Murrell v Mirkin

[2012] NZHC 2931

IN THE HIGH COURT OF NEW ZEALAND DUNEDIN REGISTRY

CIV-2012-412-000336 [2012] NZHC 2931

BETWEEN  JANE MAREE MURRELL Intending Plaintiff

ANDGEOFFREY MIRKIN AND WILLIAM ELLIOTT HAMILTON (AS TRUSTEES OF THE W E HAMILTON FAMILY TRUST)

Intended Defendants

Hearing:         By written submissions, received from Defendants on 4 October 2012 and from intending Plaintiff, 2 November 2012

(Heard at Dunedin)

Appearances: L A Andersen for Intending Plaintiff/Respondent as to costs

R D Smith for Intended Defendants/Applicant for costs

Judgment:      6 November 2012

JUDGMENT OF ASSOCIATE JUDGE OSBORNE [as to costs]

Background

[1]      The  Court,  on  18  June  2012,  ordered  the  intended  defendants  to  make particular  discovery  pursuant  to  r  8.20  High  Court  Rules.    In  her  supporting evidence, the intending plaintiff indicated that she and the intended defendant had been in a de facto relationship between 2003 and February 2010.  She disclosed that the parties had resolved the issue of the family home (which had been owned by a trust) but had not resolved anything else.  The “anything else” was a reference to two house properties at Arrowtown and Cromwell respectively and to shares in a private

company.

MURRELL V MIRKIN (AS TRUSTEES OF THE W E HAMILTON FAMILY TRUST) HC DUN CIV-2012-

412-000336 [6 November 2012]

[2]      The intending plaintiff sought an affidavit in relation to a substantial range of documents set out in two schedules (which are attached as appendix 1 to this judgment).

[3]      The intended defendants filed a notice of opposition upon the basis that no agreement had been reached between the parties as to who should meet the costs of complying with discovery.  By their notice of opposition they sought an order that the intending plaintiff meet the costs of compliance under r 8.22 on the grounds that it would be manifestly unjust for the intended defendants to meet those costs.

[4]      When the intending plaintiff’s application came before the Court on 18 June

2012, Mr Smith indicated that the application was not opposed by the intended defendants.  Mr Smith made no submissions as to the imposition of an order as to costs.

[5]      In  the  circumstances,  I  made  an  order  for  discovery  by  the  intended defendants in the terms sought, including in relation to the documents covered by the schedules.  Costs were expressly reserved.

[6]      The intended defendants duly filed an affidavit of documents (sworn by Mr

Hamilton) on 24 August 2012.

Intended defendants’ application for costs

[7]      The intended defendants have now, through counsel, filed a memorandum seeking an order for indemnity costs and disbursements or, in the alternative, an award of increased costs and disbursements.

[8]      Mr Mirkin has provided a copy of the fee invoice from his firm to  the intended defendants.  He has also provided the fee invoice from the firm of chartered accountants who undertook work for the defendants in relation to documentation and information provided. The fees and disbursements were:

Wilkinson Adams, Lawyers  $8,052.00 plus GST  $1,207.80 plus Disbursements                   $92.42

$9,352.22

Andrew Hamilton, Chartered Accountants              $1,282.50 plus GST           $192.38

$1,474.88

The submissions for the intended defendants

[9]      The intended defendants’ submissions may be summarised in five points:

(a)      Clear Communications Ltd v Telecom Corporation of NZ Ltd[1] is relied on as authority for the proposition that, in the absence of good reason to the contrary, all reasonable costs of compliance with a non-party discovery order should be recoverable;

[1] Clear Communications Ltd v Telecom Corporation of NZ Ltd (1994) 8 PRNZ 200.

(b)Pre-commencement  discovery  in  relation  to  one  property  (Gair Avenue) was inappropriate.  Had the intending plaintiff asked for an audit by an independent chartered accountant to establish whether there was any profit, it would have been established that there was no profit (but rather a loss of $45,672).

