In the matter of Sierra Mexican Food Company Pty Limited (Receiver and Manager Appointed) (In Liquidation)

JUDGMENT No.

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IN THE FEDERAL COURT OF AUSTRALIA

) )

NEW SOUTH WALES DISTRICT REGISTRY

1	NG 3785 of 1996

)

GENERAL DIVISION

)

IN THE MATTER OF:

SIERRA MEXICAN FOOD COMPANY PTY LIMITED (RECEIVER AND MANAGER

APPOINTED)

LIQUIDATION)

BETWEEN:	RONALD BENTLEY BROWN	~
and	1
SIERRA MEXICAN FOOD COMPANY PTY LIMITED (RECEIVER AND MANAGER

APPOINTED)	(IN
LIQUIDATION)

Appl icants

AND:

ROSITA'S AUSTRALIA PTY

LIMITED

Respondent

Coram:	Beaumont J
Place:	Sydney
Date:	24 January 1997

ORDERS

THE COURT ORDERS:

1. Direct that the applicants file and serve points of claim within seven days.

2. Within 21 days, the respondent file and serve a list of documents that are directly

relevant to the issues in the principal proceedings and in particular, file and serve a

list of the documents in "MFI 1 ", as amended.

Grant liberty to the respondent to

describe documents in its list by a class description.

3. Direct that the respondent make its documents available for inspection at its

Victorian business premises, or such other premises as the parties may agree.

4. Direct that the applicants nominate an address for service in Melbourne of the

respondent's list of documents by way of discovery.

5 . Suspend the operation of the order for discovery up to and including the date upon

which an undertaking in writing is filed in the Registry in accordance with the undertaking as to confidentiality described in paragraphs 2 and 3 of the applicants' notice of motion dated 10 January 1997.

6. Further direct that, except with the leave of the Court or the written consent of the

respondent or its solicitors, no persons, other than the persons referred to in para. 2 of the applicants' notice of motion dated 10 January 1997, be permitted to inspect the respondent's documents produced on discovery.

7. Reserve general liberty to any party to apply in connection with discovery.

8. Reserve the costs of the applicants' notice of motion filed 10 January 1997.

9. Order that these proceedings be transferred to the Victorian Registry of the Court

but suspend the operation of that order up to and including 28 February 1997.

Reserve liberty to any party to apply on such notice, if any, as a Judge may allow,

to vary or discharge that order.

10. Reserve the costs of the application for change of venue.

Note:

Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA

) )

NEW SOUTH WALES DISTRICT REGISTRY

)	NG 3785 of 1996

GENERAL DIVISION

IN THE MATTER OF:

SIERRA MEXICAN FOOD COMPANY PTY LIMITED (RECEIVER AND MANAGER

APPOINTED)

(IN

LIQUIDATION)

BETWEEN:

RONA;LD BENTLEY BROWN

and

SIEKRA MEXICAN FOOD COMPANY PTY LIMITED (RECEIVER AND MANAGER

APPOINTED)

(IN

LIQUIDATION)

Applicants

AND:

ROSITA'S AUSTRALIA PTY

LIMITED

Respondent

Coram:	Beaumont J
Place:	Sydney
Date:	24 January 1997

REASONS FOR JUDGMENT

Before the Court are two notices of motion as follows:

The first is an application made on behalf of the applicants, Ronald Bentley Brown

("Brown"), the liquidator of Sierra Mexican Food Company Pty Limited ("Sierra"), and

Sierra, by their notice of motion dated 10 January 1997 seeking the following orders:

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"2.	An Order that the Respondent /Rosita S Australia Pty Limited ("Rosita S")/ upon service of this Order and the undertaking referred to in paragraph 2 herein permit no more than three
(3) persons, being two (2) representatives of the Liquidator,
Ronald Bentley Brown, in addition to the Solicitor for the first named Applicant or his partner, to enter the premises of the Respondent known as Mayfair Park, 4 McDowells Road, Bendigo East, Victoria, between the hours of 8.00 am and
6.00 pm Monday to Friday for the purpose of inspecting all of
the books and records of the Respondent.
3.	That those persons nominated in Order 2 provide to the Court an undertaking as to confidentiality in such form as the Court may direct.
4.	An Order that the Respondent make available to the Applicants, their servants or agents the books and records of the Respondent at the Respondent's premises at Mayfair Park, 4 McDowells Road, Bendigo East, Victoria.
5.	An Order that the Respondent permit those persons carrying out the inspection to access such business machines, computers, printers, photocopiers and the like as are reasonably necessary for the purpose of accessing and reproducing such records of the Respondent.
6.	An Order that the Respondent be at liberty to have its Solicitor present during inspection and reproduction of records.
7.	Further or other relief. ''

There is also before the Court a notice of motion filed on behalf of Rosita's, dated

10 January 1997 seeking an order that the proceeding be transferred to the Victorian

District Registry.

In order to understand the issues that arise in each of these interlocutory applications, it will be necessary to provide an outline of the events that occurred leading up to the institution of this litigation, as described in three affidavits affirmed by Marc

Galler, two affirmed on 19 December 1996, and the third on 9 January 1997. Mr Galler is

a manager employed by Brown, the liquidator. The applications before the Court are, of course, interlocutory and have come forward at short notice. Although objections were taken to the form of a few parts of M r Galler's affidavit evidence, I allowed the material to go in on the usual interlocutory footing, but I indicated at the time of receiving that

material that I would take into account its form in assessing the weight of such evidence. However, no opportunity was taken to cross-examine Mr Galler, nor has Rosita's sought,

except through its solicitor, Mr Ravech, to dispute the factual background of the matter. It should be noted that in his affidavit, sworn on 10 January 1997, Mark Ian Ravech said in para 2(h) the following:

"(h) Rosita's denies the accuracy of much of the evidence contained in Galler's aflidavit and the two page afidavit of Galler afirmed 19 December 1996. In particular [Mr Charles] Barton denies the words allegedly attributed to him in the conversations detailed in paragraphs 40, 41 and 42 of Galler's aftiidavit. "

In my view, when regard is had to the whole of the material described in Mr

Galler's three affidavits.

I should proceed on the footing that, for these interlocutory

purposes only, the description given by Mr Galler in his three affidavits is, prima facie at

least, substantially accurate. In particular, I refer to the documentary material there

described, together with exhibit "A", being a record of banking transactions provided by

the National Australia Bank, to which reference will be made later.

For present purposes it will suffice to provide the following outline of the salient

events as described by Mr Galler:

1. As at 31 July 1995, Sierra owed its creditors the sum of $598,630. It clearly had liquidity problems. Its assets consisted of trade debtors of $565,743 and plant and equipment of a depreciated value of $515,192, but as has been noted, it owed creditors approximately $600,000. Its total assets, including the depreciated value of plant and equipment, were worth $1.364 million.

2. As at 30 August 1995, certain of Sierra's debtors had paid their debts, but those

payments had not been credited to Sierra's bank account. An illustration of this can

be found in exhibit "A". It shows that a cheque drawn by NW Frozen Foods Pty

Limited dated 17 August 1995 was, in fact, credited to the account of Rosita's at the

National Australia Bank on 25 September 1995.

3. ,	Sierra was experiencing severe cash flow difficulties during the six month period up
to 3 1 August 1995.
4.	On 7 July 1995, Sierra granted a fixed and floating charge over its assets to Elgram
Trust Company Pty Limited, a mortgage lending company operated by the partners
of a Melbourne firm of solicitors who at the time were Sierra's solicitors. On 31 August 1995, Sierra sold its assets and undertaking to Rosita's for a nominated
price of $633,185 under a written sale of business agreement, which was signed by Charles Barton on behalf of both Sierra and Rosita's. Mr Barton was the principal
director and manager of both companies.

