OTTO V WHITE HC AK CIV 2008-404-006884 [2009] NZHC 1411 (12 October 2009)

IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
                                                                           CIV
2008-404-006884



                 BETWEEN                         DAVID WILLIAM OTTO
                                         
       Plaintiff

                 AND                             CAROLINE RUTH WHITE
                                         
       Defendant

                 AND                             HERBERT RONALD ROMANIUK
                                     
           Second Defendant


Hearing:         17 September 2009

Counsel:        G A Keene for plaintiff/counterclaim defendant
                P Finnigan for defendant/counterclaim plaintiff
                M Ritchie for second defendant

Judgment:       12
October 2009 at 10:30am


                  JUDGMENT OF ASSOCIATE JUDGE ABBOTT




                   This judgment was delivered
by me on 12 October 2009 at 10:30am,
                             pursuant to Rule 11.5 of the High Court Rules.



            
                         Registrar/Deputy Registrar




Solicitors:
Lovegroves, Solicitors, PO Box 25006, Auckland 1740 for plaintiff/counterclaim
defendant
Howard-Smith & Co, PO Box 5386, Auckland 0740 for defendant/counterclaim plaintiff
Kennedys, PO Box 3158, Auckland 1140
for second defendant



OTTO V WHITE HC AK CIV 2008-404-006884 12 October 2009

[1]    This case concerns a dispute over the terms
of a lease between the plaintiff
(as lessee) and the first defendant (as lessor). The first defendant has applied for
orders that
the plaintiff provide further discovery of three categories of documents.


[2]    The plaintiff is challenging the first defendant's
entitlement to terminate the
lease (in several causes of action including estoppel, rectification and
unconscionable conduct). He
contends that he was suffering from mental incapacity
at the time he executed the lease, and that he did not understand that the
lease did not
reflect a preceding oral agreement. He also says that the first defendant wrongly
increased the rent on two occasions,
and interfered with his subletting arrangements,
causing him loss.


[3]    The first defendant says that the documents she seeks
are either relevant to
the plaintiff's mental capacity at material times or to his claim for repayment of the
alleged overpayments
of rent. The plaintiff accepts that some documents within the
categories being sought may be relevant, but opposes the application
principally on
the grounds that the discovery being sought is wider than necessary, and oppressive.


[4]    The plaintiff also sues
the second defendant (his solicitor at material times)
for alleged breach of contract or fiduciary duty in relation to the preparation
and
execution of the lease. Although counsel for the second defendant was present in the
hearing, she did not make any submissions
or take a position on the application.


Background


[5]    The leased property was owned by the plaintiff's family for many years.
The
plaintiff became owner in 1991, following the death of his surviving parent.


[6]    The plaintiff was having financial difficulties
in 1997.          The property
comprised two separate dwelling areas in the main house (on the two levels of the
house), and two
separate sleep-out areas. The plaintiff says that he agreed orally to
sell the property to the first defendant, and lease part of
it back from her (the top
floor of the main house and the two sleep-out areas).

[7]      An agreement for sale and purchase and
a deed of lease were drafted by the
second defendant (the plaintiff's solicitor) and signed by the plaintiff. The plaintiff
says
that the lease prepared by the second defendant did not accord with the terms of
the oral agreement (and thereby with the common
intention of the parties) or with his
instructions to the second defendant. In particular he says that the lease was to have
been
terminable only by agreement of both parties, that the rent was to have been
fixed for the first ten years, and that he was to have had an option to purchase the
property back in the event
that his financial position improved. The lease which the
plaintiff signed gave the first defendant a right to terminate after ten
years, provided
for rent reviews at two yearly intervals, and gave the plaintiff a right of first refusal
in the event that the first
defendant decided to sell.


[8]      The lease commenced on settlement of the sale, on 24 October 1997. In
December 2002 the first
defendant gave notice of an increase in rent. The plaintiff
paid the increased rent from 23 December 2002. In March 2007 the first
defendant
again gave notice of an increase in rent. The plaintiff paid the increased rent from
12 March 2007.


[9]      At various
times after November 2007 the first defendant took steps to
terminate the plaintiff's tenancy and the two sub-tenancies. This included
giving the
plaintiff the statutory period of notice under the Residential Tenancies Act 1986 and
applying (unsuccessfully) to the
Tenancy Tribunal for an order compelling one of the
sub-tenants to vacate.