(c)      Pre-commencement discovery in relation to the other property (Devon Street) was unnecessary.  If the intended plaintiffs had disclosed that their claim was to be based on a joint venture or constructive trust, then the intended defendants could have provided an account of the monies paid and received and copies of relevant documents.

(d)The requested information was always available subject only to the payment of the reasonable costs of the intended defendants.

(e)      The second-named intended defendant, William Hamilton, prior to his relationship to the intending plaintiff, had had ownership structures in

place.     The  rules  regarding  discovery  are  such  that  the  cost  of

providing information to the intending plaintiff should be met by that party.

Intending plaintiff ’s submissions

[10]     Mr Andersen,  for  the  intending  plaintiff,  did  not  respond  directly to  the intended defendants’ submissions in the way I have summarised them above.

[11]     Mr Andersen’s submissions made reference to a statement of claim which was being filed contemporaneously.  The substantive proceeding seeks an order in favour of Ms Murrell in relation to profit obtained on the sale of Devon Street.  The statement of claim refers to Ms Murrell’s expectation of entitlement to half the profit and  relies  variously  on  the  doctrines  of  constructive  trust,  unjust  enrichment, imputed common intention and estoppel.

[12]     Mr Andersen submits that it was necessary to file the application for pre-trial discovery in order to ascertain both who made the profit from the sale of Devon Street and the quantum of the profit.

[13]     I endeavour to summarise Mr Andersen’s submissions by reference to the same numbered submissions of the intended defendants as summarised above:

(a)      The decision in Clear Communications Ltd v Telecom Corporation of NZ Ltd is to be distinguished because it deals with the situation of non-party discovery and not the situation of pre-commencement discovery.  The intended defendants would have been required to file an affidavit of documents in the substantive proceeding anyway.   It would be unfair for the intending plaintiff to have to pay costs for discovery that would otherwise be available through the substantive proceeding;

(b)In relation to Gair Avenue, Mr Andersen said that the background was that the intending plaintiff’s solicitors had explained their reasons for needing the information.  He submitted that the intended defendants’

failure   to   provide   the   information   sought   “necessitated   the application”.   The defendants’ concept of having the documents referred  to an  accountant for auditing did  not meet the plaintiff’s request, nor did it meet the purposes of discovery.

(c) & (d) In relation to Devon Street, the intended defendants’ insistence on the payment of their costs prior to disclosure created a barrier, which necessitated the issue of proceedings.  The purpose prior to disclosure created a barrier, which necessitated the issue of proceedings.

(e)      The purpose of the intending plaintiff ’s pre-commencement discovery was not to identify structures put in place by William Hamilton but, rather, was to enable the intending plaintiff’s solicitors to establish whether the intending plaintiff had a valid claim.

Discussion

[14]     In the usual case, the Court would have made its decision (under r 8.22(3)), as to whether or not to order the applicant to pay costs in any event, at the time the pre-commencement discovery order was made.   That was not done in this case simply because the parties (through counsel) requested the Court at that time to reserve the incidence and quantum of costs.

[15]     There is no policy of this Court to the effect that costs ought to be reserved where an order for discovery is made against intended defendants. A submission (for an intending plaintiff) that such policy existed was rejected by this Court in Enzatree Ltd v McGrath.[2]   The Court simply applies the discretion it is given under r 8.22(3), where the rule states that

... the Judge may, if the Judge thinks it just, order the applicant ...

(The same formulation was contained in the former r 302, which the Court dealt with in the Enzatree decision).

[2] Enzatree Ltd v McGrath HC Wellington, CP 119/01, 7 June 2001 (Master Thomson) at [3]-[9].

[16]     With  the  parties  in  this  case  having  asked  the  Court  to  reserve  costs (implicitly under r 8.22), it is now open to the Court to exercise the discretion under r 8.22(3).

