Australian Pharmaceutical Industries Ltd v O'Neale
[2021] VSC 371
•28 June 2021
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
S ECI 2018 02513
| AUSTRALIAN PHARMACEUTICAL INDUSTRIES LTD (ACN 000 004 320) & ORS (as set out in the attached Schedule) | Plaintiffs |
| v | |
| WARREN WALTER O’NEALE | Defendant |
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JUDGE: | SLOSS J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 21 May 2021 |
DATE OF JUDGMENT: | 28 June 2021 |
CASE MAY BE CITED AS: | Australian Pharmaceutical Industries Ltd & Ors v O’Neale |
MEDIUM NEUTRAL CITATION: | [2021] VSC 371 |
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PRACTICE AND PROCEDURE — Reference to special referee — Where questions of an accounting nature were referred to special referee — Where special referee has delivered report — Where special referee’s report identified a lacuna in the material produced before her and noted a category of documentation (not produced) that would settle an underlying issue between the parties — Where defendant sought issue of a subpoena for production of banking records to facilitate verification of the underlying issue — Application by defendant for Court to defer consideration of the adoption of special referee’s report pending the production and inspection of subpoenaed documents — Whether subpoena is an abuse of process — Whether the attainment of the overarching purpose requires the Court to defer consideration of the adoption of the special referee’s report — Whether any further consideration and/or reporting by the special referee is required — Supreme Court (General Civil Procedure) Rules 2015, rr 50.01(a), 50.03(2)(b) and 50.04 — Civil Procedure Act, ss 7 and 9.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr T Di Lallo | Baker McKenzie |
| For the Defendant | Mr P W Lithgow | Davies Moloney |
TABLE OF CONTENTS
Introduction........................................................................................................................................ 1
Allegations made in the amended statement of claim............................................................ 1
Defence and counterclaim........................................................................................................... 4
Account 757D................................................................................................................................. 9
Reply and defence to counterclaim.......................................................................................... 10
Appointment of the special referee.............................................................................................. 11
Methodology to be applied by the special referee................................................................. 13
Extension(s) of date(s) for delivery of special referee’s report............................................. 16
Document request made by the special referee...................................................................... 17
Defendant’s summons filed on 30 March 2021 concerning discovery of plaintiffs’ bank statements........................................................................................................................................................ 20
Special referee delivers her Report.............................................................................................. 24
Directions hearing held on 30 April 2021.................................................................................... 25
Subpoena for production issued at the request of the defendant.......................................... 26
Directions hearing on 21 May 2021............................................................................................... 26
The special referee’s Report........................................................................................................... 28
The defendant’s submissions........................................................................................................ 42
The plaintiffs’ response.................................................................................................................. 43
The subpoena is to be characterised as an abuse of process................................................. 44
(a)....... The subpoena is inutile......................................................................................... 44
(b)...... The subpoena is not for a legitimate forensic purpose.................................... 44
(c)....... The significance of non-party discovery............................................................ 45
Objection to inspection of documents identified in the subpoena...................................... 46
The consideration, and adoption, of the Report ought not be delayed.............................. 46
The plaintiffs seek the immediate adoption of the Report.................................................... 47
Consideration and disposition of the application..................................................................... 48
The gap the special referee has identified............................................................................... 49
The parties were given a draft of the special referee’s report to confirm matters of factual accuracy.............................................................................................................................................. 53
Procedure for a reference to a special referee under Rule 50............................................... 55
Inspection of the subpoenaed documents will promote the overarching purpose and enhance the utility of the special referee process in this proceeding............................................... 57
Meanwhile it is appropriate for the Court to defer its consideration under r 50.04 as to whether the special referee’s Report should be adopted............................................................ 59
Conclusion......................................................................................................................................... 62
HER HONOUR:
Introduction
This proceeding concerns a dispute between Australian Pharmaceutical Industries Ltd (API) and its related entities Priceline Proprietary Limited (Priceline), New Price Retail Services Pty Ltd (NPRS) and API Victoria Pty Ltd (API Victoria) (together called the API Group) as plaintiffs (and defendants by counterclaim) and Mr Warren Walter O’Neale (Mr O’Neale) as defendant (and plaintiff by counterclaim).[1]
[1]Much of the relevant background to the proceeding, and the gist of the rival arguments, as set out in these reasons, is drawn from the letter of instruction to the special referee which was prepared in consultation with the parties to form Annexure A to the Orders made by the Court on 1 May 2020.
Each member of the API Group is (broadly) engaged in carrying on business for reward in the wholesale supply of prescription and pharmacy only medicines and non-pharmaceutical retail products to pharmacy customers for sale. Mr O’Neale was engaged in carrying on business for reward in the operation of the ‘Priceline Pharmacy Melbourne Central’ located at Shop LG50 Melbourne Central, 300 Lonsdale Street, Melbourne (the Pharmacy Business).
Allegations made in the amended statement of claim
In their amended statement of claim (ASOC), the plaintiffs plead the contractual arrangements they contend govern the relationship between the parties. For present purposes, it is sufficient to note that they allege the legal and commercial relationship between the parties commenced upon entry into the Credit Account Agreement[2] on 30 September 2009, and concluded in or about 26 February 2016 upon the service on Mr O’Neale of the Notice of Breach of Franchise Agreement.
[2]The ‘Credit Account Agreement’ is a reference to the agreement entitled “Application for Credit Account” that each of API, Priceline and NPRS entered into with Mr O’Neale on or about 30 September 2009 pursuant to which each of API, Priceline and NPRS agreed to supply goods on credit to Mr O’Neale in respect of the Pharmacy Business on the terms and conditions forming part of, inter alia, the Credit Account Agreement or as published on the Internet page of any one or more of API, Priceline or NPRS at the time of delivery of goods.
In the ASOC, the plaintiffs plead among other things that there was a ‘Preliminary Assessment’ and a ‘Final Determination’ of the indebtedness of Mr O’Neale. The ASOC also alleges that each of the Preliminary Assessment and the Final Determination was issued pursuant to the ‘Reference Agreement’.[3]
[3]On or about 21 April 2017, agreement was reached between the parties that Mr Graeme Lavelle of Lavelle & Co Chartered Accountants would be engaged in the context of the dispute between them – the plaintiffs plead that Mr Lavelle’s role under the agreement (called the ‘Reference Agreement’) was to resolve the dispute by expert determination whereas the defendant pleads Mr Lavelle was to be engaged as an expert to undertake an investigation (and reconciliation) of the rival claims made by each other and report to both. The plaintiffs plead that on 23 March 2018, Mr Lavelle issued the ‘preliminary assessment’ of the amount owing as between API and its related entities (including Priceline, NPRS and API Victoria) on the one hand and Mr O’Neale on the other, and in doing so determined that Mr O’Neale owed API the amount of $1,352,358.97. Further they plead that subsequently, on or about 13 August 2018, Mr Lavelle completed the reconciliation and made a final and conclusive determination of the amount owing as between API and its related entities (including Priceline, NPRS and API Victoria) on the one hand and Mr O’Neale on the other, and in doing so determined that Mr O’Neale owed API the amount of $1,660,569.86. Mr O’Neale admits that Mr Lavelle provided his initial report on 23 March 2018 and a revised assessment in a further report on 13 August 2018 but he denies that either report determined finally and conclusively any indebtedness he might have to API and its related entities (including Priceline, NPRS and API Victoria).
When the proceeding was commenced on 30 November 2018, API (as plaintiff) and Mr O’Neale (as defendant) were the only named parties. At that point, the subject-matter of the dispute between the parties exclusively concerned the enforcement of the Final Determination by API against Mr O’Neale. That is, API and Mr O’Neale were in dispute concerning whether Mr O’Neale is indebted to API in the manner found in the Final Determination. The dispute between API and Mr O’Neale concerning the validity and enforceability of the Final Determination remains an aspect of the subject matter of the litigation.
At the time when the proceeding was commenced, API believed that Mr O’Neale considered the Final Determination to be final and binding. However, following the commencement of the proceeding, Mr O’Neale, by his defence (and subsequently, his amended defence), disputed the validity of the Reference Agreement, and also the validity and enforceability of the Final Determination. Once Mr O’Neale made clear that he maintained that the Reference Agreement and the Final Determination were not valid and binding, the plaintiffs sought and obtained leave on 5 August 2019 to amend the Writ (and statement of claim) whereby each of Priceline, NPRS and API Victoria were joined as plaintiffs, in addition to API.
In the ASOC, the plaintiffs allege the indebtedness of Mr O’Neale to each of Priceline, NPRS and API Victoria, in addition to Mr O’Neale’s indebtedness to API pursuant to the Reference Agreement and the Final Determination. Alternative claims are also made against Mr O’Neale by each of those companies in damages. Broadly, the claims made against Mr O’Neale are alleged in the ASOC in the following manner:
(a) Mr O’Neale entered into the Credit Account Agreement with each of API, Priceline and NPRS pursuant to which those companies agreed to supply goods and services on credit to Mr O’Neale pursuant to the Terms and Conditions, and Mr O’Neale had a pre-approved account limit with the API and its related entities;[4]
[4]ASOC, [3A].
(b) On or about 1 March 2015, the Credit Account Agreement was amended by the agreement of the parties through the replacement of the Terms and Conditions with the March 2015 Terms and Conditions and the addition of API Victoria as an additional party to the Credit Account Agreement,[5] and thereafter, each of those companies agreed to supply goods and services on credit to Mr O’Neale;
[5]ASOC, [3B].
(c) On or about 21 March 2011, NPRS entered into the Franchise Agreement with Mr O’Neale pursuant to which NPRS granted a franchise to Mr O’Neale;[6]
[6]ASOC, [3D].
(d) Pursuant to the Credit Account Agreement (as varied), each of API Victoria and Priceline supplied products to Mr O’Neale on credit in respect of the Pharmacy Business[7] and it is alleged Mr O’Neale is indebted to each of those companies,[8] being in the amount of $175,849.02 to API Victoria and $1,628,140.01 to Priceline, which Mr O’Neale has failed or refused to pay despite demand. An alternative claim is made against Mr O’Neale by API Victoria and Priceline in damages;[9]
(e) Pursuant to the Franchise Agreement, NPRS provided services to Mr O’Neale[10] and it is alleged Mr O’Neale is indebted to NPRS in the amount of $17,135.47,[11] which Mr O’Neale has failed or refused to pay despite demand. An alternative claim is made against Mr O’Neale by NPRS in damages, which extends not only to Mr O’Neale’s alleged indebtedness in the amount of $17,135.47, but also the amount referred to in the Notice of Breach of Franchise Agreement in the amount of $1,711,134.47;[12]
(f) API claims the amount of $1,660,569.86 as the indebtedness of Mr O’Neale to API pursuant to the Reference Agreement and Final Determination, which has not been paid by Mr O’Neale despite demand.[13] An alternative claim is made against Mr O’Neale by API in damages.[14]
[7]ASOC, [4].
