Falk v Finlay

[1999] NSWSC 1284

CITATION:	Falk v Finlay [1999] NSWSC 1284
CURRENT JURISDICTION:	Equity
FILE NUMBER(S):	4482/96
HEARING DATE(S):	12, 13, 14, & 16 October, 4, 8, 9, 11 & 15 December 1998
JUDGMENT DATE:	24 December 1999
PARTIES :	Michael Falk (P) Ronald Arthur Finlay, Edward Bertram Cowpe, Francis Reginald Lawson, John Gregory McCombe, Roderick Hamilton McGeoch, Allan John Macdonald, Frederick John Kehoe, Richard Kay Liebmann, Paul Richard McCann, Alexander John Munton, Geoffrey Hungerford Pike, Andrew Lee Price, Anthony John Sheehan, Peter William Damian Smith, Andrew Wentworth Stevenson, Stuart David Westgarth, Patrick Bill Williams, Jennifer Margaret Boland, Carmen Champion, Charles Macquarie Cowper, Graeme John Dennis, Michael John Ellis, Julian Maxwell Gregory, John Henry Herron, William John Koeck, Paul Harry Huges, Andrew John Lumsden, Peter Thomas Pether, Erica Jane Robinson, Stephen Price (Ds)
JUDGMENT OF:	Austin J

COUNSEL :	D L Williams (P) B C Oslington QC and D Pritchard (D)
SOLICITORS:	Abbott Tout (P) Holman Webb (D)
CATCHWORDS:	PRACTICE AND PROCEDURE - discovery - whether relevance limits scope of Court's orders for specific discovery - whether affidavit of discovery is conclusive - inadequacy of discovery
CASES CITED:	British Association of Glass Bottle Manufacturers Ltd v Nettlefold [1912] 1 KB 369 Commonwealth of Australia v Northern Land Council (1991) 103 ALR 267 Compagnie Financiere et Commerciale du Pacifique v Peruvian Guano Company (1882) 11 QBD 55 Donaldson v Harris (1993) 4 SASR 299 Ferguson v Mackaness Produce Pty Ltd [1970] 2 NSWR 66 Fruehauf Finance Corporation Pty Ltd v Zurich Australian Insurance Ltd (1990) 20 NSWLR 359 Jones v Monte Video Gas Co (1880) 5 QBD 556 Lyell v Kennedy (No.3) (1884) 27 ChD 1 Mulley v Manifold (1959) 103 CLR 341 Telstra Corp v Australis Media Holdings Pty Ltd (Supreme Court of New South Wales, 10 February 1997, unreported)
DECISION:	Application for further discovery and other orders succeeds

THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

AUSTIN J

FRIDAY 24 DECEMBER 1999

4482/96 - MICHAEL FALK V RONALD ARTHUR FINLAY & ORS

JUDGMENT

1   HIS HONOUR: This judgment relates to an application by the plaintiff by notice of motion filed on 9 December 1998. By that application the plaintiff seeks an order for production and inspection of specified documents and classes of documents, and alternative orders in the event that the documents are not produced.

2   The application seeks to test the adequacy of the defendant’s pre-trial discovery. It was made, at first orally, on the fifth day of the final hearing of the proceedings, and arose out of evidence given by one of the defendants in cross-examination. Evidence and submissions on the application were heard, but I also proceeded to hear the rest of the evidence in the proceedings. The hearing was completed, subject to my ruling on the plaintiff’s application, and to the hearing of final submissions in the proceedings.

3   Since the application has been successful, as I shall explain, a further process of discovery will be ordered, as a consequence of which the plaintiff might seek to re-open this case and adduce additional evidence. Once any further evidence has been adduced, I shall hear the final submissions of the parties.

The proceedings


4   The plaintiff is a commercial solicitor. He retired from the national partnership of Corrs Chambers Westgarth (‘CCW’) on 12 May 1995. He says that he then became entitled to be paid the sum of $192,132 by the defendants, who are the partners of the Sydney Office Profit Centre of CCW at the relevant time. They disagree.

5   CCW is the product of a merger in April 1991 of three separate firms, namely Westgarth Middletons (‘WM’), Corrs Australian Solicitors and Chambers McNab Tully & Wilson. The plaintiff was a Sydney partner in WM before the merger, and as such he was entitled to a ‘consultancy’, conditional (inter alia) on attaining 15 years service as a partner and not competing with the firm after retirement. The plaintiff says that this entitlement, referred to by the defendant as the ‘non-compete pension’, was commuted and frozen into an unconditional fixed entitlement of the equity partners of WM when the merger took effect. The defendants say that the ‘non-compete’ condition was not removed by the merger, and consequently that the plaintiff is not entitled to any ‘pension’ or ‘consultancy’ payment because he retired from CCW to join a competitor firm.

6   The plaintiff’s case is based upon allegations of breach of contract, equitable estoppel and misleading or deceptive conduct. The claim in contract raises the proper construction of the Merger Agreement which constituted CCW, together with the Sydney Office Charter of CCW and the Heads of Agreement for the WM partnership. Clause 37.8.1 of the Merger Agreement provided that the retirement allowances for each profit centre would be borne by that profit centre. Clause 37.8.2 stated that the retirement provisions of the partners of the constituent firms, including their entitlements to consultancy arrangements, would be frozen and preserved for the benefit of those partners. A note to clause 37.8.2 stated that a detailed schedule of retirement provisions and entitlements applicable to each relevant partner would be attached to the formal partnership agreement which would give effect to the clause.

