Fudlovski v JGC Accounting and Financial Services Pty Ltd
[2014] WASCA 237
•23 DECEMBER 2014
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
TITLE OF COURT : THE COURT OF APPEAL (WA)
CITATION: FUDLOVSKI -v- JGC ACCOUNTING & FINANCIAL SERVICES PTY LTD [2014] WASCA 237
CORAM: MARTIN CJ
NEWNES JA
MURPHY JA
HEARD: 12 NOVEMBER 2014
DELIVERED : 23 DECEMBER 2014
FILE NO/S: CACV 15 of 2014
BETWEEN: NIKOLA FUDLOVSKI
First Appellant
ROSEMARY FUDLOVSKI
Second AppellantFUDLOVSKI INVESTMENTS PTY LTD
Third AppellantAND
JGC ACCOUNTING & FINANCIAL SERVICES PTY LTD
First RespondentJUSTIN GEORGE COPPIN
Second RespondentNIGEL WILLIAM HART
Third Respondent
ON APPEAL FROM:
Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA
Coram :KENNETH MARTIN J
Citation :FUDLOVSKI -v- JGC ACCOUNTING & FINANCIAL SERVICES PTY LTD [No 4] [2014] WASC 33
File No :CIV 2239 of 2012
Catchwords:
Practice and procedure - Discovery - Further and better discovery sought - Relevance - Pleaded issues
Legislation:
Rules of the Supreme Court 1971 (WA), O 1 r 4A, O 1 r 4B
Result:
Appeal allowed in part
Category: B
Representation:
Counsel:
First Appellant : Mr D H Solomon
Second Appellant : Mr D H Solomon
Third Appellant : Mr D H Solomon
First Respondent : Mr T J Carmady
Second Respondent : Mr T J Carmady
Third Respondent : No appearance
Solicitors:
First Appellant : Solomon Brothers Barristers & Solicitors
Second Appellant : Solomon Brothers Barristers & Solicitors
Third Appellant : Solomon Brothers Barristers & Solicitors
First Respondent : Williams & Hughes
Second Respondent : Williams & Hughes
Third Respondent : No appearance
Case(s) referred to in judgment(s):
Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc [1981] HCA 7; (1981) 148 CLR 170
Allmark v Mossensons (a firm) [2006] WASCA 127
Compagnie Financiere et Commerciale du Pacifique v Peruvian Guano Co (1882) 11 QBD 55
Fudlovski v JGC Accounting and Financial Services Pty Ltd [No 4] [2014] WASC 33
In the Will of FB Gilbert (dec) (1946) 46 SR (NSW) 318
Jingellic Minerals NL v Abigroup Ltd (1992) 7 WAR 566
Mulley v Manifold [1959] HCA 23; (1959) 103 CLR 341
REASONS OF THE COURT:
Introduction
The appellants are the plaintiffs in the proceedings below. After a general order for discovery, the appellants sought certain further and better discovery from the first and second respondents. The learned primary judge rejected their application. The appellants seek leave to appeal against that interlocutory decision.
Shorn of its surplusage, the appellants' essential point is a short one. It is that the learned primary judge erred in finding that the documents sought were not relevant on the expansive test in Compagnie Financiere et Commerciale du Pacifique v Peruvian Guano Co (1882) 11 QBD 55.
It is convenient in these reasons to refer to the appellants in their capacity as plaintiffs in the primary proceedings.
The primary proceedings
The plaintiffs in the primary proceedings alleged, in effect, in their amended statement of claim filed 14 March 2013 that:
(a)in the period 2003 ‑ 2010 the first respondent, JGC Accounting and Financial Services Pty Ltd (JGC), was engaged to, and did, provide taxation and business advisory services to the plaintiffs (s/c par 8);
(b)the second respondent (Mr Coppin) was at all material times a shareholder in and director and secretary of JGC (s/c par 7);
(c)in 2006 and 2007 the plaintiffs instructed JGC to advise them whether they should make certain investments in the share market and the property market through, or in connection with, SAS Global Ltd (SAS Global) and other related companies (SAS Global group) (s/c pars 10, 15, 19, 25 and 31);
(d)JGC (alternatively Mr Coppin in some cases) advised the plaintiffs to make such investments and made certain representations concerning such investments (s/c pars 11, 16, 20, 27 and 32);
(e)in reliance thereon, the plaintiffs made the investments (s/c pars 12, 17, 21 ‑ 24, 28 and 33); and
(f)that as a result of the investments, the plaintiffs suffered loss and damage (s/c pars 62 ‑ 108).