Legal basis for application


[10]     The first defendant
brings its application under r 8.24 of the High Court
Rules:

       8.24 Order for particular discovery against party after proceeding
       commenced

       If 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's
   
                   control; 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 control
                       of them; and

       (b)     to serve the affidavit on any other party.

[11]   The
Court must be satisfied that there are grounds for believing that the
documents of classes of documents being sought are or have
been in the possession
of the other party, and that they relate to a matter in question in the proceeding:
AMP Society v Architectural
Windows Limited  [1986] 2 NZLR 190; Simunovich
Fisheries Limited v TVNZ (HC AK CIV 2004-404-3903 3 August 2007, Allan J).


[12]   An application for discovery can
be opposed on the ground that the discovery
sought is oppressive. This involves a balancing of considerations of cost and time
against
the potential value of discovery: McGechan on Procedure HR 8.24.04; Mao-
Che v Armstrong Murray  (1992) 6 PRNZ 371, and BNZ Investments Limited v CIR
[2008] 1 NZLR 598.


[13]   Discovery of similar fact evidence will be permitted if the documents
contain
evidence which might be relevant and admissible at trial, but will not be permitted
where the evidence is irrelevant or would
go simply to credit: Mao-Che v Armstrong
Murray. Similar fact evidence will be admitted if it is logically probative, and
provided
it is not unfair or oppressive to the other side. It must be relevant to an
issue. The Court must balance its probative value against
the cost of introducing it
(expense, delay, distraction and procedural unfairness or oppression): Cook v Evatt
 (1991) 4 PRNZ 307.

[14]   This discretion to limit or refuse discovery can also extend to documents that
are arguably relevant. The Court has a discretion
to make orders limiting discovery.
The basis for this direction lies in the principle of abuse of process. There is a
reasonably
high threshold for intervention.        An abuse of process will exist if
documents for which discovery is sought are not relevant.
           If documents are
necessarily inadmissible at trial a reasonably firm foundation exists for a conclusion
that their discovery
is an abuse of process:            BNZ Investments Limited v
Commissioner of Inland Revenue.


The plaintiff's pleading


[15]  
The plaintiff pleads five causes of action against the first defendant:


       a)     In the first and second he seeks an order
that the first defendant be
              estopped from relying on the terms of the lease which allow her to
              terminate
the lease, a declaration that the notice to terminate is
              invalid, and equitable damages for distress.


       b) 
   In the third he seeks rectification of the lease to reflect the common
              intention of the parties as expressed in
the preceding oral agreement, a
              declaration that the rent increases were invalid, and an order for
              equitable
compensation for alleged overpayments of rent.


       c)     In the fourth he contends that the agreement and lease which
    
         constituted the 1997 transaction were an unconscionable bargain, and
              seeks an order to that effect and similar
relief to that claimed in the
              cause of action for rectification.


       d)     In all of the first to fourth causes
of action he also claims equitable
              damages for mental stress.


       e)     In a fifth cause of action the plaintiff
pleads breaches of the lease
              (failure to repair and interference with his sub-tenancies) and seeks

             
 special damages for loss of rent for the sub-tenancies and general
               damages for the breaches and for mental stress.


[16]   The plaintiff bases all of these causes of action on the allegation that at the
time he entered into the oral agreement
his mental health was such that he could not
understand the terms of the lease, and that it did not reflect what he and the first
defendant had agreed. He says that the first defendant was aware of his mental
incapacity at the time that the sale was negotiated
and the lease was executed, and
that she took advantage of that incapacity.


[17]   The plaintiff also pleads two causes of action
against the second defendant,
who acted as his solicitor in the 1997 transaction:


       a)      He says that the second defendant
was in breach of his contract of
               retainer by failing to inform him of several changes to the transaction
        
      from the terms of the oral agreement, as a consequence of which he
               executed the lease without understanding
that it contained the terms
               that he is now contesting.      In particular he says that the second
               defendant
failed to advise him that the lease was to terminate on 24
               October 2007 and thereafter would be terminable in accordance
with
               the Residential Tenancies Act 1986.


       b)      As a second cause of action he says that the second defendant
is in
               breach of fiduciary duty. He contends that the second defendant had a
               conflict of interest at
the time, which resulted in him failing to provide
               proper independent legal advice. The alleged conflict was that
he had
               a caveat over the property to protect an agreement to mortgage
               securing unpaid legal fees for
an earlier civil proceeding in the
               District Court. The plaintiff alleges that by reason of that conflict the
    
          second defendant had an interest in the sale being settled, and that he
               failed to discuss the effect and implications of the lease.

