LWR Durham Properties Limited (in receivership) v Vero Insurance New Zealand Limited

[2016] NZHC 1106

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

CIV-2013-409-001781 [2016] NZHC 1106

BETWEEN

LWR DURHAM PROPERTIES

LIMITED (IN RECEIVERSHIP) Plaintiff

AND

VERO INSURANCE NEW ZEALAND LIMITED

First Defendant

IAG NEW ZEALAND LIMITED Second Defendant

Hearing:	25 May 2016 (Determined on the Papers)
Counsel:	S P Rennie and P J Anderson for Plaintiff C M Brick and J C Dymock for Defendants O D Peers and C F Olds for non-party Bank of New Zealand
Judgment:	25 May 2016

JUDGMENT OF ASSOCIATE JUDGE MATTHEWS ON

COSTS ON NON-PARTY DISCOVERY APPLICATION BY DEFENDANTS

[1]      The defendants applied for non-party discovery against the Bank of New Zealand and the application was set down for hearing, along with other applications, on 22 April 2016.

[2]      Argument on the other applications before the Court occupied the first part of the hearing.  During the course of argument on an application by the plaintiff against the defendants for further and better discovery, which is the subject of a judgment issued on 28 April 2016, Mr Rennie, counsel for the plaintiff, agreed to file a second amended statement of claim.  This document makes minor but, as the defendants see it, significant changes to  the first amended statement of claim  to make it clear beyond doubt that the relief the plaintiff seeks in this proceeding is related entirely to

reinstatement of the plaintiff’s buildings and not for an indemnity payment from the

LWR DURHAM PROPERTIES LTD (In Receivership) v VERO INSURANCE NEW ZEALAND LTD & IAG NEW ZEALAND LTD [2016] NZHC 1106 [25 May 2016]

insurers.  One consequence of this was that the defendants’ application for non-party discovery  against  the  Bank  was  able  to  be  resolved,  after  discussions  between counsel,  by  a  consent  order  requiring  the  Bank  to  give  discovery  of  certain categories of documents.

[3]      The process I have briefly described is set out in more detail in paragraphs [5] to [9] inclusive of a minute I issued on 26 April 2016.  This judgment determines the question of costs in relation to the defendants’ non-party discovery application against the Bank.

[4]      The Bank says it should be awarded costs on the application, increased above scale by 100 per cent.  It says that the defendants were advised in writing that the Bank would consent to providing a formal affidavit of documents provided its costs on doing so were met, well before it filed a notice of opposition to the defendants’ application.  The Bank says it is usual practice for agreement to be given to pay the reasonable costs of a non-party in giving discovery, that the defendants’ position in not doing so should have been recognised as tenuous, and that as a result the Bank should be entitled to increased costs under r 14.6(3).   The grounds on which the Bank relies are:

(a)     taking or pursuing an unnecessary step or an argument that lacks merit

(r 14.6(3)(b)(ii)); and

(b)failing  without  reasonable  justification  to  admit  facts,  evidence, documents, or to accept a legal argument (r 14.6(3)(b)(iii)).

[5]      One category of documents sought by the defendants was internal credit memoranda held by the Bank in respect of the plaintiff.  The Bank said they were confidential, sensitive and irrelevant.  At the hearing the defendants conceded these documents were not relevant only when the plaintiff agreed to amend its pleading in the way I have described.   However, as I have recorded in paragraph [9] of the minute of 26 April, in the first amended statement of claim (which was then the current pleading) the plaintiff did not in fact seek relief on the basis of indemnity value.  The amendment agreed to by Mr Rennie was to remove from certain pleaded paragraphs references to indemnity which counsel for the Bank maintained might

enable the plaintiff at trial to seek an alternative remedy of an indemnity payment in lieu of the remedies sought in the prayer for relief, all of which were directed at establishing   a  right   to   reinstatement.      Mr   Rennie  readily  agreed   to   these amendments, as the plaintiff specifically disavowed a claim for indemnity under its policy.   Only when this was agreed did the defendants concede that the internal credit  memoranda  held  by  the  Bank  were  not  relevant  and  thus  need  not  be discovered by the Bank.

[6]      The defendants say that costs should lie where they fall.  They say it was not necessary for the Bank to file a notice of opposition and an affidavit.  Rather, the Bank should have consented to give non-party discovery and sought the cost of doing so if agreement on this was not reached.  They say that the credit memoranda were relevant to any possible claim for indemnity cover under the plaintiff ’s policy and that indemnity remained a live prospect, as recorded in a minute issued by the Court on 10 November 2015.  However, as the first amended statement of claim was filed two weeks after the minute of the Court of 10 November and as I have said removed any reference to a claim for indemnity from the prayer for relief, it should have been clear to the defendants at that point that indemnity was no longer sought and that the relevance of the internal credit memoranda was therefore tenuous at best.  I note that although in her memorandum in support of the defendants’ position on costs, counsel refers to the minute of the Court on 10 November, she fails to note the material alterations to the plaintiff’s position which are recorded in the first amended statement of claim filed on 24 November.  The plaintiff would have faced real difficulty if it had proceeded to trial on the first amended statement of claim and then sought to change tack and seek an indemnity payout, beyond the clear scope of the remedies sought in the prayer for relief.

[7]      The  defendants  say  they  have  enjoyed  a  measure  of  success  on  their application because in effect all the orders they sought have been made.  Whilst that is correct in a literal sense, the orders could have been made by consent a good deal earlier had the defendants responded to the Bank’s written offer to give discovery on payment of its reasonable charges, and recognised the very limited prospect of the plaintiff seeking indemnity.   Counsel for the defendants also says that under the order  now  made  the  Bank  is  required  to  undertake  a  proper  search  for  further

relevant documents in certain categories, as sought by the defendants.   Any party giving discovery, however, must undertake a proper search for further relevant documents, and the categories of discovery required by the order are those sought in the defendants’ application, together with one more category discussed and agreed by counsel on the day of the hearing.  Given the willingness of the Bank to cooperate with giving discovery of documents in the categories sought, right from the outset, there is no reason to believe that the Bank would not have consented to give this additional category of documents had it been requested to do so.   I do not accept, therefore, that the defendants have succeeded in any real sense by bringing this application.

[8]      The usual principle is that a party who applies for non-party discovery should pay the non-party’s costs in giving that discovery.1    This rule was followed in the consent order made and recorded in the minute of 26 April.   For all the reasons discussed, I am satisfied that in this case the defendants should also pay the costs of the Bank in opposing their application.

[9]      I am also satisfied that the Bank is entitled to increased costs.  There was, in my view, a clear avenue open to the defendants to negotiate a successful outcome to their application, with the Bank, from the time the first amended statement of claim was filed on 24 November.

[10]     I am not satisfied, however, that an uplift in costs of 100 per cent is justified. In my view an uplift of 25 per cent on scale meets the justice of the case.  Although the Bank’s counsel says that even an uplift of 100 per cent on scale would fall short of the actual cost of the application to the Bank, that is not sufficient reason to uplift an award to such an extent, and may indeed reflect more on the level of the fee charged given that scale is intended to compensate two-thirds of actual cost.  This was not an application of any exceptional complexity.  It simply took more time to

resolve than it should have.

1      Churchill Group Holdings Ltd v Aral Property Holdings Ltd HC Auckland CIV-2001-404-2302,

3 August 2005 at [33] and [36].

[11]     The defendants will pay costs to the Bank on a 2B basis plus 25 per cent, and

disbursements fixed by the Registrar.

J G Matthews

Associate Judge

Solicitors:

Rhodes & Co, Christchurch.

Fee Langstone, Auckland. Buddle Findlay, Christchurch.