Arnold v Liemareff - [2006] SADC 138

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil: Appeal Against a Master's Decision)
ARNOLD & ANOR v LIEMAREFF
[2006] SADC 138
Judgment of His Honour Judge Lovell
21 December 2006
PROCEDURE
Discovery - whether business documents are directly or indirectly relevant - whether in the "interests of justice" orders should be made
Rehn v AFL and Ors (2003) 227 LSJS 378; Graham v Baker (1961) 106 CLR 340; Medlin v SGIC (1994-1995) 182 CLR 1; Husher v Husher (1999) 197 CLR 138, discussed.

ARNOLD & ANOR v LIEMAREFF
[2006] SADC 138
Overview

This is an appeal from a Master of this Court ordering that certain documents were not discoverable.
The first Plaintiff/Respondent exercised his earning capacity pre- accident in two businesses that he, to a large extent if not totally, managed. In an action in negligence where damages are sought for a diminution of the Plaintiff’s earning capacity are the documents of one of the businesses “directly relevant” thereby requiring that they be discovered? Alternatively are the documents “indirectly relevant” and if so “is it in the interests of justice” that the documents be discovered and produced
Background
The First Plaintiff, Mr Arnold, claims damages for injuries suffered in a motor vehicle accident (“the accident”) that occurred on the 3^rd May 1998. At the time of the accident the First Plaintiff was married to Jennifer Arnold. At that time Mrs Arnold was the sole director and shareholder of the Second Plaintiff Arnold Real Estate Pty Ltd. This company carried on business under the name Elders Real Estate Blackwood.
The First Plaintiff at the time of the accident worked as a consultant to the Second Plaintiff and attended to the day-to-day operations of the business including attending to clients and conducting open inspections. In addition at the time of the accident the First Plaintiff, as trustee for the Adelaide Trading Trust, managed 8 hairdressing salons that traded as “Mastercut Dressing”. I understand that Mr and Mrs Arnold have since separated.
The applications before the Learned Master were for discovery against the Second Plaintiff and also against the Non Party being the Trustee in Bankruptcy of the First Plaintiff who was declared bankrupt on the 18^th October 2004. It was common ground that the Trustee held the First Plaintiff’s financial documents.
Mr Stanley appeared on behalf of the First Plaintiff both before the Master and on the Appeal. He argued against the orders sought. Mr Danvers appeared for the Second Plaintiff/Respondent and adopted the argument of Mr Stanley. The Trustee in Bankruptcy has indicated, that as long as the orders sought by the Appellant do not seek documents relating to the Trustees time management records, fee notes and information relating to fee payments made to the Trustee in his capacity as Trustee, he would abide the order of this court. Thus whilst there was not an application specifically against the First Plaintiff, it was he who argued against the orders sought by the Defendant.
Discovery
Rule 58A.03 states:
The parties must discover in their lists of documents, but discover only, the documents which are or have been in their possession custody or power which are directly relevant to any issue arising on the pleadings.
Further, r58A.04 states:
Parties are not to include in their lists of documents any documents which are only indirectly relevant to any issue arising on the pleadings unless it is ordered by the Court where it is in the interests of justice to do so.
The obligation to make discovery is now limited to documents directly relevant to an issue arising on the pleadings. Thus direct relevance should be given a relatively narrow meaning. However to hold that a document is not directly relevant to an issue on the pleadings is not to deprive a party of access to the document. The effect of such a holding is merely that the requirement to discover the document is not imposed by r58A.03, and that the court will decide, on application to it whether the document must be discovered.[1] Matters relevant to the interests of justice will vary from case to case.
[1] Rehn v AFL and Ors (2003) 227 LSJS 378.
Pleadings
In the Third Amended Statement of Claim the First Plaintiff alleges that as a result of the injuries suffered in the accident he has become permanently partially incapacitated for work. This has meant that he was unable to run the real estate business properly and as a consequence the business was sold. A modified business in the real estate industry has been started. Further, it is alleged that as a result of the incapacity he has been unable to attend to the managerial duties he performed at “Mastercut Dressing”. The pleadings allege that he has suffered a loss and has had to employ another manager to manage the salons. The loss sought is the loss of earning capacity equivalent to the salary paid to the manager.
Thus, the pleadings allege a diminution of earning capacity in relation to both businesses.
The Defendant’s response is rather short. Pre-existing injuries are alleged. It is alleged that the First Plaintiff did not suffer any loss of earning capacity but if he did he has now recovered.
The allegations that the Plaintiff has had to sell one business and put a manager into the other are not specifically dealt with. However it is clear from the Defence that the decisions made by the First Plaintiff relating to the businesses are in issue.
I note that it is pleaded in the Third Amended Defence that the Second Plaintiff has no cause of action. That the First Plaintiff’s earning capacity in relation to both businesses is in issue can also be discerned from the Reply.
Law
A plaintiff in an action for negligence is not entitled to recover damages for loss of earning capacity unless he establishes that his earning capacity has in fact been diminished by reason of the negligence caused injury and further that such diminution is or may be productive of financial loss.[2]
[2] Graham v Baker (1961) 106 CLR 340; Medlin v SGIC (1994-1995) 182 CLR 1
For the purposes of the law of negligence the question whether the requisite causal connexion exists between a particular breach of duty and particular loss or damage is essentially one of fact to be resolved, on the probabilities as a matter of commonsense and experience. That remains so in a case such as this where the question of the existence of a causal connection is complicated by decisions made by the first Plaintiff which may be regarded as a more immediate cause of the loss or damage.[3]
