Gatta v Andersen
[2018] VCC 746
•29 May 2018
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
GENERAL LIST
Case No. CI-18-00565
| Neil Gatta | Plaintiff |
| v | |
| Graham Edmund Andersen | Defendant |
---
JUDGE: | His Honour Judge Woodward | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 29 May 2018 | |
DATE OF RULING: | 29 May 2018 | |
CASE MAY BE CITED AS: | Gatta v Andersen | |
MEDIUM NEUTRAL CITATION: | [2018] VCC 746 | |
REASONS FOR RULING
---
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr A Burnett | HWL Ebsworth |
| For the Defendant | Mr M Settle | McMahon Fearnley Lawyers Pty Ltd |
HIS HONOUR:
The application
1 The applicant Mr Gatta applies pursuant to r32.03 of the Rules for orders for discovery from the respondent Mr Andersen to assist Mr Gatta in ascertaining the description of a person sufficiently for the purposes of commencing a proceeding in the court against that person. In Johnson v Holland [2016] VSC 340 at [4] T Forrest J stated the conditions for r32.03 as follows:
I have a discretion to make the orders sought if the plaintiff can demonstrate a) having made reasonable inquiries, he is unable to ascertain the description of a person sufficiently for the purpose of commencing a proceeding against that person, and b) it appears that some other person has, or is likely to have knowledge of facts, or has or is likely to have or has had possession of documents which would assist in ascertaining the description of the prospective defendant
2 More recently, Mukhtar AsJ in First National Group of Independent Real Estate Agents Limited v McGuane [2017] VSC 131 conveniently summarised the scope of operation of the rule in the following terms:
“I am not to rewrite the rule, but that language to my mind presupposes a belief that a wrongdoing has occurred to the applicant by someone unknown or not identified, and something plausible in support of that. The utility of this rule as a tool of justice is plain: if a wrongdoing has occurred then the Court should lend its aid to enabling a prospective plaintiff to elicit the identity of the wrongdoer. This is why authorities refer to Order 32 as having a beneficent operation. The limitation, which comes to play an important part in this case, is that orders cannot be sought on a flimsy foundation or on a mere hunch that a wrongdoing has occurred.”
Background
3 Mr Gatta has sworn two affidavits in support of his application. The first was sworn on 8 February 2018 and the second on 28 May 2018, the day before the hearing of this application. It appears that the second affidavit was sworn in response to matters raised in the submissions on behalf of the respondent. The substance of Mr Gatta’s evidence based on those two affidavits is as follows.
4 During 2008, Mr Gatta spoke to Jason Bell about investment opportunities Mr Bell was pursuing with his company Bell Capital Partners Pty Ltd (“Bell Capital”), including an investment in a new company set up by the respondent, Mr Andersen. Mr Bell told Mr Gatta that Mr Andersen was developing computer software to assess the risk of mortgages and had been looking for clients to invest in the software. In early 2009, Mr Bell told Mr Gatta that his company Bell Capital and Mr Andersen’s company Mortgij Pty Ltd had agreed to a joint venture for the development of the software (“the Morgji joint venture”).
5 On 18 March 2009, Mr Gatta gave Mr Bell a cheque for $150,000 payable to Bell Capital to invest in the Mortgij joint venture. On the same day, Mr Gatta was appointed a director of Bell Capital. During April, May and June 2009, Mr Gatta attended meetings and was given reports concerning the progress of the Morgij joint venture. On 14 July 2009, Mr Gatta gave Mr Bell a second cheque for $150,000 payable to Bell Capital for investment in the Morgij joint venture.
6 Mr Gatta continued to receive reports and information concerning the Morgij joint venture in the period 2009 to 2011, including in late 2010 and early 2011 when Mr Andersen emailed Mr Bell foreshadowing various changes in the ownership and operation of entities and trusts apparently involved in the development and marketing of the Morgij software. In 2011, Mr Bell told Mr Gatta about a restructure of the Morgij joint venture which would involve collapsing the joint venture and transferring interests to the Morgij Unit Trust.