7   The contemplated formal partnership agreement was not entered into before the plaintiff’s retirement, but the partners of the Sydney Profit Centre of CCW regulated their affairs by a document called the Sydney Office Charter, which was expressed to be supplemental to and complementary with the Merger Agreement. Clause 10 of the Charter said that in accordance with clause 37.8 of the Merger Agreement, the retirement provisions for ex-WM Sydney partners were set out in Schedule 7. The copy of the Charter which the plaintiff received did not include Schedule 7. Nevertheless the plaintiff says that the Sydney Office partners agreed to a schedule which set out fixed amounts payable to ex-WM partners on retirement from CCW, which was shown to and agreed by the Sydney Office partners at some time during the period from February to July 1991, and was confirmed by memorandum dated 5 July 1991 from Mr Finlay, the Sydney managing partner, to members of the Sydney Office Policy Committee. The plaintiff says that the schedule stated his accrued ‘pension’ entitlement to be $192,132 payable in equal monthly instalments over 36 months. He sues on the agreement which he alleges to have arisen out of the documents, including the schedule which he claims to have seen in 1990.

8   In the alternative, he says that the defendants represented to him prior to the merger that he would be entitled to the fixed pension amount stated in that schedule, and at no time did any of the defendants say that the entitlement was conditional in any way. He says that, acting on the faith and truth of those representations, he agreed to be bound by the Merger Agreement and the Sydney Office Charter and to continue as a partner of CCW, and in those circumstances the defendants are estopped from denying his entitlements as set out in the schedule.

9 Another alternative claim, for damages for misleading or deceptive conduct under s 42 of the Fair Trading Act 1987 (NSW), also arises out of the allegations that the defendants represented to him that his accrued pension entitlements would be commuted and frozen at the fixed sums set out in the schedule. He says that at no time prior to the merger did any of the defendants say that his entitlement was conditional in any way.

10   The defendants deny that any representations of the kind alleged by the plaintiff were made on their behalf. Obviously the schedule, which the plaintiff says was circulated to WM Sydney partners before the merger, is (if it exists) an important document for the plaintiff’s case in contract, estoppel and misleading or deceptive conduct. The schedule annexed to Mr Finlay’s memorandum to the Sydney Office Policy Committee dated 5 July 1991 sets out a list of entitlements including an entitlement of the plaintiff to a pension in the amount of $192,132, which (together with interest) is the amount he now claims. But that document was distributed after the merger and only to members of the Sydney Office Policy Committee. The plaintiff was not a member of that committee. It is headed ‘Schedule C’, suggesting that it was prepared as a schedule to another document, but that other document has not been identified.

Pre-trial discovery in the present case


11   Prior to the commencement of the hearing the plaintiff engaged in a process of discovery which proved to be protracted and contentious. The unhappy history of the discovery process began on 15 November 1996, when Giles J made an order for discovery and inspection of documents relating to (inter alia) pension entitlements. The parties endeavoured to achieve informal discovery but on 27 March 1997 the plaintiff’s solicitors wrote to the defendants complaining that their discovery was inadequate, in specific ways. The alleged inadequacies related to documents including the files of each individual defendant concerning the merger and pension entitlements, certain committee files, documents concerning the treatment of pension entitlements after the merger, the original and any copy in the possession of each of the defendants of the schedule of pension entitlements, and any earlier documents annexing that schedule.

12   From March to July 1997 there was correspondence in which the plaintiff’s solicitor endeavoured, with increasing insistence, to obtain discovery and the defendants failed to respond. The plaintiff sought an order for general discovery at a hearing before the Registrar on 3 July 1997, and it appears that the defendants consented provided that mutual discovery was ordered. However, the proceedings being under the new rules, the Registrar pointed out that general discovery would not normally be ordered without leave. The plaintiff’s solicitor believed that discovery orders had nevertheless been made, but when the matter was subsequently mentioned, the Registrar expressed a different view.

13   The plaintiff made a further application for discovery orders and on 22 August 1997 the Court made orders for verified discovery of specified documents which included those listed in the plaintiff’s solicitors’ letter of 27 March 1997, within fourteen days. When the defendants did not comply with these orders, the plaintiff filed a motion on 12 September 1997 applying for orders striking out the defence and granting him leave to enter judgment. The defendants served a list of documents, verified on 26 September 1997 by Stuart Westgarth as one of the defendants, shortly before the hearing date for the plaintiff’s strike-out application. The verifying affidavit seems to have been wrongly based on the old discovery rules.

14   They also filed and served an affidavit by Inez Russell made on 26 September 1997, setting out the procedure which had been followed in the preparation of the list of documents. According to Ms Russell, an email had been sent to partners of the firm to discover whether they had any personal files with respect to pension entitlements consequent upon the merger. She was given responsibility to follow up the email and finalise the list of documents. She prepared a draft list taking into account responses to the email, and sent further emails, responses to which she collated for the purpose of discovery. Her affidavit pointed out that preparation of the list of documents was complex and extensive because it was necessary for each of the 28 defendants to review their own records, to be sure that they had complied with their obligations, and then provide documents to her. She said that in the case of some defendants, more than five boxes of documents had to be reviewed. Part of the procedure was to require each affected partner to sign a letter confirming that they had carried out appropriate searches for documents within the categories referred to in the orders of 22 August 1997, and that they had indicated which documents were then or had been in their possession, and authorising Mr Westgarth to swear the affidavit verifying the list on their behalf.

15   The plaintiff’s application was adjourned and the plaintiff’s solicitors inspected copies of the documents referred to in the defendants’ list on 1 October 1997. In their long letter of 2 October 1997 the plaintiff’s solicitors complained that discovery had been inadequate, for reasons which included the following: there were some discrepancies between the documents produced and the list; no separate files were made available which were identified as belonging to individual defendants or the committees specified in the orders; and no schedule or copy schedule was produced. In further correspondence a dispute also emerged as to whether Mr Westgarth had made sufficient inquiries of the other defendants before verifying the list.

