Duncan Davis (Sales) Pty Ltd v Davis
[2008] VSC 127
•24 April 2008
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 2059 of 2003
| DUNCAN DAVIS (SALES) PTY LTD | Plaintiff |
| V | |
| ANDREW DAVIS | Defendant |
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JUDGE: | HANSEN J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 1 and 2 April 2008 | |
DATE OF JUDGMENT: | 24 April 2008 | |
CASE MAY BE CITED AS: | Duncan Davis (Sales) Pty Ltd v Davis | |
MEDIUM NEUTRAL CITATION: | [2008] VSC 127 | |
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PRACTICE – Action against former employee for account of moneys received and damages – Security for costs – Refused by master – Appeal – Whether the time for appeal should be extended in respect of an order of the master allowing further materials in security application; extension refused – Whether special leave should be granted to enable the plaintiff to rely on an affidavit not before the master; leave granted – Appeal dismissed – Supreme Court (General Civil Procedure) Rules 2005, O 77.05(7)(b).
PRACTICE – Application to amend defence and counterclaim – Departure from existing defence – Death of a witness - Prejudice to plaintiff – Amendment allowed.
ACCOUNT – Application by plaintiff that prior to trial an account be taken of defendant’s disposition of moneys received on behalf of the plaintiff in the course of his employment – Refused.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr R C Gillard QC and S J Minahan | Hicks Oakley Chessell Williams |
| For the Defendant | Mr I D Martindale SC and Mr R N Cameron | Eggleston Mitchell |
HIS HONOUR:
The claim in this proceeding is essentially simple and straightforward yet the costs already incurred and predicted to be incurred if the case proceeds to trial are of Everest proportions and tend to reflect litigation out of control. The plaintiff, David Davis (Sales) Pty Ltd carries on the business of the manufacture of smallgoods. The defendant, Andrew Maxwell Davis, was a director and employee of the plaintiff between July 2000 and 14 August 2003 when he was summarily dismissed by his fellow directors who were his mother Patricia Joan Davis and his brother Matthew Robert Alfred Davis.
It is important to note that Patricia died in December 2006. Her place as a director has been taken by her daughter Allison Joan Davis, a sibling of Matthew and Andrew.
The business conducted by the plaintiff had originally been conducted by Patricia and her late husband Max, although not by way of the plaintiff which conducts the business as trustee of the Duncan Davis Unit Trust.
The proceeding was commenced by writ on 9 September 2003. The writ was endorsed with a statement of claim. The case is that in the course of his employment the defendant sold products of the plaintiff for which he received payment from the purchasers thereof but did not account to the plaintiff for the full amount received. Put simply, it is alleged that he enriched himself at the expense of the plaintiff, and in contravention of his duty as a fiduciary and his duty of fidelity. It is alleged that as a result the plaintiff has suffered loss and damage. The claim is put in a few ways but essentially the plaintiff seeks an account and payment of the sum found due on that account. There is also a claim for damages in the sum of $4M which is premised on establishing a loss caused by the defendant’s improper actions.
A defence and counterclaim dated 7 October 2003 was filed on 5 November 2003. In the defence the defendant admitted being a director and employee of the plaintiff and that he owed the plaintiff both a fiduciary duty and a contractual duty to act faithfully in the best interests of the plaintiff. He denied all remaining allegations in the statement of claim. However while denying that he had received monies for which he had not accounted to the plaintiff he set out, in particulars, an explanation in the nature of an accounting as to monies received including from whom and his disposition of those monies. The explanation was expressly incomplete and the right to provide further particulars was reserved. The pleading concluded with a counterclaim for damages for being dismissed from his employment without notice, a reasonable period for such notice being alleged to have been 12 months.
This brings me to the applications which have come before me for determination.
