Arnold v RK & JK Phillips Pty Ltd [2022] Vcc 441
[2022] VCC 441
•7 April 2022
| IN THE COUNTY COURT OF VICTORIA AT Melbourne COMMERCIAL DIVISION | Revised Not Restricted |
General List
Case No. CI-21-04982
| David Arnold | First applicant |
| Bruce Thomas | Second applicant |
| v | |
| RK & JK Phillips Pty Ltd (ACN 007 322 456) | Respondent |
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JUDGE: | His Honour Judge Woodward | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | None, on the papers | |
DATE OF RULING: | 7 April 2022 | |
CASE MAY BE CITED AS: | Arnold & Anor v RK & JK Phillips Pty Ltd [2022] VCC 441 | |
MEDIUM NEUTRAL CITATION: | [2022] VCC 441 | |
RULING
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Subject:PRACTICE AND PROCEDURE
Catchwords: Application for preliminary discovery
Legislation Cited: County Court Civil Procedure Rules 2018 (Vic) r32.05
Cases Cited:Schmidt v Won [1998] 3 VR 435; Pandolfo v Finadri [2018] VSC 211; Bouganville Copper Ltd v RTG Mining Inc [2021] VSC 231
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | KCL Law | |
| For the Defendant | M Rozner | Palmer Stevens & Rennick |
HIS HONOUR:
1By an originating motion dated 23 November 2021, the applicants seek orders for preliminary discovery pursuant to r32.05 of the County Court Civil Procedure Rules 2018 (“Rules”). The application was originally commenced in the Common Law Division of the court, but was later transferred to this Division and was then the subject of orders by consent for further affidavits and written submissions. Most recently, Judicial Registrar Bennett made orders on 10 March 2022 for (among other things) the parties to file and serve written submissions limited to 10 pages by 11 March 2022 and any submissions in reply limited to 6 pages by 16 March 2022.
2The application was due to be heard by me as Duty Judge on 21 March 2022, but the parties consented to orders on 17 March 2022 providing for the application to be determined on the papers. Having considered the submissions of both parties, I am satisfied on balance that the applicants are entitled to orders to the effect of those sought in the originating motion. I have set out at the conclusion of these reasons my preliminary view as to the form those orders should take, but will permit further submissions from the parties on the precise form of the final orders, including on the question of costs, should either of them wish to press for different orders from those I have suggested.
Background to application
3The application is supported by the following affidavits:
(a) an affidavit of the first applicant David Arnold sworn 22 November 2021, setting out the primary grounds for the application;
(b) an affidavit of David Weinberger, solicitor for the applicants, sworn 22 November 2021, deposing as to enquiries made by the applicants’ solicitors to the respondent’s solicitors;
(c) an affidavit of Ronald Kenneth Phillips, the sole director of the respondent, affirmed 10 February 2022;
(d) an affidavit of Bruce Thomas, the second applicant, sworn 3 March 2022; and
(e) a further affidavit of David Arnold sworn 4 March 2022;
4In his first affidavit, the first applicant deposes that on about 5 June 2016, the parties entered into an undated written agreement titled “Agreement for Provision of Professional Services Including Advice” (“Agreement”). Under cl4(a) of the Agreement, the respondent (defined in the Agreement as the “Company”) appointed the applicants to provide “the Consultancy Services set out in the Schedule for the Purpose set out in the Schedule” for the fee stated in the Agreement, in relation to a property located at 2133 Romsey Road, Romsey, Victoria (“Property”)..
5The “Consulting Services” set out in the Schedule to the Agreement are as follows:
“Advertising and marketing the Property with the view of selling it at the price satisfactory to the Company, searching for potential purchasers and/or property developers and/or investors and negotiating with them; making inquiries with local Council and other relevant authorities including any government and municipal and statutory authorities as to the use and/or development of the Property”.
6The “Purpose” set out in the Schedule is: “Endeavouring to sell the Property at the price satisfactory to the Company” (emphasis added). But “Purpose” is also defined in the definition section of the Consultancy Agreement in what seems to be materially different terms, namely, “the completion of the sale of the Property by the Company at the price satisfactory to the Company” (emphasis added).
7The effect of the provisions relating to the fee payable under the Agreement, is that the fee is calculated by reference to the “Sale Price” of the Property, and is payable at settlement or upon the respondent receiving a deposit or part payment under a contract of sale of the Property.