16   After further exchanges of letters, the plaintiff filed an amended notice of motion seeking, amongst many other things, specific discovery of various documents including original files and the schedule. In their letter of 19 November 1997 the defendants’ solicitors asserted that the documents held by the defendants and falling within the description in the plaintiff’s letter of 27 March 1997 had been discovered, and that the Court’s orders of 22 August 1997 did not require identification of the individual files from which the documents were obtained. They said it was not then possible to identify from whom some documents were received. They acknowledged that the schedule had not been produced and said that the defendants were making further inquiries about it.

17   On 20 November 1997 the Court made further orders for discovery by consent. The new orders were lengthy, and included orders for production of the original files and bundles of documents of each defendant and the original and any copies of the schedule. Further letters were exchanged, including a letter by the defendants’ solicitors dated 11 December 1997 in which they indicated that searches were being carried out in relation to some stored documents. But it was not until 9 September 1998 that the defendants produced a supplementary list of documents, verified by Mr Westgarth.

Subpoenas and notices to produce after commencement of the hearing

18   The hearing began on 12 October 1998. The plaintiff served notices to produce on certain defendants late in November 1998, when the case was part-heard, and sought leave to serve subpoenas on some former partners of Corrs Australian Solicitors and Chambers McNab. The subpoenas sought production of documents recording negotiations for the merger, and documents recording the extent to which retirement arrangements were to be varied, amongst other things. The defendants’ solicitors responded to the subpoenas on 3 December 1998, saying they had instructions to act for the persons to whom the subpoenas were directed. They asserted that the subpoenas related to documents which could not be relevant to the proceedings.

The plaintiff’s application for further discovery


19   On the fifth day of the final hearing of the proceedings, Ronald Finlay gave evidence and was cross-examined. He is one of the defendants, and was the managing partner of WM during the merger negotiations. He said in cross-examination that he made handwritten notes when he attended meetings of WM’s negotiating committee, and that a file was kept in relation to the merger discussions. He recollected that in November or December 1990 a schedule in the form of an overhead transparency, containing equity and work in progress and years of service, was prepared and shown by him to members of the Policy Committee and possibly also to the Sydney partners generally. He said he had not seen the document for about eight years and did not know where it was.

20   Mr Finlay’s evidence led counsel for the plaintiff to make an oral application for further discovery. His submission was that the witness had given evidence that documents existed which had been the subject of specific orders for discovery. After hearing submissions, I gave directions for the plaintiff to file a notice of motion indicating the relief which he would seek, and for evidence to be filed and served urgently so that the application could be heard on the following afternoon.

21   Next day (that is, 9 December 1998) the plaintiff filed the notice of motion which is the subject of the present judgment. The notice of motion seeks three substantive orders. First, an order that the defendants produce


(a) the files or bundles of documents of Mr Finlay, the Steering Committee of WM and the Sydney Office Policy Committee of CCW concerning the respective pension entitlements of the former WM partners consequent upon the merger, to the extent that such files or bundles exist and are intact or partly intact;

(b) the handwritten notes of Mr Finlay identified by him in his evidence given on 8 December 1998, which comprise part of this file and concern the negotiations for the merger of CCW;

(c) the document or documents to which ‘Schedule C’ as attached to the memorandum to Policy Committee Members from Mr Finlay dated 5 July 1991 was originally annexed;

(d) the schedule of retirement entitlements of the former WM partners showing the former WM partners in or about November/December 1990 whether in hard copy or transparency form.

22   Secondly, the notice of motion seeks an order, in the event that the above documents have been discovered, that Mr Finlay and Mr Westgarth both file and serve an affidavit identifying those documents by number in the defendants’ list of documents. Thirdly, the notice of motion seeks an order, in the event that the documents have not been discovered and are no longer in the defendant’s possession custody or control, that Mr Finlay and Mr Westgarth each file and serve an affidavit identifying the documents and setting out the dates when he parted with them and what became of them.

Mr Allsop’s affidavit


23   The defendants’ solicitor, Mr Allsop, gave evidence by affidavit made on 9 December 1999, and also orally. His affidavit refers to searches which he and two of his employed solicitors undertook after the orders of 20 November 1997 were made. Mr Finlay’s secretary identified to him about 14 boxes of stored documents, which he and the two employed solicitors inspected. The only documents which he considered to fall within the Court’s order and which were not already produced were the first five of the seven documents contained in the defendants’ supplementary list of documents verified on 9 September 1998.

24   He deposed to a conversation which he had with Mr Finlay on 8 December 1998, evidently after Mr Finlay had given his evidence on that day. Mr Finlay told him that from time to time he made handwritten notes at meetings and he placed some of those notes in a file entitled ‘Networking’, although he sometimes discarded his handwritten notes once he had used them to generate a report. When Mr Finlay ceased to be managing partner in 1993, all his files were to be archived, but before they were, he went through them and discarded a large amount of material including most of his handwritten notes which he considered to have no continuing use or relevance.

25   Mr Allsop said, having reviewed the defendants’ documents, that there was no file or bundle of documents of Mr Finlay, the Steering Committee or the Sydney Office Policy Committee, complete or otherwise, concerning pension entitlements of former WM partners consequent upon the merger. However, he said that after hearing Mr Finlay’s evidence on 8 December 1998, junior counsel for the defendants inspected some of the defendants’ documents which Mr Allsop had previously inspected, and identified two handwritten notes of Mr Finlay and a written draft by Mr Finlay of a report which had been discovered in typed form. Mr Allsop annexed these handwritten notes to his affidavit. He said that he had not inspected any document which could be identified as the schedule of November/December 1990 to which Mr Finlay’s evidence had referred, and he said he was unable to identify the document to which Schedule C was originally an attachment.

26   In his affidavit Mr Allsop said that he did not believe there were any documents, in addition to those already made available to the plaintiff, which contained material which could rationally affect the assessment of the probability of the existence of a fact in issue, regardless of whether the document or matter would be admissible in evidence. He expressed the opinion that the handwritten notes annexed to his affidavit did not contain any such material.

