Asahi Beverages Pty Ltd v RFGA Management Pty Ltd

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE
COMMERCIAL COURT

S CI 2018 00968

ASAHI BEVERAGES PTY LTD (ACN 004 243 994)	Applicant
v
RFGA MANAGEMENT PTY LTD (ACN 071 765 609)	Respondent

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JUDGE:	Derham AsJ
WHERE HELD:	Melbourne
DATE OF HEARING:	14 May 2018
DATE OF JUDGMENT:	12 October 2018
CASE MAY BE CITED AS:	Asahi Beverages Pty Ltd v RFGA Management Pty Ltd
MEDIUM NEUTRAL CITATION:	[2018] VSC 606

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PRACTICE AND PROCEDURE – Preliminary discovery – Whether reasonable cause to believe that applicant has or may have right to obtain relief against respondent – Whether 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 – Whether there is reasonable cause to believe that respondent has in its 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 – Supreme Court (General Civil Procedure) Rules 2015, r 32.05.

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APPEARANCES:	Counsel	Solicitors
For the Applicant	Ms A M Charak	Gilbert + Tobin
For the Respondent	Mr P H Wallis	Norton Rose Fulbright Australia

TABLE OF CONTENTS

Introduction......................................................................................................................................... 1

Summary of conclusion.................................................................................................................... 1

Affidavits............................................................................................................................................. 1

Evidence advanced by the applicant.............................................................................................. 2

Evidence advanced by respondent................................................................................................. 7

Applicable Law................................................................................................................................... 9

Objections to evidence.................................................................................................................... 17

Submissions and consideration.................................................................................................... 19

Rule 32.05(a) - reasonable belief that there is a right to obtain relief.................................. 20
Submissions........................................................................................................................ 20
Consideration..................................................................................................................... 25

Rule 32.05(b) - the making of all reasonable enquiries......................................................... 29
Submissions........................................................................................................................ 29
Consideration..................................................................................................................... 32

Rule 32.05(c) - reasonable cause to believe that the respondent has or is likely to have had any document in its possession 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.............................................................................................................. 35
Submissions........................................................................................................................ 35
Consideration..................................................................................................................... 37

Discretion..................................................................................................................................... 38
Submissions........................................................................................................................ 38
Consideration..................................................................................................................... 39

Conclusion......................................................................................................................................... 40

HIS HONOUR:

Introduction

By summons filed 19 March 2018 the applicant seeks an order for preliminary discovery from the respondent (the respondent) pursuant to r 32.05 of the Supreme Court (General Civil Procedure) Rules 2015 (Rules).

The documents sought in the application fall into two broad categories:

(a) The first category is described as follows:

beverage purchase records of all Gloria Jeans stores for the calendar years 2014 and 2015 including full details of all product, including but not limited to Coca Cola Amatil (CCA) Carbonated PET, ordered by the respondent and its franchisees from CCA in the calendar years 2014 and 2015;

(b) The second category is as follows:

any documents, including emails, memoranda, file notes or other communications (both internal and external) which record or evidence:
(i)representations made by the respondent to the applicant in relation to the Distribution Services Supply Agreement dated December 2015 between the respondent, the applicant and Jireh International Pty Ltd (Jireh) ( Supply Agreement); and
(ii)negotiations between the respondent and the applicant in relation to the Agreement (Requested Documents).

Summary of conclusion

For the reasons set forth below I have reached the conclusion that on the present state of the evidence, the applicant has not satisfied the prerequisites for the making of an order for preliminary discovery in relation to either category of the requested documents.

Affidavits

The applicant relies on the affidavit of its solicitor, Janet Mary Vivienne Whiting sworn on 16 March 2018 (Whiting affidavit) in support of its application. The respondent relies on two affidavits of its solicitors, the first of Mark Dylan Schneider sworn on 17 April 2018 (Schneider affidavit) and the second of Joshua Henderson affirmed on 30 April 2018 (Henderson affidavit).

Evidence advanced by the applicant

The applicant was known as Schweppes Australia Pty Limited from 27 January 2009 until 4 October 2017. On 5 October 2017 it changed its name to Asahi Beverages Pty Ltd.[1] The applicant is a beverage company which produces and supplies beverages in Australia and New Zealand.[2] The respondent is a subsidiary of a global food and beverage company that owns a variety of large franchise chains across Australia, including Gloria Jeans Coffee (GJC).[3]
[1]Whiting affidavit, [7].
[2]Ibid [6].
[3]Ibid [8].

In early November 2015 the respondent approached the applicant with an invitation to tender for a distribution contract with the respondent.[4] On 5 November 2015, Mr Jason Bailey of the respondent emailed Mr Brad Jones of the applicant noting that due to an issue with CCA an opportunity for the applicant had arisen (the Bailey email). The email requested that Mr Jones provide a pricing and range structure ‘that best reflects the below offered products through CCA’.[5] The email then included a table setting out the Carton Usage Per Annum for four types of products offered by CCA. The total number of cartons listed in the email is 172,900 per annum (volume representation). Ms Whiting states that she is instructed by Mr Hertz, Internal Legal Counsel for the applicant, that the applicant understood this to mean that the respondent purchased 172,900 cases of beverage per year from CCA.[6]
[4]Ibid [10].
[5]Ibid [11]; Exhibit JMW-2 to the Whiting affidavit.
[6]Whiting affidavit, [12].

In December 2015, the applicant entered into the aforementioned Supply Agreement with the respondent and Jireh. Ms Whiting states that she understands that Jireh owns the ‘System’, which is defined in the Supply Agreement to mean the proprietary rights in the relevant intellectual property and the exclusive right to nominate distributors to supply, deliver and distribute products for ultimate use with or sale from the retail outlets covered by the Supply Agreement. The recitals to the Agreement also state that Jireh has appointed the respondent to manage the System on its behalf.[7]
[7]Ibid [14]; Exhibit JMW-3 to the Whiting affidavit.

The Supply Agreement specifies the commencement date as Monday, 14 December 2015 and continues until 14 December 2018 or when 400,000 cases of beverage have been distributed by the applicant to the outlets covered by the Supply Agreement, whichever is the later.[8] The Supply Agreement also provides for the applicant to pay the respondent the sum of $681,818.18, plus GST, as a Distribution Rights Fee and a sum of $1,000,000.00 exclusive of GST as a Promotional and Sponsorship Support Fee.[9] These amounts were paid by the applicant in or around December 2015.
[8]Whiting affidavit, [15]; Exhibit JMW-3 to the Whiting affidavit, cl 3, items 7, 14 of the Schedule.
[9]Whiting affidavit, [15]; Exhibit JMW-3 to the Whiting affidavit, items 10, 15 of the Schedule.

Under the Supply Agreement, the applicant is appointed to supply all pre-packaged non-alcoholic drinks[10] to the respondent and Jireh on an exclusive basis for the term of the Agreement, meaning that the respondent and Jireh must purchase their entire requirement of such drinks during the term and must use their best endeavours to ensure their Franchisees do the same.[11]
[10]There is a definition of the ‘core range’ in cl 1.1 of the Agreement which specifies the beverages the subject of the Agreement.
[11]Whiting affidavit, [15(c)]; Exhibit JMW-3 to the Whiting affidavit, cl 2.

Ms Whiting states that she is instructed by Mr Hertz that:

(a) the applicant entered into the Supply Agreement on the basis of the volume representation made by the respondent to the applicant;

(b) the applicant relied on the represented volume in calculating the volume to be purchased by the respondent under the Supply Agreement (which was discounted to 400,000 cases over a three year period rather than 172,900 cases per annum);

(c) the applicant relied on the volume representation in preparing the pricing structure for beverages under the Supply Agreement;

(d) the applicant relied on the volume representation in agreeing the amount of the Distributors Rights Fee and Promotional and Sponsorship Support Fee payable by the applicant under the Supply Agreement.

Ms Whiting is also informed by Mr Hertz that the applicant now considers that the volume representation is likely to have been false. This is because since the beginning of the Supply Agreement until 28 February 2018, the respondent had purchased only 33,361 cases of the beverages. The applicant’s sales team have calculated that if the purchases continue to occur at a similar rate, the minimum volume as stipulated by the Supply Agreement will not be reached for 24 years as opposed to the three years envisaged by the Agreement.[12]
[12]Whiting affidavit, [18]. This excludes bottled water as it was not a part of the volume representation.

