Andrews v R J Sanderson and Associates Pty Ltd (Ruling)

[2011] VCC 497

IN THE COUNTY COURT OF VICTORIA Revised

Not Restricted

AT MELBOURNE
CIVIL DIVISION
DAMAGES AND COMPENSATION

APPLICATIONS DIVISION

Case No. CI-08-01825

GREGORY STUART ANDREWS	Plaintiff
(as Liquidator for Australian Taxation Preparers (E Bentleigh) Pty Ltd (in liquidation) (ACN 075 300 435)
v
R J SANDERSON & ASSOCIATES PTY LTD	Defendant
(ACN 060 299 783)

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JUDGE:	HIS HONOUR JUDGE MISSO
WHERE HELD:	Melbourne
DATE OF HEARING:	12 April 2011
DATE OF RULING:	18 April 2011
CASE MAY BE CITED AS:	Andrews v R J Sanderson & Associates Pty Ltd (Ruling)
MEDIUM NEUTRAL CITATION:	[2011] VCC 497

RULING

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Catchwords: PRACTICE AND PROCEDURE – application for preliminary discovery pursuant to Order 32 of the County Court Civil Procedure Rules 2008 – significant delay between the commencement of the proceeding and the hearing – in the meantime sufficient production and inspection of the relevant documents was provided – whether the plaintiff could satisfy Order 32.05(a) - (c) to engage the jurisdiction of the Court – whether the satisfactory production and inspection relevant documents rendered the proceeding of no use – whether either party entitled to their costs of the proceeding.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr P W Lithgow	Davies Moloney
For the Defendant	Mr D Harrison	South East Lawyers
HIS HONOUR:

Introduction

1          Australian Taxation Preparers (E Bentleigh) Pty Ltd ("ATP") conducted an accounting practice in Epping.

2          The defendant is a company through which Mr R Sanderson, accountant, conducts an accounting practice, principally at 60 Robinson Street, Dandenong.

3          ATP entered into an agreement with the defendant by which it agreed to sell part of its Epping client base and business to the defendant. The agreement is in writing. It was prepared by the principal of ATP and Mr Sanderson. It is not dated.

4          The agreement provides, among other things, that the defendant would pay a deposit of $75,000 and 65 per cent of average fees over a two-year period, less $120,000 which was to be treated "as base income pre-purchase". I am not entirely sure what that means; however, it is irrelevant to the issues which fall for consideration in this application.

5          The agreement was drafted by the principal of ATP and Mr Sanderson. It is far from well drafted.

6          ATP went into liquidation. G S Andrews & Associates, accountants, were appointed the liquidators of ATP. Mr Andrews, accountant was appointed as the liquidator. Mr Juzva, accountant, was appointed by Mr Andrews to assist him in the liquidation.

7 Mr Andrews was concerned to determine the liability of the defendant to ATP under the agreement. That concern is the background to the application made by the plaintiff for preliminary discovery pursuant to Order 32 of the County Court Civil Procedure Rules 2008.

The Proceeding

8 The proceeding was commenced by Originating Motion filed on 7 May 2008, and a Summons on Originating Motion filed the same day. The relief sought is pursuant to Order 32. However, the relief expressed, in what is described as a Statement of Claim endorsed on the Originating Motion, is for the defendant to "discover all necessary documents to allow the calculation of the sums outstanding by the defendant to the plaintiff”.

9          The relief expressed in the Summons is for the defendant to "file and serve an

Affidavit of Documents listing all documents relevant to the contract in the

calculation of the purchase price relevant to the agreement”.

10        The relief sought is very broad. It does not, in my opinion, meet the requirements of Order 32.08(4) which provides that the Originating Motion and Summons must be supported by an affidavit stating the facts on which the application is made, and specifying or describing the document or any class of documents in respect of which the order is sought.

11        The affidavit relied upon by the plaintiff was sworn by Mr C Moloney, solicitor, who is the principal in the firm of Davies Moloney. The affidavit was sworn on 6 May 2008.[1] The affidavit barely condescends to any particularity as required and merely, and baldly, states that Mr Andrews required information in order to calculate figures referred to in the agreement which comprise the consideration for the sale of ATP's business.

[1]             Exhibit A

12        Mr Maloney exhibited a letter dated 17 January 2008, which he wrote to the defendant, and omitting formal parts, the relevant portions of it are as follows:

"You are to make available a full client list from your database to allow for

the calculations to be made.