The claims against JGC involved allegations of breach of fiduciary duty, negligence and breach of contract, and misleading or deceptive conduct (s/c pars 35 ‑ 52). The plaintiffs alleged that Mr Coppin was liable for knowing assistance in the breaches of fiduciary duties, in negligence and in respect of misleading or deceptive conduct (s/c pars 53 ‑ 61).
In relation to their claims with respect to fiduciary duty, the plaintiffs alleged, amongst other things, that:
(a)at all material times JGC had received commissions and/or fees from SAS Global and/or SAS Global group (s/c par 35.3) and that Mr Coppin, who was an authorised representative of SAS Global, also received commissions and/or fees from SAS Global and/or SAS Global group (s/c pars 36.1, 36.5);
(b)JGC, in effect as the plaintiffs' adviser, owed fiduciary duties to the plaintiffs (s/c pars 8.1, 39); and
(c)by advising the plaintiffs to make the investments with SAS Global and making representations to the plaintiffs concerning those investments, JGC preferred its own interests, or the interests of Mr Coppin, or the interests of SAS Global group, to the interests of the plaintiffs (s/c par 41).
The plaintiffs also alleged that JGC owed fiduciary duties to SAS Global by reason of, amongst other things, its receipt of commissions from SAS Global (s/c pars 35.3, 38).
The effect of these pleas was to allege that JGC had both a conflict of interest, and a conflict of duty, in acting as an advisor to the plaintiffs.
Those allegations were relevantly denied by JGC and Mr Coppin, although it was admitted that Mr Coppin was an authorised representative of SAS Global. It was said that his authority was limited to the provision of financial product advice for superannuation, including self‑managed super funds (defence par 30).
In response to an allegation that JGC was engaged as the accountant of SAS Global and SAS Global group companies (s/c 35.1), JGC pleaded, in effect, that its only engagement was that of a tax agent for certain SAS Global group companies, and that it had not been engaged to prepare any financial statements or provide accounting services to the SAS Global group companies (defence par 29).
Three preliminary observations should be made at the outset. First, the matter in (c) in [6] above appears to allege that in advising the plaintiffs to make the investments with SAS Global group, JGC made a deliberate decision to prefer its own interests or the interests of Mr Coppin and/or SAS Global or SAS Global group, over the interests of the plaintiffs. Secondly, although it might be thought that the plaintiffs' pleading is less than elegant, there has been no application to strike it out.
Thirdly, the plaintiffs' solicitor (Ms Retallack) in an affidavit affirmed 11 October 2013 in support of the application for further and better discovery, annexed various documents which the plaintiffs had obtained on early return of subpoena. The plaintiffs submitted, in effect, that these documents indicated that there were dealings between JGC and SAS Global group which, even if not probative of a fiduciary relationship between the two, revealed that the relationship went beyond that of a tax agent/client as alleged in the defence, and provided grounds arguably in support of the plaintiffs' case that JGC gave the impugned advice for the purpose of cementing or enhancing its relationship with SAS Global, and thereby acted in conflict of interest. In this regard, it was said that the documents showed that JGC had referred clients to SAS Global for investment purposes; had provided or sold its client list to SAS Global; had used its premises for seminars conducted by SAS Global; had joined with SAS Global, and shared the costs of, a marketing exercise at an agricultural 'expo' in 2008; had obtained very substantial amounts of money by way of fees for service from SAS Global group which appeared to be disproportionate, at least in some cases, to the particular accounting services to which the invoices ostensibly related; and that Mr Coppin attended board meetings of SAS Global group companies (Retallack affidavit pars 20 ‑ 44). It is to be accepted that at least a number of the documents of this character would ordinarily lead to a train of inquiry which would either advance the plaintiffs' case or damage that of JGC/Mr Coppin: see Mulley v Manifold [1959] HCA 23; (1959) 103 CLR 341, 345. However, the only documents discovered in relation to the pleas of conflict of interest or duty, have been certain engagement letters concerning the appointment of JGC as a tax agent: Retallack affidavit par 15.