[8]ASOC, [4A].
[9]ASOC, [4E].
[10]ASOC, [4F].
[11]ASOC, [4G].
[12]ASOC, [4M]–[4N].
[13]ASOC, [9]–[13].
[14]ASOC, [14].
In the letter of instruction to the special referee the parties noted that the earliest transaction that constitutes part of the indebtedness claimed by the API Group against Mr O’Neale and referred to in the ASOC occurred on 10 November 2015.
Defence and counterclaim
By his further amended defence and counterclaim dated 6 May 2020 (D&C), Mr O’Neale (as plaintiff by counterclaim) alleges that the plaintiffs (as defendants by counterclaim) are indebted to him in the amount of $1,609,350.44.[15] The defendants by counterclaim deny that they are indebted to Mr O’Neale in the amount alleged, or in any amount at all. The particulars to paragraph 4A of the D&C indicate in substance that the calculation of the amount of $1,609,350.44 is set out in Schedule A to the D&C (Schedule A). Schedule A is constituted by approximately 59 A3 pages, and appears to refer to numerous transactions between one or more of the API Group and Mr O’Neale. The earliest of the transactions referred to in Schedule A is dated December 2009.
[15]D&C, [4A].
The legal basis on which the defendants by counterclaim are alleged to be indebted to Mr O’Neale is not pleaded in the D&C. However, Mr O’Neale asserts that the indebtedness of the API Group to him emerges in the following manner (noting that each of the following points are not conceded by API and may be the subject of submissions by the parties in due course):
10.1The plaintiffs traded with the defendant.
Mr O’Neale says that it was agreed by letter on 7 December 2009 that Mr O’Neale could have a forward charge of 60 days on opening stock (i.e. payment was due in 60 days). API contends it has not previously been informed by Mr O’Neale of the alleged significance of that letter. In due course, API will make submissions concerning this issue.
10.2The plaintiffs used three separate account numbers 2995, 757 and 757B to account for sales to the defendant:
Account 2995 was for ‘ethical’ goods or prescription medications.
Account 757 was for API goods, cosmetics and other goods sold in pharmacies.
Account 757B was for administrative fees, advertisements, AMEX fees and interest (incorrectly according to Mr O’Neale) charged on his accounts.
10.3Various payments were made by Mr O’Neale using AMEX accounts and cheques.
10.4The payments (AMEX or cheque) did not reflect particular invoiced amounts or invoices.
10.5A fourth account numbered 757D was established by API in or about January 2010. This account was unknown to Mr O’Neale and for some reason payments made by Mr O’Neale were credited to this account and held in suspension for a period of time.
10.6Mr O’Neale says that in January 2012 his AMEX facility was cancelled and he was put on ‘COD’ terms by API. Mr O’Neale also says that $872,653.19 has been received by API and was held in account 757D and not brought to account more generally.
10.7Mr O’Neale says that the effect of account 757D was that API determined that Mr O’Neale was behind in his payments and:
(a)he was denied rebates to which he was entitled;
(b)API charged him interest on supposedly outstanding invoices; and
(c)API made unexplained charges to his account and did not give credits to which he was entitled.
10.8The rebates form two types:
Mr O’Neale was entitled to a rebate:
(a)if API gave to Mr O’Neale instructions to reduce the price of a certain line of goods (i.e. sale or promotional items) then Mr O’Neale was entitled to receive a rebate on the volume of such stock actually sold (“Promotion Rebate”);
(b)if Mr O’Neale was instructed to sell discontinued lines at a lesser price so as to move that line of stock (“Discontinued Line Rebate”). Mr O’Neale was entitled to a rebate in respect of the sale of such stock.
10.9In the case of both rebate amounts, such amounts were to be calculated by API based on reported sales.
The Points of Sale equipment used at Mr O’Neale’s retail premises would record sales and relay that information to API.
10.10Mr O’Neale says that API must account for the rebates so that the special referee can determine whether his accounts (on a global basis) were at various times in debit or credit.
Likewise, Mr O’Neale disputes the interest charged and says the compounding effect of interest being charged, and rebates denied, caused API to allege that Mr O’Neale’s accounts were in debit. Mr O’Neale contends, on a full and correct accounting, his accounts were in credit.
10.11Mr O’Neale says that there were also orders which were never actually delivered. Mr O’Neale has requested that API provide proofs of delivery for account 2995 for the months of:
March to June 2012 (inclusive)
June 2013 to November 2013 (inclusive)
April 2015 (01/04/15 to 30/04/15)
API have declined to provide same, saying that there was a contractual time limit of 14 days within which Mr O’Neale was contractually required to raise any and all delivery related queries. Mr O’Neale’s response is that if the deliveries never arrived, he never had an opportunity to query the non-deliveries.
10.12Mr O’Neale contends that API should provide details of unexplained charges on Statements and demonstrate the basis upon which each charge was payable under the Franchise Agreement. The charges in questions are:
Acc
Date
Amount
2995
Mar 2010
$23,797.70
2995
Jun 2014
$28,535.00
2995
Sep 2015
$231.33
2995
Oct 2015
$2,819.00
2995
Nov 2015
$40,868.20
Acc
Date
Amount
757B
Feb 2010
$3,410.00
757B
May 2011
$734.51
757B
Apr 2012
$2,750.00
757B
Jul 2012
$555.50
757B
Sep 2012
$6,721.41
757B
Mar 2014
$9,271.76
Mr O’Neale says that the basis of these charges needs to be established if the amounts are to be taken into account. API contends it is not aware of the basis upon which Mr O’Neale disputes the amounts referred to. In the circumstances, whether those amounts should be taken into account will be the subject of submissions in due course.
10.13Mr O’Neale says that in order to account for the correct position (on a running account basis) that a monthly running balance be created and that it include:
(a)allowance for the initial 60 day payment term [see Clause 12.1];
(b)the totals of the monthly accounts for 2995, 757, 757B and 757D [see Clauses 12.2 and 12.5];
(c)less amounts paid (AMEX or cheque) [see Clauses 12.3 to 12.4];
(d)less rebates due [see Clause 12.8 and 12.9];
(e)less credits due and either provided or not provided [see Clause 12.11];
(f)less any unexplained charges [see Clause 12.12]; and
(g)plus interest on positive balances or interest on negative balances. If positive, the interest shall be in Mr O’Neale’s favour. If negative, interest shall be in API’s favour.
10.14Mr O’Neale’s accounting for the financial transactions for the entire period (2010–2016) between API and himself is set out in Schedule A to the D&C. As is explained elsewhere, API says that Mr O’Neale is out of time in now raising transactions that occurred prior to 9 November 2013 (being the date 6 years before the date of the defendant’s original defence and counterclaim).
Account 757D
During the course of the proceeding, Mr O’Neale raised an issue concerning the API Group’s use of an account numbered 757D. According to Mr O’Neale, the API Group’s use of Account No. 757D meant that amounts which he paid to the API Group were not allocated to the accounts which he conducted with the API Group, being the accounts numbered 2995, 757 and 757B. As a result, Mr O’Neale contends that amounts which API Group claims were not paid, were in fact paid by him.
The API Group denies the matters asserted by Mr O’Neale in relation to Account No. 757D. The API Group says that Account No. 757D is an internal API Group account, commonly referred to as a ‘suspense’ account. That account has been used by the API Group on three occasions:
(a) first, on 31 December 2009, the API Group issued a statement for account No. 757 dated 31 December 2009 which recorded the amount owing by Mr O’Neale in that account as $219,406.02 (being the amount recorded in the tax invoice numbered INV1087095 dated 28 January 2010). This amount was transferred to Account No. 757D on 28 January 2010 and was subsequently paid to the API Group by the API Group crediting the sum of $219,496.02 to Account No. 757D and debiting that amount to Mr O’Neale’s American Express account. API says that this was done to provide Mr O’Neale with additional time to pay the sum of $219,406.02 (which was otherwise due for payment). Mr O’Neale denies this and refers to the API letter of 7 December 2009;
(b) second, on 31 January 2010, the API Group issued a statement for account No. 757 dated 31 January 2010 which recorded the amount owing by Mr O’Neale in that account as $97,444.28 (being the amount recorded in the tax invoice numbered INV1119405 dated 26 February 2010). This amount was transferred to Account No. 757D on 26 February 2010 and was subsequently paid to the API Group by the API Group crediting amounts totalling $97,444.28 to Account No. 757D and debiting those amounts to Mr O’Neale’s American Express account, namely $89,159.94 on 30 March 2010 and $8,284.34 on 30 July 2010. API says that this was done to provide Mr O’Neale with additional time to pay the sum of $97,444.28 (which was otherwise due for payment). Mr O’Neale denies this and refers to the API letter of 7 December 2009;
(c) third, in about early April 2012, Mr O’Neale did not pay amounts totalling $308,210.89 in relation to his American Express account. Because of Mr O’Neale’s non-payment, American Express charged back this amount to the API Group, which the API Group was required to pay to American Express. The API Group subsequently debited the sum of $308,210.89 (being the amount which it paid to American Express) to Account No. 757D on 2 April 2012 by raising invoice number INV1970769. The sum of $308,210.89, which was debited to Account No. 757D on 2 April 2012, was paid to the API Group by Mr O’Neale in two tranches, $200,000 on or about 8 June 2012 and $108,210.89 on or about 13 June 2012. This is denied by Mr O’Neale.
Reply and defence to counterclaim
The plaintiffs’ reply and defence to counterclaim (R&D) makes a variety of allegations in response to the D&C. The majority of those matters are not material to the special referee’s role and she was informed it was unnecessary for her to consider them in detail, save for the allegation in paragraph 4(d) of the R&D, to the effect that claims made by Mr O’Neale in paragraph 4A of the D&C are statute barred insofar as they are made more than 6 years before, inter alia, 8 November 2018 (being the date of the D&C).
Appointment of the special referee
Against that background, at the directions hearing on 20 March 2020, the parties agreed that certain questions of an accounting nature should be referred to a special referee to be appointed by the Court pursuant to rule 50.01(1)(a) of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) (Rules). The parties informed the Court that they were agreed that Ms Brittany Lincoln has specialised knowledge, based on training, qualifications and experience in accounting, including in the conduct of forensic accounting investigations and dispute analysis matters, and is suitably qualified to act as a special referee, whereupon the Court requested that the parties legal representatives consult with a view to formulating the instructions to be given to the special referee, and then return for the making of further directions.