Given the significant discrepancy between the actual volumes of cases purchased and the volume representation Ms Whiting believes that the applicant has reasonable cause to believe that the volume representation was false. If the volume representation was false, Ms Whiting believes that the applicant has, or may have, grounds to commence a proceeding against the respondent for misleading or deceptive conduct under s 18 of the Australian Consumer Law[13] and/or for negligent misrepresentation.[14]
[13]Competition and Consumer Act 2010 (Cth) sch 2 s 18.
[14]Whiting affidavit, [19]-[20].

Mr Hertz has told Ms Whiting, and she believes, that there have been at least two meetings between the applicant and the respondent regarding the shortfall of volume of beverages purchased under the Supply Agreement:

(a) the first meeting was in July 2017. In this meeting a PowerPoint document was either handed or presented to the respondent which set out the shortfall in the volume purchased under the Agreement as at that date, and showed that at the current rate the Agreement would continue for 24 years before the 400,000 cases has been purchased. The PowerPoint covered issues surrounding improving compliance by GJC stores with the Agreement and addressed the potential for a reimbursement of a portion of the upfront fees the applicant paid to the respondent pursuant to the Agreement.[15] Following this meeting, there was some email correspondence between Mr Scott Smith, the national sales manager – new business of the applicant, and Mr Craig Faulkner and Mr Gary Alford of the respondent seeking improved compliance by GJC stores. Mr Smith’s email included, as requested, a copy of the Bailey email and stated that the numbers provided in that email were used by the applicant to calculate the minimum volume and the structure of the applicant’s commercial offer to the respondent. Mr Faulkner and Mr Alford responded noting that it will continue to drive compliance but that it did not believe that there were any guarantees of volumes under the Agreement’;[16] and

(b) the second meeting was held on 11 December 2017. At that meeting Darren Tendler, Adam Keech, Daniel Christie and Scott Smith of the applicant met with Craig Faulkner of the respondent. Ms Whiting is instructed by Mr Hertz that at this meeting Mr Tendler highlighted to Mr Faulkner that the volume shortfall under the Agreement was of a major concern and Mr Faulkner requested a deadline of one month to review their position internally with the respondent’s management and that he would come back with a response on 11 January 2018. Mr Hertz instructs Ms Whiting that no substantive response or further information was received from the respondent following this meeting.[17]

[15]Whiting affidavit, [22]; Exhibit JMW-4 to the Whiting affidavit.

[16]Whiting affidavit, [23]; Exhibit JMW-5 to the Whiting affidavit.

[17]Whiting affidavit, [24]-[25].

As a result, the applicant engaged Gilbert + Tobin to contact the respondent directly. On 20 February 2018 Ms Whiting sent a letter to Mr Faulkner requesting the documents outlined in the application within 14 days.[18] No substantive response was received from the respondent notwithstanding a follow up email on 5 March 2018 and a further email on 8 March 2018 extending the time for a response to 9 March 2018.[19]
[18]Ibid [26]; Exhibit JMW-6 to the Whiting affidavit.
[19]Whiting affidavit, [27].

On 13 March 2018 Norton Rose Fulbright advised Gilbert + Tobin that it acted for the respondent and was seeking instructions. Norton Rose Fulbright wrote to Gilbert + Tobin on 14 March 2018 saying, amongst other things, that it would receive a substantive response to its 20 February 2018 letter by 21 March 2018 and that the applicant would suffer no prejudice in waiting until that time before determining whether to file an application in this Court. The letter also confirmed that Norton Rose Fulbright was instructed to accept service on behalf of the respondent if it did issue proceedings.[20] The applicant did not wait. On 19 March 2018 this application for preliminary discovery was filed.
[20]Ibid [30]; Exhibit JMW-9 to the Whiting affidavit.

The hearing of the application came before me on 19 April 2018. The respondent applied for an adjournment to enable it to make more complete enquiries concerning the documents sought by the applicant. The applicant opposed the adjournment. As there was no urgency attending to the application and the fact that there was no real prejudice to the applicant, save for a short delay to the final hearing and the costs of that day, the matter was adjourned and further directions made as to the filing of any further affidavit material or submissions. The matter came back before me on 14 May 2018.

Ms Whiting gives evidence that the documents sought to be discovered comprised business records of the respondent and that it is inconceivable that they would not be in its possession.

Ms Whiting also swears that the documents requested will reveal the actual volume purchased by the respondent from CCA in the two years before the Supply Agreement. The applicant would then be able to compare this information with the volume representation in order to determine whether it was accurate. She says that without the documents, she believes that it is not possible for the applicant to know whether the volume representation was false.

Ms Whiting also states that the documents requested also include documents that would record or evidence representations and negotiation relating to the Supply Agreement . Those documents would further assist the applicant in making a decision as to whether to commence a proceeding against the respondent, to the extent that they provide further evidence that the volume representation was made, that it was false and that the respondent knew or ought to have known that it was false. Ms Whiting goes on to state that without the documents requested it is not possible for her to advise the applicant whether it should decide to commence a proceeding because she does not currently know whether the volume representation was false, nor what the respondent’s knowledge was in relation to it at the time it was made.

Evidence advanced by respondent

The evidence submitted by the respondent shows that the applicants evidence is, arguably, selective. The respondent purchased GJC in December 2014 and documents relating to the Bailey email predate that acquisition. GJC is a franchise system of café style outlets that sell beverages and sweet and savoury food. As at March 2014 there were approximately 400 GJC stores. As at November 2015 there were about 342 stores.

In early 2014 a negotiation process between the applicant, CCA and GJC took place for the right to obtain exclusive supply rights of pre-packaged beverages to the GJC network of stores. The tender process involved the applicant and CCA conducting its own trials within GJC stores in June and July 2014. In approximately September 2014 GJC notified the applicant that it selected CCA to supply beverages to the GJC network. The events referred to in the Whiting affidavit occurred after this competitive negotiation process between the applicant and CCA.

The respondent’s solicitors’ evidence, on information and belief from Mr Bailey, the author of the Bailey email, was as follows:[21]
[21]Schneider affidavit, [13]; Henderson affidavit, [7].

(a) the volume estimates in the ‘Carton Usage PA’ column of the Bailey email were adopted from the volume estimates in a proposal submitted by CCA to GJC in August 2014 (CCA proposal);

(b) the volume estimates in the CCA proposal were made by CCA on the basis of a two week trial it conducted in June 2014 in four GJC stores. The applicant also conducted a two week trial in the same four GJC stores as a part of a competitive negotiation process that took place in 2014 between GJC and each of CCA and the applicant for the exclusive right to supply beverages to the GJC network of stores. For the purpose of the trial, the applicant submitted to GJC a ‘GJC Trial Site Implementation Summary’ document showing the refrigeration and other equipment to be installed, the products to be trialled and the stores at which the trial was to be conducted (Sylvania, Bankstown, Chullora and Baulkham Hills);[22]
[22]Exhibit JH-1 to the Henderson affidavit, 73-9.

(c) prior to the respondent entering into the Supply Agreement , the GJC network of stores did not have any exclusive beverage purchasing agreement in place with CCA, or any other supplier of beverages (other than water) and GJC stores purchased their beverages from a range of suppliers. CCA beverage purchase records could not give any reliable indication of total beverage purchases across the GJC network either in 2014 or 2015 because before 14 December 2015 individual GJC franchisees and company stores were not obliged to purchase beverages solely from CCA;

(d) following the Bailey email, the respondent and applicant engaged in negotiations before executing the Supply Agreement on 11 December 2015. The negotiations included the preparation and exchange of numerous drafts of the Agreement;

(e) Mr Bailey conducted these negotiations on behalf of the respondent with some assistance from Mr Gary Alford, the then Chief Executive Officer, Commercial Division, of the respondent. Mr Alford is no longer employed by the respondent;

(f) the negotiations included that the applicant submit a written proposal to the respondent on 9 November 2015.[23] That proposal expressly stated that the applicant was open to reviewing the total offer under certain identified circumstances, including the provision by the respondent of a ‘volume guarantee’;
[23]Exhibit MDS-4 to the Schneider affidavit.

(g) in a subsequent proposal dated 11 November 2015, the applicant proposed that the term of any agreement be ‘three years or a $400,000 case volume commitment whichever occurs last’;[24]

(h) at no time during the negotiations did Mr Bailey, or anyone else acting on behalf of the respondent, represent to the applicant that the volume figures in the Bailey email were actual historical volumes that the respondent had purchased from CCA or any other suppliers in any 12 month period;

(i) throughout the course of the negotiations, Mr Bailey believed that the volume figures in the Bailey email were a reasonable estimate of the future total sales of beverages that could be achieved across the GJC network of stores in a 12 month period. This belief was based upon the two week trial undertaken by CCA, and sales in comparable café style businesses owned by the respondent.

