent advice from consultants, the repair costs can be allocated 80 per cent to the body corporate and 20 per cent to unit owners.
[16] The body corporate’s case is that changes under the Unit Titles Act 2010 required Grimshaw & Co to review the conduct and distribution agreement. Section 54 of the 2010 Act provides:
54 Ownership of common property
(1)The common property is owned by the body corporate.
(2)The owners of all the units are beneficially entitled to the common property as tenants in common in shares proportional to the ownership interest (or proposed ownership interest) in respect of their respective units.
(3)Nothing in subsection (2) affects the interests among themselves of the owners of an individual unit.
The body corporate pleads:10
As a result of s 54 of the Act:
(a)The Plaintiff became the owner of the common property in its own right.
(b)All current unit owners had a beneficial entitlement as tenants in common in the common property proportional to their “ownership interest” (known under the Unit Titles Act 1972 as unit entitlement) in respect of their (sic) representative units.
(c)The Plaintiff was required to account to all unit owners for their share of any settlement/litigation proceeds received in relation to damage to common property in accordance with their respective ownership interests, regardless of whether a unit owner was a second plaintiff in the proceedings.
[17] Grimshaw & Co accept (a) and (b), but not (c). I also have my doubts as to (c). I give my reasons, if only to allow the body corporate to reassess its case. There may be another way it can claim. As I have set out above, under the 1972 Act the body corporate had to account to all owners for funds it received for damage to common property, but that did not carry through to the 2010 Act. Under the new Act the body corporate could receive funds for damage in its own right and decide how they should be applied, by resolution in general meeting or by a committee acting within delegated powers.
10 Amended statement of claim at [17].
[18] The new Act provides that the body corporate has repair and maintenance responsibilities not only for the common property but also any building elements and infrastructure that relate to or serve more than one unit.11 The body corporate’s responsibility for repairing and maintaining both common property and building elements and infrastructure that serve more than one unit was upheld in Wheeldon v Body Corporate (No 1).12 Just as the body corporate has a repair responsibility for both common property and building elements and infrastructure serving more than one unit, it also has standing to sue for damage to those parts of the unit title development that are part of its repair responsibility, even if it is not common property.13 Unit owners are required as plaintiffs only for damage to unit property not covered by the body corporate’s repair responsibility.
[19] Because the body corporate can receive funds for damage to both common property and some parts of unit property in its own right, it does not hold the funds as trustee or agent for the owners. In Small v Body Corporate 324525, the plaintiffs, dissident unit owners, submitted that the body corporate was required to account for the settlement proceeds of litigation to owners according to their ownership interests. I said:14
[36] … The reference to s 54(2) to unit owners being beneficially entitled to the common property as tenants in common in shares proportional to their ownership interests under s 38 might give the impression that the section creates some form of trust. That is not the case. The Act sets out extensively the responsibilities, governance, management, powers and duties of a body corporate and Part 2 subparts 12 and 13 without using the language or concepts of trust law. The unit owners’ beneficial entitlements in s 54(2) are triggered in relatively unusual circumstances, as under cancellation of a unit plan. A body corporate’s conduct of litigation is ultimately under the control of all unit owners in that they will authorise it in general meeting or the committee acting under delegation will authorise it and must report to the body corporate. There is no need or ground for separate accountability under trust law.
[20] It may also be noted that any surplus may be distributed under s 131 which provides that surplus funds are distributed among unit owners in the same proportions in which the money was raised. That is not necessarily according to ownership interests.
[21] In this case, that does not mean that the body corporate would have carte blanche how it dealt with the settlement proceeds. Assume that there was no agreement dealing with the distribution of the settlement proceeds. There would be claims on the fund: litigation costs, consultants’ costs, repair costs already incurred, future repair costs for damage to common property, future repair costs for damage to building elements and infrastructure that serve more than one unit, future repair costs for other damage to unit property, claims by unit owners for individual losses (including distress and costs of alternative accommodation while repairs are carried out) and claims for loss
11 Section 138(1).
12 Wheeldon v Body Corporate 324525 [2015] NZHC 884, (2015) 16 NZCPR 829, Wheeldon v Body Corporate 324525 [2018] NZCA 20, leave to appeal refused [2016] NZSC 125.
