Ergon Holdings Pty Ltd v City of Holdfast Bay - [2010] SASC 304

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
ERGON HOLDINGS PTY LTD & ANOR v CITY OF HOLDFAST BAY
[2010] SASC 304
Reasons of Judge Lunn a Master of the Supreme Court
1 November 2010
PROCEDURE
Disclosure of documents - breadth of 6R 136(1)(b) - held order can be made under it that plaintiffs disclose to documents which are not relevant on the existing pleadings, but which would be ordered to be disclosed under 6R 32 for a proposed counterclaim by the defendant against the plaintiff.

ERGON HOLDINGS PTY LTD & ANOR v CITY OF HOLDFAST BAY
[2010] SASC 304
JUDGE LUNN:
Reasons on defendant’s application for disclosure of documents in aid of a possible proposed counterclaim

By an agreement made on 9 November 2006 some of the plaintiffs agreed to lease a kiosk at Glenelg from the defendant. The agreement contained provisions which were pleaded as follows:
14.2.4That CNS and Ergon would not ‘… sublease licence grant a concession or part with possession mortgage charge or encumber this Lease or the Premises without the consent of the Lessor’. (‘clause 2.5.3’);
14.2.5That if the Council ‘…grants consent to a transfer assignment subletting or parting with possession of the Premises by [CNS and Ergon] then the Council would be entitled to require a market review of the rent to be carried out by a valuer’. (‘clause 2.5.4’)
This action concerns a dispute about whether various plaintiffs have under-let, or assigned an under-lease, of the kiosk, in breach of the terms of the agreement. The plaintiffs seek declarations to support their contentions about the proper interpretation of the agreement and that they have not breached its terms. The nature of the dispute on the Statement of Claim, Defence and Reply are not directly relevant to the present application.
By an application issued on 24 August 2010, FDN6, the defendant seeks the following orders:
1.That within fourteen (14) days the Plaintiffs disclose to the Defendant all documents in their possession, custody or control;
1.1     relating to any monies received by the Plaintiffs pursuant to any purported under-lease entered into by them in respect of the Premises referred to in paragraph 6 of the Statement of Claim (“the Premises”);
1.2     relating to any monies received by the plaintiffs pursuant to any other arrangement entered into by them in respect of the Premises;
1.3     relating to any agreement with ms Susan Underwood evidencing her engagement by the Plaintiffs as Manager of the Broadway Kiosk, including but not limited to any documents evidencing payments being made by any of the Plaintiffs to Ms Underwood.
Ms Underwood is an alleged assignee of an under-lessee of the Kiosk from some of the plaintiffs, as well as having been its manager for the plaintiffs. The defendant does not suggest that the documents sought are directly relevant to any of the issues raised on the present pleadings. It argues that if there had been such an under-lease, or assignment of an under-lease without the consents of the defendant, the clauses of the agreement referred to above would have entitled it to a rent review and therefore to an increased rent and/or damages. However, while the defendant points to some evidence, which will be mentioned below, that there was at some point in time an under-lease or an assignment of an under-lease, even though it may have since been terminated, it needs the documents which are the subject of the application to be able to formulate a counterclaim and, in particular, to ascertain whether the plaintiffs profited in any way from any such under-lease or assignment which could give rise to a claim for rent, damages or the like.
The defendant brings its application under 6R 136(1)(b) which provides:
(1)Each party must disclose the documents that are, or have been, in the party's possession and—
…
(b) are to be disclosed by order of the Court.
It contends that this sub-rule is wide enough to encompass disclosure after commencement of the action in respect of a proposed counterclaim.
There is no authority for a use of sub-r (1)(b) as is now sought by the defendant. My decision of Idameneo (No 123) Pty Limited v Candetti Constructions Pty Limited & Anor[1] concerned the breadth of sub-r (1)(b) in the context of an application for disclosure of documents sought by a plaintiff against a defendant after the commencement of the action but before the plaintiff had filed its statement of claim. I held that such an order could be made, but as a matter of discretion I refused it in the circumstances of that action. I there said:
15    Sub-Rule (b) is couched in extremely wide terms. On its face it can extend to any document in the possession of a party without any express restriction by reason of relevance. Likewise it is not restricted in any express way as to the point of time in the action at which it can be exercised.[2] The precise scope of Sub-Rule (b) still awaits determination.
16    Sub-Rule (1)(b) is to be interpreted in conformity with 6R 117(1) which provides:
(1)     The Court may make any order it considers necessary for the proper conduct of a proceeding or otherwise in the interests of justice.[3]
17    Clearly there are some actions where orders for disclosure of documents may be needed in the interests of justice before the close of pleadings and, as is sought here, after the issue of the summons and before the filing of a statement of claim. It would be contrary to the objects of the Rules as set out in 6R 3 for the Court not to have such a power. I consider a liberal interpretation should be given to sub-rule 136(1)(b) for it to confer power on the Court to order disclosure of documents before the close of the settlement conference.
18    In another context it has been held that whether disclosure should be ordered under Sub-Rule (1)(b) depends on the justice of the case.[4] Similarly, in its operation for an order for disclosure between the issue of the summons and the close of the settlement conference sub-rule (1)(b) should be applied on a criterion of the justice of the case.
19    Counsel cited a number of authorities dealing with discovery of documents before the close of pleadings, but all of these were in the context of rules which differed from 6R 136(1)(b) and each of which may in part have turned on the particular rules under which they were decided.[5] In my view the criteria for the application of sub-rule (1)(b) should be merely what is in the interests of justice and should not be circumscribed or elaborated upon by any additional formulae. There is no basis to import into it a restriction of it being used only in special circumstances.[6]
