Supreme Court allows appeal to set aside High Court discovery order due to lack of reasoned judgment.

THE SUPREME COURT

Record No. 361/2008

Kearns J.

Macken J.

Finnegan J.

BETWEEN

HANSFIELD DEVELOPMENTS, VIKING CONSTRUCTION, MENOLLY PROPERTIES AND MENOLLY

HOMES

PLAINTIFFS

and

IRISH ASPHALT LIMITED, LAGAN HOLDINGS LIMITED AND LAGAN CONSTRUCTION LIMITED

DEFENDANTS/RESPONDENTS

and

NATIONAL HOUSE BUILDING GUARANTEE COMPANY LIMITED

NON-PARTY/APPELLANT

Judgment of Mr Justice Finnegan delivered the 23rd day of January 2009

In this judgment I shall refer to the plaintiffs as “Hansfield”, the defendants and respondents on this appeal as “Lagan” and

the non-party appellant as “Homebond”. By notice of motion issued on the 1st October 2008 Lagan sought against

Homebond discovery of seven categories of documents pursuant to the Rules of the Superior Courts, Order 31, Rule 29. By

order of the 4th November 2008 the High Court made an order for discovery in respect of three of those categories. Against

that order Homebond appeals.

The Issues in the Action

Hansfield comprises three related companies carrying on business as house builders. It is involved in three developments in

North Co. Dublin at Drynam Hall, Kinsealy, Co. Dublin, Beaupark, Clongriffen, Co. Dublin and Myrtle, Baldoyle. Lagan

again comprises three related companies which are part of the Lagan Group. For present purposes Lagan were the suppliers

of aggregate to Hansfield for use as infill beneath the ground floor slab of dwellings at each of the said three developments in

the years 2003 to 2006. The source of some of that aggregate is a new quarry opened by Lagan at Bay Lane, Kilshane, Co.

Dublin. Hansfield suffered problems at each of the said three developments which it attributes to the aggregate supplied by

Hansfield. The statement of claim pleads that the aggregate was defective in three particulars only one of which is relevant

to this appeal. It is pleaded that the aggregate supplied contained unacceptably excessive levels of pyrite, that is iron

sulphide, which rendered it unsuitable. Pyrite contains sulphur and when combined with water and oxygen in a warm

environment sulphuric acid is produced. When sulphuric acid comes into contact with calcite, that is calcium carbonate, and

water there is a resulting chemical reaction which produces gypsum crystals as a precipitate. Each of those elements are

present within and under the floor slabs of dwellings in each of the three developments. Pyrite and calcite are present in the

infill supplied by Lagan. When gypsum crystals are produced by the chemical reaction they increase the volume of material

comprising the infill causing vertical heaving or upward pressure within the floor slabs and through the floor slabs at ground

level. The vertical heaving results in the bulging and cracking of floors and the cracking of partition walls and door frames

and pressure on the rising walls causing them to push outwards. In consequence substantial remediation works are required.

The cost of such works and consequential damages are claimed and amount to several million euros. The defence delivered

denies that the aggregate contained pyrite and denies that any such chemical reaction took place. Further such defects as

now appear in dwellings constructed by Hansfield, it is pleaded, were caused by defective design or construction. While the

statement of claim runs to some seventeen pages and the defence to thirty pages and eighty six paragraphs the foregoing

brief statement of the relevant issues is sufficient for present purposes.

Rules of the Superior Courts Order 31

The Rules of the Superior Courts, Order 31, Rule 29 provides as follows:-

“Any person not a party to the cause or matter before the court who appears to the court to be likely to have or to have

had in his possession custody or power any documents which are relevant to an issue arising or likely to arise out of the

cause or matter or is or is likely to be in a position to give evidence relevant to any such issue may by leave of the court

upon the application of any party to the said cause or matter be directed by order of the court…to make discovery of such

documents… The provisions of this order shall apply mutatis mutandis as if the said order of the court had been directed

to a party to the said cause or matter provided always that the party seeking such order shall indemnify such person in

respect of all costs thereby reasonably incurred by such person and such costs borne by the said party shall be deemed to

be costs of that party for the purposes of Order 99.”