13 Body Corporate 324525 v Stent (No 2) [2017] NZHC 2857 at [137]–[150].
14 Small v Body Corporate 324525 [2018] NZHC 19 at [36].
of value by plaintiffs who had sold. While it is common for settlement proceeds to be applied to costs of litigation and consultants, then to repairs, there is not any single right way how the fund should be used.15 Because claims on the fund include those by unit owners in their own right, the body corporate does not have the only say in how the settlement proceeds are to be applied. A resolution in general meeting is unlikely to be effective to oust unit owners’ personal claims on the fund. On the other hand, those who elected not to become plaintiffs could presumably not claim a personal interest in the fund as they did not claim for any damage they had suffered.
[22] The body corporate’s claim against Grimshaw & Co may need to be assessed against the above considerations. The body corporate would have a major claim on the settlement fund in its own right but it would not be the only claimant. It would not have to account as agent or trustee to each owner, or to each plaintiff as the agreement seems to provide. It would have to work out some accommodation with plaintiffs who had sold.
[23] It is arguable for the body corporate that the agreement made in 2010 was not suitable as originally drafted because the body corporate would have to account to all owners, not just plaintiffs, for the settlement proceeds, but that later changes also meant that the agreement had to be reviewed. The agreement did not provide for plaintiffs who had sold their units and had loss of value claims, and under the 2010 Act the body corporate was entitled to claim a large part of the settlement sum in its own right without accounting as agent or trustee to the owners.
Particulars of the replacement conduct and distribution agreement
[7] I gave my discovery decision on the basis of the body corporate’s original statement of claim. Among other things it pleaded that if Grimshaws had advised the body corporate properly, a new conduct and distribution agreement would have been prepared and entered into by the body corporate and the owner plaintiffs in the proceeding and the settlement proceeds would have been distributed in accordance with that new agreement in February or March 2014. That would have avoided the delays caused by the defects in the original conduct distribution agreement.
[8] Grimshaws sought further discovery on the basis of this counterfactual. It sought documents to show what other owners would have negotiated for if presented with a new agreement. It saw this as a loss of opportunity case, where any damages should be reduced to reflect the uncertainties of the body corporate and other owners making a new conduct and distribution agreement. Similarly, it now asks for particulars of any new agreement to replace the original conduct and distribution
15 See a similar finding in Small v Body Corporate 324525 [2018] NZHC 19 at [34].
agreement, again with a view to testing whether other parties would have entered into the counterfactual agreement.
[9] It says that in loss of opportunity cases, a plaintiff alleging a loss of a valuable commercial opportunity must plead that, identify the opportunity with some particularity and say what the plaintiff would have done if the defendant had not been in breach. The plaintiff must also plead the percentage or proportion of the opportunity that was lost to set the amount of damages claimed. If the plaintiff says that the loss was 100 per cent certain, it must allege with some particularity the facts by which that certain outcome would have been achieved.16
[10] Grimshaws refers to loss of opportunity cases which considered whether another party would have entered into an arrangement with the plaintiff and discounted the damages awarded on account of the contingencies.17 Although Grimshaws did not refer to it, the leading authority for this line of cases is Allied Maples Group Ltd v Simmons & Simmons.18
[11] It says that there are not sufficient details in the pleading to know what a prudent solicitor would have advised and what changes to the conduct and distribution were required. Without those particulars it cannot prepare its case for trial because it cannot know if anyone would have agreed to an alternative, unknown agreement.
[12] In the meantime the body corporate has amended its pleading to make a case that does not rely on a counterfactual agreement. In the current statement of claim, the cause of action for breach of contract19 pleads that the conduct and distribution agreement was invalid and ineffective (paragraph 40), Grimshaws breached its contract with the body corporate by failing to advise of the defects in the conduct and distribution agreement, failing to recommend a new agreement, advising the body corporate to pass a resolution confirming that the conduct and distribution agreement was to be the basis for distributing the settlement proceeds, and advising that the
16 Citing Graham & Linda Huddy Nominees Pty Ltd v Byrne [2016] QSC 221 at [50].
17 Benton v Miller & Poulgrain [2005] 1 NZLR 66 (CA), Blackwell v Edmonds Judd [2016] NZSC 40, [2016] 1 NZLR 1001 and Wright v Lewis Silkin LLP [2015] EWHC 1897 (QB).
