HILL AND HILL V HERTNON AND HERTNON HC WN CIV-2006-485-725 [2006] NZHC 1068 (19 September 2006)

IN THE HIGH COURT OF NEW ZEALAND
WELLINGTON REGISTRY
                                                                 CIV-2006-485-725



              BETWEEN                    BRIAN ANTHONY HILL AND
                                         HENNEKE JOHANNA HILL
                                         Plaint iffs

              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
       applicat
ion was filed), the plaintiffs do not wish to proceed with the
       applicat ion for summary judgment.       Counsel and the solicitors
for the
       defendants were advised accordingly last Friday, 8 September 2006.


HILL AND HILL V HERTNON AND HERTNON HC WN CIV-2006-485-725
19 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
plaint iffs 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
fo llo wing 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
               informat ion 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
                relat ing 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
plaint iffs
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
plaint iffs between 9 September 2001 and 2
February 2005.


[24]   Then, around 20 August 2005 the defendants as mortgagee wrote to the
plaint iffs to advise that they had a potential purchaser interested
in buying the
plaint iffs' 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
plaint iffs' 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
posit ion 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 records

at 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
validit y 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
plaint iffs' 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 this

price 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
                relat ing 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
                   relat ing 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
applicat ion.


[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
applicat ion was granted.


[49]    The defendants now seek costs
with respect to the summary judgment
applicat ion 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 Corporation
the 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
fo llo wing 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
plaint iffs 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
applicat ion 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 of

the 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
fro m 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
plaint iffs 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.
Gendall

Solicitors:
Bisson Moss, Napier for Plaintiffs
Duncan Cotterill, Wellington for Defendants