The hearing of the application on 9 December 1998


27   The plaintiff’s solicitor gave evidence that both he and the plaintiff had inspected the documents produced by the defendants pursuant to the Court’s previous orders, and based on his examination and the plaintiff’s instructions, he believed that the discovered documents did not include (in effect) all of the documents of the kinds to which the notice of motion referred.

28   Later, the defendants by their counsel offered to permit the plaintiff’s legal representatives to inspect the 14 boxes of documents to which Mr Allsop’s affidavit had referred, to see whether there was any additional document which should be discovered. The plaintiff did not take up this offer, since the case was part-heard and to do so would necessitate an adjournment.

29   Just before the hearing on 9 December 1998 adjourned, I expressed the tentative view that it would be desirable, if the defendants adhered to the view that discovery was adequate and complete, that an affidavit be provided to that effect by Mr Finlay or Mr Westgarth, and that the defendants should not merely rely on an affidavit by their solicitor on information and belief. The hearing of the application and the final hearing were both adjourned to 11 December 1998.

The evidence of Mr Finlay and Mr Westgarth


30   Mr Westgarth gave evidence on 11 December 1998. Thereafter some further documents were tendered and the evidence in the final hearing was closed, subject to anything which might emerge from the application for further discovery.

31   Early in the hearing on 11 December the defendants filed, pursuant to leave granted, further affidavits by Mr Finlay and Mr Westgarth dated 10 and 11 December 1998 respectively. In his affidavit Mr Finlay described his practice of taking handwritten notes from time to time, and placing some of them in his ‘Networking’ file. When he ceased to be managing partner in 1993 he went through his files and discarded documents which he considered to have no continuing use of relevance, and he said those documents may have included his handwritten notes. He said that there was no file or bundle of documents of his relating to the pension entitlements, other than the files he maintained as managing partner, including the Networking file. Any handwritten notes which he had not discarded would be in those files. He said he did not hold any schedule of retirement entitlements in hard copy or transparency form, and that he was unable to identify the document to which Schedule C was originally attached. He said Mr Allsop and others had made inquiries to ascertain whether any such document exists.

32   I infer from his affidavit that apart from helping to identify archived files, Mr Finlay did not play an active part in the discovery process and in particular, he did not review any of the 14 boxes of documents. His affidavit offers no explanation for the defendants’ omission to produce at an earlier stage the three sets of handwritten notes which were annexed to Mr Allsop’s affidavit of 9 December 1998.

33   In his affidavit made on 11 December 1998, Mr Westgarth said that prior to executing the affidavit verifying the list of documents on 26 September 1997, he caused the procedure described by Ms Russell to be carried out. Following the orders of 20 November 1997, he caused Ms Russell and Mr Allsop to ‘take such steps as would be necessary’ to enable the defendants to comply with the terms of the order. He did not say what those steps were, but he said he believed that the steps were taken. He verified the supplementary list of documents following advice from Mr Allsop that he and his staff had perused documents identified by various partners, including Mr Finlay, and in reliance on Mr Allsop’s advice that the defendants’ obligations in relation to discovery had been satisfied by the list and supplementary list of documents.

34   He then said that he reviewed his files on 9 and 10 December 1998 and during that review he identified a four page document which he annexed to his affidavit, in a file entitled ‘Partnership Material January 1991 to March 1991’. He said he was unable to identify any document to which this had been attached, and that he had no present recollection of the circumstances in which he received the document. He spoke to Mr Finlay who informed him that the document was created in the first half of 1991. He said he did not recall considering whether the document was discoverable but if he had done so, he would have formed the view that it did not contain material which could rationally affect the assessment of the probability of the existence of a fact in issue in the proceedings. He said he had not been able to locate from the searches which he caused to be carried out any of the documents referred to in the plaintiff’s notice of motion, and said that he did not believe, based on the searches he had caused to be made and on the contents of Mr Finlay’s affidavit of 10 December 1998, that there were any further searches or inquiries which might result in such documents being located. He did not describe the searches which he caused to be carried out.

35   Mr Westgarth was cross-examined on matters relevant to discovery during his evidence at the final hearing on 11 December 1998. Later on the same day, when the hearing of the application for further discovery proceeded, he was briefly cross-examined again. Additionally Mr Allsop was briefly cross-examined at the hearing of the application.

36   Annexure A to Mr Westgarth’s affidavit of 11 December 1998 comprises four tables of figures. Each is headed ‘Westgarth Middletons, Sydney - Partnership Profile’. The first, which is marked as ‘Schedule A’, sets out 26 names, and adjacent to each it sets out the date of birth, date of admission to partnership and to practice, equity points, equity in WIP, fixed capital loan and total equity. It is marked ‘as at 30 June 1990’. Schedule B, which is marked ‘as at 1st July 1990’, sets out the same information with respect to date of birth, date of admission to partnership and practice and equity points, and then sets out information under the headings ‘Years as Partner’, ‘Percentage of 15 Year Service’, ‘Present Value (Taxable) ($315,000)’, and ‘Present Value (Capital) ($163,000)’. It appears that the figure adjacent to each name in the last two columns is a percentage of each of the two amounts mentioned in the heading, the percentage being in the proportion that actual years of service as partner bears to 15. One assumes that the figure of $315,000 in the heading of the second last column is either a senior associate’s salary of $105,000 for three years, or the discounted present value of a senior associate’s salary of $120,000 for three years. The column attributes the full $315,000 to partners who had served for at least 15 years, and in the case of Mr Falk, who at that stage had served for seven years as a partner, the figure listed is $147,010. Schedule C gives the same calculations as at 1st July 1991, by which time Mr Falk had served eight years, and so the figure listed for him is $167,990. Schedule D is headed ‘Retirement Benefits’. For each of the named partners it lists the total equity from Schedule A and the pension from Schedule C, and then adds the two together for a ‘total entitlement’.