By a summons filed on 24 July 2007 the defendant sought (a) an order that the plaintiff provide security for the costs of the defendant, and (b) leave to file an amended defence and counterclaim. The application for security was heard by Master Daly on 3 and 4 October 2007, the application to amend being held over for consideration in light of the decision on security. To that stage the defendant had filed three affidavits and the plaintiff four. At the conclusion of the hearing on 4 October the master ordered that the plaintiff file an affidavit identifying and verifying the primary documentation which appeared to have been relied on by the police in compiling the document titled “Appendix A – Duncan Davis Investigation” being Exhibit MRAD-1 to an affidavit of Matthew, and gave the defendant leave to file any affidavit or submissions in reply. Pursuant to those orders the plaintiff filed two affidavits and the defendant filed a submission. On 9 November 2007 the master gave judgment on the security application. She refused to order security and dismissed the application with costs. The master also ordered that the plaintiff pay the defendant’s costs of a hearing on 18 September 2007 and of the submissions filed after the hearing on 4 October, as to which costs no question now arises. Finally, the master adjourned the application to amend to 16 November 2007.
On 13 November 2007 the plaintiff filed a summons seeking leave to amend the statement of claim and orders for the taking of an account by the defendant of monies received by him as an employee of the plaintiff. The amendment was merely to the prayer for relief to express more felicitously the claim for an account already there. The summons was supported by a further affidavit by the plaintiff’s solicitor.
Then, by a notice filed on 14 November 2007 the defendant appealed from the order dismissing the application for security. By the same notice the defendant sought an extension of time in which to appeal from the orders made on 4 October.
On 16 November 2007 Master Daly ordered by consent that the defendant’s application to amend and the plaintiff’s summons be referred to the judge in the Practice Court.
On 26 November the defendant’s solicitor swore and filed an affidavit in opposition to the plaintiff’s summons.
On 27 November 2007, and without prior leave to do so, the plaintiff filed an affidavit sworn that day by Brian Nolan, a detective sergeant of police who had investigated complaints made by the plaintiff against the defendant. The purpose of the affidavit was to verify matters in Exhibit MRAD-1 referred to in the master’s order made on 4 October 2007. The deponent explained that during October 2007 he was overseas and unable to provide an affidavit; he returned from overseas on 24 October 2007.
Ultimately, on 28 November 2007 a judge in the Practice Court referred out for hearing the three pending matters, namely the appeal from the order refusing security and the application to extend time to appeal from the 4 October orders, the defendant’s application to amend the defence and counterclaim, and the plaintiff’s application to amend the prayer for relief and for orders for the taking of an account. Each matter came on for hearing before me on 1 April. I first heard counsel on the application for security, followed by the other applications.
At the outset of the hearing counsel for the defendant sought an order extending time to appeal from the orders made on 4 October 2007. The argument was this. During the hearing the master ruled Exhibit MRAD-1 inadmissible by reason of a want of proper proof of the matters asserted in it. The impugned order was made after the completion of submissions on 4 October. It should not have been made as the parties had by then had an opportunity to put their case. It was reasonable for the defendant not to have appealed from the orders pending the master’s decision on security as an order for security would likely have brought the case to an end. Moreover there was a saving of costs in not having a separate notice of appeal. It was further submitted that the plaintiff would suffer no prejudice if leave was granted.
I refused the application to extend time to appeal. It was open to the master to take the course that she did in light of what she considered, in the circumstances, to be appropriate in the interests of justice. Even if the parties had completed their submissions the case was in the hands of the master to whom, having heard the argument, it doubtless appeared that fairness, combined with robust common sense, in adjudication between the parties properly warranted the order made. The order provided the plaintiff with the opportunity to render Exhibit MRAD-1 admissible, in whole or in part, and it was concerned with matters relevant to the disposition of the security application. There was no injustice to the defendant who had leave to file any further affidavit or a submission in relation to any affidavit that the plaintiff might file. The defendant chose the latter course and filed a detailed submission that ran to 15 pages of objections to admissibility of the plaintiff’s further affidavits, and contentions as to the insufficiency in proof of matters in those affidavits, and thus the continuing inadmissibility of the exhibit. There is no reason to suppose, and it is not suggested, that the master did not consider these objections in arriving at her decision or that she in any way misused MRAD-1.
