R T HENDERSON v SOUTH PACIFIC TREASURY LIMITED & ORS [2000] NZCA 71 (31 May 2000)

IN THE COURT OF APPEAL OF NEW ZEALAND

ca145/99

	between	R T HENDERSON
		First Appellant

	AND	SOUTH PACIFIC TREASURY LIMITED
		Second Appellant

	and	THE COLONIAL MUTUAL LIFE ASSURANCE SOCIETY LIMITED
		First Respondent

	and	POLICY MANAGEMENT LIMITED
		Second Respondent

	and	MANU CHHOTUBHAI BHANABHAI
		Third Respondent

Hearing:	25 May 2000
Coram:	Gault J Keith J Tipping J
Appearances:	K J Crossland for First and Second Appellants
	G P Barton QC and J L Land for First Respondent W G Manning for Second and Third Respondents
Judgment:	31 May 2000

judgment of the court delivered by TIPPING J

[1] This appeal is concerned with non party discovery under Rule 301.It is also concerned with the costs of compliance.The High Court may make an order for discovery against someone who is not a party to the proceedings if such order is necessary at the time when the order is made (Rule 301 in combination with Rule 312).Two steps are involved.

[2] The first is an assessment whether the order is necessary.If it is, the second is an assessment whether the Court should exercise its discretion ("may order") under Rule 301.If an order is made, Rule 302 empowers the Court, again as a matter of discretion ("may, if it thinks fit"), to order the applicant for the order to pay the person from whom discovery is sought, their expenses (including solicitor and client costs) in relation to the application and compliance with the order.

[3] Doogue J made orders for discovery against four non parties.They were the appellants Mr Henderson and South Pacific Treasury Limited (SPT), and the second and third respondents Mr Bhanabhai and Policy Management Ltd (PML).He made the order in a more limited form than had been sought.The Judge required the applicant, the first respondent Colonial Mutual Life Assurance Society Limited (CML) to pay the non parties their costs of the application and of compliance.The costs of compliance order was an order to operate only in the first instance, and was subject to review when the result of the proceedings was known.The Judge also appropriately reserved leave to all parties to apply generally in relation to any problems encountered during the discovery process. Two of the non parties, Mr Henderson and SPT, have appealed, contending that discovery should not have been ordered against them.CML has cross appealed against the costs orders.The other two non parties, Mr Bhanabhai and PML have not appealed but have appeared to resist the cross appeal.

[4] The underlying proceedings are a claim and cross claim.CML is suing a company called Lindale Financial Services Ltd (Lindale) and Mr J G Handley for insurance premiums which are said to be refundable.Lindale and Mr Handley have cross claimed, alleging breaches of duty by CML which have caused them loss.They say they are entitled to set off that loss against CML's claim. Summary judgment was entered in the High Court for CML but on appeal this Court set aside that summary judgment as to quantum, leaving the judgment intact as to liability.The litigation thus concerns how much CML is owed by Lindale and Mr Handley (if anything), following determination of the proper amounts of both claim and cross claim (on which liability remains at issue).

[5] The Judge was satisfied that discovery from the non parties was necessary and that his discretion should be exercised in favour of making an order. Mr Crossland, representing Mr Henderson and SPT, sought an adjournment of his clients' appeal against that order.We refused that request for reasons which we now give.The order was made by the Judge over a year ago.The litigation has been case managed in this Court, and, when Mr Henderson and SPT requested an adjournment of an earlier proposed fixture, they were given what the Court then saw as sufficient extra time.The request for adjournment arose because, for reasons which we do not need to discuss, senior counsel earlier instructed had become unavailable.Mr Henderson and SPT had also elected to change their solicitors.Mr Crossland and his firm became involved very recently and wanted further time to investigate, with the assistance of new senior counsel, the possibility of running what Mr Crossland described as a novel argument based on the law and practice adopted in the United States of America in this sort of situation.

[6] When the Court was advised that, in spite of having been given extra time, Mr Crossland's clients would nevertheless seek a further adjournment, they were told that the considerable time and energy which was in the event directed to that end would be better directed to the substance of the appeal. Notwithstanding that intimation they elected to continue with their application.Underlying these various matters is the fact that in our view the issue or issues involved on the appeal do not have nearly the complexity ascribed to them.For all these reasons we considered that it would be wrong to delay the hearing of the appeal and cross appeal any further, and the application for adjournment was accordingly refused.

[7] In those circumstances Mr Crossland indicated he had no submissions to make in support of the appeal, or in opposition to the cross appeal.We nevertheless considered whether, on the basis of the papers, filed there was any ground for concluding that Doogue J had erred in ordering discovery against Mr Henderson and SPT.In our view there was not.The Judge was entitled on the evidence to conclude that the discovery sought by CML was necessary.In exercising his discretion to order discovery he cannot be said to have erred in principle, or to have been plainly wrong.On that basis we dismissed the appeal during the hearing.

