Sain v Erceg
[2022] NZHC 1010
•12 May 2022
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2020-404-1350
[2022] NZHC 1010
BETWEEN VINKA PATRICIA SAIN
Plaintiff
AND
IVAN VLADIMIR JOSEPH ERCEG
First Defendant
AND
MILLIE ERCEG TRUSTEE LIMITED
Second Defendant
Hearing: 4 May 2022 Appearances:
V Bruton QC and P A Brown for Defendants
C Martin for Non-Parties, Lynette Therese Erceg and Darryl Edward Gregory
J E M Lethbridge for Covisory Trust (Erceg) LtdJudgment:
12 May 2022
JUDGMENT OF ASSOCIATE JUDGE PAULSEN
This judgment was delivered by me on 12 May 2022 at 12.00 pm pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
SAIN v ERCEG [2022] NZHC 1010 [12 May 2022]
[1] This judgment concerns a defendants’ application for non-party discovery. It arises in the context of a claim by Vinka Sain against Ivan Erceg and Millie Erceg Trustee Ltd concerning a property at 17 Withiel Drive, Epsom, Auckland.
[2] The claim was previously the subject of an unsuccessful application by the defendants for summary judgment or strike out. In a judgment of 14 April 2021, Associate Judge Bell summarised the dispute in the following terms, which I adopt:1
Vinka Sain says that she is the beneficial owner of the residential property at 17 Withiel Drive, Epsom, Auckland. Her late brother, Michael Erceg, paid for the property in 2004 but title was taken in the name of their mother, Millie Erceg. Although nothing was written down, Vinka says that Millie had only a life interest in the property, with the remainder to go to her. She sues as beneficiary of that trust. Millie has now died, but while she was alive, she transferred Withiel Drive to the trustees of the Millie Erceg No 1 Trust, herself and Millie Erceg Trustee Ltd. Ivan Erceg, the first defendant, is the executor of Millie’s estate. Millie Erceg Trustee Ltd, the second defendant, is the remaining trustee of the Millie Erceg No 1 Trust.
[3] The firm Jackson Russell acted on the purchase of the Withiel Drive property. There is an issue raised on this application whether Jackson Russell was acting for Michael Erceg or Millie Erceg. Michael Erceg passed away in November 2005, and Lynette Erceg and Darryl Gregory are the executors of his estate.
[4]The orders sought are not conventional and are as follows:
(a)That within seven days of the making of these orders Lynette Therese Erceg and Darryl Edward Gregory, as executor and trustees of the estate of the late Michael Anthony Erceg:
iDepose, by way of verified affidavit, whether or not the Jackson Russell file and time records relating to the purchase of the property at 17 Withiel Drive, Epsom in 2004 still exists;
iiIf the file and time records still exist, that they provide the original file and time records to the defendants, or if the originals have been destroyed, they provide copies, together with a verified affidavit confirming that they have provided all the documents on the file.
(b)Ivan Erceg has the right to use the contents of the original file relating to the purchase of Withiel Drive in the following proceedings:
iThe current proceeding;
1 Sain v Erceg [2021] NZHC 761 at [1].
iiThe proceedings issued by the plaintiff against the estate of Millie Martha Erceg under the Family Protection Act 1955 (FAM-2021-004-000253); and
iiiAny application by the plaintiff under s 21 of the Administration Act 1969 to have Ivan Erceg removed as executor of the estate of Millie Martha Erceg.
(c)For costs.
The relevant rules
[5] The application is made under r 8.21 of the High Court Rules 2016, which provides:
8.21 Order for particular discovery against non-party after proceeding commenced
(1)This rule applies if it appears to a Judge that a person who is not a party to a proceeding may be or may have been in the control of 1 or more documents or a group of documents that the person would have had to discover if the person were a party to the proceeding.
(2)The Judge may, on application, order the person
---(a)to file an affidavit stating
---(i) whether the documents are or have been in the person’s control; and
(ii) if the documents have been but are no longer in the person’s control, the person’s best knowledge and belief as to when the documents ceased to be in the person’s control and who now has control of them; and
(b)to serve the affidavit on a party or parties specified in the order; and
(c)if the documents are in the control of the person, to make those documents available for inspection, in accordance with rule 8.27, to the party or parties specified in the order.
(3)An application for an order under subclause (2) must be made on notice to the person and to every other party who has filed an address for service.
