Acacia Sportswear P/L v Segenhoe Ltd

[1994] FCA 469

Ctfi 99

JUDGMENT No. ....... a#a"nnn

pl	THE FFDFRAL COURT OF AUS-	1
)

JWW SOUTH	-	W	R E G I S W	)	No G201 of 1991
)

m DIVISION )

BETWEEN	ACACIA SPORE=	LIMITED &
ms
blYP:	SEGFNHOE LI-

Fust Respondent

A M O N SECU-

Second Respondent

SEGENHOE STUD MANAGEMENT PTY

Third Respondent

NZ1 SECURITIES AUSTRALIA LIMITEQ

Fourth Respondent

SEGENHOE LIMITFD

Cross Clalmant

SLY & RUSSFLL

Flnt Cross Respondent

m:	Danes J 20 July 1994
W:	SY""~Y  MINUTES OF ORDER

DAVlD KENDFLL

Second Cross Respondent

I.	Answers be p w n to lnterrogatones 4(d), (e), (f) & (g).	@)(l), (11) &
2.	The motlon be o t h e w e dlsm~ued

2.   The first respondent pay 5090 of the costs of the second cross respondent in respect of the motion.

Km.	Rules.
Settlement and entry of orders is dealt wth m Order 36 of the Federal Court
COURT OF AUSTRAJ .M 1

1

W W	SOUTH WAT.FS DISTRICT REGISTRY	) No G201 of 1991
)

- 1

BETWEEN:  ACACIA SPORTSWEAR PTY

JJMITED & ORS

Appl~canu

-

Fmt Respondent

ON SECURITIES

Second Respondent

S E G E N H O E S T U D m A G E M E N T PTY LIMITED

Thlrd Respondent

NZ1 SECURITIES AUSTRALL.4

LIMITED

Fourth Respondent

SEGENHOE LIMITED

Cross Clamant

SLY & RUSSELI .

First Cross Respondent

DAVID KENDELL

Second Cross Respondent

!&Lam	Dames J.
m:	20 July 1994
m:	Sydney

This motlon seeks orders that certaln lnterrogatones delwered by the first respondent, Segenhoe Limited ("Segenhoe"), to Messrs Sly & Russell Sohcitors, who are cross respondents, and also to Mr Davld Kendell, a partner m that firm, who is

individually a cross respondent, be answered. For the moment, the lnterrogatories as

against Sly & Russell have been deferred pendlng my rullng on the interrogatories

delivered to Mr Kendell.

In 1986, r.1 of Order 16 of the Rules of the Court was amended so as to

provide that the delivery of lnterrogatories requlred the leave of the Court. Leave 1s

rarely granted for the reason that the process 1s costly and time consummg, both for
the Court and for lltlgants, unless vely strlctly hmlted.

The usual practlce of the Court in Sydney 1s not to allow lnterrogatones unless the partles are agreed upon a draft or the Judge approves a draft. In the present case, a Judge gave leave to interrogate, havlng been ~nformed that there was an unusual clrcumstance, namely that Mr Kendell had been Chalrman of Directors of

The Judge, who dealt with the matter only because the Judge who had been handling	Segenhoe and possessed knowledge whlch other officers of Segenhoe dld not have.
the interlocutory processes was not available, dld not ~nslst that a draft be agreed or settled by hlm. In the cucumstances, I thlnk that h s Honour dld not intend to give unrestricted leave to interrogate and that I should not order answers unless the
~nterrogator~es fulfil the crlterla requlred by the general practice in Sydney.

I,, ~ . k V. (1980) 41 FLR 169 at 190, Lockhart

J. set down the proper objectives to whlch lnterrogatorles should be directed. HIS

Honour sard:-

There are four oblects of mterrogatones 1. To obtaln admlsslons as to facts wh~ch

mll support the case of the lnterrogatrng party. 2. To obtam a d m r o n s whlch will

destroy or damage the case. of the pany mtemgated. 3	interrogatories whlch are in
the nature of a request for funher and better panlculars. 4.	Interrogator~es whlch

seek to obtaln accounts from a party occupytng a fiduuary posltlon."

