MOTORWORLD LIMITED (IN LIQUIDATION) AND ORS V MCGREGOR AND ORS HC AK CIV-2007-404-6558 [2009] NZHC 289 (10 March 2009)

IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
                                                             CIV-2007-404-6558



              BETWEEN                  MOTORWORLD LIMITED (IN
                                       LIQUIDATION)
           
                           First Plaintiff

              AND                      LLOYD JAMES HAYWARD AND
                     
                 KAREN BETTY MASON
                                       Second Plaintiffs

              AND                  
   NICHIBO JAPAN TRADING COMPANY
                                       LIMITED
                                       Third Plaintiff

              AND                      ALASTAIR ROBERT HARDY
                                       MCGREGOR
                  
                    First Defendant

              AND                      ERIC LESLIE KENNETH MILLAR
                         
             Second Defendant

              AND                      HARLEY JOHN PATERSON
                                     
 Third Defendant

              AND                      QUEEN CITY AUTOS LIMITED
                                       Fourth Defendant

              AND                      FREEDOM WHOLESALE VEHICLES
                                       LIMITED
              
                        Fifth Defendant

              AND                      TURNERS AUCTIONS LIMITED
                       
               Sixth Defendant


Hearing:      By memoranda

Appearances: Mr G Blanchard and Mr Cochrane for plaintiffs
        
    Mr M J Tingey and Mr J C Caird for second to fifth defendants

Judgment:     10 March 2009 at 10.30 am



MOTORWORLD LIMITED
(IN LIQUIDATION) AND ORS V MCGREGOR AND ORS HC AK CIV-2007-
404-6558 10 March 2009

                             JUDGMENT OF LANG
J
                 [on costs in relation to applications for discovery]




    This judgment was delivered by me on 10 March 2009
at 10.30 am, pursuant to Rule
       11.5 of the High Court Rules.



                              Registrar/Deputy Registrar


                                  Date...............




Solicitors:
Connell & Connell, Auckland
Bell Gully, Auckland
Counsel:
Mr
G P Blanchard, Auckland

[1]    On 9 October 2008 I delivered a judgment in which I determined, or partly
determined, four applications
for discovery.        I am now required to fix costs in
relation to two of these.


1.     Discovery issues as between the plaintiffs
and the first defendant


[2]    Counsel for the plaintiffs and the first defendant have confirmed that costs
are to lie where they
fall in relation to the two applications involving those parties.
Accordingly I make no order for costs in relation to them.


2.
    Application by plaintiffs for particular discovery against second to fifth
defendants


[3]    The plaintiffs applied on 7 July
2008 for orders requiring the second to fifth
defendants to provide discovery of 12 specified categories of documents.


[4]    Subsequently,
by amended application dated 21 July 2008, the plaintiffs
sought discovery from Queen City and Freedom of three further categories
of
documents. These were as follows:

       Second Defendant ­ Eric Millar

       1.      All of Mr Millar's telephone records
(whether home, business or
               mobile) in the years 2004 to 2006.

       2.      All of Mr Millar's bank statements in
the years 2004 to 2006.

       3.      All costing/stock/vehicle information cards and sales invoices for
               sales by
Escrow Holdings Fifty Limited trading as Millar's Car
               Centre in the years 2004 to 2006.

       Third Defendant ­
Harley Paterson

       4.      All of Mr Paterson's telephone records (whether home, business or
               mobile) in the years
2004 to 2006.

       5.      All of Mr Paterson's bank statements in the years 2004 to 2006.

       Fourth defendant ­ Queen City

       6.      All of Queen City's telephone records in the years 2004 to 2006.

       7.      All bank statements for Queen City's bank account in Japan in the
               years 2004
to 2006.

       8.      The accounting ledgers of Queen City in the years 2004 to 2007 (in
               either hard copy or electronic
form).

       9.      The work papers of Queen City's external accountants relating to the
               preparation of the financial
statements that have already been
               discovered by Queen City.

       Fifth defendant ­ Freedom

       10.     All
of Freedom's telephone records in the years 2004 to 2006.

       11.     All of Freedom's bank statements in the years 2004 to 2006.

       12.     All accounting ledgers of Freedom in the years 2004 to 2007 (in
               either hard copy or electronic form).

       13.     All invoices, sale and purchase agreements and other documents
               relating to sales of vehicles by Freedom
to Escrow Holdings Fifty
               Limited trading as Millar's Car Centre in the years 2004 to 2006.