While on the matter of Exhibit MRAD-1, it is pertinent to mention that counsel for the plaintiff sought special leave to rely on the Nolan affidavit pursuant to O 77.05(7)(b) of the Supreme Court (General Civil Procedure) Rules 2005 (“the Rules”). This was opposed on the basis that with notice of the summons for security since July 2007 there was no sufficient explanation why Nolan’s evidence had not been before the master. Further, Nolan’s affidavit was sworn on 27 November 2007 but not served until 26 March 2008, again without explanation for the delay. There is substance in these points and the Court must be alert not to permit parties to use the hearing before the master as a dry run as I stated in Brownport Management Ltd v Aqua-Tech 21 Pty Ltd[1]. Of course each case must be considered in light of its own circumstances. In the present case the matter to which the Nolan affidavit was directed was an issue before the master upon which the plaintiff had advanced evidence from two deponents but which evidence did not render MRAD-1 admissible. Although it was an interlocutory hearing, the exhibit should have been established by evidence sufficient for the hearing. The fact that it was not might have been due – I do not know – to a misapprehension of the evidentiary requirements on an interlocutory application. But, for whatever reason, I am of the view that in the circumstances of this case in which so much money has been spent, if not a deal wasted, on legal costs that it is important for the Court to have regard to all evidence that may bear upon the proper disposition of the application. It seems to me that too much time has been spent on costly point-taking without dominant regard being had to the substance and overall direction of the matter. In my view the interests of justice make it appropriate, in the particular circumstances and bearing in mind that the Nolan affidavit does not raise new matter but seeks to establish by sufficient evidence that which was always in issue, to give special leave to rely on the affidavit, and I do so. I did not understand counsel for the defendant to contend that if received the affidavit was not admissible in any particular. Nevertheless I have read it carefully in light of the other material. I should say that I would have reached my conclusion on the security application without the Nolan affidavit but it merely serves to support that conclusion.
[1][2002] VSC 396.
I turn now to the appeal against the refusal of security. The application is made pursuant to s 1335(1) of the Corporations Act 2001 and O 62.02(1)(b) of the Rules. The defendant seeks security to the end of the trial in the sum of $947,160.22 made up of:
(a) Past costs
$164,866.72
(b) Prospective costs
$782,293.50
$947,160.22
The defendant relies on an assessment by Grace Costs Consultants.
In written and oral submissions counsel for the defendant set out the case for ordering security. Sensibly and appropriately counsel for the plaintiff confined himself to an oral submission. The submissions on the security application were concluded within the first day of hearing. It is evident that what I heard in one day had been canvassed before the master over a two day hearing, subsequent to which the master delivered a careful and comprehensive judgment, a copy of which is on the file. Although the present is a re-hearing de novo I have the benefit of the master’s reasons for judgment. I have also had the benefit of a Court Book prepared by the plaintiff, an Application Book prepared by the defendant, three lever arch files containing two affidavits of the plaintiff’s solicitor with the exhibits thereto and the exhibits to another of his affidavits, and a folder provided by the defendant containing three separate written submissions each dealing with different matters, and authorities relied on. I have regard to all that has been said and placed before me.
The materials establish, and it is conceded, that the plaintiff would not be able to meet an order for security, certainly in anything like the amount sought by the defendant. It is unnecessary to set out the matters which indicate that situation; they are referred to in the materials and the submissions. The real question is how the discretion to order security should be exercised. In my view, security should not be ordered. The reason lies in the overall assessment of the discretionary considerations pertaining to the strength of the plaintiff’s claim, the delay in seeking security in the overall context of the proceeding including that it had been fixed for trial in May 2007 without any application for security having been made and the plaintiff’s ongoing incurring of costs, the effect of an order in stultifying the plaintiff’s claim which it is important to bear in mind is a claim by a principal that its agent account for moneys received, and the relationship between the defendant’s impugned conduct and the financial position of the plaintiff. These matters were considered by the master in her judgment.
I do not overlook that the appeal is a re-hearing de novo. But, as mentioned, the materials placed before me include the reasons for judgment of the master which I have perused along with the other materials. Having considered the materials and all that counsel said my position is that if I were to set down my reasons for refusing the application those reasons would in substance be the same as those provided by the master. I would, with respect, adopt the master’s reasons and for those reasons refuse security. I consider that the proper disposition of the matter does not warrant separate or further elaboration.
I would add this. Even if I had ordered security I would consider it inappropriate to provide for past costs. There is no adequate reason why with due diligence the defendant could not have applied earlier. The proceeding was commenced as long ago as 2003 and it was to be tried in May 2007. I was told that the fixture went off because the Court Book was not ready due to tardiness of the defendant’s solicitor in relation to the contents of the Court Book. Whether that was so or not, the fact is that the defendant – who (according to his answers to interrogatories) had been a director of the plaintiff between 5 December 1997 and 2 July 2003 and an employee from approximately 1988 – had let the case go to the trial date without seeking security. Moreover, even earlier in 2006 the defendant had sought to be substituted as petitioning creditor to wind up the plaintiff, the defendant believing that the plaintiff was in financial difficulty.
