Cafe At Hyde Park Pty Ltd v Teddy Holdings Pty Ltd

[2011] SASC 185

SUPREME COURT OF SOUTH AUSTRALIA

(Civil)

CAFE AT HYDE PARK PTY LTD & ANOR v TEDDY HOLDINGS PTY LTD & ANOR

[2011] SASC 185

Reasons of Judge Lunn a Master of the Supreme Court

31 October 2011

PROCEDURE

Application under 6R 32 for disclosure before action - threshold requirement under 6R 32(1) that "the plaintiff ... requires further information" - plaintiffs' need to disclose what information it has obtained from other sources and to show it still needs further information - need for plaintiffs to disclose their sources of other information - held in part plaintiffs had not yet satisfied requirement about further information - further opportunity given to do so - whether other orders sought were oppressive - where disclosure already made by solicitors' letters.

Held: no order to be made that this disclosure be verified by affidavit.

CAFE AT HYDE PARK PTY LTD & ANOR v TEDDY HOLDINGS PTY LTD & ANOR
[2011] SASC 185

JUDGE LUNN:

Reasons on plaintiffs’ application for pre-action disclosure

1. This action is brought under 6R 32 for pre-action disclosure of documents which the plaintiffs[1] claim are needed for them to ascertain whether they have any causes of action and, if so, against whom, and to formulate their claim properly.  After the institution of this action the defendants have voluntarily disclosed some documents.  These reasons are confined to the orders which were sought by the plaintiffs on the argument on 5 October 2011.

   [1]    I refer to the plaintiffs in the plural and there is no need on this application to differentiate between them.

2. Apart from the points mentioned below, there was no dispute about the legal principles to be applied for 6R 32.  The argument was mainly about the application of those principles to the circumstances of this matter.

3. The factual scenario was complicated by various entities having changed their names[2] and assigned their interests.  Duke King William Road 179 (“the landlord”) is the owner of 179-181 King William Road, Hyde Park, (“the premises”).  On 14 June 2005 it leased those premises to the first defendant (“the head lease”).  Later in 2005, the first defendant gave an underlease of the premises, and entered into a franchise agreement for a Café under the name of “Un Café Bar”, with Palace Café and Bar Pty Ltd.  On 20 September 2007 that company assigned its underlease, and transferred its franchise agreement, to the plaintiffs.  In about late 2008 the first defendant assigned its interest in the head lease and its assets, apparently including the franchise agreement, to the second defendant, but the landlord has not recognised the efficacy of that assignment of the head lease.  On 28 April 2010 the plaintiffs gave notice to the defendants of its intention to exercise its option to have its underlease extended upon its expiration on 30 June 2010, but on 2 June 2010 the defendants refused to accept that extension of the underlease and the franchise agreement unless the plaintiffs completely refurbished the premises, which was a term of the franchise agreement whose performance had not previously been insisted upon.  On 10 December 2010 the defendants re-entered the premises and excluded the plaintiffs.

   [2]    In these reasons I generally use their current names, without reference to their former names.

4. Unbeknown to the plaintiffs, at about the same time the landlord had refused to extend the term of the head lease because the defendants, or one of them, was in breach of its obligation to redecorate the premises.  By a notice of 30 June 2010 the defendants were denied the extended term of the head lease they had requested on the grounds of alleged breaches of it.  In Action 814 of 2011 in the District Court the first defendant has sued the landlord for an extension of the head lease and compensation.  Pursuant to an order of the District Court in that action the plaintiffs have made non-party disclosure to the landlord.

5. Under 6R 32 the plaintiffs seek:

   3.Any deed of assignment (or any other form or transfer) of the Franchisor’s rights and obligations under the Franchise Agreement from Teddy Holdings Pty Ltd to UCB Holdings Pty Ltd, or any agreement for any such assignment.[3]

   I accept the plaintiffs’ contention that they need these documents to ascertain whether they have any cause of action against the second defendant.  They do not know the precise terms of what was assigned and whether that might give them any rights against the second defendant as well as, or in lieu of, those against the first defendant.  The defendants’ counsel argued that part of the document was commercially sensitive.  It was not disputed that the document could be redacted, but it will need to disclose what is relevant to any potential causes of action by the plaintiffs against both defendants.

   [3]    The quotations about the documents for which disclosure is sought comes from a schedule to the plaintiffs’ first affidavit.