8The first applicant deposes that since the Agreement was signed, the applicants performed various services for the purpose of having the Macedon Ranges Shire Council rezone the Property including (in substance):
(a) having numerous discussions and communications with representatives of the respondent to discuss the process of engaging with the Macedon Ranges Shire Council on town planning matters;
(b) performing research into town planning and rezoning issues;
(c) engaging with agents, a town planner, the Macedon Ranges Shire Council and the Victorian Planning Authority; and
(d) instructing a town planner on various matters.
9The first applicant deposes that:
“Through our efforts and services, I believe we succeeded in getting the Property included inside the township boundary so it is now in the Future Strategic plan and has the potential to be re-zoned as residential land (although that rezoning still needs to occur and it is the next step in the planning process)…The value of the Property increased as a result of bringing it into the proposed future township boundary. If the Property is rezoned as residential land, 400 lots can be put on the Property which comprises 64 hectares.”
10The first applicant next states that in about September 2021, Ron Phillips, a director of the respondent, informed him that the respondent had recently entered into an agreement in relation to the Property and that this agreement was an “option”. On 29 September 2021 the applicants arranged a title search of the Property which showed that a caveat was lodged on behalf of Oakbridge Developments Pty Ltd (“Oakbridge”), relying on an agreement between the respondent and Oakbridge dated on or about 9 July 2021, for a “Freehold Estate” (“Oakbridge Agreement”).
11In his affidavit in reply, the respondent Mr Phillips deposes that he was approached by the applicants who explained that they could sell the Property for more than $8 million by advertising it and actively searching for potential purchasers and developers. He says (in effect) that, under the Agreement, if the applicants are successful in introducing a purchaser for the Property and the purchaser completes the sale, a percentage of the price paid to the purchaser is to be paid to the applicants at settlement. He asserts (it appears, correctly) that the Agreement is not an exclusive agreement.
12In relation to the performance of the Agreement, Mr Phillips says that on 16 March 2017 his solicitor received an email from the first applicant requesting the drafting of a contract of sale and section 32 statement, as the first applicant had found a purchaser for the Property at a price of $17,500,000 plus GST. The identity of the purchaser was never disclosed to Mr Phillips and the sale never proceeded.
13Mr Phillips confirms that the Oakbridge Agreement was entered into on 9 July 2021, that it is a conditional “Option to Purchase” and that its details are “commercial in confidence”. He continues: “At present it is not known by anyone whether or when the conditions for a purchase of the Property as set out in the Option to Purchase will occur”.
14The lengthy affidavits sworn by each of the applicants in response to Mr Phillips’ affidavit on behalf, the applicants variously:
(a) deny that the applicants said they could sell the Property for more than $8 million by advertising it;
(b) refer at length to a meeting in about early 2015 involving the applicants and Mr Phillips (among others), during which the applicants discussed that they would be responsible for engaging with the Macedon Ranges Shire Council, obtaining town planning approvals and working with the Victorian Planning Authority to help the respondent obtain the desired rezoning of the Property;
(c) deny that there was any discussion at the meeting about the applicants being responsible for selling the Property, noting that neither of the applicants is an estate agent;
(d) confirm that Mr Phillips is an estate agent;
(e) set out over several pages the work performed by the applicants in relation to the planning and zoning of the Property including lengthy extracts of emails; and
(f) state that on 2 March 2022, the applicants’ solicitors sent an open letter to the respondent’s solicitors proffering a signed confidentiality undertaking in favour of the respondent in respect of the Oakbridge Agreement, which was not accepted.
15The applicants seek an order for preliminary discovery in respect of the Oakbridge Agreement and correspondence and other documents passing between the respondent (including its servants, agents and employees) and Oakbridge (including its servants and agents or employees) in relation to the payment of any money under the Oakbridge Agreement or the applicants.
Parties’ submissions
16The applicants commence their submissions with a summary of the general principles of r32.05 of the Rules, which are not materially in dispute. They are conveniently encapsulated in a passage from the decision of Schmidt v Won [1998] 3 VR 435 at 445, quoted by Derham AsJ in Pandolfo v Finadri [2018] VSC 211at [17] and the applicants’ submissions as follows (citations omitted):
“The rule… should be construed benevolently because its intention was both to assist claimants without sufficient precise information to launch an action and to prevent the bringing of speculative suits. Applications, however, must not be based upon… flimsy foundations as will not satisfy the requirement that ‘reasonable cause’ should be shown… That is not to say, however, that some form of ‘fishing’ enquiry is not justified under the rule; indeed it is the very purpose of the rule to permit an enquiry of this kind, if the required conditions are made out.”
