GENERAL FINANCE LIMITED v SEREPISOS [2017] NZHC 2367

GENERAL FINANCE LIMITED v SEREPISOS [2017] NZHC 2367 [28 September 2017]IN THE HIGH COURT OF NEW ZEALANDWELLINGTON REGISTRYI TE KŌTI MATUA O AOTEAROATE WHANGANUI-Ā-TARA ROHECIV-2016-485-835[2017] NZHC 2367BETWEEN GENERAL FINANCE LIMITEDPlaintiffAND ALLIKI SEREPISOSDefendantHearing: 27 September 2017Appearances: S O McAnally for the PlaintiffJ C La Hatte for the DefendantJudgment: 28 September 2017JUDGMENT OF ASSOCIATE JUDGE SMITH[1] The defendant (Mrs Serepisos) applies for an order for particular discovery against the plaintiff (General Finance).[2] General Finance held a mortgage over an apartment formerly owned by Mrs Serepisos in Tory Street, Wellington (the property), securing advances made by General Finance. There were defaults in making payments due under the mortgage and eventually General Finance sold the property at a mortgagee sale.[3] There was a shortfall owing after the sale, and General Finance commenced this proceeding for recovery of the advances, interest and costs. It claimed a total of $294,667.59, and it applied for summary judgment on its claims.[4] On 13 April 2017 I gave judgment for General Finance in the sum of $50,000, and directed that the balance of its claims were to proceed to trial. I gave directions for the filing of a statement of defence by Mrs Serepisos.[5] The background to the dispute is fully set out in my judgment of 13 April 2017,1 and it is not necessary to repeat the full factual background as set out in that judgment. However, the principal defence raised by Mrs Serepisos in opposition to the summary judgment application was that General Finance had allegedly failed to discharge its duty as mortgagee under s 176 of the Property Law Act 2007 (the PLA) to take reasonable care to obtain the best price for the property reasonably obtainable at the time of the sale. Mrs Serepisos alleged that General Finance had negligently failed to consider the interest in the property of Mr Jason Chin, who was said to be prepared to pay up to $800,000 in cash for the property (General Finance says that it sold the property unconditionally on 3 May 2016, for $580,000).[6] In my judgment on the summary judgment application, I was not satisfied on the evidence then produced that the question of whether General Finance had exercised reasonable care to obtain the best price on the sale of the property was beyond reasonable argument for Mrs Serepisos. I considered that the question ofwhether proper consideration had been given to Mr Chin's expression of interest wasa matter which should go to trial.[7] In my judgment I went on to consider what Mrs Serepisos' position wouldhave been if the property had been sold to Mr Chin for $800,000. I concluded that if the property had been sold to Mr Chin in early May 2016 there would still have been a shortfall owing by Mrs Serepisos to General Finance of not less than $50,000, to which she had no defence. I accordingly entered summary judgment for that sumand directed that the balance of General Finance's claims should proceed to trial.1 General Finance Limited v Serepisos [2017] NZHC 749.The pleadings relevant to the particular discovery application[8] Mrs Serepisos filed a statement of defence and counterclaim dated 19 April 2017. In it, she accepted that she was liable in accordance with the summary judgment for $50,000, but she denied any further liability.[9] Relevant to the present application, she pleaded that General Finance "failedto exercise reasonable care to obtain the best price reasonably obtainable at the timeof sale", occasioning to her a loss of $224,954.83.2 Mrs Serepisos made the same claim by way of counterclaim against General Finance.[10] General Finance filed a reply and statement of defence to counterclaim, in which those allegations were denied. It also asked for further particulars of the allegations in the statement of defence and counterclaim referred to above.[11] Mrs Serepisos responded to the request for further particulars on 18 May 2017. The further particulars then provided were:QuestionWhat are the precise circumstances in which [Mrs Serepisos] claims [General Finance] has "failed in its statutory duty to exercise reasonable care to obtain the best price reasonably obtainable at the time of sale"?ResponseParagraph 12. [Mrs Serepisos] claims that [General Finance] has failed in its statutory duty to exercise reasonable care to obtain the best price reasonably obtainable at the time of sale, either itself or by its agent.The circumstances of this claim are:That prior to the estimate of the property Mr Ron Schlatter of Wellington Mortgage Brokers telephoned Mr William Cairns of [General Finance] on instruction from [Mrs Serepisos' son, Mr Terry Serepisos] that there was a cash buyer available for the property that buyer having the money to settle.Mr Schlatter was advised by Mr Cairns that Mr Cairns did not want to talk to Mr Serepisos, that he was sick of his bull-shit and excuses and that he (Mr Cairns) wanted nothing to do with the matter and informed Mr Schlatter to tell Mr Serepisos to get in touch with the agent Paula Muollo.This conversation took place before the property was sold and before a contract was put in place for the property being the sale/contract to the2 Statement of defence and counterclaim, paragraph 9.ultimate buyer. Mr Terry Serepisos records that his conversation with Mr Schlatter took place about two weeks before the sale contract was entered into.Mr Serepisos had spoken to the agent Paula Muollo on more than one occasion regarding the buyer Chin, mid April 2016.Mr Chin had, in anticipation of his offer to be made had been undertaking due diligence from mid April 2016 to end April 2016 and that a meeting was arranged for the 5th May 2016 for the formal offer to be prepared and tenderised.Mr Serepisos has spoken to the agent Paula Muollo on more than one occasion regarding the buyer Chin mid April 2016.