Nor, if I ordered security would I have considered it appropriate to allow a sum to the end of the trial. I consider that the sum sought, considering the issue of accounting involved, to be excessive. Indeed regarding the matter in the round the overall amount of costs put forward by the defendant is concerning from the private and public point of view. In my view the amounts put forward bespeak the need for serious professional consideration as to where this litigation is going and the need to speedily consider the expeditious and economic way of dealing with the substance of the matter which is, as stated by counsel for the plaintiff, that the defendant account to his principal. Apart from the plaintiff, it is hard to see how the defendant could afford the case at least if the application made by the defendant and his wife to the ANZ Bank for a residential investment loan in May 2000 is an indication of their present net asset and income position[2]. If I had ordered security it would have been in a relatively modest sum for a limited stage in the proceeding with the matter to be reviewed from time to time.
[2]Exhibit MJH 16 to the affidavit of the plaintiff’s solicitor sworn 29 May 2007.
That brings me to the defendant’s application to amend the defence and counterclaim and the plaintiff’s application to amend and for the taking of an account. The plaintiff opposed the defendant’s application and the defendant opposed the order for an account. To understand the plaintiff’s position it is necessary to appreciate the nature and range of the amendments to the defence and counterclaim.
As it presently stands the defence and counterclaim admitted incorporation of the plaintiff, that the plaintiff carried on business as a manufacturer of smallgoods, that the defendant was a director and employee prior to July 2003 and that by reason of his position as a director and employee owed both a fiduciary and contractual duty to the plaintiff to act faithfully in its best interests. However it was denied that in breach of those duties between July 2000 and July 2003 he received moneys derived from the sale of the plaintiff’s products but did not account for them. The statement of claim alleged that the defendant had received and misappropriated not less than $4M; the defence denied that the plaintiff had suffered loss and damage in that sum, and that the defendant was liable to account for that sum or for damages for breach of contract. The defence concluded with a counterclaim for damages for wrongful dismissal.
Having thus outlined the existing defence and counterclaim it is necessary to return to dwell on one aspect of the pleading which was central to the plaintiff’s submissions both in opposing the amendment and in seeking an order for an account. This aspect was found in the particulars to the denial of the alleged breach of duty. The particulars were extensive, being near to two pages, and constituted a partial accounting by the defendant of moneys he had received.
The structure of the particulars was first to refer to a methodology – being, the second of three methodologies - used in a report prepared for the plaintiff to arrive at a discrepancy in moneys received of between $3,617,519 and $4,050,540. The second methodology was based on cash sales book entries for the period 17 February to 20 June 2003 and extrapolated to the period July 2000 to July 2003. The particulars referred to five named customers referred to in the report and gave an explanation as to each. As to four other customers referred to in the report the particulars stated that the defendant was “not able to respond to these four but will do so as soon as possible”. Then the particulars stated that eight other named persons – including Patricia and Matthew – handled cash and that some cash was used to pay staff wages and overtime, including family members to whom total payments in excess of $3,000 a week were made, and there were items of current and capital expenditure of $282,413 particulars of which were set out in a schedule. The particulars stated that the defendant reserved the right to provide further particulars of denial in relation to the second methodology “and will do so as soon as the defendant is able”. The particulars concluded with a similarly expressed reservation of the right to provide particulars in relation to the first and third methodology.
Although these particulars were given by reference to the second of the three methodologies counsel for the plaintiff relied on the substantive approach adopted in the particulars. That was to provide information and explanation and undertake to provide further particulars when able to do so. This was an accounting, although incomplete, as one would expect an agent to give his principal.
I now refer to the proposed amended defence and counterclaim. This had been produced as an exhibit to an affidavit sworn by the defendant’s solicitor last July. As a result of the discussion on the first day of the hearing counsel for the defendant produced a revised version of the amendments and it is to that revision which I now refer. The amendment document is significantly different to the original defence. The approach taken in the particulars in the existing defence is abandoned and replaced with a defensive position. In addition, some new claims are added. I summarise the changes, although without overlooking their full terms for the purpose of considering the submissions.
