Grace v Grace (No 6)
[2013] NSWSC 897
•09 July 2013
Supreme Court
New South Wales
Medium Neutral Citation: Grace v Grace (No 6) [2013] NSWSC 897 Hearing dates: 26 June 2013 Decision date: 09 July 2013 Jurisdiction: Equity Division Before: Brereton J Decision: Directions sought by the defendants are declined
Catchwords: EQUITY - Accounts - procedure - examination of accounting party prior to filing of objections surcharges and falsifications - scope of examination - content of requirement to give notice of points of examination Cases Cited: Arons v McInerney (No 2) (1899) 25 VLR 210
Glover v Ellison (1872) 20 WR 408
Hagan v Waterhouse [1983] 2 NSWLR 395
McArthur v Dudgeon (1872) LR 15 Eq 102
Meacham v Cooper (1873) LR 16 Eq 102
Re Lord's Estate; Lord v Lord (1866) LR 2 Eq 605
Wormsley v Sturt (1856) 22 Beav 398, 54 ER 1161Category: Interlocutory applications Parties: David Alexander Grace (plaintiff)
Deborah Sharon Grace (first defendant)
Julienne Grace (second defendant)
Nevilda Holdings Pty Ltd (third defendant)
Nevilda Investments Pty Ltd (fourth defendant)
Dutchie Pty Ltd (sixth defendant)
Phoenix Rising Investments Pty Ltd (seventh defendant)Representation: Counsel:
Mr SA Goodman (plaintiff)
Mr DCP Stewart (first, second & seventh defendants)
Solicitors:
James Tuite & Associates (plaintiff)
Clinch Long Letherbarrow Pty Ltd (first, second & seventh defendants)
File Number(s): 2006/ 259566
Judgment
Order 51 made on 9 November 2012, as subsequently varied on 28 March 2013, relevantly provides as follows:
Direct that, in respect of the accounts referred to in orders 4, 10, 17, 24 and 38 above:
...
(d) the plaintiff be at liberty within 30 days after service upon him of the said accounts and statements, to apply to Brereton J to examine the accounting party or parties viva voce or upon interrogatories in respect of the said accounts and statements;
(e) the plaintiff, within 30 days after service upon him of the said accounts, or within 30 days of the conclusion of the examination of the accounting party or parties referred to in direction (d) have liberty to file and serve upon the accounting parties his surcharges, falsifications and objections (if any) thereto;
...
Order 52 relevantly provided as follows:
Direct that, for the account referred to in order 42 above:
...
(e) the plaintiff be at liberty within 30 days after service upon him of the said accounts and statements to apply to Brereton J to examine the first and second defendants (or either of them) viva voce or upon interrogatories in respect of the said accounts and statements;
(f) the plaintiff, within 30 days after service upon him of the said accounts and statements, or within 30 days of the conclusion of the examination of the first and second defendants (or either of them) referred to in direction (e), have liberty to file and serve upon the first, second and seventh defendants his surcharges, falsifications and objections (if any) thereto;
...
The defendants having now served the verified accounts referred to in orders 51 and 52 of 9 November 2012, the plaintiff by letter of 14 May 2013 has applied to examine the first and second defendants viva voce on each of their accounts and statements relating to:
(a) The 667 cumulative preference shares in the third defendant (being the accounts referred to in orders 4 and 10 of 9 November 2012);
(b) The trust shares (being the accounts referred to in orders 17 and 24 of 9 November 2012);
(c) The property at 272 Birrell Street, Bondi (being the account referred to in order 38 of 9 November 2012); and
(d) The Nevilda Superannuation Trust (being the account referred to in order 42 of 9 November 2012).
Under cover of a letter dated 17 June 2013 to the defendants' solicitors, the plaintiff's solicitors gave "notification of areas of examination of the first and second defendants" which identifies, with varying degrees of generality and specificity, the "areas of examination" proposed. The defendants submit that this insufficiently particularises the matter the subject of the examination, and seek directions as follows:
1. The plaintiff is to serve on the first, second and seventh defendants within seven (7) days of the date of these orders and directions a document specifically identifying each and every:
a. inaccuracy as to the amounts recorded as dividends, as asserted in his letter dated 17 June 2013 at paragraphs 2(a) and 5(a);
b. amount received which is not recorded as dividends, as asserted in his letter dated 17 June 2013 at paragraphs 2(a)(i) and 5(a)(i);
c. item of the account that is incomplete as to dividends, as asserted in his letter dated 17 June 2013 at paragraphs 2(a)(ii), 5(a)(ii);
d. benefit received said to be in addition to the amounts recorded in the accounts such as payments recorded as dividends, as asserted in his letter dated 17 June 2013 at paragraphs 2(b)(i) and 5(b)(i);
e. benefit received said to be in addition to the amounts recorded in the accounts such as other payments recorded in the books and records as being for the benefit of the accounting party, as asserted in his letter dated 17 June 2013 at paragraphs 2(b)(ii) and 5(b)(ii);
f. indirect benefit with respect to Dutchie said to have been received, as asserted in his letter dated 17 June 2013 at paragraph 5(b)(iii);
g. missing page in any rental schedule and the effect on the account, as asserted in his letter dated 17 June 2013 at paragraphs 7(a) and 8(a);
h. discrepancy between the accounts and amounts in the supporting documents, or absence of supporting documents, as asserted in his letter dated 17 June 2013 at paragraphs 7(c) and 9(b); and
i. failure to include transactions for the financial year ended 30 June 1999, as asserted in his letter dated 17 June 2013 at paragraph 8(e).
