Cunningham v European Interiors Limited

[2022] NZHC 1142

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

CIV-2020-409-634

[2022] NZHC 1142

BETWEEN

KATE ELIZABETH

SARAH CUNNINGHAM and BLAIR ROGER CUNNINGHAM

First Plaintiffs

KB KITCHENS LIMITED
Second Plaintiff

AND

EUROPEAN INTERIORS LIMITED

First Defendant

RONALD FREDERICK JOHN NEALE
Second Defendant

KENDONS SCOTT MACDONALD LIMITED

Third Defendant

Hearing:	(On the papers)
Appearances:	K W Clay and D R Weatherley for Plaintiffs B G Walker for First and Second Defendants
Judgment:	23 May 2022

JUDGMENT OF ASSOCIATE JUDGE LESTER

CUNNINGHAM v EUROPEAN INTERIORS LIMITED [2022] NZHC 1142 [23 May 2022]

[1]        Costs are the only remaining issue arising from an application by the first and second  defendants  to  vary  orders  for  tailored  discovery  made  by  consent  on   4 June 2021.

[2]        The plaintiffs’ proceeding arises out of an agreement for sale and purchase of a business purchased by the plaintiffs. The plaintiffs plead a breach of contract in relation to a turnover warranty. They plead the turnover warranty did not correctly disclose the turnover of the business for the period 1 April 2018 to 31 December 2018.

[3]        The agreed categories of tailored discovery were very wide indeed. Nonetheless they were agreed to by the parties.

[4]        Agreement could not be reached between the first and second defendants and the plaintiffs as to reductions in the scope of the discovery that had been ordered by consent. An application to vary the categories of tailored discovery was made on the basis that the search criteria agreed resulted in an excessive number of documents being identified, such that the identification of relevant material would be overly burdensome and “issues of relevance given the date range, being 2012 to 2019, coupled with extensive search criteria have also become apparent”.

[5]        Given the turnover warranty related to an eight month period in 2018, the questionability of the relevance of financial information going back as long ago as 2012 should have been self-evident.

[6]The application to amend the tailored discovery was opposed.

[7]        The application was set down for hearing before me on 3 November 2021.  At that hearing, discussions with counsel made it clear that resolution of the application by agreement to at least some extent would be possible and resolution by agreement would be assisted by further information being provided as to the availability of financial records included in the areas of tailored discovery. I made the observation that evidence filed in support of the application to vary orders for tailored discovery was in some respects limited.

[8]I made the following observations in my Minute of 3 November 2021:

[4]        The practical point is this. The turnover warranty the plaintiff says was incorrect, covered the period 1 April 2018 to 31 December 2018. The Moorhouse Ave business purchased by the plaintiffs was only transferred to European Interiors Ltd, the first defendant, on 30 September 2018. Accordingly, to arrive at the turnover warranty, it must have been possible to extract from the records of the company previously running the Moorhouse Ave business, the turnover information from 1 April 2018.

[5]        The plaintiffs are now being told that because separate records were not kept for the Moorhouse Ave business, the defendants cannot provide all of the information sought by the plaintiffs.

[6]        The plaintiffs need to understand how the turnover warranty was calculated, by whom, and what material was relied on. All of the material relied on will need to be discovered.

[7]        Mr Walker, counsel for the defendants, has agreed to obtain an affidavit from Mr Brown, the accountant for the businesses, to address the status of the records sought by the plaintiffs and subject to the orders for tailored discovery, and to provide all details as to the calculation of the turnover warranty. Mr Walker is to prepare a list of the questions he proposes to have Mr Brown address and to provide those questions to plaintiffs’ counsel by 5.00pm on Friday 5 November 2021.

[9]        The   matter   next   came   before   me   at   a   telephone   conference   on   24 February 2022. Most categories for tailored discovery had been agreed with only two categories remaining outstanding. Those categories were set down for a hearing before  me  on   11 April 2022,   which   was  adjourned  after   the   plaintiffs   filed a supplementary affidavit on 5 April 2022. The new hearing date was 3 May 2022.

