EC Dawson Investments Pty Ltd v Crystal Finance Pty Ltd [No 4]
[2014] WASC 114
•1 APRIL 2014
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: EC DAWSON INVESTMENTS PTY LTD -v- CRYSTAL FINANCE PTY LTD [No 4] [2014] WASC 114
CORAM: BEECH J
HEARD: 27 MARCH 2014
DELIVERED : 27 MARCH 2014
PUBLISHED : 1 APRIL 2014
FILE NO/S: CIV 1176 of 2008
BETWEEN: EC DAWSON INVESTMENTS PTY LTD
Plaintiff
AND
CRYSTAL FINANCE PTY LTD
First DefendantROBERT FREDERICK COOMBS
Second Defendant
Catchwords:
Practice and procedure - Discovery and inspection - Scope of further inspection in light of reasons for decision on preliminary issues - Case management and proportionality considerations
Legislation:
Nil
Result:
Inspection ordered in accordance with defendants' proposed minute
Category: B
Representation:
Counsel:
Plaintiff: Mr P Redding
First Defendant : Mr G M Abbott
Second Defendant : Mr G M Abbott
Solicitors:
Plaintiff: Redding & Associates
First Defendant : Carol Bahemia
Second Defendant : Carol Bahemia
Case(s) referred to in judgment(s):
EC Dawson Investments Pty Ltd v Crystal Finance Pty Ltd [No 3] [2013] WASC 183
BEECH J:
(These reasons were delivered orally, and have been edited from the transcript.)
Introduction
In May last year I published reasons for decision on a trial of preliminary issues.[1]
[1] See EC Dawson Investments Pty Ltd v Crystal Finance Pty Ltd [No 3] [2013] WASC 183.
Since then the parties have been in dispute about how this action is to be brought to its completion. One important facet of that dispute has been the question of which of Crystal's transaction files should be made available, by the defendants, for inspection by the plaintiff. That is the subject of the competing minutes before me.
Crystal has operated a finance broking business since 1 January 2006. The plaintiff wants to inspect all of Crystal's transaction files that settled up to 21 December 2006, with limited exceptions. These files total more than 720 files. The defendants propose that the plaintiff be permitted to inspect several categories of files, numbering more than 200.
For the reasons that follow, I would make orders to the effect proposed by the defendants.
The plaintiff's remaining claims after the reasons for decision
For some time the question of what inspection should occur could not be progressed, because the parties had markedly differing views as to the effect of what I had decided in the reasons published in May 2013.
In unpublished reasons delivered on 11 February 2014, I set out the effect of the reasons for decision as to which of the plaintiff's pleaded claims remained available to it. There are three such categories set out:
(1)where the transaction:
(a)was one of FRC's active but not yet settled finance applications as at 31 December 2005 (even if the transaction was not included on the list provided by Mr Coombs to the provisional liquidator); and
(b)had not changed character after 31 December 2005 so that the resubmitted transaction was not 'in substance a new application'; and
(c)settled on or before 21 December 2006 (even if the commissions were not received until after that date); and
(d)the defendants have not already accounted to the liquidator or the plaintiff; or
(2)where either of the defendants:
(a)have misused FRC's property or Coombs' position as a fiduciary prior to the appointment of a provisional liquidator; and
(b)made a gain from that misuse that it would not otherwise have made in the absence of the misuse of property or position;
(3)where either of the defendants have, prior to the appointment of the provisional liquidator, obtained authority to use information of FRC on the basis that Crystal was doing the work as an agent for FRC and then earned commission through use of that information.
The upshot is that the matters in issue are now restricted to matters relating to those three categories of pleaded claims. The other pleaded claims have been rejected. That appears to be now accepted by all parties. It should be noticed that both the second and the third category are framed by reference to the period up to 16 January 2006, that is, both the use of property claim and the equal authorities claim. I note that that has been so from the inception of this action. That was a feature of the original pleading in the statement of claim filed more than six years ago.[2]
[2] See statement of claim 27 February 2008, [14] ‑ [18], [21] ‑ [23].
The plaintiff's position on inspection
The plaintiff wants to inspect substantially all of Crystal's files that were settled before 21 December 2006, unless the transaction has already been accounted for, or unless the transaction was for a client who was not on the FRC 'client' list. The FRC 'client' list takes a very broad view as to who is a 'client' of FRC.