[Mrs Serepisos] claims that the failure by [General Finance] and/or its agent to have regard to the offer being put forward was a breach of its said statutory duty.Further [General Finance] and/or its agent in preferring a known associate of the agent, being aware of the existence of the Chin offer breached its said statutory duty in effect by sabotaging the intended offer.General Finance's discovery list[12] The parties agreed that discovery should be standard discovery, in accordance with r 8.7 of the High Court Rules. General Finance filed its affidavit of documents on that basis, on 12 June 2017.[13] Standard discovery requires that each party must disclose the documents that are or have been in its control and that are:3(a) documents on which the party relies; or(b) documents that adversely affect that party's own case; or(c) documents that adversely affect another party's case; or(d) documents that support another party's case.3 High Court Rules 2016, r 8.7The application for particular discovery and General Finance's notice ofopposition[14] Mrs Serepisos has applied for particular discovery of the following documents: documents including communications between [General Finance], thereal estate agent, the real estate agent's employer and other parties relating tothe process of the mortgagee sale of [the property], including all emails, correspondence, file notes and notes of any verbal discussions, and including any enquiries made through Trade Me advertising of the mortgagee sale, and responses to such enquiries, and in general all communications between [General Finance] and Ronald Schlatter relating to the sale [and] existence of a prospective purchaser.[15] The discovery application was supported by an affidavit sworn by MrsSerepisos' son, Mr Elfetherios (Terry) Serepisos. Mr Serepisos explained that his mother does not understand English, and that she has been relying on him to represent her in her business and property interests.[16] Mr Serepisos referred to enquiries made "from a number of people", whichhad led him to believe that there should be communications between General Finance and other potential purchasers in relation to the sale of the property, in particular purchasers who were prepared to pay substantially more than the successful purchaser. Mr Serepisos said that his enquiries led him to believe that there are communications between General Finance, the real estate agent who actedon the sale, the real estate agent's employer and other parties. He also expressed thebelief that there were communications between General Finance and Mr Schlatter, the mortgage broker, which related to the sale and existence of a prospective purchaser. He deposed that his enquiries also showed that there were a number of enquiries made through the advertising of the mortgagee sale, which were not addressed by the agent. Those queries were said to have been made through the Trade Me website.[17] Mr Serepisos said that he seeks discovery of the emails, correspondence and any file notes made of telephone discussions, and in particular the emails from Trade Me to Harcourts (the agent involved in the sale) about the advertisements. He said:In general, I need to see all correspondence/emails/notes from potential purchasers about the sale of [the property]. This should include all correspondence between Harcourts and [General Finance] about the sale of the property, including with [the solicitor then acting for General Finance, Mr Justin Toebes], and with Trade Me.[18] In its notice of opposition, General Finance says that the particular discovery application is no more than a fishing expedition. It says that (following the judgment on the summary judgment application) there is no longer a general issue over whether it complied with its duty to take reasonable care to obtain the best price reasonably obtainable at the time of the sale of the property; the only remaining issue is the specific issue of whether it breached its duty to take such reasonable care by not pursuing an alleged communication of interest from Mr Chin, made known to it prior to the sale of the property on 3 May 2016. General Finance also pleads that the application does not disclose any particular documents that General Finance should have discovered.Applications for particular discovery – legal principles[19] Applications for particular discovery are governed by r 8.19 of the High Court Rules. That rule materially