       14.     All costing/stock/vehicle
information cards in relation to sales by
               Freedom of all vehicles sold by Nichibo to Freedom in the years
       
       2004 to 2006.

       15.     The work papers of Freedom's external accountants relating to the
               preparation
of the financial statements that have already been
               discovered by Freedom.

[5]    The applications were set down for
hearing on 7 October 2008. By that stage
matters had been considerably refined. The defendants had provided the plaintiffs
with some
of the information that they sought. As a result, it was not necessary for
the plaintiffs to pursue these aspects of their application.
The documents that they
sought under categories 1, 4, 6, 8, 9, 10, 12, 13 and 15 fell within this category.


[6]    The plaintiffs
also elected not to pursue their application further in relation to
the documents listed in categories 3 and 14.


[7]    As a result,
argument at the hearing was restricted to two issues. These were
whether the second and third defendants, Mr Millar and Mr Paterson,
should be
required to discover their personal bank statements.        I ultimately held, by a fine
margin, that Mr Millar should
be required to provide copies of his bank statements.
I concluded, however, that there was no evidential basis to justify a similar
order
being made in relation to Mr Paterson.

[8]    The plaintiffs seek costs on a Category 3C basis in relation to their
application
for discovery. Alternatively, the plaintiffs contend that costs in relation
to discovery as a whole (ie in relation to both the plaintiffs'
application and that filed
by the defendants) should lie where they fall.


[9]    The defendants oppose both submissions.      
    They say that the plaintiffs'
application was largely unnecessary, and that they should be awarded costs in
respect of the steps
that they took to defend it. The defendants also contend that
costs should be calculated on a Category 2 basis rather than Category
3.


[10]   The latter issue can be determined in short order. In a judgment that I
delivered on 28 November 2008 I determined that
this proceeding is properly
categorised as a Category 2 proceeding. I remain of that view.


[11]   As always, the measure of success
that each party achieved is of prime
importance when it comes to determining the issue of costs. In this context the
plaintiffs can
point to the fact that they obtained an order that Mr Millar be required
to discover his bank statements and that the defendants
only made several categories
of documents available after the original application was filed.


[12]   The defendants, on the other
hand, can rely on the fact that I determined that
Mr Paterson should not be required to provide discovery of his bank statements.
In
addition, the defendants point out that the plaintiffs continued to seek discovery of
several categories of documents in their
amended application notwithstanding the
fact that the defendants had already provided those documents by the time the
amended application
was filed.


[13]   In a similar vein, the defendants remind the Court that the plaintiffs clearly
did not appreciate that Freedom
had already provided discovery of its bank
statements in the original affidavit of documents that it filed.


[14]   In considering
whether I should award costs against the defendants I accept
that all of these points are relevant. I also bear in mind the fact
that the relevance of
many of the documents that the plaintiffs have sought is far from certain. By way of

example, the defendants'
telephone records may well turn out to be completely
irrelevant to the issues to be determined at trial. The same can be said of
the
documents relating to Escrow Holdings Fifty Limited. The plaintiffs were wise not
to pursue this aspect of their application
further.


[15]   I am satisfied, however, that a number of documents held by the fourth
defendant, Queen City Autos Limited, were
plainly relevant and ought to have been
discovered at an earlier stage.     These include Queen City's bank statements, its
accounting
ledgers and the work papers of its accountants.       Similarly, documents
held by Freedom in relation to the sale of all vehicles
that it had acquired from
Nichibo were also plainly relevant.      The work papers held by Freedom's external
accountants may also
be relevant, although that cannot be said with certainty at this
stage of the proceeding.


[16]   Taking all of those matters into
account, I have reached the conclusion that
costs should lie where they fall in relation to the plaintiffs' application so far as
it
relates to Mr Millar and Mr Paterson. The plaintiffs will, however, be entitled to a
single and joint award of costs and disbursements
in relation to the application so far
as it relates to Queen City and Freedom.        Those costs are to be calculated on a
Category
2B basis, and will cover preparation and filing of the application, together
with any memoranda prepared by counsel for the plaintiffs
in anticipation of
conferences dealing solely with the issue of the plaintiffs' application for particular
discovery.


[17]   I
make no order in relation to preparation for hearing or the hearing itself.
The hearing dealt only with the application so far as
it related to the personal bank
statements of Mr Millar and Mr Paterson.        As I have already noted, the plaintiffs
succeeded
in relation to Mr Millar but failed in relation to Mr Paterson.      Costs in
respect of those attendances should therefore lie where
they fall.