[24]Exhibit MDS-5 to the Schneider affidavit.

Applicable Law

Rule 32.05 of the Rules provides:

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).

There are thus three matters the applicant must satisfy, the last having two elements:

(a) there is reasonable cause to believe the applicant has or may have the right to obtain relief in the Court against the respondent;

(b) after making all reasonable enquiries, the applicant has not sufficient information to enable the applicant to decide whether to commence a proceeding against the respondent to obtain that relief; and

(c) there is reasonable cause to believe that the respondent has or is likely to have had in its possession any document relating to the question whether the applicant has the right to obtain that relief and that inspection of the document by the applicant would assist the applicant to make the decision (whether to commence proceedings to obtain that relief).

In Schmidt v Won,[25] Ormiston JA, with whom Charles and Batt JJA agreed, explained the purpose of and the Court’s approach to the rule (citations omitted):

The rule, first introduced in 1986, 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 “mere hunches” or such flimsy foundations as will not satisfy the requirement that “reasonable cause” should be shown for the necessary belief. 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.

[25][1998] 3 VR 435, 445.

In Beston Parks Management Pty Ltd v Sexton (‘Beston Parks’),[26] Hollingworth J said in relation to the application of r 32.05:[27]

The following general principles are not controversial. The rule should be construed benevolently, because it is intended to assist an applicant who does not have sufficient, precise information to commence a proceeding, and to prevent the bringing of speculative suits. It must be given the fullest scope its language will reasonably allow.
It is not necessary to show precisely what cause of action the applicant may have, merely that the facts are such from which it may reasonably be believed that the applicant may have a right to obtain relief. The word ‘may’ indicates that the putative belief does not have to amount to a firm view that there is a right to relief. Although some ‘fishing’ enquiry is permitted, a ‘flimsy foundation’ or ‘mere hunch’ will not be sufficient to constitute reasonable cause. An applicant does not have to prove that there will be, only that there may be, a real benefit from making the order. The benefit may be the drawing of an appropriate pleading with proper particulars and the avoidance of substantial amendment after discovery, or, alternatively, the possible avoidance of unnecessary and fruitless litigation.

[26][2008] VSC 392.

[27]Ibid [52]–[53] (citations omitted).

In St George Bank Ltd v Rabo Australia Ltd (St George),[28] which concerned the [then] relevantly identical Federal Court Rule, O 15A r 6, Hely J observed that at its lowest level, sub-para (a) requires that there be reason to believe that the applicant may have the right to obtain relief in this Court. On the facts of that case, Hely J noted at [29] that:

… Whilst St George does not need to go so far as to establish a prima facie case, St George does have to establish that there is reasonable cause to believe that each of the necessary elements of a potential cause of action exists. The evidence must incline the mind to the view that Rabo and/or Rabo CF deliberately withheld material information from St George. The threshold test under subparagraph (a) may be set at quite a low level … but, as I have said earlier, it is not sufficient to point to a mere possibility that St George may have a claim, and that claim is completely dependent on the as yet unknown facts.

[28](2004) 211 ALR 147, 155 [28].

In St George[29] Hely J noted that whilst uncertainty as to only one element of a cause of action might be compatible with the ‘reasonable cause to believe’ required by sub-para (a), uncertainty as to a number of such elements may be sufficient to undermine the reasonableness of the cause to believe. Hely J (at [26], citing John Holland Services Pty Ltd v Terranora Group Management Pty Ltd)[30] said ‘[i]f there is no reasonable cause to believe that one of the necessary elements of a potential cause of action exists, that would dispose of the application insofar as it is based on that cause of action’.[31]
[29]Ibid 154 [26(e)].
[30][2004] FCA 679, [73] (Emmett J).
[31]St George (2004) 211 ALR 147, 154 [26(d)].

An applicant does not have to prove that there will be a real benefit in making the order, but simply that there may be some benefit. The benefit may be the preparation of an appropriate pleading and the avoidance of substantial amendments following discovery or, alternatively, the avoidance of unnecessary litigation.[32]
[32]Beston Parks [2008] VSC 392, [53]; see also Australian Football League v Stadium Operations Ltd [2009] VSC 264, [3] (Warren CJ) (‘AFL v SOL’).

In the recent decision of Alex Fraser Pty Ltd v Minister for Planning,[33] Riordan J observed in relation to the first prerequisite (r 32.05(a)) that it:
[33][2018] VSC 391.

(a) does not direct attention to any belief of the applicant. Rather it requires reasonable cause for a hypothetical belief;[34]
[34]Ibid [47] citing Telstra Corp Ltd v Minister for Broadband, Communications and the Digital Economy (2008) 166 FCR 64, 79 [59] (French, Weinberg and Greenwood JJ).

(b) the authorities that draw the distinction between a reasonable cause to believe and a ’suspicion’, ‘mere hunch’ or ‘conjecture’ are merely emphasising that a belief is not sufficient — there must be reasonable cause for the belief;[35]

(c) the critical element of the test is reasonableness rather than whether the circumstances would cause a belief as opposed to a suspicion or some other hypothetical state of mind;[36]

(d) a reasonable suspicion, conjecture or assertion may each fall within the ambit of a reasonable belief;[37]

[35][2018] VSC 391, [46]-[49], citing, eg, Schmidt v Won [1998] 3 VR 435, 445 (Ormiston JA with whom Charles and Batt JJA agreed).

[36][2018] VSC 391, [51].

[37]Ibid [52].

His Honour then said:[38]

The proper test is revealed by the words of the r 32.05(a). What is required is the following:
(i)there is cause for a belief in the relevant proposition — a belief being an inclination of the mind towards assenting to a proposition.
(ii)the relevant proposition is (on the second limb) that there ‘may be the right’ to relevant relief. The use of the word ‘may’ bespeaks possibility. Given the purpose of the Rule is to advance the administration of justice, r 32.05 should be interpreted as requiring a real (as opposed to a fanciful or remote possibility). However, even a real possibility may be highly improbable.
(iii)the test is qualified by a requirement that the cause for the belief in the proposition must be reasonable. It is trite to say that what is reasonable in a particular case will depend upon all of the circumstances of the case.

[38]Ibid [53] (footnotes omitted).

For these reasons, Riordan J concluded that the jurisdictional threshold under r 32.05 is low, which is consistent with the following:[39]
[39]Ibid [54] (footnotes omitted).

(a)The primary purpose of the rule is to advance the administration of justice by allowing a prospective plaintiff to make an informed decision on proper material about whether or not to bring a claim. The importance of this rule to the advancement of the administration of justice has been accentuated by the certification requirements on filing of civil proceedings under Part 4.1 of the Civil Procedure Act 2010. It is well established that the rule should be interpreted benevolently.
(b)It would be incongruous if the jurisdiction to order preliminary discovery could not be enlivened because of the lack of evidence, which is the very cause of the application. The purpose of the Rule is to allow an applicant, who has inadequate proof of any cause of action, to discover whether or not evidence is available that will impact (positively or negatively) on the possible proceeding.
(c)Although the jurisdictional threshold is low, its satisfaction only empowers the Court to exercise its discretion. In the exercise of its discretion, the Court can control any excesses; and assess whether there may be real benefit in making the order. It will be entitled to weigh the full range of relevant matters in determining whether an order is in the interests of justice – including the following:
(i)The level of inconvenience and cost that will be caused to the respondent.
(ii)Whether discovery may cause commercial or other damage to the respondent.

(iii) Whether the respondent will be reimbursed for its costs.
(iv)Whether an order would be inutile because the documents are privileged.
(v)The prospect of the documents sought providing the information required by the applicant.
(vi)Whether the fact that there is no real prospect of success is apparent or discovery will not serve any useful purpose. However, delving extensively in the merits of the existence of a possible cause of action will usually not be appropriate.

Having regard to these authorities, and others, the principles relevant to the first prerequisite may be summarised as follows:

(a) the applicant is not required to show it that has a prima facie case that it has a right to relief;[40]
[40]Plzen Pty Ltd v P&O Wharf Management Pty Ltd [2007] VSC 318, [17(e)].

(b) it is also not necessary to show precisely what cause of action the applicant may have; such a requirement would defeat the object of the rule;[41]
[41]Schmidt v Won [1998] 3 VR 435, 465; Beston Parks [2008] VSC 392, [53]; United EnergyLtd v Energy Risk Management Pty Ltd [1998] VSC 133, [32] (‘United Energy’).