[6]Also relevant is r 8.30(4) of the High Court Rules, which provides:
8.30 Use of documents
…
(4)A party who obtains a document by way of inspection or who makes a copy of a document under this rule
(a)may use that document or copy only for the purposes of the proceeding; and
(b)except for the purposes of the proceeding, must not make it available to any other person (unless it has been read out in open court).
The submissions
The defendants
[7] Ms Bruton QC frames the issue in the proceeding as whether it was agreed that when Millie Erceg purchased the Withiel Drive property with funds advanced to her by Michael Erceg, she did so in trust for the plaintiff Vinka Sain. She submits that, obviously, the legal conveyancing file for the purchase is of central relevance to this issue, as are the associated time records.
[8] Ms Bruton identifies the key differences between the defendants and non- parties on this application relate to whether Jackson Russell was acting for Millie Erceg or Michael Erceg on the purchase of the Withiel Drive property and who may assert privilege in respect of the contents of their file. She submits that “unquestionably” Jackson Russell acted for Millie Erceg. As the first defendant, Ivan Erceg, is the executor of Millie Erceg’s estate, privilege in the Jackson Russell file has passed to him.
[9] Jackson Russell have refused to hand over their file to Ivan Erceg, contending that they were acting on instructions from Michael Erceg which, Ms Bruton submits, is wholly improper and necessitated this application to obtain access to the file.
[10] In response to submissions for the non-parties that the orders sought are unconventional, Ms Bruton says she has simply sought to short-circuit the process by which the defendants may access the file to avoid unnecessary cost and delay.
The non-parties
[11] The non-parties’ position is that Jackson Russell were the solicitors for Michael Erceg but that if they acted for Millie Erceg in some limited capacity it is not the case that all documents on Jackson Russell’s file are ones in respect of which Millie Erceg has the right to assert privilege.
[12] They say the orders sought are highly unconventional and not ones the Court may make under r 8.21, as they would require the non-parties to hand over original documents rather than to make them available for inspection, and to provide those documents to the defendants irrespective of whether privilege may be asserted. The non-parties submit if orders are to be made for non-party discovery, then they should be in accordance with the provisions of the High Court Rules in the usual manner.
[13] The non-parties argue a non-party discovery order will only be made if it is “necessary” to do so.2 Here, they say, the defendants have not demonstrated the orders sought are necessary. The affidavit filed in support of the application is unsatisfactory, they say, in that it does not set out the evidence that is currently available to the defendants on the issue to which the documents sought may be relevant, nor does it explain the respects in which the currently available evidence is said to be incomplete.
[14] The orders sought are also inappropriate, the non-parties say, because they would give Ivan Erceg the right to use documents discovered in other proceedings (one of which has yet to be commenced) when there are no special circumstances that justify releasing him from the obligation not to use discovered documents for a collateral purpose.3
The plaintiff
[15] The plaintiff neither consents to nor opposes the defendants’ application. Counsel filed a memorandum noting that the application did not seek the typical orders sought on a non-party discovery application but rather appeared to be claiming a proprietary interest in the documents on Jackson Russell’s file. The plaintiff asks to be included in the parties to whom production of documents should be made if an orthodox order for non-party discovery is made.
[16] The plaintiff also submits the defendants have not followed the appropriate process to obtain an order authorising the use in other proceedings of documents they may obtain as a result of a non-party discovery order.
2 Vector Gas Contracts Ltd v Contact Energy Ltd [2014] NZHC 3171, [2015] 2 NZLR 670 at [30].
3 High Court Rules 2016, r 8.30(4).
My analysis
For whom did Jackson Russell act?
[17] The defendants’ stance that Jackson Russell acted for Millie Erceg, and that Ivan Erceg (as Millie Erceg’s executor) is entitled to possession of the file, immediately raises a difficulty for this application. As the non-parties’ counsel, Mr Martin, points out in his submissions, non-party discovery can only be ordered against a non-party if they “may be or may have been in control of” documents to which the application relates. Here, the application is made against Michael Erceg’s executors. Yet, if Millie Erceg was Jackson Russell’s client on the purchase of the Withiel Drive property, the non-parties would not have control of Jackson Russell’s file.
