NZ Brick Distributors Limited Partnership v Malkhasian

[2020] NZHC 2147

IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY

I TE KŌTI MATUA O AOTEAROA TAURANGA MOANA ROHE

CIV-2019-470-119

[2020] NZHC 2147

BETWEEN

NZ BRICK DISTRIBUTORS LIMITED PARTNERSHIP
Appellant

AND

ANDREW SHAUNT MALKHASIAN and JEAN ANN MALKHASIAN

Respondents

Hearing:

30 July 2020

Counsel:

J J K Spring for Appellant

V A Whitfield and M Myer for Respondents

Judgment:

24 August 2020

JUDGMENT OF BREWER J

This judgment was delivered by me on 24 August 2020 at 4:00 pm pursuant to Rule 11.5 High Court Rules.

Registrar/Deputy Registrar

Solicitors:

Minter Ellison Rudd Watts (Auckland) for Appellant Gallie Miles (Te Awamutu) for Respondents

NZ BRICK DISTRIBUTORS LIMITED PARTNERSHIP v MALKHASIAN [2020] NZHC 2147 [24 August 2020]

Introduction

[1]    The respondents are suing a number of defendants in respect of a building project. They applied for third party discovery against the appellant. The appellant supplied bricks to one of the parties being sued by the respondents and the respondents wanted documents relating to that supply.

[2]    The appellant accepted it should make discovery. A District Court Judge, by consent, ordered that informal discovery would take place. However, it did not go smoothly. Mr Spring, counsel for the appellant, took the view that only documents relevant to the respondents’ case should be discovered and Ms Whitfield, counsel for the respondents, took the view that assessment for relevance was not for Mr Spring and that all documents falling within the categories described in the application for third party discovery should be disclosed.

[3]    Eventually, after much toing and froing, discovery was completed and the appellant applied to the District Court for an order for its actual and reasonable costs in making third party discovery. It put its costs as $26,459.60. This application was opposed by the respondents who argued that the appellant’s conduct disqualified it from receiving any costs and instead the appellant should pay the respondents’ costs of $14,038.50.

[4]    The question of costs was decided by Judge PG Mabey QC.1 His Honour took the view that the appellant took “an unnecessarily obstructive and adversarial approach … to what was a straightforward issue of third party discovery”.2

[5]The Judge held that because of the appellant’s approach:

[9]        The Court was required to intervene and make directions for compliance. It was observed that any issues of relevance are not for a subjective assessment of the second respondent which could bring those matters to Court for assessment.

[10]      That very situation has arisen between the plaintiffs and second defendant in the litigation whereby with co-operation between counsel the

1      Malkhasian v Home Builders BOP Ltd & Ors DC Tauranga CIV-2017-070-1030, 23 October 2019 (Ruling 2).

2 At [2].

Court has determined issues of relevance and privilege in relation to documents and the parties can move on secure in the knowledge that no documents have been improperly withheld.

[11]      The second respondent did not choose to take that approach and I consider it was obstructive against reasonable suggestions made by the plaintiffs.

[12]      A number of case management conferences were convened. Minutes were issued and ultimately there was compliance which despite the consistent protest by the second respondent that all documents had been provided, 27 further documents were supplied to the plaintiffs.

[13]      All of this could have been avoided if the second respondent had complied with the scope of the consent order for discovery and accepted the practical and reasonable proposals put forward by the plaintiffs as to how it may go about seeking out documents from its files.

[6]    As a result, Judge Mabey decided the appellant should be denied its costs and decided to exercise his discretion in favour of the respondents by awarding them costs in the sum of $7,500.

[7]    The appellant appeals against Judge Mabey’s decision. It contends it is entitled to its costs of $26,459.60.

Discussion

[8]    It is trite law, and the parties do not suggest otherwise, that an award of costs is a matter for the discretion of the presiding Judge. It is not, of course, an unbridled discretion.

[9]    It is also trite law, and the parties do not suggest otherwise, that generally speaking a non-party required to make discovery is entitled to its reasonable costs in doing so.3 Of course, a non-party making discovery is not entitled to its unreasonable costs.

[10]   The issue in this appeal is whether the Judge rightly characterised the appellant’s approach to discovery and, if so, whether it was available to him in the

3      In this case, the parties agreed to the payment of reasonable costs and Judge Cameron, in his Minute of 20 December 2018 making orders in accordance with their agreement, stipulated an entitlement to “reasonable costs for compliance as to discovery”.

exercise of his discretion to order the appellant to pay the respondents $7,500 as a contribution towards their costs.

Submissions on the appellant’s approach to discovery

[11]   In his submissions for the appellant, Mr Spring characterises the appellant’s responses to the respondents’ discovery requests as prompt, comprehensive and obliging, notwithstanding its view that the respondents’ requests were unreasonable. In particular, he submits:

(a)The appellant responded to the appellant’s first request for information, on 25 June 2015, within one day, confirming that its invoices were true and genuine.

