HILL AND HILL V HERTNON AND HERTNON HC WN CIV-2006-485-725

HILL AND HILL V HERTNON AND HERTNON HC WN CIV-2006-485-725 19 September 2006IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY CIV-2006-485-725BETWEEN BRIAN ANTHONY HILL AND HENNEKE JOHANNA HILL Plaintiffs AND GARY BRIAN HERTNON AND LINDA CORDEROY HERTNON Defendants Hearing: 14 September 2006 Appearances: J.O. Upton QC for Plaintiffs L. Watson for Defendants Judgment: 19 September 2006 at 3.00pm In accordance with r540(4) I direct the Registrar to endorse this judgment with a delivery time of 3.00pm on the 19th day of September 2006.JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALL Summary Judgment Application[1] The plaintiff's application for summary judgment was set down for hearing on 14 September 2006. [2] Mr Upton QC, counsel for the plaintiffs, has filed a memorandum dated 11 September 2006 stating: Knowing what they now know (but did not know at the time that the application was filed), the plaintiffs do not wish to proceed with the application for summary judgment. Counsel and the solicitors for the defendants were advised accordingly last Friday, 8 September 2006.[3] Leave to discontinue this summary judgment application is therefore granted. [4] The issue of costs on the discontinued summary judgment application will be dealt with later in this judgment.Further and Better Discovery by the Defendants[5] At the scheduled hearing date for the summary judgment application, 14 September 2006, Mr Upton QC for the plaintiffs indicated that he wished to proceed with an application seeking further and better discovery from the defendants. [6] Although no formal discovery application had been made, counsel pointed to a memorandum dated 22 May 2006 filed in this Court which signalled that the plaintiffs intended to seek a further and better discovery order against the defendants. [7] Counsel for the defendants, it seems, was aware of this and had agreed that the issue of further and better discovery was to be dealt with on 14 September 2006. Both counsel for the plaintiffs and counsel for the defendants came prepared to argue this matter on 14 September 2006. [8] On this basis, the further and better discovery issue proceeded before me. [9] The order sought by the plaintiffs in this application was specifically for the following documentation: (1) The receipt book from which the receipt dated 1 April 2006 was written, and (2) Any notes of enquiries made of Mr Pene as to his ability to service the proposed mortgage, and his answers and generally any written information provided by him on the topic, and (3) Any correspondence, facsimile messages or e-mails between the defendants and Mr Pene relating to his purchase of the property; and(4) Any correspondence and/or notes of discussions and instructions between the defendants and the valuers Messrs Attwell and Grant relating to the property. [10] In turning to consider this matter, some brief background facts are useful. [11] The matter at issue in this proceeding relates to the ownership and disposition of a block of land near Otaki which was purchased in 1998 by the plaintiffs (as trustees of the Hill Family Trust) and the defendants (as trustees of the Hertnon Family Trust) as tenants in common in equal shares. [12] The purchase was evidenced by two documents signed by the parties prior to settlement of the purchase, a Partnership Deed and a Co-ownership Deed, each dated 19 June 1998. [13] The purchase was at a price of $285,000.00. It appears that initially this price was financed as to $20,000.00 by the plaintiffs, as to $35,000.00 by the defendants, as to $100,000.00 by a first mortgage to the National Bank, and as to $130,000.00 by a second mortgage to the vendor. [14] The parties fell out and in 1999 the plaintiffs wished to sell their interest in the property pursuant to an exit process provided for in the Co-ownership Deed. They claim that they nominated a sale price for their one half share of $190,000.00 plus GST in a facsimile to the defendants dated 27 August 1999. [15] The defendants in the meantime obtained two separate valuations of the total property, one at $230,000.00 plus GST and one at $280,000.00 inclusive of GST. The defendants did not accept the plaintiffs' offer, and thereafter the question of whether the plaintiffs could then sell the property and other issues were ultimately referred to arbitration pursuant to the Co-ownership Deed. That arbitration took place in July 2000 and the arbitrator's award was made on 16 August 2000.