Body Corporate 423090 v QBE Insurance (International) Limited
[2019] NZHC 2733
•25 October 2019
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2016-409-836
[2019] NZHC 2733
BETWEEN BODY CORPORATE 423090
Plaintiff
AND
QBE INSURANCE (INTERNATIONAL) LIMITED
First Defendant
AND
QBE INSURANCE (AUSTRALIA) LIMITED
Second Defendant
AND
FORTIS CONSTRUCTION NZ LIMITED
Third Defendant
AND
STRUCTEX HARVARD LIMITED
Fourth Defendant
AND
CALIBRE CONSULTING LIMITED
Fifth Defendant
AND
C1 GLOUCESTER STREET LIMITED
Sixth Defendant
AND
ERNEST FREDERICK MICHAEL MR DUVAL
Seventh Defendant
AND
STUDIO2 LIMITED
Eighth Defendant
Hearing: 15 October 2019 Appearances:
A Murray for Plaintiff
C R Langstone for First and Second Defendants
Judgment:
25 October 2019
BODY CORPORATE 423090 v QBE INSURANCE (INTERNATIONAL) LIMITED [2019] NZHC 2733
[25 October 2019]
JUDGMENT OF ASSOCIATE JUDGE LESTER
(in respect of application for discovery by second defendant against the plaintiff)
This judgment was delivered by me on 25 October 2019 at 12.00pm pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar 25 October 2019
[1] This is the second of two judgments covering discovery applications heard on 15 October 2019.
[2] An interim judgment concerning the plaintiff’s application for further and better discovery against the first defendant, QBE Insurance (International) Ltd and the second defendant, QBE Insurance (Australia) Ltd (collectively “QBE”) by the plaintiff, Body Corporate 423090, was delivered on21 October 2019.1
[3] This judgment concerns QBE’s application for further and better discovery against the plaintiff.
The application by QBE
Context
[4] The Pacific Tower building in Christchurch, which is the subject of this proceeding, contains the Rendezvous Hotel which owns approximately 60 per cent of the units in the building. At the time the building was finished and at the time of the Canterbury earthquakes, the Rendezvous Hotel was owned by the sixth defendant. The sixth defendant sold the hotel units to Tulshyan Holdings Ltd (“Tulshyan”) in 2013; that company is not listed as a party to this proceeding.
[5]QBE seeks an order for discovery against the Body Corporate of:
All documents relating to the ownership change of the Rendezvous Hotel in 2013 including but not limited to any documents created or considered in relation to due diligence.
For the avoidance of doubt QBE seeks that the discovery includes Tulshyan’s conveyancing file for the purchase of the hotel.
[6] The Body Corporate opposes the application on two grounds. The first is that as the documents are held by Tulshyan, which is not a party, they are documents that the Body Corporate does not have control over. The second is relevance.
1 Body Corporate 423090 v QBE Insurance (International) Ltd [2019] NZHC 2697.
Unit holders are in substance the plaintiffs
[7] QBE relies on the decision Body Corporate 164399 v Auckland City Council.2 The issue in that case was whether Body Corporate 164399 could be ordered to discover documents believed to be held by the owners of two units who were not named as plaintiffs, but who shared an interest in the common property which was the subject of the claim by Body Corporate 164399.
[8] QBE in its submissions properly notes that under the Unit Titles Act 1972, which was the Act that was in issue in Body Corporate 164399, the Body Corporate sued “effectively acting as agent of the owners of the common property” as it was the unit holders who owned the common property as tenants in common.3
[9] Associate Judge Abbott in Body Corporate 164399 noted the definition of “plaintiff’ and “party” in the High Court Rules as follows:4
1.3 Interpretation
…
party means any person who is a plaintiff or a defendant or a person added to a proceeding
plaintiff means the person by whom or on whose behalf a proceeding is brought.
[10] Given the Body Corporate brought the claim as agent of the unit holders, His Honour held that the two unit holders who were not named as plaintiffs were within the definition of “plaintiffs” as the claim was brought on their behalf.