[1] 14 July 2010, [2010] SASC 213.
[2]    Presumably it can only be after the institution of the action as there cannot be a party, which is required by the preamble, until the action has been commenced.
[3]    Reference should also be made to 6R 116 giving the Court power to manage litigation fairly, expeditiously, economically and consistently with the proper administration of justice.
[4]    O’Meara v FWV Stanke Holdings Pty Ltd (No 2) (2007) 250 LSJS 221. Appeal dismissed. FWV Stanke Holdings Pty Ltd v O’Meara [2007] SASC 413 without express reference to this point.
[5]    Mason & Cox Pty Ltd v KPMG Peat Marwick (1999) 74 SASR 171 particularly at 177 – 87R 58.04(a); Computershare Ltd v Perpetual Registrars Ltd (2000) 1 VR 626 – O26.07 which gave an express power to order discovery before the close of pleadings.
[6]    Mason & Cox Pty Ltd v KPMG above disapproved of any restriction on 87R 58.04(a) of special circumstances, but it did not cite the authority for that restriction of Latec Finance Ltd v Jury [1960] NSWR 321.
In 6R 3 the objects of the Rules are stated to include avoiding unnecessary delay, promoting efficiency in dispute resolution so far as that object is consistent with the paramount claims of justice and minimising the cost of civil litigation to the litigants. Section 27 of the Supreme Court Act 1935 provides:
Court to do complete justice in cause so as to avoid multiplicity of suits
The court in every cause or matter pending before it shall have power to grant, and shall grant, either absolutely or on such reasonable terms and conditions as it deems just, all such remedies whatsoever as any of the parties thereto may appear to be entitled to in respect of every legal or equitable claim properly brought forward by them respectively, in such cause or matter, so that, as far as possible, all matters so in controversy between the parties may be completely and finally determined, and all multiplicity of legal proceedings concerning any of such matters avoided.
If it was to be held that sub-r 136(1)(b) was not wide enough to encompass the present application, there would be nothing to stop the defendant from bringing a fresh proceeding under 6R 32 seeking disclosure before action against the plaintiffs and then, if successful, to institute its own action against the plaintiffs for what would otherwise be its counterclaim in this action. It would then presumably seek the consolidation of the two actions and they would then effectively proceed as if the second action was a counterclaim in the first action. However, such a course would involve far more delay, expense and trouble than if the defendant merely pursued a counterclaim in this action. The objects in 6R 3 and s 27 of the Supreme Court Act both strongly favour a liberal interpretation of sub-r (1)(b) to enable the defendant to obtain an equivalent to an order under 6R 32 in this action. The plaintiffs could not point to any prejudice which they would suffer if this procedure was permitted.
Whether as a matter of discretion the Court should make this order under 6R 136 (1)(b) depends to a large extent on whether the Court would grant a similar order in its discretion under 6R 32 if it was sought by the defendant in a subsequent separate action. The relevant parts of 6R 32 are:
(1)     If the Court is satisfied, on application by a person (the plaintiff) that the plaintiff may have a good cause of action and requires further information—
(a)     to determine whether a cause of action exists; or
(b)     to formulate the claim properly; or
(c)     to determine against whom the claim lies,
the Court may exercise the investigative powers conferred by this rule in anticipation of an action.
(2)     The Court may, if satisfied that a person may be in possession of evidentiary material relevant to the possible cause of action, make an order imposing one or more of the following requirements—
(a)to disclose to the Court or to the plaintiff whether the person is or has been in possession of relevant evidentiary material and, if so, to disclose full particulars of relevant evidentiary material that is, or has been, in the person's possession;
(b)if the person is in possession of relevant evidentiary material—to produce it to the Court or to the plaintiff;
(c)     to verify the person's response to the order by affidavit.
There is significant evidence in the exhibits before me that there may well have been at some relevant time an under-lease or the like and its assignment. In particular, there is an email of 27 February 2009 from the plaintiffs’ solicitors to the defendant’s solicitors, and also of 27 April 2009, referring to a sublease and its rescission. There is also a deed of 6 May 2009 purporting to terminate a sale and an under-lease. These materials provide a sufficient basis to find that the defendant may have a good cause of action sufficient to satisfy the threshold test under 6R 32.[7] However, it does not appear that at present the defendant has sufficient information to be able to determine whether it actually has such a cause of action or to formulate it properly.   It is likely that if the documents in question are disclosed by the plaintiffs and inspected by the defendant, they should enable the defendant readily to decide whether it has a proper basis to pursue a cause of action by counterclaim and whether the amount of money involved would make it worthwhile pursuing it.[8] I consider that if the defendant pursued such an application under 6R 32, it would be likely to succeed. On all of the relevant considerations it is just in the circumstances that an order to similar effect should be made in the present application under 6R 136(1)(b).
[7]    Belcar Pty Ltd v Premier Automotive Group Australia Pty Ltd (2007) 249 LSJS 403.
[8]    It should be borne in mind that on the filing of a counterclaim the defendant will incur a fee of $1797.
Counsel for the plaintiffs did not address on the terms of the order sought. Therefore, I presume that there was no issue about them if I was otherwise disposed to order such disclosure.
I have today made the following orders:
1In terms of paragraph 1 of FDN6 for further disclosure by the plaintiffs to the defendant.
2Paragraph 2 of FDN6 is adjourned for further consideration.
3Costs of FDN6 reserved.
4Fit for counsel.
5Adjourned to directions hearing on Friday 26 November 2010 at 9.45am.