His Honour went on to elaborate the point that the power to interrogate should not

be used for the purpose of "fishmg". Judges of the Court adhere strictly to his

Honour's new and, now that the delivery of interrogatories is a matter of leave, they

take a robust and wide new of the term "fishmg" and are not restrained by the somewhat narrower view which prevailed when the dellvery of lnterrogatories was a common and usual interlocutory process. In general, Interrogatories should be clear and dlrect and likely to produce unequ~vocal answers wh~ch may speed up the trial or

.

the preparation for trial by asslsting proof or by clarrfying an important point.

In the present case, the applicants, who were partners and employees of Sly &

Russell and companies with whlch they were assoc~ated,	invested in a horse breedrng
venture in which Segenhoe was the Manager and the owner, lessee and vendor of	blwdstock. Mr Kendell was Chalrman of Directors. Segenhoe employed Sly &
Russell to undertake work in relation to the venture. Sly & Russell charged for some
legal work. Sly & Russell and Kendell also appear to have charged fees for Mr
Kendell's activities as a consultant to Segenhoe.
The applicants rely on a number of grounds of clalm and allege, inter alia, that the letters on the letterhead of Segenhoe, whlch Mr Kendell slgned and whlch were sent to potential investors were misleading and deceptive and in breach of ss.52 and 53 of the Trade Practices A a 74 (Cth), that the venture lnvolved the offer of prescribed interests in breach of s.170(1) or s.171(1) of the W s (NSW) Code
and llke matters. Segenhoe has cross-claimed, alleg~ng that Sly & Russell and Mr
Kendell should have adwsed Segenhoe wth respect to these matters.

Interrogatory 2 asks the followmg:-

2.         Between 1 May, 1988 and 1 July, 1988, did Kendell or any other partner, servant or agent of Sly prowde to or for Segenhoe m relation to the Hunter Valley Breedlng Venture ("the Venture"), any adwce or information as to:

(a)	the formation, promotion, establishment andlor conduct of the Venture;
(b)	arlse from any act or omlsslon by or on behalf of Segenhoe; any contravention of the Trade Practices Act 1974 which could or mlght
(c)	any contraventlon of the Securities Industries (NSW) Code which could or mlght arlse from any act or omlsslon by or on behalf of Segenhoe;

(d) any contraventlon of the Compan~es (NSW) Code whlch could or mlght

arlse from any act or omlsslon by or on behalf of Segenhoe;

(e)	any duty of care whlch was or mlght be owed by Segenhoe to the Applicants andlor any breach thereof;
(f)	any fiduciary duty wh~ch was or mlght be owed by Segenhoe to the Appllcants and/or any breach thereof;
(g)	any conflict of Interest wh~ch had arlsen or mlght arlse by reason of the

involvement of Mr Kendell as Cha~rman and Director of Segenhoe and as a partner of Sly, andlor of the Appllcants as participants in the Venture and as partners of employees of Sly?

Interrogatory 3 asks for the usual full detalls if any answer be posltlve.

I would not order an answer to Interrogatory 2. It interrogates generally about

a matter of which the lnterrogatlng party appears not to have any speclfic knowledge. Moreover, there 1s an ~nherent problem in the interrogatory, namely, that Mr Kendell

was not only a partner of Sly & Russell but also a consultant to Segenhoe and Chairman of Directors of Segenhoe. Mr Kendell should not be required to work out,

for the purposes of answering the mterrogatory, whether any d~scussion, which was

held between the firm's partners and employees with hrm concerning "the formation,

promotion, establishment and/or conduct of the Venture", was held wth him as a

partner of Sly & Russell or as consultant to Segenhoe or Chairman of Duectors of

Segenhoe. Yet detarls of relevant conversations and any memorandum and letter, d

written, would be required by Interrogatories 2 and 3. Moreover, Mr Kendell should not be required to work out, for the purposes of answering the mterrogatory, whether any relevant statement he made to a dlrector or officer of Segenhoe was made in his capacity as a partner of Sly & Russell, or as legal consultant to Segenhoe or as Charman of Duectors of Segenhoe.