18 Allied Maples Group Ltd v Simmons & Simmons [1995] 1 WLR 1602 (CA) at 1609-1610.
19 The amendments for the cause of action in negligence are similar.
proceeds were to be divided in accordance with the agreement (paragraph 41). Paragraph 42 says that as a result of these breaches of duty:
(a)there was no valid and effective agreement for the claims regarding common property and the owner plaintiffs’ claims;
(b)there was no valid and enforceable process for the prompt distribution of settlement sum;
(c)the interpleader was required to decide how to distribute the settlement sum; and
(d)remedial works could not be started until May 2018.
There is no reference to an alternative agreement, except for the plea in paragraph 41(a)(v) of a breach of contract in not recommending a new valid and effective agreement.
[13] The body corporate explains its case this way. Grimshaws was under an ongoing duty to advise the body corporate about the conduct and distribution agreement and about confirming it and was liable for the consequences of its negligence in not giving advice that it should have. It says that to escape liability on a causation basis, Grimshaws will need to prove that any advice it gave about amending the conduct and distribution agreement would have been ignored. In its submission, Grimshaws will not be able to do that because that will involve the clients acting against their best interests. Grimshaws cannot rely on uncertainties of hypotheticals created by its own acts and omissions. The actual disputes and associated losses arose because of reliance on Grimshaw’s faulty advice and omissions.
[14] The body corporate denies that it has to speculate on the terms of a hypothetical conduct and distribution agreement. Mr Bigio QC proposed in general terms how the body corporate would have gone about a new agreement. There were four groups who could potentially be parties to the agreement: the body corporate, the second plaintiffs
in the leaky building proceeding who remained owners of their units, the second plaintiffs who had sold their units and had loss of value claims, and those unit owners who were not plaintiffs in the leaky building claim. As a party to any new agreement, the body corporate would ensure that funds from a settlement could be applied to remedy defects and damage to common property and those parts of unit property for which it had repair and maintenance responsibilities.20 Plaintiffs who had not sold would sign up. They would share the interest in having defects and damage remedied. If they did not sign up, as owners they would remain liable for levies to fund the litigation and repairs but would not receive any benefits from the litigation apart from the satisfaction of seeing the common property repaired. In that regard they would be in the same position as non-plaintiffs, who would pay levies but not receive any direct benefits from a settlement. Non-plaintiffs did not need to be parties to a new conduct and distribution agreement. As to loss of value plaintiffs, if they did not become parties to the agreement, at trial the judge would assess their losses separately. In settlement negotiations they would have separate representation. In the body corporate’s submission such an agreement would have been more workable than the mess it ended up with because of Grimshaws’ failure to recommend a new agreement. The uncertainties that Grimshaws suggests should reduce its liability would not have arisen.
[15] The body corporate also notes that when questions of hypothetical agreements have been proposed, the courts have not required the specific terms to be proved but have instead accepted in general terms what such agreements would have said.21
[16] There are competing versions of the way this case will play out. Under Grimshaws’ view, there will be an inquiry about a hypothetical negotiation of an alternative agreement to see if all those with a possible interest would agree to terms which the body corporate must specify now, so that Grimshaws can present evidence as to the chances of reaching such an agreement. The body corporate’s claim will fail or be reduced in so far as it does not show that there would be such a hypothetical agreement. On the other hand, the body corporate’s case is that if Grimshaws had
20 Under the Unit Titles Act 2010, ss 84(1)(p) and 138(1)(d).
21 Benton v Miller & Poulgrain [2005] 1 NZLR 66 (CA), Blackwell v Edmonds Judd [2016] NZSC 40, [2016] 1 NZLR 1001.
done their job properly, putting a new agreement in place would not have been unduly difficult. It would have followed Grimshaws’ advice to make a new agreement, as it was in its interests to do so and most plaintiffs would have done so too. For those who did not, there was the option of staying out of the agreement, but that would not have presented the difficulties which Grimshaws hopes for.