(c) rather, it merely needs be shown that the facts are such that it may reasonably be believed that the applicant may have a right to obtain relief;[42]
[42]Schmidt v Won [1998] 3 VR 435, 465; Beston Parks [2008] VSC 392, [53].

(d) the test for determining whether the applicant has ‘reasonable cause to believe’ is an objective test;[43]

(e) the word ‘may’ indicates that the applicant’s belief does not have to amount to a firm view that there is a right to relief;[44]

(f) delving extensively into the merits of the existence of a possible cause of action will usually not be appropriate.[45]

[43]Plzen Pty Ltd v P&O Wharf Management Pty Ltd [2007] VSC 318, [17(c)].

[44]Beston Parks [2008] VSC 392, [53].

[45]Telstra Corp Ltd v Minister for Broadband, Communications and the Digital Economy (2008) 166 FCR 64, 78 [53] (French, Weinberg and Greenwood JJ); Alex Fraser Pty Ltd v Minister for Planning [2018] VSC 391, [54(c)].

The second prerequisite is governed by the following principles:

(a) the onus is on the plaintiffs to make it appear to the Court that, having made reasonable inquiries, they are unable to obtain sufficient information to decide whether or not to commence proceedings;[46]
[46]Morton v Nylex Ltd [2007] NSWSC 562, [33].

(b) that the applicant first make all reasonable inquiries prescribes an objective assessment of whether an applicant has reasonably exhausted alternative sources of information and having done so demonstrates that they have insufficient information to enable a decision to be made to commence a proceeding. The applicant must disclose what information they already have to make a decision whether to commence a proceeding in court and identify what information is lacking;[47]
[47]Kallitsas v Emerson Finance Pty Ltd [2008] VSC 180, [26].

(c) unless the applicant is lacking something reasonably necessary to make a decision whether to institute proceedings, it is not entitled to preliminary discovery;[48]
[48]Morton v Nylex Ltd [2007] NSWSC 562, [33].

(d) the requirement is primarily concerned with whether, as an objective fact, an applicant has sufficient information to determine whether to commence proceedings.[49] The fact that an applicant for preliminary discovery already has enough evidence to establish a prima facie case against a proposed defendant does not mean that the applicant has sufficient information to enable it to decide whether to commence a proceeding.[50] An applicant in that position may nevertheless ‘need information to know whether the cost and risk of litigation is worthwhile.’[51] For example, an applicant with sufficient information to plead a prima facie case may prudently wish to obtain preliminary discovery about ‘what defences are available to the respondent and the possible strength of those defences, or to determine the extent of the respondent’s breach and the likely quantum of any damages award’.[52]
[49]Beston Parks [2008] VSC 392, [55].
[50]B J Bearings Pty Ltd v Whitehead [2016] VSC 44, [19(2)].
[51]Optiver Australia Pty Ltd v Tibra Trading Pty Ltd (2008) 169 FCR 435, 443; B J Bearings Pty Ltd v Whitehead [2016] VSC 44, [19(2)].
[52]St George Bank Ltd v Rabo Australia Ltd (2004) 211 ALR 147, 154 [26(f)] (citations omitted); B J Bearings Pty Ltd v Whitehead [2016] VSC 44, [19(2)].

(e) it is for the Court to determine whether an applicant has sufficient information available to it; the applicant’s own assertion that it does not is neither determinative nor strictly necessary;[53]
[53]Beston Parks [2008] VSC 392, [81].

(f) accordingly, an application cannot succeed if the applicant has sufficient information (objectively assessed) but is unable to determine whether to commence proceedings due to subjective factors, for example, an overly cautious nature;[54]
[54]Ibid [55].

(g) courts have, however, approved litigants taking a cautious, conservative or prudent approach by applying for preliminary discovery under the rule.[55] This approach is consistent with the policy underlying the rule.[56] It is also consistent with the policy underlying the Civil Procedure Act 2010 (Vic) (‘CPA’) generally, and the ‘proper basis certification’ requirements in s 42 of the CPA in particular;[57]

(h) if there is evidence that an applicant has in fact decided to commence proceedings, the application must fail.[58] In determining whether an applicant has in fact already decided to commence a proceeding, irrespective of the outcome of the application, the Court should not give too much weight to posturing in correspondence prior to the making of the application, particularly correspondence alleging the existence of a strong case but nevertheless seeking preliminary discovery by letter prior to making a formal application to the Court;[59]

(i) what constitutes ‘reasonable inquiries’ is a question of fact, to be considered in all the circumstances of the particular case;[60]

[55]AFL v SOL [2009] VSC 264, [59]–[61]; United Energy [1998] VSC 133, [103].

[56]AFL v SOL [2009] VSC 264, [61]; B J Bearings Pty Ltd v Whitehead [2016] VSC 44, [19(3)].

[57]B J Bearings Pty Ltd v Whitehead [2016] VSC 44, [19(3)].

[58]Beston Parks [2008] VSC 392, [56].

[59]AFL v SOL [2009] VSC 264, [59]–[62]; B J Bearings Pty Ltd v Whitehead [2016] VSC 44, [19(4)].

[60]Hatfield v TCN Channel Nine Pty Ltd (2010) 77 NSWLR 506, 528 [86]; B J Bearings Pty Ltd v Whitehead [2016] VSC 44, [19(5)].

For the purpose of the third prerequisite:

(a) ‘possession’ means ‘possession, custody or power’;[61]

(b) there must be a reasonable cause to believe that the respondent ‘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’. This requires the identification of documents that relate to the question whether the applicant has the right to obtain the relief; and

(c) that inspection of the document by the applicant would assist the applicant to make the decision. This involves a consideration of what the applicant lacks that is reasonably necessary for it to make a decision whether to institute proceedings. That involves a consideration of what the applicant has to advance its right to relief.

[61]Rules r 32.05.

Where each element of the rule is satisfied, the Court will ordinarily exercise its discretion in favour of the applicant.[62]
[62]AFL v SOL [2009] VSC 264, [76].

Objections to evidence

Counsel for the respondent made two objections to the admissibility of parts of the Whiting affidavit:

(a) first, to the last sentence of para [12] where Ms Whiting states in relation to the volume representation that she is ‘instructed by Mr Hertz that this was understood by the Applicant to mean that the Respondent purchased 172,900 cases of beverage per year from CCA’;

(b) second, to all of para [17] where Ms Whiting states that she is instructed by Mr Hertz that:

(i) the applicant entered into the Supply Agreement on the basis of the volume representation made by the respondent to the applicant;

(ii) the applicant relied on the represented volume of 172,900 cases per annum in calculating the volume to be purchased by the respondent under the Supply Agreement (which was discounted to 400,000 cases over a three-year period, rather than 172,900 cases per annum);

(iii) the applicant relied on the volume representation in preparing the pricing structure for beverages under the Supply Agreement; and

(iv)the applicant relied on the volume representation in agreeing the amount of the Distributor Rights Fee and Promotional and Sponsorship Support Fee payable by the applicant to the respondent under the Supply Agreement.

An application for preliminary discovery is interlocutory in nature.[63] In order for the evidence to be admissible in an interlocutory proceeding under s 75 of the Evidence Act 2008 (Vic) (‘Evidence Act’), or under r 43.03 of the Rules, the plaintiff must also adduce evidence of the ‘source’ of the representation or ‘grounds’ of the information and belief. The respondent submitted that the requirements of s 75 of the Evidence Act were not satisfied because Ms Whiting failed to adduce evidence of the source of the information because, according to the evidence of the solicitor for the respondent, Mr Hertz only joined the respondent as its Corporate Counsel in February 2016.[64] After argument and an application for an adjournment in order for the applicant to provide evidence of the source of the information, the respondent agreed to withdraw the objection and to make submissions as to the weight to be given to the evidence.
[63]FAI Home Security Pty Ltd v Price [1999] VSC 274 (Byrne J); Liu v Age Co Ltd [2010] NSWSC 1176 (McCallum J); Herald & Weekly Times Ltd v The Guide Dog Owners’ & Friends’ Association [1990] VR 451, 455 (O’Bryan J), 461 (Marks J). Murphy J agreed generally with the decisions of both O’Bryan J and Marks J; Australian Gift and Homewares Association Ltd v Melbourne Convention and Exhibition Trust (Ruling No 1) [2014] VSC 481, [61].
[64]Schneider affidavit; Exhibit MDS-6 to the Schneider affidavit.