The application,
the opposition, and issues arising


[18]   The first defendant seeks discovery of three categories of documents on the
grounds that
either they will constitute good similar fact evidence of the plaintiff's
mental capacity at the time of signing the lease and at
all material times afterwards,
or they are relevant to his claim for recovery of rent payments:


       a)      Documents from April
1991 to the present relating to steps taken by
               the plaintiff to obtain protection for certain intellectual property
               rights, or to vary or renew those rights;


       b)      Documents recording rent that the plaintiff has received
from sub-
               tenants from 1 April 2006 to 31 March 2009; and


       c)      The pleadings and evidence in the District
Court proceeding in which
               the second defendant acted for the plaintiff and for which fees were
               outstanding
in 1997, the judgment of the Court in that proceeding, and
               documents relating to the satisfaction (or otherwise) of
any judgment.


[19]   The plaintiff takes issue with the relevance of some of the discovery sought,
but his main ground of opposition
that it is too wide. He accepts that he should be
required to discover written communications and instructions that were provided
by
him to, or received by him from, solicitors or barristers, patent attorneys, experts or
others acting for him in the securing
and protection of intellectual property rights,
but only within the period from 1 January 1997 to 31 March 1998. He says that any
documents beyond that are irrelevant. In the alternative he says that it would be
oppressive to require him to provide any wider
discovery. He says that he has no
further documents in relation to rental receipts, nor any documents relating to the
District Court
proceeding.


[20]   The issues which the Court must decide are first whether all of the documents
being sought by the first defendant
are relevant and, if so, whether it would be
oppressive to order discovery.

The intellectual property category


[21]   The first
defendant says that these documents are relevant to the plaintiff's
claim that he was mentally incapacitated at the time that he
entered into the lease.
Her counsel argues that the documents are likely to establish that the plaintiff was
able to carry out commercial
transactions (under guidance of his solicitor) both
before and after the date of execution of the lease. Counsel submitted that if
the
plaintiff had mental capacity to act in that way, it was logically probable that he also
had the mental capacity to understand
the terms of the lease (particularly the single
page schedule of terms) when he executed it in 1997, and that the rent increases
which he paid from 2002 and 2007 were contrary to the alleged oral agreement.


[22]   Counsel for the plaintiff accepted that written
communications between the
plaintiff and his patent attorney or other advisers could be relevant as showing a
consistent pattern
of behaviour throughout the period of alleged incapacity, but
submitted that it was nevertheless oppressive to require discovery
of the full range of
documents being sought. He submitted that the discovery should be limited to
written communications for a few
months before and after the negotiation of the
agreement and lease, and signature of the lease.


[23]   The plaintiff has put in
issue his mental capacity to understand the
documentation prepared in 1997, and particularly the term and rent provisions of the
lease. He also says that by reason of this mental incapacity he has been unable to
recall whether he executed an unregistered mortgage
in favour of the second
defendant to secure the outstanding costs. I accept that the steps that the plaintiff
was taking to protect
his intellectual property rights (preparation of specifications,
dealings with patent attorneys or solicitors, answering queries on the applications,
and making decisions whether
to renew protection) are activities requiring an
understanding of business transactions, legal documents, and the financial
implications
of those activities. A Court could accept that as similar fact evidence of
the mental capacity of the plaintiff to understand the
terms of the lease in question in
this case, and the implications of the rent increases.

[24]    There is no dispute over the fact
that these documents do or did exist. The
plaintiff acknowledges that he has documents. Counsel for the plaintiff advises that
the
patent attorneys hold voluminous records, some in the plaintiff's sole name, and
other in the name of a third party.


[25]    Counsel
for the plaintiff stated in submissions that the plaintiff sold all his
interests in the patents which the patent attorney was managing,
approximately three
years ago, and that the patent attorney cannot disclose those documents without
agreement of the purchaser. The
plaintiff has filed an affidavit is support of his
opposition, but has not given any details as to the numbers of documents, nor
the
particular difficulties of discovery, other than having to sift through "a very large
volume" much of which would be irrelevant.
He does not refer in that affidavit to
the sale of his patents to the third party.