37   Mr Westgarth was asked whether, if there were any schedules prepared in late 1990 or early 1991 setting out retirement benefits, he would consider them to be relevant documents, and his answer was that they may well be but it would depend on the documents. He said that the document annexed to his affidavit of 11 December 1998 was not relevant, because in his opinion it did not touch upon a matter in issue in the case.

Mr Allsop’s oral evidence

38   Mr Allsop said he believed that the document annexed to Mr Westgarth’s affidavit was not discoverable. He was asked why the files referred to in Mr Finlay’s evidence had not been produced, and he said,
‘I have taken the view that the files are not files relating to the pension entitlements, they are managing partner files, and I understood that what was required was to produce any file that was particularly related to pension entitlements, and if none such file existed out of files that contained material related to many matters, that the documents relating to pension entitlements would be extracted.’

Further hearing on 15 December 1998

39   The application for discovery was adjourned for further hearing on 15 December 1998, counsel for the plaintiff foreshadowing that in light of the new documents which had been produced, the most appropriate relief may be an order that affidavits be filed as to whether previous orders had been complied with and to the extent that they had not, identifying the documents which ought to have been produced. The hearing of the application concluded with submissions on 15 December 1998, no further evidence being adduced on that occasion.

The law of discovery


40 The proceedings commenced by summons first filed in the Commercial Division on 24 October 1996. The present Supreme Court Rules concerning discovery apply to proceedings commenced on or after 1 October 1996, and so the discovery process in the present proceedings has been under the new Rules. The evidence indicates that there has been some confusion between the solicitors for the parties about the requirements of the new Rules. I shall therefore set out my understanding of their operation on relevant matters.

41   The Rules deal with a party’s right to discovery without an order of the Court, and the Court’s power to make an order for discovery. A party’s right to require production of documents for inspection is now limited to documents referred to in the pleadings and affidavits, and other specific documents ‘relevant to a fact in issue’ (Pt 23 r 2(1)(b)). Rule 1(d) states that:
‘A document or matter is to be taken to be relevant to a fact in issue if it could, or contains material which could, rationally affect the assessment of the probability of the existence of that fact (otherwise than by relating solely to the credibility of a witness), regardless of whether the document or matter would be admissible in evidence.’
42   Ritchies’ Supreme Court Procedure NSW , para [23.0.2] suggests that this test, based on the concept of relevance used in the Evidence Act 1995 (Cth), is narrower than the test of relevance which applied under the previous rules. The old test of relevance was stated by Menzies J in Mulley v Manifold (1959) 103 CLR 341, 345:
‘Only a document which relates in some way to a matter in issue is discoverable, but it is sufficient if it would, or would lead to a train of inquiry which would, either advance a party’s own case or damage that of his adversary.’

See also Compagnie Financiere et Commerciale du Pacifique v Peruvian Guano Company (1882) 11 QBD 55; Ferguson v Mackaness Produce Pty Ltd [1970] 2 NSWR 66; Commonwealth of Australia v Northern Land Council (1991) 103 ALR 267; and note the historical discussion by Wells J in Donaldson v Harris (1993) 4 SASR 299. It is possible, though perhaps very unlikely, that a document falling within Menzies J’s description might not meet the test in the new Rule 1(d).


43   Under Pt 23 r 3(3) the Court may make an order for discovery by describing a class of documents by means of their relevance to facts in issue, or by using some other description. Once the Court validly exercises its power to make an order under Pt 23 r 3, the question of relevance of documents to a fact in issue is superseded by the terms of the Court’s order. The question for the parties thereafter is whether a document under consideration falls within the terms of the Court’s order, regardless of whether the party who is subject to the order believes the document to be relevant to a fact in issue.

44   This is the effect of McLelland CJ in Eq’s judgment in Telstra Corp v Australis Media Holdings Pty Ltd (Supreme Court of New South Wales, 10 February 1997, unreported). His Honour observed that under the new discovery rules, if the Court chooses to make an order for production of documents described by their nature rather than their relevance to an issue, the order renders it unnecessary thereafter to consider questions of relevance as such. If the party giving discovery desires to withhold production of part of a discoverable document on grounds of relevance, that party will need to apply for variation of the order under Rule 4. His Honour explained the criteria which the Court would apply in considering such an application.

45   Once an order has been made, the party who is subject to the order (‘party B’ in Pt 23 r 3) is required to comply with the Court’s order by serving a list on the party seeking discovery (‘party A’). Part 1 of the list comprises the documents specified in the order which are in the possession custody or power of party B, and part 2 comprises documents which are no longer in party B’s possession custody or control, but were within the six months prior to the commencement of the proceedings.

46   The old rules required party B to enumerate documents which have been in its possession, custody or power without any time limit (old Rule 6(2)). They required party B not only to list all documents once in its possession, but to say when it parted with them and what has become of them (old Rule 6(6)). Under the new rules there is no obligation to list documents which were in party B’s possession more than six months before the commencement of the proceedings, and as to those which were in party B’s possession within the six months period but are no longer so, the obligation is only to set out in an affidavit the identity of the person who party B believes to have them, or to say (if it be so) that the deponent has no belief as to who has them (Rule 3(5)(b)(i)(C) and (D), and Rule 3(6)(c)).

47   Rule 3(8) obliges part B to notify party A if it becomes aware that a document within a class specified in the Court’s order has come into its possession.

Conclusiveness of the affidavit verifying discovery

48   According to Edward Bray, The Principles and Practice of Discovery (1885), p 212,
‘In all questions of discovery the oath of the party giving the discovery is conclusive against the oath of the party requiring the discovery.’

