Xu v Meng

[2023] NZHC 2915

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2021-404-508

[2023] NZHC 2915

BETWEEN

WEI XU and JUNHUI ZHANG

Plaintiffs

AND

XING MENG and HUIMIN GUAN

Defendants

Hearing:	12 October 2023
Appearances:	C Holland and A Lin for Plaintiffs S Maloney for Defendants
Judgment:	19 October 2023

JUDGMENT OF ANDERSON J

This judgment was delivered by me on 19 October 2023 at 9:00 am pursuant to Rule 11.5 of the High Court Rules 2016.

……………………………… Registrar/Deputy Registrar

Solicitors:    Heritage Law, Auckland

Righteous Law Limited, Auckland

XU v MENG [2023] NZHC 2915 [19 October 2023]

[1]    The current proceeding arises from a May 2018 informal agreement under which the defendant agreed to buy the plaintiffs’ property at 105 Bayside Drive, Browns Bay, Auckland (the Property) and which included an arrangement for the defendants to occupy it prior to settlement. The agreement was subsequently terminated before the sale was settled.

[2]    The plaintiffs had been in possession of the Property for several months when the agreement came to an end and the defendants had paid the $200,000 deposit. During their occupation the defendants paid certain sums to the plaintiffs based on what the defendants say they understood to be the mortgage outgoings on the Property plus other outgoings. The defendants also received Airbnb income from the Property and income from commercial activities they were running from the Property.

[3]    The defendants remained in possession after the parties fell out, including after the agreement was terminated, without making further payments. The plaintiffs sought and obtained an order for recovery of possession of the Property.1 This was on the basis that the defendants had been in occupation as purchasers in possession, not as tenants.2

[4]    The defendants counterclaimed for recovery of the $200,000 deposit. That counterclaim remains to be determined. By way of counterclaim, the defendants now also seek verification of the mortgage and outgoings the plaintiffs were paying and judgment for such of the amount the defendants paid that are not verified. This is because the defendants believe they were asked to pay amounts towards the mortgage and for outgoings which were in excess of what the plaintiffs were paying which the defendants say was not in accordance with the agreement between them.

[5]    The plaintiffs also “counter counterclaim”3 for a figure of $162,916.19 being “rental” they say was not paid by the defendants. Further, the plaintiffs counter counterclaim in “unjust enrichment.” They seek an account of profits of the rental

1      Xu v Meng [2021] NZHC 1936.

2      At [32]-[34].

3      I do not understand there to be such a procedure. The defendants have expressly reserved their position on the status of the document.

income received by the defendants from the Property in their period of occupation and seek judgment for that sum.

[6]    A three-day trial is scheduled for 20 November 2023. There was an order for standard discovery.4 The parties have each made applications under Rule 8.19 of the High Court Rules for further and better discovery. This came before me as duty judge.

Approach to further and better discovery

[7]    It is common ground that applications for further and better discovery under Rule 8.19 are usually considered in the following framework:5

(a)The first step is to determine whether the documents sought are “relevant” and how important they will be to the issues at trial. Relevance is determined by the pleadings. A document should be discovered if it is relevant to issues which will be before the Court at trial.6

(b)The second step is to ask if there are grounds for belief that the documents sought exist. The threshold is not high and requires only prima facie evidence that the document exists and is in the respondent’s control.7

(c)The Court must then ask if discovery is “proportionate”, balancing the time and cost against the potential value of discovery.8 The imminence of trial will not justify a departure from discovery obligations.9

4      Xu v Meng HC Auckland CIV-2021-404-508, 27 February 2023 (minute of Associate Judge Taylor).

5      Jessica Gorman and others McGechan on Procedure (online ed, Thomson Reuters) at [HR8.19.03]; and Assa Abloy New Zealand Ltd v Allegion (New Zealand) Ltd [2015] NZHC 2760, 2018 NZAR 600 at [14].

6      Robert v Foxton Equities Ltd [2014] NZHC 726, [2015] NZAR 1351 at [8](a)–(b); New Zealand Rail Ltd v Port Marlborough New Zealand Ltd [1993] 2 NZLR 641 (CA) at 644; and Hoyle v Hoyle [2015] NZHC 3001 at [19](a).

7      Assa Abloy New Zealand Ltd v Allegion (New Zealand) Ltd, above n 5, at [12]; and Hoyle v Hoyle, above n 6, at [21].

8      Southland Building Society v Barlow Justice Ltd [2013] NZHC 1125 at [17] citing Karam v Fairfax New Zealand Ltd [2012] NZHC 887 at [137]–[142].

9      Hoyle v Hoyle, above n 6, at [20] citing: Stephenson v Jones [2015] NZHC 1455 at [49](e); and

Air National Corporate Ltd v Aiveo Holdings Ltd [2012] NZHC 2258, (2012) 22 PRNZ 172.

