Equuscorp Pty Ltd v Malcolm

[2001] VSC 66

SUPREME COURT OF VICTORIA
PRACTICE COURT	Not Restricted

No. 8285 of 1997
No. 5232 of 1998

EQUUSCORP PTY. LTD.	Plaintiff
v.
WARREN J. MALCOLM AND OTHERS	Defendants

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JUDGE:	BEACH, J.
WHERE HELD:	MELBOURNE
DATE OF HEARING:	24 JANUARY 2001
DATE OF RULING:	22 MARCH 2001
CASE MAY BE CITED AS:	EQUUSCORP PTY. LTD. v. MALCOLM AND ORS.
MEDIUM NEUTRAL CITATION:	[2001] VSC 66

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CATCHWORDS:      Practice and Procedure – Notices to Produce issued in connection with security for costs application – Documents relevant – Notices not fishing.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr. F.G.A. Beaumont Q.C. and Mr. J.C. Simpson	Wilmoth Field & Warne
For the Defendants	Mr. M. Dreyfus Q.C. and Mr. R. Heath	Arnold Block Leibler

HIS HONOUR:

1. This ruling is but another of the many rulings I have been required to make in the Equus Litigation.

1. On 22 November 2000 the defendant in two of the proceedings filed a summons in each proceeding whereby he seeks an order that Equus provide security for his costs of the proceedings.

1. The proceedings are No. 8258 of 1997 brought by Equus against Warren J. Malcolm and proceeding No. 5232 of 1998 also brought by Equus against Malcolm.

1. On the same day that he filed his summonses in the Court Malcolm also served on Equus Notices to Produce the following documentation:

"1.All financial and accounting records prepared for or on behalf of Equuscorp Pty. Limited (ACN 006 012 344) (Equuscorp) between 1 June 1998 and this date;

2.        All management accounts for Equuscorp for the years ended:

(a)       30 June 1998;

(b)      30 June 1999;  and

(c)       30 June 2000;

3.        All tax returns for Equuscorp for the years ended:

(a)       30 June 1998;

(b)      30 June 1999;  and

(c)       30 June 2000;

4.All documents showing or listing the current creditors of Equuscorp;

5.All documents, including accountant's reports and financial reports, prepared for or on behalf of Equuscorp detailing or summarising the assets and liabilities of Equuscorp for the years ended:

(a)       30 June 1998;

(b)      30 June 1999;  and

(c)       30 June 2000;

6.All documents, including accountant's reports and financial reports, prepared for or on behalf of Equuscorp detailing or summarising the profits and losses of Equuscorp for the years ended:

(a)       30 June 1998;

(b)      30 June 1999;  and

(c)       30 June 2000;

7.All documents, including accountant's reports and financial reports, prepared for or on behalf of Equuscorp relating to payment by Equuscorp of any monies as a consequence of any security for costs applications for any litigation (other than these proceedings) from June 1998 to date."

1. On 21 December 2000 Equus filed summonses in each proceeding seeking to set aside or have struck out the Notices to Produce.

1. On 16 January 2001 Malcolm filed a further Notice to Produce in each proceeding seeking production of the following documents:

"1.The independent chartered accountants' report obtained by the Plaintiff, which is referred to in paragraph 15 and paragraphs F and G of the Schedule to the judgment of Justice Bergin in Perpetual Trustees (WA) Ltd. v. Equuscorp Pty. Ltd. and Ors. (Supreme Court of New South Wales, unreported) dated 5 December 2000.

2.Correspondence between the Plaintiff and the independent chartered accountant, including any documents provided to the independent chartered accountant, in relation to the report referred to in paragraph 1 above."

1. The question of the validity of the Notices to Produce was argued before me on 24 January 2001.

1. Because the Full Court of the Federal Court was about to consider an application for special leave to appeal in a matter involving Equus which raised almost identical issues to those presently before me, I deferred my ruling until such time as that had occurred.

1. I now have to hand the decision of the Federal Court in Bailey v. Beagle Management Pty. Ltd.[1], which I shall refer to in more detail in a moment.