At the directions hearing on 1 May 2020, the Court made orders (Orders), among others:
(a) appointing Ms Brittany Lincoln as special referee pursuant to rule 50.01(1)(a) of the Rules (order 1) (the Reference); and
(b) that, subject to any further order of the Court, Ms Lincoln conduct the Reference in accordance with the directions set out in Annexure B to the Orders (order 8).
Under the Reference, two questions were posed for the special referee to determine having regard to the Orders, the pleadings, the plaintiffs’ documents, the defendant’s documents and any other material provided by the parties in accordance with Annexure B to the Orders, as follows:
First Question
(a)In respect of each month in each of the following periods, what is the amount (if any) owed:
(i) by the Defendant to the Plaintiffs and each of them (if any); and
(ii) by the Plaintiffs and each of them to the Defendant (if any),
in respect of all accounts (including, but not limited to, account number 757D) for the period from:
a.30 September 2009 (being the date of the Credit Account Agreement);
b.1 December 2012 (being the date 6 years prior to the commencement of the proceeding);
c.9 November 2013 (being the date 6 years prior to the date of the D&C) –
to the date of the Report, with the opening balance being equivalent to the amount of the balance as at or about each of the dates referred previously in each of the following accounts recorded in the books and records of the Plaintiffs, being:
(aa) account number 2995;
(bb) account number 757; and
(cc) account number 757B.
Second Question
On the basis of the accounting exercise performed in accordance with paragraph (a) above, what is the amount or amounts owed (if any) by:
(i) the Defendant to the Plaintiffs and each of them; or
(ii) the Plaintiffs and each of them to the Defendant -
as at the date of the Report when using each of the commencement dates referred to in paragraph (a)?
In answering the above questions, the parties specifically referred the special referee’s attention to the pleadings and in particular, paragraph 4(d) of the reply to the effect that claims made by Mr O’Neale in paragraph 4A of the D&C are statute barred insofar as they are made more than 6 years before, inter alia, 8 November 2018 (being the date of the (original) D&C).
The Orders also required that, subject to any further order, Ms Lincoln shall file her report and provide a copy to the parties by 4pm on Friday, 11 September 2020.[16]
[16]Paragraph 10 of the Orders.
Methodology to be applied by the special referee
The special referee was instructed that, in determining the amounts owed by Mr O’Neale to the API Group, or vice versa, and in preparing the Report, she was to perform the accounting exercise by carrying out the following steps:
(a) prepare a separate running account (including interest and rebates as would have been appropriate) for each period determined from each of the commencement dates referred to below until the date of the Report. API says that rebates should be excluded from that calculation. This issue will be the subject of submissions by the parties in due course. In practical terms, this will require the special referee to carry out the calculations required to prepare three separate accounts. Set out below are the special referee’s instructions concerning the preparation of each running account;
(b) the running account is to concern each of the accounts operated or maintained by Mr O’Neale with the API Group, including the accounts numbered 757, 757B and 2995;
(c) interest is to be charged on the balance of overdue invoices, which shall accrue daily at the rate of 16.9% per annum from the date when payment became due until the date of payment, calculated on daily rests;
(d) in preparing each account, the special referee is to calculate and apply rebates as follows:
(i) Mr O’Neale was entitled to rebates in his capacity as a ‘pharmacy account holder’. Those rebates were applied and recorded in the account statements rendered by or on behalf of the API Group to Mr O’Neale from time to time and to the extent that any of those rebates were reversed by the API Group, their reversal is also recorded in those account statements. Pursuant to clause 2(d) of the Terms and Conditions[17] Mr O’Neale was not entitled to any rebates for any month or quarter unless he had paid in full for goods purchased by him during that month or quarter within agreed trading terms and any rebate applied may be recouped by the API Group. Mr O’Neale’s trading terms are set out in clause 3 of the Terms and Conditions.[18] The special referee was instructed that pursuant to clause 20 of the Terms and Conditions,[19] Rebates is defined to mean rebates, discounts, promotional discounts, allowances, concessions or other reductions from API’s list price or the ‘best buy price’, irrespective of how the rebates arise or the source of the rebates;
[17]See also clause 2(d) of the March 2015 Terms and Conditions.
[18]See also clause 3 of the March 2015 Terms and Conditions.
[19]See also clause 31 of the March 2015 Terms and Conditions.
(ii) Mr O’Neale was also entitled to rebates in his capacity as a ‘retail account holder’ pursuant to the Priceline Compliance Incentive Program at the rate of $5,000 per quarter. That entitlement arose pursuant to the letter from NPRS to Mr O’Neale dated 11 November 2009, the terms of the Priceline Pharmacy Franchise Agreement dated 30 June 2010 made between NPRS (as franchisor) and Mr O’Neale (as franchisee). Subsequently, that entitlement arose pursuant to the letter from NPRS to Mr O’Neale dated 10 February 2011 and the Priceline Pharmacy Franchise Agreement dated 21 March 2011 between NPRS (as franchisor) and Mr O’Neale (as franchisee). The special referee was instructed that Mr O’Neale received three payments of $5,000 each from API in respect of this entitlement. Those payments were made for each of the following quarters: (a) January to March 2010; (b) July to September 2011; and (c) October to December 2011. The payment of these rebates is recorded in the account statements issued by API (or its related entities) to Mr O’Neale from time to time. The special referee was instructed to attribute to Mr O’Neale’s account a rebate entitlement of $5,000 per quarter for each relevant quarter that she determines Mr O’Neale’s account was maintained in accordance with API’s trading terms as set out in the Terms and Conditions;[20]
[20]From and subsequently to 1 March 2015, this analysis should be conducted having regard to the March 2015 Terms and Conditions.
(e) The special referee is to prepare each of the accounts as at the date of her Report, with her calculations commencing at each of three dates:
(i) 30 September 2009, being the date of the Credit Account Agreement;
(ii) 1 December 2012, being 6 years prior to the date upon which the proceeding was commenced. In calculating the account from that date, the special referee is to use the balance referred to in the account statements as at that date, or the date in those accounts recording the account balance closest to that date, being the account statements maintained by API or its related entities concerning those accounts;
(iii) 9 November 2013, being 6 years prior to the date of the (original) D&C. In calculating the account from that date, the special referee is to use the balance referred to in the account statements as at that date, or the date in those accounts recording the account balance closest to that date, being the account statements maintained by API or its related entities concerning those accounts.
Finally, the special referee was instructed to provide her response to each of the questions and the reasons for that response and in doing so setting out her calculations, referencing, as appropriate, the material upon which she has based her analysis and the methodology she has applied in the completion of the task. Where she has relied on her own experience and expertise, the special referee was instructed to explain how that experience and expertise has led her to her answer.
Annexure B to the Orders set out the directions given to the special referee pursuant to r 50.02 of the Supreme Court (General Civil Procedure) Rules 2015 for the conduct of the Reference. Relevantly, the Reference was to be conducted ‘on the papers’; all communications between the parties and the special referee were required to be in writing, copied to all parties, and the special referee may call for any documents she considers appropriate and may use such personal knowledge and expertise as is reasonably necessary for the purpose of the Reference. The costs of the special referee shall be paid as to 50% by the plaintiffs and as to 50% by the defendant in the first instance, but otherwise be subject to further or other order of the Court subsequent to delivery of the special referee’s last report.
Extension(s) of date(s) for delivery of special referee’s report
The date for delivery of the special referee’s report has been extended on several occasions. Orders were made, by consent, on the following dates:
(a) 1 September 2020, extending the date to Friday, 21 January 2021;
(b) 15 December 2020, extending the date to Friday, 26 February 2021;
(c) 2 March 2021, extending the date to Friday, 12 March 2021;
(d) 17 March 2021, extending the date to Friday, 31 March 2021.
On 30 March 2021, the Court further extended the date the date for delivery of the special referee’s report to not before 12noon on 1 April 2021, pending the hearing and determination of a summons issued by the defendant. On 31 March 2021, the date for the special referee to file her Report was further extended to ‘no earlier than’ 4:00pm on Monday, 19 April 2021, in the circumstances outlined below.
The special referee’s Report was provided to the Court and to the parties by email from Mr Shardey of KordaMentha, sent on behalf of the special referee, on the evening of Friday, 23 April 2021.
Document request made by the special referee
On 1 February 2021, the special referee requested by email, sent by Mr Justin Shardey of KordaMentha, that the plaintiffs provide copies of their bank statements covering the payments for accounts 2995, 757 and 757B for various months in the period between December 2009 and July 2016 (inclusive). The following description of the request and the events that took place is set out in the affidavit of the plaintiffs’ solicitor, Mr Peter Lucarelli, sworn on 30 March 2021, and the accompanying exhibits and bundles of documents concerning the time extension and request for bank statements.[21]
[21]Affidavit of Peter Michael Lucarelli sworn on 30 March 2021. The information concerning the bank statements is based on information provided by Mr Craig Vaughan, National Debt and Credit Manager of API.
In his email of 1 February 2021, Mr Shardey stated:[22]
[22]Exhibit PML-1, 3–4.
. . . we refer to payments made from the defendant to the plaintiffs, whether or not made under or pursuant to the franchise agreement.
During the course of our analysis, we have identified payments that:
1.The defendant claims to have made, but which the plaintiffs have not recorded in either source documents provided to us or the Summary Spreadsheet. These payments are otherwise supported by source documents or records provided by the defendant.
2.The plaintiffs have identified as received, but which are not otherwise included in the defendant’s records as having been paid.
Having regard to the documents and information provided by both plaintiffs and the defendants to date, the plaintiffs’ bank statements are the only acceptable form of verification to establish whether:
1.The plaintiffs received payments from the defendant, and inadvertently omitted these from the plaintiffs’ business records, as provided to the special referee.
2.The plaintiffs inadvertently recorded payments from the defendant that it had not actually received.
We require copies of the plaintiffs’ bank statements covering payments for each of the accounts 2995, 757 and 757B, for the following periods (inclusive):
·December 2009;
·June 2010 to December 2010;
·March 2011;
·June 2011;
·October 2011;
·January 2012 to May 2012;
·December 2012 and January 2013;
·June 2013 to December 2013;
·February 2014 and March 2014;
·August 2014 and September 2014;
·March 2015 to May 2015; and
·June 2016 and July 2016.
We have requested bank statements for those months in which we have identified the payments in question. We have not requested bank statements for those payments which both parties acknowledge has [sic] having been paid and received.
For the sake of clarity, additional records retained by the defendant are not a suitable substitute for the form of verification that the plaintiffs’ bank statements can provide.
We look forward to receipt of this information as soon as possible.
The evidence is that at all relevant times the plaintiffs maintained two bank accounts with the National Australia Bank Limited (NAB) pertaining to accounts 2995, 757 and 757B, namely:
(a) NAB Account No. 02-617-7082 in the name of API; and
(b) NAB Account No. 51-656-2477 in the name of Priceline.