17The only issue of substance in this application is whether or not the applicants have shown a “reasonable cause”, that is (in the words of r32.05(a)), whether or not “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”. As the applicants have also submitted, the authorities establish that “reasonable cause to believe” requires that an inclination of the mind towards assenting to, rather than rejecting, a proposition, must be established by evidence. Further, the use of the word “may” suggests that the applicants’ belief does not have to amount to a firm view that there is a right to relief.
18The applicants submit that it is clear that the applicants have reasonable cause to believe that they may have an arguable cause of action against the respondent, and that the Oakbridge Agreement may enliven the respondent’s obligation to pay a fee under the Agreement, or compensation for the work performed by the applicants at the request of the respondent. The applicants further submitted that the evidence establishes that they have reasonable cause to believe that the respondent has communicated with Oakbridge about money under the Oakbridge Agreement.
19Under the heading “No Reasonable Cause”, the respondent submits that the Agreement does not refer to rezoning of the Property, but does oblige the applicants to advertise and market the Property with a view of selling it and to search for potential purchasers. It is not in dispute that the applicants did not handle the sales process for the Property and has never advertised the Property.
20The respondent asserts that the first applicant has attempted to portray work done by others (such as Ms Lancashire of Urban Design and Management) as his work adding (without evidence) that Ms Lancashire is paid by the respondent. More broadly, the respondent submits that the rezoning of the Property was not part of the Consultancy Services to be provided by the applicants under the Agreement, and that the applicants failed to provide evidence of any Consultancy Services carried out by them pursuant to the Agreement.
21The respondent also submits (almost in passing) that the applicants have sufficient knowledge of the Oakbridge Agreement to determine whether entry into the option under that agreement is sufficient to trigger an obligation on the respondent to pay a fee under the Agreement. This submission is without substance. In my view, the applicants can have no confidence about the true nature and effect of the obligations under the Oakbridge Agreement without considering that agreement.
22The applicants filed and served written submissions in reply running to 16 pages. Although timetabling orders made provision for written submissions in reply, these were required to be “limited to 6 pages with 1.5 line spacing and 11-point font size”. Not only do the applicants’ reply submissions significantly exceed the page limit, they are discursive and repetitive (both of the applicants’ earlier submissions and internally). They amount to little more than submissions that:
(a) the language of the Agreement is ambiguous and therefore “present many constructional choices for the Court”; and
(b) the applicants may have a causes of action for breach or repudiation of contract, estoppel by convention and restitution.
Analysis
23This is a borderline application. Despite the detailed affidavit material and prolix submissions filed on behalf of the applicants, I am left with the strong impression that the prospects of success of any proceeding that the applicants might commence based on the Agreement are poor. In particular, the discussion of applicable legal principles in the applicants’ reply submissions are sound as a matter of legal analysis, but seem to me to be largely (although not entirely) divorced from the reality of the terms of the Agreement.
24However, this is not the test. As the applicants point out in their primary submissions, they do not have to show that they have a good cause of action. Such a requirement would defeat the very object of r32.05 of the Rules. They have to show only that it is possible that they have a right to obtain relief. Further, a degree of speculation is inevitable. On the other hand, the belief about the right to obtain relief must still be reasonable and amount to more than a hunch (Bouganville Copper Ltd v RTG Mining Inc [2021] VSC 231, Mukhtar AsJ at [199])
25There is no doubt (as the applicants allege) that the Agreement is unhappily drafted and ambiguous. In particular, it is at least arguable that the elements of the Consultancy Services as defined in the Schedule to the Agreement can be read disjunctively, so that “making inquiries with local Council and other relevant authorities”, constitutes the provision of those services regardless of whether the applicants also engaged in advertising and marketing the Property with a view to sale. Similarly, it is arguable (albeit faintly) that such enquiries were sufficiently in furtherance of the “Purpose” at least as defined in the Schedule, to satisfy that element of the obligations under the Agreement. I also cannot entirely exclude the possibility of a claim in restitution as advanced in the applicants’ submissions, depending on the evidence of discussions leading up to the execution of the Agreement.