As the other provisions of Order 31 apply mutatis mutandis to discovery ordered under Rule 29 regard must be had to

Order 31 as a whole and in particular to the provisions of Rule 12 introduced into the Superior Court Rules by S.I. No.233

of 1999. Rule 12 sub rules (2) and (3) provide as follows:-

“(2) On the hearing of such application the court may either refuse or adjourn the same, if satisfied that such

discovery is not necessary, or not necessary at that stage of the cause or matter, or by virtue of non-

compliance with the provisions of sub rule 4(1), or make such order on terms as to security for the costs of

discovery or otherwise and either generally or limited to certain classes of documents as may be thought fit.

(3) An order shall not be made under this rule if and so far as the court shall be of the opinion that it is not necessary

either for disposing fairly of the cause or matter or for saving costs.”

In order to succeed on an application for discovery the onus is on the applicant to show that the person against whom

discovery is sought has or is likely to have in his possession or procurement documents which are relevant to an issue in the

proceedings. It is, however, not necessary that the applicant be in a position to establish specific documents as distinct from

categories of documents which prima facie are relevant. The degree of particularity required will depend on the nature of

the case.

The classic test for relevance is that in Compagnie Financiere du Pacifique v Peruvian Guano Company [1882] 11

Q.B.D. 55 at p.63 per Brett L.J.:-

“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 these two consequences.”

This test of relevancy has long been accepted by this court: see Brooks Thomas Limited v Impac Limited [1999] I.L.R.M.

171 and Ryanair Plc v Aer Rianta CPT [2003] 4 I.R. 264 at 275.

The applicant must satisfy the requirement of Rule 12 sub rule (3) and show that the discovery sought is necessary for

disposing fairly of the cause or matter. The documents need not be absolutely necessary. In Ryanair Plc v Aer Rianta Plc

[2003] 4 I.R. 264 at 276 Fennelly J. held that the following passage from the judgment of Bingham M.R. in Taylor v

Anderton [1995] 1 W.L.R. 447 at 462 contains useful guidance:-

“The crucial consideration is, in my judgment, the meaning of the expression ‘disposing fairly of the cause or matter’.

Those words direct attention to the question whether inspection is necessary for the fair determination of the matter,

whether by trial or otherwise. The purpose of the rule is to ensure that one party does not enjoy an unfair advantage or

suffer an unfair disadvantage in the litigation as a result of the document not being produced for inspection. It is, I think,

of no importance that a party is curious about the contents of a document or would like to know the contents of it if he

suffers no litigious disadvantage by not seeing it and would gain no litigious advantage by seeing it. That, in my

judgment, is the test.”

Order 31 Rule 29 provides that leave of the court is required for an application for non-party discovery. As a result the court

has a further discretion which arises even where the documents are shown to be in the possession or procurement of the

non-party and are shown to have some relevance to the issues arising in the action and are necessary. That discretion is

exercised having regard to oppression or prejudice not capable of being adequately compensated for by the payment of the

costs associated with discovery. See Allied Irish Banks Plc v Ernest and Whinney [1993] 1 I.R. 375 at 389. While Finlay

J. expressly dealt with oppression or prejudice to the person called upon to make discovery, where, as here, oppression or

prejudice will be caused to some other person as is alleged by Homebond that should also be a factor taken into account in

exercising the discretion. Thus in Cooper-Flynn v Radio Telefís Éireann [2000] 3 I.R. at 344 it is recorded at page 347

that orders made by Johnson J. protected the confidentiality of the relationship between a bank and its customers and

documents were made available for inspection in a redacted form. If discovery should be ordered in this case as a

relationship of confidentiality exists between Homebond and persons to whom it has issued its standard guarantee the like

concern would also arise. See also Ambiorix Limited v Minister for Environment (No. 1) [1992] 1 I.R. 277.

The High Court Order

The High Court ordered discovery of three categories of documents as follows:-

(a) All documents in the power, possession or procurement of Homebond relating to the alleged presence of pyrite at the

development situate at Hamilton Hall, Dunboyne, Co. Meath.

(b) All documents in the power, possession or procurement of Homebond relating to the remediation works carried out

and/or being carried out at the development situate at Hamilton Hall, Dundoyne, Co. Meath.

(c) All internal memoranda, notes, communications and e-mails between Homebond and any other technical experts,

advisors or statutory bodies in the Republic of Ireland or in the United Kingdom or elsewhere concerning pyrite/sulphate

generated heave and/or pyrite induced heave to include all communications between Homebond and the National Standards

Authority of Ireland relating to the drafting of and adoption of the N.S.A. Standards Revised Version S.R.21 namely S.R.