Submissions and consideration

At the outset the respondent attacked the application root and branch. It produced a chronology based on the evidence in the Schneider and Henderson affidavits, and particularly identifying a long history of dealings between the parties, none of which was referred to by the applicant. The overall points made by the respondent were that:

(a) the applicant has presented the Court with an incomplete and misleading chronology of events in relation to the negotiations that led to the execution of the Supply Agreement;

(b) in light of the more fulsome chronology of the above negotiations that the respondent has put before the Court, and the express terms of the Supply Agreement, there is no reasonable basis for any belief on the part of the applicant that it may have the right to obtain relief in the Court from the respondent;

(c) the applicant has not made all reasonable enquiries in relation to the subject matter of the proceeding and, in fact, has plainly not even properly reviewed its own business records for the purpose of locating documents relevant to its foreshadowed claim against the respondent; and

(d) the documents sought by the application, to the extent that they are not already within the applicant’s possession, are unlikely to assist it to make a decision whether to commence proceedings against the respondent.

Rule 32.05(a) - reasonable belief that there is a right to obtain relief
Submissions

The applicant submitted that the Whiting affidavit establishes evidence of a belief by the applicant that, in all the circumstances, the volume representation in the Bailey email, in conjunction with the statement from the respondent that its negotiations with CCA had failed, indicates to a reasonable reader that those figures were the CCA figures. Counsel submitted that the Bailey email could reasonably reflect the respondent’s dissatisfaction with CCA as a supplier.

Ms Whiting, based on Mr Hertz’s instructions, deposes to the applicant entering into the Supply Agreement on the basis of the representations made in the Bailey email and relying on the represented volume when calculating the volume to be purchased and preparing the pricing structure for beverages under the Supply Agreement. The applicant also claims to have relied on the representations when deciding on the amount of the Distributor Rights Fee and Promotional and Sponsorship Support fee payable by the applicant to the respondent.

The applicant furthermore submitted that given the discrepancy between the actual volumes purchased since the start of the Supply Agreement and the volume representation, it has reasonable cause to believe that the representation was false, and if this were the case, the applicant has or may have grounds to commence a proceeding against the respondent for misleading and deceptive conduct under s 18 of the Australia Consumer Law, and/or for negligent misrepresentation.

The respondent initially brought to the Court’s attention that nobody on behalf of the applicant has given evidence that they believe they have or may have, a right to obtain relief. Counsel submitted that the Whiting affidavit does not express this belief. Nonetheless, the respondent submitted that for five different reasons the applicant has failed to overcome the first prerequisite of an application under r 32.05 of the Rules, as follows.

First, if the table in the Bailey email is taken in isolation, it is unclear whether the figures in the ‘Carton Usage PA’ column represent actual historical sales volumes, some estimate of likely future sales volumes or simply the sales volumes on which CCA had based its competing offer to the respondent .

Second, when the table in the Bailey email is viewed in the context of the email as a whole, in which the applicant was invited to make a competing offer to CCA’s offer at a late stage in the respondent’s negotiations with CCA, the more likely meaning of the figure in the ‘Carton Usage PA’ column is that they represent the sales volumes on which CCA has based its competing offer to the respondent.

Third, the figures in the Bailey email are demonstrably confusing and ambiguous. The respondent submitted that a reasonable person in the position of the applicant would have made further enquiries of the respondent as to the meaning of the figures before relying on them.

Fourth, the figures in the Bailey email were not provided to the applicant in isolation, as the applicant has sought to convey to the Court. The context was of ongoing negotiations between GJC (and subsequently the respondent after it purchased GJC in December 2014) and the applicant and CCA.[65] The negotiations between the parties took place over a long period. During this time, the applicant was provided with forecast sales figures, access to GJC stores to conduct trials, and was content to make offers for exclusive supply to the respondent without requiring any information on historical sales by the GJC network, any warranties as to the accuracy of such information or any volume guarantees with respect to future sales. The applicant was perfectly well placed to form its own view as to the likely future sales of beverages across the GJC network before submitting these offers. In the context of these negotiations, it is implausible that the applicant would not have formed such a view and relied on it in submitting its offers to the respondent, but would instead have blindly and unquestioningly fastened on the figures in the Bailey email as providing an accurate statement of actual historical sales.
[65]See Annexure 1 to RFGA Management Pty Ltd, ‘Respondent’s Submissions in Opposition to the Applicant’s Application for Preliminary Discovery’, Submission in Asahi Beverages Pty Ltd v RFGA Management Pty Ltd, S ECI 2018 00968, 11 May 2018 (‘Respondent’s Written Submissions’).

Fifth, the only evidence of reliance on the so called volume representation in the Bailey email is put forward by Ms Whiting on information and belief from Marc Hertz, Legal Counsel for the applicant. Mr Hertz is not reasonably likely to have any direct knowledge of these matters because he did not commence employment with the applicant until February 2016, two months after the Supply Agreement had been executed.[66]
[66]Schneider affidavit; Exhibit MDS-6 to the Schneider affidavit.

It is also noteworthy in this context that:

(a) the applicant has not put forward any account of the negotiations that it had with the respondent (and previously GJC) and, in particular, has not put forward any evidence (direct or indirect) from the key personnel involved in the negotiations, such as Sam Nizam, Scott Smith or Brad Jones.[67]

(b) Mr Hertz’s hearsay evidence that the applicant relied on the figures in the Bailey email in preparing the pricing structure and Distributor Rights Fee and Promotional and Sponsorship Support Fee is inconsistent with the applicant’s conduct in making similar commercial offers before and after receipt of the Bailey email, in each case without any annual sales volume guarantee.[68]

(c) Mr Hertz’s evidence is also inconsistent with the statement in the applicant’s offer made to the respondent on 9 November 2015 that the applicant would be ‘open to reviewing the total offer’ if the respondent was to provide a ‘volume guarantee’.[69]

[67]These persons are identified in the emails in Exhibit MDS-1 to the Henderson affidavit, and Brad Jones is the person to whom the Bailey email was sent and with whom Mr Bailey had discussions prior to sending the email, as referred to in the email.

[68]Compare the offer made on 11 April 2014: Exhibit JH-1 to the Henderson affidavit, 68, with the offer made on 9 November 2015 (Exhibit MDS-4 to the Schneider affidavit, 20–2).

[69]Schneider affidavit; Exhibit MDS-4 to the Schneider affidavit.

It was submitted by the respondent that it is difficult to imagine a clearer indication that the applicant well understood that its offer was not made in reliance on any representation or warranty by the respondent as to the volume of pre-packaged beverage sales in the GJC network. There is also no evidence to suggest that the applicant asked any questions or sought any assurances as to the meaning or accuracy of the figures in the Bailey email at any stage of its negotiations with the respondent.

Mr Hertz’s evidence is also inconsistent with the fact that the applicant’s in-store trial resulted in 7.03 cases of pre-packaged beverages being sold per store per week.[70] This would translate to annual sales per GJC store per year of 366 cases and total sales across the GJC network of 137,085 cases per year.[71] In presenting the results of the in‑store trials to GJC, the applicant did not suggest to GJC that the results were not indicative of the level of total sales that it thought could be achieved across the GJC network. To the contrary, when submitting the in‑store trial results, the applicant informed GJC that the results were likely to be skewed lower due to the impact of Ramadan on sales in two of the four stores that took part in the trial.[72] This prediction and data obtained by the applicant itself, would, Counsel submitted, play a crucial role in putting together its own commercial offers to the respondent.
[70]Exhibit JH-1 to the Henderson affidavit, 86–94.
[71]Calculated as 7.03 (cases) x 52 (weeks) x 375 (stores) = 137,085.
[72]Exhibit JH-1 to the Henderson affidavit, 86.

The applicant’s presentations to GJC were also heavily focussed on the various steps that the applicant could take to increase sales of pre-packaged beverages in GJC stores if it was the exclusive supplier.[73] It follows that from 18 July 2014, the applicant had its own objective data that indicated that total sales of pre-packaged beverages across the GJC network was likely to be approximately 137,000 cases per year. It is implausible that the applicant would not rely on this information in putting forward its subsequent commercial offers to the respondent.
[73]Ibid 46.

The respondent submitted that there were other commercial benefits to the applicant ‘winning’ the respondent’s business. The opportunity allowed the applicant to have its products displayed and sold in stores that otherwise would have held the stock of one of its key competitors. The respondent submitted that this advantage alone may, and in fact is likely to, have caused the applicant to submit a generous commercial offer to the respondent.

The applicant entered into the Supply Agreement after extensive negotiations between their respective legal teams, without any sales volume guarantee or warranties as to historical sales. The Supply Agreement has an express warranty to the effect that the respondent had not been induced to enter into the Agreement on the basis of any prior representations made by the respondent during negotiations.[74] The Supply Agreement also included:
[74]Exhibit JMW-1 to the Whiting affidavit, cl 37.4.