[17] In a particulars application it is not my job to say whether the body corporate is on the right track. That is for decision at trial. But I can make sure that Grimshaws is adequately informed of the case it has to meet. The body corporate’s exposition of its case in submissions went beyond its pleadings. That is understandable. All the same, I do not consider that the body corporate’s pleading goes far enough in explaining that, if Grimshaw’s had advised it appropriately, making a new conduct and distribution agreement would have been relatively straightforward and there would not have been difficulties in reaching agreement. To that extent, particulars are required, but no more than that:
[18]The particulars required are:
(a)What in general terms would the agreement have provided? Include in that how the proceeds of litigation would have been applied.
(b)What groups would be parties to the agreement?
(c)How would the body corporate have dealt with those who did not sign the agreement?
Particulars of local authority requirements
[19] The body corporate has pleaded that the increased repair costs and additional local body requirements as a result of the delay have cost it at least $11,015,000. Grimshaws want it to give particulars of changes in local authority requirements between 2014 and 2018 and how they affected the scope of repairs. Otherwise it will have to work out from all standards that in force from October 2013 onwards which of them changed and were relevant to the repairs in this case.
[20] The matter is borderline for particulars. In building defects cases plaintiffs are not required to give particulars of the local authority requirements for carrying out the remedial work (even though they are required to state how the defendants allegedly breached applicable standards when they did their work, including particulars of those standards). Instead building standards for remedial work are usually a matter of expert evidence by quantity surveyors and building surveyors. I am not aware of any case where a plaintiff has been required to give particulars of required building standards for remedial work. Counsel for Grimshaws did not cite any.
[21] During the hearing, I asked whether the matter could be dealt with by directing experts to confer on this aspect. Neither party resisted strongly.
[22] Accordingly, by the end of February 2021 the body corporate’s experts are to confer with Grimshaws’ experts on quantum and explain how local body requirements have affected the increases in remedial costs. Grimshaws may dispense with that if its experts consider that the body corporate’s evidence has adequately informed them. The experts may report to the parties but they are not required to report to the court.
The application for further discovery
[23] Grimshaws’ amended application sought further discovery under r 8.19 of the High Court Rules 2016 setting out five groups of documents. The first was listed in a schedule. As well it sought an order that the body corporate file a correcting affidavit under r 8.23 and directions for ongoing discovery. By the hearing some matters had been resolved. For the documents in the schedule, I only need to deal with items 2, 5, 10, 11, and 12. Grimshaws withdrew its request for the second group. I am still required to give decisions on the third, fourth and fifth groups.
[24] There are recognised principles for applications for further discovery.22 Counsel did not disagree on those principles. In this case there is a further aspect – Grimshaws’ earlier discovery application.
See Assa Abloy (NZ) Ltd v Allegion (NZ) Ltd [2015] NZHC 2760, [2018] NZAR 600 at [14],
Lighter Quay Residents’ Society v Waterfront Properties (2009) Ltd [2017] NZHC 818 at [16]-
[17] and Minister of Education v James Hardie New Zealand [2019] NZHC 245 at [46]-[50].
[25] As background, the parties agreed to targeted discovery. The parties’ joint memorandum of 13 June 2019 reflects careful efforts to define relevant classes of documents. It also has this catch-all provision:23
Documents which do not fall into the categories listed below but are relevant to the matters in issue by reference to the pleadings must also be discovered.
[26] One class is relevant to some of the discovery questions in this case: all documents and correspondence relevant to the interpleader proceeding, the interim distribution of funds and the resolution of the interpleader. Documents to be disclosed included correspondence of the body corporate’s lawyers with Grimshaws, with the body corporate committee, with owners and former owners, the settlement agreement and pleadings. The date range was October 2013 to April 2016. A range of key people was specified including the body corporate secretary and committee members, as well lawyers and consultants.
[27] The body corporate filed an initial affidavit of documents, which records steps taken to search for and obtain documents from lawyers, consultants, contractors, as well as its own records. It says that it has disclosed over 20,000 documents. It made further discovery after my decision of 29 January 2020. It has also collated more documents and disclosed them informally. It acknowledges that it will need to file another discovery affidavit.
