FM Custodians Limited v Central Housemovers Limited
[2014] NZHC 2948
•25 November 2014
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CIV-2012-483-218 [2014] NZHC 2948
BETWEEN FM CUSTODIANS LIMITED
Plaintiff
AND
CENTRAL HOUSEMOVERS LIMITED First Defendant
RICHARD LYELL MOORE Second Defendant
Hearing: 18 November 2014 Counsel:
C R Langstone for second defendant (applicant) J W G Grant for first defendant (respondent)
T Sissons and R Chiu for plaintiff (abiding)
Judgment:
25 November 2014
RESERVED JUDGMENT OF DOBSON J
[1] This judgment deals with a contested application for further discovery brought by the second defendant against the first defendant. Although counsel for the plaintiff appeared, they took no active part in the argument.
[2] The circumstances in which the claims arose are worthy of use for a law school exam. The first defendant (CHM) was the vendor of three relocateable houses.1 It took security for the unpaid purchase price by way of a deed of acknowledgement of debt, pursuant to which the purchaser agreed to grant CHM a
mortgage over the land on which the houses would be relocated.
1 CHM’s sale was to a company Vakamon Limited, which in turn transferred to Somme Limited the title to the land onto which the houses had been shifted.
FM CUSTODIANS LTD v CENTRAL HOUSEMOVERS LTD [2014] NZHC 2948 [25 November 2014]
[3] The plaintiff advanced money to the purchaser of the houses in reliance on what it treated as a first mortgage of the land on which the houses were relocated. The plaintiff treated its security as extending to the houses.
[4] The purchaser of the houses defaulted on its obligations to CHM and, despite protests that its conduct in doing so amounted to trespass, CHM removed the houses from the property and resold them.
[5] The second defendant (Mr Moore) had acted for the plaintiff on the mortgage advance to the purchaser of the houses, including preparing the mortgage documents and certifying to the plaintiff that the security was in appropriate form to be relied on by the plaintiff.
[6] CHM’s case is that Mr Moore was on notice as to the existence and terms of the acknowledgement of debt and it imputes that knowledge to the plaintiff on the basis that Mr Moore was its agent for the relevant purpose.
[7] After suing CHM in trespass, the plaintiff added Mr Moore as a second defendant, alleging breaches of contract, fiduciary duty or in negligence. Each of the plaintiff’s prayers for relief against Mr Moore is expressed to be for “… the sum of
$474,997 or so much thereof as the plaintiff is unable to recover as damages from the
first defendant …”.
[8] Subsequent to provision of discovery on standard terms, Mr Moore has sought further discovery from CHM in four categories. Each category is sought to assist Mr Moore in preparing arguments on quantum, in the event that his denial of liability to the plaintiff is unsuccessful. Mr Moore’s defence is being prepared on the basis that the prayers for relief against him seek recovery of whatever extent of loss the plaintiff has eventually suffered, that it cannot recover from CHM.
[9] A preliminary point raised by Mr Grant in challenging the relevance attributed to documents from Mr Moore’s perspective as just described is that the trial is likely to occur with the plaintiff asserting liability against Mr Moore on wider bases. Mr Grant suggested that the plaintiff’s claims against Mr Moore could
equally be advanced on the basis that his negligence in not warning the plaintiff of the existence of the acknowledgement of debt was causative of the plaintiff entering into the transaction in the first place, in that if it had been warned of the existence of a prior charge, the plaintiff would never have lent to the purchasers of the houses. On that basis, CHM would argue that the whole of the loss claimed by the plaintiff would be recoverable from Mr Moore.
[10] That is not the basis on which the case is pleaded, and the present argument on the scope of CHM’s discovery obligation is not to be considered on CHM’s alternative formulation of the plaintiff’s case against Mr Moore.
[11] I deal with the more specific arguments in relation to each category sought.
First category: all documents that relate to the sale by CHM, post their repossession
[12] As an example of his criticisms of the loose definition of the categories of documents sought, Mr Grant argued that this first category was to be interpreted as relating only to documents generated in the course of sale of the three houses, so as to exclude any documents recording the circumstances and costs of their repossession. Mr Langstone confirmed in reply that such a narrowing was not intended, and that the documents sought related to the work undertaken in repossessing and reselling the houses.
[13] On CHM’s case, it still suffered a loss after repossessing the houses from the purchaser of them, then relocating and reselling them. Assuming its security over the houses is upheld for relevant purposes, there could be no issue that it recovered more than it was owed by the purchaser. Accordingly, there can be no question that it is obliged to account for any such excess to the plaintiff.
[14] Mr Moore’s solicitors do not accept that. On the summary documents that have been produced thus far, they argue that questions arise as to the reasonableness of costs that CHM claims to have incurred in realising its security. Having been provided with summaries of such items, this request is intended to address the source documents on which the summaries are based.
[15] I accept Mr Langstone’s characterisation of these documents as relevant and accordingly discoverable.