Following the request being made, the plaintiffs’ solicitors provided a copy of each of the requested bank statements to the special referee across three tranches, on 5 February,[23] 16 February[24] and 3 March 2021.[25] When each tranche was sent by email to the special referee, the covering email, which was copied to the defendant’s solicitors, included the following statement:[26]
We note that several of the bank statements requested by the special referee identify transactions relating to customers of our clients other than the defendant, such transactions being entirely irrelevant to the substance of this proceeding. Given the confidential nature of those business transactions and the obligations owed by our clients to each of their customers, we will provide our clients’ bank statements separate to this email and only to the special referee. Those bank statements are not to be further distributed without the prior written consent of our clients.
[23]Bank statements in respect of:
· NAB account 02-617-7082 in the name of API; and
· NAB account 51-656-2477 in the name of Priceline,
for the following periods:
· February 2014 and March 2014;
· August 2014 and September 2014;
· March 2015 to May 2015; and
· June 2016 and July 2016.
[24]Bank statements in respect of NAB account 51-656-2477 in the name of Priceline.
[25]Bank statements in respect of NAB account 02-617-7082 in the name of API.
[26]Lucarelli affidavit, [6].
In response to the special referee’s request, the plaintiffs produced a total of 955 bank statements, comprising more than 2,000 pages. Mr Lucarelli deposes that as well as recording payment transactions relating to the defendant, the bank statements record transactions concerning customers of one or more of the plaintiffs other than the defendant.[27] He also noted that the special referee has not requested that the plaintiffs provide any of those bank statements to the defendant.[28]
[27]Lucarelli affidavit, [8].
[28]Lucarelli affidavit, [9].
On the afternoon of 5 March 2021, Mr Shardey, on behalf of the special referee, emailed to the parties a draft of the factual sections of the special referee’s report (which did not include her responses to the First Question or the Second Question). In the covering email he stated:[29]
. . .
Please find attached Ms Lincoln’s draft special reference report in this matter.
As explained in my email of 4 February 2021, this is provided to give the parties the opportunity to confirm matters of factual accuracy.
The draft report does not include answers to the questions addressed to Ms Lincoln in her honour’s Orders. It is not intended to provide the parties with an opportunity to make comments on Ms Lincoln’s analysis and conclusions, to the extent they are provided in the draft report.
As a matter of practicality, and to facilitate the preparation of Ms Lincoln’s final report by Friday 12 March 2021, could the parties please provide any comments to us no later than 9am of Wednesday 10 March 2021.
[29]Lucarelli affidavit, [10].
Defendant’s summons filed on 30 March 2021 concerning discovery of plaintiffs’ bank statements
By letter dated 9 March 2021,[30] the defendant’s solicitor wrote to the special referee’s firm, copied to the plaintiffs’ solicitor, to inform them that because Mr O’Neale was currently receiving chemotherapy treatment, they were unable to obtain any meaningful instructions to enable them to respond to the special referee’s draft report. Accordingly, the defendant’s solicitor requested that the timeline for comments be extended by two weeks, noting that it would also be necessary to seek an adjournment of the directions hearing listed for 19 March 2021.
[30]Document bundle provided by the plaintiffs on 30 March 2021 in relation to the defendant’s request for a further extension to the deadline for the special referee’s final report (Bundle TE), 13.
Further correspondence ensued between the parties in consultation with Mr Shardey of KordaMentha on behalf of the special referee.[31] On 17 March 2021,[32] the plaintiffs’ solicitors informed the Court by email, copied to the defendant’s solicitor, that given the earlier notification from the defendant’s solicitor that Mr O’Neale was undergoing chemotherapy and would require additional time to respond to the draft of the factual matters, ‘[t]he plaintiffs have reluctantly acceded to the defendant’s time extension requests’ and proposed timetable. A signed minute of proposed consent orders was enclosed.
[31]Bundle TE, 18–23.
[32]Bundle TE, 24.
On 17 March 2021, the Court made orders, by consent, including an order extending the date for the special referee to file her report to 4pm on Wednesday 31 March 2021 and adjourning the directions hearing to Friday 9 April 2021.
By letter dated 23 March 2021,[33] the defendant’s solicitor wrote to the special referee’s firm, copied to the plaintiffs’ solicitor, to confirm that Mr O’Neale has undergone the chemotherapy treatment, but informed them that he is now undergoing radiotherapy which has further delayed the provision of instructions for his response to the special referee’s draft report. The defendant’s solicitor stated they were instructed that Mr O’Neale would be able to have his response done by Friday, 26 March 2021.
[33]Bundle TE, 40.
On 24 March 2021,[34] by letter from the plaintiffs’ solicitor to the special referee, copied to the defendant’s solicitor, the plaintiffs provided their comments on the special referee’s draft report. In that letter, plaintiffs’ solicitor noted:[35]
· Where appropriate, and to the extent not already included in the Draft Report, we assume that the special referee’s final report will include reference to, and take into consideration, the information set out in the bank statements most recently provided by our clients in respect of the National Australia Bank accounts ending 7082 and 2477.
[34]Bundle TE, 47–48.
[35]Bundle TE, 47.
On 25 March 2021,[36] the defendant’s solicitor wrote to the special referee, copied to the plaintiffs’ solicitor, to advise that Mr O’Neale is still suffering severe illness from his cancer treatments and is unable to provide instructions in relation to the special referee’s draft report until at least the end of the week.[37] The defendant’s solicitor noted that if the special referee intends to finalise her report in the meantime, ‘kindly advise and we will make application to the Court in relation to same.’[38]
[36]Bundle TE, 49–50.
[37]Bundle TE, 50.
[38]Bundle TE, 50.
On 26 March 2021,[39] Mr Shardey on behalf of the special referee, wrote to the parties respective solicitors by email and indicated that if the parties agree to an amendment to the timetable, and seek a corresponding amendment to the Court timetable, the special referee will follow the amended orders.
[39]Bundle TE, 62–63.
Separately, on 25 March 2021,[40] Mr Shardey on behalf of the special referee, wrote to the parties respective solicitors by email, requesting some clarification in relation to the treatment of interest, the treatment of point of sale discounts and the treatment of account rebate criteria, and raising some questions for the plaintiffs to answer. The plaintiffs’ solicitor responded on 26 March 2021,[41] to the effect that they were finalising instructions with their client and expect to provide a response shortly. They also referred to the email exchange with the defendant’s solicitor concerning the request for additional time, stating that their clients maintain the parties have been provided with ample time to respond and provide comments on the draft report and were of the view that the current timetable should be followed.
[40]Bundle TE, 53–55.
[41]Bundle TE, 52.
On 29 March 2021, the defendant’s solicitor sent an email to the Court, copied to the plaintiffs’ solicitor and the special referee, seeking to make an application in the next day or so to extend the time for the defendant to provide his comments on the draft report and also to extend the date for the special referee to provide her report.[42] The plaintiffs’ solicitor responded almost immediately, to ‘confirm that the plaintiffs will not consent to a further extension of time in respect of the timetable for delivery of the special referee’s report in this proceeding.’[43] In respect of the extension of time sought for the defendant to provide comments on the draft report, the plaintiffs’ solicitor noted that ‘[n]o fulsome explanation has been provided as to why the defendant has been able to provide comments . . . nor how a proposed extension of “at least four weeks” is reasonable in the circumstances.’[44]
[42]Bundle TE, 65–66.
[43]Bundle TE, 64.
[44]Bundle TE, 64–65.
On 30 March 2021, the defendant’s solicitor filed a summons seeking inter alia an order that the plaintiffs discover to the defendant the bank statements that were provided to the special referee on 16 February 2021[45] and an extension of the date fixed for the special referee to file her report. The summons was accompanied by an affidavit in support of Mr Colman Moloney, the defendant’s solicitor, sworn on 30 March 2021. To facilitate a hearing of the defendant’s request, orders were made that day listing the defendant’s summons for hearing on 31 March 2021, and, extending the date for delivery of the special referee’s report to not before 12noon on 1 April 2021, pending the hearing and determination of the summons.
[45]These bank statements comprised the second tranche. The email from the plaintiffs’ solicitors to Mr Shardey and the special referee dated 16 February 2021 (Ex PML-1, 1), which was copied to the defendant’s solicitor, confirms that the bank statements provided on or about that day were ‘the bank statements in respect of NAB account 51-656-2477 in the name of Priceline Pty Ltd.’
By way of background to the summons, the defendant’s solicitor informed the Court and the plaintiffs that as Mr O’Neale was (again) undergoing a course of medical treatment for a serious illness, he would not be able to provide comments to the special referee on the factual matters within the timeframe ordered. In those circumstances, the defendant requested an extension of both the time for the provision of his response and the time for delivery of the special referee’s report.
In his affidavit in support, Mr Moloney, deposed that following the request made by the special referee on 1 February 2021, the plaintiffs had provided, to the special referee only, certain bank statements which had not been discovered in the proceeding. On 18 February 2021, the defendant’s solicitor requested that the plaintiffs’ solicitor provide copies of those bank statements to the defendant, and stated that if they failed to do so, an application would be made to the Court. The plaintiffs’ solicitor refused to provide the bank statements, whereupon the defendant’s solicitor filed a summons.
Mr Moloney also deposes that on 25 February 2021, Mr O’Neale commenced a course of chemotherapy treatments, to be followed by a course of radiotherapy treatments that were not scheduled to be completed until 9 April 2021. Given the duration of the treatment regimes, and their impact on Mr O’Neale’s ability to concentrate and provide instructions, he said Mr O’Neale was seeking at least another two weeks to provide his comments on the factual section of the draft report.
Against that background, the hearing on 31 March 2021 took place. The hearing commenced as an audio visual hearing but shortly thereafter, due to some technical difficulties encountered with the audio visual link, it was transferred to a Court room, with counsel appearing in person and instructing solicitors observing via audio visual link. In the course of submissions, counsel for the plaintiffs reiterated that the bank statements would not be provided to the defendant, and said if they were ordered to be provided, then the 955 bank statements so produced, which comprise more than 2,000 pages, would be required to be redacted to remove the entries that do not relate to the defendant’s payments, which would be a costly and time-consuming exercise.
During the course of the hearing, the matter was stood down briefly to permit enquiries to be made of Mr Shardey as to whether a summary of the information pertaining to the transactions between the plaintiffs and the defendant had been prepared by KordaMentha for the special referee. Those enquiries established that a summary had been prepared that could be provided to the parties. In those circumstances, after hearing further from counsel, the Court made orders that the date for the defendant to provide his response to matters of factual accuracy in the special referee’s draft report be extended to 4:00pm on Friday 16 April 2021, that the date for the special referee to file her Report be extended to ‘no earlier than’ 4:00pm on Monday, 19 April 2021, and that the special referee include as a schedule to her Report ‘the summary of entries (as currently prepared) pertaining to the transactions between the plaintiffs and the defendant extracted from the plaintiffs’ bank statements.’ The Court also adjourned the directions hearing scheduled for 9 April 2021 to 30 April 2021, and adjourned the defendant’s summons for mention at the next directions hearing.