(b)The appellant was given no opportunity to negotiate the issue of non- party discovery by consent prior to the respondents’ filing of their application three years later, on 2 November 2018.

(c)The appellant consented to the Court order for non-party discovery of 19 December 2018, providing the documents sought on 20 January 2019. With its lawyer’s assistance, it had undertaken a search of its electronic and hard-copy records, responded to the different categories of document sought, and reviewed the documents collected for relevance and privilege.

(d)On 8 March 2019, the appellant provided the respondents with a detailed discovery affidavit.

(e)The appellant provided two further  discovery  affidavits  on  8  and 14 May 2019 in response to the respondents’ continued requests for irrelevant documents and for affidavits confirming it had provided all documents in its possession regardless of relevance. The appellant only produced a further 26 documents beyond those produced in January, the majority of which were email correspondence between the parties regarding the cleaning of bricks at the respondents’ property. The

appellant decided to be “pragmatic” and was accordingly forthcoming with documents sought regardless of whether they were irrelevant, outside the scope of the discovery order,4 or concerned issues that had already been addressed by affidavit.5

(f)On 18 June 2019, the appellant offered to conduct further key word searches.

[12]   Ms Whitfield, for the respondents, rejects Mr Spring’s characterisation of the appellant’s conduct. Specifically, she submits:

(a)The appellant disclosed seven documents on 19 January 2019.

(b)The respondents’ request for particular key word searches was a task that could be completed within ten minutes and was unlikely to turn up documents unrelated to the proceedings, yet the appellant refused to undertake them.

(c)The appellant only complied with the discovery order on 29 July 2019, six months after the required date of compliance, and after four case management conferences convened to address the appellant’s consistent failure to comply with the discovery order. The appellant disclosed an additional 27 documents, all of which were well within the scope of the order.

Submissions on the law

[13]   On the issue of the award of costs against non-parties, Mr Spring submits that in the absence of good reasons to the contrary, a non-party should be entitled to recover the full and reasonable costs of complying with a discovery order.6 He submits that an award of costs will only be made against a non-party in exceptional cases where there is evidence of bad faith or impropriety, where the non-party has unsuccessfully

4      Such as the appellant’s GST accounts receivable information.

5      Such as whether the appellant had provided all invoices rendered to the respondents.

6      Clear Communications Ltd v Telecom Corporation of NZ Ltd (1994) 8 PRNZ 200 (HC) at 202.

opposed the discovery application,7 or where the non-party was so closely involved in the proceeding that it was effectively acting as a party.8

[14]   Ms Whitfield concurs that non-parties may find themselves liable for costs in proceedings in which they have acted unreasonably, highlighting Heron J’s observation in Nelson v Dittmer:9

It would seem strange if the Court’s power to order filing of an affidavit was not accompanied by power to award costs where, for example, the person to whom the order was directed had been dilatory or contumacious.

[15]   She further notes McGechan J’s approval of approaching the question of whether and if so, how the Court should exercise its discretion to award a non-party costs for compliance with a discovery order in Clear Communications Ltd v Telecom Corporation of NZ Ltd.10 The Court should first examine the costs in relation to the application and the opposition to it, and exercise its general discretion in relation to that issue. In doing so, it should consider the non-party’s motivation for opposing the application, whether the application was reasonable, and whether its opposition was successful. Next, the Court should consider the cost of compliance with the application. In the absence of good reasons to the contrary, the Court should award the non-party its reasonable costs of compliance.

[16]   On the issue of the scope of discovery obligations, Mr Spring submits that non- party discovery applications are determined in the same way as party-party discovery applications; only documents which are relevant to the application are required to be disclosed.

[17]   Ms Whitfield submits to the contrary that it is inappropriate for a non-party who has consented to a discovery order to then assess the relevance of documents in complying with that order. She submits that if a non-party subject to a discovery order considers the scope to be excessive, then it should raise that at the time of the application.

7      Nelson v Dittmer [1986] 2 NZLR 48, (1986) 2 PRNZ 171 (HC).

8      Jordan v O’Sullivan & Ors CIV-2004-485-002611, 12 July 2006 (HC) at [44].

9      Nelson v Dittmer [1986] 2 NZLR 48, (1986) 2 PRNZ 171 (HC) at 8 – 9.

10     Clear Communications Ltd v Telecom Corporation of NZ Ltd (1994) 8 PRNZ 200 (HC) at 201 – 202.

Decision

[18]   A non-party required to make discovery in a civil proceeding is entitled to its reasonable costs in doing so. There is a distinction between opposing an application for non-party discovery and the attendances required for the making of non-party discovery. In the former case, a non-party who unsuccessfully resists an application for discovery might be required to pay costs. In the latter case, a Court will, if asked, examine a non-party’s claim for costs to ensure they are reasonable in the circumstances. As I have said, a non-party cannot expect its unreasonable costs to be paid.