[18] As to the factual issue concerning who Jackson Russell was in fact acting for, in his affidavit in support of the application, Ivan Erceg attaches some Land Transfer Office documentation relating to the purchase of the Withiel Drive property and correspondence in May 2021 between the defendants’ solicitor and a partner at Jackson Russell. The correspondence concerned a request by the defendants that Jackson Russell provide, inter alia, all hard copy and electronic files and deeds relating to all matters opened by the firm for Millie Erceg, including in respect of her purchase of the Withiel Drive property. Jackson Russell’s response was that they had found no instance where they had been instructed by Millie Erceg and did not hold any deeds for her. Specifically, Jackson Russell advised in an email of 28 May 2021:
In relation to the purchase of Withiel Drive, Epsom, the late Mr Michael Erceg instructed our firm, provided all instructions and including to transfer the property into the name of the late Mrs Erceg. The contract of retainer was with Mr Michael Erceg, a long-standing client of the firm. We understand that Mrs MM Erceg had a long-standing relationship with Mr Graeme Bennett, lawyer. We have also spoken with Mr Gregory. His recollection supports the view that the late Mr Michael Erceg was the client.
[19] The only documents I was referred to which might be thought to support the position that Jackson Russell acted for Millie Erceg was the transfer instrument dated 9 December 2004, certified as correct for the purposes of the Land Transfer Act 1952 by a solicitor at Jackson Russell as “Solicitor for the Transferee”, and an abstract
lodged with Land Information New Zealand by Jackson Russell on 15 December 2004, in respect of the purchase, which named Millie Erceg as a party.
[20] In circumstances where there is no dispute that Jackson Russell was Michael Erceg’s usual solicitors, that Michael Erceg provided the funding for the purchase of Withiel Drive, and Jackson Russell say the contract of retainer was with Michael Erceg and all instructions in relation to the purchase of the property were given by him, the evidence falls well short of satisfying me that Jackson Russell was in fact acting for Millie Erceg except, perhaps, to the limited extent of signing the transfer instrument as correct for Land Transfer Act purposes and completing the paper-based registration processes.
Is an order for non-party discovery necessary?
[21] In support of the submission that a non-party discovery order should only be made if the applicant demonstrates it is necessary, Mr Martin referred me to the judgment of Kós J in Vector Gas Contracts Ltd v Contact Energy Ltd where he made the following points about r 8.21(1): 4
[28] First, it will be seen that the power to make an order under r 8.21 is discretionary. In this it contrasts with r 8.5(1) – the ordinary party discovery provision – where a Judge must make an order unless formal discovery is unnecessary.
[29] Secondly, in determining an application for non-party discovery order, the Court should have regard to the test under r 8.7 for standard discovery –
i.e. the adverse documents regime. But, as Judge Osborne observed in Westpac New Zealand Ltd v Adams, the former Peruvian Guano approach may still inform a non-party discovery order in some instances. To that extent the “train of inquiry” approach, broader than the adverse documents regime, remains relevant. However excursions on the train of inquiry are not to be encouraged in the case of non-party discovery. The Australian cases I am about to discuss make that clear.
[30] Thirdly, a non-party discovery order must still be necessary. This point flows to an extent from the first two, but particularly the first. Previous decisions of this Court have observed that the former requirement in r 8.26, that an order for particular discovery be “necessary”, no longer exists under r 8.21. Technically, that is correct. But it is I think a distinction without a difference, in practice. It is simply a consequence of the 2011 changes to the discovery provisions in the High Court Rules, which made party discovery presumptive. That is not the case with non-party discovery, as the opening words of r 8.21(2) make clear. Such discovery remains discretionary. As
4 Vector Gas Contracts Ltd v Contact Energy Ltd, above n 2.
Mr Cooper (who carried the burden of the argument for the applicants) candidly accepted, no Court will make a non-party discovery order that is unnecessary. In my view it remains implicit in r 8.21 that the non-party discovery order be necessary, so that the discretion should be exercised. That is to say, without limitation, other sources of evidence are unlikely to be sufficient because they are materially incomplete or unreliable. And that the documents sought may make a real difference, and are not merely marginal.
…
[citations removed]
[22] Mr Martin submits it is not enough that an applicant for non-party discovery demonstrates documents sought are relevant to matters in issue, they must show the orders are necessary in the sense that other sources of evidence are unlikely to be sufficient because they are materially incomplete or unreliable. He argues the defendants’ affidavit in support of the application fails to address this issue with the result the application must be dismissed.
[23] While I accept Mr Martin’s submission that the defendants’ affidavit does not address this issue, it is the case Jackson Russell’s file may contain highly relevant material on the issues which arise in the proceedings of whether the funds Michael Erceg provided to purchase the Withiel Drive property were a loan and whether the property was to be subject to a trust in favour of the plaintiff. In my view, without access to the file the evidence before the Court will be materially incomplete. It is plainly desirable that, subject to issues of privilege, the parties are able to put such evidence before the Court.
