LSK Builders 2011 Limited v Chamberlain
[2021] NZHC 3186
•25 November 2021
IN THE HIGH COURT OF NEW ZEALAND NELSON REGISTRY
I TE KŌTI MATUA O AOTEAROA WHAKATŪ ROHE
CIV-2021-442-0030
[2021] NZHC 3186
UNDER Section 124 of the District Court Act 2016 IN THE MATTER
of an appeal against an interlocutory decision
BETWEEN
LSK BUILDERS 2011 LIMITED
Appellant
AND
MARK ELWYN DAVID CHAMBERLAIN AND SUZANNE CATHERINE
CHAMBERLAIN
Respondents
Hearing: 15 November 2021 Appearances:
G D Pearson for the Appellant
L S B Ackland for the Respondents
Judgment:
25 November 2021
JUDGMENT OF GRICE J
Introduction
[1] LSK Builders 2011 Ltd (LSK) appeals against a decision of the District Court in relation to timetable directions and an order for standard discovery.
[2] On 24 May 2021, Judge Zohrab issued a judgment making timetabling directions, including standard discovery following a rehearing of the applications.1
1 LSK Builders v Chamberlain [2021] NZDC 9711.
LSK BUILDERS 2011 LIMITED v CHAMBERLAIN [2021] NZHC 3186 [25 November 2021]
LSK made submissions seeking tailored discovery. That was rejected in favour of standard discovery.
[3] In relation to the timetable directions, LSK was seeking the matter be set down for hearing and timetabled to a hearing. Since the filing of the appeal the District Court has made those directions and therefore this part of the appeal is not pursued.
Background
[4] LSK is the Nelson franchisee for GJ Gardner Homes. It entered into a contract to build the Chamberlains’ home at Atawhai, Nelson on 27 July 2017.
[5] The resource consent was obtained on 18 January 2018 and the building started on 1 May 2018. Building stopped in December 2018. There were problems in the building process which led to increased costs. These appear largely to relate to the geotechnical issues encountered and the added difficulty of obtaining the required consents and permits. This led to the delay in commencing the build. The added costs and time delays are part of the Chamberlains’ counterclaim. In addition, defects claimed in the building are part of their counterclaim.
[6] Following the obtaining of the certificate of code compliance on 14 December 2018, LSK triggered the practical completion provisions of the contract. This meant that payment was due on the outstanding payment balance under the contract, including variations.
[7] Under cl 5.2 of the contract, the handover of the premises was conditional upon full payment being made. On 14 December 2018, the Chamberlains paid $363,787.34 toward the balance then owing, leaving an unpaid amount of $144,188.46. The Chamberlains then entered and have continued to live in the property, which LSK says is unlawful.
[8] LSK now sues for the balance owing of $144,188.46, together with indemnity costs and default interest. The total claim amounts to approximately $165,000 (which includes approximately $20,000 for indemnity costs, including legal expenses incurred), together with interest of $33,224.86. Default interest up to the date the
proceedings were issued (4 September 2019) is sought, together with ongoing default interest of $63.21 per day from the date of the statement of claim until payment.
[9] The Chamberlains counterclaimed. They said there were substantial defects amounting to approximately $165,000 which required repairing. They made a claim under the Fair Trading Act 1986 for misleading and deceptive conduct, essentially relating to LSK’s inaccurate cost estimates for provisional sums and promises as to completion date. In particular, the Chamberlains say LSK knew what to expect with this section, as it had built the two other houses in close proximity. Therefore, it knew but did not disclose that additional costs would be incurred, including relating to resource consents, foundations, geotechnical engineering advice and the formation of a driveway crossing. In their submission, these extra costs were claimed by LSK as variations when they should have been part of the fixed cost price for construction. In addition, further Council fees and costs were incurred which LSK knew would be incurred but did not include them in the fixed price.
[10] The Chamberlains say that they were told that the house would be ready to occupy by Christmas 2017. LSK promised that it would pay the costs of a stay in the penthouse suite at the Rutherford Hotel in Nelson if the house was not ready by mid-April 2018. The Chamberlains say LSK knew that would not be the case and that the representations he made concerning finish date were misleading or deceptive.