In lieu of the former bare denial of the plaintiff’s allegations of breach and loss, and of the particulars referred to above, the defence is to be put as follows.
The defendant dealt with cash derived from the sales of smallgoods as he was entitled to do in accordance with his authority as general manager and/or a director in any one or more of the following ways:
(a)paying for purchases,
(b)paying wages,
(c)paying money to Matthew and himself, and
(d)paying all other money to Patricia.
Particulars were provided of his “authority” which was to be inferred from a course of dealing before, during and after July 2000 to July 2003. The particulars run over two pages and give a history of the use of cash in the business including in the business formerly conducted by Max and Patricia. In these particulars it was stated that the defendant’s usual practise at the end of each day was to hand the residue of cash received by him to Patricia in her office and that she would then write up invoices for an amount that equalled the residual amount of the cash which she deposited in the company’s bank account. This course of dealing was known to, and approved by, the directors.
The amendments then allege that the defendant paid all cash he received in accordance with the above entitlement, the residual amount thus being paid to Patricia. It is alleged that he did not keep records of the cash received or paid by him in July 2000 to July 2003 “and cannot say how much was paid”.
The amended defence continues the denial that the plaintiff has suffered loss and damage but then makes the following further point. It was the plaintiff’s practice not to record a significant volume of its sales, and to create false cash sales invoices to match the value to be recorded; persons other than the defendant handled cash derived from sales; there was always pilfering of raw materials and smallgoods manufactured by the plaintiff, the amount whereof was not known or recorded; and raw materials and finished goods were bartered for other products thus distorting the matching of meat intake to reported sales. Furthermore, Patricia, as had been the practice of Max, accumulated cash in the business and a discrepancy between the meat intake and report of sales was a reflection of that practice.
In the amended counterclaim the following claims have been added to the claim for damages for wrongful dismissal. First, that in accordance with a resolution of the plaintiff as trustee of the unit trust, on or about 18 March 2000, the defendant was entitled to be registered as the holder of 15 units in the trust. Secondly, for payment of moneys owing to him in respect of his units and that an account be taken for the purpose of ascertaining the amount due. Thirdly, for the removal of the plaintiff as trustee of the unit trust and the appointment of a new trustee; alternatively that a receiver and manager be appointed to the assets and undertaking of the unit trust. Fourthly, for an order for the payment of $175,000 as money paid or lent by the defendant between June and December 2001 for the payment of amounts owing by the plaintiff to a supplier.
The plaintiff opposed leave to amend on several grounds. The first ground ran along these lines. The particulars in the present defence were in the nature of an admission of the obligation to provide an account, and represented a partial account. That approach reflected and acknowledged the legal position of an agent. The case should sensibly and economically proceed by way of the defendant providing an account with judgment going for the amount found due. Based on this acknowledgment of the defendant’s position the plaintiff was seeking an order for the taking of an account by the defendant. However, by the amended defence the defendant resiled from this position, as it introduced allegations which did not sit with the present particulars, those allegations being the allegedly authorised way in which he dealt with cash derived from sales.
In considering this ground it is to be remembered that the particulars were provided under a denial of the plaintiff’s allegation of breach. It is true that the amended defence is inconsistent with the particulars, but that is all and there is no suggestion that the defendant is precluded, such as by a waiver or estoppel, from relying on it.
Then counsel referred to the fact that due to her death Patricia will not be available to the plaintiff as a witness at the trial. Of course it is to be noticed that the amendments were produced subsequent to Patricia’s death, but doubtless the trial judge will consider the defendant’s evidence with the circumspection appropriate in the circumstances. Otherwise, in the circumstances and standing alone the prejudice caused to the plaintiff by reason of Patricia not being available at the trial is not a reason to refuse the amendment. I note further that although the plaintiff’s solicitor deposed that the prejudice to the plaintiff was “significant” because Patricia’s evidence “cannot be obtained” he did not say whether a statement had been obtained from her let alone one which might be able to be put in evidence. As to that I was informed that a witness statement of her evidence had been filed for the trial in 2007. Anyway, for the purpose of deciding this application I assume that there is no such evidentiary material.
