Grace v Grace (No 8)
[2014] NSWSC 419
•10 April 2014
Supreme Court
New South Wales
Medium Neutral Citation: Grace v Grace (No 8) [2014] NSWSC 419 Hearing dates: 8 April 2014 Decision date: 10 April 2014 Jurisdiction: Equity Division Before: Brereton J Decision: Pursuant to UCPR r 34.2(1), second defendant not required to produce, under paragraph 3 of the plaintiff's notice to produce dated 30 October 2013, bank statements in respect of certain accounts;
Time for compliance with notice otherwise extended to 8 May 2014;
Second defendant have liberty to apply for any costs of compliance with the notice;
Second defendant's motion to set aside para 3 of notice otherwise dismissed with costs (including 75% of the costs of the hearing on 8 April 2014);
Second defendant not entitled to rely on form of account unless she has served, a reasonable time before its use, a schedule identifying location of evidence supporting each item in form of account.
Catchwords: PROCEDURE - courts and judges generally - courts - application to set aside a notice to produce in part - where notice seeks production of all defendant's bank statements for a period of 17 years - whether notice being used as a substitute for discovery - held, notice does not seek discovery, nor attempt to circumvent any relevant limitation placed on discovery - whether notice issued for a legitimate forensic purpose - held, notice issued for a legitimate forensic purpose, namely to test veracity of defendant's account - whether notice oppressive - held, notice not unnecessarily wide in time but defendant relieved from compliance in respect of certain accounts which are unlikely to contain relevant evidence Legislation Cited: Uniform Civil Procedure Rules, r 21.10, r 34.1, r 34.2(1) Cases Cited: Broadcast GP [2010] NSWSC 763
Drivetime Radio Australia Pty Ltd v Pivotal Creative Solutions Pty Ltd trading as Westgate Finance v May [2012] NSWSC 806
Grace v Grace (No 7) [2013] NSWSC 1745
Grace v Grace [2012] NSWSC 976
In the Matter of Colorado Products Pty Ltd (In Prov Liq) [2013] NSWSC 392
In the matter of Prismex Technologies Pty Limited; Colin Lindsay Taggert v John Matyear [2013] NSWSC 278
Norris v Kandiah [2007] NSWSC 1296
Owners Strata Plan SP 69567 v Baseline Constructions Pty Ltd [2012] NSWSC 502
Patonga Beach Holdings Pty Ltd v Lyons [2009] NSWSC 869Category: 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 D L Williams SC with Mr S Goodman (plaintiff)
Mr D 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
Before the Court are two interlocutory applications, arising in connection with the accounts and inquiries under the substantive judgment. The second defendant Dr Grace (to whom in this judgment I shall for the sake of convenience refer as the defendant) applies to have a notice to produce under UCPR r 34.1, given to her by the plaintiff David Alexander Grace, set aside in part, and leave (nunc pro tunc) to redact from documents previously produced on 20 November 2013 in answer to the remainder of that notice information that is irrelevant to the categories of documents listed in it (with provision for inspection of the unredacted documents by the plaintiff's legal representatives, and subsequent production of an unredacted copy upon receipt of reasonable request to do so if information relevant to the issues is identified). The plaintiff applies for an order that the defendant file and serve a schedule identifying the location of the documentary evidence supporting each item in her "Form of Account" annexed to her affidavit of 15 April 2013 in respect of Ethan Avenue.
Background
The final orders made in the substantive proceedings on 9 November 2012 included orders that accounts be taken of the benefits derived by the defendant from certain property - including shares in Nevilda Holdings Pty Ltd, Nevilda Investments Pty Ltd and Dutchie Pty Ltd, and the Birrell Street property - during the period that she held the relevant property; that there be an inquiry as to the extent to which the defendant's equity in Etham Avenue, or the proceeds of sale thereof, represented benefits derived by her from the use of Birrell Street; and for the service by the defendant of detailed accounts (verified by affidavit) of all of the benefits received by her from the property the subject of the account, with the affidavit to annex or exhibit all documents relevant to the detailed account as were in her possession, custody or power; and, with respect to the inquiry, an affidavit explaining the use made by the defendant of Birrell Street in the purchase of Etham Avenue, and how the proceeds of any sale of Etham Avenue were used, annexing or exhibiting all documents relevant to the explanation as were in her possession, custody or power. The orders also gave the plaintiff liberty to apply to examine the defendant in respect of the accounts, before giving notice of surcharges and falsifications.