[16] There was delay in obtaining release of the award, as I understand it, because of non-payment of the arbitrator's costs. The award was ultimately released to the parties around July 2004. [17] So far as the indebtedness on the property was concerned, the evidence from the defendants is that from the time the National Bank mortgage and the vendor mortgage noted in paragraph [13] above were taken out, it was the defendants who met the repayments, with the plaintiffs contributing only irregularly. The defendants state that around February 1999 when the bank mortgage was to be repaid, it had been agreed that the parties would contribute $50,000.00 each, but the plaintiffs were unable to meet their share. The defendants were then placed in the position of having to pay the whole bank mortgage of $100,000.00, which they did. According to the defendants, the plaintiffs said they would pay their $50,000.00 "when they had sold their business". Despite it being suggested that the plaintiffs' business was sold some time ago, to date this $50,000.00 payment has not been made by them. [18] With regard to the second mortgage to the vendor, on 12 December 2000 a default notice was served by the mortgagee claiming outstanding principal and interest of $19,985.68. Some correspondence followed between the solicitors acting for the defendants and the plaintiffs. The defendants state, however, that it became obvious to them towards the end of January 2001 that given their past mortgage experience with the plaintiffs, it would be left to the defendants again to make arrangements with the mortgagee to prevent a mortgagee sale of the property. [19] Accordingly, the defendants say that around 2 February 2001 they arranged with the mortgagee to take an assignment of the vendor mortgage on the basis that they paid the default amount and costs then outstanding. [20] The defendants state that the purchase and assignment of the mortgage was completed in their personal capacity, rather than as trustees of the Hertnon Family Trust. [21] Around 1 March 2001 the plaintiffs then took the step of lodging a caveat against the half share in the property owned by the defendants.[22] On 7 August 2001 the defendants (in their personal capacity) issued a default notice under the second mortgage against the plaintiffs for arrears under the mortgage which then totalled $28,901.21. This default was to be remedied in terms of the notice before 15 September 2001. [23] It seems that the defendants endeavoured to communicate further with the plaintiffs during 2001 and 2003, but this was to no avail. No attempt was apparently made by the plaintiffs to make any payments under the outstanding second mortgage. Nor, it seems, according to the defendants did they hear from the plaintiffs between 9 September 2001 and 2 February 2005. [24] Then, around 20 August 2005 the defendants as mortgagee wrote to the plaintiffs to advise that they had a potential purchaser interested in buying the plaintiffs' one half share in the property. The defendants indicated the plaintiffs had a period of some seven months until 31 March 2006 to finalise a sale of their half share under the Co-ownership Deed, and gave notice that if this did not occur by that date, the defendants would move to sell that half share as mortgagee to the potential purchaser. [25] The plaintiffs claim now that they did not receive this 20 August 2005 letter. There can be little doubt, however, that for a number of years the plaintiffs were well aware that the second mortgage over the property was in default. Indeed, in August 2001 they had received and acknowledged the default notice from the defendants as mortgagee. [26] Around 3 November 2005 the defendants obtained a further valuation of the property from Attwell Valuers. This gave a then current market value for the property of $323,000.00. On this basis, the defendants say that on 1 April 2006 they exercised their power as mortgagee under the second mortgage to sell the plaintiffs' one half share in the property to Anthony Pene for $165,000.00. Under this sale, on 1 April 2006 Mr Pene paid a $5,000.00 deposit, and the balance of $160,000.00 was, it seems, to be secured by a mortgage to be repaid upon a new co-ownership agreement being concluded between the defendants and Mr Pene.Counsel's Arguments and My Decision[27] The present application is made under Rule 300 High Court Rules. Under this Rule, the plaintiffs must establish grounds for a belief that the defendants are, or have been in possession of documents that are relevant and should have been discovered, and that discovery is necessary at the time. [28] The first component of Rule 300 is that the plaintiffs must show reasonable grounds for a belief, or at least a prima facie indication, that the documents requested are, or have been, in the plaintiffs' possession or control – Beecham Group Limited v Bristol Myers Co (1979) VR273, and AMP v Architectural Windows Limited [1986] 2 NZLR 190. [29] On the question of whether the documents are in the control of the plaintiffs, this is not to be restricted to those documents in its immediate possession, but is to include documents that are held by agents and others on behalf of the plaintiffs. It is also to include