(a) a comprehensive release by the applicant in favour of the respondent from all past and future claims in connection with loss or damage caused by the respondent;[75]
[75]Whiting affidavit, [15]; Exhibit JMW-3 to the Whiting affidavit, cl 29.1.

(b) an indemnity by the applicant in favour or the respondent from all claims and losses arising from any material breach of the Supply Agreement (including any warranty) by the applicant;[76]

(c) an acknowledgement and agreement by the applicant that it had had ample opportunity prior to signing the Supply Agreement to include in it all representations and statements that had been made by the parties;[77]

(d) a statement that the Supply Agreement constitutes the entire agreement between the parties as to its subject matter and supersedes any prior representations and agreements in connection with such subject matter, if any.[78]

[76]Whiting affidavit, [15]; Exhibit JMW-3 to the Whiting affidavit, cl 30.1.10.

[77]Whiting affidavit, [15]; Exhibit JMW-3 to the Whiting affidavit, cl 37.4.

[78]Whiting affidavit, [15]; Exhibit JMW-3 to the Whiting affidavit, cl 37.13.

In the these circumstances, the respondent submitted that a person apprised of all of the material before the applicant (and now the Court) could not reasonably believe that they may have a right to obtain relief against the respondent on the basis that it had engaged in misleading or deceptive conduct, or had made a negligent misstatement, in putting the so called volume representation in the Bailey email.

Consideration

It was assumed, I think, by both parties that a claim for damages for misleading or deceptive conduct in contravention of s 18 of the Australian Consumer Law is maintainable by the applicant notwithstanding the express terms of the Supply Agreement that might purport to exclude such a claim. This is plainly correct. Whether a claim for negligent misstatement is maintainable in the face of the several exclusory provisions of the Supply Agreement was not addressed. This is no doubt explained by the proposition that it is not necessary to show precisely what cause of action the applicant may have, merely that the facts are such from which it may reasonably be believed that the applicant may have a right to obtain relief.[79]
[79]Beston Parks [2008] VSC 392, [52]-[53].

The respondent's evidence and submissions focus to a very large extent on the merits of the underlying causes of action. That is not necessary for the decision presently before the Court unless the material shows that there is no reasonable cause for the hypothetical belief that the applicant may have a right to relief. As Riordan J said in Alex Fraser Pty Ltd v Minister for Planning,[80] the critical element of the test is reasonableness rather than whether the circumstances would cause a belief as opposed to a suspicion or some other hypothetical state of mind and that a reasonable suspicion, conjecture or assertion may each fall within the ambit of a reasonable belief.
[80][2018] VSC 391.

There was no legal analysis of the elements that need to be proved to establish either the statutory cause of action or the common law tort. In the absence of the parties addressing these legal requirements, I do not see why the Court should enter into a close analysis of the law. In the circumstances here, where the applicant has identified the causes of action it may have, and contends that those causes of action may give rise to a right to relief, it is not, in my view, incumbent on the applicant to show that there is reasonable cause to believe that each of the necessary elements of a potential cause of action exists, despite some authority that supports the view that each element must be addressed.[81] That is because the jurisdictional threshold under r 32.05 is low and the cause of action for damage caused by conduct in trade or commerce that is misleading or deceptive, or likely to mislead or deceive, is well known. It can hardly be doubted that the applicant has suffered damage by paying substantial up-front fees, calculated on the basis of a certain level of turnover of product.
[81]See St George (2004) 211 ALR 147, 155 [28].

The account of the parties’ evidence and submissions given above shows that they have proceeded on the footing that a close analysis of the elements of the causes of action was not called for in order to meet the test of a ‘reasonable cause to believe that the applicant may have a right to obtain relief in the Court’ from the respondent. The focus of both parties was on the facts and, particularly whether it was reasonable for the applicant to believe that the ‘Carton Usage PA’ column in the Bailey email constituted, or could constitute:

(a) a representation of present belief (as to a future matter) sufficient to constitute the respondent being found to have engaged in conduct, in trade or commerce, that is misleading or deceptive, or likely to mislead or deceive in contravention of s 18 of the Australian Consumer Law; or

(b) a negligent misrepresentation.

The respondent’s submissions as to whether there is ‘a reasonable cause to believe’ are adapted to whether, ultimately, on the hearing of a claim for damage brought by the applicant, the underlying cause of action might be made out. The fact that there is no persuasive evidence of any belief by any responsible person in the employ of the applicant that, for example, the applicant relied on the volume representation in entering into the Supply Agreement is not a reason for refusing the application. The applicant can get no material that bears upon that question from discovery by the respondent and does not seek to do so. It is not critical to this application that there is convincing evidence of that aspect of the claim. All that is needed is some evidence that objectively viewed provides a reasonable cause for the applicant to believe that it may have a right to relief. Once that threshold is satisfied, the strength of the particular elements of the right to relief are matters for the trial of the claim if it is brought.

The fact that Mr Hertz must himself be basing his belief on something he has been told or that he has read, even the Bailey email itself, is largely a distraction. Reliance is, of course, an essential ingredient to either cause of action. But it is sufficient for the purposes of an application for preliminary discovery that there is some evidence to support the proposition that the applicant in fact relied on the alleged conduct or representation. It would be better that the person to whom the email was sent, Mr Brad Jones, had given evidence in support of this aspect of the claim, but that, again is a matter for trial if a proceeding is commenced. What is required is a reasonable cause for a hypothetical belief, rather than requiring any actual belief. Reading the Bailey email itself is capable of providing a foundation for the making of a representation. The fact that it can, and might, be interpreted in various ways is also a matter for trial if that eventuates.

Thus the arguments advanced by the respondent that there is no reasonable cause to believe that the applicant may have a right to relief are more apt to a final hearing of any claim, and themselves may be useful to the applicant in making a decision whether to commence a proceeding. This is because:

(a) the table in the Bailey email, taken in isolation, is unclear. The figures in the ‘Carton Usage PA’ column may represent actual historical sales volumes. But they are expressed by reference to CCA products. The evidence of the respondent is that before entry into the Supply Agreement, the respondent, and its franchisees, purchased beverages of the kind the subject of the Supply Agreement from multiple sources. This must have been known to the applicant, at least at an earlier time. On the other hand, the figures in the table are an estimate of future sales volumes on which CCA had based its offer to the respondent;

(b) the fact that one might expect the applicant to have made further enquiries of the respondent as to the meaning of the figures before relying on them goes to the ultimate determination of the claim that the applicant may have against the respondent;

(c) although there were negotiations between the parties over a long period, contrary to the submissions of the respondent, these negotiations appear to have concluded by September 2014, before the respondent acquired GJC.[82] During the negotiations up to that point, the evidence, such as it is, shows that the applicant was provided with forecast sales figures, access to GJC stores to conduct trials, and made offers for exclusive supply to the respondent. This may indicate that the applicant was well placed to form its own view as to the likely future sales of beverages across the GJC network. That too is a matter for the trial of the claim the applicant may have if it is brought;
[82]This is the statement in the chronology in Annexure 1 to the Respondents’ Written Submissions.

(d) the offer made by the applicant to the respondent on 9 November 2015 that the applicant would be ‘open to reviewing the total offer’ if the respondent was to provide a ‘volume guarantee’,[83] is equivocal. It may indicate that the applicant did not rely on the Bailey email as containing representations by the respondent as to the volume of pre-packaged beverage sales in the GJC network. On the other hand, it may merely have been a part of the negotiation in an attempt to get a contractual guarantee;

(e) the fact that there is also no evidence to suggest that the applicant asked any questions or sought any assurances as to the meaning or accuracy of the figures in the Bailey email is another matter that is relevant to the trial of any claim. An application for preliminary discovery is not an occasion for an exhaustive account of all the facts that may bear on the success of a right to relief; and

(f) the presence in the Supply Agreement of an express warranty to the effect that the applicant had not been induced to enter into the Agreement on the basis of any prior representations made by the respondent during negotiations is not a bar to a claim under s 18 of the Australian Consumer Law.

[83]Exhibit MDS-4 to the Schneider affidavit.

These matters may tell against any final right to relief, but the beneficial interpretation given to r 32.05, and its cognate rules, and the fact that the intention of the rules is to assist claimants without sufficient information to launch a proceeding, shows that the threshold is low for what amounts to a reasonable cause to believe that the applicant has or may have any right to relief of the kind advanced.