This principle was founded on the practice of the Court of Chancery whereby a ‘conflict of affidavits’ was not permitted over whether the affidavit of discovery was sufficient: see Lyell v Kennedy (No.3) (1884) 27 ChD 1, 19; Jones v Monte Video Gas Co (1880) 5 QBD 556, at 558, 559; British Association of Glass Bottle Manufacturers Ltd v Nettlefold [1912] 1 KB 369, at 374, 376; [1912] AC 709.


49   However, this proposition is subject to qualifications. It may be arguable that the principle of conclusiveness of the affidavit of discovery is qualified by Pt 23 r 4, which appears to give the Court a wide discretion to order further discovery. But that is not an issue which I need to determine in this case, because in my view the plaintiff’s application falls within a well-established exception to the principle.

50   In Mulley v Manifold (1959) 103 CLR 341, 343 Menzies J explained that the deficiency of discovery cannot be established simply on the basis of an affidavit which contradicts the affidavit of verification. He pointed out that before the Nettlefold decision to which I have referred, it was thought that the insufficiency of discovery had to appear from the pleadings, the affidavit of documents itself or the documents which were listed. Nettlefold’s case established, as Menzies J put it, that
‘the insufficiency might appear not only from the documents but also from any other source that constituted an admission of the existence of a discoverable document’.

He added that

‘It is not necessary to infer the existence of a particular document; it is sufficient if it appears that a party has excluded documents under a misconception of the case.’

51   In the present case the application arose out of Mr Finlay’s admission in cross-examination that he had kept a file and made handwritten notes. No such documents were listed in the verified list and supplementary list of documents. Mr Finlay also recollected in cross-examination that there was a schedule in about November or December 1990 which may have been produced on a transparency. Again, no such schedule had been listed, even though it was clear from the affidavits filed in the proceedings, and from correspondence, that proof of the schedule was an important part of the plaintiff’s case.

52   Consistently with the general approach that the affidavit of documents is conclusive, courts do not permit cross-examination of the maker of the affidavit. As Giles J said in Fruehauf Finance Corporation Pty Ltd v Zurich Australian Insurance Ltd (1990) 20 NSWLR 359, 363,
‘To permit cross-examination would be to open up the prohibited areas of investigation, and nullify the restrictions upon contesting both the amplitude of discovery and any claim for protection from inspection.’

53   In the present case I permitted limited cross-examination of Mr Westgarth during the hearing of the plaintiff’s application, notwithstanding that he had made the affidavits verifying the list and supplementary list of documents. It was appropriate to do so, notwithstanding the general rule, because in the present case the defendants elected to adduce fresh affidavit evidence by Mr Westgarth, which annexed further schedules that had not previously been produced, and the cross-examination was directed towards that affidavit and those schedules.

54   The question, therefore, is whether, documents having been identified in evidence which have not been discovered, this is an appropriate case in which to make some further order, such as an order for further discovery. The evidence on the application has been directed to that question.

The adequacy of discovery in the present case


55   In this case the defendants had obligations of three kinds to make discovery. Their first obligation was to comply with the various orders which had been made by the Court under Pt 23 r 3, according to their terms. None of the orders was expressed to be limited by any overriding criterion of relevance. It was therefore not open to the defendants to exclude documents falling within the classes of description in the orders on the ground that the defendants did not consider them to satisfy the definition of relevance in Pt 23 r 1(d). Secondly, the defendants were obliged under Pt 23 r 3(8) to notify the plaintiff if they became aware prior to the end of the hearing that any document within the class or classes specified in the Court’s orders but not disclosed in Part 1 of the list of documents was within or had come into the defendants’ possession, custody and power. Again, r 3(8) does not make the continuing discovery obligation subject to any overriding criterion of relevance. Thirdly, the plaintiff served notices to produce on certain defendants in November 1998, requiring production of specified documents. They were obliged by Pt 23 r 2 to respond, although they were entitled to apply the criterion of relevance under Pt 23 r 1(d) before doing so.

56   The plaintiff says that evidence of the defendants’ failure to comply with their obligations may be found in

· the history of discovery up to the filing of the supplementary list of documents on 9 September 1998;

· the defendants’ solicitors’ letter of 3 December 1998, in response to the plaintiff’s application for leave to issue subpoenas;

· the very belated production of the handwritten notes annexed to Mr Allsop’s affidavit of 9 December 1998 and the schedules annexed to Mr Westgarth’s affidavit of 11 December 1998, which the plaintiff submits to be clearly relevant to issues in the proceedings; and

· the oral evidence given by Mr Finlay at the hearing, Mr Westgarth at the hearing and on the application, and Mr Allsop on the application, read with their affidavits of 10, 11 and 9 December 1998 respectively.


I shall consider each of these matters.

Adequacy of discovery up to 9 September 1998


57   First, the plaintiff says that the history of the matter to this point demonstrates that the defendants have consistently and from the outset taken an excessively narrow view of the scope of discovery. I disagree. The history shows that the defendants have delayed their responses to the plaintiff’s demands, sometimes excessively and without any evident justification. It shows that they have had difficulty in complying with orders because of the volume of material, the need to co-ordinate replies by a large number of defendants, and the lack of co-operation of some former partners. It shows that the defendants’ solicitors were a little slow to assimilate the new discovery rules, for they sought ‘general disclosure’ on 3 July 1997 (as did the plaintiff’s solicitors), and the defendants’ list of documents verified on 26 September 1997 was in a format evocative of the old rather than the new rules.

58   The correspondence between the solicitors for the parties shows that allegations were made by the plaintiff’s solicitors to the effect that the defendants’ discovery was inadequate, and also to the effect that insufficient searches and inquiries had been made of and by the WM partners. But ultimately discovery orders were made by consent on 20 November 1997. Having reviewed the correspondence, I am unable to hold that the allegations made by the plaintiff’s solicitors in correspondence were proven or (except to a minor degree) admitted on behalf of the defendants.