Further, you are to make part payments on 30 June 2007, 31 December
2007, 30 June 2008 and 31 December 2008.

We note that pursuant to clause 7 of the agreement, you have not made the payments due and payable on 30 June 2007 and 31 December Further, you have not provided to the Liquidator the relevant information so as to allow the calculations to be made under clause 7." [2]

[2]             Exhibit "CMF 3". In addition to the foregoing, Mr Harrison tendered other relevant correspondence, namely a letter from Mr Andrews to the defendant dated 11 August 2009 - Exhibit 2; a letter from Mr Andrews to the defendant dated 19 August 2009: Exhibit 3; a letter from Davies Maloney to the defendant dated 4 September 2009: Exhibit 4; a letter from Mr Andrews to the defendant dated 21 January 2010: Exhibit 5; a letter from Davies Maloney to South East Lawyers (retained by the defendant in this application) dated 4 November 2010: Exhibit 6; a letter from Davies Maloney to South East lawyers dated 9 November 2010: Exhibit 7, and a letter from the defendant to Mr Andrews dated 6 July 2009: Exhibit 8. All of the correspondence deals with requests by the plaintiff of the defendant for documents for the purpose of the plaintiff determining the sums which the defendant is liable to pay the plaintiff pursuant to the agreement.

13        Mr Harrison was content to treat the letter dated 17 January 2008 and later correspondence as being sufficient to satisfy Order 32.08, although he was highly critical of Mr Andrews and Davies Moloney because of the nature of the documents sought changed markedly from the first letter to the last.

The Application

14        Mr Lithgow submitted that it was fundamental to the cause of action which the plaintiff contended, as liquidator, that it obtain relevant documents from the defendant for the purpose of determining the sums which the defendant is liable to pay the plaintiff pursuant to the agreement.

15        Furthermore, he submitted that it is only when those relevant documents are in the possession of the plaintiff that it can calculate, firstly, whether the defendant is liable to pay the plaintiff any sums; secondly, what those sums are according to the documents; and thirdly, the calculations will enable the plaintiff to formulate its claim against the defendant by providing the particulars which such a proceeding for a debt due under an agreement require.

16        The evidence called by both Mr Lithgow and Mr Harrison focused in on the identity of documents in the possession of the defendant which are relevant, and whether the plaintiff has been provided with an affidavit of documents and inspection of the documents referred to in that affidavit which satisfy the request made by the plaintiff in the relevant correspondence referred to in paragraph 12 above.

The Evidence

17        Mr Juzva gave evidence and was cross-examined. He said that he had examined the affidavit of documents sworn by Mr Sanderson. He said he had inspected six folders of documents produced by the defendant. He said that he was satisfied that all of the relevant documents had been produced for his inspection.[3]

[3]             The six folders were produced by Mr Sanderson and were placed on the Bar table at my direction. I permitted both Mr Juzva and Mr Sanderson to leave the witness box for the purpose of examining the folders in the course of giving their evidence when it became necessary for them to look at some of the folders for the purpose of explaining parts of their evidence.

18        In the course of Mr Andrews’ liquidation, and with the assistance given to him by Mr Juzva, a client list relevant to the agreement was obtained from the Australian Taxation Office ("the ATO"). I understood, by inference, that the relationship between ATP and the ATO was such that the ATO had a list of ATP’s clients encompassed by the agreement.

19        It became very evident to me that the real complaint made by Mr Juzva centred around the difficulty to which he was exposed in making a comparison between the ATO client list against the discovered documents.

20        The defendant’s documents have not been created in a fashion which permits ease of inspection. They are not in any chronological order either by some numerical identification nor alphabetically. Mr Juzva was of the opinion that he could make a comparison between the ATO client list and the discovered documents, but that it would be an arduous task, and I inferred that it would take a significant period of time and at significant cost.

21        Mr Sanderson gave evidence and was cross-examined. He said that the six folders contain all of the relevant documents from which the plaintiff could make the calculations which it was keen to make.

22        Mr Sanderson was cross-examined regarding his difficulty in making a comparison between the ATO client list and the discovered documents. He said that the software, which is universally used by accountants to keep client records of work undertaken and fees billed, does not provide for any chronological ordering of those client records. However, the software does enable an individual client’s records to be accessed.

23        Mr Sanderson said that to undertake the collation of those documents in a fashion requested by the plaintiff would expose him to the expenditure of significant time and cost.