7 On 21 February 2013, Mr Andersen sent an email to Mr Bell which Mr Bell forwarded to Mr Gatta apparently describing the current status of the business established to exploit the software. The email commences, “The MARQ Services JV documents were signed six months ago and we’ve had lots of progress in that time”. It also includes the statement: “we are about to launch a capital raising for Morgij for the purposes of providing a return to owners, increasing its interest in the MARQ JV and expansion working capital”. On 9 April 2013, Mr Andersen emailed Mr Gatta directly stating as follows:
“I’m not avoiding you but I have answered these questions before through Jason on behalf of Bell Capital.
Bell Capital’s interest is held through the MorgijFamily Unit Trust which owns currently 49% of Morgij Holdings.
BC holds about 3% of MUT. However, due to employee incentives this is changing although the value is significantly increasing. This is been finalised as part of the current fund raising. However for accounting purposes you could use a conservative $300K.
The value will more or less be established by the current fundraising. We are negotiating with a mid tier bank to invest in Morgij. The final terms will determine the value of the units in MUT. At this time will provide a report to unit holders on this issue. We have not been able to do this to date.”
8 A little over a year later on 8 May 2014, Mr Andersen sent an email to Mr Bell which included the following:
“We’ve spoken about this many times. The status of your investment in the trust (“MUT”) that owned the original Morgij has not changed over the years. Nor has MUT received any income from the business since it was formed.
By bringing in partners/investors the actual business has been taken first into a new company Morgij Holdings and then to the MARQ Australia Trust. MUT indirectly holds equity interests in those entities and therefore the business.
We are now in the process of restructuring the business back under Morgij Holdings and raising capital… I’ve been hamstrung about providing information about the MARQ business due to confidentiality restrictions… After the restructure and new investors are on board, I’ll be able to provide financial information… We’ll also know exactly what MUT’s interest in the business through Morgij is. To be quite honest this has not been something that has remained stable over the years and particularly recently as both Pepper and myself have needed to inject cash to keep everything afloat.”
9 On 21 December 2015, Mr Gatta sent an email to Mr Andersen, apparently following up a telephone conference a week earlier concerning the current status of the Morgij business and plans for an IPO. The email includes the statement that: “Shortly after the float Graham will collapse the Morgij Unit Trust (MUT) and issue shares to individual investors. Bell Capital investment is part of MUT”. The email requested a copy of the MUT trust deed. On 21 January 2016, Mr Gatta sent Mr Andersen a further email setting out what the Morgij website revealed about “shareholding splits”, including that the Morgij Family Unit Trust was a 21.45% shareholder. The email states: “We assume that our investment is held in the Morgij Family Unit Trust. Also please confirm the total number of units in the trust and the number of units held by the Trust on our behalf. Noting that we have not received a copy of the MUT Trust Deed”.
10 On 11 August 2016, Mr Zartaloudis of Conquest Services wrote to Mr Andersen on behalf of Mr Gatta and Mr Bell requesting details and clarification on their investment in Morgij. The letter states: “I also believe that Mr Gatta and Mr Bell have been trying to ascertain this information directly from you themselves but to date have had no success”. There is no evidence of any response to that letter. On 19 October 2016, HWL Ebsworth wrote a followup letter to Mr Andersen, again requesting information concerning the investment. The letter asserts that Mr Gatta and Mr Bell have an interest in various entities associated with the Morgij business, and then continues: “It does not appear that the latter issue is in dispute, namely that their interest is held on trust. However, the difficulty is that you refuse to provide information requested by our clients as to that interest, its extent, and where it is held, and by whom”.
11 There was a response to that letter from Chamos Legal on 26 October 2016, stating that they acted for Loan RQ Pty Ltd. The letter states that, “our client is not prepared to hand over any documents”, but may be willing to reconsider its position if Mr Bell and Mr Gatta can produce further documentation establishing links to Loan RQ Pty Ltd or MARQ. HWL Ebsworth responded on 6 March 2017 attaching the emails dated 3 April 2013 and 8 May 2014 referred to above, providing some background to the business and again requesting documents recording the circumstances of Mr Gatta’s investment in the Morgij business. There was some further correspondence later in 2017, including discussion of a confidentiality agreement, but no agreement was reached.
12 In August 2017, Mr Gatta commenced a proceeding against Mr Andersen pursuant to r32.05 of the Rules, but later abandoned that proceeding. Deposed in his second affidavit that: “I did not proceed with my application… As submissions filed by Mr Andersen solicitors stated that I didn’t know whether I had a claim against Mr Andersen or some other entity. That was correct. I’m still unsure of which of Mr Andersen’s entities receive the benefit of the Mortij joint venture.”