(d)Finally, weighing and balancing the above matters, the Court retains an overriding discretion as to whether to make an order.10

Plaintiffs’ application for discovery

[8]The plaintiffs seek the following further and better discovery:

(i)Details of the income payments the defendants received whilst in occupation of the Property, including but not limited to bank statements showing the money from the Airbnb customers and/or any other tenants who paid rent for occupancy to the defendants during that time, being deposited, where the money went to from there and what the money was used for.

(ii)Evidence of the money the defendants claimed they have paid to the plaintiffs including bank statements in support of the same.

(iii)A record of stock stored at the Property, including duration of storage and size of the storage area, and income received from the sale of the said stock sold out of the Property.

Category (i)

[9]    Without conceding relevance, the only aspect of (i) that the defendants contest is “details of … where the money went to from there and what the money was used for.”

[10]   The plaintiffs sought discovery on this aspect on the basis that they wanted to trace the income payments into property of the defendants for the purposes of claiming an interest in that property. I accept the defendants’ submission that the relief sought against the defendants is a money sum only. No proprietary relief or right to trace is advanced. The documents are irrelevant. The discovery is also likely to be disproportionate, especially in the context of a trial in just over a month’s time.

10     Robert v Foxton Equities Ltd, above n 6, at [8](e); and Hoyle v Hoyle, above n 6, at [19](e).

Category (ii)

[11]   I do not understand there to be any issue with the defendants providing redacted bank statements showing payments they made to the plaintiffs.

Category (iii)

[12]   The plaintiffs say Category (iii) is relevant to the claim of unjust enrichment added to the pleading on 8 September 2023. It is not clear whether this amendment required leave of the Court but no issue was taken with that at the hearing.11 The unjust enrichment claim as articulated to me in argument is that the defendants were occupying the Property on the basis that the defendants were residential tenants not commercial tenants. It is asserted that they ought to have been paying a commercial rent and should therefore account for what the defendants received from the Property.

[13]   When I asked why the amount of stock and area was relevant, Ms Holland advised that it was because commercial rent is paid by area so that is relevant to the extent to which the defendants were enriched and why it is unjust.

[14]   The defendants say that it has now been determined by Associate Judge Andrew (as he then was) that up until the agreement came to an end they were purchasers in possession, not tenants. They say it is not open on an issue estoppel basis for the plaintiffs to now assert there was a rental arrangement (and that it had some implied terms as to rental). In any event, the defendants say they should not have to make discovery of documents where the unjust enrichment claim is so meritless that the defendants are on a “hiding to nothing”. This is a reference to the phrase used in decisions of Associate Judge Bell in which he refused discovery as disproportionate where he considered the claim made to be completely without merit.12

11  There is also the status of a “counter counterclaim” which was not raised with me at the hearing  but which counsel for the defendants reserved their position on when filing a defence to it subsequently

12 Dold v Murphy [2018] NZHC 994 at [32]; and RHH Ltd v Anderson [2018] NZHC 2032 at [12]; and see also Oxygen Air Ltd v LG Electronics Australia Pty Ltd [2017] NZHC 1857 at [48]-[50].

[15]   I see the latter proposition as a controversial one. In orthodox terms, the issues against which relevance is assessed for discovery purposes is the pleadings.13 Unless and until a claim is struck out as untenable, a party is entitled to pursue discovery of documents relevant to their claim within the framework for discovery.14 Proportionality is not usually assessed by reference to a claim’s merit.

[16]   In this particular instance, I acknowledge that the unjust enrichment claim would appear to have some difficulties and is poorly pleaded. However, the reason I do not direct the discovery is not so much the untenability of the claim, but that the pleading is not characterised as a claim based on commercial versus residential rental. It is entirely silent on that. The plaintiffs are not entitled to discovery of documents on an issue that their pleading does not engage with. This means that discovery of this third category is not relevant to the pleading and I refuse it.

[17]   The limited discovery I am prepared to direct is of such rental income that has been received by the defendants from the Property in the period they were occupying it. As I understand, discovery of this has already been made by the defendants (it is in within Category (i) discussed above).

[18]   The issue estoppel raised and the tenability of the claim as pleaded will be for the trial judge.

Defendants’ application

[19]The defendants seek the following discovery:

(i)Documents related to the mortgage loan secured over the Property for the period 1 May 2018 to 30 November 2020 including but not limited to loan agreements, bank statements, and notices or other documents confirming the applicable interest rates and the amount of repayment required from time to time.

13 Chatfield & Co Ltd v Commissioner of Inland Revenue [2016] NZCA 614, (2016) 27 NZTC 22- 084 at [21]; Robert v Foxton Equities Ltd, above n 6, at [8](b); and New Zealand Rail Ltd v Port Marlborough New Zealand Ltd, above n 6, at 644.

