Lighter Quay Residents' Society Inc v Waterfront Properties (2009) Ltd

[2017] NZHC 818

IN THE HIGH COURT OF NEW ZEALAND

AUCKLAND REGISTRY

CIV-2012-404-7509

[2017] NZHC 818

BETWEEN

LIGHTER QUAY RESIDENTSʼ SOCIETY INCORPORATED & ORS

Plaintiffs

AND

WATERFRONT PROPERTIES (2009) LTD & ANOR

Defendants

CIV-2016-404-1587

BETWEEN

BESWICK HOLDINGS LIMITED

Plaintiff

AND

LIGHTER QUAY RESIDENTSʼ SOCIETY INCORPORATED & ORS

Defendants

Hearing:

3 April 2017

Counsel:

P A Morten for plaintiffs in CIV-2012-404-7509 and for defendants in CIV-2016-404-1587

P G Skelton QC and S C Jeffs for defendants in CIV-2012-404- 7509 and for plaintiff in CIV-2016-404-1587

Judgment:

28 April 2017

JUDGMENT OF KATZ J

This judgment was delivered by me on 28 April 2017 at 1:00pm pursuant to Rule 11.5 High Court Rules

Registrar/Deputy Registrar

LIGHTER QUAY RESIDENTSʼ SOCIETY INCORPORATED & ORS v WATERFRONT PROPERTIES (2009) LTD & ANOR [2017] NZHC 818 [28 April 2017]

Solicitors:          Skeates Law, Auckland

Buddle Findlay, Auckland

Counsel:            P A Morten, Harbour Chambers, Wellington

P G Skelton QC, Bankside Chambers, Auckland

Introduction

[1]    Waterfront Properties (2009) Ltd (“Waterfront”) was formerly the building manager at an apartment complex in the Auckland Viaduct known as “Lighter Quay”. The complex comprises four unit title buildings, each with its own body corporate. There are separate management agreements for each building, each on the same or similar terms. The management agreements were assigned to Waterfront in August 2009.

[2]    All members of the bodies corporate are obliged to be members of the Lighter Quay Residents’ Society Inc (“LQRS”). The bodies corporate are responsible for the care and upkeep of their respective common properties. The purpose of LQRS is to manage the common facilities shared by the bodies corporate. For ease of reference, I will refer to LQRS and the bodies corporate together as “the applicants”.

[3]    Issues arising out of  the  management  agreements  have  given  rise  to  these two related proceedings. Lighter Quay Residents’ Society Inc v Waterfront Properties (2009) Ltd (“the LQRS proceedings”) primarily concerns whether LQRS and its associated entities validly cancelled or wrongfully repudiated the management agreements.  Beswick  Holdings  Ltd  v  Lighter  Quay   Residents’  Society   Inc (“the Beswick proceedings”) primarily concerns whether the management agreements (or any of them) were lawfully assigned by Waterfront to Beswick Holdings Ltd (“Beswick”).

[4]Various interlocutory matters are before me for determination. In particular:

(a)LQRS seeks various discovery orders against Waterfront and Beswick; and

(b)Waterfront and Beswick seek consolidation of the LQRS proceedings and the Beswick proceedings.

LQRS’s application for particular discovery and enforcement of a discovery order

Background

[5]    Standard discovery (except in relation to the fifth cause of action) was ordered by Ellis J on 6 June 2014. As the parties have previously been involved in an expert determination process, however, they agreed that there was no need to formally list the documents that had previously been disclosed during that process.

[6]    Waterfront says that it complied with that discovery order by way of an affidavit of documents sworn by Steven Reck, a director and shareholder of Waterfront, on 11 August 2014. The applicants did not accept, however, that Waterfront had complied with its discovery obligations. As a result, on 27 November 2014, LQRS applied for particular discovery by Waterfront of six categories of documents. In its notice of opposition Waterfront stated that it did not oppose the discovery requests for four out of those six categories, including:

(a)correspondence between Waterfront and its agent, BDO Spicers, relating to fees and expenses charged to LQRS by Waterfront; and

(b)written notes, communications and memoranda prepared by BDO Spicers in relation to Waterfront’s management agreement with LQRS (including invoices raised by the directors of Waterfront, addressed to Waterfront, and on-charged to LQRS).