Analysis
13 In my view, on the face of the material referred to above, Mr Gatta has satisfied the pre-requisites for relief under r32.03. The evidence is sufficient to establish that Mr Gatta provided $300,000 to Bell Capital in early 2009, some or all of which has been invested into a joint venture, apparently between Bell Capital and Morgij Pty Ltd, for the purposes of exploiting the Morgij software. Over ensuing years, Mr Andersen has restructured the business by “collapsing” existing arrangements and introducing new entities and trusts. Correspondence in 2013 and following shows both that the limited information provided by Mr Andersen about the current status of the investment is confusing and incomplete and that more recent requests by and on behalf of Mr Gatta for more complete information have been refused.
14 Mr Andersen submits that I should nevertheless refuse relief, on four bases as follows:
· Bell Capital, not Mr Gatta, is the proper applicant;
· Mr Gatta has been less than frank in his disclosures of the circumstances giving rise to the application and should therefore be denied;
· Mr Gatta has not made reasonable inquiries; and
· it is clear from the correspondence in 2017 and the material filed in support of Mr Gatta’s earlier application under r32.05 that Mr Gatta knows already the parties against whom he should bring proceedings.
15 Taking each of these in turn, while I agree that Bell Capital may indeed have good grounds for bringing the application, it does not follow that Mr Gatta may not also be entitled to bring proceedings to recover his original investment. The only matter I need to be satisfied of is whether Mr Gatta’s allegation of wrongdoing against him (to use the words of Mukhtar AsJ) rises higher than a flimsy foundation or mere hunch. I am so satisfied. There is clear evidence that Mr Gatta advanced substantial funds and that he was subsequently treated by Mr Andersen in correspondence as having an interest (direct or indirect) in an investment in the Morgij business. It may well be that Mr Gatta is unable ultimately to establish a personal entitlement to bring a claim for the recovery of that investment against any party, except perhaps Bell Capital itself. But at present that is a matter of speculation. In my view, applying the rule beneficially, a claim by Mr Gatta to recover his investment, including against parties in addition to Bell Capital, is sufficiently plausible to justify the orders sought.
16 Turning to the second basis, although it would have been desirable for Mr Gatta to have more fully disclosed in his first affidavit his association with Bell Capital and the circumstances of his earlier application, I am not prepared to attribute any nefarious motive to Mr Gatta in failing to do so. Mr Andersen has by his submissions identified other matters of potential relevance to the original investment, including matters that were openly disclosed on behalf of Mr Gatta in submissions prepared in support of his earlier application. Mr Gatta has since filed a further affidavit dealing with these matters.
17 I do not accept Mr Andersen’s submission that Mr Gatta’s second affidavit continues to demonstrate a lack of candour. Whether or not Mr Gatta was told other things about the investment during various meetings and discussions particularly during 2009, does not relevantly detract from the clear evidence of ongoing restructuring and other changes being implemented by Mr Andersen in 2011 and beyond. The correspondence in that period referred to above sufficiently demonstrates, in my view, that the limited information Mr Gatta was getting about the investment during this period was, at best, confusing and incomplete.
18 On the question of reasonable inquiries, both parties referred me to a passage from the decision of Steffen v ANZ Banking Group [2009] NSWSC 666 at [15] as follows:
“What are “reasonable inquiries” is a question of fact to be considered in all the circumstances of the particular case. Clearly, the court is entitled to take into account whether there are other means of obtaining the information; and, equally clearly, the cost and delay of resorting to those alternative means is also relevant. As I said in Sinopharm at [32], “[w]hat is reasonable cannot be determined in some a priori fashion. The determination must take into account the facts of the particular case including, so far as those facts demonstrate it, the relationship bracket if any) between the applicant and the prospective defendant”. It would also be relevant to take into account the utility (or, to put it another way, uncertainty) of obtaining the necessary information by other means.”
19 The gravamen of Mr Andersen’s submission arising from this passage was that Mr Gatta has not satisfactorily explained what inquiries he has made of Mr Bell and Bell Capital nor why those inquiries, if made, would not supply him with the information he needs. Mr Andersen submits that those inquiries would constitute a sufficient “other means”. I do not agree. It may be that documents of Bell Capital and Jason Bell could fill in some of the gaps in the information available to Mr Gatta. But the correspondence and other documents referred to above to my mind sufficiently establishes that there is a significant amount of information about what became of the investment after 2009 (and particularly after 2011), which is uniquely available to Mr Andersen.