Rule 32.05(b) - the making of all reasonable enquiries
Submissions

The applicant’s evidence is that:

(a) the documents sought in the first category will reveal the actual volume purchased by the respondent from CCA in the two years prior to the Supply Agreement, which would enable a comparison of that information with the figures in the Bailey email so as to determine whether the alleged volume representation was accurate;[84]

(b) the documents sought in the second category would further assist the applicant in making a decision as to whether to commence a proceeding against the respondent in that they may provide ‘further evidence’ that the alleged volume representation was made, that it was false and that the respondent knew or ought to have known that it was false.[85]

[84]Whiting affidavit, [34].

[85]Ibid [35].

The applicant submitted that it made all reasonable inquiries, namely through both informal and formal requests of the respondent. It referred to the meetings on 19 July 2017 and 11 December 2017, referred to above ([13]). The first meeting was followed by an email from Mr Scott Smith of the applicant dated 28 July 2017 referring to the 19 July 2017 meeting and forwarding a copy of the Bailey email and a response from Mr Craig Faulkner of the respondent.[86] Neither the meeting nor the email correspondence appear to be concerned with making enquiries as to matters that would assist it in deciding whether to commence a proceeding in this Court against the respondent for the relief identified.
[86]Ibid [25]; Exhibit JMW-5 to the Whiting affidavit.

It is only the formal request, by letter dated 20 February 2018, that constitutes any evidence of the enquiries made necessary to satisfy this prerequisite. I will not repeat the correspondence that followed this letter, which is referred to above in brief ([14]‑[15]).

The applicant also submitted that since issuing proceedings the respondent, by the Schneider affidavit, clarified that the volume representation was adopted from the estimates in a proposal submitted by CCA to GJC in August 2014. The applicant however contended that no explanation was given as to why the volume representation was adopted from CCA’s proposal, nor was there any evidence that the source of the figures used in the volume representation was made clear to the applicant at the time. The applicant therefore submitted that even after the respondent filed affidavit material and submissions in reply, they do not reveal the beverage purchase records for all GJC stores for the years 2014 and 2015. It submitted that based on the written submissions of the respondent filed in preparation for the hearing of the application, it is clear that the respondent resists any order that it provide any further documents to the applicant on every ground available, thus any further enquiries directly of the respondent would be futile.

The respondent submitted that the evidence concerning whether the applicant has made ‘all reasonable enquiries’ does not satisfy the requirements of r 32.05(b) for the following reasons:

(a) the evidence of the meetings with the respondent to which Ms Whiting refers indicates that they were directed at securing commercial benefits for the applicant, such as greater compliance by GJC stores with the requirements of the Supply Agreement, the addition of exclusive rights to supply bottled water to GJC stores and a refund of part of the fees that the applicant paid, rather than being directed to obtaining information from the respondent that might assist the applicant to determine whether to commence proceedings against the respondent;[87]
[87]Exhibits JMW-4 and JMW-5 to the Whiting affidavit.

(b) the evidence of the requests for documents is put forward in circumstances in which the applicant appears to misapprehend the obligation on it under r 32.05(b) as being confined to asking the respondent for information.[88] The obligation is not so confined. The applicant should, at the very least, properly review its own business records and talk to its own employees so as to exhaust its own reserves of information as to its rights against the respondent. The applicant has not put forward any evidence of the extent to which it has made such enquiries or searched its own records. The substantial gaps in the evidence that the applicant has put forward indicates that it has not made such enquiries, at all, let alone properly;

(c) the applicant’s failure to prove that it has made enquiries of its own personnel is particularly egregious with respect to the second category of the documents that it seeks in the application. There is no explanation of what information the applicant has in relation to the representations allegedly made by the respondent to it (save that it already has the Bailey email that it alleges contains the volume representation). Nor is there any information as to the negotiations that it had with the respondent, let alone what additional information is needed for it to know whether to commence a proceeding against the respondent and why it needs that information. There is thus no reason why the Court should require the respondent to do the work in locating the documents that it could, but evidently has not seen fit to, do itself;

(d) similar concerns also arise in respect of the first category of the documents sought in the application. There is no explanation of what information the applicant has in relation to beverage sales within the GJC network, in circumstances where it previously conducted a two week trial in GJC stores from which it obtained sales data (which it provided to GJC). The evidence given by the respondent also shows that the applicant has conducted visits of GJC stores for the purpose of putting together its commercial proposals. Given the evidence that prior to the Supply Agreement there was no exclusive supplier of the beverages, it is also likely that the applicant has supplied pre-packaged beverages to a number of GJC stores for substantial periods prior to November 2015. The applicant has not put forward any evidence of the extent to which it has made inquiries of its own business records and employees about these matters.

[88]See the Whiting affidavit, [32].

Consideration

This part of the rule prescribes an objective assessment of whether an applicant has reasonably exhausted alternative sources of information and having done so demonstrates that they have insufficient information to enable a decision to be made to commence a proceeding. The applicant must disclose what information they already have to make a decision whether to commence a proceeding in court and identify what information is lacking.

What amounts to the making of all reasonable enquiries depends upon the nature and description of the documents requested. In the case of documents that comprise business records of the person from whom the request is made, only enquiries of that person are, usually, reasonably called for. In the case of other kinds of documents, for example, that comprise communications between the person to whom the request is made and the applicant, the position is quite different.

The enquiries made of the respondent for documents comprising its business records were limited. Neither the two meetings relied upon, nor the email correspondence after the first meeting, appear to be concerned with making enquiries as to matters that would assist it in deciding whether to commence a proceeding in this Court against the respondent for the relief identified. It is only the applicant’s solicitors’ letter that makes the position unambiguously clear.

The events that followed that letter my justifiably have lead the applicant to the view that co-operation was unlikely. The applicant did, in my view, act somewhat precipitously in commencing this proceeding when it did, without giving the respondent sufficient time to make enquiries and to respond. This lead to the adjournment referred to earlier. But that is more relevant to the costs of the adjournment than whether all reasonable enquiries have been made in relation to the business records of the respondent that reveal, or might reveal, the turnover of beverages by the respondent and its franchisees relevant to the applicant’s potential right to relief.

There is force in the applicant’s submission that, based on the written submissions of the respondent filed in preparation for the hearing of the application, that further enquiry before commencing the application was pointless. It is clear that the respondent resists any order that it provide any further documents to the applicant on every ground available. It was not submitted by the respondent that the applicant should have made enquiries of the Franchisees of the respondent directly, nor do I consider that approach to be reasonable. It is not clear how many such Franchisees there are, nor where correspondence might be directed. The person to whom such an enquiry would be expected to be made, acting reasonably, is the respondent.

In the result, in my view the applicant has made all reasonable enquiries in relation to the business records of the respondent that are within the first category of documents requested. The extent to which it is appropriate to order discovery of those documents, or some of them, and the description of the documents is another matter and depends on the next question and on the discretion of the Court, matters to which I will turn after considering whether all reasonable enquiries have been made in relation to the second category of documents requested.

The second category of documents is very broad. It encompasses documents recording communications constituting ‘representations’ from the respondent to the applicant in relation to the Supply Agreement and which record negotiations between the respondent and applicant in relation to the Supply Agreement.

The applicant has not given any evidence of any review of its own business records, any enquiries made of its own personnel and former employees so as to reveal the existence or non-existence of any such documents. The applicant has not put forward any evidence of the extent to which it has made such enquiries or searched its own records. All reasonable enquiries must include, in my view, enquiries of the applicants own records, and of its own employees and former employees.

The applicant’s failure to prove that it has made enquiries of its own records or personnel is particularly relevant to the second category of documents. There is no evidence given by the applicant of what documents the applicant has in relation to the representations allegedly made by the respondent to it (save that it already has the Bailey email that it alleges contains the volume representation) and the negotiations that it had with the respondent in relation to the Supply Agreement. Nor is there any evidence of searches that have been fruitless, for instance.

Further, there is also no evidence as to what documents the applicant needs for it to decide whether to commence a proceeding against the respondent and why it needs that information; that is (using the language of r 32.05(b)) why the applicant has not ‘sufficient information to enable the applicant to decide whether to commence a proceeding in the Court to obtain that relief’. Nor is there any explanation for the need to require the respondent to do the work in locating the documents that it has evidently not attempted to undertake itself.

For these reasons I am not satisfied that the applicant has made all reasonable enquiries for the purposes of r 32.05(b) of the Rules in relation to the second category of documents.