The defendant made and served accounts, verified by affidavit, of the benefits derived by her from the various properties the subject of the accounts, and exhibited to the affidavits multiple volumes of documents that were said to comprise all documents relevant to the account. She also made and served an affidavit which, inter alia, explained the use she had made of Birrell Street (as security for a loan) in connection with the purchase of Etham Avenue, and that she had sold Etham Avenue in November 2009 for $1,390,000 - although the affidavit does not appear to explain, as the order requires, how the proceeds of sale were used. In addition, although the order did not require it, the affidavit annexed a form of account of the defendant's receipts and expenses in respect of Etham Avenue, and exhibited several volumes of documents which were said to comprise all documents relevant to that "account".
As the orders contemplated, the plaintiff applied to examine the defendant on the accounts, and that examination took place on 16 October 2013. The examination of the defendant on 15 October 2013 covered, as well as her other accounts, without objection, the form of account in respect of Etham Avenue. Upon conclusion of the examination, the plaintiff sought further directions. In the course of the examination, it became apparent that it was not possible readily to identify the specific documents in the various volumes that were said to support each item in the various accounts. As I observed (at T126.20):
The difficulty is that the accounts do not contain a cross-reference to the supporting primary documents which effectively vouch them and, in those circumstances, the accounts are less than adequate to enable those perusing them to know whether each item is adequately vouched or not. In those circumstances, I think a direction to the effect sought is appropriate.
The court therefore made the directions sought by the plaintiff, including leave to the plaintiff to issue notices to produce by 30 October 2013, and:
6. The first, second and seventh defendants are to file and serve, within 14 days, a schedule or other document identifying the location of the evidence supporting each item in each of the accounts filed by the first, second and seventh defendants.
Application to set aside notice to produce
On 30 October the plaintiff served a notice to produce addressed to the defendant, returnable on 20 November 2013. The defendant produced documents - some of them redacted - in partial answer to the notice on 20 and 27 November 2013, but produced no documents in answer to paragraph 3. On 13 December 2013, the defendant filed and served her present notice of motion, by which she applies to set aside paragraph 3 of the subject notice to produce, which is in the following terms:
3. All unredacted bank statements for all bank accounts in your name for the period 1 July 1995 to 31 December 2012 including, without limitation:
(a) Westpac Banking Corporation Cash Management Account, No. XX-XXXX;
(b) Westpac Banking Corporation Cash Management Account No. XXXXX X;
(c) Westpac Banking Corporation Cash Management Account No. XXXXX X;
(d) Australian Endeavour Credit Union Account No.XXXXX XX.
Three main reasons were advanced for why the defendant should be relieved from compliance with that paragraph of the notice, namely that (at least to the extent of paragraph 3) the notice (1) is being used as a substitute for discovery; (2) has not been served bona fide for the purpose of obtaining relevant evidence; and (3) is oppressive.
Substitute for discovery
The notice is one under UCPR r 34.1 and thus, in distinction to a notice under UCPR r 21.10, is analogous to a subpoena. It need not necessarily specifically identify individual documents, and may permissibly call for documents that satisfy a particular description within a stated period, as paragraph 3 does [Norris v Kandiah [2007] NSWSC 1296, [3]; Patonga Beach Holdings Pty Ltd v Lyons [2009] NSWSC 869, [8]-[13]; Owners Strata Plan SP 69567 v Baseline Constructions Pty Ltd [2012] NSWSC 502, [9]; In the Matter of Colorado Products Pty Ltd (In Prov Liq) [2013] NSWSC 392, [10] - [11]]. The notice does not impermissibly require the recipient to search for and produce all documents "relating to" a particular subject matter [cf Patonga Beach Holdings Pty Ltd v Lyons, [15]; Colorado Products Pty Ltd, [10]].
The fact the discovery of a similar category was ultimately declined in the substantive proceedings is beside the point, as the present taking of accounts occurs in the quite different context that the defendant is now required to account for benefits derived by her from various sources. Limitations placed on the scope of discovery in the substantive proceedings do not govern what may be required to be produced on the taking of accounts. While, in her affidavits verifying the accounts, she claims to have annexed all documents relevant to the accounts, she has generally speaking not annexed bank statements evidencing receipt of the benefits declared, but relied on secondary documents such as the tax returns and financial statements of the companies in question. At least insofar as they record receipt of the benefits for which she is obliged to account, the defendant's bank statements are plainly relevant to the account and ought to have been annexed or exhibited to the accounts.