Although a price of $633,185 was stipulated, the agreement provided that the payment of that price would be reduced by the amount of Sierra's liabilities then assumed by Rosita's. Those liabilities then amounted to $655,190. They included employees' entitlements of $26,057.87; a partial satisfaction of the mortgage debenture of $178,000; lease equipment shortfall shown as $10,191.59; and general creditors of $440,941.31. The debt to Sierra's secured creditor has not been paid.

The debt owed to general creditors of a total sum of $440,941, assumed by

Rosita's, has not been paid.

5. Between 11 August 1995 and 10 October 1995, according to Mr Galler's

investigations, as described in his affidavit sworn on 9 January 1997, four cheques

totalling $13,257.00, payable to Sierra, for goods supplied to NW Frozen Foods Pty Limited had been presented and paid, but the funds were not credited to Sierra's

bank account. As has been noted, at least one cheque for $3,494.85 has been traced

into Rosita's' bank account.

On 16 February 1996, this Court ordered that Sierra be wound up.

Mr Brown was

appointed as liquidator. (A receiver and manager, Mr Dunner, has also been appointed under the debenture, but it appears that he has not taken any steps to recover any of the assets secured. It appears that, so far as concerns unsecured creditors, the present position is that there is a deficiency of $389,524).

7. Between 19 February 1996, and 26 May 1996, the liquidator's (Mr Brown's) agent

in Melbourne made approximately twelve requests for books and records and at

least eight requests for reports of Mr Dunner, in order that Mr Brown could prepare

a Report, as liquidator, as to the affairs of Sierra.

8. On 4 June 1996, a number of books and records, in all, some eight boxes, were

received from Mr Dunner, but according to the evidence of Mr Galler, not all of

such books and records were handed over. Amongst other things, many of Sierra's

banking records have not been received.

The principal proceedings in this matter were instituted by Brown and Sierra by

application dated 19 December 1996. In that application they claimed the following relief:

*" I .*	A declaration that the transfer of the assets by Sierra. .. to Rosita 'S.. . pursuant to the Sale of Business Agreement dated
31 August 1995 ("the Agreement") is an insolvent and
uncommercial transaction and voidable within the meaning of Section 588 FE *(3)* (a) and (b) and/or Section 588 FE (5) (b) and (c) of the Corporations Law.
2.	An order that a Receiver and Manager of the property and assets of Rosita's be appointed.
3.	In the alternative that a Receiver of the books and records of Rosita 'S be appointed.
4.	A declaration that the whole of the assets and undertakings of Rosita 'S is the property of Sierra.
5.	In the alternative, a declaration that Rosita's holds its property and assets on trust for Sierra.
6.	In the further alternative, an order that Rosita's be restrained until the hearing of this suit or further order from selling, mortgaging, charging or otherwise disposing of any of its property or assets otherwise than in the ordinary course of its ordinary business with the consent of the Applicant or the leave of the Court.

7. An order that Rosita's transfer to the Sierra all the assets

transferred to Rosita 'S under the Agreement. "

The application was filed on 20 December 1996.

An expedited ex parte

interlocutory hearing was then sought. On 20 December I granted urgent ex parte re1 ief by

making order 6 as sought in the application up to and including 24 December 1996. 1 reserved liberty to Rosita's to apply to the Court for the discharge or the variation of that

order on such notice as the Court may allow.

I gave other directions in that connection.

The matter was before me again on 24 December 1996. On that occasion the applicant

sought orders similar to those now sought in the notice of motion dated 10 January 1997. Rosita's was represented on that occasion by its solicitor. I then indicated to Brown and

Sierra a reluctance, at that stage at least, to make orders of the kind sought in the notice of

motion dated 10 January 1997, but further indicated that I would be minded to restrain Rosita's from disposing of assets, except in the ordinary course of business, and from

destroying any records pending a fuller interlocutory hearing. The matter was discussed

between the representatives for the party and on 24 December 1996 1 noted undertakings to

the Court given by Rosita's, by its solicitor, to the effect foreshadowed, that is, that it would not dispose of any assets except in the ordinary course of business and would not destroy any books or records. The undertakings were given subject to the consent of Brown and Sierra or the leave of the Court and were given until further order.