[26]    I am not persuaded that the discovery
should be limited in the manner that the
plaintiff suggests. It may well be difficult to appreciate what was expected of the
plaintiff
in the intellectual property processes if the discovery is limited to written
communications, instructions and advice. The plaintiffs'
input to specifications, and
the gathering and provision of material to support applications, including responding
to requests for
further particulars to support the applications will all provide an
insight into the plaintiff's mental capacity. Limiting documents
to written materials
would exclude file or telephone notes of oral communication or instructions. The
patent attorney's trust ledgers,
time sheets and cost narratives for invoices, the
invoices themselves and the records of payment will all indicate the extent of
the
plaintiff's involvement, his understanding of the commercial aspects, and his ability
to manage this process,.


[27]    Even
without any specific evidence from the plaintiff, I can accept that the
extent of the discovery may well be significant. However,
there are means by which
this can be managed to minimize costs.        In respect of documents held by the
plaintiff, the first defendant
is content to have disclosure bundled either under
particular patent or trade mark applications and grants, or (if the plaintiff
does not
keep records in that manner) by year. In either case the listing can be done by
reference to the bundle, with each document
within the bundle individually

numbered. As to the patent attorney's (or any other advisers') records, the plaintiff
is willing
to accept listing by files (again with numbering of documents within files
so that each document need not be listed), and by bundling
of trust ledgers and
similar documents recording payments made by the plaintiff. The first defendant's
counsel is willing to attend
the patent attorney's office to inspect files, and would
submit to confidentiality undertakings restricting use.


[28]   There is
no evidence of the alleged sale of patent rights "approximately three
years ago". If the plaintiff has a role or interest in the
purchaser, the documents may
still be within the control of the plaintiff (refer to Lonhro Limited v Shell Petroleum
Co Limited 
[1980] 1 WLR 627 and Trustees Executors and Agency Co of NZ Limited
v Price Waterhouse (HC CH CP 14/98, 19 April 1999, Master Venning). Even if it
was a completely independent purchase, the documents have been within the control
of the plaintiff and should be disclosed as such
in his discovery.


[29]   The last matter to deal with on this category of documents is the time period
of documents to be disclosed.
Counsel for the first defendant submitted that the
documents should be disclosed from 1993 onwards. He referred to the plaintiff's
pleading that he was suffering a mental illness in the form of acute depression, was
taking heavy medication, and was a sickness
beneficiary at the time he entered into
the oral agreement in about September 1997. Counsel also referred to an invalid's
benefit
medical assessment form in January 1997 which referred to the plaintiff as
suffering from a severe condition of anxiety and depression,
and having been on
medication for this, for three years.


[30]   It is clear that the condition which the plaintiff claims was affecting
him in
September and October 1997 had been in existence from at least 1994 onwards. The
first defendant produced a summary of the
plaintiff's patent, trade mark, design and
other activity showing various steps taken from 1954 through to the present date.
This
shows trade mark and patent applications were filed in September 1993,
registered design and trade mark applications were filed in
late 1994, the 1993 trade
mark application was abandoned in February 1995, a new trade mark application
was filed in January 1997
and an existing trade mark was renewed in September
1997, the registered design filed in November 1994 was renewed in November 1999,

and a further patent application specification was completed in August 2000 and
filed in August 2001. There was also significant
activity from 2005 onwards.


[31]   I consider that the documents should be disclosed from mid 1993 to 2002.
This will allow the
first defendant to assess whether there was a consistent pattern of
activity in respect of these intellectual property rights from
a point which would
appear to be slightly ahead of the time when the plaintiff started medication until it
ceased (in 2002).


[32]
  Counsel for the first defendant sought to extend it until the present.
However, the plaintiff says that he went off medication
in late 2001/early 2002 until
approximately May/June of this year. It is doubtful whether documentation for 2002
to mid 2009 could
therefore be relevant. Counsel for the first defendant argued that
it helped to show the overall pattern, and was also relevant to
the plaintiff's mental
capacity at the time of accepting rent increases in March 2007. He did not want to
be left in the position
where the plaintiff contended at trial that his mental incapacity
was continuing to that point. There is no express pleading to this
effect and any
assertion of that nature would run counter to the plaintiff's own evidence of being
free of medication through that
period. I do not regard the potential time and cost
burden of that additional discovery as being warranted.