In my view, paragraph 3 does not seek discovery, nor attempt to circumvent any relevant limitation placed on discovery.
Legitimate forensic purpose
The defendant contends that there is no legitimate forensic purpose in paragraph 3, because there is no sufficient likelihood that the documents called for will inform the resolution of any issue on the taking of accounts. The defendant submits that on the taking of accounts the plaintiff bears the onus on surcharges, and would have to establish any receipts not included in the accounts (which are denied) either from the records of Nevilda Investments or from deficiencies in the rental records, rather than from her bank accounts; and that while she bears the onus on falsifications, she has disclosed the individual bank account entries supporting each expense claimed, and in any event if the plaintiff gives notice of falsification in respect of any item she would then have to prove the expense. On that basis, it is said that her bank statements cannot inform resolution of the issues.
The plaintiff submits that the defendant's bank statements may inform several issues, and in particular:
(1) whether the defendant received benefits from holding the shares in Nevilda Investments other than the dividends disclosed in her accounts;
(2) whether the defendant in fact incurred the expenses that she has claimed; and
(3) whether the defendant received rents from Birrell Street or Etham Avenue in addition to the rents which the defendant has disclosed in her accounts for those properties
Turning to the first of those issues, the defendant's affidavit of accounts does not, in respect of receipts, annex or exhibit any primary records such as her bank statements, but only secondary records such as the tax returns and financial statements of Nevilda Investments, from which she derives the amount of dividend stated to have been received for each year covered by the accounts. It is clear from the examination that payments to the defendant that were contemporaneously described as dividend on the cheque butts were sometimes later re-characterised, and are not reflected in the amounts disclosed in the accounts. The plaintiff will wish to surcharge these amounts. The bank statements are likely to show whether Dr Grace in fact received them, which is one matter which the plaintiff will have to prove. The bank statements are also likely to show whether Dr Grace received other payments from Nevilda Investments, which the plaintiff may wish to contend should be treated as a benefit derived from holding the shares. Indeed, as many of Dr Grace's bank statements that are in evidence have been annotated by her to identify the source or nature of the receipt or payment, it is "on the cards" that useful evidentiary material as to the quantum and nature of moneys received by her from Nevilda Investments will be contained in her bank statements.
The defendant's response was that she has accounted for all benefits derived from holding the shares in Nevilda Investments, and provided an explanation for the re-characterisation of some of the payments, and why they were "not treated as dividends". She submitted that receipt of such payments was not in dispute, and accordingly there was no issue about proof of receipt to which the bank statements could relate. She also submitted that while the alleged receipt by her of payments from Nevilda Investments that were not included in her account may make the bank statements and/or cheque stubs of Nevilda Investments relevant, they did not make her bank statements relevant; and the plaintiff had all of Nevilda Investments' bank statements and cheque stubs, and if he had identified in any bank statement or any cheque stub of Nevilda Investments an amount paid to the defendant which was a benefit derived from holding the Nevilda Investments share that was not accounted for by the defendant, he not only had the opportunity to put it to the defendant in the examination, but could surcharge it.
I do not agree with those submissions. While the defendant's accounts admit receipt of a specified sum by way of dividend, they do not admit receipt of the particular cheques, which are not reflected in the account (indeed, the amount accounted for is inconsistent with the cheques - because, as the defendant says, they were not "treated as dividends"). The plaintiff is not bound to, and does not, accept the defendant's explanation. As things stand, the plaintiff will have to prove that in truth they were a benefit arising from holding the Nevilda Investments share, and that they were received by the defendant. The bank statements will plainly bear on those matters. Moreover, the plaintiff is not bound to accept that the defendant has disclosed all relevant receipts, and has correctly characterised sums received. While other receipts may be identifiable, as the defendant suggests, from the records of Nevilda Investments, they may also be identifiable from the defendant's bank statements, which have the additional benefit of proving receipt. The handful of Nevilda Investments cheque stubs specifically referred to on the examination do not delimit what is relevant for the purposes of testing the defendant's account; they are merely illustrations of how the bank statements will inform the accounting process: they will inform decisions as to whether the defendant received relevant benefits not disclosed in her account. They may corroborate what other documents, such as the Nevilda Investments cheque butts, suggest; but they may also do so quite independently of other documents. It is beside the point that they could have been identified from the Nevilda Investments records, and put to the defendant on the examination, and surcharged: if surcharged, they will have to be proved, and the defendant's bank statements are one obvious way of proving their receipt and, probably (particularly if they are annotated), their character.