On 13 January 1997 the notice of motion dated 10 January 1997 filed on

behalf of Brown and Sierra came before me in a fully contested interlocutory application.

The matter was fully argued by counsel on both sides. During the course of argument, I

indicated a provisional view that, whilst I would not be disposed to grant orders in the

terms sought by Brown and Sierra, I would order expedited and special discovery. Having reserved my judgment in the matter since, I am still of the view that this is the proper approach here.

As was mentioned in the course of argument, although the relief sought by Brown and Sierra is not an Anton Piller order in the strict sense, at least so far as it is something done on notice, I am of the view that what is proposed by them is sufficiently analogous to

an Anton Piller order to require an exceptional case to justify its implementation. There

are many judicial statements which warn of the risks involved in any search for or seizure of documents under an Anton Piller order: see, for instance, Coca Cola CO v Gilby (1995)

4 All ER 71 1 .

As Reimer J recently observed (Cobra Golf Inc. v m, The Times Law

Reports, 1 1 October 1996 561 at (562)):

"(Like all] Anton Pilfer orderls], it [was] an exceptional one, granted by the

court at the limit of its jurisdiction.. . "

Judicial experience in this country and the United Kingdom has shown that

problems of a serious nature can arise in the implementation of an Anton Piller order or an

order analogous or akin thereto. See, for instance, the English Practice Direction (1994) 1 WLR 1233; see also (1996) 1 WLR 1552; see also Universal Thermonsensors Limited v

Hibben (1992) l WLR 840.

The order now sought by Brown and Sierra would necessarily involve a number of

persons, acting on their behalf, invading the premises of Rosita's for the purpose of seeking

out, in a wide ranging manner, the books and records on those premises perceived to be

material. It is apparent, I think, that there is scope here for confusion and difficulty to arise. The order sought by Brown and Sierra goes to extreme lengths requiring access, as sought in para. 5 of the notice of motion, to material stored in computers. On the face of things, this must involve some interference with the day-to-day management of Rosita's' operation. In my view, a court should only countenance a procedure such as this, under the sanction of a court order, as a matter of last resort.

In the exercise of my discretion whether to grant this relief, I bear in mind first, the undertakings already given to the Court on behalf of Rosita's previously mentioned; and secondly, the circumstance that, as foreshadowed, I have now confirmed my previous view that I should make an expedited and special order for discovery. In my opinion, it is appropriate that such an order for discovery be made; and that, once made, an appropriate and just balance will be achieved between the respective interests of both parties.

In ordering discovery rather than a search and seizure procedure I am supported by

the approach taken by Lockhart J. in Authors Workshop v Bileru Ptv Limited (1989) 88

ALR 211 at 213-215, with which I respectfully agree.

I should, however, deal specifically with two submissions advanced by counsel on

behalf of Rosita's. In the first place, it was submitted that no further interim relief should

be granted beyond the undertakings given to the Court because of the delay in the making

of the application and because there was no evidence that any document was about to be

destroyed.

Whilst I agree that Rosita's' undertakings to the Court should be taken into account, they are not, in my view, a reason for refusing a special order for discovery at this stage. A general order for discovery would be made as of course but the special features of the

present case, as indicated in the outline of the history of the events that have occurred,

indicate that there should be some acceleration of the disposition of the whole proceedings,

in all its aspects, including discovery. It is true that there has been some delay in making

the application, but this has been reasonably explained by the circumstances previously outlined; in particular, I bear in mind the circumstance that Sierra is in liquidation and that Brown, as liquidator, has attempted to obtain the documents on many occasions, without

incurring the private and public costs of instituting litigation. In my view, Brown has acted

reasonably in this respect and should not be disentitled to relief on that ground.

