Campbell Investment Co Pty Limited v Dent Specialist Australia Pty Limited
[2012] NSWSC 1389
•12 November 2012
Supreme Court
New South Wales
Medium Neutral Citation: Campbell Investment Co Pty Limited -v- Dent Specialist Australia Pty Limited [2012] NSWSC 1389 Hearing dates: 12 November 2012 Decision date: 12 November 2012 Jurisdiction: Equity Division Before: Windeyer AJ Decision: Summons dismissed with costs
Catchwords: PRACTICE & PROCEDURE - third party discovery Legislation Cited: Uniform Civil Procedure Rules 2005 (NSW) Category: Principal judgment Parties: Campbell Investment Co Pty Limited - Plaintiff
Dent Specialist Australia Pty Limited - First Defendant
Daniel Zammit - Second Defendant
Scientific Motor Body Works Pty Limited - Third Defendant
Eastern Suburbs Mechanical Pty Ltd - Fourth Defendant
Combined Towing Service (NS) Pty Limited - Fifth DefendantRepresentation: Counsel:
C. Wilson - Plaintiff
M.J. Heath - First to Fifth Defendants
Solicitors:
Westside Law Firm - Plaintiff
Matthews Folbigg Pty Ltd - Defendants
File Number(s): 2010/240550
EX TEMPORE Judgment
HIS HONOUR: This is an application by the plaintiff for preliminary discovery pursuant to Pt 5 r 5.3 of the Uniform Civil Procedure Rules2005 (NSW). The application is made by Summons filed on 2 August 2012. Five defendants are named, and I will explain the parties involved.
The plaintiff company is a beneficiary holding 50 per cent of the units in a unit trust of which the first defendant, Dent Specialist Australia Pty Limited ("Dent"), is trustee. The second defendant is a director of the first defendant, as was Mr Campbell, the controller of the plaintiff. Scientific Motor Body Works Pty Limited is a company of which the second defendant is the manager, but which appears to be owned by other persons in his family. Eastern Suburbs Mechanical Pty Limited is a company which had premises which were either leased under an oral agreement or licensed to the first defendant for the purpose of carrying out spray painting work on vehicles in those premises. Combined Towing Services (NSW) Pty Limited, the fifth defendant, is a company which apparently was engaged to provide towing services.
Dent is or was a company which had a system or procedure for the repair of hail damaged vehicles. The company was successful and appears to have been well known, at least in New South Wales and perhaps wider. It had a successful business. It is not necessary to go into the ramifications of how Mr Campbell and Mr Zammit met, but they came together to form the business of Dent Its affairs were reorganised to bring about a position where they each had a one half share in their business or companies controlled by them did.
This relationship did not last very long, and it was then accepted that they would go their separate ways and that they would each take a one half share of the value of Dent. It is not clear to me at this stage quite how that was to be achieved.
There were some questions about the accounting and delays in the accounting, none of which really matter at the present time. Accounts were produced by Dent or its accountants. The plaintiff company had those accounts inspected by its own accountant, and a report was produced which at least threw up some problems with the accounts.
As a result of this, the plaintiff has sought, and I should in fairness say obtained, a vast amount of documentary material which has been wheeled into Court but which has not been inspected by me. After the first queries were raised and to some extent answered, the accountants had raised some further doubts, particularly relating to the third defendant and moneys paid by Dent to the third defendant and perhaps to the fourth defendant.
Insofar as the towing company is concerned, no questions have been addressed to that; and although the accountant said that some amounts paid to that company were not substantiated, what is meant by that is, as I understand it, no source documents were produced. No questions were asked of Mr Zammit in cross-examination today, and that matter can be disregarded.
Insofar as payments to Eastern Suburbs Mechanical Pty Limited, the same in my view applies. Dent paid $1,000 per month to that company for the use of its premises. It is not suggested, as I understand it, that amount was not paid, and no other moneys were paid to that company, Dent providing the employee who was engaged in spray painting in those premises.
What the plaintiff seeks to do is to require each defendant to give discovery of documents in the possession of that particular defendant generally speaking relating, insofar as Dent is concerned, to moneys paid by it to the third, fourth and fifth defendants, and in particular, payments from July 2007 to date. The same order for discovery is sought against Mr Zammit, but that would be purposeless because what is sought is what documents which the first defendant, if it was subject to production, ought to produce.
Insofar as the third defendant's Scientific Motor Body Works Proprietary Limited is concerned, what is sought is discovery of documents in its possession relating to money paid to it by Dent, meaning all moneys; and secondly, moneys paid to it for work performed by the first defendant, and documents relating to work performed by Dent on behalf of or in conjunction with the third defendant.
As I understand it, this is sought on the basis of the accountants' report there are some payments that had been made by Dent to Scientific Motor Body Works were not substantiated, and some moneys had been collected from insurance companies by Scientific Motor Body Works which included claims for work performed by Dent which may not have been paid to Dent. I should say that there is no evidence really to support this later allegation.
The documents sought from Eastern Suburbs Mechanical Proprietary Limited are basically the same as those which were sought from Scientific Motor Body Works, and the documents sought from Combined Towing Service (NSW) Proprietary Limited are documents relating to payments by Dent to it.
There is also non-party discovery sought against NRMA Insurance Limited and Suncorp Metway Limited first of documents recording or evidencing work done by Dent. That, of course, would be quite inappropriate. But secondly, what is sought are documents relating to work done by Dent for with or on behalf of the third defendant. That again is not appropriate.