[10]      In anticipation of the 11 April 2022 hearing, the plaintiffs filed submissions relating to the two outstanding categories of tailored discovery. Those categories related to management accounts for the period 1 April 2013 to 31 March 2019 for two companies related to the first defendant.

[11]      On 27 April 2022, the second defendant filed an affidavit in respect of the disclosure that had been provided and in relation to the outstanding categories of documents. The affidavit advised that while the second defendant did not agree with the grounds advanced by the plaintiffs as to why those documents were relevant, to

save time and costs those documents were produced along with the discovery of other documents covered in the affidavit.

[12]      Had I been asked to determine this category I would have taken some persuading  that  discovery  going  back   as   early  as   the  financial  year   ended  31 March 2014 could have any relevance to a turnover warranty of another company in 2018. Mr Clay, counsel for the plaintiffs, in his April 2022 submissions said: “To make discovery of the documents is unlikely to impose any significant burden on the defendants”. That may well be true, given the practical approach to those disputed categories adopted by the second defendant, but such would not be grounds for an order covering the full period.

[13]      In any event, with disputed categories no longer in issue on a no admission of relevance basis, the only remaining issue is that of costs.

[14]      The first and second defendants’ position is that the discovery order was successfully varied following the application being made. The first and second defendants also say the need for an application could have been entirely avoided given correspondence before the application was made.

[15]      Ultimately, I am satisfied the first and second defendants should pay costs to the plaintiffs on a 2B basis in respect of the application. I hold that view for the following reasons:

(a)The first and second defendants have had an indulgence in that they were released from the rigors of an order they consented to. As noted earlier, one of the justifications for seeking a variation to the order was relevance based on the date range of the material to be provided – that issue was self-evident from the outset.

(b)The plaintiffs have been put to costs in respect of an issue they were entitled to think had been dealt with by agreement. Counsel are expected to take a co-operative approach to resolving issues of discovery, as they did here in agreeing the categories of tailored

discovery. That approach is intended to avoid unnecessary delay and costs. I do not see any reason in principle why the plaintiffs should be out of pocket in respect of the first and second defendants having to reconsider the agreement they made.

(c)As to the possibility that the application might have been avoided through further co-operation between counsel, as set out in the extract from my Minute of 3 November 2021 as set out at [8] above, it seems to me the parties, and in particular the first and second defendants, have not focused on the key issue to be covered by discovery.

[16]      Mr Neale’s affidavit in support of the application to vary the tailored categories of discovery noted that the business sold to the plaintiffs was part of a much larger business that had been operated throughout the country. That larger business was operated by a separate company until the different branches were sold off around the country, including the Christchurch branch, which was sold to the plaintiffs. Mr Neale said: “The financial accounts for all the branches were not recorded separately. They were amalgamated”.

[17]      However in respect of the effect of the breach of warranty claim, the focus of the discovery needed to be on how the amount of the warranted turnover was calculated. It was only with the discussions at the first hearing date that the need to focus the discovery in the way set out in the extract from my 3 November 2021 Minute, was addressed. In the first and second defendants’ application, they did not advance amended categories of tailored discovery which may have shortened the process of finalising the agreed categories. It was incumbent on the first and second defendants to table with their application the proposed new categories of tailored discovery and the absence of proposed categories from the application meant the plaintiffs did not know what changes were sought.

[18]      The defendants are to pay the plaintiffs’ costs on a 2B basis in respect of the application to vary tailored discovery,  together  with  disbursements  as  fixed  by the Registrar. The plaintiffs have tabled a schedule of costs. I do not consider the memoranda of counsel, of which there are seven each, warrant 0.4 of a day. The first

memorandum is for the first case management review. Costs on that memorandum are a matter for the proceeding as a whole.

[19]      The subsequent memoranda are all relatively brief and I allow 0.2 of a day for each. Save for the removal of the memorandum of 27 May 2022 and adjusting the allowance for each subsequent memorandum, from 0.4 to 0.2, the items claimed are confirmed.

Associate Judge Lester

Solicitors:

Young Hunter, Christchurch (for Plaintiffs) Trollope & Co, Christchurch (for Defendants)

Copy to counsel:

K W Clay, Barrister, Christchurch (for Plaintiffs)

B G Walker, Barrister, Christchurch (for Defendants)