[11] The counterclaim is for a total of some $360,000, which include the defective workmanship claims amounting to some $166,000.
[12] Each party has appointed experts. They have been to agree on some items but are in fundamental disagreement over most of the issues involved. The experts have provided a joint report, but it only concerns the building defects. Matters such as geotechnical issues, and the issues the subject of the misleading and deceptive conduct claim are not the subject of expert determination.
[13] It became apparent in the course of submissions that the Chamberlains’ cause of action under the Fair Trading Act might need to be revisited. For instance the counterclaims as they result to no parking space for the defendants’ boat, no vehicle
crossing at the driveway, no concrete garage floor and incomplete boundary retaining wall, appear more suited to a breach of contract claim than one of misleading and deceptive conduct.
[14] Nevertheless, I have not heard argument on those issues, and I am required to consider the present appeal on the basis of the pleadings before me.
Issues
[15]Mr Pearson, for LSK, in summary, put the issues as follows:
(a)Whether the District Court Judge was in error refusing the application for tailored discovery and instead ordering standard discovery.
(b)Whether other case management orders should have been made and, in particular, whether there should have been the allocation of a five-day hearing for the proceeding and a timetable set leading to the hearing.
[16] As I noted, the issue concerning the timetable fell away as the District Court has now made timetabling orders, including a direction that the matter be set down for five days for hearing. That occurred after the filing of the appeal. Both counsel agreed that issue was resolved and therefore no appeal was pursued in relation to the timetabling directions.
Discovery
[17] As Mr Pearson pointed out in his submissions, the relevant District Court Rules 2014, which are in identical terms to the relevant High Court Rules 2016, provide that tailored discovery is presumed to be in the interests of justice unless the Judge is satisfied to the contrary in cases where: 2
(a)the costs of standard discovery would be disproportionately high; or
(b)the proceedings involve allegations of fraud or dishonesty.
2 District Court Rules 2014, r 8.9.
[18]Mr Pearson said these proceedings fall under both (a) and (b).
[19] Mr Pearson also submitted that the Rules required that the parties address the “matters in the discovery checklist in accordance with Part 1 of Schedule 9 of the High Court Rules” and address proportionality. In particular, the schedule requires that the parties must:
(a)review the pleadings to identify the categories of documents that would be required if a standard discovery order were made in the terms set out in rule 8.7; and
…
(c)estimate the likely volume and cost of discovering the above material, including the following matters:
(i)the approximate number of hard copy and electronic documents; and
(ii)the estimated cost of assembling and discovering those documents (including reviewing for relevance, privilege and confidentiality, and listing the documents); and
(iii)whether specialist expertise is required to help the making of informed decisions (including an accurate assessment of the likely costs involved); and
(d)assess and discuss with the other parties whether that estimated cost is proportionate to the sums in issue or the value of the rights in issue in the proceeding. If the cost is disproportionate, or if, having regard to rules 8.8 and 8.9, the interests of justice require the making of a tailored discovery order, parties should seek such an order.
[20] Mr Pearson pointed to the observations of Asher J in Commerce Commission v Cathay Pacific Airways Ltd:3
[12] The concept of proportionality is central to tailored discovery. It is relevant in determining whether tailored discovery is appropriate (r 8.9(a) and checklist cl 1). It is relevant in deciding if there is tailored discovery, whether the categories of tailored discovery are reasonable and proportionate (checklist cl 3(2)(a)(i)).6 And it is also a key concept in determining what is a reasonable search for documents within the scope of a discovery order (r 8.14(2)(e) and checklist cl 2(b)), and the methods and strategies for locating documents (checklist cl 3(2)(a)(ii)) …
(Emphasis added)
3 Commerce Commission v Cathay Pacific Airways Ltd [2012] NZHC 726 at [12].
[21] Mr Pearson said that the Judge did not properly address the matters required to be addressed when considering discovery and, in particular, did not apply the principle of proportionality when he ordered standard discovery. He also said counsel had failed to properly confer on these matters.
[22] These proceedings were filed on 2 September 2019. Directions concerning discovery were made on 15 October 2020 at a case management conference. Counsel for LSK did not appear when the matter was called at 10.00 am, as he was under the impression the hearing was 2.15 pm. He had intended to appear and seek tailored discovery.