Should any order only be made in accordance with r 8.21?
[24] On this issue the non-parties are on strong ground. The orders sought by the defendants are irregular and not ones that it is contemplated the Court will make under r 8.21. They are premised on the assertion that the defendants are entitled to immediate possession of Jackson Russell’s file, which I do not accept. In any event, this is not an application against Jackson Russell to uplift its file but an application for non-party discovery.
[25] Further, Jackson Russell’s file will almost certainly contain some documents for which privilege may be claimed. Under the High Court Rules, non-party discovery
applications are subject to the same limitations as inter-party discovery applications including that a party is not required to make privileged documents available for inspection.5 Mr Martin submits, and I agree, that it would be inappropriate for the Court to make an order which might, in effect, require a person to disclose the content of communications for which they could rightly assert and maintain privilege. It would also be inappropriate for the Court to require a party to hand over original documents in the context of discovery orders rather than to simply make those documents available for inspection.
[26] I therefore conclude any discovery order made on this application should be in accordance with r 8.21(2) with inspection to be provided in accordance with rr 8.27 and 8.28.
Use of the documents
[27] As noted earlier, the application seeks an order that Ivan Erceg is to have the right to use the contents of Jackson Russell’s file for the purposes of this and other proceedings. In her written submissions, Ms Bruton said the application was made to short-circuit the need for any further Court applications, but before me she did not pursue this application with any vigour.
[28] The other proceedings in which Ivan Erceg wishes to use the documents are identified as a Family Protection Act claim brought by the plaintiff against the estate of Millie Erceg and any proceeding under the Administration Act 1969 to remove Ivan Erceg as an executor of Millie Erceg’s estate. The Family Protection Act claim is presently stayed, and the other proceeding has only been threatened at this stage.
[29] The Court will only permit a party to use discovered documents for a collateral purpose, including in a separate proceeding, if special circumstances exist.6 There is no evidence of any special circumstances in this case, and I agree with Mr Martin’s submission that considerations of convenience will not be enough. Further, the
5 High Court Rules, rr 8.21(2), 8.27 and 8.28(1) and see also Evidence Act 2006, ss 53, 54-59.
6 Dotcom v Attorney General [2016] NZHC 2251 at [8]-[9], Hally Labels Ltd v Powell [2013] NZHC 900 at [8]; Mau Whenua Inc v Mulligan [2021] NZHC 558 at [25],
application is premature given the status of the other proceedings in which permission to use the documents has been sought.
The orders that will be made
[30] While I am not prepared to make orders in terms of the application, I do consider that an order should be made that the non-parties discover Jackson Russell’s file in relation to the purchase of the Withiel Drive property in 2004 on terms which are set out below.
[31] I am satisfied that those documents may be or have been in the control of the non-parties as executors of the estate of Michael Erceg, that the documents on the file are or may be of direct relevance to the matters in issue, that requiring discovery is proportionate and that such an order is necessary for the purposes of the proceeding.
Costs
[32] In Ms Bruton’s written submissions, the defendants sought indemnity costs on the basis that it was improper for them to be refused Jackson Russell’s file and time records, although it is not clear whether such costs were being sought against the non- parties or Jackson Russell. Ms Bruton submits if the file had simply been handed over as requested, no costs would have been incurred.
[33] Before me, and recognising that the non-parties are seeking costs (including costs relating to compliance with any non-party discovery order made) Ms Bruton submits that an order should be made that the plaintiff pay any such costs under r 8.22 because it would be manifestly unjust for the defendant to bear those costs. Alternatively, she submits costs should be reserved.
[34] For the non-parties, Mr Martin submits they are entitled to costs because even if the Court makes a non-party discovery order, the arguments advanced for his clients were not unreasonable, and were made to address real concerns about the form of the proposed orders and the need to protect the sensitivity of information sought to be adduced.
[35] The non-parties also seek reimbursement of actual and reasonable costs of complying with non-party discovery orders in the usual fashion. Mr Martin refers to the judgment of McGechan J in Clear Communications Ltd v Telecom Corporation of NZ Ltd where the Judge said “[t]hird parties brought in as by a sidewind should not be left meeting their own expenses. Those costs are of course to be reasonable in the circumstances”.7
[36]I need to consider costs in two stages, namely:
(a)costs on this application; and
(b)costs of complying with the non-party discovery order below.