[28] In its first discovery application Grimshaws had sought documents under these general heads: building defects litigation, scheme under s 48 of the Unit Titles Act 1972 / s 74 of the Unit Titles Act 2010, the conduct and distribution agreement, documents concerning non-plaintiffs and former owners, draft interpleader documents and remediation works. The documents sought were relevant to two aspects of the case: what would have happened if it had advised the body corporate that the conduct and distribution agreement was defective; and whether the interpleader and efforts to resolve the distribution of the settlement proceeds caused the losses in the body corporate’s claim. Again some matters were resolved by consent ahead of the hearing. Reflecting the terms of Grimshaws’ application, the discovery directions were detailed. I held that some classes of documents did not need to be disclosed, mainly
23 [2(c)].
because it would be disproportionate. That included: documents held by the body corporate’s former committee members that were not in the body corporate’s actual possession; documents going back before the flaws in the conduct and distribution agreements became apparent to show what people might have negotiated for in a new agreement; and documents about the s 74 scheme.
[29] Given the discovery to date and that Grimshaws has applied once already for further discovery, there is a question whether it can apply again. Grimshaws does not specifically say that the body corporate did not comply with my earlier discovery order. The body corporate objected that the new discovery application was res judicata, but that is not right. Res judicata applies to substantive decisions and a discovery decision is only procedural. Where a discovery application fails, a second application for the same matter is caught by r 7.52 of the High Court Rules 2016:
7.52Limitation as to second interlocutory application
(1)A party who fails on an interlocutory application must not apply again for the same or a similar order without first obtaining the leave of a Judge.
(2)A Judge may grant leave only in special circumstances.
When the court has decided on an application for further discovery that certain documents or groups of documents do not need to be discovered, a fresh application for discovery of the same documents comes under the rule.
[30] There are also cases of second discovery applications outside r 7.52, that is, where discovery has been ordered and claims have not been dismissed. Such second applications may nevertheless be abusive. The party against whom fresh discovery is sought may have sound grounds for objecting that they should not be vexed by fresh discovery applications when the extent of discovery has been fixed after an opposed hearing and they have complied. In AAM Ltd v Exotica Enterprise Ltd, I considered that as a general rule a decision on further discovery should stand, but there may be ways a party could get some traction: by showing that the other side had not complied with the earlier discovery order or that in the light of discovery made so far the earlier order should be varied.24
24 AAM Ltd v Exotica Enterprise Ltd (No 2) [2018] NZHC 3031 at [11].
[31] Grimshaws submitted that my earlier discovery decision set categories for discovery, but that in its current application it sought disclosure of specific documents, and therefore my earlier decision did not apply. I do not accept that. Where I ruled that a class of documents did not need to be discovered, that meant all documents within that class. Grimshaws’ application did not expressly seek leave under r 7.52 and did not attempt to show special circumstances. When I raised this in the hearing, counsel sought leave, but I am not persuaded that there are special circumstances. In my earlier decision I was concerned to keep discovery proportionate, so as to save the parties making extensive searches for documents of little importance. That consideration still applies to requests for individual documents as well as groups of documents.
[32] Another preliminary matter needs to be noted. Some of Grimshaws’ discovery requests are for its “loss of opportunity” defence, that any damages need to be reduced to allow for the uncertainty of the body corporate making a new conduct and distribution agreement with plaintiffs and other owners. While I did not order the body corporate to give particulars for this, the matter is different for discovery. In deciding relevance for discovery the case of the party seeking discovery is assumed to be true.
The first group - documents in the schedule to the application.
2 - All documents in which it was agreed and/or determined what the terms of the CDA should contain and/or why.
[33] In its first discovery application Grimshaws sought discovery of documents relating to the conduct and distribution agreement, including documents held by lawyers, the body corporate secretary and committee members. The date range for the documents was May 2010 to April 2016. My decision held that it would be disproportionate to require discovery of documents held by former committee members. I also doubted whether such documents were in the control of the body corporate.
