Malkhasian v NZ Brick Distributors Limited Partnership [2021] NZCA 240 (8 June 2021)

Last Updated: 15 June 2021

IN THE COURT OF APPEAL OF NEW ZEALAND I TE KŌTI PĪRA O AOTEAROA

CA37/2021 [2021] NZCA 240

	BETWEEN	ANDREW SHAUNT MALKHASIAN AND JEAN ANN MALKHASIAN Applicants
	AND	NZ BRICK DISTRIBUTORS LIMITED PARTNERSHIP Respondent

Court:	Cooper and Courtney JJ
Counsel:	V A Whitfield for Applicants J E Standage and JJK Spring for Respondent
Judgment: (On the papers)	8 June 2021 at 3 pm

JUDGMENT OF THE COURT

The application for leave to appeal is granted.
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REASONS OF THE COURT

(Given by Courtney J)

Introduction

• [1] In District Court proceedings arising out of a construction contract, Mr and Mrs Malkhasian obtained an order for third party discovery against NZ Brick Distributors Ltd (NZBD). Judge Mabey QC refused to make a costs order in favour of NZBD because of its conduct in complying with the order. Instead he awarded costs to Mr and Mrs Malkhasian.^[1] On appeal, Brewer J overturned the District Court decision and awarded NZBD costs.^[2]
• [2] A High Court decision on appeal from the District Court is final unless a party obtains leave to appeal to this Court.^[3] Applicants are required to apply for leave first from the High Court and, failing that, from this Court.^[4] Brewer J refused leave to appeal.^[5] Mr and Mrs Malkhasian seek leave to appeal to this Court.
• [3] The test for leave to bring a second appeal is settled. The appeal must raise some question of law or fact capable of bona fide and serious argument in a case involving some interest, public or private, of sufficient importance to outweigh the cost and delay of the further appeal.^[6]
• [4] The applicants say that there are bona fide and serious issues arising on the proposed appeal in that:

(a) there is conflict between the District Court and High Court as to the correct approach to non-party costs where there has been non‑compliance by the non-party and there is a bona fide and serious argument that the High Court Judge wrongly applied the settled principles;

(b) there is a significant public interest in resolving the approach taken by the High Court because of the risk it will be applied to future decisions involving non-party costs; and

(c) there is a personal interest that justifies a second appeal — the outcome in the High Court was that costs of $8,808 were awarded to the non‑party, notwithstanding that the non-party had itself assessed the reasonable costs of compliance at $1,192.

The case in the lower courts

• [5] The order for non-party discovery related to the supply of bricks by NZBD, the value of which was about $16,000. Mr and Mrs Malkhasian agreed to pay NZBD’s reasonable costs in complying with the order, which NZDB estimated at $1,192.
• [6] NZBD failed to comply with the order, largely because it took the view that it should only have to discover documents that it considered relevant. Four case management conferences were required to enforce compliance. Ultimately, 34 documents were discovered. NZBD sought an order for its costs of $26,459.60. The exercise had cost Mr and Mrs Malkhasian just over $14,000. The District Court Judge considered that NZBD had taken an “unnecessarily obstructive and adversarial approach to what was a straight forward issue”^[7] and that its conduct disentitled it to costs.^[8] Instead, he awarded costs to Mr and Mrs Malkhasian of $7,500.
• [7] NZBD appealed. Brewer J described the approach taken by NZBD as “unreasonably pedantic” but falling short of conduct that would make it in the interests of justice for it to forfeit its right to costs and become liable to contribute to Mr and Mrs Malkhasian’s costs.^[9] He thought that such conduct would include deliberate obstruction for a partisan purpose and egregious failure to comply with Court orders.^[10] The Judge assessed reasonable costs at $10,000.^[11] He quashed the District Court’s decision and made an order for that amount in favour of NZBD.

Application for leave

• [8] The approach taken to costs on non-party discovery is accepted as being that described by McGechan J in Clear Communications Ltd v Telecom Corporation of NZ Ltd.^[12] In summary, such costs are determined in two stages — first, as to costs on the application itself and secondly, costs of complying with the order. In the absence of a good reason to the contrary, the non-party is entitled to its actual, reasonable costs.^[13]
• [9] Mr and Mrs Malkhasian say that Brewer J wrongly conflated the two stages set out in Clear Communications and unjustifiably limited the Court’s discretion by creating a threshold of “exceptional conduct” (though the Judge did not use this phrase) in determining whether a non-party should be entitled to its reasonable costs in the event of non-compliance with an order. There should, therefore, be an opportunity for the law to be clarified so that costs in this situation are predictable and expeditious.
• [10] NZBD opposes leave, saying that there is no gap in the law, as is suggested. It submits that it did comply with the order, that the orthodox position is that it is entitled to its reasonable costs and that the Court already has an overall discretion as to costs, including the discretion to refuse costs. NZBD maintains that the application simply reflects a desire to relitigate the issues already considered by two judges.
• [11] There appears to be no authority addressing the approach to be taken where there has been non-compliance with a non-party discovery order, including whether it is open to the Court to award costs to the party seeking discovery in relation to the conduct of a non-party during the compliance stage of the discovery process, and if so, what kind of conduct would justify that approach. Although this case involves a modest sum, we see these questions as being of wider significance and consider that a further appeal is justified.

Result

• [12] The application for leave to bring a further appeal is granted.

Solicitors:
Gallie Miles, Te Awamutu for Appellants
MinterEllisonRuddWatts, Auckland for Respondent

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^[1] Malkhasian v Home Builders BOP Ltd DC Tauranga CIV-2017-070-1030, 23 October 2019 [District Court decision].

^[2] NZ Brick Distributors Ltd Partnership v Malkhasian [2020] NZHC 2147 [High Court decision].

^[3] Senior Courts Act 2016, s 60(1).

^[4] Section 60(2).

^[5] Malkhasian v NZ Brick Distributors Ltd Partnership HC Tauranga CIV-2019-470-119, 15 December 2020 (Minute of Brewer J).

^[6] Waller v Hider [1997] NZCA 221; [1998] 1 NZLR 412 (CA) at 413.

^[7] District Court decision, above n 1, at [2].

^[8] At [16].

^[9] High Court decision, above n 2, at [27]–[28].

^[10] At [27].

^[11] At [30].

^[12] Clear Communications Ltd v Telecom Corporation of NZ Ltd (1994) 8 PRNZ 200 (HC).

^[13] At 201–202.