The application for further and better discovery
The plaintiffs sought further and better discovery from JGC and Mr Coppin in terms of the categories referred to in sch 1 of the primary judge's reasons: Fudlovski v JGC Accounting and Financial Services Pty Ltd [No 4] [2014] WASC 33:
Schedule 1
1.All documents recording, referring to or concerning the appointment of the second defendant, Justin George Coppin ("Coppin"), as an authorised representative of SAS Global Limited.
2.Client files kept or maintained by the first defendant, JGC Accounting and Financial Services Pty Ltd ("JGC"), for the companies referred to in paragraph 29.1 of the Defence ("SAS Global Companies"), or any of them.
3.Invoices issued by JGC to the SAS Global Companies, or any of them.
4.Financial records and other documents (including, but not limited to, client file transaction ledgers, trial balances and general ledgers) which record payments to JGC by the SAS Global Companies, or any of them.
5.Time ledgers kept or maintained by JGC recording time spent by Coppin and other employees of JGC working on matters for the SAS Global Companies, or any of them.
6.Financial statements prepared by JGC for the SAS Global Companies, or any of them.
7.Documents concerning or in respect of or referring to the sale or provision by JGC (or by any person or company related to JGC) of the names and contact details for clients of JGC to SAS Global Limited (or to any person or company related to SAS Global Limited).
8.Documents concerning or in respect of or referring to all seminars presented by SAS Global Ltd (or by any person or company related to SAS Global Ltd) at the business premises of JGC, including but not limited to letters of invitation sent by JGC to clients of JGC to attend such seminars.
9.Documents concerning or in respect of or referring to the 2008 Dowerin Field Day, including but not limited to all correspondence between SAS Global Financial Planning Pty Ltd (including of its directors, officers, employees and agents) and JGC (including of its directors, officers, employees and agents) concerning or in respect of or referring to the 2008 Dowerin Field Day.
10.Coppin's original diaries for the years 2006 to 2010. (original emphasis)
The primary judge's findings
The primary judge found, in effect, that:
(a)the first and second respondents had given satisfactory evidence, which he accepted, that all category 1 documents had already been discovered [37];
(b)in relation to categories 2 ‑ 7, documents prior to 1 July 2008 had been destroyed [34], [56], [57], [59], [60], [63], [69];
(c)categories 2 [52]; 4 [58]; and 5 [60] were wholly irrelevant in any event;
(d)in relation to categories 2 ‑ 7, 9 ‑ 10 documents after 1 July 2008, they were also irrelevant in that the last act of pleaded reliance was in November 2007 [53], [56], [58], [60], [64], [69], [73], [76];
(e)the plaintiffs had not established that it was fairly certain that there existed documents in category 7 [69];
(f)category 8 documents were being provided voluntarily [70]; and
(g)arrangements in relation to category 10 diary entries for 2006 ‑ 2007 appeared satisfactory and that no order for further and better discovery should be made until after inspection [75].
The grounds of appeal
In their proposed orders in this appeal, the plaintiffs, in effect, seek orders for specific discovery in relation to categories 2 ‑ 7, 9 and 10 (par 2 'orders wanted', WB 28 ‑ 29).
The appellants' grounds of appeal ranged over a number of matters. It is unnecessary to set them out verbatim. In essence, they raised three issues:
(a)whether the documents in categories 2 ‑ 7 and 9 were relevant on the pleaded issues;
(b)insofar as relevant documents had been destroyed, whether the respondents should file an affidavit of documents in compliance with form 18 and pts 2A and 2B of form 17; and
(c)whether the diary entries of Mr Coppin in category 10, in respect of the years 2008 ‑ 2010, were relevant.
Notice of contention
The respondents filed a notice of contention to the effect that the primary judge's decision in relation to categories 2 and 4 should be upheld on the further basis that the request was oppressive and not in accordance with the principles of positive case flow management required by O 1 r 4A of the Rules of the Supreme Court 1971 (WA) (RSC).
Appellate intervention
In Allmark v Mossensons (a firm) [2006] WASCA 127 Pullin JA (Buss JA agreeing) said:
Leave will usually only be granted where the decision below was wrong, or at least attended with sufficient doubt to justify the granting of leave, and if in addition substantial injustice would be done by leaving the decision unreversed. See Wing Luck Foods v Lay Choo Lim [1989] WAR 358 at 360 and Friday v Australian National Airlines Commission, unreported; FCt SCt of WA; Library No 8502; 24 September 1990; Stanley v Layne Christensen [2006] WASCA 56 at [15] and [58]. These are not rules but guidelines. The Court has a residual discretion to do justice in any case requiring leave even if the guidelines are not satisfied. See Sanderson v Metropolitan (Perth) Passenger Transport Trust, unreported; FCt SCt of WA; Library No 950185; 22 March 1995 [26].