By letter dated 16 April 2021, the defendant provided his comments on the draft report to the special referee.
Special referee delivers her Report
On the evening of Friday 23 April, Mr Shardey provided the special referee’s Report to the Court and to the parties by email. The report comprises 58 pages of text and has 12 appendices, some of which are electronic documents. Relevantly, Appendix L is an electronic appendix containing the schedule of payments prepared by KordaMentha which includes reference to the plaintiffs’ bank statements (that was the subject of the orders made on 31 March 2021).
Directions hearing held on 30 April 2021
Shortly prior to the directions hearing on 30 April 2021, the defendant’s solicitor indicated that they proposed the directions hearing be adjourned for a period of three weeks. The plaintiffs on the other hand sought to have the matter proceed, and informed the Court and the defendant that they would be seeking an order that the special referee’s Report be adopted, by the Court, in whole, and that judgment be entered for the plaintiffs, albeit for a lesser total sum than the amounts determined by the special referee.
The directions hearing proceeded by way of an audio visual link on 30 April 2021.[46] Counsel for the defendant informed the Court that the defendant’s legal representatives required some further time to consider the Report before they would be in a position to make submissions on the adoption of the Report. He noted that once they had considered the Report, it may well be that consent orders could be reached. Counsel for the plaintiffs opposed that course, noting that there had not been any discussion about consent orders, and submitted that no further time should be afforded to the defendant.
[46]The hearing was recorded by the Court’s transcript provider, but as yet no transcript has been made available.
Relevantly, the Court ordered that:
Use of special referee’s report
2.The matter be listed for a directions hearing on Friday, 21 May 2021 at 12noon (or so soon thereafter as it may be heard) with a view to the Court hearing submissions pursuant to r 50.04 of the Supreme Court (General Civil Procedure) Rules 2015 concerning the adoption of the report of the special referee in whole or in part, and to make such order or give such judgment as it thinks fit (Rule 50.04 Issue).
3.Any written submissions proposed to be relied upon by the defendant in respect of the Rule 50.04 Issue, shall be filed and served by 12noon on Wednesday, 12 May 2021.
General
4.The defendant’s summons dated 30 March 2021 be further adjourned for mention at the next directions hearing.
. . .
The Court informed the parties that if the plaintiffs wished to file a responding submission, they should do so in a timely way and well in advance of the next directions hearing.
Subpoena for production issued at the request of the defendant
On 4 May 2021, the defendant sought (and obtained) the issue of a subpoena for production to the Prothonotary directed to the Proper Officer of Westpac Banking Corporation (Westpac), with whom Mr O’Neale banked, seeking the production of the original of 22 numbered cheques drawn on the bank account of Mr O’Neale ending in 3477, and copies of any documents which detail into which accounts these cheques were deposited. The date for production was stated as 25 May 2021.
An affidavit of service of Erin Moloney, Law Clerk, was filed on 11 May 2021, deposing to service on the Proper Officer of Westpac by posting the envelope with the sealed subpoena by ordinary prepaid post at the letterbox situate at the Melbourne Document Exchange at Level 1, 179 Queen Street, Melbourne on 4 May 2021 at approximately 5.30pm.
Directions hearing on 21 May 2021
On 12 May 2021, an outline of submissions was filed and served on behalf of the defendant. The plaintiffs responded by filing their outline of submissions on 19 May 2021.
In essence, the defendant submitted that the Court should defer its consideration of whether to adopt the special referee’s Report until the subpoena issued to the Westpac for production of the 22 cheques and documentation relating to whom these cheques and monies were paid is determined. The plaintiffs opposed that course.
The hearing on 21 May 2021 took place by way of an audio visual link.[47] At the hearing, counsel for the defendant, Mr Lithgow, contended that the defendant has provided to the special referee (and discovered to the plaintiffs):
(a) cheque butts showing cheques made payable to API or Priceline; and
(b) Bank Statements showing money leaving the account of the defendant.
[47]The hearing was recorded by the Court’s transcript provider, but as yet no transcript has been made available.
However, he observed, that the special referee, in her Report at Appendix H.2: Defendant’s Unmatched Payments, does not accept that the plaintiffs received payments totalling approximately $1,790,843.00 although it is accepted by the special referee that:
(a) the payments are recorded in the defendant’s records as being payments to API or Priceline; and
(b) the defendant’s Bank records show a debiting of each cheque in the defendant’s Bank account (i.e., each cheque was presented for payment).
Counsel submitted that in circumstances where relevantly, there are 35 payments that are listed in the special referee’s Annexure H.2 as being ‘Unmatched Payments’ that the defendant says were paid to API or Priceline in the period from 31 March 2010 to 30 June 2016, and the face value of those cheques range between $532.69 and $300,000, the effect of the special referee failing to account for those payments (totalling $1,790,843.00), if in fact they have been received by the plaintiffs (or one of them) is substantial, given that interest at 16.9% has been allowed on outstanding amounts.
It is convenient at this point to turn to the special referee’s Report and outline the manner in which she has approached the matching of payments.
The special referee’s Report
In Part 3.3 of her Report,[48] the special referee dealt with ‘Transactions in the Parties’ schedules and source documents’. She noted that she has been ‘provided with documents and information by the Parties concerning transactions in the Accounts Receivable’. In respect of ‘Payments received’, the special referee stated:[49]
[48]Report, 24.
[49]Report, 29–30.
Payments received
Statements of Account
3.3.36The Statements of Account issued by the Plaintiffs record relevant payments for each month and provides the date, number, description, and amount of each payment listed.
Bank Statements
3.3.37I have been provided with the following bank statements of the Defendant:
a. Westpac account ending in 4477 (Westpac);
b. Bendigo Bank account ending in 3140 (Bendigo); and
c. Suncorp account ending in 6483 (Suncorp).
3.3.38The Westpac, Bendigo and Suncorp bank statements identify payments made by the Defendant in relation to which:
a.The payments made from these accounts rarely provide detailed descriptions of the recipient or payee;
b.For cheque payments, the bank statement records the cheque number, the amount, and the date the cheque was paid by the bank, but not the recipient or payee; and
c.payments made using direct deposit or electronic transfer only record the details of the transaction as entered by the Defendant. The Defendant often did not record details consistently or sufficiently across the payments made (e.g. payee, account deposited into, Accounts Receivable number, ‘other’).
3.3.39I have been provided with bank statements of the Plaintiffs for accounts held at the National Australia Bank (NAB):
a.account ending in 7082 for customer accounts, including account 2995 in relation to the Defendant; and
b.account ending in 2477 for customer accounts, including accounts 757 and 757B in relation to the Defendant (Account 2477) (collectively, the Plaintiffs’ Bank Statements).
AMEX Statements
3.3.40I have been provided with the following American Express statements of the Defendant:
a.Account 3760-XXXXX X-61003; and
b.Account 3760-XXXXX X-01005 (collectively AMEX or the AMEX Accounts).
3.3.41The AMEX statements identify payments made:
a.from the Defendant to the Plaintiffs using the AMEX Accounts; and
b.by the Defendant to pay amounts owing on the AMEX Accounts.
3.3.42The payments made using the AMEX Accounts contain detailed descriptions of the recipient (for example, “API – Pharmacy Goods and Services”), as well as the date and value of payments.
Cheque Butts
3.3.43I have been provided with 14 PDF files containing photocopies of handwritten cheque butts and one hard copy handwritten cheque butt for the Defendant’s Westpac, Bendigo and Suncorp bank accounts. The cheque butts detail the date, the recipient (as recorded by the Defendant), the amount and the cheque number. The cheque number written on the cheque butt provides a link to the cheque numbers recorded in the bank statements as having been paid.
In Part 4 of her Report,[50] the special referee described the ‘Methodology’ she adopted. Relevantly, in Part 4.2, she dealt with ‘Payment details’, as follows:
[50]Report, 33. [4.1.2].
4.2 Payment details
4.2.1Details of payments are not included in the KM Database.[51] I have compiled a separate schedule for payments (Payments Schedule).
[51]The special referee explains that the KM Database is a listing of relevant transactions identified through source documents and other information provided to her: Report, [4.1.2].
4.2.2The payments schedule is compiled from the following sources:
a.Payments recorded in the Plaintiffs’ Summary Spreadsheet;
b.Payments recorded in the Defendant’s Schedules;
c.Details of payments from the Plaintiffs’ bank statements and the Defendant’s bank statements;
d.Details of payments from the Defendant’s AMEX statements; and
e.Details of payments from the Defendant’s cheque butts, for payments from the Defendant’s bank statements.
4.3Transactions in my analysis
4.3.1 . . . The criteria I have applied in adopting or rejecting particular transactions is set out in sections 4.4 and 4.5 below.
4.3.2. . .
4.4Substantiation of transactions
4.4.1The schedules provided by the Plaintiffs and the Defendant do not agree in all respects. I have not sought to rely on the Defendant’s Schedules and the Plaintiffs’ Summary Spreadsheet (collectively, the Parties’ Schedules). To determine the transactions that in my opinion comprise the Accounts Receivable, I have considered the nature and extent of the source documents and information provided to me. In this regard, I have used the Parties’ Schedules as a reference point for my analysis, but I have not treated them as determinative of the transactions comprising the Accounts Receivable.
Supporting documents and information – substantiation of transactions
4.4.2In my opinion, each type of supporting document provides a different level of assurance as to the accuracy or veracity of the transaction(s) to which it relates. As a result, I have considered the degree of assurance that in my experience is provided by each type of supporting document, to assess the extent to which I consider it reasonable to rely on it in establishing transactions comprising the Accounts Receivable.
4.4.3To establish the degree of reliance I place on each supporting document, I have considered a hierarchy or tiered approach of supporting documents to apply for each transaction type. The foundation of this hierarchy is the nature and completeness of records over the Period, and the extent to which there are additional source documents that can corroborate specific transactions.
4.5Hierarchy of source documents
Overview
4.5.1I have allocated the types of source documents into the following three categories, which in my opinion provide a descending order of assurance:
a.Originating Source Documents;
b.Other Source Documents; and
c.Unsupported Records
Originating Source Documents
4.5.2These represent documents issued by the Plaintiffs, or retained or in control of the Plaintiffs or the Defendants, that are capable of being used to verify individual transactions recorded in the Accounts Receivable, and comprise:
a.Invoices;
b.Interest Invoices;
c.Adjustment Notes;
d.Bank statements; and
e.AMEX statements.