[3] Medlin v SGIC (supra)
The pleadings indicate that it was the First Plaintiff who contributed the most effort in relation to the two businesses. It was common ground at the hearing that the principles stated in Husher v Husher[4] generally applied. Thus, the financial loss occasioned by impairment of earning capacity is the loss of what (if there had been no accident) the injured Plaintiff would (as opposed to could) have expected to have had under his control and at his disposal by exercising that capacity.
[4] (1999) 197 CLR 138
What documents have been discovered?
The Plaintiffs do not take issue with the fact that the documents of the real estate business are directly relevant. The issue to be decided relates to the documents of the Adelaide Trading Trust. Some documents relating to that entity have been discovered. The taxation returns for the financial years ending 1995 through to 2003 appear to have been discovered. That included the Profit and Loss statements for those years. The Defendant seeks the source documents standing behind the preparation of the taxation returns. In particular she seeks the appointment books, age records, time keeping books, takings records and the detailed general ledger listings for the salons.
Are the source documents of the Adelaide Trading Trust directly relevant to any issue arising on the pleadings?
Some time was devoted during the hearing of the Appeal to the expert accounting reports. I have read them. It was suggested by Mr Stanley for the Respondent that the Appellant’s application was brought simply because their expert accountant wanted to look at the documents to ascertain reasons why the hairdressing business was making a loss. I do not accept that submission. The expert reports are interesting, and certainly provide some background information, but of course they do not govern the question of “direct relevance”. However I do note that the Plaintiff’s expert accountant Mr Major in his second report said (Appeal Book 183):
4.3Whether Mr Arnold and/or the Adelaide Trading Trust have suffered any loss as the result of accident would have to be the subject of separate consideration. Clearly if such an action were to be brought then the business records of the Adelaide Trading Trust would certainly need to be examined.
It appears that Mr Major may have been unaware that the First Plaintiff was claiming a loss in relation to the Adelaide Trading Trust, namely someone to replace his labour.
It can be seen from the pleadings that the First Plaintiff was in effect exercising his earning capacity pre-accident in two businesses of which he appears to have had control. He has, since the accident, made two decisions. The first was to close the real estate business; the second to take on a manager to replace him in the hair dressing business. The onus lies on him to prove that those decisions were necessary and causally related to the injuries arising from the accident. The First Plaintiff at trial will no doubt give evidence, advancing reasons for the decisions.
It seems likely that factors affecting the decisions would include the nature of the duties the First Plaintiff performed in both businesses and how his injuries impacted on those duties. However such evidence could not be divorced from how the businesses were performing. For example the Defendant may wish to argue that a manager should have been appointed to the real estate business and the hairdressing business closed down. In order to determine what is involved in managing the hairdressing business the Defendant would need to see how the business was conducted; it would need to be able to assess the reasonableness of the “replacement” wage.
I note that the First Plaintiff’s expert report deals with the plans the First Plaintiff had in relation to the real estate business prior to the accident. That is a perfectly reasonable approach to take. However it is in my view artificial to say that his plans in relation to the real estate business should be looked at in isolation to the hairdressing business. It may well be the case that the decision in relation to one was at least in part dependent on how the other business was performing.
It may be that these issues eventually fall by the wayside at trial. That is not the test. The test is are the documents sought directly relevant to an issue arising on the pleadings. In my opinion the source documents of the Adelaide Trading Trust are directly relevant.
Indirect Relevance
For the reasons mentioned above I consider the documents in question have, at the very least, relevance. Distinguishing between direct and indirect relevance is not easy.[5]
[5] Rehn v AFL and Ors (surpa).
Thus, if I am incorrect in deciding that the documents are directly relevant there can be no doubt that they are indirectly relevant. Is it in the interests of justice that the parties include the documents in their list of documents?
This is a question of fact to be decided in each case, and matters relevant to the discretion will vary from case to case. Relevance is, by itself, not enough. Mr Stanley points to the fact that it will lead to further analysis of the business records by the experts. This will add to the cost of the proceedings and may delay the matter further. Further, he pointed to the width of the request by the Appellant. The trustee in bankruptcy will have to look at a large number of documents to see if they are indirectly relevant.
However, it could not be said that the task is a particularly onerous or expensive one. Further the claim for loss of earning capacity is a large one. The Defendant is unable to obtain the information from any other source. True it is that it will lead to further expert’s reports. However given the size of the claim it would be in my view quite unfair to deny the Defendant access to the documents. In my opinion it is in the interests of justice that the documents be included in a list pursuant to r58A.04 if the documents have been or are in the possession, power or control of the Plaintiffs and/or the Trustee in Bankruptcy.
Conclusion
In my opinion the appeal should be allowed.
I will hear the parties as to the form of the order and the question of costs.