[34] Here Grimshaws seeks documents going back before the conduct and distribution agreement was finalised in June 2010. It wants to see communications by committee members about the terms of the proposed agreement, as this will cast light
on what people might have negotiated for in a new agreement. The discovery sought would require committee members at that time, Wayne Powell, Judith Block, Peter Johnson, Roger Handisides and Kevin Byrne to search their computers for emails from March to June 2010.
[35] Grimshaws correctly submitted that I was wrong in my earlier decision to doubt that the body corporate had control of documents of former committee members relating to body corporate business. Referring to Equiticorp Industries Group Ltd v Hawkins, it showed that on the expiry of an agency an agent is under a duty to deliver to their principal all documents that came into existence for the purpose of the agency relationship.25
[36] The documents now sought – about formation of the agreement – were not directly covered by my earlier decision, which was for documents after the agreement was finalised. All the same, the reasons I gave for rejecting discovery by former committee members still apply. It would be disproportionate to expect them to go back into their computer records (if they still have them) going back 10 years, to see if they have any communications on the proposed terms of the agreement.
5 - Communications with Castle Holdings Ltd, Mocles Holdings Ltd or their representatives about becoming second plaintiffs in the building defects proceeding
[37] In their earlier application Grimshaws sought documents concerning the non- plaintiffs and the former owners in the building defects case relating to the litigation in the date range 2007 to present. The documents sought included emails, letters, file notes and like documents. The key people for the documents included the body corporate, the committee, the body corporate secretary and various individuals and law firms.
[38] In this application Grimshaws wants Mr Powell, one of the committee members, to search his work emails for the period January 2010 to October 2013 using the search terms “Mocles”, “NZ Castle”, “Greg Remington” and “Chris Morris”. There is correspondence where Mocles Holdings Ltd was invited to become a plaintiff
25 Equiticorp Industries Group Ltd v Hawkins [1994] 2 NZLR 738 (HC).
in the proceeding. It declined. Later it was prominent in objecting to the distribution of the settlement sum and was a party to the interpleader. Grimshaws believes that further communications with Mocles and its representatives may cast light on how it would have acted when presented with a new conduct and distribution agreement.
[39] In my earlier decision I held that discovery of documents going back before anyone knew there was a problem with the conduct and distribution agreement was not required for Grimshaws’ loss of opportunity question.26 Instead the documents filed in the interpleader proceeding could provide useful information. I see no reason for departing from that. The new application goes to a sub-class of the documents which I decided did not need to be disclosed. I see no special circumstances. Again it would be disproportionate to make Mr Powell search for emails going back seven to ten years ago. Disclosure is not required.
10 – Whiteboard print-out of 22 January 2015
[40] The minutes of a meeting of the body corporate committee on 22 January 2015 refer to advice given by the body corporate’s solicitor, but do not say what the advice was. The minute records:
The settlement committee attended a meeting and the determination was white boarded and a copy of the white board was given to all attendees. This document is important as it will support the body corporate’s future documents.
[41] The context is the body corporate’s actions up to resolution of the interpleader proceeding. Grimshaws says that the strategy recorded on the white board is relevant as it may show that the body corporate itself delayed the distribution of the settlement proceeds. It may also have a bearing on how the body corporate would have reacted when presented with a new conduct and distribution agreement. Grimshaws want Robert Khoo and Keith Weatherburn, former committee members, to search their email addresses between 1 January 2015 and 30 January 2015 using the search term “whiteboard”.
26 At [42]-[50].
[42] In its earlier application Grimshaws sought documents relating to the interpleader, specifically drafts of documents. It did not specifically ask for documents such as the whiteboard. I do not regard this matter as covered by my earlier decision. But there is a good reason why Grimshaws would not have sought disclosure of documents such as the whiteboard. It is privileged. Section 57(2) of the Evidence Act 2006 says:
A person who is a party to a dispute of a kind for which relief may be given in a civil proceeding has a privilege in respect of a confidential document that the person has prepared, or caused to be prepared, in connection with an attempt to mediate the dispute or to negotiate a settlement of the dispute.
[43] The body corporate opposed disclosure, saying that the document was not relevant and the body corporate secretary did not have it. Under my earlier decision, former committee members should not be required to search for old emails. But when I raised the question, it also claimed privilege. While it may be relevant (although that seems tenuous), the whiteboard was clearly privileged and remains privileged. It is also disproportionate to require discovery from former committee members. There is no point in ordering disclosure.