documents to which the plaintiffs have access under, for example, the Privacy Act – Xuan v Wu (HC AK, unreported, 14 October 2003, Heath J). [30] Here, the defendants contend that in their discovery made to date they have provided to the plaintiffs all relevant documents which are in their possession or control. They claim that no other documents exist. [31] As to this claim, when one considers the nature of the documents requested by the plaintiffs in this application, questions must arise immediately. First, the original receipt book from which the copy receipt dated 1 April 2006 was written would seem to be clearly within the plaintiff's possession or control. From the plaintiffs' perspective, it is no doubt necessary to see the original receipt book to check its genuineness and the time sequence of this receipt relative to others. Secondly, notes detailing enquiries and responses from Mr Pene as to his financial position and his ability to service the proposed mortgage are also likely to be within the possession and control of the defendants. If, as they contend, the defendants acted professionally as mortgagees and on a business-like basis in seeking the best price and terms possible on the mortgagee sale, there should be appropriate recordsat the very least of Mr Pene's assets and liabilities and income and outgoings, given that $160,000.00 of the total purchase price of $165,000.00 was left in for him on mortgage. If, on the other hand, there prove to be no or inadequate records, the defendants contend this might in itself support the proposition that the purported sale to Mr Pene was not in good faith or at the best price and on the best terms available. And, finally, it is likely that some correspondence and communications between the defendants and Mr Pene relating to his purchase would exist and be clearly within the control of the defendants. Again, if not, that may raise concerns about the validity of the sale and whether all reasonable steps had been taken to obtain the best price available. And, as I see the position, it is likely that some correspondence or notes relating at least to instruction of the valuers Messrs Attwell and Grant exists and is held by the defendants. I am satisfied, therefore, that this aspect of the R.300 test is satisfied here. [32] The next issue relates to relevance. The documents in question need to be relevant in terms of the wide Peruvian Guano test. As to this test, the words of Brett LJ in the Peruvian Guano case (Compagnie Financiere et Commerciale du Pacifique v Peruvian Guano Co (1882) 11 QBD 55 (CA)) at p63 are still relevant today:It seems to me that every document relates to the matters in question in the action, which not only would be evidence upon any issue, but also which, it is reasonable to suppose, contains information which may – not which must – either directly or indirectly enable the party requiring the affidavit either to advance his own case or to damage the case of his adversary. I have put in the words 'either directly or indirectly' because, as it seems to me, a document can properly be said to contain information which may enable the party requiring the affidavit either to advance his own case or to damage the case of his adversary, if it is a document which may fairly lead him to a train of inquiry, which may have either of those two consequences:[33] Here the plaintiffs contend that the documents sought are relevant, in the sense that they relate to matters in question in this proceeding. The plaintiffs note that a major argument in this case is over the defendants purported sale of the plaintiffs' interest in the property, a sale made when the defendants contend they were acting as mortgagees in possession. [34] As noted above, this purported sale was of the plaintiffs' one half share in the property only, and was at a purchase price of $165,000.00. Only $5,000.00 of thisprice appears to have been paid, with the balance of $160,000.00 being left owing to the defendants by the purchaser Mr Pene pursuant to special conditions set out in the sale contract. [35] Given the importance of these matters to the enquiry to be undertaken by the Court, I take the view that under the wide Peruvian Guano test of relevance, the documents sought here by the plaintiffs must be seen as relevant. They relate clearly to the issue of whether the defendants as mortgagees in seeking to exercise their power of sale under the second mortgage satisfied the obligation upon them to act in good faith and to take reasonable steps to obtain the best price possible and on the best terms. When looking at these issues, the Court has a responsibility to closely scrutinise the mortgagee's conduct – Apple Fields v Damesh Holdings Limited[2004] 1NZLR 721 (Privy Council). To do so here, particularly where the defendants have chosen to sell as mortgagee by private sale, in my view, clearly requires