21; 2004 + A.1.; 2007.

Lagan’s Submissions to the High Court

The development at Hamilton Hall, Dunboyne, Co. Meath, was not carried out by Hansfield. The aggregate used in the

development was not supplied by Lagan. Defects occurred in dwellings on that development which are similar to those in

the developments with which this action is concerned. Similar remediation works have been or will be required to be carried

out. The relevant issue in these proceedings is Hansfield’s claim that damage to dwelling houses on its three developments is

a result of pyrite heave. Homebond is a limited liability company whose members are house builders and it was incorporated

for the purpose of operating a guarantee scheme whereby certificates are issued to house purchasers which warrant that

Homebond will remedy certain major structural defects and certain other matters. Once defects appeared in Hansfield’s

three developments and in the development at Hamilton Hall Homebond became involved. In all four developments

Homebond was the source of the theory that the defects were the result of pyrite heave. The documents set out at (a) and

(b) in the order of the High Court are relevant as the backfill used at Hamilton Hall not having been supplied by Lagan may

have had no pyrite content yet identical defects occurred. Thus, Hansfield submits, discovery of these categories is relevant

and will assist the court in determining whether or not the defects in Hamilton Hall have been caused by pyrite heave or

some other cause such as defective ground conditions or workmanship. For the like reason discovery of the documents is

necessary

The documents at (c) in the Order of the High Court are also relevant and necessary. Homebond issues a detailed house

building manual first published in 1993. The sixth edition of the manual was introduced in late 2007 and at page 34

incorporates an amendment to the standard recommendation in relation to sub-floor infill the relevant portion of which reads

as follows:-

“The layer of hard core should be well compacted, clean and free from matter liable to cause damage to the concrete.

Specific guidance is given in Clause 3.4.2. of S.R. 21: 2004 + A1: 2007 on limiting the presence of reactive form of

pyrite which may give rise to swelling or sulphate attack on concrete.”

The relevant Irish standard issued by the National Standards Authority of Ireland was not opened to the court but it is

reasonable to assume as suggested by Lagan that the amendment to the handbook had its origin in the same. From

correspondence in the possession of Lagan it appears that Conor Taffe the Customer Services Manager of Homebond at a

site meeting at an affected dwelling house at Drynam Square attended by the house owner and representatives of Hansfield

suggested pyrite heave as the cause of the defects in that house. Six days later Mr Taffe received a report from the

Department of Geology, Trinity College, on the composition of a sub floor sample from that house as a result of which he

attributed the defective condition of the same to pyrite heave. The Department of Geology, Trinity College, furnished a

further report based on attendance with Mr Taffe at the same house and which report concludes that the aggregate used

contains high levels of pyrite. This it is submitted shows that Homebond had an early involvement in relation to the issue to

which discovery is directed and accordingly documents in their possession or procurement are relevant and necessary.

Further Mr Taffe is a member of the relevant committee of the National Standards Authority of Ireland and for that reason

all communications between Homebond and the National Standards Authority of Ireland in relation to the revised standard

are relevant and necessary.

Homebond’s submissions to the High Court

Homebond provides a warranty to purchasers of dwelling houses from its members against major structural defects and

other matters. There is thus a tripartite relationship between Homebond, its member (the house builder) and the purchaser

of the house. As a result Homebond owns obligations of trust and confidence both to its member and to the purchaser. For

the purchaser the purchase of a house is the most significant investment he will make and it is important to protect his

interest. Dissemination of even a suspicion of structural defects within a development may seriously prejudice such

purchaser and owners of other houses on the development on selling their premises in that there will be increased difficulty

in obtaining a purchaser and they will be affected in the price realised.

The documents sought at (a) and (b) have no connection with either Hansfield or Lagan. Information is being sought in

relation to persons who have no connection with the present proceedings being the builder or developer of, the supplier of

aggregate to and most importantly the purchasers of houses on an unrelated development. It is not suggested that the defects

at Hamilton Hall are in any way related to the defects in the three developments the subject matter of these proceedings. As

to documents relating to the National Standards Authority of Ireland revised standard Lagan claim that these would indicate

the origins of the pyrite theory. This is most properly a matter for expert evidence.