Other Source Documents
4.5.3These represent documents prepared and issued by the Plaintiffs that are capable of being used to corroborate details of individual transactions recorded in the Accounts Receivable, but are not capable of being used to verify individual transactions.
4.5.4The only documents of this type are the Statements of Account.
Unsupported Records
4.5.5These represent documents prepared by the Parties that purport to summarise or reflect a record of transactions, prepared by either party. They are not capable of being used to independently verify transactions. However, they may be used to corroborate transactions when taken together, or in combination with other documents. These documents comprise:
a.Plaintiffs’ Summary Spreadsheet;
b.Defendant’s Schedules; and
c.Cheque butts.
Application
4.5.6My review and comparison of the supporting documents has identified that not all transactions in the Parties’ Schedules are supported by Originating Source Documents or Other Source Documents. Equally, not all transactions are supported by one type of document within each category, such as invoices to support purchase transactions. In those circumstances, I have considered the overall level of assurance provided by a combination of Other Source Documents and Unsupported Records.
4.5.7For example, payment transactions are supported by bank statements and credit card statements (Originating Source Documents), as well as the Parties’ Schedules, and cheque butts (Unsupported Records). I set out and explain the combination of supporting documents that I have relied on in identifying the transactions for the Accounts Receivable at section 5.
4.5.8Other Source Documents, being the Statements of Account, I also consider to provide a greater level of assurance than the Unsupported Records, being the Parties’ Schedules, as the Statements of Account are contemporaneous documents produced at the end of each month rather than the Parties’ Schedules which have been produced for the purposes of the Proceeding.
In Part 5 of her Report,[52] the special referee sets out her ‘Analysis of Accounts Receivable balances’. The process of analysis the special referee adopted is described in the ‘Overview’, as follows:
[52]Report, 36.
5.1 Overview
5.1.1 In this section I set out:
a.The results of my analysis of the supporting documents and information for each type of transaction;
b.The inclusions I have adopted for each type of transaction in my assessment of the Accounts Receivable; and
c.The application of the Rebate Payment Terms and the Payment Terms in the Terms and Conditions in relation to the calculation of Retail Account Holder Rebates, Pharmacy Account Holder Rebates, and interest.
. . .
5.1.3 I have also considered:
. . .
c.The analysis in this section is not presented for each of the accounts 2995, 757 and 757B individually. Rather, I present this analysis on an aggregated basis for the different transaction types across all accounts. This is because the inclusions I have adopted for each type of transaction will be consistent across all of the accounts.
The issue of ‘Payments received’ is addressed in Part 5.6, as follows:[53]
[53]Report, 46–47.
5.6 Payments received
Payments in source documents
5.6.1In this section I compare the source documents and information regarding payments received by the Plaintiffs.
Review of Parties’ Schedules and Allocation of Payments
5.6.2In relation to my review of the payment information in the Parties’ Schedules:
a.The Defendant’s Schedules record monthly lump sum payments made to the Plaintiffs as cash outflows. They do not record payments on a per invoice basis;
b.The Plaintiffs’ Summary Spreadsheet records payments received from the Defendant as allocations of payment amounts to each of the relevant Accounts Receivable amounts. It does not record the separate lump sum payments as identified in the Defendant’s Schedules.
However, the total monthly payments (ignoring any allocation applied) in the Plaintiffs’ Summary Spreadsheet can be compared with the monthly lump sum payments in the Defendant’s Schedules, and agreed in certain instances; and
c.In relation to the allocation of payments to the individual accounts making up the Accounts Receivable:
i.The allocation of payment to the individual accounts in the Plaintiffs Summary Spreadsheet does not always agree with allocation of the lump sum payments to individual accounts in the Defendant’s Schedules;
ii.The disparities are predominantly in relation to accounts 757 and 757B, such that the defendant recorded payments against account 757 that the Plaintiffs have allocated to 757B, or vice versa;
Overall, this results in an under allocation of lump sum payments to account 757B in the Defendant’s Schedules and conversely an over allocation in account 757 compared with the Plaintiffs’ Summary Spreadsheet;
iii.There are also six instances in which the Defendant has allocated a payment to account 2995, that the Plaintiffs have allocated to a 757 account; and
iv.There are no Originating Source Documents as to the allocation of payments that were to have applied to the Accounts Receivable at the time of payment.
. . .
In Table 10, the special referee presents a summary of the source documents and information from the plaintiffs’ records, as follows:[54]
[54]Report, 47.
The special referee noted in relation to the information for Payments as set out in Table 10 (above) that:[55]
[55]Report, 47–48.
5.6.4 . . .
c.There are 342 payments in the Plaintiffs’ Summary Spreadsheet allocated to accounts for purchases of inventory totalling $19.263 million;
d.I have matched 336 of these 342 payment allocations in the Plaintiffs’ Summary Spreadsheet to lump sum payments recorded in the Defendant’s Schedules, with a total value of $19.248 million. These are the ‘Plaintiffs allocated payments matched to Defendant’s payments’.
e.I have been unable to match the remaining six payments that the Plaintiffs’ Summary Spreadsheet allocates to the Accounts Receivable to any of the lump sum payments recorded in the Defendant’s Schedules.
These are the ‘Residual unmatched payments received by the Plaintiffs’, with a total value of $0.015 million. This sum represents the value of payments that the Plaintiff has attributed to the Accounts Receivable, but which the Defendant does not record as having paid in the Defendant’s Schedules.
f.I have identified an additional $0.137 million of payments in the Plaintiffs’ bank statements which are recorded in the Defendant’s Schedules but are not included in the Plaintiffs’ Summary Spreadsheet;
g.I have also identified an additional $0.035 million of payments made by the Defendant using AMEX that were not recorded correctly in the Plaintiffs’ Summary Spreadsheet. The initial payment amounts were under-recorded in the Plaintiffs’ Summary Spreadsheet; and
h.I have adopted the total of $19.420 million from the three amounts above in items d, f and g as the ‘Total Plaintiffs’ payments matched to Plaintiffs documents’.
The special referee also prepared a summary of the defendant’s record of payments made to the plaintiffs, set out in Table 11 of the Report, as follows:[56]
[56]Report, 49.
The special referee noted in relation to the information for Payments as set out in Table 11 (above) that:[57]
[57]Report, 49–50.
5.6.10 . . .
a.The Defendant’s Schedule records 253 lump sum payments to the Accounts Receivable over the Period, with a value of $20.596 million;
b.I have been able to directly match 213 of these 253 lump sum payments to the 336 matched payment allocations in the Plaintiffs’ Summary Spreadsheet. The value of these 213 lump sum payments is $18.668 million;
c.I have identified an additional $0.137 million of payments in the Plaintiffs’ bank statements which are recorded in the Defendant’s Schedules but are excluded from the Plaintiffs’ Summary Spreadsheet;
d.I have been unable to match the remaining 35 lump sum payments recorded in the Defendant’s Schedules to any of the payment allocations in the Plaintiffs’ Summary Spreadsheet. These are the ‘Residual unmatched payments in Defendant’s Schedules’. In this regard, these payments, with a total value of $1.791 million are not recorded in the Plaintiffs’ Summary Spreadsheet.
e.I have identified an additional $0.091 million in payments from the Defendant’s AMEX statements that were incorrectly recorded in the Defendant’s Schedules. The initial payment amounts were under-recorded in the Defendant’s Schedules;
f.I have identified an additional $0.524 million in payments from the Defendant’s AMEX statements that were not recorded in the Defendant’s Schedules;
g.I have adopted the total of $19.420 million from the four amounts above in items b., c., e. and f. as the ‘Total Defendant’s payments matched to the Plaintiffs’ documents’.
This amount represents the total value of payments that I have matched in the Parties’ records, with adjustments for information from bank statements and AMEX statements.
Review and comparison of bank statements, AMEX statements, cheque butts
5.6.11In relation to the additional payment amounts arising from a review of bank statements at items 5.6.4f and 5.6.10c:
a.I have been provided with the following records retained by each party:
i.Defendant’s bank statements, as set out at paragraph 3.3.37;
ii.Plaintiffs’ bank statements, as set out at paragraph 3.3.39; and
iii.Defendant’s cheque butts, as set out at paragraph 3.3.43.
b.I have not been provided with the bank statements for the same periods by both the Plaintiffs and the Defendant. To the extent that I have bank statements from the Parties for the same periods, I compared these for the initial unmatched payment amounts.
c.I summarise the results of this comparison below:
i.There are 49 payments for which the Defendant has provided cheque butts that I have agreed to debit amounts (withdrawals) in the Defendant’s bank statements provided to me;
ii.There are four payments made by cheque from item i., above, and one additional electronic deposit with a total value of $0.137 million, that I have also agreed to credit entries (deposits) in the Plaintiffs’ bank statements provided to me. I have matched these on the basis of the amounts and dates matching. These amounts are included in my assessment of total matched payments; and
iii.There are certain credit amounts (deposits) in the Plaintiffs’ bank statements provided to me that coincide with the dates of debit amounts (withdrawals) in the Defendant’s bank statements, but which are for a greater amount than the values in the Defendant’s bank statements. The Plaintiffs’ bank statements identify these deposits as ‘Cash and/or Cheques Deposit’ for a lump sum amount of total deposits on a given date.
Notwithstanding that these lump sum deposits would otherwise coincide with the date of deposits of the Defendant’s cheque payments, since I cannot match the payment amounts to the payee or cheque numbers, I have not included them in my analysis. This is because it is possible that the lump sum ‘Cash and/or Cheques deposit’ recorded in the Plaintiffs’ bank statements could be comprised of deposits from sources that do not include the Defendant’s cheque payments. There is insufficient detail in the Plaintiffs’ bank statements to identify whether this is the case.[58]
[58]Deposit batch listings from the Plaintiffs would settle this but I have not received these (this footnote appears as footnote 92 in the Report).
The footnote to the last paragraph above records the special referee’s observation that ‘Deposit batch listings from the Plaintiffs would settle this but I have not received these’.
Under the heading ‘My assessment of Payments’, the special referee summarises her assessment of the payment transactions as follows:[59]
[59]Report, 51–52.
My assessment of Payments
Value of Payments
5.6.13I have adopted the total of payments received by the Plaintiffs that is supported by Originating Source Documents and Unsupported Records of $19.420 million in my analysis of the Accounts Receivable.
5.6.14This amount is equal to the total payments that have been reconciled to the Parties’ records, and other source documents provided to me, comprising:
a. Originating Source Documents:
1. AMEX statements for the Defendant’s account;
ii. Plaintiffs’ bank statements; and
iii. Defendant’s bank statements.
b. Unsupported Records:
i. the Plaintiffs’ Summary Spreadsheet;
ii. the Defendant’s Schedules; and
iii. Defendant’s handwritten cheque butts.