[7]    Waterfront opposed discovery of the remaining two categories of documents sought, which included correspondence by BDO Spicers with Waterfront in relation to the possible sale of the management agreements, including the due diligence report by BDO.

[8]    On 8 October 2015 Ellis J directed, by consent, that Waterfront discover the four categories of documents it did not oppose discovery of.1 Waterfront was not

1      Lighter Quay Residents’ Society Inc v Waterfront Properties (2009) Ltd [2015] NZHC 2466 at [50](a).

required to discover the other categories of documents sought, however.2 Her Honour observed in relation to those documents that:3

[t]o the extent this material is held by either BDO or First Street it must be within the plaintiffs’ power to obtain it. The bank records belong to the plaintiffs. Regardless of whether BDO or First Street had or have a formal “secretarial” status in relation to the plaintiffs, and regardless of by whom they were engaged, any records they hold pertaining to the plaintiffs’ financial affairs must be held in their capacity as the plaintiffs’ agents, and must logically be within their control. If it really is for some reason not possible for the plaintiffs to obtain those records an affidavit setting out the efforts that have been made should be sworn and filed.

[9]    On 19 November 2015, Mr Reck swore a further affidavit of documents. He deposed that Waterfront was not able to discover the BDO Spicers documents it had agreed to disclose (as set out at [6](a) and [6](b) above), because BDO Spicers had control of them and had declined to provide them to Waterfront “on the basis that the agency relationship between Waterfront and LQRS ha[d] come to an end”. Mr Reck deposed that he had searched for documents in these categories that might have been in Waterfront’s possession, but was unable to find any that had not already been discovered.

[10]   Following further dialogue between the parties on discovery issues, I issued a Minute dated 27 October 2016 directing, among other things, that Waterfront provide discovery of “any further relevant documents relating to the relief sought in its counterclaim” and “any relevant documents relating to paragraphs 39 and 43 of its statement of claim”. Beswick was also ordered to provide discovery of any documents that are relevant to the relief sought by it.

[11]   On 22 November 2016, Mr Reck swore a further affidavit of documents on behalf of Waterfront, stating that Waterfront had no further relevant documents to discover.

[12]   Beswick, meanwhile, had provided initial discovery on 23 June 2016.  On   23 November 2016, Graham Wilkinson swore an affidavit providing further discovery.

2      At [50](c).

3 At [48].

He annexed to his affidavit copies of documents relevant to the issue of whether the management agreements had been validly assigned by Waterfront to Beswick.

[13]   The applicants remain of the view that Waterfront and Beswick have failed to comply with their discovery obligations. They seek particular discovery of the following three categories of documents, pursuant to r 8.19 of the High Court Rules:

Category One: all documents showing the non-reimbursable expenses Waterfront incurred in performing its obligations under the Lighter Quay and Body Corporate management agreements, up to the date of termination of the respective management agreements in June and July 2011.

Category Three: all documents showing the non-reimbursable expenses Beswick would incur in performing its obligations under the Lighter Quay and Body Corporate management agreements that it alleges were assigned to it, from the date of assignment in 2011 up to the date of expiration of the respective management agreements.

Category Four: all primary documents showing the extent to which Beswick had expertise and resources that would have enabled it to fulfil the obligations of the manager under the management agreements, and that showed that since 20 July 2011, Beswick was ready willing and able to perform its duties and obligations as a manager.

[14] The applicants have also applied for an order enforcing the consent order made by Ellis J on 8 October 2015 that Waterfront provide discovery of the Category Two documents, being the BDO Spicers documents described at [6] above.

[15]   Waterfront and Beswick oppose the discovery orders sought. They say that they have complied with their discovery obligations and have no further relevant documents to discover. They say that the applicants have not discharged the onus on them to establish that there are grounds to justify the Court going behind the presumption that their affidavits of documents are conclusive.