   [1](2001) FCA 60 (12 February 2001)

1. The case for Equus in support of its applications that the Notices to Produce should be set aside or struck out is that the Notices to Produce are designed to discover whether Malcolm can make any case at all in prosecuting his applications for security for costs rather than designed to obtain evidence in support of a prima facie entitlement to security and for that reason can properly be described as "fishing".

1. The case for Malcolm in support of the Notices is that the Notices do not seek to test for the existence of a case, rather they are designed to obtain evidence to support his applications and cannot, therefore, be described as "fishing".

1. It is necessary then, to see what evidence Malcolm has thus far produced which can be described as credible testimony which establishes that there is reason to believe that Equus will be unable to pay his costs if he is successful in his defence of the two proceedings.

1. I should add that a similar course was pursued by the Full Court of the Federal Court in Bailey.

1. The affidavit of Malcolm's solicitor Mark Geoffrey O'Brien sworn 21 November 2000 establishes the following matters:

1.Equus was incorporated in Victoria on 3 May 1982.  It is a limited liability company with an issued and paid up capital of $2.500,000.  Its directors are Nicolo Russo and Katie Anne Russo.

2.The sole shareholder of Equus is Targridge Pty. Ltd.  Targridge has a paid up capital of $2.

3.There are the following four charges against Equus which have not been satisfied –

(a)a charge created on 11 September 1989 in favour of Beneficial Finance Corporation over all present and future property, assets and undertaking of Equus securing the repayment of all debts and liabilities of Equus to Beneficial.

(b)a charge created on 5 August 1991 in favour of Beneficial over all present and future property, assets and undertaking of Equus securing the repayment of all debts and liabilities of Equus to Beneficial to a maximum of $200,000,000.

(c)a charge created on 16 January 1996 in favour of Beneficial over all Equus' rights and interests in the Village Resort Receivable securing the repayment of all moneys owing by Equus to Beneficial to a maximum of $1.500,000;  and

(d)a charge created on 26 March 1998 over the assets and undertaking of Equus in favour of Katesara Pty. Ltd. securing repayment of moneys owing by Equus to Katesara to a maximum of $800,000.

In my opinion that is evidence which established that the defendant has a case for seeking security for costs.

1. As Goldberg, J. pointed out at first instance in Bailey:

"There is a clear distinction to be drawn between a notice to produce which involves a fishing expedition and a notice to produce which does seek to obtain evidence to support a party's case. … where a subpoena or notice to produce is served to obtain evidence to support a party's case then the subpoena or the notice to produce will not be regarded as fishing or as an abuse of process or as vexatious and will not be set aside.  That will only occur where a party is in fact seeking to discover whether the party has a case at all."

1. I agree with his Honour's observation.

1. In Bailey the Full Court of the Federal Court said at p.9:

"24.     … If a security for costs application is properly brought we can see no reason for imposing any criterion upon the trial judge in respect of a notice to produce given to the other party by the applicant for security other than that, generally, the judge be satisfied that the documents the subject of the notice are specified with reasonable particularity and are properly being sought to advance the case to be put by the applicant.  Of course, in determining whether a notice to produce should be set aside the Court will consider the relevance of the documents sought and the extent to which the notice might be fishing, vexatious, oppressive or inappropriate for any other reason.

25     Secondly, the notices to produce in the present case are simply not fishing at all, in the sense in which that term is used metaphorically in the law relating to discovery, interrogatories, subpoenas, notices to produce and other forms of compulsive interlocutory process, that is to say where

'… a person who has no evidence that fish of a particular kind are in a pool desires to be at liberty to drag it for the purpose of finding whether there are any there or not.'  (Associated Dominions Assurance Society Pty. Ltd. v. John Fairfax & Son Pty. Ltd. (1952) 72 WN(NSW) 250 at 254 per Owen J)

26       In the present case it can be safely assumed that the documents sought by the notices to produce in fact exist, they being standard financial documents which the law and proper accounting practice would require companies of any substance to generate.  Likewise, as already mentioned, there can be no doubt that these documents contain information relevant to the issues which arise on a security for costs application.  The only uncertainty is whether that information would help or hinder the security application.  But unpredictability of response has never been a bar to the pursuit of relevant evidence, as many a hapless cross-examiner who received an unexpected answer will attest.