I also do not accept that by wishing to scrutinise the bank statements to identify non-disclosed receipts from Nevilda Investments the plaintiff is impermissibly pursuing a contention that the defendant derived benefits other than the dividends she has disclosed, including loans, from the holding of the Nevilda Investments share. In a judgment delivered in the course of the examinations on 15 October 2013, when objection was taken to a line of questioning [Grace v Grace (No 7) [2013] NSWSC 1745], I said:
6 As it seems to me, the intent of the orders that an account be taken was not that the defendants be required to give, in effect, an account of their stewardship as directors while in control of the relevant companies, but that they be required to give an account of the particular benefits that they derived from holding the shares, when those shares and the benefits attached to them ought to have been held by the plaintiff and not by them.
7 While it would be entirely permissible, in the course of this examination, for any payments that had been recorded or denoted as dividend in the original accounts but not now disclosed as dividend to be the subject of examination, and also for other payments to be examined on the basis that they ought to have been treated as dividend, I do not agree that the taking of accounts extends to include benefits not attached or not flowing from the rights attached to the shares, but rather flowing from the control that those shares gave. To take the other course would effectively reinstate the unsuccessful oppression case.
The plaintiff is entitled to surcharge the defendant not only with receipts from Nevilda Investments that were described as dividend in the primary records but are not disclosed as dividend in the accounts, but also with other receipts from Nevilda Investments, on the basis that they are referable to holding the shares. The plaintiff is not bound to accept the defendant's characterisation of what she has received. The defendant's bank statements are at least one relevant source for evidence of such receipts.
The second issue which the plaintiff says the defendant's bank statements will likely inform is whether the defendant in fact incurred the expenses that she has claimed. This is put on two bases: first, that the legitimacy of the defendant's claim for expenses apparently paid by Nevilda Investments depends on the state of the loan account between the defendant and Nevilda Investments, which in turn is influenced by payments between them; and secondly, more generally, whether expenses claimed by the defendant were in fact incurred by her.
During the examination, it emerged that a number of the expenses that the defendant claimed had been incurred by her had in fact been paid for by Nevilda Investments. The defendant justified this on the basis of the existence of a "loan account" between her and Nevilda Investments. In the examination, she agreed that the legitimacy of her claiming such expenses as her own turned on whether there was a debit to her loan account. The plaintiff submitted that, particularly in circumstances where there is no loan account ledger that records the transactions, the bank statements are likely to shed light upon payments and receipts between the defendant and Nevilda Investments and thus the movements on any "loan account".
However, what the defendant would need to establish in respect of any such expense is either that she ultimately paid it, or that she is liable to reimburse Nevilda Investments for it. Where the defendant has claimed as an expense an amount that she did not pay personally but which was paid by Nevilda Investments, the question is whether the payment was made at her request or on her behalf in circumstances such that she is liable to reimburse the company. This does not depend on the state of her loan account with the company. Insofar as, in the course of the examination, the defendant acceded to the proposition that it would be necessary for this purpose to see not only the balance of the loan accounts, but also movements within them, she was mistaken. This justification of the relevance of the bank statements fails.
As to the more general basis, the bank statements will corroborate, or contradict, the defendant's claimed expenses, by showing whether the claimed expenses were actually incurred by her. As the defendant has exhibited some of her personal bank statements evidencing such expenses, albeit heavily redacted, this is a less persuasive argument for relevance of the whole of her bank statements, because on the expenses side only the items which evidence her claimed expenses are really relevant - whereas on the receipts side, the whole of the statements are relevant so as to test whether all relevant receipts have been included in the account.
The third basis on which it was said that the bank statements were relevant is that they are capable of shedding light on whether the defendant received rent (from Birrell Street or Etham Ave) in excess of the rents disclosed in her accounts.
The defendant's answer is that as there is only a finite amount she could have received from rents, and the plaintiff has not identified any gap in the accounts, or any other basis for supposing that there have been undisclosed receipts of rent, there is no realist prospect that the bank statements will reveal additional receipts.