Further, appellate courts exercise particular caution in reviewing decisions pertaining to practice and procedure: Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc [1981] HCA 7; (1981) 148 CLR 170, 177; In the Will of FB Gilbert (dec) (1946) 46 SR (NSW) 318, 323.
In determining whether it is in the interests of justice to grant leave, the court will also give consideration to the principles of case management and the principles enunciated in O 1 r 4A and r 4B of the RSC.
Disposition
Alleged error concerning relevance
The relevant pleadings are summarised in [4] ‑ [10] above.
Matters in issue will generally be determined by reference to the pleadings: Mulley (345). However, the pleadings must be read in a realistic way. A bare and conclusory assertion of a claim, unsupported by alleged material facts, which for whatever reason has not been struck out, may not, at least under the principles of modern case flow management, properly be regarded as giving rise to an issue for the purposes of ordering discovery. In this case, the plaintiffs' claims, at least with respect to conflict of duty and interest, did not fall into that category of pleading.
Whilst the judge had briefly referred to the allegation that in giving the advice to the plaintiffs, JGC preferred its own interests or the interests of Mr Coppin or the SAS Global group companies to the interests of the plaintiffs [31], his Honour appears, with respect, to have overlooked that matter in deciding the question of relevance. His Honour focused instead on two issues. One was whether the subpoenaed documents themselves could be used as the 'touchstone' for relevance in a discovery application. His Honour correctly decided that they could not be [43] ‑ [51]. The other was whether the plaintiffs' plea that JGC had received commissions was sufficient in itself to raise an issue that JGC owed fiduciary duties to SAS Global group [52].
It is unnecessary to decide whether the approach taken by his Honour was in response to the focus, as he understood it, of the plaintiffs' submissions. Objectively, it does appear, with respect, that in his Honour's assessment of the pleadings, he has confined his consideration of relevance to the allegation of conflict of duty and duty, and has not considered the allegation of conflict of duty and interest.
It may reasonably be supposed that the documents in categories 2 to 5, at least in relation to the period prior to 30 June 2008, may assist the plaintiffs in showing any commissions earned or received by JGC and/or Mr Coppin from SAS Global group, and the nature and scope of any work done and the remuneration for it. This, and the documents in category 7, may ultimately assist the plaintiffs in inviting the trial court to infer that JGC had preferred its own interests, or the interests of Mr Coppin, or SAS Global, over the interests of the plaintiffs in giving the impugned advice. In this particular case the documents in those categories from 1 July 2008 may also at least 'indirectly' (Peruvian Guano) assist the plaintiffs. If and insofar as they revealed the nature and scope of the business relationship between JGC and SAS Global after 1 July 2008, including payment of commissions, such documents together with other evidence at trial, might lead the court to conclude that the relationship prior to 1 July 2008 was not materially different.
Category 6 was particularly relevant on the pleadings referred to in [10] above. Again, documents relating to the period after 1 July 2008 could at least indirectly assist the plaintiffs in inviting the court to infer that the relationship prior to 1 July 2008 was not materially different.
Category 9 documents are, on the evidence, relevant to what might arguably be characterised as some kind of joint enterprise, and are similarly relevant to the nature of the business relationship between JGC and SAS Global group.
In relation to category 10 (diaries), the parties, and the judge, appeared to accept that Mr Coppin's diaries were relevant prior to 2008. His Honour considered that the diaries from 2008 ‑ 2010 were irrelevant. Essentially, for the reasons given earlier, the diaries in that period may assist the plaintiffs in persuading the court to infer that the relationship between JGC/Mr Coppin and the SAS Global group prior to 2008 was no different from that which existed on and from 2008.
For the above reasons, in our respectful view, the learned primary judge erred in finding that the documents in categories 2 ‑ 7 and 9 were generally irrelevant, or at least irrelevant for the period from 1 July 2008. Similarly, the diaries for 2008 ‑ 2010 were relevant if, as it appears to have been accepted, the diaries prior to then were relevant.