[11] In the present case, Ms Murray for the Body Corporate noted that the Unit Titles Act 2010 gives the Body Corporate an insurable interest in the whole building (both common areas and the units). Because the insurance policy upon which the Body Corporate sues is in its name, only the Body Corporate can bring the present claim which is founded in contract.
2 Body Corporate 164399 v Auckland City Council, HC Auckland CIV-2004-040-2395, 20 April 2009.
3 At [23], quoting Body Corporate No 189855 v North Shore City Council HC Auckland CIV-2005-404-5561, 25 July 2008 at [67].
4 At [21].
[12] The proceeds of the insurance policy are held by the Body Corporate pursuant to s 136(4) of the Unit Titles Act 2010 which provides:
Money paid by the insurer under the principal insurance policy must be applied in or towards reinstatement of the unit title development unless the body corporate decides otherwise by special resolution at a general meeting.
[13]“Principal insurance policy” is defined in s 134(1) as being:
in relation to the units or common property shown on a unit plan, means the insurance policy effected by the relevant body corporate in accordance with section 135.
[14]Section 135(1) relevantly provides:
The body corporate must insure and keep insured all buildings and other improvements on the base land to their full insurable value.
[15] Whether the proceeds of this proceeding seeking to enforce the policy terms (assuming it is successful) are spent on repairs to the common areas and/or the units or are dealt with as directed by a general meeting pursuant to s 136(4) of the Unit Titles Act 2010, the funds will be used for the benefit of the unit owners. The plaintiff in this case brings a claim in respect of the entirety of the building.
[16] Ms Murray relied on the decision of Associate Judge Osborne in Body Corporate 78462 v IAG New Zealand, where a unit holder dissatisfied with the manner in which the Body Corporate was running an insurance claim for earthquake damage to the multi-unit complex in which he owned a unit, sought to be joined as a further defendant in the proceeding. The Judge held: 5
The reality is that [the applicant’s] role would be more akin to that of a plaintiff pursuing a different outcome. In terms of rights under the insurance policy, it could not do that in a separate proceeding because it is not a party to the contracts of insurance. Accordingly, there is not the capacity for a separate proceeding to be issued by [the applicant] followed by a consolidation of the two proceedings.
[17] Ms Murray said the case was authority for the proposition that the unit owners in the present case were not able to bring a claim in their own right. However, in my
5 Body Corporate 78462 v IAG New Zealand [2016] NZHC 320 at [50].
view, that only reinforces the fact that the Body Corporate is, in relation to the damage to the units, bringing this claim on behalf of the owners of the units.
[18] That the Body Corporate is deemed to have an insurable interest in the units means the Body Corporate can insure the whole building as required by s 135 of the Unit Titles Act 2010 with obvious advantages in co-ordinating issues arising from an insurance claim that affects multiple units.
[19] The Body Corporate, however, can only bring a claim on behalf of the unit owners. An insurance claim is not brought in respect of the units for the Body Corporate’s benefit as it does not have the legal or beneficial ownership of the units.
[20] This is consistent with the position as it was under the 1972 Act where a body corporate bringing a claim in respect of damage to the common property brought the claim as agent of the owners of the common property, which under the 1972 Act were the unit holders. Under the new 2010 Act, the body corporate is the owner of the common property with the unit holders having a beneficial entitlement according to their ownership interests.6 The Body Corporate does not now bring a claim in respect of the common property as agent of the unit owners as such is now owned by the Body Corporate, but it brings a claim in respect of the units as agents for the owners.
[21] The approach taken by Associate Judge Abbott in Body Corporate 164399 to claims brought by the Body Corporate in respect of the common property is directly applicable to claims brought under the 2010 Act by a body corporate in relation to damage to the units.7
[22] In my view, the change to the way common property is held, brought about by the Unit Titles Act 2010, means that it can no longer be said that unit holders are persons “on whose behalf a proceeding is brought” as per the definition in the High Court Rules where the claim is only in respect of the common property.