27       Thirdly, even if the notices to produce are properly to be regarded as fishing, that concept has undergone substantial rethinking in this Court in recent years.  In a number of cases it has been pointed out that O15A r6 (discovery before action) expressly contemplates what once might have been castigated as fishing and that it would be incongruous if the power to order discovery were less extensive in favour of a party to a proceeding properly brought in the Court than in favour of someone unable for lack of evidence to mount a case:  Caltex Refining Co. Pty. Ltd. v. AMWU (unreported, Full Court, 6 December 1990), Trade Practices Commission v. CC (New South Wales) Pty. Ltd. (1995) 58 FCR 426 at 436 (Lindgren J), Treasurer v. CanWest Global Communications Corp [1997] FCA 578 (Full Court), Microsoft Corporation v. Adelong Electronics Pty. Ltd. [1977] FCA 224 (Burchett J), Bertran v. Vanstone [1999] FCA 1753 at pars 18-23 (Kenny J), In the matter of Davison, Donnelly v. Davison [2000] FCA 1396 (Branson J). Also one should not lose sight of what the majority of the High Court in Grant v. Downs (1976) 135 CLR 674 at 685 noted as the public interest

'… which requires that in the interests of a fair trial litigation should be conducted on the footing that all relevant documentary evidence is available.'

28       The applicants' suggested rule imposes a requirement that, to avoid the stigma of fishing, a party must already be in possession of some evidence before issuing a notice to produce (or, presumably, any other compulsive interlocutory process).  But historically the concept of fishing was not concerned with the prior possession of evidence but rather that there was a prior pleading which raised issues for which the evidence sought by the process would be relevant.  In Edward Bray's 'Principles and Practice of Discovery' (1885) – described by R.P. Meagher QC in the 1981 Foreward to a reprinted edition as 'the standard Victorian [era] masterpiece on the subject' – the learned author, speaking of the stage at which discovery can be required said (at 16, emphasis added):

'… the right to discovery is limited to supporting a definite case set up, and does not extend to fishing out a case from the opponent;  and therefore a party cannot have discovery before he has stated his case, whether in the claim as plaintiff or the defence as defendant.'

29       This principle underlies the common practice whereby a plaintiff who has no recollection of the accident issues a statement of claim alleging negligence by reason of excessive speed, failure to keep a proper lookout etc.  The plaintiff then interrogates the defendant as to factual circumstances of the accident.  The plaintiff may have no other evidence, and is plainly seeking to make out a case, but such interrogatories are not considered objectionable on the ground of fishing.

30       The substantive issue for present purposes is not the ultimate liability of the respondents but the question of security for costs.  There are no pleadings as to that, but for practical purposes the issues on the security application have been raised in the correspondence between the parties.  At the risk of tedious repetition, we note again that the documents sought are relevant to those issues."

1. Again, I agree with their Honours' observations.

1. In my opinion, and save for the documents sought in paragraph 7 of the first Notice to Produce, the documents which are sought in the Notices to Produce are relevant to the defendants' applications for security for costs.  They go to the financial position of Equus.  In that regard I do not consider that they are a fishing expedition rather as Goldberg, J. concluded in Bailey "they are designed or calculated to obtain evidence to support (the defendant's) case".

1. In each proceeding I order that within 30 days of this day the plaintiff produce for inspection by the defendant and his solicitors the documents specified in paragraphs 1 to 6 inclusive of the Notice to Produce filed 22 November 2000 and the Notice to Produce filed 16 January 2001.

1. Needless to say such documents shall remain confidential to the parties and their solicitors and be used for no purpose other than for the purpose of the present litigation.

1. I order that the summonses of the plaintiff filed in each proceeding on 21 December 2000 be dismissed with costs to be taxed and paid by the plaintiff.

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