Particular discovery - r 8.19 of the High Court Rules

[16]   Rule 8.19 of the High Court Rules allows an order for particular discovery to be made if it appears to a Judge, from evidence or from the nature or circumstances of the case or from any document  filed  in  the  proceeding,  that  there  are  grounds for believing that a party has not discovered one  or more documents or a group     of documents that should have been discovered. The relevant principles are:

(a)Existence of the document does not have to be established on the balance of probabilities on a “more likely than not” basis. A lower threshold is required, which may vary given the relevance of the documents and issues of proportionality.4

(b)While there is a presumption that affidavits of documents filed are conclusive,5 an application under r 8.19 is a proper way to circumvent the conclusiveness rule.6 The party seeking further discovery has to establish that the existing affidavit of documents is incomplete.7

(c)Whether a document “should have been discovered” should be determined by reference to the “adverse documents” test in r 8.7, or any stricter test imposed under tailored discovery pursuant to r 8.8.8

(d)A four-stage approach is convenient:9

(i)Are the documents relevant, and if so how important will they be?

(ii)What are the grounds, and what is the probative value of those grounds, for the belief that the documents sought exist?

4      Assa Abloy New Zealand Ltd v Allegion (New Zealand) Ltd [2015] NZHC 2760 at [12]: “… all that is necessary is to show that there is some credible evidence which assessed objectively indicates that the documents that are sought exist”.

5      McCullagh v Robt Jones Holdings Ltd [2015] NZHC 1462, (2015) 22 PRNZ 615 at [7]. This presumption of conclusiveness can be traced back to Jones v Monte Video Gas Company (1880) 5 QBD 556 (CA).

6      Rule 8.19 is similar to the formerly in effect O 15 r 8 of the Federal Court of Australia Rules, which was introduced to relax the conclusiveness of affidavits of documents: Conor Medsystems Inc v University of British Columbia [2006] FCA 121, (2006) 228 ALR 515 at [3]; Sunland Waterfront (BVI) Ltd v Prudentia Investments Pty Ltd (No 8) [2011] FCA 221 at [12]-[13]; and Metcash Trading Ltd v Bunn [2010] FCA 8, (2010) 263 ALR 132 at [17]. The similarity between the Australian rule and r 8.19 is identified in Andrew Beck and others McGechan on Procedure (looseleaf ed, Thomson Reuters, updated to 10 February 2017) at [HR8.19.01].

7      McCullagh v Robt Jones Holdings Ltd, above n 5, at [7].

8      Matthew Casey and others New Zealand Procedure Manual: High Court (3rd ed, LexisNexis, Wellington, 2015) at [HCR8.19.1]. See Air National Corporate Ltd v Aiveo Holdings Ltd [2012] NZHC 2258 at [16]: “It is implicit in r 8.19 … that documents will only be directed to be discovered if they can be shown to be discoverable under the general rules relating to discovery”; this approach was adopted in Domenico Trustee Ltd v Tower Insurance Ltd [2014] NZHC 2657 at [67]-[68].

9      Assa Abloy New Zealand Ltd v Allegion (New Zeland) Ltd, above n 4, at [14].

(iii)Is discovery proportionate?

(iv)Weighing and balancing these matters, is an order appropriate?

[17]   The applicants bear the burden of establishing that the relevant grounds exist. Associate Judge Bell explained this in the following terms in Plumpton v Terry:10

… there is no obligation on a party served with an application under r 8.19 to file any evidence in response. The burden remains on the applicant to make out its case that there are relevant grounds to believe under r 8.19.

Category One and Category Three documents

[18]   I will consider the Category One and Category Three documents together as they are effectively mirror applications, one relating to Waterfront and one relating to Beswick.

[19]   Waterfront and Beswick’s primary claims are in debt, rather than for damages. They seek payment of the management fees they say are owing to them under the management agreements. The Category One and Category Three documents are not relevant to a claim in debt. In the alternative, however, Waterfront and Beswick seek damages for breach of the management agreements. The Category One and Category Three documents (if they exist) are potentially relevant to the assessment of damages. The key issue, therefore, is whether there are grounds for belief that further documents in those categories exist, in addition to the bank statements and general ledgers that have already been discovered.