Submissions on the Appeal

The parties relied upon the affidavits and exhibits filed in the High Court and the submissions made are to the like effect as

those made in the High Court. Lagan, however, quite properly raise as an additional issue the attitude which this court

should adopt where a discretionary order of the High Court is under review by this court.

Discussion

The issue in these proceedings which is relevant to the application for discovery can be stated thus: did the aggregate

supplied by Lagan contain excessive levels of pyrite and if so did such aggregate cause vertical heave.

In the course of the hearing before this court Lagan submitted that Homebond should not be regarded as totally independent

of Hansfield. By virtue of its bond and the warranties contained in the same should Hansfield fail to carry out remediation

works Homebond would be liable to the purchasers of houses on the affected developments to carry out the works or

indemnify purchasers. Accepting that this is so has this any bearing? Novelty is not of necessity an objection to the grant of

an order but the court has not been referred to any reported decision in which an order analogous to that granted by the

High Court has been granted. By analogy it could be asked whether in a medical negligence action a plaintiff could seek

discovery against the defendants’ insurer of documents relating to an action between a different plaintiff, a different insured

and where the cause of action arose out of a different complaint of negligence. For that indeed reflects the position here.

Hansfield did not develop Hamilton Hall. Lagan did not provide the aggregate. The aggregate provided at Hamilton Hall did

not contain pyrite notwithstanding an initial suggestion by Homebond that pyrite heave had occurred. The only similarity

between Hamilton Hall and the three relevant developments is that the defects found in houses there are very similar to

those found in the three relevant developments. Any relationship between Hamilton Hall and the three relevant

developments is extremely tenuous. It could be said that the relevance relied upon is a lack of relevance in that pyrite heave

which is alleged to have occurred at the relevant developments did not occur at Hamilton Hall.

The test to be applied in determining relevance is that in Compagnie Financiere du Pacifique v Peruvian Guano

Company – and the court must ask if it is reasonable to suppose that the documents sought contain information which may

directly or indirectly enable the party requiring the affidavit either to advance his own case or to damage the case of his

adversary or which may fairly lead him to a train of enquiry which may have either of those two consequences. The onus is

on the applicant. I am satisfied that the relationship between Hamilton Hall and the three developments with which the court

is concerned is so tenuous that it cannot be said that the documents sought at (a) and (b) are relevant.

There is an onus on the applicant to establish that discovery of the particular categories of documents is necessary for

disposing fairly of the cause or matter. Insofar as the documents in categories (a) and (b) are concerned I can see neither

advantage nor disadvantage to Lagan arising out of the presence or absence of the documents sought. I do not see that the

court would be in any better or worse position to dispose fairly of the cause or matter by the availability or non-availability

of the same. The issue will be resolved on the basis of tests carried out and reported on by experts retained by the parties.

The documents are not in my view necessary.

Having concluded that the documents sought at (a) and (b) are neither relevant nor necessary it is not necessary to consider,

as might otherwise have been the case, confidentiality as in Cooper-Flynn v Radio Telefís Éireann and Dolling-Baker v

Merratt & Ors [1991] 2 All E.R. 890 or proportionality in relation to which in Ryanair Plc v Aer Rianta Plc at p.277

Fennelly J remarked:-

“The public interest in the proper administration of Justice is not confined to the relentless search for perfect truth. The

just and proper conduct of litigation also encompasses the objectives of expedition and economy.

The court in exercising the broad discretion conferred upon it by Order 31, Rule 12(2) and (3) must have

regard to the issues in the action as they appear from the pleadings and the reasons furnished by the applicant

to show that the specified categories of documents are required. It should also consider the necessity for

discovery having regard to all the relevant circumstances including the burden, scale and costs of the

discovery sought. The court should be willing to confine categories of documents sought to what is genuinely

necessary for the fairness of the litigation. It may have regard, of course, to alternative means of proof which

are open to the applicant.”

The alternative means of proof available here is expert evidence.

In inter-party discovery the unfairness envisaged is that of one party not having access to documents which are available to

the other and that is not the basis of this application. While Order 31 Rule 29 extends the scope of discovery such discovery

should be confined to circumstances where it is relevant and necessary if unfairness is to be avoided. The onus is on the

applicant for discovery and Lagan has not discharged that onus.