discovery of the documents sought by the plaintiffs. [36] This second aspect of the R.300 test is also satisfied therefore. [37] I turn now to the final requirement. This is that for a discovery order to be made, the order must be appropriate and necessary at the time it is made. [38] Having considered all the material before the Court, and the background to this matter, I am satisfied that it is both appropriate and necessary for the discovery orders now sought by the plaintiff to be made. As I have said, the information sought in these documents relates directly to matters which the Court will need to determine, and I am satisfied the discovery sought is reasonable in terms of the test outlined in Krone NZ Technique Ltd v Connect Assistance Limited (1988) 2 PRNZ 627.Conclusion[39] For the reasons I have outlined above, the plaintiffs' application for further and better discovery with respect to the documents outlined at paragraph [9] above is successful.[40] An order is now made that: (1) The defendants are within 20 working days of the date of this judgment to provide further and better discovery to the plaintiffs of the documents which are, or have been, in their possession or power relating to the following matters in question in this proceeding, in particular: (a) The receipt book from which the receipt dated 1 April 2006 was written. (b) Any notes of enquiries made of Mr Pene as to his ability to service the proposed mortgage, and his answers and generally any written information provided by him on the topic. (c) Any correspondence, facsimile messages or e-mails between the defendants and Mr Pene relating to his purchase of the property. (d) Any correspondence and/or notes of discussions and instructions between the defendants and the valuers Messrs Attwell and Grant relating to the property. [41] As to costs on this application, they are reserved.Costs[42] The second issue before the Court relates to a claim by the defendants for costs against the plaintiffs on the plaintiffs' discontinued summary judgment application. [43] The costs sought are with respect to the defendants' preparation for the two scheduled hearing dates for the summary judgment application and related matters. For some of this time the defendants were not represented, however.[44] The initial call of the plaintiffs' summary judgment application took place on 22 May 2006. At that time the matter was adjourned until 19 June 2006 to timetable towards a hearing of the application. [45] Shortly prior to that 19 June 2006 call the matter was adjourned. This adjournment was at the request of counsel for the plaintiffs. [46] In a Minute issued on 19 June 2006, the summary judgment application was set down for hearing on 1 September 2006. [47] In the meantime, the plaintiffs sought an adjournment of this hearing date. An Environment Court case in which the plaintiffs'counsel was involved in Gisborne had run over time, and counsel for the plaintiff requested an adjournment of the 1 September 2006 fixture. The plaintiffs succeeded in this adjournment application, but "only by a fine margin". The hearing was then to take place on 14 September 2006. [48] As I have noted at paragraph [2] of this judgment, this matter was called on 14 September 2006 and counsel for the plaintiffs indicated that the plaintiffs did not wish to proceed with the summary judgment application. Leave to discontinue the application was granted. [49] The defendants now seek costs with respect to the summary judgment application now withdrawn. The plaintiffs submit these should lie where they fall. [50] So far as costs on a summary judgment application are concerned, the starting point is r.48E High Court Rules. This rule provides:48E. Costs in interlocutory applications(1) Unless there are special reasons to the contrary, costs on an opposed interlocutory application – (a) Must be fixed in accordance with these rules when the application is determined; and (b) Become payable when they are fixed.(2) Despite subclause (1), the Court may reverse, discharge, or vary an order for costs on an interlocutory application if satisfied subsequently that the original order should not have been made. (3) This rule does not apply to an application for summary judgment.(emphasis added) [51] This rule recognises that the party who fails on an interlocutory should generally pay the costs involved and those costs should be fixed and paid promptly – see McGechan on Procedure at para HR48E.01. [52] That para HR48E.01 of McGechan goes on to provide, however:The new costs rules are not intended to require a departure from the Courts general practice of reserving costs (but subject to its ability to fix them in an appropriate case) on an unsuccessful application for summary judgment: NZI Bank Ltd v Philpott [1992] NZLR 403; (1990) 3 PRNZ 695;Air Nelson Ltd v Airways Corporation of New Zealand Limited (1992) 6 PRNZ 1 (CA).