11 – Emails of Ken Weatherburn and Rob Khoo in August 2014
[44] Hotel Management Takapuna Ltd owned unit property in the complex but was not a plaintiff in the building defects case. On 27 August 2014 it sent a circular letter to other owners who were not plaintiffs, drumming up support for its position in the dispute as to the distribution of the settlement proceeds and asking for proxies. The letter refers to email requests by former committee members, Messrs Khoo and Weatherburn, for proxies. Grimshaws want the body corporate secretary to search its records for their emails. They are said to be relevant because they may cast light on how the body corporate would have acted when presented with a new conduct and distribution agreement.
[45] The documents are about the dispute leading to the interpleader but are not covered by the discovery sought in the earlier application. Messrs Khoo and Weatherburn’s own emails about obtaining proxies for a general meeting are not within the control of the body corporate. They belong only to those seeking proxies.
Grimshaws accepted that the agency principle does not apply here. The body corporate can be required to disclose the emails only if they are stored within its own systems.
[46] I take it that these emails did not come to light when the body corporate searched its records for documents relevant to the dispute over the settlement proceeds. Grimshaws have not shown reason to be suspicious of the body corporate’s discovery efforts. Under r 8.14 of the High Court Rules 2016 there is a duty of reasonable search. That led Associate Judge Doogue to comment in NSK Ltd v General Equipment Co Ltd that there is no absolute obligation to seek out and discover every arguable document.27 It is not necessarily the case that the body corporate would hold copies of Messrs Khoo and Weatherburn’s emails. Grimshaws want a check made on the off-chance that the body corporate may have copies. To accede to that would turn a reasonable search into an absolute search. The relevance of the emails is not clear. Grimshaws want to inspect them just in case they have anything to say to support its loss of opportunity arguments. Given the uncertain relevance it would be disproportionate to require the body corporate to search further for the emails.
12– Report of Robert Khoo to the body corporate committee tabled 19 June 2014
[47] The minutes of a meeting of the body corporate committee on 19 June 2014 refer to Mr Khoo tabling a report on the current status of remedial works. The document is relevant to whether the dispute about allocating the settlement proceeds delayed remedial works. Mr Khoo advised by an email of 15 September 2020 that after a thorough search he did not have any of the listed documents. He explained that his computer crashed in September 2016 and any hard copies have been long since destroyed. Grimshaws does not question that.
[48] In my earlier decision I held that it would be disproportionate to require former committee members to search for documents for discovery and this matter illustrates the point. I do not make any order requiring disclosure of documents in Mr Khoo’s control. I also take it that the report would otherwise have been picked up when the
27 NSK Ltd v General Equipment Co Ltd [2015] NZHC 1979 at [24].
body corporate secretary’s records were searched. I have not been given reason to believe that the body corporate did not make a reasonable search.
The third group – reports provided to, or invoices presented at, body corporate committee meetings relating to the issues in the proceeding, including relating to the issues in the proceeding, including relating to the conduct and distribution agreement, re-scoping repairs, contracting for repairs, and distribution of the settlement funds
[49] Grimshaws says that the committee meeting minutes refer to reports given to the committee. In some cases the reports are attached to the minutes but not all of them. It wants the body corporate to disclose them all.
[50] In response the body corporate says that it has disclosed all documents. Documents were presented to committee meetings but it may not be apparent from discovery whether they were. They were listed separately. It was confident in its discovery.
[51] I take as a possible example that invoices might be presented at a committee meeting for approval for payment. The minutes might show that payment is approved, but the invoices may not be attached to the minutes. But the body corporate would separately disclose the invoices as documents relevant to its claim.
[52] The matter comes to this: should the body corporate be required to cross-check the committee minutes against its other discovered documents to confirm that every relevant document referred to in the minutes has been separately disclosed? It is unlikely that any have been missed out. There are minutes of 128 committee meetings. I estimated that it might take twenty minutes per meeting to cross-check discovery of documents listed in its affidavits of documents. Grimshaws’ counsel did not disagree. That means that more than forty hours would be required to check on the off-chance that a document might have been missed. That is disproportionate. Besides it is oppressive at this stage of the case where the body corporate is preparing its evidence.