Destruction of documents pre‑dating 1 July 2008
The plaintiffs alleged that they were entitled to an affidavit properly explaining when documents pre‑dating 1 July 2008 were destroyed, and whether those documents were recoverable from any hard drives still in existence.
Once it is accepted, as it should be, that the documents in categories 2 ‑ 7 and 9 are relevant, it would be appropriate for the respondents to swear a further affidavit of documents complying with forms 17 and 18, including parts 2A and 2B of form 17 concerning destroyed documents. Mr Coppin's affidavit of 22 November 2012 (especially par 4 read with annexure JGC1) did not depose to the matters required by parts 2A and 2B of form 17.
The question of leave
This is an exceptional case where leave (subject to the matter in [33] below) should be granted. The issue in connection with which the plaintiffs seek the further and better discovery is a fundamental one. It is a case where the facts of the relationship between JGC and SAS Global group, and any commissions earned or received by JGC, are essentially within the knowledge of JGC and not the plaintiffs, and the interests of justice would be served by JGC giving discovery prior to the particularisation of the plaintiffs' claim: Jingellic Minerals NL v Abigroup Ltd (1992) 7 WAR 566, 570. The very limited discovery, under the general order for discovery (see [12] above) also suggests that it is in the interests of justice to grant leave, as it tends to signify a misconception of the nature of the relevant obligation.
Two further specific matters should be mentioned. First, we are not persuaded that any injustice arises from the judge's decision to allow inspection of the diaries for 2006 and 2007 in accordance with [75] of his Honour's reasons.
Secondly, in relation to category 7, the judge said that he had not been satisfied that it was fairly certain that documents in that category existed [69]. The grounds of appeal did not appear to attack that particular finding, although the point was argued in oral submissions by counsel for the plaintiffs (appellants) (ts 19 ‑ 20). The affidavit in support of the application for further and better discovery included documents which indicated that SAS Global had access to the JGC client base (GB 382), the whole of the JGC client list (GB 395 ‑ 396), and the plaintiffs' details as clients of JGC (GB 401). His Honour in his reasons did not refer to this evidence [69]. This was sufficient evidence to conclude that it was fairly certain that the client list of JGC had been provided to SAS Global.
Notice of contention
As to the notice of contention, there is no reason why any potential oppression could not be overcome by discovering documents in categories or groups. That matter is best addressed by the primary judge on remitter.
Remitter
The appellants contend that the primary proceedings should be transferred to the docket of another CMC list judge, allegedly on two bases. One is that the primary judge had 'pre‑judged that the plaintiffs' pleaded claim[s] [were] insufficient to support findings that JGC owed SAS Global … fiduciary duties … or that JGC and/or Coppin preferred their own interests'. The other is that he had 'pre‑judged and determined that documents obtained … in answer to early return subpoena … [were] not relevant to any pleaded matter and [were] thus inadmissible' (appellants' submissions par 48).
There is some force in the argument that the allegation of conflict of duty and duty, as presently pleaded, is rather thin. It is not, however, necessary, for the disposition of this appeal, to determine whether it was open to his Honour to conclude that it did not sufficiently raise an issue for the purposes of ordering the further and better discovery sought by the plaintiffs. As noted earlier, his Honour appears to have, with respect, overlooked, or at least overlooked the significance of, the pleaded allegations of conflict of duty and interest. The learned primary judge runs a busy CMC list. It could not be said that a fair‑minded lay observer might reasonably apprehend that the primary judge might not bring an impartial and unprejudiced mind to the resolution of the matters at trial on the basis of what appears to have been an incomplete characterisation of the pleadings at the interlocutory, discovery stage. Moreover, if the primary judge were to be the trial judge in the matter, any findings of fiduciary duties would be based on the evidence, not the pleadings.
As to the second matter, his Honour was not making any finding that the documents obtained on early subpoena would be inadmissible on the grounds of relevance at the trial of the action. His Honour was simply not dealing with that question in the interlocutory application before him. Again, there could be no basis for contending apprehended bias on the part of the judge.
Conclusion
Leave to appeal should be allowed and the appeal should be allowed, to the extent indicated above. Orders 2 and 3 of the primary judge's orders made 21 February 2014 should be set aside. The plaintiffs' application for further and better discovery in relation to categories 2 ‑ 7 and 9, and category 10 with respect to the diaries for the years 2008 ‑ 2010, should be considered afresh by the primary judge in accordance with these reasons. The parties should bring in an agreed minute of orders.
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