Haddon v The Conveyancing Shop
[2012] NZHC 1439
•22 June 2012
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2011-404-2226 [2012] NZHC 1439
BETWEEN GARY FRANCIS HADDON AND BARBARA GALE HADDON Plaintiffs
ANDTHE CONVEYANCING SHOP First Defendant
AND T INGLIN
Second Defendant
Hearing: 15 May 2012
Appearances: Mr C S Henry for Plaintiffs
Mr E Cox and Ms K Mortimer for Non-Party
Judgment: 22 June 2012
JUDGMENT OF ASSOCIATE JUDGE DOOGUE
This judgment was delivered by me on
22.06.12 at 4 p.m., pursuant to
Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
Counsel:
Mr C S Henry, Barrister, P O Box 616, Orewa – chenry@[email protected] for plaintiffs
Gibson Sheat, P O Box 2966, Wellington – [email protected] / [email protected] for non-party
HADDON V THE CONVEYANCING SHOP & Anor HC AK CIV-2011-404-2226 [22 June 2012]
Introduction
[1] The plaintiffs have brought proceedings arising out of unfortunate circumstances. In 2007, the plaintiffs had executed a mortgage in favour of GE, securing a debt the plaintiffs had entered into with family members. GE sold this property via a forced mortgagee sale. The defendants, The Conveyancing Shop, were the lawyers who acted for the plaintiff in relation to executing the mortgage.
[2] The plaintiffs’ claim that the solicitors did not take proper steps to protect their interests in relation to the advances from GE. Specifically, the plaintiffs’ allege that there was a risk that the family members primarily responsible for servicing the loan were of doubtful credit-worthiness, and that there was a risk that the loan might fall into arrears. If the defendant had properly discharged its obligations, the plaintiffs contend that they would not have entered into the agreement.
[3] The plaintiffs now seek a non-party discovery order against GE. GE raises a number of issues that arise in the application:
a) The plaintiffs have not identified the additional documents sought with sufficient specificity. The plaintiffs have not shown that there are any grounds for thinking that such documents not in the parties control, are in GE’s control, and that such documents are necessary to resolve any outstanding issues in the litigation;
b)The documents sought are not relevant to the matters in question in the proceeding against the defendants;
c) The application is a fishing expedition, given the substantial litigation history between the plaintiffs and GE, it is clear the application is a pre-cursor to attempts to join GE to the proceedings where there is no basis to do so;
d) The discovery sought is not necessary; and
e) The plaintiffs’ application is technically deficient, in that it relies on the first plaintiff’s affidavit filed in another proceeding, without first seeking leave.
Which rules apply?
[4] The first point arising at the hearing, though, was whether the present application was to be decided under r 8.26 of the previous High Court Rules (that is, the Rules in effect prior to the enactment of Part 8 of the current Rules by the High Court Amendment Rules (No 2) 2011)), or the current r 8.21.
[5] The application for non-party discovery filed by the plaintiffs on 22
December 2011 was expressed to be reliant on, inter alia, r 8.26. Rule 8.26 reads as follows:
8.26Order for particular discovery against non-party after proceeding commenced
(1) This rule applies if it appears to a Judge that a person who is not a party to a proceeding may be or may have been in the control of 1 or more documents or a group of documents that the person would have had to discover if the person were a party to the proceeding.
(2) The Judge may, on application, order the person –
(a) to file an affidavit stating –
(i) whether the documents are or have been in the person control; and
(ii) if they have been but are no longer in the person’s control, the person’s best knowledge and belief as
to when the documents ceased to be in the person’s
control and who now has control of them; and
(b) to serve the affidavit on a party or parties specified in the order; and
…
(4) The Judge may not make an order under this rule unless satisfied that the order is necessary at the time when the order is made.
(Emphasis added)
[6] Essentially, the difference between r 8.26 and the new r 8.21 is that the requirement set out in r 8.26(4) is omitted from the r 8.21. That is, the new rule does not require the Judge to be satisfied that the order is necessary at the time when it is made.
Which rule applies?
[7] One important matter that needs to be considered is whether the unamended discovery rules that were enacted in 2011 apply to the present application.