I accept that, as the evidence currently stands, it seems unlikely that there will be undisclosed rents. However, and contrary to the defendant's submission, that does not mean that the notice is "fishing". To the contrary, while it may be that it is more likely that in this respect they will corroborate rather than contradict the plaintiff's account, that does not deprive them of relevance. What makes them manifestly relevant is that there is a high degree of likelihood that the bank statements will illuminate the accuracy of the accounts, one way or the other - it matters not which.
Thus the three issues specifically adverted to by the plaintiff are really only illustrations of how the defendant's bank statements may be relevant. On the taking of accounts, the plaintiff may wish to contend that the defendant (1) has received relevant benefits not declared in her account (surcharges); and/or (2) has not in fact incurred expenses claimed in her account (falsifications). While the defendant rightly observes that the plaintiff bears the onus in respect of surcharges while the defendant bears the onus in respect of falsifications, that is of little significance, because the relevance of evidence to a fact in issue does not depend on where the onus lies, as both parties are entitled to adduce evidence on an issue, regardless of who bears the onus. It is manifest that the defendant's bank statements can establish, or at the very least bear upon, whether expenses claimed by her have actually been paid from her bank account, and, perhaps more importantly, whether relevant benefits have been received by her in addition to those declared in her account. That there may be other evidence of those matters does not deprive the bank statements of relevance. Nor would the likelihood, if it be so, that the statements would corroborate rather than contradict the defendant's account. On any view, examination of the bank statements will inform the plaintiff's decision whether to raise surcharges and/or falsifications, and the proper determination of the surcharges and falsifications - either by corroborating or by contradicting the defendant's accounts. Indeed, it is difficult to think of a better way of testing whether the account is complete in respect of receipts, and true in respect of expenses, than through examination of the defendant's bank statements. In my judgment, their relevance - in the sense in which that term is used in the context of subpoenas - is manifest.
Oppression
A judgment whether a subpoena is oppressive is influenced by two factors - the burden it imposes on the recipient, and the relevance of the documents it demands. A subpoena which, though burdensome, seeks documents that have a high degree of relevance, is not oppressive. In such as case, the recipient's remedy is compensation for the costs of compliance.
Self-evidently, paragraph 3 imposes a considerable burden on the recipient, in that it requires production of documents over a period of some 17 years. However, that is the inevitable consequence of the period over which the defendants wrongly held the property to which the plaintiff was entitled. In that respect, the notice is not unnecessarily wide.
The defendant has adduced evidence that during that period she has had about twenty bank accounts, details of which she has provided. She has estimated that during that period she has received a total of between 1,960 and 4228 pages of bank statements. (When it is appreciated that that equates to (only) between 3 and 8 lever arch folders, that does not represent in the context of these proceedings a disproportionately large quantity; the documents exhibited to the affidavits of accounts already occupy in excess of 20 lever arch folders). As a result of the requirement to provide discovery in these proceedings, she says that she no longer has those statements conveniently arranged and accessible, that it would take her six weeks to locate, collate and produced them, and that some may have to be obtained from the relevant banks. However, the circumstance that her records may now be disorganised does not make a subpoena oppressive.
Some of the bank accounts of which she has provided details are not operating accounts but loan accounts. Judging from their description and the quantity of statements received, they are unlikely to contain relevant evidence and I propose to relieve the defendant from compliance in respect of them.
Redaction
In producing documents to the court on 20 November 2013 pursuant to the balance of the notice to produce, the defendant, without the leave of the court, redacted from the bank account statements produced all entries that she considered not relevant.
In Drivetime Radio Australia Pty Ltd v Pivotal Creative Solutions Pty Ltd trading as Broadcast GP [2010] NSWSC 763, I said:
25 In my view, in an appropriate case the Court will grant leave to a party required to produce documents or otherwise having an interest in documents produced to mask or redact irrelevant and confidential information in those documents. That is not a matter of right - as distinct from where the redaction is based on a claim for privilege - and must be the subject of an application for leave to the Court.
In Westgate Finance v May [2012] NSWSC 806, McDougall J, having referred to the above passage in Drivetime, said:
25 Nothing in what his Honour said justifies the redaction of documents to exclude material that is (perhaps) irrelevant, but that is not confidential. In my view, as a matter of policy, the court should not countenance a practice of redaction of documents, produced pursuant to its purposes, simply on the basis that some of the material within the document is said to be irrelevant.