[16] A further ground for resisting disclosure of them was that this category of documents should not be discoverable because they did not arise on any of the pleaded issues. The approach adopted on behalf of Mr Moore to testing the quantum of his liability is a valid one, and so far as pleading is concerned, may sufficiently be flagged by a general denial of the quantum of the plaintiff’s claim against him. As between defendants, the correspondence preceding the argument and content of it certainly puts CHM on notice as to the attempt likely to be made on Mr Moore’s behalf to minimise the extent of any liability he is required to accept by contending for the extent of CHM’s own liability to the plaintiff.
Second category: recoveries in the liquidation of Somme Limited
[17] This sought all documents relating to Somme Ltd v Central House Movers Ltd,2 that had not already been discovered, including correspondence with the liquidator of Somme Limited (Somme).
[18] Somme was the second manifestation of the legal owners of the houses on their original sales from CHM. Somme apparently commenced proceedings against CHM for wrongful removal of company property, but on the discontinuance of those proceedings, CHM had been awarded costs which Mr Grant identified as the debt on which CHM had sought the liquidation of Somme.
[19] CHM has discovered the final report of the liquidator of Somme, which confirms that no funds were recovered for the benefit of creditors.
[20] Mr Langstone argued that any recovery CHM had made from Somme ought to be brought into account in reduction of the debt owed under the claimed equitable charge over the property.
[21] On Mr Grant’s explanation of the nature of the relevant debt as being for unpaid costs on discontinuance of the proceedings against CHM, any recovery on
2 Somme Ltd v Central House Movers Ltd [2012] NZAR 295 (HC).
account of that discrete debt would not be relevant to an analysis of liabilities as between CHM and Mr Moore on the one hand, and the plaintiff on the other.
[22] In any event, Mr Langstone did not suggest any reason for challenging the
liquidator’s final report that there had been no recoveries for the benefit of creditors.
[23] I am accordingly not persuaded that the second category of documents requested should be treated as discoverable by CHM.
Third category: recoveries of money from Vakamon Limited or Somme Limited
[24] This category sought all documents detailing any monies recovered by CHM from Vakamon Limited (Vakamon), Somme (in liquidation) or any of their directors or shareholders including Farid Hershend, Robert Stadniczenko and Torkan (Natasha) May that have not already been discovered.
[25] Mr Grant took the preliminary point that an applicant for such a discovery order had to make out a foundation for a reasonable belief in the existence of documents of the type sought, when there was no basis asserted in relation to documents coming within this category.3 In any event, Mr Grant opposed an order on the basis that there are no such documents.
[26] Mr Langstone advanced this aspect of the application on the basis that documents already discovered suggested the possible existence of others.
[27] If, as Mr Grant submitted, no payment had been received from Vakamon or Somme or their directors subsequent to completion of the deed of acknowledgement in 2008, then Mr Moore is unable to make out the basis for such an order. Mr Grant anticipates that the absence of further payments will be a matter of evidence on behalf of CHM. Mr Langstone’s fallback position was to seek a direction that CHM be required to formally verify that there are no such documents in this category.
Mr Grant similarly resisted any direction to that effect, on the basis that it could only
3 Australian Mutual Provident Society v Architectural Windows Ltd [1986] 2 NZLR 190, (1986)
2 PRNZ 510 (HC) at 518.
be required if the applicant had made out a reasonable belief in the existence of such documents when no foundation for that belief was present here.
[28] Mr Langstone’s analysis that existing discovery suggested the possible existence of documents in this category was not supported by any close analysis or reliance on references to the potential existence of other documents in some that have been discovered thus far. Given the history of the present application and the stance recorded on behalf of CHM, there would be limited utility in formalising an acknowledgement of the absence of documents when that is unequivocally the stance that has been adopted.
Fourth category: CHM directors’ visit to Mr Moore
[29] This category sought all documents that establish when the director of CHM, Mr Michael O’Byrne, allegedly visited Mr Moore in the latter’s office.
[30] Mr Grant confirmed that there are also no documents in this category. Again, he disputed the existence of any evidence that Mr Moore could rely on to support a belief that such documents did exist. Mr Grant also anticipated that the circumstances of such a visit would be the subject of evidence from Mr O’Byrne.
[31] Mr Langstone accepted in relation to this category that there were no such documents and accordingly this aspect of the application was not pursued.
Summary
[32] I order that all documents within the first category sought are to be discovered. They ought to be the subject of a supplementary list of documents to be filed and served within five working days of delivery of this judgment. To the extent that there is any uncertainty as to the scope of this category of documents, they ought to include the categories of document requested in Jones Fee’s letter to JT Law of
26 September 2014 on this topic. I acknowledge that a certain number of the points about documents raised in that letter are in the form of questions, which cannot of themselves advance the scope of documents required to be discovered.
[33] Mr Moore, as applicant, has succeeded on one out of four categories in a numerical sense. However, the first category on which he has succeeded was the meaningful category of documents of those at issue. I treat both defendants as having had comparable extents of success in bringing and opposing the application and accordingly consider that costs on the application should lie where they fall.
Dobson J
Solicitors:
Stephens Lawyers Ltd, Wellington for plaintiff
JT Law, Wellington for first defendant
Jones Fee, Auckland for second defendant
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