2. The plaintiff's examination of the first, second and seventh defendants is to be limited to only those items set out in the document served pursuant to Order 1, and the Miscellaneous Items set out in paragraphs 7(d) and 8(f) of the plaintiff's letter dated 17 June 2013.
The plaintiff submits that the notice given is sufficient.
The order under which the present application to examine the deponents of the affidavits verifying the accounts is made reflects the well-established procedure on the taking of accounts whereby the accounting party is liable to be examined on the accounts by the other party before surcharges and falsifications are filed, but is entitled to notice of the points upon which he or she is to be examined. The essential dispute is as to the content of the requirement for notice, and in particular the level of detail to which it must descend. The answer is informed by the history of the procedure, which is revealed by the following authorities.
In Wormsley v Sturt (1856) 22 Beav 398, 54 ER 1161, the defendant trustee brought in and vouched his accounts, whereupon the plaintiffs served a summons to attend to be examined as a witness. The defendant moved for an order that the plaintiffs give notice upon what matters he was to be examined, and argued that it was contrary to the practice to issue a subpoena for examination of a party viva voce after he had brought in and vouched his accounts and they had been passed, that to do so would occasion great and unnecessary expense and annoyance, and that the examination would travel into irrelevant matters not in issue. Lord Romilly MR said that while under the former practice the accounting party brought in accounts and might afterwards be examined on interrogatories, under the present practice when an accounting party brought in accounts and the other side was dissatisfied with them, the latter was at liberty to examine the accounting party viva voce, but should be required to give notice "of the points as to which he is to be examined, in order that he may come prepared". This reveals that the procedure has its origin in interrogatories, and that the purpose of the requirement for notice is to enable the accounting party to "come prepared" - presumably by having given consideration to the matters notified. But the departure from interrogatories indicates that specification of the questions to be asked was not required.
In Re Lord's Estate; Lord v Lord (1866) LR 2 Eq 605, the defendant having made an affidavit verifying accounts was served with a subpoena and attended at the examiner's office but declined to be sworn or to answer questions on the ground that he could not, according to the practice of the court, be called on to be cross examined upon such an affidavit, and had received no notice of objection to the accounts or of the points as to which he was to be cross examined. Lord Romilly MR said:
I am of opinion that Mr Hooper is entitled to cross examine the Defendant on his affidavit, but that he must give him notice of the points on which he proposes to cross examine him.
This adds nothing too, but tends to confirm, Wormsley v Sturt.
In McArthur v Dudgeon (1872) LR 15 Eq 102, the plaintiffs sought an order that the defendant attend before an examiner to be cross examined upon his accounts and the affidavits filed in support of them, pursuant to a decree for an account of partnership dealings between the plaintiffs and the defendant. The accounts comprised sums amounting in all to £40,000. The defendant's solicitor was informed that the plaintiffs objected to all items in the account except one and was afterwards served with a notice to attend for cross examination. The defendant attended but refused to be sworn on the ground that the notice did not specify the points on which the cross examination was to proceed. He argued that the notice was insufficient as it did not specify the particular items of account on which the defendant was to be cross examined. The Master of the Rolls held that Wormsley v Sturt and Re Lord's Estate established that the notice was insufficient, and that it was not enough for the plaintiffs to intimate that they objected to all the items except one; "He was entitled to know the points on which the cross examination was to proceed". The motion was therefore refused. It seems to me that the Master of the Rolls reiterated the by now familiar statement that the examinee was entitled to notice of "the points" on which cross examination was to proceed, but did not go so far as accepting that this necessarily meant that each particular item of account to be the subject of cross examination had to be specified.
In Glover v Ellison (1872) 20 WR 408, application was made for an order that the defendant attend for examination, in circumstances where the executors of which he was one had brought in accounts; the applicant had filed a surcharge; the Chief Clerk had disallowed the surcharge, and on being subpoenaed to be examined refused to be sworn or cross examined. The Chief Clerk reported that the accounts were completed and the certificate had been drawn up but not finally settled. The applicants submitted (with reference to Re Lord's Estate) that an executor was subject to be cross examined upon his affidavit verifying accounts, and that they wanted to cross examine only with respect to the surcharge, and that if their notice was too large the court would now give directions as to confining the cross examination to that point. Bacon VC said:
If the applicant intended to cross examine the witness he should have asked the Chief Clerk to suspend his decision on the surcharge until after he had cross examined the witness. Then, too, in the notice to cross examine he gave a list of several affidavits, on which he intended to cross examine the defendant. This course would tend to occasion annoyance and expense. But I must permit him to pursue the cross examination, which however must be confined to the matter of this particular surcharge.