The sub-tenant rental
receipt category


[33]   The first defendant seeks discovery of records identifying the amounts of rent
paid by sub-tenants, including
tax returns, for the period from 1 April 2006 to
31 March 2009. These documents are sought as being relevant to the plaintiff's
claim
for equitable or general damages for lost rent by reason of the first defendant's
alleged unlawful interference with the sub-tenancies.


[34]   The plaintiff opposes this aspect of the application on the grounds that he
says he has discovered everything conceivably
relevant save for some records which
may exist in the hands of a real estate agency who managed the sub-tenancies for a
time. He
says he will cooperate to whatever extent is required to assist the first
defendant to access the files of the real estate agency
if necessary. Otherwise he says

that he has not kept any records, often received payments in cash, did not issue
receipts and did not keep a rent book. He acknowledges that
he received some
payments on behalf of sub-tenants from Work and Income New Zealand, but that
was by direct credit into his bank
account. He has discovered bank account records
from 28 January 2007 to 20 February 2009.


[35]   The documents being sought, if
they exist, will clearly be relevant. Counsel
for the plaintiff accepted that the plaintiff's first affidavit was not entirely accurate
(in relation to the real estate agent's records). He advised that his instructions were
that there were no tax records (the plaintiff
did not believe that he was required to
declare any rental received as income). There is no evidence of this. Counsel
accepted that
the plaintiff should expressly confirm his position on each of the
categories in a further affidavit of documents.


The Auckland
District Court proceeding category


[36]   The first defendant seeks discovery of the pleadings, evidence and judgment
in District
Court proceedings in which the second defendant had acted for the
plaintiff prior to entry into the 1997 transaction. He says that
the outstanding fees in
respect of that proceeding, and the caveat lodged to protect the agreement for
mortgage given in respect
of them, gave rise to the plaintiff's claim that there was a
conflict of interest and an incentive to the second defendant to ensure
that the 1997
transaction went ahead. The first defendant contends that the documents are relevant
both to the allegation that the
second defendant acted out of self interest, as well as
to test the plaintiff's claim of mental incapacity. On the latter point counsel
argued
that the documents could show that the plaintiff was able to give instructions on, and
cope with the mental stress of, this
civil litigation in about the same period as he was
alleging that he did not have the capacity to understand the lease.      The
reason for
seeking the order is that the second defendant no longer holds a file on the matter,
and the documents have not been located
in the District Court's archive.


[37]   Counsel for the plaintiff challenged the relevance of these documents, but in
any event
contended that the plaintiff no longer had any of the documents in his
possession. He acknowledged that this had not been addressed
in the plaintiff's

opposition to the application, and said that the plaintiff would address the matter in a
further affidavit if
the Court took the view that the documents had some relevance.
There is no dispute, as I understand it, over the fact that the plaintiff
owed fees to the
second defendant in respect of this proceeding, or that the second defendant had
lodged a caveat. As there is no
issue over this, the documents cannot be relevant on
that basis. However, I accept that there is some potential relevance to the
documents
in that they could disclose that the plaintiff was capable of giving instructions for the
litigation, and of taking an
active part in the litigation, at about the same time as he
took part in the 1997 transaction. The plaintiff did not oppose the application
on the
grounds of oppression, but simply on the basis that he holds no documents. There is
no evidence to that effect. I consider
that the first defendant is entitled to an order,
and to have the plaintiff respond formally, even if it is only to say that he does
not
have, or no longer has, the documents.


Decision


[38]   I make an order as sought in the first defendant's application, subject
to the
following;


       a)      The documents in the intellectual property class are to be limited to
               documents
coming into existence between 1 July 1993 and
               31 December 2002.


       b)      The plaintiff is entitled to provide
discovery by listing of files or
               alternatively by reference to specific intellectual property applications
      
        or by calendar year (but with all documents within each file or bundle
               to be separately numbered).


[39]   The first defendant, having succeeded on
this application, would ordinarily
be entitled to costs on a 2B basis. As the plaintiff is in receipt of legal aid I make no
order
but reserve leave for the first defendant to apply for any further order or
directions that she may seek.

____________________
Associate Judge Abbott