Jt was further submitted on behalf of Rosita's that there should not be discovery

because all that was involved was "a fishing expedition". Reference was made, in this

connection, to the decision of the Full Federal Court in W.A. Pines Ptv Limited v Bannerman (1979-1980) 30 ALR 559. In my view that case can be readily distinguished for present purposes. In W.A. Pines the only material before the court was a bare

allegation in a statement of claim which was denied (per Brennan J. at 567). In the present case, there is a substantial amount of evidence, consisting of M r Galler's three affidavits and the documentary evidence in the form of the banking record to which I have referred.

I am satisfied that discovery is appropriate and desirable in the present case and that it is

not a fair description to claim that it is merely "a fishing expeditionn. As has been noted, there is evidence of at least one cheque apparently intended for Sierra being banked into the account of Rosita' S.

When, in the course of argument, I indicated a provisional view in favour of

discovery on a particular basis, rather than the grant of relief as sought in Brown and

Sierra's notice of motion, both counsel sought, and were granted, a short adjournment in which to prepare, without prejudice to their respective positions, documentation which would be appropriate in terms of an order for discovery in this particular case.

On behalf of Brown and Sierra, a document, which I have now marked

"MFI l " , was produced. It is headed "list of documents" and is annexed to these reasons.

In my view, subject to one matter, these suggested classes of documents are, prima facie at

least, likely to be relevant to the issues that arise in the principal proceedings. The

qualification I have is, as indicated in the course of argument, a possible ambiguity in

paragraph (e) of "MFI l". Paragraph (e) is as follows:

"all documents evidencing the balance sheet, profit and loss account, trading or revenue accounts of the Second Applicant and the Respondent from 30 April 1995 to 31 March 1996. " [Emphasis added].

As I mentioned to counsel, it may not be entirely clear whether a particular

document "evidences" those accounts. Senior Counsel for Brown and Sierra indicated that

what he had in mind was picking up any management accounts which, on his instructions, had been prepared on a periodic basis. I have therefore amended paragraph (e) by inserting the words, "including any management accounts", in that paragraph.

On behalf of Rosita's, another draft list of documents was submitted and I will mark

that "MFI 2" for identification. That draft document is focussed mainly on the sale

agreement previously mentioned. So far as concerns other accounting and other records to be discovered, that draft list omits any documents of Rosita's. In my opinion, that is too

narrow a view of the scope of discovery in this matter.

It seems to me that the proper approach, as a matter of appropriate case management, is to make a general order for discovery at this stage but to limit it to documents of direct relevance, and to order, in particular, discovery of the documents in

the list which has become "MFI l". I have restricted the general order for discovery to documents of direct relevance for the reasons discussed by Lord Woolf in dealing with

discovery in his final Report (see para. 38; and see chapter 21 of the interim Report).

With respect, I agree with the approach taken in that Report that the Peruvian Guano "train

of inquiry" test can often lead to the incurring of needless expense; whereas here I propose to expedite the process of discovery. It is even more important that discovery be confined to documents of direct relevance and that background, for its own sake, be put to one side.

This is a matter which I have already raised with counsel in the course of argument.

Another question raised with counsel in the course of argument and which is not now, at least, contentious, is the desirability of Brown and Sierra filing points of claim on an expedited basis. It will be important from Rosita's' point of view to have the benefit of points of claim stating clearly the nature of the several causes of action alleged, in order

that a proper professional judgment may be made by the parties of what documents are of

direct relevance for discovery purposes.

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I therefore make the following orders on Brown and Sierra's notice of motion:

l .	Direct that the applicants file and serve points of claim within seven days.

2. Order that, within 21 days, the respondent file and serve a list of documents that

are directly relevant to the issues in the principal proceedings and in particular, file and serve a list of the documents in "MFI l", as amended. I grant liberty to the respondent to describe documents in its list by a class description.

3. Direct that the respondent make its documents available for inspection at its

Victorian business premises, or such other premises as the parties may agree.