26 Once it can be said that a document answers the Court's requirement for production (and I say again that it matters not for present purposes whether the requirement is one arising on discovery, or pursuant to a subpoena or notice to produce), and putting aside questions of privilege and confidentiality, the very fact that the document answers the command is what requires it to be produced. The fact that it may go beyond the command, in the sense that it may contain material extraneous to the purpose that makes production mandatory, does not justify redaction.
27 It is notorious that one person's view of relevance may not be the same as another's. It is equally notorious that different people, looking at documents from different perspectives and for different purposes, may have legitimate disagreements about relevance and irrelevance. Where, prima facie, a document is producible because it answers the description in the Court's command, the person required to produce it should not, in my view, deprive the party entitled to the benefit of production from inspection of the whole of the document - and again, I emphasise, in the absence of privilege or confidentiality - because of some subjective view of relevance.
In In the matter of Prismex Technologies Pty Limited; Colin Lindsay Taggert v John Matyear [2013] NSWSC 278, I said:
5 As to the redaction, I have on many occasions indicated that those who redact documents produced pursuant to a notice or tendered as evidence, without the leave of the court embark on a perilous course. Redaction except where made as a matter of a claim of privilege is not a matter of right, but something permitted only with the court's leave.
These authorities establish that, except where made as a matter of a claim of privilege, redaction is not a matter of right, but permitted only with the court's leave; that the court does not allow redaction of documents produced pursuant to its processes simply on the basis that some of the material within the document is said to be irrelevant; and that where a document is producible, the party entitled to the benefit of production is ordinarily not to be deprived from inspection of the whole of the document because of some subjective view of relevance, except upon a claim of privilege or confidentiality.
While it is understandable that, in the context of their now unhappy relationship, the defendant might not want her son have information about her financial affairs beyond what is directly relevant to issues in the proceedings, that does not make a case of confidentiality such as would incline a court to limit access to her bank statements. That is particularly so because the relevance of individual entries in bank statements is often illuminated by surrounding entries, and by the circumstance that the statements record a running account. In my view, a case of confidentiality in respect of the bank statements has not been established, and in those circumstances the irrelevance of some entries does not provide sufficient reason to grant leave to redact them.
Leave to redact the documents produced on 20 November 2013 will therefore be refused.
Cross-referencing
The inquiry in respect of Etham Avenue was foreshadowed in the substantive judgment [Grace v Grace [2012] NSWSC 976], as follows:
154 David is therefore entitled to an order under s 79A setting aside the Family Court consent orders made on 18 May 1995. The defendants then submit that the Court ought to make another order under s 79 in substitution for the order set aside; and alternatively that it ought to make orders in favour of Julienne and/or Deborah under (NSW) Family Provision Act 1984. These matters arise on the cross claims, which are addressed later. Depending on the outcome of the cross-claims, David may be entitled to consequential orders that 272 Birrell Street be transferred to him, and that Julienne account to him for rents derived from it. Further, Julienne has utilised 272 Birrell Street as security for a borrowing for the purchase of a property at Etham Avenue, which she acquired for a price of $765,000, of which $220,000 was sourced in her superannuation, and the balance of $545,000 was sourced in a loan of $610,000 that was secured by a mortgage over 272 Birrell Street, the balance of which borrowing was used to make capital improvements to 272 Birrell Street. Depending on the outcome of the cross-claims (and also on whether the loan was primarily secured on Etham Avenue, with 272 Birrell Street merely as collateral, or according to the relative contribution each property made to the security), David may be entitled to an inquiry as to the extent to which Julienne's equity in Etham Avenue represents benefits derived by her from the use of 272 Birrell Street.
The final orders made on 9 November 2012, as subsequently amended, included the following:
34. ORDER pursuant to (Cth) Family Law Act, s 79A THAT the orders made by the Family Court of Australia on 18 May 1995 in the proceeding numbered 1920 of 1988 in that Court be set aside.
35. DECLARE THAT the Second Defendant holds all of her interest in the property known as 272 Birrell Street, Bondi, comprised in Certificate of Title Folio Identifier Y/XXXXX (272 Birrell Street) upon trust for the Plaintiff.
36. ORDER THAT the Second Defendant transfer to the Plaintiff unencumbered title to 272 Birrell Street within 60 days of the date on which this order takes effect or of the date on which any stay of this order expires, whichever is the later, by the Second Defendant delivering to the Plaintiff the Certificate of Title of 272 Birrell Street, a Discharge of Mortgage in Registrable Form and a signed transfer in registrable form in favour of the Plaintiff.