[17]     The Court will not generally take into account the possibility that a particular party against whom discovery is ordered might well later be joined as  a party; Enzatree at [9]. The Court will recognise force in the proposition that the decision as to costs will generally be made at a time before any substantive proceeding is

issued.[3]

[3] Per Master Thomson in Enzatree at [9], citing with approval Berryman Properties Ltd v Colonial

Mutual General Insurance Co Ltd (1987) 1 PRNZ 196 (HC) per Williams J at [197].

[18]     On the other hand, the Court may be in a different position where, as in this case, the parties have agreed that the Court should reserve costs for the time being and  the Court  then later comes  to  consider costs  at  a time  when  a substantive proceeding has in fact been issued.

[19]     The fact that a successful intending plaintiff would in effect be paying a defendant for the costs of making discovery which the defendant would otherwise have to bear, at least until judgment, is but one fact to be taken into account in the exercise of the discretion; Enzatree at [10].

[20]     The authors of McGechan on Procedure at HC 8.22.01 recognise a two- staged approach to consideration of costs.   Stage 1 relates to the cost of the application for discovery itself.  Stage 2 relates to the cost of compliance.

[21]     In   considering  Stage   1,   I  adopt   the  observations   of  the   McGechan commentary that relevant considerations will include the cooperation (or otherwise) of the non-party or intended party, particularly having regard to the outcome, and the motivation for any opposition.

[22]     Stage 2 deals with the question of the costs of compliance with the order. The commentary in McGechan recognises that the current approach suggests that the

non-party (or intended party) will normally be entitled to its full compliance costs.

An example is Lindale Financial Services Ltd v Colonial Mutual Life Assurance

Society Ltd.[4]

[4] Lindale Financial Services Ltd v Colonial Mutual Life Assurance Society Ltd HC Well, CP

126/97 and CP 22/96, 4 May 1999, per Doogue J at [30].

[23]     While the Court must remain mindful of the fact that the Rules do not in relation to this costs issue distinguish between intended defendants and non-parties,[5] the Court in the present case is in the unusual situation of now knowing (at the time the costs of the discovery application come to be determined) that the intending plaintiffs have indeed issued a substantive proceeding (albeit in relation to Devon Street only).

[5] See Enzatree Ltd v McGrath per Master Thomson at [8].

Weighing the various considerations

Cooperation at the application stage

[24]      The intended defendants’ opposition was clearly expressed to be opposition to any discovery order without an attached costs order.   Rather than allow a continuing dispute over costs to hold up a discovery process, the intended defendants then cooperated on the discovery exercise itself, before returning to this costs issue. The defendants are entitled to be treated as having been cooperative in relation to the application.

Extent to which discovery useful

[25]     The scope of discovery requested by the intending plaintiff, and ordered, involved  assets  other  than  Devon  Street  which  is  now  the  sole  focus  of  the substantive proceeding.  In this case we therefore now know that one aspect of the pre-commencement discovery exercise will come into play in the substantive proceeding while two aspects (Gair Avenue and the company) will not be directly

relevant.

The costs of the discovery exercise

[26]     We also now know that the solicitors for the intended defendants put the costs of matters associated with the provision of documents and information to the intending plaintiff as totalling $9,352.22 (Wilkinson Adams’ costs) and $1,474.88 (defendants’ chartered accountant’s costs).   There are a number of complications associated with those invoices.  The invoice from the accountant simply records that it is:

For work in progress to date for matters regarding Hamilton and Murrell.

Quite what attendances comprise the invoice is left unstated.

[27]     In  relation  to  the  Wilkinson  Adams’  invoice  it  is  to  be  noted  that approximately 80 per cent of the fee is charged for the time spent by Mr Mirkin. The statement is made in the invoice that it is for:

Attendances by Geoffrey Mirkin in his capacity as a lawyer at Wilkinson Adams and not in his capacity as a trustee of your Trust by way of collating information.