provides:8.19 Order for particular discovery against party after proceeding commencedIf at any stage of the proceeding it appears to a Judge, from evidence or from the nature or circumstances of the case or from any document filed in the proceeding, that there are grounds for believing that a party has not discovered 1 or more documents or a group of documents that should have been discovered, the Judge may order that party—(a) to file an affidavit stating—(i) whether the documents are or have been in the party'scontrol; and(ii) if they have been but are no longer in the party's control, the party's best knowledge and belief as to when the documents ceased to be in the party's control and who now has controlof them; and[20] The starting point is that a party's discovery affidavit is presumed to beconclusive. It is for the party seeking further discovery to establish that the existing affidavit is incomplete.4[21] The application of r 8.19 was considered by Asher J in Assa Abloy New Zealand Limited v Allegion (New Zealand) Ltd, in which the Judge described a four- stage approach in considering an application under the rule.5 The four stages are:(a) are the documents sought relevant, and if so how important will they be?(b) are there grounds for belief that the documents sought exist? This will often be a matter of inference. How strong is that evidence?(c) is discovery proportionate, assessing proportionality in accordance with part 1 of the Discovery Checklist in the High Court Rules?(d) weighing and balancing these matters, in the Court's discretionapplying r 8.19, is an order appropriate?The parties' submissionsMrs Serepisos[22] Mr La Hatte submits that the documents which are sought refer directly to the issues in relation to the role of Harcourts, Mr Jason Chin, and others in the sale. Central to the whole counterclaim/setoff is the question of whether General Finance obtained the best price, or whether there was another purchaser who would have paid more. The communications described by Mr Serepisos in his affidavit are relevant to that issue.[23] On the question of whether the documents actually exist, Mr La Hatte againreferred to Mr Serepisos' belief that there must have been some communication byway of emails or notes in relation to enquiries by other purchaser through the4 McCullagh v Robt Jones Holdings Limited (2015) 22 PRNZ 615 (HC) at 617.5 Assa Abloy New Zealand Limited v Allegion (New Zealand) Ltd [2015] NZHC 2760.medium of Trade Me, and also some other direct communications. The "grounds for belief" which an applicant under r 8.19 is required to make out is not a highthreshold – all that is necessary is to show that there is some credible evidence which, assessed objectively, indicates the documents that are sought exist.6[24] Mr La Hatte also referred to paragraph 95 of my judgment given on 13 April 2017, in which I identified the question as being whether General Finance, through its agent, exercised reasonable care to obtain the best price reasonably obtainable. He referred to certain evidence given on the summary judgment application, including the evidence given by Mr Serepisos and some other witnesses that the estate agent involved had told them that she did not have a key to the property (and therefore could not show Mr Chin through the property). Mr La Hatte submits thatGeneral Finance's own evidence produced at the summary judgment hearingcontradicted that statement by the agent.[25] Mr La Hatte submits that the Court can infer that some documents must exist,and that such documents must be in General Finance's control (it being the company who instructed the agent).[26] On the proportionality test proposed by Asher J in Assa Abloy New Zealand Limited v Allegion (New Zealand) Ltd, Mr La Hatte submits that there is no issue in this case. It is not likely that there would be a large number of documents, and they would be relatively easy to locate and disclose. They are likely to comprise file notes and emails, and possibly letters, and they will be on the files of GeneralFinance and Harcourts, and of Harcourts' agents.[27] On the last limb of the four-stage test, the necessary "weighing and balancing" exercise, Mr La Hatte submits that the documents are essential to MrsSerepisos' case, and they should be disclosed.[28] At the hearing, Mr La Hatte identified a further basis for the discovery now sought by Mrs Serepisos. The additional ground was that General Finance is said not to have applied sufficient energy to achieving an earlier sale of the property6 Citing Assa Abloy New Zealand Limited v Allegion (New Zealand) Ltd, above n 5, at [12].and/or a sale at a higher figure than the figure eventually realised. He submitted that there must be some correspondence held by General Finance or the real estate agent on that topic (e.g. Harcourts or Trade Me correspondence discussing a marketing programme, and whether more or less should be done to achieve a sale).General Finance[29] Mr McAnally submits that General Finance is only obliged to provide discovery which is relevant on the issues raised by the pleadings. General Finance has done that, and Mrs Serepisos is not permitted to use the discovery process