The plaintiff says, in essence, that it cannot identify the particular files that should be claimed, nor can it identify the particular files that should be inspected, because it needs to see the file to know whether that file does, or might, fall into a category of potential liability. As is put in the plaintiff's submissions, it needs to inspect because the file 'could' contain evidence that may enable the plaintiff to progress its claims.
The first category relates to transactions where FRC had an active loan application as at 31 December 2005. There are some records which give some indications in that regard, but there is room for expecting that there may be transactions that were not correctly recorded on any such document. It is that concern that founds the plaintiff's approach insofar as it relies on category 1. In this respect, it should be noticed that the defendant's proposed approach will provide all loan applications that were lodged by Crystal in the two months following 1 January 2006.
In relation to categories 2 and 3, in effect, the approach of the plaintiff is founded upon the findings that I have made in relation to a single transaction, what was termed transaction number 43 relating to Walker.[3] The plaintiff does not point to any particular matter, feature or evidence as founding an expectation in respect of any particular file that it might fit into category 2 or 3. Rather, the approach of the plaintiff is that it is necessary for it to inspect the file in order to see whether there might be evidence of facts that bring the file within either category 2 or 3.
[3] Reasons [803] ‑ [812].
The plaintiff's list includes files in respect of which a loan application was made in November 2006 which the plaintiff has accepted, in earlier pleadings and particulars, resulted from a referral by the Investors Club through what is termed a finance enquiry form or FEF. That kind of example may be thought to illustrate the highly speculative approach that the plaintiff invites. The plaintiff accepts, rightly in my opinion, that its approach involves an element of fishing.
Documents to which the plaintiff has had access
The application must be considered in the context of the documents and material to which the plaintiff has already had access or an opportunity to access. That includes the FRC files which were held by the liquidator, and the RCTIs of PLAN which the plaintiff received for many years from 1 January 2006 until quite recently.
As to the written authorities obtained from FRC clients, it should be noticed that in the first statement of claim the plaintiff pleaded and particularised a large number of authorities that were said to have been sent out and received in the period to 16 January 2006, being 154 names or transactions. Further, the defendants have discovered all of the authorities in question.[4] Mr Coombs' evidence is that the plaintiff has inspected and copied those authorities.
[4] Item 1452 of defendants' affidavit of discovery.
Further, in the course of the proceedings to date the plaintiff has undertaken some 41 days of inspection.
Other considerations
Other considerations as to proportionality and the objects of O 1 r 4A and r 4B include the following.
To date, at least in the recent period, the inspection has generally been done by the director of the plaintiff, Mr Dawson, and not by the plaintiff's solicitor. Thus the inspection has not cost the plaintiff - apart from, of course, the time of Mr Dawson - but has involved not insubstantial costs of supervision for the defendants. The defendants have, not unreasonably, had their solicitor supervise the inspection by Mr Dawson.
Secondly, on the plaintiff's own estimate, inspection of all of the files which the plaintiff now wishes to inspect would take more than six months. That period must be viewed in the framework of the long and torturous history of this action.
Thirdly, the approach of the plaintiff in this case, as explained by its counsel, can be summarised in this way. Although the case has been on foot for six years, and although there has been 41 days of inspection, the plaintiff has not given attention to identifying which transactions have the features referred to in various parts of the statement of claim and, thus, cannot, at this stage, particularise its claim. That is why inspection is necessary.
Fourthly, the individual transactions the subject of the proposed inspection involve commissions which are individually of a modest scale. Many of them are of the order of $1,000 to $4,000, but many are considerably less. For example, the commissions on the first nine entries on the plaintiff's schedule are all for sums less than $200. On the plaintiff's approach, each one of those files is likely to require an hour to be inspected. Proportionality militates against this approach.
Further, the plaintiff has rejected offers from the defendant of interim inspection. In my view, there was no sound basis for doing so, and doing this has delayed the progress of the action.
The defendants' approach to inspection
The defendants do not say, in effect, that the plaintiff should now be able to particularise its case, and should only be able to inspect files where it alleges with some foundation that that particular file attracts liability under one of the categories.
Rather, the defendants propose, in this application, and have proposed in previous correspondence, among other things, inspection of all files for transactions that settled or were lodged by Crystal in the period from 1 January 2006 to 1 March 2006. That is a substantial number of files, more than 100 in itself. Further, the defendants propose inspection of other files potentially relating to categories 2 and 3 in the way explained in pars 15 to 18 of Mr Coombs' affidavit.
The defendants further offer an additional class of transactions explained in par 19 of Mr Coombs' affidavit. That produces 189 transactions.