[20]   To establish that there are grounds for believing that further documents exist, the applicants rely on the reply affidavit of Jonathan Woodhams. At the time that the management agreements were terminated, Mr Woodhams was the chairman of LQRS and was also the chairman of one of the bodies corporate. Mr Woodhams’ evidence on the issue is that:

Based on my business experience as a company director, I believe that Waterfront must have documents showing the non-reimbursable expenses Waterfront incurred up to the date the management contracts were terminated.

10     Plumpton v Terry [2016] NZHC 988 at [26].

...

Again, based on my own business experience, I would have expected Beswick to have carried out some sort of exercise to assess what its non-reimbursable costs would be, assuming the assignment of the management agreements proceeded, before electing to proceed with the purchase of the management agreements.

[21]   With respect to the Category One documents, Mr Wilkinson has previously deposed that Waterfront has no further relevant documents to discover. As I have already noted, Waterfront has disclosed its bank statements and general ledgers, which apparently show all revenue received and expenses incurred up to the date of the termination of the management agreements. Mr Skelton QC submitted that both parties will need to analyse those documents. It will then be a matter for submission and expert evidence at trial as to what expenses, if any, are non-reimbursable in accordance with the terms of the management agreements.

[22]   With respect to the Category Three documents, Mr Skelton noted that Beswick has not performed any duties under the management agreements. Beswick therefore does not have any documents in its possession regarding expenses actually incurred in performance of its duties. Rather, it will be for expert evidence to identify and project the costs that Beswick would have incurred performing the agreements had the applicants not wrongfully repudiated them.

[23]   Mr Woodhams deposes that, in his view, Beswick must have undertaken “some sort of costing exercise” before it purchased the management agreements. This evidence is purely speculative, however. Mr Woodhams was not able to point to any foundation for his assumption, other than his own experience as a company director.

[24]   Waterfront will bear the burden at trial of proving its damages claim (if it gets to that point), with reference to the discovered documents, as appropriate. If Waterfront has not discovered sufficient documentation to prove its damages claim then it will bear the consequences of that. There is currently insufficient evidence before the Court, however, to justify going behind the presumption that the affidavits of documents filed are conclusive in  relation  to  the  further  documents  sought.  Mr Woodhams’ affidavit simply does not provide a sufficient basis for believing that

further documents in Category One and Category Three exist, that have not yet been discovered.

Category Four documents

[25]Clause 10.1 of the LQRS management agreement provides:11

10.1      The Manager may assign the whole (but not a part) of its interest in this agreement if, before the proposed assignment takes effect:

10.1.1the Manager notifies [LQRS] of its intention to assign;

10.1.2the Manager provides evidence to [LQRS] to show that the proposed assignee has the appropriate experience and resources to fulfil the obligations of the Management under this agreement; and

10.1.3the proposed assignee executes a deed of covenant (if required by [LQRS]) agreeing with [LQRS] to be bound by this agreement as if the proposed assignee was the Manager.

[26]   On 19 July 2011, Waterfront gave written notice to LQRS of its intention to assign the management agreements to Beswick. A letter was provided on the same date, providing a “CV” regarding Beswick’s expertise and resources. The following day Waterfront assigned the management agreements to Beswick.

[27]   Waterfront has discovered the documents that were provided to the applicants regarding Beswick’s expertise and resources. The applicants now seek further discovery of “all primary documents” showing that Beswick did in fact have the necessary expertise and resources to enable it to fulfil the obligations of the manager under the management agreements, together with all documents that showed that from 20 July 2011 Beswick was ready, willing and able to perform its obligations as a manager. This is potentially an extremely wide-ranging category of documents including, for example, primary or source documents relating to Beswick’s management of other facilities or projects.

[28]   I accept Mr Skelton’s submission that “primary documents” of the kind sought are irrelevant to the issue of whether or not the management agreements were validly

11     The other management agreements are expressed in similar terms.

assigned to Beswick by Waterfront. Under the terms of the management agreements, Waterfront and Beswick did not require the consent of LQRS or the bodies corporate to the assignment. Waterfront was simply obliged to provide evidence to LQRS and the bodies corporate to show that the proposed assignee had the appropriate expertise and resources to fulfil the obligations of the manager under the management agreements. Whether or not that contractual obligation was fulfilled will likely turn on whether the letter provided at the time was sufficient. Discovery, more than five years after the event, of a potentially vast amount of primary or source documentation relating to Beswick’s expertise and resources as a manager is likely to be of little or no assistance in determining this issue.