24        During cross-examination, Mr Sanderson revealed that there are hard copies of the documents of individual clients which are the same as those stored on his computer system. The hard copies have been placed in manila folders and have been stored in about fifty file boxes at the Epping office of the defendant. It was not my impression that the hard copies are any different from those stored on the computer system.

25        The fact that the documents do not provide ease of inspection is irrelevant to this application. The application does not require a party to put documents into a form which will give ease of inspection by the creation of other documents, such as, a chronology or reconciliation of the documents. The application focuses entirely upon what discovery ought to be given before a principal proceeding is commenced. It does not require the person from whom discovery is sought to do other than provide discovery of the documents in the form in which they are held.

The Rules

26        In order to engage the jurisdiction of the Court to make an order requiring the defendant to provide discovery of the documents sought, the burden is borne by the plaintiff to satisfy the Court of each of the matters referred to in Order

32. 05, which is in the following terms:

“Where—

(a)	there is reasonable cause to believe that the applicant has or may have the right to obtain relief in the Court from a person whose description the applicant has ascertained;
(b)	after making all reasonable inquiries, the applicant has not sufficient information to enable the applicant to decide whether to commence a proceeding in the Court to obtain that relief; and
(c)	there is reasonable cause to believe that that person has or is likely to have or has had or is likely to have had in that person's possession any document relating to the question whether the applicant has the right to obtain the relief and that inspection of the document by the applicant would assist the applicant to make the decision—

the Court may order that that person shall make discovery to the
applicant of any document of the kind described in paragraph (c).”

27        Mr Harrison submitted that the plaintiff could not satisfy me of any of the relevant considerations referred to in Order 32.05.

28        However, after considering the affidavit of Mr Maloney, and the exhibits to his affidavit, and also the tendered correspondence, it is obvious to me that the defendant paid the deposit of $75,000 required by the agreement, but has not paid any sums representing 65 per cent of the turnover based upon the terms of the agreement.

29        It was also obvious to me that the proceeding which Mr Andrews contemplates bringing will be based upon the agreement. The pleading would, by necessity, plead the agreement and its terms; plead the breach of the agreement and its terms; plead the damages sought, and provide particulars of the damages in order to successfully plead a cause of action.

30        Central to the cause of action will be the damages sought by the plaintiff. The calculation of those damages will be critical to the plaintiff being able to successfully defend any attack upon the pleadings: for instance, that it fails to disclose a cause of action by failing to plead what damages are sought and the indicia upon which the calculation of the damages is made.

31        I do not accept the submission made by Mr Harrison that the plaintiff did not, and does not, have reasonable cause to believe that it has or may have a right to obtain relief from the Court, based upon such a cause of action. I think that is obvious.

32        I am satisfied that the plaintiff made all reasonable enquiries of the defendant and made it plain that it did not consider that it had sufficient information to decide whether to commence a principal proceeding against the defendant based upon a breach of the agreement.

33        I consider it to be remarkable that the defendant simply considered that it could sit back and fold its arms and not provide the information which it was contractually obliged to provide regarding the relevant clients on whose billings the 65 per cent calculation was to be made. I gathered from the correspondence that the defendant has not undertaken that process, despite the fact that it is its contractual obligation to do so under the agreement.

34        The letter of Davies Maloney dated 17 January 2008 to the defendant made a request which I consider to be entirely reasonable in the circumstances. The plaintiff had no other source from which it could obtain the relevant information. It could only come from the defendant.

35        I consider the submission made by Mr Harrison, that the course of correspondence was something of a moving feast to be a distraction. What is patently obvious is that if the defendant returned to the agreement, and in particular, to the paragraphs relevant to its obligations to pay the consideration relevant to the sale, then it would have clearly understood what it was required to do. If it had undertaken that task, then the demands made in the later correspondence would have been avoided and would have become unnecessary.

36 To a fair degree the later correspondence became more a matter of the plaintiff seeking further and better particulars, and to some extent interrogation of the defendant, rather than strictly directed to a request for documents by determining the same through the prism of Order 32, and only to that extent is there any merit in the submission made by Mr Harrison, that the course of the correspondence, became somewhat wayward and off the point.

37        I do not accept the submission made by Mr Harrison that the plaintiff did not make all reasonable enquiries, and I repeat, the only legal person from whom those enquiries could have been made was the defendant.