Next, counsel submitted that as the defendant was seeking to resile from the particulars in the current defence leave to amend should not be granted without the defendant explaining his position in an affidavit. That explanation would go to his version of, or belief in, the facts now alleged and whether he raised them earlier with his lawyers and why they were now raised. It was not sufficient just to put the new pleading forward. The submission seemed to suggest that in the absence of an affidavit I could refuse the application on my forming an adverse view of the defendant and his credit. In fact, however, the defendant’s solicitor swore an affidavit last November in which he deposed that he was instructed by the defendant, and believed, that the contents of the proposed amended defence and counterclaim were true and correct in every particular. In addition to that general statement, the solicitor deposed as to such instructions in relation to the critical paragraphs of the amended defence and counterclaim. The solicitor was not cross‑examined. I do not overlook that the amendment has been raised at a late stage, even after the original trial fixture. I have regard to all the circumstances but in my view the solicitor’s affidavit provides adequate foundation for the application. It is true that the solicitor - and the defendant – do not explain why the matters in the amendments were not raised in the original defence or at least prior to the death of Patricia. But that is not sufficient reason to refuse the amendment which contains that which the defendant wishes to raise as his defence. It may be that counsel for the plaintiff hoped that if the defendant was required to swear an affidavit as to the facts the affidavit would provide additional support for the application for an account. That, however, is another matter and it is not a reason to require the defendant to swear an affidavit in support of the application to amend.
The next point was that the amended defence was inconsistent with the defendant’s answer to interrogatories. As counsel acknowledged however this was really a forensic matter for the trial. It did not constitute a basis for refusing leave.
Counsel for the plaintiff then turned to his objections to the counterclaim. This turned out to be confined to the application for an order removing the plaintiff as trustee of the unit trust. It was, counsel said, inappropriate that the application be included in the present proceeding. It should be brought in a separate proceeding. The same judge could hear both proceedings but in the proper management of them hear the application for removal of the trustee following determination of the primary issues in the present proceeding. The present proceeding was, counsel observed, one brought by a trustee against the defendant for an account of moneys received by him in the course of his employment. It was a curious step for an employee so sued to respond by seeking the removal of the plaintiff as trustee of the trust. Prima facie at least it would seem that the trustee was performing its duty in bringing the proceeding, the simple response for the employee being to provide an accounting. In my view any inconvenience in the inclusion of the claim for removal of the plaintiff as trustee may be catered for by appropriate management of the proceeding.
In my view, whether the matters relied on by counsel for the plaintiff are regarded individually or as a whole they do not warrant the refusal of the application to amend. The defendant should be able to raise all matters of fact and law that he desires to raise by way of defence. And, as Dawson J observed in The Commonwealth of Australia v Verwayen[3], in granting leave to amend a court is concerned with the raising of issues and not with their merits.
[3](1990) 170 CLR 394 at 456.
As to matters of form in the proposed pleading, the substance of the various matters alleged is clear enough. Notwithstanding the criticisms of the plaintiff’s counsel I do not consider there is any relevant vagueness or incomprehensibility in the draft document such as could warrant refusing the amendment in any part.
For these reasons I will grant leave to amend the defence and counterclaim.
I now turn to the plaintiff’s application to amend and for an order for the taking of an account.
The amendment was not opposed. It makes only one change to the prayer for relief. The change is to state in fuller terms the order for an account that the plaintiff seeks. It is plainly useful and I will give leave to amend accordingly.
That leaves the application for orders for the taking of an account. The orders sought were set out in para 2(a) – (g) of the plaintiff’s summons. They required that an account be taken of all moneys belonging to the plaintiff and received by the defendant during the period 1 January 2000 to 14 August 2003 whether as an employee or agent of the plaintiff or from another employee or agent of the plaintiff and disbursed by him. The orders stated what the account should specify; required that the defendant file and serve a detailed account verified by affidavit within 30 days of the order; required that within the same time the defendant file and serve a detailed statement verified by affidavit specifying each transaction entered into as a consequence of each payment made, allowed or paid out of moneys so received by him; that the plaintiff, within 14 days of service of the account statement and the detailed statement of transactions, have liberty to apply to cross-examine the defendant thereon either orally or by interrogatory; that the trial of the proceeding be otherwise adjourned; and that the costs of the taking of such accounts be reserved.