37. ORDER THAT the Second Defendant pay the Plaintiff's reasonable costs and expenses of the said transfer, including any applicable stamp duty.
38. ORDER THAT an account be taken of the benefits (including rent) derived by the Second Defendant as the accounting party, after just allowances, from 272 Birrell Street, since 18 May 1995.
39. ORDER THAT the Second Defendant pay to the Plaintiff the amount found to be due (including interest) on the taking of such account.
40. ORDER THAT an inquiry be held as to the extent to which the equity held by the Second Defendant in the property known as 41/10 Etham Avenue, Darling Point NSW 2027, comprised in Certificate of Title Folio Identifier X/XXXXX X and Y/XXXXX X (41/10 Etham Avenue) and/or the proceeds of sale thereof represents benefits derived by her from the use of 272 Birrell Street.
...
51. DIRECT THAT, in respect of the accounts referred to in Orders 4, 10, 17, 24, and 38 above:
(a) each of the accounting parties shall within 28 days of the date of these orders, serve on the Plaintiff their detailed account, verified by Affidavit of all of the benefits derived by them from the property the subject of the account;
(b) such verifying Affidavits are to annex or exhibit all documents relevant to the detailed account as are in the possession, custody or power of the accounting parties;
(c) the items of each said account and each statement shall be numbered consecutively;
(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, have liberty to file and serve upon the accounting parties his surcharges, falsifications and objections (if any) thereto;
(f) that all vouching be done out of Court prior to the matter being relisted;
(g) liberty to each party to apply on 3 days notice.
...
53. DIRECT THAT, for the inquiry referred to in Order 40 above, the Second Defendant shall within 28 days of the date of these orders, serve upon the Plaintiff an Affidavit explaining:
(a) the use made by the Second Defendant of 272 Birrell Street in the purchase of 41/10 Etham Avenue;
(b) if she has sold 41/10 Etham Avenue, how the proceeds of sale of that property were used;
and such Affidavit is to annex or exhibit all documents relevant to the said explanation as are in the possession, custody or power of the Second Defendant.
As has been mentioned, pursuant to orders 40 and 53, the defendant made and served an affidavit which, inter alia, explained that she purchased Etham Avenue for $765,000 in about December 1998, and that $550,000 of the contribution to the purchase price (being approximately 72% of the price) was sourced from two loans from Westpac secured by mortgage over Birrell St. The affidavit also explains that she sold the property in November 2009 for $1,390,000, but does not appear to explain, as the order requires, how the proceeds of sale of that property were used. However, although the order did not require it, the affidavit annexed a form of account of the defendant's receipts and expenses in respect of Etham Avenue, and exhibited several volumes of documents which were said to comprise all documents relevant to that account.
In compliance with the orders made on 15 October 2013 for provision of a schedule showing the location of the evidence supporting each item in the account, the defendant on 31 October 2031 filed and served "referenced accounts" in respect of the accounts which had been ordered, except in respect of Etham Avenue. When pressed about this in correspondence, the defendants' solicitors have maintained that there is, at least at this stage, no account to be taken in respect of Etham Avenue, but only an inquiry, and accordingly the direction of 15 October did not apply to it. In reply, the plaintiffs' solicitors have contended that in the context in which the direction was made, it was intended to apply to the Etham Avenue "account", and that in any event, even if in terms it did not, it was a necessary step if the "account" were to be utilised. When this was not resolved, the plaintiff by notice of motion filed on 31 January 2014 sought an order that the defendant file and serve a schedule or other document identifying the location of the evidence support each item in the Etham Avenue "form of account".
The defendants are correct in that the current orders do not require that an account be taken in respect of Etham Avenue. The orders did not require that the defendant furnish a "form of account" in respect of Etham Avenue. In providing that form of account at this stage, the defendant has gone beyond the requirements of the order. The defendant says that this was to avoid delay in case, at a later stage, an account was ordered. But I do not think this is what the order for an inquiry contemplated; rather, it contemplated that the court on the inquiry might find and certify that some part of the equity in or proceeds of sale of Etham Avenue should be regarded as referable to the use of Birrell St, and the amount so certified would then be a benefit received for the purpose of the Birrell St account. If in fact Birrell St was no more than collateral security, the amount might conceivably be no more than the equivalent of a fee for a bank guarantee; at the other extreme it might be argued that there was a sufficient use of property held on constructive trust that the whole of the equity or proceeds should be regarded as trust property, subject to any just allowances.