4. Further direct that the applicants nominate an address for service in Melbourne of

the respondent's list of documents by way of discovery.

5 . Suspend the operation of the order for discovery up to and including the date upon

6. Direct that, except with the leave of the Court or the written consent of the

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7. Reserve general liberty to any party to apply in connection with discovery.

8. Reserve the costs of the applicants' notice of motion filed 10 January 1997.

I come now to Rosita's' motion for change of venue. This application was

supported by the affidavit of Mr Ravech, sworn 10 January, 1997 previously mentioned.

In that affidavit Mr Ravech says, and there was no evidence to the contrary, that the

witnesses, who appear to be available to give evidence at the trial on the matters which will arise out of the issues for determination in the principal proceedings, are all residents of Victoria.

The operations of Sierra and of Rosita's have been carried out at all times from

Bendigo in Victoria. However, the order for the winding up of Sierra was made by this

Court in its New South Wales District Registry and this consideration is relied on on behalf

of the applicants in resisting the application for change of venue.

The test to be applied in this area and the factors to be taken into account in the

exercise of the court's discretion for this purpose are well known, see, for example,

National Mutual Holdings Ptv Limited v The Sentry Corporation 19 FCR 155.

In my view, the balance of convenience indicates that the trial of the principal

proceedings should take place in Victoria in due course. As I indicated in the course of

argument, I propose to make an order transferring the matter to the Victorian Registry.

However, as I also mentioned in argument, it is convenient that I continue to deal with the

matter temporarily, at least for the purpose of dealing with any application that may arise

in connection with the order I have made for discovery. However, if no such complication

were to arise, the matter should be transferred to the Victorian Registry. The appropriate order then, in my view, is to make the order for transfer, but to suspend its operation for a relatively short period in the event that I need deal with any complication arising out of the special order I have made for discovery.

I therefore order that these proceedings be transferred to the Victorian Registry of

the Court but I suspend the operation of that order up to and including 28 February 1997.

I reserve liberty to any party to apply on such notice, if any, as a Judge may allow, to vary

or discharge that order.

I reserve the costs of the application for change of venue.

I certify that this and the preceding

fourteen (14) pages are a true copy of the reasons for judgment herein of the Hon. Justice B.A. Beaumont

Associate:

Date: (1. ;! .

Counsel for the applicants:	M B Oakes SC
Solicitors for the applicants:	M D Nikolaidis & Co
Counsel for the respondent:	D B Studdy
Solicitors for the respondent:	Oakley Thomson & Co
Date of hearing:	13 January 1997

L I S T

DOCGlMENTS

(a)	all documents evidencing invoices raised by the Second Applicant and the Respondent between 1 May 1995 and 31 March 1996;
(b)	all documents evidencing receipts and deposits of cheques (including but not limited to bank deposit summary slips, bank statements, cash receipt books, journals and ledgers) being payments for invoices rendered by the Second Applicant;

(d)	all documents evidencing stock control of the Second Applicant and the Respondent from 1 July 1995 to 31 March 1996;
(e)	all documents evidencing the balance sheet, profit and loss account, trading or revenue accountsof the Second Applicant and the Respondent from 30 April 1995 to 31 March 1996;

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&AIL\

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(f)	depreciation schedules of the Second Applicant and the Respondent of 30 June 1995 and 30 June 1996;
(g)	all documents evidencing payment by the Respondent of creditors of the Second Applicant;
(h)	copies of all chattel lease agreements entered into by the Second Applicant.

;tt

THIS IS THE LIST OF DOCUMENTS MARKED "MFI 1" REFERRED TO IN THE

REASONS FOR JUDGMENT BY THE HON. JUSTICE B. A. BEAUMONT

DATED 24 JANUARY 1997

RONALD BENTLEY BROWN and SIERRA MEXICAN FOOD COMPANY PTY

y	v.
ROSITA'S AUSTRALIA PTY LIMITED
No. NG 3785 of 1996

[1997] FCA 1625

24 Jan 1997