5.6.15In summary, I have adopted the following as payment transactions in my analysis:
a.Payments that have been matched across both Plaintiffs’ and Defendant’s records (336 Plaintiffs’, 224 Defendant’s), with adjustments for:
i.corrected and additional payments recorded in the Defendant’s AMEX statements;
ii.one additional payment not recorded in the Plaintiff’s Summary Spreadsheet but identified in both the Plaintiffs’ and Defendant’s bank statements; and
iii.four additional payments by cheque not recorded in the Plaintiffs’ Summary Spreadsheet but identified in both the Plaintiffs’ and Defendant’s bank statements, and the Defendant’s cheque butts.
5.6.16In relation to the Plaintiffs and Defendant’s residual unmatched payments at 5.6.4e and 5.6.10d:
a.I have been unable to corroborate these payments from the Parties’ Schedules with any other Originating Source Documents or Other Source Documents;
b.The Parties have not provided bank statements or other records that can verify the residual unmatched payments. In this regard I have observed[60] that the bank statements of the Plaintiffs and the Defendants do not consistently provide the level of detail that would facilitate this verification exercise;
iii. Defendant’s bank statements.
b. Unsupported Records:
i. the Plaintiffs’ Summary Spreadsheet;
ii. the Defendant’s Schedules; and
iii. Defendant’s handwritten cheque butts.
5.6.15In summary, I have adopted the following as payment transactions in my analysis:
a.Payments that have been matched across both Plaintiffs’ and Defendant’s records (336 Plaintiffs’, 224 Defendant’s), with adjustments for:
i.corrected and additional payments recorded in the Defendant’s AMEX statements;
ii.one additional payment not recorded in the Plaintiff’s Summary Spreadsheet but identified in both the Plaintiffs’ and Defendant’s bank statements; and
iii.four additional payments by cheque not recorded in the Plaintiffs’ Summary Spreadsheet but identified in both the Plaintiffs’ and Defendant’s bank statements, and the Defendant’s cheque butts.
5.6.16In relation to the Plaintiffs and Defendant’s residual unmatched payments at 5.6.4e and 5.6.10d:
a.I have been unable to corroborate these payments from the Parties’ Schedules with any other Originating Source Documents or Other Source Documents;
b.The Parties have not provided bank statements or other records that can verify the residual unmatched payments. In this regard I have observed[96] that the bank statements of the Plaintiffs and the Defendants do not consistently provide the level of detail that would facilitate this verification exercise;
c.For example, verification of the Defendant’s deposits could be facilitated by records of batch deposits for lump sum ‘Cash and/or Cheques Deposit’ amounts in the Plaintiffs’ bank statements[97]; and
d.I provide a schedule of the Parties’ respective residual unmatched payments at Appendix H.
[96]Report, [3.3.38] and [5.6.11c.iii].
[97]Report, [5.6.11c.iii].
The defendant was not provided with, and has not seen, copies of any of the plaintiffs’ bank statements that were produced in response to the special referee’s request, because the plaintiffs opposed them being produced to the defendant in an unredacted form. However, given the observations the special referee made in her Report about the lack of information contained in the plaintiffs’ bank statements, it now seems clear that production of the plaintiffs’ bank statements (in redacted form) to the defendant would not provide any real assistance to him in matching the residual unmatched payments his cheque butts record him as having made by way of deposits to the plaintiffs’ bank accounts, because the plaintiffs’ bank statements identify deposits made on the relevant dates as ‘Cash and/or Cheque Deposit’ for lump sum amounts of total deposits on that given date.
Importantly, the special referee has noted that the ‘deposit batch listings from the Plaintiffs would settle this’ issue of whether or not the lump sum ‘Cash and/or Cheques deposit’ entries recorded in the plaintiffs’ bank statements are comprised of deposits from sources that do not include the defendant’s cheque payments. However, the special referee continues, by adding ‘but I have not received these.’ Expressed in that way, the special referee’s comment appears to suggest that the deposit batch listings should have been produced but were not. Yet the Report itself makes no mention of a request having been made by or on behalf of the special referee for production of the ‘deposit batch listings from the Plaintiffs’ for the relevant time periods. And the email from Mr Shardey on 1 February 2021 requesting provision of the plaintiffs’ bank statements made no mention of ‘deposit batch listings’. Perusal of Appendix K (correspondence between the parties and the special referee) to the Report does not reveal any reference to a request made by or on behalf of the special referee that the ‘deposit batch listings’ be produced. Nor does Appendix K record that any request was made of the defendant that he provide ‘bank statements or other records that can verify the residual unmatched payments’ (which are noted as ‘not provided’ in paragraph 5.6.16 of the Report).
The parties were given a draft of the special referee’s report to confirm matters of factual accuracy
Mr Shardey of KordaMentha provided a draft of the special referee’s report to the parties (but not to the Court) on the afternoon of 5 March 2021. In his covering email of 5 March 2021, Mr Shardey stated:[98]
As explained in my email of 4 February 2021, this is provided to give the parties the opportunity to confirm matters of factual accuracy.
The draft report does not include answers to the questions addressed to Ms Lincoln in her honour’s Orders. It is not intended to provide the parties with an opportunity to make comments on Ms Lincoln’s analysis and conclusions to the extent they are not provided in the draft report.
. . .
[98]Bundle TE, 11–12.
It is unclear whether the version of the special referee’s draft report (as provided to the parties) made any reference to the fact that, in respect of the residual unmatched payments, the ‘deposit batch listings’ for the plaintiffs’ accounts had not been provided to her. But the correspondence from the plaintiffs’ solicitor to the special referee on 24 March 2021, providing their comments on the special referee’s draft report, suggests that the matching exercise recorded in Appendix H to the Report, and in particular Appendix H.2 (Defendant’s Unmatched Payments), had not been completed at that point. Therein the plaintiffs’ solicitors stated:[99]
· Where appropriate, and to the extent not already included in the Draft Report, we assume that the special referee’s final report will include reference to, and take into consideration, the information set out in the bank statements most recently provided by our clients in respect of the National Australia Bank accounts ending 7082 and 2477.
[99]Bundle TE, 47.
If the version of the draft report that was provided to the parties was simply an extract setting out factual matters only, it seems unlikely that the special referee’s analysis and summary of the results of her comparison of the banking and other documents would have been disclosed to them.
What is clear, however, from the Report is that the special referee is of the view that the deposit batch listings from the plaintiffs (or their banks) for the relevant time periods ‘would settle’ the issue of whether or not the lump sum ‘Cash and/or Cheques deposit’ entries recorded in the plaintiffs’ bank statements are comprised of deposits from sources that do not include the defendant’s cheque payments. In other words, the special referee has identified that she has not received (and has not inspected) documents that in the ordinary course would be regarded as (to adopt the words of s 26(1) of the CP Act) ‘critical to the resolution of the dispute’ between the parties.
The pragmatic expedient adopted by the defendant, in response to the lacuna or gap the special referee has identified in the material before her, was to subpoena from Mr O’Neale’s bank, Westpac, production of 22 cheques listed in the schedule, with a view to ascertaining whether or not those cheques were banked by the plaintiffs (and if so, which one). At the hearing on 21 May 2021, counsel for the defendant informed the Court that, according to Westpac, with the effluxion of time, the only way the defendant could obtain copies of those cheques is through a subpoena addressed to the bank.
In those circumstances, the defendant submits that, pending the production and inspection of those subpoenaed documents the Court should, in the interests of justice, exercise its discretion under r 50.04 and defer its consideration as to whether the special referee’s Report should be adopted.
Procedure for a reference to a special referee under Rule 50
At this point it is convenient to say something about the provision made in Order 50 of the Rules for reference to a special referee.
The reference of a question to a special referee may be appropriate where the question requires some technical expertise for its proper understanding and resolution. For example, it may be appropriate to do so where an accounting exercise is to be performed for which some accounting expertise is required and it is not cost effective or an appropriate utilisation of the time of a judge to undertake that exercise.[100]
[100]See LexisNexis Australia, Civil Procedure: Victoria, vol 1 (at Service 318) [I50.01.0].
Importantly, the report of a special referee is a report to the Court. As Hansen J observed in Wallfire Pty Ltd v Andwendrod Services Pty Ltd:[101]
[31]It is fundamental that the report of a special referee is a report to the Court, and that it is for the Court to decide whether to adopt it in whole or in part. The adoption is for the purpose of the proceeding in which the reference was ordered. If not for the reference, the question referred is one that a judge would decide in determining the litigation. It is, therefore, appropriate that the Court retains the power to decide whether the report will be adopted in whole or in part. The report does not, of itself, operate to determine the rights of the parties in the proceeding. It has no legal effect as between the parties unless and until it is adopted and acted on by the Court in the disposition of the proceeding. It is a matter for the Court, in the exercise of its discretion, having regard to the interests of justice in the circumstances of the particular case, to decide whether to adopt the report. It is thus seen that a special referee acts to aid the Court in the resolution of a proceeding, and does so as its delegate, as it were, subject to the powers of the Court in rules 50.01(2)(c) and 50.03(2)(b), and to the fact that, ultimately, the report may not be adopted at all or, if adopted, only in part. This applies whether, as referred to in rule 50.01(1), the question is referred to the special referee for decision or opinion.[102]
[101](2003) 176 FLR 408, 416 [31]; [2003] VSC 348 (Wallfire).
[102]Re Markbys Renaissance Pty Ltd [1999] 3 VR 851.
Rule 50.01 provides the procedural mechanism for the Court to refer ‘any question’ to a special referee for the referee to decide the question or give the referee’s opinion with respect to it. Rule 50.01 sets out the requirements for such a reference, and where such an order is made under r 50.01, r 50.02 provides that the Court may give directions for the conduct of the reference.
Rule 50.03(2), which deals with the Court’s powers on receipt of the special referee’s report, provides as follows:
Report on reference
. . .
(2) On the receipt of the special referee’s report, the Court—
(a) shall give notice thereof to the parties; and
(b) may by order—
(i)require the special referee to provide a further report explaining any matter mentioned or not mentioned in the report;
(ii)remit the whole or any part of the question originally referred to the special referee for further consideration by that referee or any other special referee;
(iii) vary the report.
(3)An application by a party for an order under paragraph (2)(b) shall be made on not less than three days’ notice to the other party or parties.
Rule 50.04 deals with the ‘Use of report’, as follows:
Use of report
The Court may as the interests of justice require adopt the report of a special referee or decline to adopt the report in whole or in part, and make such order or give such judgement as it thinks fit.
Read as a whole, the foregoing provisions in Rule 50 make clear that once the Court has received the special referee’s report, and before the Court considers the ‘use’ to be made of the special referee’s report and whether to adopt it in whole or in part, the Court has power to remit any matter mentioned or not mentioned in the report to the special referee for further consideration, or to seek the provision of a further report. In Wallfire Hansen J stated (emphasis in bold added):[103]
[103](2003) 176 FLR 408, 416–417 [32], [34]; [2003] VSC 348 (Wallfire).