[19]   In this case, the parties agreed upon the wording of the discovery order and it was made by consent. It was in essence an order for tailored discovery. The wording is set out in the respondent’s application:

1.4.1.1Any quotations or estimates provided by the second respondent in relation to the supply of materials at 58 Te Karaka Drive, Tauranga (Second Respondent’s Works);

1.4.1.2Any contract entered into between the first defendant and the second respondent in relation to the Second Respondent’s Works;

1.4.1.3Any and all communications and correspondence, including file notes, between the first defendant and/or second defendant and the second respondent in relation to the Second Respondent’s Works;

1.4.1.4Copies of all invoices and/or credit notes issued by the second respondent in relation to the Second Respondent’s Works.

[20]   I see no reason why a non-party responding to a tailored discovery order should be in any different position to that of a party. The obligations of a party to provide tailored discovery were considered recently by Katz J in Pyne Gould Corporation Ltd v Bath Street Capital Ltd.11 Justice Katz posed the question:

[34] Does an order for tailored discovery require the party giving discovery to produce all documents falling within the tailored discovery categories, or must the party also assess each document for relevance? If the latter, what is the appropriate relevance threshold? As I have noted at [15] to [16] above, the rules are silent on the topic.

[21]Justice Katz concluded:

11     Pyne Gould Corporation Ltd v Bath Street Capital Ltd [2020] NZHC 1247.

[43]      … The overall scheme of the rules envisage that parties will (and should) turn their minds to issues of relevance at the time the relevant categories are negotiated. The rules do not appear to envisage a secondary relevance filter being applied to agreed categories. Ideally, the categories should be carefully formulated to capture only documents the parties agree are relevant (albeit it is open to the parties to take a broader view of relevance than they would for standard discovery). The cost and efficiency gains associated with tailored discovery may be lost if this is not done and significant disputes about relevance arise later, as has occurred in this case.

[44]      In many cases it will be implicit that the parties agreed and accepted that documents falling within the identified categories are relevant and discoverable. In some cases, however, the parties may not have sufficiently turned their minds to issues of relevance at the time the categories were formulated. It may be apparent from the way in which the categories are drafted that the parties intended that a secondary relevance filter to be applied. Farrelly is an example of such a case. One category of documents was simply “financial and other internal records.” A reasonable party would interpret such an extremely broad category as only requiring discovery of all relevant financial and internal records.

[22]I respectfully agree with Katz J’s conclusions.

[23]   In this case, the appellant agreed to make discovery of categories of documents. All it had done was supply bricks for a building project. It had no interest in the law suit. It had, as might be expected, relatively few documents in the categories of discovery. There was no need to engage a “secondary relevance filter”.

[24]   In my view the appellant took an unreasonably pedantic approach to the making of discovery. As a result, the exercise became disproportionate to the tailored discovery ordered.

[25]   I accept that an issue relating to the cleaning of the bricks arose after the first round of discovery was made which required further work.

[26]   It follows I agree with the Judge that costs of $26,459.60 were unjustified. I was advised by Ms Whitfield that the value of the bricks supplied was about $16,000.

[27]   However, I am also of the view that denying a non-party its reasonable costs on discovery would require some action on its part so disqualifying as to make it in the interests of justice that the party forfeits its right to costs and is liable to contribute

to the costs of the party seeking discovery. Examples might range from deliberate obstruction for a partisan purpose to egregious failure to comply with Court orders.

[28]   The unreasonably pedantic approach taken by the appellant to providing discovery is not in this range. It follows that I find the District Court Judge erred in principle in deciding the appellant should receive no costs and should contribute to the respondents’ costs.

[29]The appellant’s invoices for professional legal services are (broadly):

·$5,000 for services prior to 29 November 2018

·$3,500 for services 29 November 2018 – 19 December 2018

·$3,500 for services 19 December 2018 – 27 February 2019

·$1,800 for services 27 February 2019 – 28 March 2019

·$3,500 for services 28 March 2019 – 21 June 2019

·$1,367 for services 21 June 2019 – 22 July 2019

·$2,000 for services 22 July 2019 – 21 August 2019

·$3,800 for services 21 August 2019 – 26 September 2019

[30]   In my view, costs of $10,000 are appropriate taking into account the issue relating to cleaning the bricks. The discovery task was not onerous and should have been completed by early 2019.

Outcome

[31]   The appeal is allowed. The District Court’s ruling on costs is quashed. The respondents must pay the appellant $10,000 as its reasonable costs in the non-party discovery.

[32]   The appellant is entitled to its costs on this appeal on a 2B basis. If the parties cannot agree on quantum then  the  appellant  must  file  its  memorandum  within  21 working days of the date of this judgment and the respondents may file their reply within a further 14 working days.

Brewer J