However, assuming that what is really sought is documents which relate to work done by Dent paid for by NRMA Insurance or Suncorp Metway Limited as insurer. The matter can be dealt with on that basis, and I have no difficulty with that.
The question is whether or not the plaintiff has made out entitlement to an order under r 5.3. For this the Court needs to be satisfied that the plaintiff may be entitled to make a claim for relief against one or more of the defendants, but having made reasonable enquiries is unable to obtain sufficient information to decide whether or not to commence proceedings against that particular defendant. And that the prospective defendant may have or have had possession of a document that can assist in determining whether the applicant is entitled to make a claim for relief, and inspection of such a document which assist the applicant to make a decision send as to it.
If those requirements are met, then the Court may make an order for discovery. Unless they are met, it cannot do so.
Insofar as Dent is concerned, the simple fact is that Mr Zammit has given evidence that all documents have been produced by him or by that company which he possesses which has any bearing on the matter.
It seems to me therefore to be quite unlikely that, if an order for discovery were made, anything further would be produced which would assist the plaintiff in determining whether or not some action ought to be brought.
Insofar as Mr Zammit, the second defendant, is concerned, the same must apply.
Insofar as the third defendant, Scientific Motor Body Works Proprietary Limited is concerned, while the accountants have said that there are some unexplained transactions and did use the word improper, there is no basis at the present time to suggest that any payments made were improper, or that any moneys have been received from Scientific Motor Body Works which ought to have gone to Dent and have not gone to Dent.
The same applies to Eastern Suburbs Mechanical Proprietary Limited, and as I have said, there is nothing to suggest that Combined Towing Service (NSW) Proprietary Limited might have any documents which could throw light on any action.
It is understandable in a way why this claim has been made because the accountants, as tends to happen in a report such as they have produced, have identified some transactions which they say have not been properly explained and where they think there may be some underlying original source documents which have not been made available. The question, though, is whether or not any of this could assist the plaintiff, and in any event, whether or not any further information is needed to enable the plaintiff to decide whether or not there is reason to commence this action.
Obviously, if one were just looking for a cause of action, the position might be different, but the purpose of the rule is to enable the plaintiff to go a bit further and get some better idea about the strength of the plaintiff's case.
There is no question, in my view, of the Zammit parties not assisting and providing information which has been sought. There may have been some complaints about this at an earlier stage but they are not continued.
While it is not necessarily a determining factor, a fact is that on 21 March 2012, the solicitors for the plaintiff wrote to the now solicitors for the defendants stating as follows:
From our review of the bank documents it is evident that significant funds have been transferred which occurred without our client's knowledge, authority or consent. We dispute that the receipt and discernment of funds were accurately recorded.
That letter then goes on to seek some further information about particular jobs which had been the subject of some doubt as to whether or not the returns for those jobs were properly accounted for. And, I should say, that Mr Zammit has dealt in a subsequent evidence with those particular jobs, and as far as I can see, has to some extent explained them.
The letter then went on to deal with what were described as serious issues that needed to be addressed and considered, including breach of a director's duty, failure to properly account, misappropriation of funds, and unauthorised transactions and failure to properly maintain records, and then said that the failure to properly maintain records had made a task of coming to a figure for net profit virtually impossible, but finally made an offer in which the plaintiff offered to settle for $500,000 including costs.
That letter is, I think, strong evidence that the solicitor for the plaintiff, when he wrote that letter, was of the view that, although there were some difficulties, there was sufficient evidence to enable him to make a claim. One can hardly offer to settle a claim for half a million dollars unless one is of the view that there is a claim.
The other point is that the solicitor for the plaintiff has not given any evidence that he considers that more information is required to enable proceedings to be commenced, and although he has sworn an affidavit which has been read in the proceedings, nothing to that effect is in it. That I think gives at least some ground for thinking that the requirements are not made out.
It is a matter for the plaintiff to make out entitlement to an order, not for the defendant to deny, and it is very important to bear in mind in this matter that, whatever else has been said, the prime claim of the plaintiff against Dent is a claim against Dent for breach of trust. Such a claim would really only be able to be brought unless there were clear evidence at this particular stage, by a claim for accounts, and then on the accounting to determine whether any further action should be taken perhaps by joining other parties as defendants.
However, on the evidence now before the Court, I do not think that the plaintiff having made reasonable enquiries is not in a position to decide whether or not to commence proceedings. I do consider that reasonable enquiries were made, and that answers to those enquiries were furnished.
This is not a matter where the defendant, the main defendant, has refused to co-operate. It is really a question of whether or not, just because underlying documents have not been produced to substantiate payments, then the matter should be allowed to go further by further discovery to see whether anything further can be obtained.
That, I think, is not something that ought to be done when the plaintiff at least on two occasions has intimated that it thinks it has a reasonable claim.
Insofar as the claim for third party discovery against persons who are not the defendants under r 5.4 is concerned, for the reasons that I have given I do not think that this is necessary to enable the plaintiff to determine whether or not an action should be commenced. I do not wish to decide it at this stage, but in my view, on an ordinary reading, r 5.4 relates to discovery of documents by persons who are not parties in ordinary proceedings which have been commenced, and that does not extend to providing third party discovery in summonses commenced under r 5.3. But as this is not necessary for my decision. I will not take that further.
In all these circumstances, the claim fails, and therefore the summons should be dismissed with costs.
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Decision last updated: 16 November 2012
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