38        There cannot be any doubt that the defendant has in its possession the very documents which will establish its contractual liability to pay 65 per cent of the turnover based upon the terms contained in the agreement. I do not accept the submission made by Mr Harrison, that there is any other conclusion that is open.

39        Therefore, I am satisfied that the plaintiff has discharged the burden which it bears to satisfy me of each of the matters referred to in Order 32.05 (a)-(c).

40        Mr Sanderson swore an affidavit on 24 November 2010 in the form of an affidavit of documents authorised by Order 29.04 (1).[4] Schedule 1, Part 1 contains a section headed “Reports”. Under that heading there are listed twenty-six such reports which are said to provide particulars of invoiced amounts and receipts relevant to the business conducted by the defendant at its offices at Dandenong, Berwick, Cranbourne, Epping, Frankston, Werribee and Mount Waverley.

[4]             Exhibit 10

41        Mr Sanderson said that the reports are contained in the six folders and are the same as the reports referred to in his Affidavit of Documents. He said there were no more relevant documents other than those in the six folders, save for documents in the manila folders which I referred to earlier.

42        Despite what appeared to be a real dispute between the plaintiff and the defendant regarding whether the defendant had made disclosure of the documents sought by the plaintiff, the evidence of Mr Juzva and Mr Sanderson was to the contrary.

43        Mr Juzva was satisfied that all of the relevant documents had been produced for his inspection, which was precisely the evidence of Mr Sanderson. Mr Juzva’s complaint was the form in which the documents were produced which made inspection difficult for the reasons I referred to earlier.

44        I accept the submission made by Mr Harrison that it is not for the defendant to create other documents in order to explain the documents which are discovered. The obligation of the defendant in this case is to do no more than it has already done by swearing and serving the Affidavit of Documents and permitting Mr Juzva to undertake the inspection which he said he has undertaken satisfactorily.

45        The curious situation which has arisen here is that there was a legitimate basis upon which the plaintiff filed an Originating Motion seeking preliminary discovery, but in the course of time, and before the hearing of the proceeding, the defendant complied to the extent that would have been the subject of orders I would have made.

46        Essentially, what that produces is a pyrrhic victory for the plaintiff. The very relief which it sought has been met by the defendant. Therefore, I do not propose to make any orders in the circumstances, because none can be made.

Conclusion

47        In essence, the dispute between the plaintiff and the defendant has stemmed from an agreement drafted by the principal of ATP and Mr Sanderson which is clumsily drawn, and perhaps drawn without Mr Sanderson having any insight into how he was to meet his obligations under the agreement relevant to the calculation of the 65 per cent of the turnover based upon the terms contained in the agreement.

48        The failure of the defendant to meet its contractual obligations led to this application, and ultimately something of a Mexican stand-off between the plaintiff and the defendant. It has been characterised by the defendant saying it cannot do any more than it has done, and the plaintiff saying that the documents which have been discovered are in a state which makes inspection and comparison with the ATO client list an onerous and expensive task.

49        Whilst the following observation is outside what the parties have asked me to undertake, it seems to me that the Mexican stand-off must be broken as expeditiously as possible. I find it staggering that two accountants of the undoubted capacity of Mr Juzva and Mr Sanderson are unable to find a way around resolving the central issue on which the principal proceeding will be based.

Orders
50	Mr Lithgow sought to bring into play the significant delay which has occurred between the time when the Originating Motion was filed and the hearing of the proceeding. I have examined the orders in the file. I am not satisfied that the fault lies entirely with the defendant for that delay. It was always the plaintiff's proceeding, and therefore, it was for it to decide whether it pushed the application on or provided time to the defendant to assemble the relevant documents to be discovered.
51	I am strongly inclined to order that the Originating Motion be dismissed, and not to make any orders for costs. I will provide Counsel with these reasons in advance of the scheduled date and time on which I intended to deliver this ruling for the purpose of both considering whether they intend to make any application for costs.
52	In advance of any such application, it seems to me that the reality of the plaintiff's proceeding ceased to have any efficacy at the time when Mr Juzva obtained sufficient inspection of the documents in the possession of the defendant for him to say unequivocally that all the relevant documents had been produced for his inspection.
53	However, that has to be balanced against the defendant’s dilatoriness in gathering together all of the documents in the form in which they are now for the purpose of that inspection being undertaken and an affidavit of documents being sworn to put the entire matter to rest.

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