14 Hager v Attorney-General [2014] NZHC 3293 [29]-[30].

(ii)Documents related to all other outgoings pertaining to the Property for the period 1 May 2018 to 30 November 2020.

[20]   The plaintiffs say that the further discovery should not be required because the defendants were paying rent so mortgage documentation is irrelevant. They also say they provided spreadsheets recording the mortgage payments so the defendants could see there was no profit from the rental payments being made. On the second category, they further say that other than what the defendants were paying directly to suppliers, the only outgoings were rates. The plaintiffs informed the defendants of the details of the rates and no further documents exist.

Category (i)

[21]   As to the first category (mortgage documentation) the plaintiffs’ position in opposition is misguided. It assumes that the defendants were paying “rental” and that this was not necessarily referenced to mortgage and outgoings. That is disputed by the defendants, who say the plaintiffs themselves have taken inconsistent positions on this in their own pleadings. The plaintiffs’ submissions also assume that the defendants are required to accept as correct numbers in a spreadsheet when those numbers are disputed by the defendants.

[22]   The defendants accept that they were to meet principal repayments of the mortgage (but not interest). They do not have visibility on what the plaintiffs’ mortgage payments were nor of the split between principal and interest. They want documents from which they can verify what amounts they were required to pay. This is directly relevant to their counterclaim, which specifically pleads that the plaintiffs failed to verify the mortgage and outgoing payments and seeks relief to be determined by way of return of any overpayments or payments the plaintiffs are unable to verify.

[23]   In my view it is both relevant and proportionate for the plaintiffs to make discovery of documents which enable the defendants to identify the mortgage payments made by the plaintiffs over the period the defendants were making payments and the split between principal and interest. The information must exist and should be readily available to the plaintiffs. As I understand, the discovery sought by the defendants relates to the period between May 2018 and November 2020.  I note that

the category as drafted by the defendants may be too extensive to achieve the purposes for which the discovery is sought. I have modified it to capture the necessary scope of the discovery required.

Category (ii)

[24]   As to the “outgoings” documentation, the defendants were required to pay the outgoings of the Property. They accept (and indeed assert) that this was part of the arrangement between the parties. Some of the outgoings were paid direct by the defendants to the supplier. These are not relevant to the discovery application. However, the defendants say that the plaintiffs sought payment from the defendants directly of other sums for outgoings without providing any back up information. The defendants suspect that some of these payments were not validly for outgoings at all. They want the plaintiffs to verify what the outgoings paid relate to by providing back up invoices showing the outgoings the plaintiffs were paying and the payments the plaintiffs made.

[25]   The plaintiffs say that no such documents exist and the only outgoings paid by the plaintiffs were rates. It is not clear to me whether rates invoices have been discovered or previously provided. If the plaintiffs required payment from the defendants of outgoings additional to rates then the fact that the plaintiffs say there are no further invoices would simply support the defendants’ case that they have been overcharged.

[26]   Usually, it would be the end of this aspect of a further discovery application if I am satisfied the documents do not exist. However, it appears that the defendants’ claim post-dates the original discovery made. It is also not clear to me that the plaintiffs have turned their minds sufficiently to discovery of these documents as I detected some confusion from the plaintiffs as to what precisely was sought. In those circumstances, I direct discovery of this category but on the basis that the plaintiffs are to assess whether any such documents exist and provide those that do. If there are no such documents, as I understand the plaintiffs to contend, this will not be difficult.

Result

[27]   I have modified the discovery categories to reflect my decision and to ensure it is appropriately proportionate. I make the following orders:

(a)The defendants are to make discovery of:

(i)Details of the income payments the defendants received whilst in occupation of the Property, including but not limited to bank statements showing the money from the Airbnb customers and/or any other tenants who paid rent for occupancy to the defendants during that time, being deposited. Any bank statements may be reacted for irrelevant entries.

(ii)Evidence of the money the defendants claimed they have paid to the plaintiffs by provision of bank statements redacted for irrelevant entries.

(b)The plaintiffs are to make discovery of:

(i)Documents that enable the defendants to ascertain the mortgage payments made by the plaintiffs for the mortgage loan/s securing the Property for the period 1 May 2018 to 30 November 2020 and the split of principal and interest for these. The type of documents are likely to include loan agreements, bank statements and notices or other documents confirming the applicable interest rates and the amount of repayment required from time to time.

(ii)Any documents that exist in the following category that evidences all outgoings paid by the plaintiffs pertaining to the Property for the period 1 May 2018 to 30 November 2020: invoices for any outgoings paid and bank statements redacted that show the payment against the invoice.

[28]   A verified list and inspection set is to be exchanged within 14 days. Given the proximity of the trial costs are reserved.

Anderson J