In my oplnion, those interrogatories are not dlrected to achlevlng a clear and defined end but are merely "fishmg", In the sense which I have explained, and should

not be allowed.

Interrogatory 4 reads, lnter a11a:-

4.         Look at the letter dated 10 August, 1988 from Sly to Segenhoe (being the document numbered 3 m Sly's Llst of Documents herein) and at the backsheets dated 28 June, 1988 of the Thoroughbred Investor Agreement ("Investor Agreement") and Agreement for Sale and Purchase of Horses ("Sale

Agreement") (coUectlvely called the "Agreements") numbered 22(a) and (b) respectively in Segenhoe's h s t of Documents herein (copies of whlch pages are annexed hereto respectively marked "A" and "B).

When were instructions for the preparation of the Agreements given by

(d)	Segenhoe to Sly?
(e)	By whom on behalf of Segenhoe and from whom on behalf of Sly were
instruct~ons for the preparation of the Agreements grven?
(f)	conveyed by Segenhoe to Sly ( ~ f m writing, in what document or

By what means were instructions for the preparation of the Agreements

documents were such mstructlons contamed)?

What were the terms of the lnstructlons glven by Segenhoe to Sly for

(g) the preparation of the documents?

Answers were glven to paragraphs (a), (b) and (c).

In my opinion, Interrogatories 4(d), (e), (f) and (g) should be answered. The
relationship between Mr Kendell and Sly & Russell and the instructions given to Sly

& Russell are matters of importance whlch are susceptible of a clear and limited

answer. It 1s appropriate to Interrogate as to the terms of those instructions.

Interrogatory 5 reads:-

5.         Look at annexures "A", "Bl", "BZ", "B3", "B4" and "B5" (the Disclosure Statements) to the affidavit sworn 29 October, 1992 hereln by Edward Lindsay Roux Houghton.

(a)	Were any of the Disclosure Statements in whole or m part produced on Sly's word processor at the instance of, and or otherwise prepared or drafted by, any partner or employee of Sly?
(b)	If the answer to (a) above is in the affirmatwe, then in respect of each

such document:

(I)	or drafted; which of the Disclosure Statements were so produced, prepared
(U)	when was such Disclosure Statement produced, prepared or drafted;
was such Disclosure Statement prepared by Kendell; ~f not, by
(111)	which partner/s and employee/s of Sly was it prepared or drafted;
(iv)	for what purpose was such D~sclosure Statement produced, prepared or drafted;
(v)	when were instruct~ons for the productlon, preparatlon or drafting of the Disclosure Statements given by Segenhoe to Sly;
(vi)	by whom on behalf of Segenhoe were lnstructions for the productlon, preparation or drafting of the Disclosure Statements given and to whom on behalf of Sly;
(vli)	by what means were the lnstructions for the production, preparatlon or draftlng of the Disclosure Statements conveyed by Segenhoe to Sly (if in wntlng, in whlch document or documents were such instructlons given);
(vlli)	what were the terms of the instructions glven by Segenhoe to Sly for the productron, preparation or drafting of the Dlsclosure Statements?