Rule 32.05(c) - reasonable cause to believe that the respondent has or is likely to have had any document in its possession 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
Submissions

The applicant relied on the evidence of Ms Whiting that:

(a) the documents requested will reveal the actual volume purchased by the respondent from CCA in the two years before the Agreement. This would enable the applicant to compare this information with the volume representation in order to determine whether it was accurate;

(b) without the documents, it is not possible for the applicant to know whether the volume representation was false;

(c) the documents requested also include documents that would record or evidence representations and negotiation relating to the Agreement. Those documents would further assist the applicant in making a decision as to whether to commence a proceeding against the respondent, to the extent that they provide further evidence that the volume representation was made, that it was false and that the respondent knew or ought to have known that it was false;

(d) without the documents requested it is not possible to advise the applicant whether it should decide to commence a proceeding because it is not known whether the volume representation was false, nor what the respondent’s knowledge was in relation to it at the time it was made;

(e) the documents requested comprise business records belonging to the respondent. They would therefore be in their possession.

The respondent submitted that Ms Whiting’s evidence supporting this limb of r 32.05 is not satisfied because:

(a) in relation to documents sought in the first category, Ms Whiting’s evidence is simply not correct — prior to the Supply Agreement, GJC stores purchased beverages from a range of suppliers such that the actual volumes purchased from CCA will not enable the comparison suggested by Ms Whiting. Thus, inspection of those documents will not assist the applicant to make the decision;

(b) total historical figures from all sources would be of little assistance in making a decision given that the applicant made its offers to the respondent on the basis that an exclusive supply arrangement with the applicant would result in substantial increases in sales of pre-packaged beverages across the GJC network;[89]

(c) in any event, the figures in the Bailey email were self-evidently not historical sales figures, so that a comparison would be of no assistance to the applicant in making a decision; and

(d) in relation to the documents sought in the second category, that the evidence is ‘hopelessly vague and implausible’.[90] Counsel submitted that evidence is already before the Court that is undisputed that the Bailey email was sent by the respondent and received by the applicant, and therefore there is no need for further evidence of the making of the alleged volume representation. Further, this category of documents would also not be likely to result in the production of any documents that showed that the alleged volume representation was false or that the respondent knew it to be false, even if the applicant could persuade the Court that these issues are relevant to allegations of misleading or deceptive conduct or negligent misstatement.

[89]Exhibit JH-1 to the Henderson affidavit, 46.

[90]Respondent’s Written Submissions [27(d)].

In the course of the hearing, Counsel for the applicant varied the description of the first category of documents, so that it related to ‘documents, both internal and external that reveal the actual volume of beverages purchased by all of Gloria Jean’s stores in the two years before Asahi entered into the Distribution Services Supply Agreement with the respondent ’.[91] Although there was no application to amend the description of the documents in the application, that does not preclude the Court, in the exercise of its discretion, from proceeding on a different basis if it is justified in all the circumstances.
[91]Asahi Beverages Pty Ltd, ‘Submissions in Relation to Application under r 32.05’, Submission in Asahi Beverages Pty Ltd v RFGA Management Pty Ltd, S ECI 2018 00968; Asahi Beverages Pty Ltd, ‘Applicant’s Further Submissions in Relation to Application under r 32.05’, Submission in Asahi Beverages Pty Ltd v RFGA Management Pty Ltd, S ECI 2018 00968, 4 May 2018.

Consideration

In relation to the first category, the evidence of the respondent is that prior to the Supply Agreement, GJC stores purchased their beverages from a range of suppliers so that the actual volumes purchased from CCA will not enable the comparison suggested by Ms Whiting with the figures in the Bailey email.

Although it is undoubted, indeed unchallenged, that the documents requested comprise business records belonging to the respondent, and so are likely to be in its possession, it is also clear from the respondent’s evidence that inspection of the documents by the applicant would not assist the applicant to make the decision. Thus, in relation to the first category of requested documents, the applicant has failed to satisfy the second limb of this prerequisite, namely that inspection by the applicant of the documents would assist it to make the decision. If, however, the first category were varied as proposed by the applicant in the course of the hearing, so that it was not limited to beverages supplied by CCA and encompassed all beverages supplied to the respondent, the position may be different. But whether that is appropriate depends upon the exercise of the discretion of the Court and the difficulty for the respondent of actually extracting those documents has not been the subject of any evidence.

In relation to the second category of documents requested, any consideration of the third prerequisite involves a consideration of what the applicant lacks that is reasonably necessary for it to make a decision whether to institute proceedings. That involves a consideration of what material the applicant has to advance its right to relief. Apart from the Bailey email, this is not made clear by the applicant in its evidence. If it is assumed that all the material that the applicant has is revealed in its evidence, then it has only the Bailey email. But the evidence adduced by the respondent shows there is much more material; and so does the second category of documents itself, in that it seeks documents recording communications between the applicant and respondent that evidence representations and negotiations in relation to the Supply Agreement. Nothing is revealed in the applicant’s evidence as to documents of this character in its possession or what the applicant lacks after undertaking its own internal inquiries. Thus this prerequisite is not satisfied in relation to the second category of documents.

Discretion

If I am wrong to conclude that the applicant has not satisfied the third prerequisite to the making of an order, and it is appropriate to order preliminary discovery, it is appropriate to say something about the Court’s residual discretion.

Submissions

The applicant submitted that the Court has a discretion as to the extent of the discovery of documents ordered to be made, so that the categories of documents could be narrowed or varied for justice to be done and so the applicant obtains the relevant information to be able to decide whether or not to commence a claim in the Court against the respondent.

The respondent submitted that the categories as framed are broad, and extend beyond a demand for documents that could reasonably assist the applicant. It was submitted that the first category of documents requested seeks records of all beverages purchased by GJC stores, not just pre-packaged beverages, which are the subject of the Agreement. It also calls for records from all GJC stores in circumstances where there were between 342 and 400 stores, with each store making its own purchases from its own preferred suppliers.[92]
[92]Henderson affidavit, [7(a)(i)].

The respondent also submitted that the second category seeks documents that are not proportionate to the causes of action that the applicant has articulated against the respondent, which are framed only by reference to the alleged volume representation. They submit that this category seeks to extend beyond what might be considered permissible ‘fishing’ to impermissible ‘trawling’ for documents that might support an unidentified case against the respondent.

Last, the respondent submitted that there is a demonstrated failure by the applicant to review its own business records and speak to all employees in relation to the subject of the application. This failure ought to be considered by the Court when considering the discretion element of the application.

Consideration

It is worth referring again to some of the observations of Riordan J in Alex Fraser Pty Ltd v Minister for Planning,[93] concerning the exercise of the Court’s discretion. In the exercise of that discretion, the Court can control any excesses and assess whether there may be real benefit in making the order sought. It is entitled to weigh the full range of relevant matters in determining whether an order is in the interests of justice – including the following:
[93][2018] VSC 391, [54].

(a) the level of inconvenience and cost that will be caused to the respondent;

(b) whether discovery may cause commercial or other damage to the respondent;

(c) whether the respondent will be reimbursed for its costs;

(d) whether an order would be inutile because the documents are privileged;

(e) the prospect of the documents sought providing the information required by the applicant; and

(f) whether the fact that there is no real prospect of success is apparent or discovery will not serve any useful purpose.

If discovery were ordered, it would, on the present material, be limited to the first category of documents and that category would need to be modified so that it applied to all of the relevant beverages (and I do not have the evidence of precisely what they are) and not just beverages purchased from CCA. That is because, as I have said, the evidence is that the respondent and its franchisees purchased the relevant beverages from more than one supplier. Unless this category were modified in this way, it would not prove useful to the applicant to make any comparison with the alleged volume representation.

The category would need to be further modified to provide for discovery of the respondent’s own purchase records for the ‘company stores’ and, to the extent that it has the power to obtain records of purchases by Franchisees, those Franchisees. The Court would need to have evidence of the power or ability of the respondent to obtain records of purchases of the relevant beverages from its franchisees, what the relevant beverages are in fact, and evidence of the time trouble and expense that this discovery would involve and, no doubt, related evidence of the number of Franchise stores and the ease or difficulty, as a matter of practice, involved in obtaining the relevant records of purchases.

As the matter presently stands, in the exercise of the Court’s discretion I would not vary the first category of documents so as to extend its reach to all beverage purchases and not just those made from CCA. There is insufficient information to enable the Court to do so fairly to either party.

Conclusion

For these reasons I have reached the conclusion that, on the present state of the evidence, the applicant has not satisfied all the prerequisites for the making of an order for preliminary discovery in relation to either category of the requested documents.

I will hear the parties as to the appropriate orders to be made.

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Citations

Asahi Beverages Pty Ltd v RFGA Management Pty Ltd [2018] VSC 606

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12 October 2018