Category Two documents

[29] The applicants seek an order requiring Waterfront to comply with the previous consent order made by Ellis J, relating to the Category Two documents more fully described at [6] above.

[30]   The applicants submitted that Waterfront has failed to “take reasonable steps to compel its agent, BDO Spicers, to supply it with [the Category Two] documents”. The Court should therefore make a further order, compelling compliance with Ellis J’s consent order, pursuant to r 7.48 of the High Court Rules. That rule provides that if a party fails to comply with an interlocutory order, a Judge may make any order that he or she thinks just. This includes striking out proceedings in whole or in part, or ordering a stay in whole or in part.

[31]   The parties have differing views as  to  whose  agent  BDO  Spicers  was,  and hence which party has legal control of the relevant documents. The applicants’ view is that BDO Spicers was the agent of Waterfront. Waterfront, on the other hand, is of the view that BDO Spicers was the agent of LQRS, and hence the relevant documents are in the legal control of LQRS.

[32]   “Control”, in relation to a document, is defined in r 1.3 of the High Court Rules. It means possession, a right to possess, or a right (otherwise than under the Rules) to inspect or copy the relevant document. This definition embraces the concept of “power”, which the House of Lords considered to 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”.12

[33]   Under the management agreements Waterfront was authorised to enter into agreements with third parties for the provision of services, for the proper performance of its duties. It was also entitled to be reimbursed by LQRS for the costs of such services. BDO Spicers’ engagement letter records that that firm was engaged by Waterfront “to provide accounting and secretarial services for the following entity: Lighter Quay Residents’ Society”. BDO Spicers itself appears to view LQRS (not Waterfront) as its ultimate client. Hence it refused to provide the documents sought to Waterfront because the agency relationship between Waterfront and LQRS has come to an end. It appears (based on counsel’s submissions) that BDO Spicers may have also asserted a lien over the relevant documents, although there does not appear to be any direct evidence before the Court on that issue.

[34]   In my view the documents held by BDO Spicers, that arise out of and/or relate to the accounting and secretarial services it provided to LQRS, are under the legal control of LQRS rather than its former agent, Waterfront. Obviously, this excludes any documents “owned” by BDO Spicers itself, such as internal communications or working papers. It is therefore LQRS (or its current agent(s)) who are legally entitled to seek copies of the relevant documents from BDO Spicers, not Waterfront.

[35]   I note that this analysis is consistent with the views expressed by Ellis J, quoted above at [8], in relation to other categories of BDO Spicers’ documents that were sought by LQRS but in relation to which her Honour declined to order discovery.

[36]   Waterfront can only discover documents in its possession or control. It would not be appropriate for this Court to make an order seeking to compel Waterfront to discover the Category Two documents, because those documents are not in its legal control. Waterfront presumably overlooked this fact at the time of the original consent orders.

12     Lonrho Ltd v Shell Petroleum Co Ltd [1980] 1 WLR 627 (HL) at 635 per Lord Diplock.

[37]   Obviously, it is open to either party to seek non-party discovery from BDO Spicers. It is not appropriate, however, for this Court to make an order (let alone an “unless” order, as sought by the applicants) seeking to compel Waterfront to provide discovery of documents that are not in its possession or legal control.

Consolidation

[38]   I now turn to consider the issue of consolidation. Waterfront and Beswick submitted that the two proceedings should be tried together. The applicants oppose that course.

[39]   Rule 10.12 of the High Court Rules permits the Court to order that two proceedings be tried at the same time if satisfied that one of the following grounds has been established:

(a)that some common question of law or fact arises in both proceedings; or

(b)that the rights to relief claimed in the proceedings are in respect of or arise out of the same event or series of events, and/or the same transaction or series of transactions; or

(c)that for some other reason it is desirable to make an order that the proceedings be tried together.