[8] The new Rules contained in the High Court Rules Amendment (No 2) 2011 did not include a transition provision. The usual effect of a transition provision is that it provides direction as to which law is to apply in a given situation, the one as it was prior to the amendment or post the amendment. The typical transition provision will direct that notwithstanding the change in the law, the old law is to apply to proceedings commenced before the new law came into effect. In this case the amendment to the Rules resulted in a new test being enacted which was to apply, without restriction, to applications for further and better discovery generally. In the absence of any language limiting the effect of the new provision, this must be an indication that the new Rules are to apply to proceedings generally, whether commenced before or after the new Rules came into effect. There is no contextual material in the Rules that would indicate that a different view is required. There is no indication that adopting such an interpretation of the Rules would prejudice those who are parties to applications commenced before the new Rules took effect on 1
February 2012. My view is reinforced by the fact that the same conclusion was reached by Associate Judge Osborne in Karam v Fairfax New Zealand Limited.[1] In my judgment, the Rules in its new form applies to the present application.
[1] Karam v Fairfax New Zealand Ltd [2012] NZHC 887.
[9] As a result to the foregoing conclusion, the test for discovery to be applied is the one presently contained in r 8.7 — the “adverse documents” test. The test for whether an order for particular discovery against a non-party after the proceeding has commenced is to be found in the current r 8.21.
The categories of documents in relation to which the applicants/plaintiffs apply for discovery
[10] The next issue concerns what is sought by way of non-party discovery.
[11] The plaintiffs’ seek discovery of documents in the control of GE that belong to the following categories:
a) Documents that deal with the creditworthiness of the intended borrowers;
b)Documents in which the defendant advocates the making of the loan, or the contrary position;
c) Documents that GE sent to third parties (such as United Home Loans, its agent) relating to the loan;
d) Any correspondence that GE sent to the defendants through United
Home Loans;
e) Documents from any source containing any information about the borrowers, such as credit reports.
Documents that deal with the creditworthiness of the intended borrowers.
[12] Before the Court is able to make an order under the relevant rule, it must “appear” to the Court that a person who is not a party to a proceeding may be or may have been in control of documents (r 8.21(1)).
[13] Mr Henry said that GE would have made its own enquiries about the creditworthiness of the borrowers. I accept there is an inference of fact that that is so.
[14] Under r 8.21(1), questions of relevance are to be decided on the basis of the pleadings in the case. Any documents that the non-party might have in his possession are to be judged from the standpoint of whether they would be discoverable if they were documents in the hands of the plaintiff or the defendant.
[15] What is at issue in the proceedings is the quality of the professional services that the defendants provided to the plaintiffs. The first question is whether the
defendants provided advice to the plaintiffs about whether the loan they were proposing to enter into was sound or risky. If the Court were to conclude that the defendants did undertake obligations to advise on that matter, it may be a live issue in the case where the defendant actually advised the plaintiffs that the loan was risky. If it becomes a further issue then, and only then, would credit reports become relevant. It might be that a competent solicitor would not consider it necessary to go to the lengths of obtaining credit reports, and would reach an opinion on the level of risk by having regard to the intrinsic circumstances of the transaction and to what he/she was able to conclude about the circumstances of the parties as a result of discussions with them. To summarise, it is only if the matter of the degree of risk became a live issue in the case, that a credit report would have relevance.
[16] A credit report would not be relevant to show what the opinion of officers of GE was about the level of risk. That is not a relevant issue in the proceeding between the plaintiffs and the defendant.
[17] Valuation reports obtained by GE would seem to come within the same category now under discussion. These, too, would be relevant to the creditworthiness of the intended borrowers. It is possible that the plaintiffs have already obtained copies of registered valuations of the relevant properties. However, I would not be prepared to decline judgment on this ground because it is not clear that this is indeed the position. My provisional conclusion is that any reports by a registered valuer relating to the value of property that was to be secured as part of the loan transaction ought to be disclosed.
[18] I conclude that the steps GE might have taken to check the credit-worthiness of family members is relevant to the main proceedings in which the application for non-party discovery has been filed.
Documents in which the defendant advocates the making of the loan or advocating the contrary position.
[19] Whether the defendant solicitors "advocated" the making of the loan is not so straightforward as the previous category. Before an order can be made, I need to set forth some grounds for the Court to believe that documents of the kind specified in
the application may be under the control of the non-party. The wording of the rule, though, does not require an applicant to establish on the balance of probabilities that the non-party does in fact have such documents. On the other hand, the Court will not make orders in circumstances where it is only speculative that such documents exist. Approaching matters in the way I have just indicated, it seems likely to me that the defendants did communicate with GE, or its agent United Home Loans, either by way of correspondence or other types of communications that it initiated itself or in response to communications from those entities, about the loan. Communications may have dealt with matters such as security for the loan, the loan priority amount, and so forth.