6. The plaintiffs seek under 6R 32 disclosure of the following documents:

   8.All records of communication between Teddy Holdings Pty Ltd and/or UCB Holdings Pty Ltd in respect of the renewal of the Head Lease.

   9.All records of communication between Teddy Holdings Pty Ltd and/or UCB Holdings Pty Ltd and the Head Lessor in respect of any allegation by the Head Lessor made after 20 September 2007 that the Head Lease had been breached, including:

   ·     Documents evidencing the communication of any such allegation;

   ·     Documents evidencing any response to any such allegation.

7. I accept that the plaintiffs have potential causes of action against the defendants if their refusal to extend the underlease resulted from the defendants’ breach of the head lease in not redecorating, or that it was the landlord’s demand to redecorate which caused the defendants to raise the non-compliance with the refurbishment obligation to deny an extension of the underlease to the plaintiffs.

8. The plaintiffs have obtained some documents relating to the non-extension of the head lease from the landlord which were exhibited to the affidavit filed by the landlord in support of its non-party disclosure application in the District Court action.  It is not entirely clear whether the plaintiffs have obtained any other documents from the landlord.

9. One of the threshold requirements imposed by 6R 32(1) for an order for pretrial disclosure is that “the plaintiff … requires further information”.  There was no equivalent requirement expressly contained in the similar repealed 87R 60.  In Belcar Pty Ltd v Premier Automotive Group Australia Pty Ltd[4] Judge Burley said:

   However, if the applicant is already in possession of sufficient information which by itself would enable an adequate pleading to be prepared, an order would be refused.  This is a statement of the obvious, but it needs to be mentioned because, in my opinion, the rule does not extend to a case where an applicant is able to provide an adequate pleading which would be improved if discovery were to be given.  In such a case, the substantive proceedings should be commenced and, if, after discovery, it becomes apparent that the statement of claim should be amended, the appropriate amended pleading should be filed either pursuant to the rules or by consent or if permission is given by the Court.

   This phrase in sub-r (1) implies that the plaintiff has some relevant information, but not enough to fulfil all of sub-rr (1)(a), (b) or (c).  As the requirement for further information is a precondition to the exercise of the power, the onus is on the plaintiff to show by proper evidence all of the relevant information which it does have and why and how it needs more information to fulfill sub-rs (1)(a), (b) and (c).

   [4] (2007) 249 LSJS 403 at 407.

10. I accept the defendants’ contention that it is necessary for the plaintiffs to marshal the information which it has from other sources and then to show that information is not sufficient for them to determine whether a cause of action exists, or for them to formulate their claim properly.  If the plaintiffs already have the necessary information from other sources, there is no justification for an order being made under 6R 32.  Here the plaintiffs have not shown that they require any further information on items 8 and 9.  I do not intend to trawl through the numerous documents exhibited to the plaintiffs’ affidavits in an attempt to determine the point, when the plaintiffs have not marshalled and collated that information in a form which enables the Court to see readily that more information is required for an order to be justified under 6R 32.

11. The defendants’ counsel also submitted that the plaintiffs should disclose the sources from which they obtained the information which they already have on the topic.  The quality, or weight to be given, to that information by virtue of its source is not directly relevant to 6R 32(1).[5]  Its source rather goes to whether the plaintiffs would be able to prove at any trial of the substantive issues what it asserts as a result of the information.  R32(1) is only concerned with the content of information, and not with its evidentiary weight.  However, although it was not raised in argument, there may be an exception to this if the information has been obtained by the plaintiffs from the landlord which in turn had obtained the information or documents by any compulsive process in the District Court action.  If so, permission of the District Court may be required before that information could be disclosed.[6]

    [5]    6R 32(1) is concerned with information and does not refer to “evidentiary material”.  That phrase is only used in 6R 32(2).

    [6]    See Civil Procedure South Australia [6R 144.15].

12. As the matters raised above were not fully explored in argument, I will adjourn it for further submissions if the plaintiffs wish to pursue the order.

13. The plaintiffs also seek under 6R 32 the disclosure of the following documents:

    10.All documents recording or evidencing any financial benefit received by either Teddy Holdings Pty Ltd or UCB Holdings Pty Ltd or their Associates in respect of the supply of goods and services to Cafe at Hyde Park Pty Ltd (other than gelati) pursuant to or in relation to the Franchise Agreement, including benefits in the nature of:

    ·     Price mark-ups on the goods or services by Teddy Holdings Pty Ltd or UCB Holdings Pty Ltd prior to on-supply to Cafe at Hyde Park

    ·     Rebates

    ·     Discounts

    ·     Dividends or any other profit-sharing agreement.