[23] As a result of the order for standard discovery, LSK made an application to rescind the standard discovery direction, which was heard on 29 March 2021 and a judgment was delivered on 24 May 2021. The Judge determined that the scope of discovery, whether it be tailored or standard, was informed by the pleadings.4 The Judge decided that given the assertions that LSK knew from earlier projects what the likely costs might be for the Chamberlains, standard discovery, including of the LSK’s files in relation to the neighbouring properties they had previously built, should be directed.
[24] In the course of submissions, it became apparent from the discussions with the parties’ counsel that there was some meeting of minds on what relevant discovery in terms of the two neighbouring properties would be. These are:
(a)the building contracts, including the provisional items and sums;
(b)the variations and the costs attributable to such variations;
(c)any geotechnical engineering reports on the two sites; and
(d)the total final building costs (including disbursements) and how those costs were made up for each of those two builds.
4 LSK Builders Ltd v Chamberlain, above n 1, at [8].
[25] In relation to the Chamberlains’ own construction, Mr Pearson agreed that all documentation should be discovered, except where the parties had agreed discovery was not necessary, being:
(a)The list of documentation that the experts had already considered and listed in their report, together with any further documentation not listed but which the experts agreed did not require discovery, as they had viewed those documents.
(b)Email exchange between the parties, including copies of any material attached to those emails.
[26] Mr Acland, for the Chamberlains, indicated that the above discovery contemplated in relation to the two neighbouring properties was the documentation that he sought. If there was any further documentation to be sought once the listed categories of documents had been discovered, a further application could be made.
[27] Particularly in construction cases, discovery will be an ongoing process as the relevance or otherwise of discovered documents is assessed by experts and the parties.
[28] The other matter upon which counsel disagreed was costs. Both agreed that, given they had reached some agreement on the categories of documents to which it would be appropriate to tailor discovery, costs of this appeal should lie where they fall.
[29] However, LSK sought, and the Chamberlains resisted, the quashing of an order for costs in the District Court, which was awarded to the Chamberlains following the discovery decision. The award was of some $3,500.5 Mr Pearson had no objection to the level of costs; they had been reassessed following an initial award based on a category 2B calculation. However, he said, in view of the fact that tailored discovery was to be ordered in this Court, the District Court costs should also be set aside.
[30] Mr Acland opposed the application that the District Court costs should be set aside. He said the reason for the application for a rehearing of the discovery and
5 LSK Builders 2011 Ltd v Chamberlain [2021] NZDC 18936 at [12].
timetabling directions, was largely the fault of LSK not having counsel present when the matter was called at 10.00 am. Mr Pearson said he had been told it was 2.15 pm, which was why he did not appear at 10.00 am.
[31] In those circumstances, the appropriate course is to apply the usual rule that having ordered tailored discovery, as opposed to standard discovery, the appeal is successful. However, the tailored directions now given do not resemble the directions sought by LSK in the District Court, nor in this Court.
[32] The District Court costs award was made in relation to a rehearing of the discovery and timetable applications. The rehearing was necessary due to Mr Pearson’s non-appearance when the matter was first dealt with by the Court.
[33] Costs in the District Court would normally be quashed following a successful appeal. However, where the matter in the District Court dealt with a rehearing occasioned by a non-appearance, the issue of whether or not an indulgence had been granted by the Court might affect the award of costs. I have insufficient information to reconsider that costs award in those circumstances.
[34] Therefore, I quash the costs award and remit the costs issue on that rehearing application back to the District Court for reconsideration as part of its final costs determination in the proceedings.
Conclusion
[35]Accordingly:
(a)The appeal is allowed as to discovery. Tailored discovery is ordered in terms of paras [24] to [26] above.
(b)The timetable appeal is dismissed.
(c)Costs fall where they lie in relation to this appeal.
(d)The District Court costs award is quashed and remitted back for determination when a final costs determination is made in the District Court.
Grice J
Counsel/Solicitors:
Isherwood Le Gros Law Ltd for the Appellant Rout Milner Fitchett for the Respondents
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