[28]     I must also take into account observations made by Mr Andersen in relation to the fee invoices, which highlight the difficulty of identifying any hard-core of “litigation discovery” costs within the two invoices presented.  Mr Andersen noted:

The costs claimed clearly encompass much more than simply compliance with the Court Order:

(a)      The Intending Plaintiff agreed that invoices did not need to be specifically identified in the list so the compliance with the order was straightforward and would have been costly;

(b)       The Intending Defendants’ accounts must be in complete disarray if it cost $1,282.50 to provide relevant statements to the Intending Defendants’ solicitors for completion of the affidavit;

(c)       The legal work went much further than the provision of the Affidavit of Documents in accordance with the orders made as the invoice produced by Wilkinson Adams makes it clear that Mr Mirkin was involved   in   the   collating   of   the   spreadsheet   regarding   the expenditure and split between house contacts and landscaping issues for the construction of Devon Street, Arrowtown which, while it was very helpful, was not a matter that was ordered by the Court and consequently must be excluded from any costs order.

[29]     Without being in a position to firmly agree or disagree with some aspects of these observations, the Court has to recognise some force in the general tenor of Mr Andersen’s observations.   The defendants’ “affidavit of documents” is not a usual discovery affidavit.  It does not simply list the documents covered by the discovery order.  It  provides  detailed  narrative  explanations  of  historical  and  accounting matters, of which the following is one example:

I have previously disclosed by way of explanation to the Intending Plaintiff’s solicitor Staley Cardoza, the large number of interest free loans received from my parents and their trusts both prior to the commencement of my relationship with the Intending Plaintiff and during the relationship.  These loans have been documented by acknowledgements of debt provided to the Intending Plaintiff’s solicitors, and also recorded in financial accounts.  The trust also included inheritance monies that I received from my grandfather and proceeds from my relationship property settlement with my first wife which was settled onto the trust as separate property.

[30]     The Court is not in a position, on the information provided, to reach an analysed mathematical conclusion as to how the intended defendants’ costs might be apportioned between the discovery exercise strictly described and other aspects of the affidavit (such as the preparation of the narrative and, in particular, the narrative explanation of events).

[31]     That said, the intended defendants within their total discovery costs,   have obviously incurred legal costs in reasonably meeting the requirements of the discovery order involving Gair Avenue and the company.

[32]     With the state of information forwarded to the Court, I must simply form a general impression as to a proportion of the total legal fee invoice which might relate to Gair Avenue and the company.  I assess it at 50 per cent (with the remaining 50 per cent treated as relating to Devon Street).  I then assess a portion of the total fee as strictly relating to the discovery exercise and I put that at 60 per cent.  Consequently, I assess the proportion of legal fee devoted strictly to the discovery requirements in relation to Gair Avenue and the private company as 30 per cent of the total legal fee invoice (60 per cent of 50 per cent).

[33]     I am not satisfied on the limited information made available in relation to the fee invoice of the chartered accountant that any part of it was strictly related to the requirements of the discovery order in relation to Devon Street.

[34]     The total legal fee charged by Wilkinson Adams was $9,352.22.  Thirty per cent of that total equates to $2,805.67, which I round to $2,800.

[35]     I find it just to order, pursuant to r 8.22(3), that the intending plaintiff pay to the intended defendants on account of the costs of complying with the discovery order the sum of $2,800.  The order I make is made without prejudice to the right of the intended defendants, as defendants in the substantive proceeding, to argue for further costs having regard to the outcome of that proceeding.  It is similarly without prejudice to the right of the plaintiff, if successful, to apply for recovery of the costs paid.

Orders

[36]     I order that the intending plaintiff pay to the intended defendants the sum of

$2,800, being part of the intended defendants’ solicitor and client costs, on account of costs incurred in relation to the application and in complying with the order for discovery made.

Associate Judge Osborne

Solicitors:

Wilkinson Adams , PO Box 803, Dunedin

Staley Cardoza, Solicitors, PO Box 5698, Dunedin

Counsel: L A Andersen, Barrister, PO Box 5117, Dunedin

APPENDIX 1