This decision does not in my judgment advance the matter far. The question was not the sufficiency or particularity of the notice, but whether cross examination should be permitted at all in circumstances where the surcharge had already been at least provisionally disallowed, and was the only matter in issue. However, the judgment indicates that the notice to cross examine comprised "a list of several affidavits". This does not suggest that it is necessary to descend to particular itemised entries in the accounts.
In Meacham v Cooper (1873) LR 16 Eq 102, the defendant brought in a verified account. The plaintiff served notice that he intended to cross examine the defendant on this affidavit on several points, one of which was as to his means of vouching the account. The defendant submitted that the examination ought not proceed before the account had been vouched, and the examiner agreed. The plaintiff moved the court for an order that the examiner proceed with the examination. The defendant submitted that the practice was not to take an examination on an affidavit verifying accounts until the accounts had been vouched; that the Chief Clerk could insist on the vouchers being produced before him and if the examination were postponed it might be unnecessary to take it at all, whereas if it proceeded the vouchers might have to be produced twice, once before the examiner and once before the Chief Clerk. Lord Selborne LC said:
The Examiner is a mere ministerial officer, and has no authority to lay down rules of practice as to the most convenient time for taking examinations. There must be an order that the witness attend before the Examiner and be examined; and as the witness raised the objection, he must pay the costs of this motion.
This case provides some, albeit slight, guidance as to the content of the requirement for notice of the points of cross examination is provided by the indication that in this case, one of the points was "as to his means of vouching the account". That is not indicative of the degree of detail that the defendants suggest is required.
In Arons v McInerney(No 2) (1899) 25 VLR 210, the defendant delivered verified accounts and the plaintiff gave notice of his intention to cross examine him thereon and served him with a subpoena to attend before the Chief Clerk for that purpose. The defendant declined to attend on the ground that an order of a judge to attend for cross examination was necessary. Hodges J held that the defendant was bound to attend and submit to cross examination:
It is desirable in cases like this that the power to cross examine a witness who has filed an affidavit should exist, and the case of Re Lord's Estate (1866) LR 2 Eq 605 is an authority that the act from which the rule is taken is not to be limited in the way contended for by the defendant.
In Hagan v Waterhouse [1983] 2 NSWLR 395, McLelland J (as the later Chief Judge then was) said (at 397):
In my opinion, the powers of the court for the purposes of and in respect of all matters incidental to the vouching and passing of an account include the power to take cross-examination of the accounting party on his accounts, or perhaps more accurately on his affidavit verifying those accounts, whether such cross-examination takes place before, during or after the actual vouching takes place. As to the right of any other party to have an accounting party cross-examined, reference may be made to Wormsley v Sturt (1856) 22 Beav 398; 52 ER 1161; Lord v Lord (1866) LR 2 Eq 605; Meacham v Cooper (1873) LR 16 Eq 102 and Arons v McInerney (No 2) (1899) 25 VLR 210.
The cases to which reference has been made also illustrate that the practice was this examination at this stage took place before an examiner, prior to the filing of surcharges and falsifications, following which further evidence was taken, including cross-examination, before the judicial officer taking the accounts. In other words, the examination did not take place before the judicial officer who determined the falsifications and surcharges. After the cross examination, the plaintiff must give formal notice of its particular objections, surcharges and falsifications. It is at that point that an item-by-item particularisation of what is in dispute is required.
In my view, the cases to which I have referred, and the historical manner of proceeding in respect of the taking of accounts, does not support the contention that the objecting party must at this stage identify on an itemised basis each matter disputed. What is required is identification of "the points" on which there is to be cross examination, so that the examinee may prepare by having his or her attention directed to the topics to be addressed. This does not require the objecting party to set out in detail its contentions. In many respects, the directions which the defendants presently seek would require the plaintiff prematurely to notify what are in effect surcharges and falsifications.
That is not to say that the examination will be permitted to cover all the issues notified. Its scope is informed by its historical origins in the practice of permitting interrogatories in respect of accounts. It is not a vehicle for a wide-ranging general cross examination, but rather in the nature of a process of discovery. However, it is not practical to prescribe prospectively its precise scope and content. In my view, the notice given by the plaintiff sufficiently complies with the requirement for notice of the "points" upon which the defendants are to be examined. That is not to say that when the examination proceeds, all the matters of which notice has been given will be held to be relevant.
I decline to make the directions sought by the defendants. I will appoint a time for the examination.
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Decision last updated: 10 July 2013