Allowing for overlap in their categories, the defendants propose allowing inspection of the files relating to more than 200 transactions.
In my view, the approach taken by the defendants in attempting to identify appropriate classes of transactions, the files of which are to be inspected, is an eminently reasonable one.
The defendants submit that the nature of the finance industry means that if there was an active application as at 31 December 2005, it is likely - not certain - to have been lodged by 1 March 2006. Of course, a counter‑example can be given, but while everything is possible, I am satisfied that it is fair to say that as time goes by through 2006, the likelihood of an application lodged by Crystal being founded on an application that was active in FRC as at 31 December 2005 diminishes substantially. Counsel for the plaintiff accepted that that was so.[5]
[5] ts 1361.
In relation to category 1, it is also to be borne in mind that there are documents available which indicate or tend to indicate what active loan applications FRC had as at 31 December 2005. What the plaintiff proposes is a process of seeking to capture those that have not been recorded in any of the already available documents. That bears upon where the appropriate balance lies.
In relation to the second and third categories, I refer to the observations I have already made. It is to be noted that the pleaded claim is limited to the authorities received, and to the use of property alleged to have occurred, before 16 January 2006. Again, as time goes by through 2006, there is a diminishing probability of a connection between any such conduct on the part of the defendants and an application lodged by Crystal later in 2006.
Further, as I have mentioned, the defendants have already discovered all of the authorities that they obtained from clients, and the plaintiff already has copies of those authorities. All of those are captured within the defendants' schedules, as explained in Mr Coombs' affidavit.
Appropriate inspection: conclusion
The plaintiff seeks the maximum scope of inspection to best attempt to ensure that nothing is missed in assessing which transactions are, or might be, the subject of liability within the categories that remain. The potential benefit to the plaintiff of further inspection of transaction files has to be balanced against a number of things. These include:
(1)the extent of inspection that has already occurred;
(2)the history of this litigation;
(3)the extent of other documentation already available to the plaintiff through other means;
(4)the amount of money involved in each individual transaction;
(5)the time, expense and delay involved in further inspection; and
(6)the apparent strength of the foundation for an expectation that such inspection might bear fruit from the plaintiff's perspective.
In my view, the appropriate balancing of the various considerations lies distinctly in favour of the approach advocated by the defendants.
I note that, as was accepted by the defendants in argument, when the plaintiff has completed inspection of what is now a list of something more than 200 transaction files, depending upon the results of that inspection, it would be open to the plaintiff to seek further inspection based upon the fruits of the inspection. That is not an invitation to reopen the arguments which have been heard and determined today. Rather, it is to note that, depending upon the results of inspection, it may be that the plaintiff says in effect, 'well, this is what we obtained in relation to these files. That gives rise to a reasonable foundation to expect that things will be found on other files that justify the time, cost and delay of further inspection'.
Inspection by solicitors?
In the course of submissions, counsel for the defendants sought an order that the inspection to be conducted by the plaintiff should be done by the plaintiff's solicitor. That application was not made on notice to the plaintiff, but there was no complaint in that respect by counsel for the plaintiff, who was evidently content to deal with it in the course of this application.
As I have mentioned, a substantial cost burden has fallen on the defendants in supervising the inspection of documents by or on behalf of the plaintiff. Because, at least in recent months, that inspection has been done by Mr Dawson, the defendants have had a solicitor or clerk involved in a significantly higher degree of supervision than would occur if inspection were done by or with a solicitor for the plaintiff. The reasonableness of that approach was not challenged, nor, in my opinion, could it be.
Now, the plaintiff proposes a very substantial degree of further inspection. The plaintiff's counsel accepts, rightly in my view, that the burden of the costs of legal representation necessary for the process of inspection should not fall entirely on the defendants. An order that the inspection by the plaintiff occur by the plaintiff's solicitor will doubtless cause some practical difficulties in circumstances where the plaintiff is represented by a sole practitioner.
However, that fact must be weighed together with the countervailing fact that the defendant is also represented by a sole practitioner. In addition to the consideration as to the fairness of legal costs associated with inspection, there is a further consideration. In my view, the conduct of inspection by a solicitor for the plaintiff is more conducive to the efficient and earlier advancement of this case. In the process of inspection, the solicitor can assess the evidentiary and forensic significance of a document in a way in which a layperson is not able to do.
In the circumstances, I am satisfied that it is appropriate to direct that inspection occur by the plaintiff's solicitors.
Conclusion
For these reasons, I would make orders for inspection to the effect sought by the defendants.
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