[32]Rules 50.01(2)(c)[104] and 50.03(2)(b) do not state the criteria to be considered by the Court in deciding whether to exercise the discretion to make the orders they authorise. Rule 50.04 refers to the “interests of justice”, and that is understandable because the report is obtained by the Court in aid of the due administration of justice, and the attainment of that purpose must remain the principal object. It is fundamental that the Court retain control over that exercise. As Buchanan JA observed in Plumley v Adgauge Pty Ltd (1998) 29 ACSR 315 in relation to the Court’s discretion under rule 50.04:
[104]Rule 50.01(2)(c) provides that the Court may direct that the special referee give such further information in the referee’s report as it thinks fit.
The courts’ discretion is confined only by the interests of justice, which will depend upon the circumstances attending particular cases.
. . .
[34]The wide terms of rules 50.01(2)(c) and 50.03(2)(b) ensure that the Court has power to do that which is just and appropriate in all cases. That is consistent with its control over the orders it makes and the supervision of that which is done under them by its appointee. The rules aid in ensuring that a report sufficiently deals with the question it addresses. The further information ordered under rule 50.01(2)(c) or the further report or consideration ordered under rule 50.03(2)(b)(i) or (ii) will serve to fulfil the reference and provide a report better able to be considered for adoption. Moreover, the wide powers seem only reasonable, and necessary, having regard to the power to vary or to refuse to adopt the report. In other words, they assist the Court’s delegate to better perform the task which the Court itself requires to dispose of the litigation.
Inspection of the subpoenaed documents will promote the overarching purpose and enhance the utility of the special referee process in this proceeding
In the present case, the defendant did not formally make an application for an order under r 50.03(2)(b). But the practical effect of him seeking an order that the Court exercise its discretion under r 50.04 and defer its consideration as to whether the special referee’s Report should be adopted, pending the production and inspection of the subpoenaed documents, plainly entailed the consequence that if those documents demonstrated that cheques drawn by the defendant were banked in the plaintiffs’ bank accounts, then they should be produced to the special referee for further consideration.
Counsel for the plaintiffs recognised as much, in that when making submissions about the application being no more than a delaying strategy, Mr Di Lallo stated (words to the effect that):[105]
This application is a transparent attempt at delay. In the event that cheques are produced on 25 May 2021, then the defendant will have to consider the cheques, and if the Court accepts the defendant’s position, the special reference will have to be re-opened. There will be further costs and delay. It will make no difference anyway.
[105]The hearing was recorded by the Court’s transcript provider, but as yet no transcript has been made available.
Counsel for the plaintiffs submitted that there is nothing unsafe or unsatisfactory about the special referee’s Report, and the Court should reject the defendant’s application and instead proceed forthwith to adopt the Report in whole, following the approach of the Court of Appeal in Wenco.[106]
[106](2009) 25 VR 119.
I do not agree. In my view, the process of hearing the defendant’s application has drawn attention to what appears to be a significant gap in the material placed before the special referee, that the special referee has identified ‘would settle’ the issue of whether or not the lump sum ‘Cash and/or Cheques deposit’ entries recorded in the plaintiffs’ bank statements are comprised of deposits from sources that do not include the defendant’s cheque payments. Yet it appears no request was made by or on behalf of the special referee for the provision of that material.
To the extent that there is a gap in the material before the special referee, it is not one that the defendant has caused. Counsel for the defendant informed the Court that at no stage did the special referee ask the defendant to justify whether the cheques for the residual unmatched payments had been banked. It is unlikely that Mr O’Neale could have been aware of this gap before he received (at earliest) the extract of the draft report, or (more likely) the Report, because the additional suite of the plaintiffs’ bank statements that the special referee had called for had not been produced by the plaintiffs on discovery, and it was not until the special referee had attempted (unsuccessfully) to match them to the defendant’s payments that the issue of the lump sum ‘Cash and/or Cheques deposit’ entries recorded in the plaintiffs’ bank statements was revealed.
In circumstances where no request was made of the defendant that he provide records sourced from his bank(s) (as opposed to his cheque butts) that would facilitate this verification exercise in accordance with the special referee’s ‘Hierarchy of source documents’,[107] the pragmatic expedient the defendant has now adopted, is to seek the production of records from his bank concerning the entity to whom Westpac paid the proceeds of the cheques and details of the accounts into which these cheques were deposited. In my view, that is the pursuit of a legitimate forensic purpose. Indeed, it is a course that the Court indicated to the defendant’s counsel at the directions hearing on 31 March 2021 would likely be available to Mr O’Neale to pursue, in circumstances where the plaintiffs’ bank statements had not been provided on discovery or otherwise made available to him.
Meanwhile it is appropriate for the Court to defer its consideration under r 50.04 as to whether the special referee’s Report should be adopted
[107]Report, [4.5].
If it transpires that documents have been produced by Westpac in response to the subpoena, then inspection of those documents may, in the absence of production of the deposit batch listings, provide at least some of the information that the special referee has identified that she does not have.
In those circumstances, in my view, it is appropriate for the Court to defer its consideration as to whether the special referee’s Report should be adopted under r 50.04, and allow inspection of the subpoenaed documents to take place. In reaching that view, I have had regard to the overarching purpose set out in s 7(1) of the CP Act, which is to facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute in this proceeding.
In the present case, the course that is most likely to facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute is for the Court to permit inspection of the banking records produced by Westpac on the subpoena, and to defer consideration of the issue of whether the special referee’s Report should be adopted, pending such inspection.
Depending on the outcome of the inspection of those documents by Mr O’Neale and his legal representatives, if they do record one or other of the plaintiffs as the entity to whom Westpac paid the proceeds of the cheques, and provide details of the accounts into which these cheques were deposited, then it is likely the defendant will wish to provide those documents to the special referee. At that point, if the defendant contends that the issue of the residual unmatched payments should be the subject of further consideration, or a further report, by the special referee it will be necessary for the defendant to make a formal application under r 50.03(2).
In my view, were the Court instead to accede to the course proposed by the plaintiffs, and press on with the r 50.04 issue and determine whether to adopt the Report in whole or in part, before allowing for any further consideration by the special referee of the issue of the residual unmatched payments in light of the subpoenaed documents from Westpac, it would likely undermine the efficacy and utility of the special referee process ordered by the Court, and would not promote the overarching purpose.
In the present case, the appointment of the special referee took place against the background of the Court observing to the parties and their legal representatives that the issues in dispute between them appeared to be largely an accounting exercise, that could more readily and efficiently be resolved with the assistance of an expert with the requisite accounting skills undertaking a review of the documentation and tracing the payments made both through bank accounts and AMEX card payments. This was so notwithstanding that the dispute between Mr O’Neale and the plaintiffs had earlier been the subject of a determination by Mr Graeme Lavelle of Lavelle & Co Chartered Accountants, and it was that determination which led to this proceeding being commenced against Mr O’Neale in late November 2018.
Importantly, when the orders for the appointment of the special referee and the Reference were made on 1 May 2020, the Court ordered that the special referee must address three relevant time periods, being the period from:
(a) 30 September 2009 (being the date of the Credit Account Agreement) to the date of the Report;
(b) 1 December 2012 (being the date 6 years prior to the commencement of the proceeding) to the date of the Report; and
(c) 9 November 2013 (being the date 6 years prior to the date of the (original) D&C) to the date of the Report.
The accounting exercise has taken considerably longer than was anticipated, necessitating the time for delivery of the Report to be extended on several occasions, and the exercise has been more costly than was estimated by the parties.[108]
[108]To date, KordaMentha has rendered tax invoices for preparation of the special referee’s Report totalling $247,540.98 (including GST), which have been paid by the parties in equal shares.
At or about the time when the special referee was appointed, Mr O’Neale informed the Court that he had recovered from his earlier cancer diagnosis and treatment and was in good health. Unfortunately, with the recurrence of his cancer in late 2020, he underwent further chemotherapy and radiotherapy treatment in early 2021, when the special referee was seeking input from the parties on the draft report. Notwithstanding the side effects of those treatment regimes, and the attendant fatigue Mr O’Neale was experiencing throughout that time, he has endeavoured to remain involved and provide some comments. I am not satisfied that he has conducted himself in a manner that could fairly be described as a deliberate delaying strategy.
For completeness I should also record that I reject the submission advanced by the plaintiffs to the effect that in seeking the issue of the subpoena to, and the production of banking records by, Westpac and the associated deferral of consideration as to whether the special referee’s Report should be adopted, the defendant has engaged in a delaying strategy that would undermine the attainment of the overarching purpose. Nor do I accept that the defendant’s conduct in this regard manifests an abuse of process.
Conclusion
In my view, the course most likely to facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute is for the Court to make orders along the following lines:
(1) The defendant shall be permitted forthwith to inspect and make copies of the banking records produced by Westpac Banking Corporation on the subpoena for production to the Prothonotary filed on 4 May 2021 (the subpoenaed documents).
(2) Subject to the outcome of that inspection, any application the defendant wishes to make pursuant to r 50.03(2)(b) for the Court to—
(a) refer to the special referee any of the subpoenaed documents that he considers may be relevant to the issue of matching any residual unmatched payments made by the defendant to the plaintiffs or one or other of them (as listed in Appendix H.2 of the special referee’s Report); and
(b) request that the issue of matching any residual unmatched payments made by the defendant to the plaintiffs or one or other of them (as listed in Appendix H.2 of the special referee’s Report) be the subject of further consideration and/or further reporting by the special referee, pursuant to r 50.03(2)(b),
shall be filed and served within 7 days of inspection of the subpoenaed documents.
(3) Subject to any further or other order, the Court’s consideration of the use of the special referee’s report pursuant to r 50.04 be deferred and held over pending completion of the steps outlined in paragraphs (1) and (2) above.
I will hear from the parties on the precise form of the orders to be made.
SCHEDULE OF PARTIES
| AUSTRALIAN PHARMACEUTICAL INDUSTRIES LTD (ACN 000 004 320) | First Plaintiff |
| First Defendant by Counterclaim | |
| PRICELINE PROPRIETARY LIMITED (ACN 005 968 310) | Second Plaintiff / Second Defendant by Counterclaim |
| NEW PRICE RETAIL SERVICES PTY LTD (ACN 100 732 750) | Third Plaintiff/ Third Defendant by Counterclaim |
| API VICTORIA PTY LTD (ACN 001 941 608) | Fourth Plaintiff/ Fourth Defendant by Counterclaim |
| -and- | |
| WARREN WALTER O’NEALE | Defendant/ Plaintiff by Counterclaim |
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