[40]    The applicants submitted that the Beswick trial (if one is ultimately required) should only  proceed  once  the  Waterfront  proceedings  have  been  determined.  Mr Morten noted that most of the claims between the LQRS parties, which include the bodies corporate, and Waterfront do not involve Beswick. Further, if the Court finds in the Waterfront proceedings that the management agreements were lawfully cancelled, the issue of whether the agreements were assigned to Beswick will then be a “non-starter”. On the other hand, he submitted, if the Court finds that the agreements were wrongfully repudiated, the issues involving Beswick will be discrete. In particular the focus will be on whether the contractual provision, requiring that

evidence be provided to show Beswick’s expertise and resources, has been complied with and, if it has, the damages Beswick is entitled to.

[41]   Waterfront and Beswick, on the other hand, submitted that hearing the proceedings together will allow them to be resolved in a cost-effective and efficient manner, and will achieve finality. Further grounds advanced in support of the submission that the proceedings should be tried together were that:

(a)both proceedings share the central legal and factual issue of whether LQRS and the bodies corporate unlawfully repudiated the management agreements;

(b)the validity of the assignment of the management agreements to Beswick has significance to both proceedings and needs to be determined in order to establish quantum (including whether Waterfront or Beswick is entitled to relief from the date of assignment);

(c)both proceedings arise from the same series of events and transactions; and

(d)the same counsel are involved in both proceedings.

[42]   I am satisfied that common questions of fact arise in the proceedings and, further, that the rights to relief claimed in the proceedings are in respect of or arise out of the same series of events or transactions.

[43]   There is some prospect that a trial in the Beswick proceedings could prove to be unnecessary if the LQRS proceedings were to be determined first. The party that would be most prejudiced, however, by the two proceedings being heard together is Beswick, as it is not a party to the LQRS proceedings. The applicants, on the other hand, are a party to both proceedings. Beswick, however, is in favour of consolidation.

[44]   In the event that both proceedings do ultimately need to be determined, it would be extremely inefficient and expensive to put the parties to the expense and delay associated with two separate trials. Further, in the event that Waterfront prevails

in the LQRS proceedings, it would not be possible to quantify damages until after the validity of the assignment to the Beswick was determined in the Beswick proceedings.

[45]   Taking all of these matters into account, it is my view that the most efficient and cost-effective way forward is for the two proceedings to be consolidated and determined together. The proceedings (including the prior expert determination proceedings) have been on foot for several years now. It is in the interests of justice that all of the outstanding issues between the parties be resolved without further delay.

Security for costs application – outstanding costs issue

[46]   Finally, I turn to consider costs issues arising out of a security for costs application made by LQRS.

[47]   On 21 November 2016, LQRS advised Waterfront that it intended to file an application for security for costs in respect of Waterfront’s counterclaim. Counsel for Waterfront suggested that, before doing so, LQRS first make a proposal to Waterfront as to the sum it was seeking for security.

[48]   On 29 November 2016, LQRS served its application without having first made a proposal to Waterfront. The application did not specify the sum that LQRS was seeking for security. Counsel for Waterfront asked LQRS’s solicitors to specify the sum sought on 29 November 2016 and again on 2 December 2016. They did not do so.

[49]   On 20 December 2016, LQRS made a proposal to Waterfront. This was the first occasion on which LQRS had specified the sum it sought by way of security ($120,000). Waterfront accepted that proposal on 23 December 2016.  At the outset of the hearing, I made a consent order requiring that that sum be paid into Court within 30 days. There was no agreement, however, regarding the costs of the security for costs application.

[50]   LQRS submitted that costs should be reserved. I accept Waterfront’s submission, however, that LQRS should be required to pay its costs on a 2B basis for the drafting of its notice of opposition and disbursements ($110 filing fee). In my view those costs would likely have been avoided if LQRS had engaged constructively with Waterfront regarding the issue of security for costs, prior to filing a formal application.

Result

[51]I direct that:

(a)The applications for particular discovery and enforcement of a discovery order are dismissed. The applicants are to meet the respondents’ costs on a 2B basis, plus disbursements as agreed or, if necessary, as approved by the Registrar.

(b)The proceedings are to be consolidated and heard together.

(c)The applicants are to meet Waterfront’s costs of filing a notice of opposition to the security for costs application on a 2B basis, together with the filing fee of $110.

Katz J