With respect to the Venture, prec~sely what time was spent, performing

(c) what legal semces by:

(I) Mr Kendell m producmg, preparlng or draftlng the Disclosure

Statements andlor the Agreements;

(11)	Mr Kendell othemse than in producing, preparlng or drafting
the D~sclosure Statements andlor the Agreements;
(ill)	partners and employees of Sly other than Mr Kendell in producmg, preparing or draftlng the Disclosure Statements andlor Agreements;

(IV) partners and employees of Sly other than Mr Kendell otherwise than in producing, prepanng or drafting the Dlsclosure Statements andlor Agreements?

respect to the time value of work in progress referred to m the numbered 3 in Kendell's List of Documents):

W~th

(d) letter dated 10 August, 1988 from Sly to Segenhoe (bemng the document

(i)	what was the tune value of the work in progress;
(ii)	upon the basis of how many hours work was such tune value

calculated;

(ili)      during what penods were such hours mcurred?

Interrogatory 5 deals with the letters which were slgned by Mr Kendell and the annexures thereto which were sent to prospectwe investors. As Segenhoe seeks to attribute l~ability for the preparatlon of the documents to Sly & Russell and Mr Kendell, I would allow answers to Interrogatorles 5(a), (b)(l), (ii) & (iii).

At the present tlme, I am not prepared to order answers to Interrogatorles 5(b)(v) (v) (W), ( G ) (G) . The preparatlon of the documents seems not to have been a matter for which Sly & Russell rendered an account. The questions are likely

to confuse. They do not distinguish between the s~tuatlon where one of Sly & Russell's word processors may have been used by or for Mr Kendell, m h ~ s capacity as

a consultant to Segenhoe or as Chalrman of Directors thereof, and the situation

where work may have been done by Sly & Russell on lnstructlons from Segenhoe. If	answers to interrogatories dlsclose some further lssue whlch should be the subject of
an appropnate mterrogatoly, that matter can be taken up at a later stage.
I would not order answers to interrogatories 5(c) and 5(d). If any issue arlses in relatlon to the propnety of the fees charged either by Sly & Russell or by Mr
Kendell, that 1s a matter which can be taken up wlth the appropriate author~tles. It is not an issue in these proceedings. The answers would be onerous and would not be likely to provide unequivocal lnformatlon which would be applled dlrectly in the tnal.

Interrogatory 13 reads:-

13.       Look again at the Dlsclosure Statements and paragraph 10 of the Third

Amended Statement of Claim herem. Upon what facts and circumstances d ~ d

Kendell andlor any other partner or employee of Sly who produced, prepared or drafted the Dlsclosure Statements rely m malung the followng statements the effect of which 1s set forth m paragraphs l q a ) - (p) of the Thlrd Amended Statement of Claim:

(a)	the Australian Thoroughbred Industry represented a potentially profitable investment (Houghton annexure " A page 1 polnt 6 annexure "Bl" page 1 polnt 4);
(b)	the accelerated depreciation for thoroughbred bloodstock would stimulate mvestment m the industry and ensure that bloodstock values were maintamed (Houghton annexure "A" page 1 polnt 7 annexure "Bl" page 1 polnt 5);
(c)	the value of the bloodstock m the Segenhoe Breedlng Venture established in 1987 had ~ncreased by m excess of $3,000,000 in one year (Houghton annexure "A" page 1 polnt 8 annexure "Bl" page 1 polnt 7);
(d)	Segenhoe had considerable expertlse m the management of bloodstock assets and had the necessary capabllit~es and expenence to properly manage the Venture (Houghton annexure "A" page 3 polnt 3 annexure

"Bl" page 3 polnt 1);

(e)	Segenhoe had been able to secure service nghts to the most prominent stallions m Australia and New Zealand (Houghton annexure "A" page 3 polnt 4 annexure "B1" page 3 polnt 2);
(f)	the 23 brood mares purchased by the Venture were of the h~ghest quallty (Houghton annexure "A" page 2 point 2);
(h)	there would be at least sufficient lncome to exceed or pay for the

Segenhoe would guarantee to each lnvestor that each year after 1988

expenses of the year's operation of the Venture (Houghton annexure

"A" page 3 polnt 6 annexure "B1" page 3 polnt 4);