With regard to the documents in category (c) Hansfield has not satisfied me that the documents are relevant. While pyrite

heave is a rare occurrence and it would appear appreciated only in relatively recent times it is also clear from the exhibits to

the affidavits filed that it can and has been dealt with by expert evidence. I do not see that the genesis of the revised national

standard to events which predated its introduction or the revision to the Homebond manual to events which predated the

revision of the handbook could be relevant to the determination of the issue. Such determination will be a matter for expert

evidence. Neither is the availability of such documents necessary for the fair determination of the issue. Neither party has

access as of right to the documents in respect of which discovery is sought: if Hansfield gains access to them they will be

discoverable. As the action is to be heard in the Commercial Court there will be an exchange of expert reports and most

likely statements of the evidence of non-expert witnesses and so if Hansfield seeks to rely on any such report or evidence

obtained from Homebond Lagan will have full notice of the same. In any event Lagan’s basis for seeking such documents is

misconceived. Lagan came into possession of an e-mail from Barry Smith of Standards Development at the National

Standards Authority of Ireland addressed to the members of the committee dealing with the new standards for aggregate.

The committee comprised Mr Taffe and another member associated with Homebond, a member associated with Lagan and

the remaining members who it was accepted before us are involved in the construction industry. The members did not

represent their employers but rather were members of the committee because of their industry related expertise. It could not

be said that either Lagan or Homebond were represented on the committee in these circumstances. Lagan have not satisfied

me that the documents in this category are relevant or necessary.

Notwithstanding the conclusion I have reached it is necessary to consider whether the discretionary order of the learned

High Court judge should be interfered with by this court. In Dome Telecom Limited v Eircom Limited, the Supreme

Court, 5th December 2007, unreported, Fennelly J. said in relation to the exercise by the High Court of its discretion on an

application for discovery:-

“I do not think, therefore, that the question which I have to consider is whether I agree with the order made or not but

rather whether the learned trial judge applied the correct principles in arriving at his decision and whether on the basis

of those principles it was open to him to make that decision.”

Again in Gerald J.P. Stephens & Paul Flynn Limited, the Supreme Court, 25th February 2008, unreported, Kearns J. in

relation to the exercise of a discretion by the High Court had this to say:-

“While counsel for the plaintiff has urged this court to treat the appeal as a completely fresh hearing of the original

application, I am satisfied that this is not a correct approach where a discretionary order of the High Court is under

review by this court. Where, as in this case, a judge of the High Court makes a discretionary order, I am firmly of the

view that this court should not interfere with such order unless it is clear that the discretion has not been exercised

within the parameters of what might be described as a reasonable exercise of that discretion.”

Kearns J. cited with approval the dicta of Lynch J. in Martin v Moy Contractors Limited, Supreme Court, 11th February

1999, unreported:-

“The High Court has a measure of discretion in these applications to dismiss actions for want of prosecution. Provided

that the High Court decision is within the limits of reasonable discretion this court should not interfere with it. In this

case the learned President gave a reasoned judgment and his reasoning is clearly valid. His decision naturally follows

from such reasoning and is also therefore clearly valid. There is, accordingly, no basis on which this court should

interfere with the judgment of the learned President save that I would order that the plaintiffs action against the

defendant should be dismissed for want of prosecution and not merely struck out.”

Having heard the motion the learned High Court judge delivered his decision ex tempore. In relation to categories (a) and (b)

he said:-

“I am inclined to the view on balance in the exercise of my discretion that the discovery as sought against

Homebond in respect of (a) and (b) ought to be granted. I take the view that the documentation may contain

relevant information which may assist the defendants defence or which may damage the plaintiffs view.”

In relation to category (c) he said:-

“I take the view, with the exercise of my discretion, that the order as sought on category (c) as against Homebond ought

to be granted.”

He then modified slightly the terms of category (c) as sought and made an order in terms hereinbefore set out.

Unlike Martin v Moy Contractors Limited the learned High Court judge did not give a reasoned judgment and it is not

possible for this court to be satisfied that his reasoning was valid or that his decision naturally followed from such reasoning.

In these circumstances it is appropriate for this court to look at the matter afresh. Having done so I am satisfied that the

order for discovery made in respect of each of the three categories of document (a), (b) and (c) should be set aside.

Disposition

I would allow the appeal and set aside the order for discovery made in respect of each of the three categories of documents

(a), (b) and (c).

Hansfield Developments v Irish Asphalt