[37]Rule 8.22(3) is relevant in this context and provides:
If an order is made under rule 8.20(2) or 8.21(2), the Judge may, if the Judge thinks it just, order the applicant to pay to the person from whom discovery is sought the whole or part of that person’s expenses (including solicitor and client costs) incurred in relation to the application and in complying with any order made on the application.
[38] Recently, Fitzgerald J considered the relevant principles to be applied in AFI Management Pty Ltd v Lepionka & Company Investments Ltd as follows:8
[5] It is also clear that r 8.22(3) covers two different stages of an application for non-party discovery: first, costs in relation to the application itself; and, secondly, the costs of complying with any order that the non-party give discovery.
[6] When considering costs at the first stage, the court will assess whether the non-party’s response to the application was reasonable. Further, while costs are always at the discretion of the court, and assuming the non-party’s response to the application was reasonable, that party’s (reasonable) actual costs ought to be met by the party seeking non-party discovery. As observed by McGechan J in Clear Communications Ltd v Telecom Corp of New Zealand Ltd, “[t]hird parties brought in as by a sidewind should not be left meeting their own expenses”. While the Judge’s comment was made in relation to the costs of the second stage of a non-party discovery application (i.e. the costs of compliance), again, I can see no reason why it ought not to apply to the non- party’s costs of responding to the application itself. Rule 14.6(4)(d) also reflects such an approach, namely that the court may order indemnity costs
7 Clear Communications Ltd v Telecom Corporation of NZ Ltd (1984) 8 PRNZ 200 (HC) at 202.
8 AFI Management Pty Ltd v Lepionka & Company Investments Ltd [2018] NZHC 892.
where “the person in whose favour the order of costs is made was not a party to the proceeding and has acted reasonably in relation to it” (emphasis added).
(citations removed)
[39] I do not accept Ms Bruton’s submission that costs should be awarded against Jackson Russell or the non-parties. The submission was based on the erroneous premise that Jackson Russell’s file should simply have been handed over to her clients.
[40] In my view the non-parties are entitled to their actual and reasonable costs in their defence of this application and in complying with the orders that I will make. The non-parties acted entirely reasonably in opposing the application and have been successful in preventing orders being made on terms that were sought. Furthermore, no grounds have been advanced that would suggest to me there is reason to exercise my discretion to reserve costs or to prevent the non-parties from recovering their costs in providing discovery.
[41] I also do not accept Ms Bruton’s submission that the plaintiff should bear any costs consequences of the making of a non-party discovery order under r 8.22. No such costs order was sought against the plaintiff in the notice of application. Further, the argument that it would be manifestly unjust for the defendants to bear those costs is based on the submission the plaintiff’s claim will ultimately be found to have no tenable basis. That is, of course, an assessment I cannot make, but if it proves to be correct, the defendants can seek to recover their costs from the plaintiff at that time.
Result
[42] I decline to make orders sought in terms of the application but do make orders as follows:
(a)Within 21 days of the date of this judgment, Lynette Therese Erceg and Darryl Edward Gregory, as executors and trustees of the estate of the late Michael Anthony Erceg, shall:
(i)file an affidavit, compliant with r 8.15 of the High Court Rules, stating whether they have or have had in their control any files,
documents, deeds and related time records of the firm Jackson Russell relating to the purchase of the property at 17 Withiel Drive, Epsom by Michael Anthony Erceg in 2004; and if the documents have been, but are no longer, in their control, their best knowledge and belief as to when the documents ceased to be in their control and who now has control of them;
(ii)serve the affidavit on the parties to this proceeding; and
(iii)if the documents are in their control, to make those documents available for inspection in accordance with r 8.27, to the parties to this proceeding.
(b)The non-parties are entitled to their actual and reasonable costs and disbursements in relation to this application and complying with the orders in [42(a)] above.
[43] In the event there is any dispute as to the quantum of the non-parties actual and reasonable costs and disbursements, I reserve leave for the matter to be referred back to the Court for determination by way of counsels’ memoranda.
O G Paulsen Associate Judge
Solicitors:
McVeagh Fleming, Auckland / LawWorks, Auckland for Plaintiff Priscilla Brown, Parnell, Auckland for Defendant
Wilson Harle, Auckland for Non-Parties Martelli McKegg, Auckland
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