(i)        to the extent that revenue was insuffiaent to meet the year by year running expenses m relabon to the Venture, Segenhoe would fund the

Venture in relation to the shortfall from its own resources (Houghton annexure " A page 3 point 7 annexure "Bl" page 3 polnt 6);

(k) an investor's outgoings did not and would not exceed $11,240 per

annum or $216 per week during the term of the Venture (Houghton

annexure "Bl" page 4 point 3);

(1)        there would be sufficient funds generated by the Venture upon the sale of the bloodstock assets in 1992 and 1993 to enable the repayment of

the loan amount of $69,538 borrowed by each Investor (Houghton
annexure "A" page 4 point 5 annexure "Bl" page 4 point 5);

Interrogatory 13 is an oppressive interrogatory. Under ss.52 and 53 of the

Trade Pract~ces Act, the issue is whether a statement was mslead~ng or deceptive or

likely to be so or whether it was a false representation. Certainly, the cross claim

alleges negligence agalnst Sly & Russell and Kendell. But the statements the subject of the interrogatory were not statements of law; they were statements in relation to the breeding mdustry. Segenhoe was involved m that industry. If it has a case against Sly & Russell and Mr Kendell in that respect, it will have its own sources of

information. It should make out its own case and not "fish

Interrogatory 14 reads:-

14.       Look at the copy Involce dated 3 January, 1988 (SIC) from Kendell to Segenhoe (bemg the document numbered 25 in Segenhoe's List of Documents), a copy of which is annexed hereto marked "C".

(a)	Precisely what legal semces were provlded by Kendell to Segenhoe relating to the Venture, for which Kendell charged Segenhoe the fees referred to m such Invoice;
(b)	Precisely what administrative services were prov~ded by Kendell to Segenhoe relating to the Venture, for which Kendell charged Segenhoe the fees referred to in such Invoice;
(c)	Prec~sely when were such legal and admnlstratlve servlces provided;
(d)	Invoice, referable to the Venture

Was any (and if so which) part of the sum of $80,000 referred to in the

(I)	recelved and retalned by Kendell on hls own account
(il)	received by Kendell who accounted to Sly for same
(ni)	paid to or for Sly at the dlrectlon of Kendell?l would not order a

I would not order a further answer to Interrogatory 14. In January 1988, Mr

Kendell Issued an account to Segenhoe: 'To my costs of provldlng legal and

administrative services to the Company Including documentation of the International

Breeding Venture, the Hunter Valley Breedlng Venture and Convertible Note Issue;

overseas tnp to purchase bloodstock, arrange stallion 1989 and inspect bloodstock." The amount of the involce was $80,000. It was only one of four lnvo~ces from Sly &

Russell and Mr Kendell which totalled $263,500. There 1s no issue in the case which dlrectly concerns the questlon whether Mr Kendell was entitled to charge fees and

whether h ~ s fees were proper. No suff~cient benefit would be galned that would justify asking Mr Kendell to detall all the actlvity that he undertook which was the subject of that b l .

For these reasons, I shall order answers to Interrogatories 4(d), (e), (f) & (g),

5(a), (b)(i), (li) & (iii) but shall otherwise dlsmlss the motlon. I shall order that
Segenhoe pay 50% of the costs of Mr Kendell m respect of the motion.

I certify that this and the l1 preceding pages
are a true copy of the reasons for judgment hereln of

the Honourable Mr Justice

Associate: ICfE

Date: 20 July 1994

Counsel for Segenhoe Limited

& Segenhoe Stud Management Pty Ltd:  Mr M.C.J. Elnfeld QC

Solicitors for Segenhoe Lim~ted

& Segenhoe Stud Management Pty Ltd:  Grieves, Wannan & Wllliams

Counsel for Sly & Russell

& David Kendell:  Mr R.W. White

Solicitors for Sly & Russell

& David Kendell:	Malleson Stephen Jaques
Date of hearing:	17 June 1994
Date of judgment:	20 July 1994