20 In those circumstances, I am satisfied that there is no obvious “other means” for significant parts of the information. Further, in my view, Mr Andersen is the person most likely to have knowledge of the complete facts and possession of the most relevant documents, which would assist in ascertaining the description of Mr Gatta’s prospective defendant.
21 Finally, in my view, Mr Andersen’s submissions relying on Mr Gatta’s earlier application to this court are misplaced. That application was brought on the basis of a putative proceeding against Mr Andersen, as the ascertained prospective defendant an applicant for relief under r32.05 is required to identify. That application was properly abandoned after it became apparent to Mr Gatta that there were in fact several entities and individuals against whom he may have had a claim. It is entirely consistent with what Mr Gatta deposes having learnt as a result of that application that he would now bring instead an application under r 32.03. Although correspondence preceding that application did name a number of parties which Mr Gatta asserted held assets on trust, the letter added that “the difficulty is that you refuse to provide information requested by our clients as to that interest, its extent, and where it is held, and by whom”. It is these questions that this application seeks to answer.
22 In the circumstances, I will make orders for discovery by Mr Andersen of the classes of documents identified in paragraph 20 of Mr Gatta’s first affidavit. In my view, it would be premature to order oral examination. While mindful of the remarks of Gobbo J in G Breschi & Son Pty Ltd v AFT Ltd [1988] VR 109, I would not rule out a further order for oral examination, subject to the outcome of the discovery process. To that end, I propose that the application be adjourned for further hearing, on reasonable notice. I will hear the parties on the form of the orders and costs.
Costs
23 Having heard the parties on the question of costs, I propose to order that the applicant pay the costs of the respondent of and incidental to the application and of complying with the order for discovery on the standard basis, to be taxed in default of agreement.
24 Rule 32.11(1) permits the court to make an order for the “costs and expenses of the applicant, of the person against whom the order is made or sought and of any party to the proceeding, including the costs of — (a) making and serving any affidavit of documents”. I have been assisted in reaching a conclusion on the application of this rule in the circumstances of this case by a further decision of Mukhtar AsJ in Guest v Guest (No 2) [2016] VSC 76. After carefully considering the relevant authorities, His Honour held that:
“On the current variable state of authority, it cannot be said that when an application for pre-action discovery is granted, then the usual rule is that costs of the application follow the event. So much depends on the case. The application is discrete, and depending on the circumstances, an applicant can and I would think or to be liable to pay a respondent’s costs of the successful application if there was a genuine dispute and the respondent did not act unreasonably in refusing to give discovery otherwise than by being ordered to do so by a court.”
25 Mr Gatta has submitted in effect that this was a case where the costs should follow the event. Moreover, he relies on a Calderbank letter dated 15 March 2018 from his solicitors to Mr Andersen’s solicitors, offering to discontinue the proceeding on the basis that Mr Andersen provides the documents sought in Mr Gatta’s originating motion. He argues that the appropriate order on costs is therefore that the respondent pay the applicant’s costs of and incidental to the proceeding on a standard basis until 15 March 2018 and on an indemnity basis thereafter.
26 However, I am satisfied that in this Mr Gatta’s prospects of securing relief under r32.03 was far from clear, at least until he filed and served his second affidavit of 28 May 2018. As I have found above, it would have been desirable for Mr Gatta to have more fully disclosed in his first affidavit his association with Bell Capital and the circumstances of his earlier application. I have also referred above to the uncertainty surrounding whether Mr Gatta will ultimately be able to establish grounds for a personal claim against any of the entities or trusts with which Mr Andersen is or was associated. Thus, even with the benefit of the additional material referred to in Mr Gatta’s second affidavit, the outcome of Mr Gatta’s application was by no means certain. Accordingly, and notwithstanding the Calderbank letter, I consider that Mr Andersen did not act unreasonably in refusing to give discovery otherwise than by being ordered to do so by this court.
- - -
Certificate
I certify that these 10 pages are a true copy of the ruling of His Honour Judge Woodward delivered on 29 May 2018.
Dated: 31 May 2018
Simone Karmis
Associate to His Honour Judge Woodward
0
4
0