It appears from an affidavit sworn in support by the plaintiff’s solicitor that counsel submitted to the master on the security application that it was appropriate to order the defendant to account for the moneys he had received as an employee. In so submitting counsel relied on Asset Risk Management Ltd v Hyndes[4]. Of course there was then no formal application seeking an account. That step was not taken until November when the summons was filed. The orders are sought pursuant to O 52 of the Rules.
[4][1999] NSWCA 201.
In his affidavit the plaintiff’s solicitor deposed that an order for the taking of an account would curtail the trial. Furthermore, if the defendant accounted properly and accurately for all the moneys belonging to the plaintiff and which came into his hands as referred to above, it was anticipated that the plaintiff would seek judgment for the amount, if any, found due to the plaintiff together with interest. Counsel took the same approach in his submissions, indicating that the plaintiff would lower its sights from the $4M claim to the sum, which he indicated would be less, found due on the account. The submission was attractive, seeming to offer an expeditious way to a result without all the costs involved in a trial on the pleadings. Nevertheless, the above stated basis on which the account may resolve the proceeding depends on the plaintiff being satisfied that the above stated conditions have been met. If the plaintiff was not so satisfied the case would yet have the potential to proceed to trial, and presumably it would in the absence of a settlement. Indeed that is what counsel indicated would occur. Moreover it is to be recalled that as compared to the way in which counsel said might be the route to resolution of the case, the statement of claim as it stands seeks $4M on the basis of the methodologies referred to earlier. Those methodologies approach the case on a different basis to that suggested by counsel as the better way to an answer to the case.
Counsel for the plaintiff informed me that the orders sought in the summons were to an extent based on the Asset Risk Management case on which he relied as supporting the making of the orders in the present case. He also suggested respects in which the orders could be varied to reduce the scale of the defendant’s task. For instance, the period in question could be reduced, and the period of 30 days could be increased.
It was submitted that while courts are slow to order an account pending trial, in view of “the present state of the defence” where the defendant concedes he has to account, this is a proper case for an order calling on the defendant to account. The defendant had received money and he should perform his obligation and account for it.
In my view an account should not be ordered at this stage. The factors which lead me to this conclusion are the following.
The first consideration is the issues in the pleadings which now include the amended defence and counterclaim. But the pleadings are not complete as the plaintiff must plead to the issues raised in the amended defence and counterclaim. Until that pleading is filed the issues are not settled. Let it be assumed however that the allegations in the amended defence and counterclaim are denied. So regarding the matter there are issues as to whether the defendant had a duty to keep and render accounts (which duty is denied in the amended defence), as to the defendant’s authority, the course of dealing in the business (which the defendant contends was inconsistent with a right in the plaintiff to call for an accounting from the defendant) and matters such as record keeping, that should be decided prior to ordering an account. Such matters, and others, will be relevant to the scope and nature of any account, if one is ordered, and the terms upon which it ought be undertaken. But, of course, an account may not be ordered, depending on the resolution of issues at the trial. I was referred to a number of cases which reflect hesitation in the ordering of an account pending trial, and of a consistent refusal to do so where there are preliminary issues or disputed questions of fact that must be determined before it could be said that a party will be liable for a balance found due. This is because the accounting is subsidiary to the issue of liability, the issues pertaining to which must first be determined. Asset Risk Management was a very different case to the present. There the defendant admitted having received into his account money belonging to his employer but would not say what he had done with it. In that situation the Court of Appeal of New South Wales had no hesitation in ordering an account be taken. By contrast, in the present case the defendant contends that he dealt with moneys received in accordance with his authority and that the balance of all moneys was received by Patricia. But, critically, there are issues which must be determined before properly being able to decide whether to order an account.
In the circumstances it is not necessary to refer to, let alone engage in a discussion of, the cases and texts to which I was helpfully referred on the matter of an account. That is because it is clear, in my view, that in the circumstances of this case an account should not be ordered at this stage.
For these reasons therefore the appeal from the order of the master refusing security will be dismissed, the defendant will have leave to file an amended defence and counterclaim, and the plaintiff will have leave to amend the prayer for relief in the statement of claim but the application for an account is dismissed. I will hear counsel on the terms of the orders, including orders and directions for the further conduct of the proceeding, and on costs.
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