to explore the existence of unpleaded affirmative defences or counterclaims that may or may not exist.7[30] Mr McAnally referred to my judgment given on 13 April 2017, including my findings that it appeared on the evidence that General Finance was actively marketing the property until it was eventually sold, and that, allowing for the difficulties arising from certain negative aspects of the property, there was no evidential basis for the argument Mrs Serepisos was then running that General Finance had improperly delayed a sale of the property.8[31] Mr McAnally made it clear in his oral submissions that General Financeaccepts that it is required to provide discovery of documents relating to Mr Chin'sapparent involvement as a prospective purchaser of the property. The question of whether such documents exist has been explored by General Finance, including by way of enquiries of the real estate agent. No such documents have been located.[32] No potential other purchaser has been identified by Mrs Serepisos, either in her pleadings or in the affidavits filed to date.[33] Mr McAnally submits that Mrs Serepisos has not identified any failure to provide standard discovery in relation to the pleaded issues. The only relevantbreach of duty pleaded relates to alleged obligations owed in respect of Mr Chin's7 Citing the judgment of Chilwell J in AMP Society v Architectural Windows Ltd [1986] 2 NZLR 190 (HC) at 196.8 General Finance Ltd v Serepisos, above n 1, at [103]–[106].interest in the property. Mr Serepisos' vague references in his affidavit to enquiriesmade by him is insufficient to justify the particular discovery sought. Further, there is no sufficient evidence to satisfy the Court that documents of the kind referred to by Mr Serepisos exist. An application in general terms will not suffice.9[34] Mr McAnally also referred to the judgment of Associate Judge Christiansen in Body Corporate 366611 v Downer New Zealand Ltd, in which the Associate Judge referred to a lack of detail regarding the documents expected to be provided, in circumstances where it was not clearly indicated what relevance the documents might have to the issues in the proceeding.10[35] In response to Mr La Hatte's submission made at the hearing that thediscovery sought can be justified on the basis of an alternative argument that General Finance failed to apply sufficient effort to the marketing and sale of the property, Mr McAnally submits that the issue was effectively disposed of in my judgment on the summary judgment application. (In my judgment, I held that it was not reasonably arguable for Mrs Serepisos that the 21 month delay between General Finance taking possession of the property and the eventual sale was excessive, and amounted to a breach of duty owed by General Finance to Mrs Serepisos.)11 Mr McAnally submits that the allegation of "lack of effort" applied to achieving a sale is simply an attempt to re-run the argument rejected by the Court in its judgment on the summary judgment application.Discussion and conclusions[36] The first step is to consider the relevance of the documents Mrs Serepisos is seeking.12[37] I accept Mr McAnally's submission that the starting point in assessingrelevance for the purposes of discovery is the pleadings. In this case, the only relevant pleadings are those referred to at paragraph 9 of Mrs Serepisos' statement of9 Referring to AMP Society v Architectural Windows Ltd, above n 7, at 197.10 Body Corporate 366611 v Downer New Zealand Ltd [2013] NZHC 3110 at [20].11 General Finance Limited v Serepisos, above n 1, at [104]-[106].12 The first stage in the four-stage approach adopted in Assa Abloy New Zealand Ltd v Allegion (New Zealand) Ltd, above n 5.defence and at paragraph 12 of her counterclaim, supplemented by the further particulars supplied by her on 18 May 2017.[38] The statement of defence and counterclaim refer only to an alleged breach by General Finance of its duty under s 176 of the PLA to exercise reasonable care to obtain the best price reasonably obtainable at the time of the sale, and the further particulars supplied by Mrs Serepisos do not identify any prospective purchaser for the property other than Mr Chin.[39] General Finance was entitled to proper notice of the respect or respects in which it is alleged to have breached a duty to Mrs Serepisos, and on the present pleadings the only alleged breach of duty relates to the response of General Finance and its agents to the expression of interest in the property by Mr Chin. General Finance says that it has conducted an appropriate search for any documents relevant to that issue, and that none have been located. There is nothing in the evidence produced by Mrs Serepisos to suggest that there are or may be documents in that category (i.e. documents relating specifically to Mr Chin) that General Finance has not disclosed.