[20] The plaintiffs’ claim alleges, in essence, that the solicitors ought to have warned them against making their home available as security for the borrower’s loan. It is possible that if the solicitors did write to GE in terms that commended the transaction, then it could be viewed as evidence that is relevant to any dispute about whether or not the solicitors thought the transaction was a suitable one for the plaintiffs to enter into, having regard to the level of risk that it carried with it. But the substance of the statement of defence which the defendant has filed is not to defend the prudence of the transaction but to deny that the retainer involved them in providing any advice on that issue. Putting it another way, if the plaintiffs are able to establish that the retainer extended to providing advice about the commercial desirability of the borrowing arrangement, then it cannot be ruled out that there will be a dispute about whether or not the defendant actually advised against it. In that circumstance, what the solicitor thought of the transaction may therefore be relevant, and documents which are consistent with the solicitor taking a favourable view of the transaction would themselves be relevant.
[21] I consider that there ought to be an order directing GE to disclose to the plaintiffs documents that are communications between GE and the defendant that refer to the borrowing arrangement and the plaintiffs’ part in it. That direction will be subject to conditions to be mentioned subsequently.
Documents that GE sent to third parties (such as United Home Loans, its agent) relating to the loan; any correspondence that GE sent to the defendants through United Home Loans.
[22] The first point relating to these documents is that it would seem likely that
GE has in its possession documents that broadly respond to the above description.
[23] The next issue is whether these documents are of a kind that GE would have had to discover if it were a party to the proceedings. It is at this point where the application founders. That category may include documents that satisfy the relevance test. It cannot be assumed from the circumstances that there are such documents, and there is no evidence establishing that fact. This part of the application cannot therefore succeed.
Documents from any source containing any information about the borrowers, such as credit reports.
[24] I have already dealt with credit reports when dealing with the first category of documents. Nothing more needs to be said about that category. It is difficult to see how the words that extend this category beyond credit reports could have any utility.
I decline to make any order under this heading.
Discretionary considerations
[25] In earlier versions of the High Court Rules, there was a requirement that an order only be made where necessary. In the present version, it is no longer necessary for an applicant to satisfy the Court that such is the case. In this case, where it would be obvious to the Court that making an order would be futile, no doubt the Court would exercise its discretion against granting the order sought. I have made brief mention of a submission from Mr Cox that the plaintiffs may already have in their possession some of the material they now seek to obtain by way of discovery order. Just what material that the plaintiffs already have is not clear, and accordingly, I would disagree that it would be futile to order production of the limited documents that in my judgment come within the ambit of rule 8.21.
[26] There are other considerations though that must be taken into account.
[27] The respondent, GE, considers that the making of the orders sought would have an oppressive effect on it. Having regard to the very limited area within which I am prepared to make a non-party discovery order, I do not think that such a submission can be sustained. Questions of expense would not seem to be significant either.
[28] Nor do I consider that the order that I propose to make would have the effect of enabling a fishing expedition to take place. That is to say, the orders would not expose the non-party to a possibility of the plaintiffs devising causes of action against it.
Summary
[29] I direct that the non-party is to provide an affidavit of documents within 28 days of the date of this order giving discovery of;
a) Any credit reports concerning the borrowers;
b)Any reports of registered valuers relating to property that was to be available as security for the loan/s; and
c) Any documents that are communications between GE and the defendant that refer to the borrowing arrangement and the plaintiffs’ part in it,
that are in its possession power or control.
Costs
[30] A further issue was raised as to the plaintiffs’ ability to meet the cost of complying with any court order. These costs would reasonably extend to obtaining legal advice on what steps the non-party must take to comply with the order of the Court, and preparation of an affidavit of documents. Both steps would be undertaken by someone in legal practice. Those costs, plus the actual costs of preparing, filing and serving the affidavit of documents, should properly be borne by the applicants. Mr Henry says that the plaintiffs are in receipt of legal aid, and that such costs as
may be incurred by GE will be met by the Legal Services Agency. So that there is certainty on that point, I direct that this order is not to take effect until Mr Henry has taken the following steps:
a) Furnished a copy of this decision on the Legal Services Agency; and
b)Obtained written advice from them that they would meet the costs of complying with the order.
[31] Once those steps have been taken, I will deal with the matter further in my
Chambers List. The Registrar is to list this matter for call at 2.15 p.m. on 13 July
2012, or alternatively parties can address memoranda to me in chambers.
J.P. Doogue
Associate Judge
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