Fourth group – communications with and documents relating to meetings with parties carrying out the mock-up works, documents recording decisions to engage in the work, written instructions to complete work, contracts for rescoping/repair work, communications with the Hotel operator to obtain
access to units and authority to deconstruct parts of the units, payment claims supported by timesheets, reports and invoices, project manager, or architect/designer, or engineer to the contract, or quantity surveyor correspondence with the plaintiff, file notes or observation records and payment schedules related to the 2014 and 2015 mock-up works, and the 2014- 2018 re-scoping
[53] Under this head Grimshaws sought documents held by the body corporate’s agents and current and former committee members. Five were named.
[54] Under category 6, the original tailored discovery order required the body corporate to disclose all documents relating to the increase in the costs of remedial works. The description of documents required went to all the documents typically found in a building defects case involving remedial works. The body corporate says that it has complied with that order. That is subject to one matter, the next group. My discovery decision also required the body corporate to disclose documents going to remedial works.28 On an application for further discovery under r 8.19 of the High Court Rules 2016, the party seeking further discovery must show grounds for believing that the other side has not discovered documents that it ought to have. Grimshaws has not put forward anything serious to suggest that documents were missing. I was not referred to any evidence or other documents that would suggest gaps in discovery under this head.
[55] The application seemed to be targeted at documents held by former committee members. That went quite against my earlier decision that they should not be bothered with discovery requests. Notwithstanding that, the body corporate did check with its former committee members who confirmed that they did not have anything to add to discovery. I decline to order discovery under this head.
Fifth group – All documents relating to the dispute between the body corporate and Babbage and the resolution of the dispute, including any claim, arbitral or other proceeding against Babbage or its architects in their personal capacity, and any negotiation of and settlement of the dispute
28 At [52](c).
[56] The body corporate acknowledges that documents under this head are relevant. While it has made informal disclosure, it has not included them in a formal affidavit of documents. It says it will do so.
Ongoing discovery
[57] Remedial works have continued during the proceeding. As new documents come into existence they need to be discovered. Grimshaws says that the body corporate has not been doing this. There will be a direction for the body corporate to make a final discovery affidavit by the time it is to serve its evidence, 22 February 2021. That is to include documents in the fifth group which it has disclosed informally and any further relevant documents that have come into existence since it last made discovery.
A correcting affidavit?
[58] The body corporate’s last affidavit of documents was sworn on 11 March 2020. Grimshaws says that it was defective because there are other documents that should have been but were not disclosed. I understand that to mean that the body corporate had fallen behind in updating its discovery. It wants that affidavit to be corrected under r 8.23. It cited NZX Ltd v Ralec Commodities Pty Ltd, a case of over-discovery where a correcting affidavit was ordered.29 That is not required here. In cases where further discovery is ordered under r 8.19, the fresh affidavit has the correcting effect. An additional affidavit under r 8.23 is not required.
Outcome
[59] By 22 February 2021 the body corporate is to give the particulars in paragraph [18] above.
[60] By the end of February 2021 the body corporate’s experts are to meet with Grimshaws’ experts on quantum and explain how local body requirements have affected the increases in remedial costs. Grimshaws may dispense with that if its
29 NZX Ltd v Ralec Commodities Pty Ltd [2014] NZHC 376.
experts consider that the body corporate’s evidence has adequately informed them. The experts may report to the parties but they are not required to report to the court.
[61] By 22 February 2021 the body corporate is to file and serve a final updating affidavit of documents, which is to include all documents of which it has made informal disclosure and all documents relating to the Babbage dispute in the fifth group of Grimshaws’ discovery application. It is to provide electronic copies of documents for inspection at the same time. Aside from that, the body corporate is not required to make further discovery.
[62] I ask counsel to confer as to costs. If they cannot agree, memoranda may be filed. I understand that costs on my earlier discovery application have not been resolved. That should also be addressed if it has not been to date.
[63]Leave is reserved to apply for further directions.
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Associate Judge R M Bell
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