59   Throughout the period from 15 November 1996 until the verification of the supplementary list of documents on 9 September 1998 there were discovery orders in place. The task of the legal advisers to the parties was to interpret and comply with those orders, rather than to express opinions on relevance as such. I do not regard the correspondence for this period as showing that the defendants’ solicitors misconceived their and their clients’ duty. I therefore reject the plaintiff’s contention on this point.

Letter of 3 December 1998


60   Secondly, the plaintiff submits that the letter of 3 December 1998 demonstrates that the defendants’ solicitors adopted far too narrow a concept of relevance, and invites me to draw the inference from that letter that the defendants have been wrongly advised throughout the discovery process, which has therefore miscarried. I disagree with this submission.

61   The defendants’ solicitors were responding to new subpoenas, in the context of resisting an application for leave. When the application came before me on 4 December 1998 I held that the subpoenas were drawn too widely in certain respects, though I granted leave to file and serve amended subpoenas. Properly construed, the letter of 3 December 1998 was making a point in conformity with my subsequent ruling - namely that the subpoenas as served related to documents which could not be relevant to the proceedings, because (by implication) the class was too wide to be wholly relevant.

Belated production of the handwritten notes and schedules


62   While I reject the plaintiff’s submissions as to the history of discovery up to the letter of 3 December 1998, I have some real concerns about the defendants’ failure to produce the handwritten notes and schedules until the affidavits of Mr Allsop and Mr Westgarth were made on 9 and 11 December 1998 respectively, and on their continuing adherence in oral evidence to the opinion that these documents were not discoverable.

63   The handwritten notes include two pages headed ‘Melbourne Partners MTG 04.10.90’, and a further set of notes which appear to comprise seven pages (although it is not clear that they all relate to a single meeting and if they do, the meeting must have carried over to a second day) headed ‘N/W Mtg/Notes 16.10.90’. The first of these documents includes the following:
‘(11) 2.2(3rd paragraph): Badly expressed.
(12) 2.2 (2nd parag.): ? deduction of int.
when commuted to a pension
[RKL to advise]’
64   The second document contains the following:
‘ Retirement
2.2 3rd para - delete
CMcN introducing a super scheme for existing’
65   It is likely that these are notes or aides memoire relating to a discussion concerning clause 2.2 of a document headed ‘DRAFT DISCUSSION POSITION ON PRINCIPAL TERMS OF HEADS OF AGREEMENT FOR MERGER’. Clause 2.2 of that document was in the following terms:
‘Retirement provisions as at 30th June 1991 with the respective firms in Sydney and Melbourne shall be borne by the merged Profit Centres in those cities thereafter. Proposed retirement provisions in Brisbane shall be borne by the Brisbane Profit Centre.
All existing Westgarth Middletons retirements provisions (including pension and Equity in WIP in Sydney and, in the case of Melbourne, pension, goodwill and interest in NTA) are to be commuted on merger to a retirement provision in favour of each existing Westgarth Middletons Partner, pro rata according to seniority.
The retirement provisions should apply before the age of 65 (as per the WM system) provided 15 years’ service as Partner in the merged firm or its predecessors have been achieved.’

66   Paragraph 2.2 related to matters at the heart of this case. While clause 2.2 was only a draft which was subsequently superseded, that draft and discussions concerning it could be part of a chain of communications which, taken together, would add up to representations of the kind upon which the plaintiff relies. Or the discussions could assist to explain and give meaning to other evidence as to the alleged representations.

67   That being so, the handwritten notes provide further evidence of the discussions, and in my opinion they are relevant to a central matter in issue in the proceedings, and this would be so even if a narrower criterion of relevance were to be used than the definition in Pt 23 r 1(d). Considered in isolation, the notes about clause 2.2 are not greatly informative, but they provide some evidence of the time and date of the meeting at which the third paragraph was deleted and (since the second note records attendances) the partners who were involved in that meeting, as well as showing the context within which clause 2.2 was discussed and an apparent decision to seek advice about the second paragraph. Not only could the notes lead to a chain of inquiry which would produce firm evidence; in terms of Pt 23 r 1(d) the notes contain material which could rationally affect the assessment of the probability of the existence of the representations upon which the plaintiff relies.

68   The schedules annexed to Mr Westgarth’s affidavit of 11 December 1998 are different from Schedule C to Mr Finlay’s memorandum dated 5 July 1991. They are set out horizontally rather than vertically. They list the partners by seniority rather than alphabetically. They calculate the pension as a percentage of $315,000 rather $320,000, and they show additional information. But it is undeniable, in my view, that the schedules, evidently prepared in the first half of 1991, are relevant to the plaintiff’s central contentions in this case. In his main affidavit made on 27 February 1997, paragraph 9, the plaintiff said that at a meeting held, to the best of his recollection, in November or December 1990 Mr Finlay produced a schedule of retirement entitlements for WM Sydney Partners containing figures ‘the same as or to like effect as’ those set out in the schedule to the memorandum dated 5 July 1991. The plaintiff says that Mr Finlay said, when he produced the schedule, that the existing pension entitlements for WM Sydney Partners ‘are frozen and set in stone and this schedule I have prepared sets out the calculations for the entitlement of each Westgarth Middletons partner on retirement from the merged firm.’ The plaintiff relies on that statement as a representation which now prevents the defendants from asserting that the pension entitlement was subject to a ‘non-compete’ condition.

69   The relevance of the schedules attached to Mr Westgarth’s affidavit to the plaintiff’s assertion about the defendants’ representations is that they demonstrate that schedules of the kind to which the plaintiff’s evidence refers existed at about the time the plaintiff says that a schedule was distributed and representations were made. If the schedules produced by Mr Westgarth are or include the schedule to which the plaintiff’s evidence refers, which will presumably be a matter for the Court to determine in the proceedings, then it will follow that the schedule to which the plaintiff’s evidence referred did not contain any reference to a ‘non-compete’ condition. It may emerge that the schedules attached to Mr Westgarth’s affidavit are also relevant in other ways.