6 Unit Titles Act 2010, s 54.
7 Body Corporate 164399 v Auckland City Council, above n 2, at [23] – [31].
[23] That the Body Corporate holds the common property for the unit holders who have the beneficial interest in the common property does not mean the Body Corporate is bringing the claim on the unit holder’s behalf. If having a beneficial interest in the outcome or proceeds of litigation was enough to make someone a plaintiff, then beneficiaries in claims brought by trustees would become parties, which is not the case.
[24] However, the present claim is for the entirety of the building. I conclude that Tulshyan is to be considered a plaintiff and is therefore a party to this proceeding as the Body Corporate has brought this claim on behalf of the owners of the units as well as in respect of the common property.
[25] While “[t]he consequence of this finding is that the owners of units … have discovery obligations”, 8 the discovery application is against the named plaintiff, the Body Corporate, which is only obliged to produce documents under its control. Accordingly, whether the documents held by Tulshyan are under the named plaintiff’s control becomes the key issue.
Control
[26]The approach is set out by Winkelmann J in Dotcom v Attorney-General:9
[63] The starting point is that a party is obliged to discover documents in the parties’ possession or control. [High Court Rule] 1.3 provides:
Control, in relation to a document, means –
(a)possession of the document; or
(b)a right to possess the document; or
(c)a right, otherwise than under these rules, to inspect or copy the document[.]”
[27]McGechan on Procedure says:10
A document is in the control of a party, even if in the possession of another, if the party has an enforceable right to access the document: Biggs v Biggs [2018] NZHC 1592 at [228] citing Dotcom v Attorney-General [2014] NZHC
1343.
8 Body Corporate 164399 v Auckland City Council, above n 2 at [32].
9 Dotcom v Attorney-General [2014] NZHC 1343 at [63].
10 McGechan on Procedure (online loose-leaf ed, Thomson Reuters) at [HR8.7.02(2)].
[28] In Dotcom, Her Honour concluded in relation to one category of documents subject to the application that Mr Dotcom was entitled to that information as he had an entitlement to the information pursuant to the principles under the Privacy Act 1993. While that entitlement was not one that could be enforced through the High Court it was: “for which procedural pathways exist for enforcement”.11
[29] The Body Corporate in this case relies on what McGechan calls the classic definition of “power” from Lonrho Ltd v Shell Petroleum Co Ltd, where Lord Diplock said:12
[T]he expression “power” must, in my view, mean a presently enforceable legal right to obtain from whoever actually holds the document inspection of it without the need to obtain the consent of anyone else.
[30] Using the language from Dotcom, a “procedural pathway for enforcement” available to the Body Corporate to compel access to documents in the possession of Tulshyan relies on the obligations on unit owners under the Unit Titles Act 2010. QBE relies on the approach taken to control in Body Corporate 16439913
[34] I accept that the Unit Titles Act does not contain an express power for the Body Corporate to require one of its members to produce documents. However, it does have power to sue for damage to common property (s 13) and such powers as are reasonably necessary to enable it to carry out duties imposed on it by the Act or by its rules (s 16). A power to call for documents with which to meet discovery obligations is clearly ancillary to the power to sue (particularly when it is acting as agent for the owner when doing so). It must also be reasonably necessary to enable it to carry out its duties to repair the common property, and to control, administer and manage the common property (s 15(f) and (h)). It is unrealistic to treat the Body Corporate as separate from its constituent unit owners.
[35] This approach is also consistent with the approach taken in representative actions, and in other cases where a named party is suing for the benefit of others. In Devcich v Cowley Stanich & Co (1997) 11 PRNZ 22 the Court was asked to consider the extent of discovery to be given by the plaintiff (representing a number of investors with claims against an auditor). The Court directed that all identified investors were to provide a verified list of documents. In Trustees Executors and Agency Co of NZ Ltd v Price Waterhouse the Court ruled that a trustee suing for the benefit of stockholders was deemed to have relevant documents of stockholders within its power.
11 Datacom v Attorney-General, above n 9 at [76]. Her Honour noting that there can be a complaint to the Privacy Commissioner who can then proceed to the Human Rights Review Tribunal.
12 McGechan on Procedure, above n 10, at [HR8.7.02(3)], quoting Lonrho Ltd v Shell Petroleum Co Ltd [1980] 1 WLR 627 (HC) at 635.