3.     The application for discovery by the second to fifth defendants against
the plaintiffs


[18]   This application
has two aspects.        The first relates to the discovery
undertaken by Motorworld and its liquidators. The second relates to the
discovery
provided by Nichibo.


Motorworld and the liquidators


[19]   The application for further and better discovery in relation
to Motorworld and
its liquidators sought discovery of 14 separate categories of documents. By the time
of the hearing, however, only
two matters needed to be determined.


[20]   First, the defendants sought discovery of some missing Motorworld bank
statements.
     For some reason these had been excluded from the affidavit of
documents that Motorworld and the liquidators initially filed.
At the hearing the
liquidators agreed to provide these and they subsequently obtained them from
Motorworld's bank.


[21]   Secondly,
the defendants sought to obtain access to documents relating to a
confidential settlement that Motorworld had entered into with a
company called
Brumac.       The liquidators maintained that the documents were subject to an
agreement that the terms of the settlement
would remain confidential to the parties to
it. For that reason the liquidators listed the documents, but did so on the basis that
access to the documents was to be restricted because of the confidentiality
agreement.       The liquidators confirmed, however, that they would make the
documents available
if the Court made an order requiring them to produce the
documents as part of the discovery process.


[22]   I accept the liquidators'
explanation that the issue of the bank statements
arose for the first time shortly before the hearing. I also accept that the liquidators
did not oppose the application so far as it related to the Brumac documents. The fact
remains, however, that the defendants were
required to pursue the application in
order to gain access to the documents. They succeeded in relation to both issues, and

would
ordinarily be entitled to costs against Motorworld and the liquidators in
relation to it.


[23]    In the present case, however,
the application for particular discovery against
Motorworld and the liquidators was contained within the same document as the
application
for particular discovery against Nichibo. The same counsel appeared for
the defendants in relation to all matters. Moreover, submissions
in relation to the
application for particular discovery against Motorworld and the liquidators occupied
but a very small part of
the total hearing time. In those circumstances, and because I
propose to make an order for costs in the defendants' favour in relation
to the
application against Nichibo, I do not propose to award costs against Motorworld and
the liquidators. The defendants will,
in my view, be adequately compensated overall
by the award that I propose to make against Nichibo.


[24]    I therefore make no
order of costs against Motorworld and the liquidators.


Nichibo


[25]    This application was rendered necessary by virtue of the
fact that the third
plaintiff, Nichibo, has complied with its discovery obligations on a piecemeal and
incremental basis.


[26]
   Nichibo's first affidavit of documents listed just 24 documents. Since the
defendants filed their application Nichibo has discovered
more than 4,000 additional
documents. It is unlikely, in my view, that these would have been provided (at least
at this stage of
the proceeding) unless the defendants had turned to the Court for
assistance. The defendants have therefore succeeded in relation
to the application
and are entitled to costs in relation to it.


[27]    I am also satisfied that Nichibo's approach to discovery
has been far from
satisfactory. Some of the explanation for its failure to comply with its discovery
obligations may lie in the fact
that its executive officers reside in Japan. As a result,
they cannot be expected to be familiar with the Court process in this country.
It must

have been patently obvious to Nichibo and its counsel, however, that the initial
discovery that it provided was woefully
inadequate.


[28]     Final disposition of the application was further handicapped by the fact that it
took some months after the
hearing for Nichibo to complete the discovery process.
At the time of the hearing on 7 and 8 October it was not possible to finally
determine
the defendants' application against Nichibo because Nichibo accepted that it needed
to provide further discovery but it
could not tell the Court or the defendants exactly
what that would comprise. As a result, it was necessary to keep the matter under
review by means of telephone conferences held after the hearing in October.


[29]     In those circumstances I accept that it is
appropriate to make an increased
award of costs. I consider that an uplift of 50 per cent is warranted.


[30]     I therefore grant
costs to the defendants in terms of the calculations set out in
para 14 of the memorandum of counsel for the defendants dated 27
November 2008.
At this stage I include within the order an allowance of 1.5 days for the re-inspection
of documents that the defendants
have been required to undertake. This recognises
the fact that the initial inspection that the defendants undertook was effectively
a
waste of time because very few documents were available. I consider that costs in
relation to the original inspection should remain part of costs in the
cause. The
incidence of those costs can be determined in the usual way when the overall costs of
the proceeding are finally fixed.




Lang J