[53] Here the issue before me is whether a departure from the usual practice of reserving costs on an unsuccessful summary judgment application is justified. [54] In Air Nelson v Airways Corporation the Court of Appeal noted at pages 3 and 4:In Philpott certain broad principles were enunciated, among them this, that in exceptional cases where the plaintiff has sought summary judgment when the rules do not allow that procedure, or in the certain knowledge that there is a bona fide question of fact or law which can be determined only after a trial, the Court may in its discretion award costs to the defendant. Otherwise the proper course on refusing summary judgment is to reserve costs until the result of the litigation is known.[55] In both NZI Bank Limited v Philpott and Air Nelson v Airways Corporationthe Court of Appeal held that the cases were not so exceptional that the ordinary rule (that costs on an unsuccessful summary judgment application needed to be reserved) should not prevail. [56] In the present case, the plaintiffs' Statement of Claim seeks relief in the following terms:(a) Entry of the (Arbitration) Award as a judgment. (b) A declaration that the plaintiffs are entitled and authorised to sell the whole of the property for cash in terms of Clause 10 of the Co-Ownership Deed. (c) An order of specific performance by the defendants of their obligations under the Co-Ownership Deed so that the defendants co-operate and do all things necessary to allow the plaintiffs to fully and effectively exercise their rights of sale under Clause 10 of the Co-Ownership Deed. (d) An injunction to restrain the defendants from interfering with or inhibiting in any way the plaintiffs' exercise of their rights under Clause 10 of the Co-Ownership Deed. (e) Costs[57] Before me counsel for the defendants submitted that the lengthy delays which have occurred in this proceeding should be attributed to the actions of the plaintiffs, and that the bringing of the summary judgment application was nothing more than a stalling or delay tactic on the part of the plaintiffs. Further, the plaintiffs contend that they have suffered real prejudice here in needing to prepare at some length to oppose the summary judgment application. [58] Notwithstanding this, under the circumstances of the present case, I am satisfied that the plaintiffs in applying for summary judgment here did not do so erroneously, in the sense that it was not permitted in terms of the High Court Rules. Nor am I satisfied that the summary judgment application was instigated in the certain knowledge that there was a bona fide question of fact or law that could only be determined after trial. Certainly as I see it, at the very least the attempt by the plaintiffs to obtain entry of the earlier arbitration award as a judgment at least would be appropriate – McGechan on Procedure HR135.15 and Perry Aggregates Limited v Hamilton City Council (1993) 6 PRNZ 573. [59] In my view, the plaintiffs here did not bring their summary judgment application unreasonably, nor with knowledge of its certain failure, nor by way of an experiment in the terms outlined in NZI Bank Limited v Philpott. [60] I am satisfied that this is a case where the incidence of costs for the withdrawn summary judgment application is best settled when the ultimate result ofthe plaintiffs' present claim is known. Costs on the summary judgment application should therefore be reserved. If this proves to be a case which does not proceed to a defended hearing for any reason, then this would not prevent the defendants here from applying for an order for costs on the summary judgment application, if this is appropriate. [61] The costs on the plaintiffs' withdrawn summary judgment application are therefore reserved. [62] One final comment needs to be made with respect to this proceeding. Before me both counsel for the plaintiffs and counsel for the defendants acknowledged that undoubtedly there has been delay in resolving the ongoing dispute between the parties for some time. Counsel agreed that the relationship between the plaintiffs and the defendants has in their words been "abysmal" and this has been the case for many years. This is despite what were no doubt the best of intentions between the plaintiffs and the defendants when they embarked upon their original joint venture purchase of the property in 1998. [63] That said, in my view this is a matter which would benefit from a consideration of alternative dispute resolution mechanisms, and possibly a Judicial Settlement Conference. Counsel and the parties are encouraged to consider this. It is a matter which is to be raised and discussed when the matter is next called in the Associate Judge's Chambers List on 17 October 2006. ________________________________Associate Judge D.I. GendallSolicitors:Bisson Moss, Napier for Plaintiffs Duncan Cotterill, Wellington for Defendants