13 Body Corporate 164399 & Anor v Auckland City Council & Ors, above n 2 at [34]-[36].
[36] This approach also answers the practical concern raised by counsel for the plaintiffs as to what would follow if the unit owners did not provide the documents. In that event, the Body Corporate would be justified in withdrawing the claim for that owner’s share of the common property repair costs, failing which the defendant would be entitled to have that part of the claim struck out. This will have the logical effect that the Body Corporate will be able to maintain a claim in respect of common property only to the extent that it has the support of individual unit owners. As I have already said, the unit owners’ underlying liability for repair costs will not be affected.
[31] Section 80 of the Unit Titles Act 2010 is headed: “Responsibilities of owners of principal units”. Section 80(1)(b) provides that the owner of a principal unit “must do all things necessary to give effect to decisions of the body corporate”.
[32] The Body Corporate has, in this case, made a decision to bring the substantive claim against QBE and others. The provision of discovery is a necessary part of the litigation the Body Corporate has decided to bring and pursue. Subject to the documents being relevant, a unit owner must provide documents they hold that are necessary to allow the litigation brought by the Body Corporate to advance as the provision of documents by a unit owner is necessary to give effect to the decision of the Body Corporate to litigate.
[33] In my view, this is the “procedural pathway for enforcement” that permits the Body Corporate, if necessary, to bring a claim against the unit holder to require the production of documents that are necessary for the proceeding.
[34] As Associate Judge Abbott in Body Corporate 164399 said: “It is unrealistic to treat the Body Corporate as separate from its constituent unit owners”.14
[35] While the statutory wording in the 2010 Act is different from that in the 1972 Act, I do not consider that the present statutory wording results in a different outcome from that reached by Associate Judge Abbott as set out above.
Relevance
[36]Accordingly, focus now turns to relevance.
14 Body Corporate 164399 v Auckland City Council, above n 2, at [34].
[37] In a nutshell, the plaintiff’s claim is that repair works undertaken following the Canterbury earthquake sequence did not restore the Pacific Tower to the standard required under the material damage insurance policy and that further works, or potentially, the replacement of the entire tower is required. The Body Corporate further alleges that the costs spent on repairs to date are now “wasted costs” and should not be included in the sum insured cap under the material damage policy. In short,
$14.5 million plus GST spent on repairs by QBE was entirely wasted expenditure.
[38] At the time Tulshyan bought the hotel units that make up 60 per cent of the Tower, the repair works were underway but not complete.
[39] The reasonable assumption underlying QBE’s application for discovery is that a purchaser buying 60 per cent of the units in an earthquake damaged tower in Christchurch in 2013 for the sum of $23 million with the benefit of a comprehensive due diligence clause would have taken full advantage of such a clause and thoroughly researched the building in which they were buying the majority of units.
[40] Given the present claim that the repairs partially completed at the time of purchase were completely wasted, I have no difficulty in concluding that due diligence documents held by Tulshyan relating to the state of the building are discoverable.
[41] Documents relating to the due diligence process and the negotiation of the price, given that such may well reflect the views taken by the purchasers of the state of the building, are relevant to the core proposition that the repairs carried out do not meet the insurance standard and are wasted.
[42] However, I consider that QBE has cast its discovery application too widely. Not all documents relating to the ownership change are going to be relevant. Nor will all parts of the purchaser’s conveyancing file be relevant. Nor does anything I have said impact on Tulshyan’s ability to claim privilege in respect of legal advice it received, and which may well be shown on its conveyancing file.
Conclusion
[43] Accordingly, there is an order that the plaintiff is obliged to provide discovery of documents held by Tulshyan Holdings Ltd relating to its due diligence undertaken when it purchased the Rendezvous Hotel together with all documents relating to its negotiations concerning the price for the hotel.
[44] I do not consider transactional documents, funding documents or the like are relevant.
[45] Given there was limited submission as to the exact scope of the orders, I reserve leave for counsel to seek further directions as to the exact scope of the discovery orders if they are unable to be agreed.
Costs
[46]Costs are reserved.
Associate Judge Lester
1
4
0