[40] There is no basis in the present pleadings which would justify a discovery order permitting Mrs Serepisos to trawl through all documents created by General Finance or its agents in the marketing and eventual sale of the property, against the possibility that the exercise might turn up something helpful to Mrs Serepisos in her contention that General Finance could have and should have obtained a better price for the property. I accept Mr McAnally's submission that the particular discoveryrequest is a "fishing expedition", in the sense described by Chilwell J in AMP Society v Architectural Windows Ltd, where the learned Judge summarised the authorities on the point as follows:13 an applicant is fishing when he seeks to obtain information or documents by interlocutories or discovery in order to discover a cause of action different from that pleaded or in order to discover circumstances which may or may not support a baseless or speculative cause of action.13 AMP Society v Architectural Windows Ltd, above n 7, at 196.[41] In this case, the Court is concerned with an affirmative defence and counterclaim, but the same principle applies – the discovery sought is, in effect, a speculative attempt to find out whether further circumstances exist (i.e. additional to the circumstances pleaded with respect to Mr Chin) which could support additional allegations, which are not presently pleaded.[42] Mr La Hatte accepted at the hearing that Mrs Serepisos could not be entitled to discovery of every piece of paper generated by General Finance or its agents with respect to the marketing and sale of the property (e.g. handwritten lists of prospective purchasers attending any "open homes" which may have been held). But once that is accepted it is not at all clear what documents would, on MrsSerepisos' approach, be considered relevant and discoverable. Mr La Hatte couldnot identify any practical "dividing line" separating the documents which MrsSerepisos says would not have to be disclosed, from those that would have to be disclosed.[43] I note also that, if wide-ranging further discovery of this sort were permitted,every mortgagor attempting to resist a mortgagee's claim for the shortfall followinga mortgagee sale would effectively be given a licence to trawl through themortgagee's documents relating to the marketing and sale of the mortgaged property, in the hope that some defence might emerge from the exercise. That could not be right; it is for the mortgagor in such a case to properly allege and particularise any alleged breach of duty by the mortgagee, and the discovery is then limited to documents relevant to that alleged breach.[44] I conclude, then, that Mrs Serepisos has not shown that there are grounds for believing that General Finance has not discovered any document or category of documents which it was required to discover under the standard discovery relevance criteria set out in r 8.7. General Finance was entitled to apply r 8.7 to the parties'cases as disclosed by the pleadings, and the further discovery now sought goes far beyond the current pleadings.[45] The application accordingly fails at the first and second stages of the four- stage approach adopted in Assa Abloy New Zealand Ltd v Allegion (New Zealand) Ltd. While Asher J considered that an assessment of the strength of the parties' caseson each of the first three stages (relevance, existence, and proportionality) should beundertaken, and that a "balancing of factors" exercise should then be undertaken, itis clear in this case that the lack of relevance of the documents sought trumps the other considerations.[46] There is no merit in the alternative argument, made by Mr La Hatte at the hearing, that the further discovery sought is justified by an allegation (which is not presently pleaded but which is said to have been alleged in general terms in the affidavits filed for Mrs Serepisos in opposition to the summary judgment application) that General Finance failed to apply sufficient effort or energy towards achieving a sale of the property, and so breached the duty it owed to Mrs Serepisos under s 176 of the PLA.[47] First, no such defence or counterclaim is presently pleaded, and General Finance was entitled to limit its discovery to documents which were relevant on the pleadings. Secondly, I accept Mr McAnally's submission that this issue is really nomore than a rephrasing of the argument, rejected on the summary judgment application, that General Finance breached its duty to Mrs Serepisos by delaying too long in achieving a sale of the property.[48] For the foregoing reasons, the application for particular discovery is refused. General Finance is entitled to its costs, and disbursements as fixed by the Registrar. Those costs will be at least on a 2B basis, but it may be that General Finance is entitled to assert a claim for indemnity costs under cl 7(f) of the relevant term loan agreement – I did not hear argument on that.14I invite counsel to confer over the appropriate costs order. If they are unable to agree, General Finance may file and serve a memorandum on costs within 10 working days of the date of this judgment. Any reply memorandum from14 I referred to this issue in my costs judgment given on 21 June 2017 (General Finance Limited v Serepisos [2017] NZHC 1367), at [4].Mrs Serepisos is to be filed and served within 10 working days of service of GeneralFinance's memorandum.Associate Judge SmithSolicitors:Keegan Alexander, Auckland for the PlaintiffPeter C Gilbert, Wellington for the Defendant