The opinions of the defendants’ witnesses about disclosure


70   I turn now to the affidavit evidence relied on by the defendants in answer to the plaintiff’s application, and to the oral evidence given on behalf of the defendant in the application and in the proceedings. I have two serious concerns.

71   First, I have found that the handwritten notes and schedules were relevant to facts in issue in the proceedings. Additionally, they were discoverable pursuant to the Court’s orders. Order 2(b) of the orders made by consent on 20 November 1997 required production of the original files or bundles of documents of each individual defendant concerning the defendants’ respective pension entitlements consequent upon the merger. Order 2(d) required production of the original and any copies of the schedule circulated at the meeting of partners in late 1990 (specifically referring to paragraph 9 of the plaintiff’s affidavit of 27 February 1997) and any drafts of the schedule. In my opinion, production of the handwritten notes and schedules was required by order 2(b), and production of the schedules was arguably required by order 2(d), regardless of whether those documents could independently be described as relevant.

72   In his affidavit of 9 December 1998 Mr Allsop said that he did not believe that the handwritten notes contain material which could rationally affect the assessment of the probability of the existence of a fact in issue in the proceedings. In giving his oral evidence that he made handwritten notes and placed them in the Networking file, Mr Finlay did not seem to realise that any such notes remaining in the defendants’ possession custody or power were discoverable under the Court’s previous orders. Mr Westgarth said in his affidavit that while he did not recall considering whether the schedules were discoverable at the time when discovery was given, he believed that if he had done so he would have formed the view that they did not contain material which could rationally affect the assessment of the probability of the existence of a fact in issue in the proceedings. He repeated the substance of this in his oral evidence.

73   Mr Westgarth was the partner who made the affidavits of discovery, and Mr Allsop was the solicitor who advised him. In my view they were wrong about the relevance of the schedules and handwritten notes. Further, they do not appear to have considered whether those documents were discoverable under the Court’s orders regardless of any supervening notion of relevance. That being so, it is impossible to have confidence that the defendants’ discovery has been complete.

The defendants’ inquiries in preparation for discovery


74   My second concern about their evidence relates to the circumstances leading to the production of the schedules and handwritten notes. Mr Finlay and Mr Allsop have both given evidence, which I have described, as to the manner in which the initial discovery process was administered. Mr Allsop said he reviewed about 14 boxes of documents with the help of two employed solicitors. It appears that the handwritten notes were found somewhere in the 14 boxes, since Mr Allsop’s evidence is that they were part of ‘some of the documents’ which he had previously inspected. They were identified by junior counsel for the defendants after the court hearing at which Mr Finlay gave evidence that he had taken handwritten notes, but there is nothing to suggest that the identification of these notes was part of any systematic review. The inspection of the 14 boxes of documents by Mr Allsop and his employees occurred late in 1997.

75   Mr Finlay and Mr Westgarth relied on Mr Allsop in the discovery process. Mr Finlay said in his affidavit of 11 December 1998 that he verified the supplementary list of documents following Mr Allsop’s advice that the documents had been perused. Mr Westgarth said he reviewed his own files on 9 and 10 December and found the schedules there. He referred to ‘searches which he caused to be carried out’ but he did not say what they were.

76   I infer that:

· the review of the defendants’ documents conducted by Mr Allsop and his employees in 1997 failed to identify discoverable documents, namely the handwritten notes and schedules;

· the review in 1997 was the only general review of the defendants’ documents during the discovery process up to 11 December 1998;

· production of the handwritten notes and schedules was not the result of, and did not lead to, any systematic review of the defendants’ documents; and

· Mr Allsop and Mr Westgarth reached a mistaken conclusion about the discoverability of those documents.

77   These findings reinforce my view that the Court can have no confidence that defendants’ discovery is complete.

The appropriate relief


78   It follows from my findings that orders of an appropriate kind should be made so that the defendants’ documents are reassessed according to the correct legal principles of discovery, by a proper general review, and any additional discoverable documents are then brought forward. In my opinion those orders should include an order that one or more affidavits be filed on behalf of the defendants deposing to what is actually done by way of further communications to an from individual defendants and further reviews of the defendants’ documents, for the purpose of complying with the orders which are to be made.

79   The defendants submitted that the Court should not and could not set itself up as a Royal Commission to investigate how discovery was conducted by the defendants. That is so, but where evidence has emerged which causes the Court to have serious concerns about the adequacy of the discovery process and its conformity to legal principles, it is appropriate for specific orders to be made of the kind which I have in mind.

80   As to the classes of documents to which the Court’s orders should relate, Mr Finlay’s evidence is that the files or bundles of documents referred to in paragraph 2(a) of the notice of motion do not exist. But the handwritten notes were probably a ‘bundle of documents’ which should have been produced. My view is that an order along the lines of paragraph 2(a) would be appropriate, but the words ‘bundle of documents’ are best avoided, in order to avoid debate about their meaning. Counsel for the defendants submitted that an order for production of handwritten notes concerning any aspect of the merger negotiations would be too widely drawn, and I am inclined to agree, and therefore an order narrower than paragraph 2(b) of the notice of motion, confined to handwritten notes regarding pension entitlements of the WM Sydney Partners, would be more appropriate. Paragraphs 2(c) and (d) seem to me to remain appropriate notwithstanding production of the schedules, since a further review of the defendants’ documents in light of these reasons for judgment could unearth additional material.

81   Since more thought will need to be given to the form of the orders, the proper course is to stand the matter over for mention in the near future and direct the plaintiff to prepare draft short minutes of orders in the meantime. I shall also hear submissions on the question of costs at that time, though since the plaintiff has been substantially successful on the application I am inclined to order the defendants to pay his costs.
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Last Modified: 06/26/2000