    11.Where a financial benefit has been received as described in item 11[sic (10?)] above, documents recording or evidencing:

    ·     The nature of the benefit;

    ·     The value of the benefit;

    AND, in particular, documents evidencing the price at which all goods and services were supplied to Teddy Holdings Pty Ltd and/or UCB Holdings Pty Ltd and the price at which the same goods or services were on-supplied to Cafe at Hyde Park Pty Ltd.

14. During its conduct of the franchise the plaintiffs purchased in excess of 50 lines of products from the defendants.  They reasonably argued that under clause 9.1(j) of the Franchise Code of Conduct, clauses 16.23, 16.4 and 16.8 of the Franchise Agreement, and under s 51AD of the Competition and Consumer Act 2010, the defendants were not entitled to make a profit from any mark-up, rebate or discount on these products which they sold to the plaintiffs.[7]  The evidence shows that in relation to the rent payable on the underlease compared with what the defendants were paying to the landlord, and on gelati sold by the defendants to the plaintiffs, there had been substantial mark-ups.  This gives rise to a reasonable inference that there may have been impermissible mark-ups, discounts or rebates on other products sold by the defendants to the plaintiffs.  The plaintiffs can only know if they have a cause of action in respect of the other products sold by obtaining disclosure of the defendants’ documents on the topic under 6R 32.

    [7]    A mark-up may have been justified if there was disclosure of it, but there was none.

15. I do not accept the defendants’ submission that such an order would be oppressive.  They have not filed any affidavit that the cost and effort involved in complying with the order would create such a hardship for them that it would be unjust to make it, particularly when under 6R 32(4) it has not been disputed that the plaintiffs will have to pay reasonable compensation for the time and expense of the defendants involved in complying with the order.  The defendants submit that the plaintiffs should first give them details of what they purchased from the defendants and what they had paid the defendants for it.  However, there is no evidence that these matters are not readily ascertainable by the defendants from their own financial records and it has not been shown to be oppressive to require disclosure in the manner sought by the plaintiffs. 

16. I reject the defendants’ submission that there is no basis for an order on this topic against the second defendant.  The plaintiffs have deposed to having purchased products from the defendants and the second defendant has not filed any affidavit denying that after it took its assignment from the first defendant it did not, as the franchisor by assignment, sell products to the plaintiffs. 

17. In respect of a number of other categories of documents sought by the plaintiffs, the defendants have made disclosure of them through letters from their solicitors.  The plaintiffs seek an order that this disclosure be verified by affidavit sworn by an officer of the defendants.  The order was not sought under 6R 32(2)(c), but under the very general power in 6R 116(1), which gives the Court power to make any order it considers necessary for the proper conduct of a proceeding, or otherwise in the interests of justice.  It is not necessary for the proper conduct of this proceeding, or is it otherwise in the interests of justice, that the disclosure made through correspondence from the defendants’ solicitors should be verified by affidavit in the circumstances of this matter.[8]  There is no reason put forward to doubt the accuracy of what has been disclosed in the correspondence from the defendants’ solicitors.  I do not accept that it is unfair to the defendants’ solicitors to make them responsible for any errors which may have occurred in proper disclosure being made.  If they were not prepared to accept the accuracy of their instructions on the topic, they should not have written the letters.  If affidavits from parties were to be required wherever solicitors have made disclosure of documents in correspondence, such orders would be justified in almost every case, which would be incurring costs unnecessarily.  6R 32(2)(a) does not specify how the disclosure is to be made.  Open correspondence from a party’s solicitors is a permissible means.  I will not order any affidavits.

    [8]    Olijnyk v Olijnyk & Ors, Lunn M, 4 October 2011, [2011] SASC 166.

18. The defendants’ counsel sought the opportunity to speak to the minutes about the precise orders for disclosure.  There may also need to be further argument on items 8 and 9.  I will also hear the parties on costs.  I invite the plaintiffs to bring in minutes for consideration on the adjourned hearing.

19. The application is adjourned to a further hearing on Tuesday 15 November 2011 at 9.15am.