The direction of 15 October referred to "each of the accounts filed by the first, second and seventh defendants ". The examination had, without objection, covered the Etham Avenue "account" without distinction from the others. The difficulties posed by the absence of cross-referencing were as applicable to it as to the other accounts. The submissions that culminated in the order did not suggest that there was any relevant difference. The distinction now involved by the defendant was simply not adverted to at that time. All those matters point to the order being intended to embrace the Etham Avenue "account" as well as the others.
Against that, the expressed rationale of the order was the requirement that accounts be vouched. That requirement did not then (and does not now) apply in respect of the Etham Avenue inquiry. The original (9 November 2012) orders clearly distinguished between the accounts and the inquiry. Had that distinction between the accounts and the inquiry been adverted to on 15 October 2013, it would have been recognised that the rationale for the direction did not apply to the Etham Avenue "account". For that reason, I do not think that the defendant's distinction is an unreasonable one.
However, the defendant apparently proposes to use the Etham Avenue form of account to demonstrate that Birrell Street has been no more than collateral security for the loan, and to contend she should be given credit - presumably by way of "just allowance" - for expenditure incurred by her in respect of it. If the "form of account" is to be used on the inquiry, it will cause great inconvenience if it is not cross-referenced to the documentary evidence that supports each item in it. The plaintiff's contention that cross-referencing is necessary in the interests of the just quick and economical resolution of the proceedings is manifestly correct.
Thus while, in the present state of the proceedings, there is no obligation on the defendant to account for the benefits received by her from Etham Avenue, nonetheless if she wishes to rely on the form of account, it must be cross-referenced to the documentary evidence that is said to support it. The appropriate order is that the defendant not be entitled to rely on the Etham Avenue form of account, unless it is cross-referenced to the documentary evidence supporting it.
Conclusion
Paragraph 3 of the notice to produce served by the plaintiff on the second defendant does not involve an impermissible attempt to obtain or circumvent discovery. The documents for which it calls are plainly relevant to the completeness and accuracy of the second defendant's account, and there is self-evidently a legitimate forensic purpose in seeking them, namely to test the veracity of the second defendant's account. In the context of this case, the category is not unnecessarily wide in respect of the period of time it covers, and thus the notice is not oppressive, save insofar as it captures a number of loan accounts which are not likely to contain relevant information. Except to exclude those particular accounts, the second defendant will not be relieved from compliance.
A case of confidentiality in respect of the bank statements has not been established, and in those circumstances the irrelevance of some entries does not provide sufficient reason to grant leave to redact them. Leave to redact the documents produced on 20 November 2013 will therefore be refused.
In the present state of the proceedings, there is no obligation on the second defendant to account for benefits received by her from Etham Avenue. However, if she wishes to rely on the form of account, it must be cross-referenced to the documentary evidence that is said to support it. The appropriate order is that the second defendant not be entitled to rely on the Etham Avenue form of account, unless it is cross-referenced to the documentary evidence supporting it.
The plaintiff has substantially succeeded on the issues raised by the defendant's motion. The position adopted by both parties in respect of the plaintiff's motion was reasonable, and the outcome did not represent substantial success for either, but a mid-point. The defendant should pay the plaintiff's costs of the defendant's motion. There should be no order as to costs of the plaintiff's motion, to the intent that each party bear its own costs thereof. For that purpose, I would attribute 25% of the costs of today to the plaintiff's motion, and 75% to the defendant's motion.
THE COURT ORDERS that:
(1) Pursuant to UCPR r 34.2(1), the second defendant is not required to produce, under paragraph 3 of the plaintiff's notice to produce dated 30 October 2013, bank statements in respect of certain accounts:
(2) Time for compliance with the notice be otherwise extended to 8 May 2014;
(3) The second defendant have liberty to apply for any costs of compliance with the notice;
(4) The second defendant's motion filed on 13 December 2013 be otherwise dismissed with costs (including 75% of the costs of the hearing on 8 April 2014);
(5) The second defendant not be entitled to rely on the form of account annexed to her affidavit sworn 15 April 2013 in respect of the Etham Avenue inquiry, unless she has served, a reasonable time before the occasion for its use, a schedule or other document identifying the location of the evidence supporting each item in the form of account;
(6) The proceedings be adjourned to 8 May 2014 at 9.45 for mention.
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Decision last updated: 11 April 2014
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