26On the other hand, the “entire agreement” provision in the Agreement (clause 31) and the clear statements in the Agreement that at least a major part of the role of the applicants was to market and sell the property and the fee being tied to that sale, all tell strongly against the putative claims. The assertion by the second applicant that at no point was it contemplated that the applicants would be responsible for selling the Property does not sit well with the plain words of the Agreement. It also seems likely (as the respondent alleges) that the time for payment of any fee that might be sustained has not yet arrived.
27But, despite significant misgivings about the merits of the alleged claims, I am satisfied on balance that the applicants have met the relatively low threshold for establishing reasonable cause to believe that they may have a right to obtain relief broadly of the kind identified in their submissions. The prospects of ultimately securing that relief may be poor but, in my judgment, the belief is more than a hunch or mere conjecture. I am also satisfied that the other elements of r32.05 are made out, essentially for the reasons stated in the applicants’ primary submissions.
28In particular, I agree that commercial confidentiality is no bar to an order, and I would generally take some persuading that the court should make confidentiality orders except in the strongest cases. Whether this is such a case is doubtful. More often than not, the parties’ common law obligations to use documents disclosed in legal proceedings only for the purposes of those proceedings is sufficient protection. However, it seems that in this case the applicants do not object to being subject to confidentiality orders, and so I will make orders accordingly.
29On costs, I accept that it is no longer the case that courts will routinely order on applications for preliminary discovery, that the costs be costs in any subsequent proceeding. Instead, courts will weigh the usual discretionary factors, including attempts before hearing to resolve the proceeding and which party was successful. However, in this case, I consider that the formerly more routine order is the most appropriate for two reasons. First, because of my misgivings about the merit of the applicants’ alleged claims. And, second, because of the applicants’ prolix submissions which, to my mind, weigh significantly against an order on costs based on outcome alone.
30I therefore propose the following orders:
1.Pursuant to r32.05 of the County Court Civil Procedure Rules 2018, the respondent is to make discovery to the applicants of the following documents in respect of the property located at 2133 Romsey Road, Romsey Victoria, being Crown Allotment 28 Section B being the whole of the land contained in Certificate of Title Volume 11400 Folio 971 (“Property”):
(a)The “Agreement” between the respondent and Oakbridge Developments Pty Ltd (ACN 121 307 668) (“Oakbridge Developments”) dated on or about 9 July 2021, which is cited as the Grounds of Claim in Caveat dealing AU582794M lodged by Jennings Law and Conveyancing on behalf of Oakbridge Developments on 16 July 2021; and
(b)all correspondence and other documents passing between the respondent (including any servant, agent or employee acting on behalf of the respondent), and Oakbridge Developments (including any servant, agent or employee acting on behalf of Oakbridge Developments) in relation to the payment of any money under the Agreement or referring to the applicants (or either of them).
2.The applicants must without the prior written consent of the respondent or its solicitors, or further order:
(a)not disclose or permit to be disclosed the contents of any of the documents produced in consequence of these orders (“the documents”) other than in the following circumstances:
(i)to staff employed by the applicants, the applicant’s legal advisors, the court, or if required by law to do so;
(ii)using the documents or information contained therein for the purposes of commencing and continuing legal proceedings against the respondent;
(b)not copy the documents other than as is necessary for the conduct of legal proceedings referred to in subparagraph 2(a)(ii) above;
(c)store the documents and any copies securely to prevent them being disclosed other than to those people to whom disclosure is permitted under this order; and
(d)destroy any copy or copies of the documents in its possession within 21 days of receiving a request in writing following the final determination of any proceeding between the parties arising from the documents (including for the avoidance of doubt any appeal and/or costs dispute).
3.The costs of and incidental to the proceeding are the costs of any proceeding commenced by the applicants against the respondent, but if no such proceeding is commenced, each party will bear their own costs.
31As noted above, the parties will be invited by email to make further brief submissions on the precise form of these orders (including the order as to costs), with the final orders to be decided on the papers.
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Certificate
I certify that these 10 pages are a true copy of the ruling of His Honour Judge Woodward delivered on 7 April 2022.
Dated: 7 April 2022
Claire Findlay
Associate to His Honour Judge Woodward
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