[8] That brings us to the cross appeal.The Judge ordered CML to pay the costs of compliance with the orders for discovery in the first instance.CML contends that the Judge should have ordered the non parties to pay their own costs, at least in the first instance.The Judge's decision was a discretionary one in an area in which this Court is most reluctant to interfere.Mr Land, who argued this aspect of the case, accepted that the Judge had correctly directed himself when he said that unless there is good reason to the contrary, an applicant for non party disclosure should bear the costs of compliance in the first instance.Counsel's contention was that the Judge had under-estimated the strength of CML's case to depart from that starting point.It is convenient to set out the Judge's reasoning on that topic:

COMPLIANCE COSTS

[28] CML sought to have the non parties meet their own compliance costs in respect of discovery.The primary justification given for this course is that the non parties clearly have a close interest in the business affairs of Lindale in respect of the life policies written with CML, an interest already traversed.As already indicated, very substantial sums are involved, with Lindale paying commissions and bonuses that were received from CML to SPT of approximately $25 million.Thus it is submitted that SPT and PML have a strong interest in the result of the proceeding and should effectively, along with their principals, be treated as parties.It is submitted that they should not be entitled to encourage and support a claim by Lindale without providing proper discovery to CML of all relevant documents rather than just those selected documents which they have chosen to provide to Lindale to advance Lindale's case.It is submitted that ultimately the costs could be dealt with at trial, depending on the outcome of the substantive litigation between Lindale and CML.

[29] I reject this submission and do not consider it assisted by the other arguments put forward on behalf of CML in reliance on principles relating to the award of costs against non parties in a proceeding.

[30] The simple point is that the non parties are not parties to the proceeding.CML has chosen not to join them.There may be clear links between the plaintiffs and SPT and between SPT and PML and the principals of both of those companies.However, such linkage is quite insufficient to treat the non parties as tantamount to parties.Unless there is good reason to the contrary, an applicant should bear the full costs of non party compliance.The discovery is for the benefit of the applicant.Whatever the non parties' motives for assisting the plaintiffs, it does not mean that they should in the first instance be bearing the costs of the non party discovery.If what was involved was trivial discovery and the non parties had needlessly opposed it, to take but one example, there might be justification for requiring the non party to bear its own costs of compliance.This is not such a case.It is a case where there will be substantial work in complying with even the limited orders already made.It may be that after trial the trial Judge may consider it entirely appropriate that the plaintiffs or the non parties should have to pay for compliance with the present orders.At this time, however, there is nothing before the Court which would justify me applying any other rule than the ordinary rule that in the first instance the applicant should bear the full costs of non party compliance unless there is good reason to the contrary.

[9] Mr Land suggested that, although the Judge adopted the correct starting point, he had erred in principle in his conclusion that there was no good reason to depart from it.This submission does not however raise any question of principle; it can be sustained only if the Judge was plainly wrong in his application of the governing principle to the facts.We have reviewed the matter separately as regards Mr Bhanabhai and PML, on the one hand, and Mr Henderson and SPT, on the other.The points made by Mr Manning which we do not need to narrate individually, satisfy us that the Judge was fully entitled to take the view that as regards Mr Bhanabhai and PML that there was no good reason to depart from the normal approach.There was no evidence of any involvement of Mr Bhanabhai and PML in such a way as to equate them with true parties.While the litigation is of interest and concern to them, they are not shown to be funding it or otherwise supporting it.What is more, compliance with any order for discovery would be difficult, if not impossible, for PML at least, if it had to fund the exercise itself.It does not have the wherewithal.CML fell a long way short of establishing good reason for departing from the ordinary approach in the case of Mr Bhanabhai and PML.

[10] The position as regards Mr Henderson and SPT is more finely balanced. Minds could well differ on whether in their case CML had shown good reason. The Judge did not, however, err in principle.The view to which he came was open to him on the material which he had before him.He was exercising a discretion and cannot be said to have been plainly wrong in the way he did so. CML has not demonstrated a sufficient basis for interfering with the Judge's discretion on appeal.We take the same view of CML's contention that the Judge erred when he ordered it to pay the non parties' costs of the application in the High Court.The cross appeal is accordingly dismissed.

[11] Costs in this court, as between CML and Mr Henderson and SPT, are to lie where they fall on the appeal and cross appeal.On the cross appeal CML is to pay costs to Mr Bhanabhai and PML in the total sum of $1,500.00 plus disbursements to be fixed if necessary by the Registrar.On the application for adjournment, Mr Henderson and SPT are to pay costs to CML in the total sum of $1,000.00 plus disbursements to be fixed if necessary by the Registrar.

Solicitors

Stace Hammond Grace & Partners, Hamilton, for First and Second Appellants

Kensington Swan, Auckland, for First Respondent

Beckerleg Coakle, Auckland, for Second and Third Respondents