Jennings v Idameneo (No 123) Pty Ltd - [2008] SASC 341

SUPREME COURT OF SOUTH AUSTRALIA
(Appeal from a Master: Civil)
JENNINGS v IDAMENEO (NO 123) PTY LTD
[2008] SASC 341
Judgment of The Honourable Justice Kourakis
4 December 2008
PROCEDURE - SUPREME COURT PROCEDURE - SOUTH AUSTRALIA - PROCEDURE UNDER RULES OF COURT - PLEADINGS
PROCEDURE - DISCOVERY AND INTERROGATORIES - DISCOVERY AND INSPECTION OF DOCUMENTS - DISCOVERY OF DOCUMENTS
Appeal from the decision of a Master dismissing the defendant's application for discovery of certain documents relating to the value of a medical practice - Defendant acquired medical practice from the plaintiff for $300,000 on or about 20 September 2004 through a deed - parties entered into an associated agreement by which the plaintiff agreed to perform services from premises provided by the defendant for remuneration - plaintiff claimed that defendant wrongly terminated that agreement by serving a Notice of Serious Breach on about 9 May 2006 and thereby repudiated the agreement, which repudiation the plaintiff accepted thereby terminating the agreement - defendant pleads that it had proper grounds to serve the Notice, that it is entitled to rescission of the agreement and deed, that the plaintiff engaged in misleading or deceptive conduct, and claims damages against the plaintiff for the loss of service fees resulting from the termination - defendant sought discovery of documents relating to the value of the practice at the date of acquisition - Master dismissed that application - whether the Master erred in determining that the value of the medical practice at the date of acquisition was irrelevant to the defendant's claim for damages for misleading and deceptive conduct or to the balancing of the rights and interests of the parties that would necessarily have to be made to give effect to a rescission of the deed.
Held: The sought documents have no relevance to the issue of the proper adjustment that would be necessary between the parties to effect a rescission of the deed and agreement - the defendant did not plead in its counterclaim that it has suffered any loss or damage over and above the payment by it of contractual consideration and did not plead in its counterclaim that the value of the practice was less than the purchase price - therefore the issue as to the valuation of the practice at the date of acquisition did not arise on the pleadings and discovery cannot be ordered in relation to that issue - appeal dismissed.
Supreme Court Civil Rules 1987 SCR 58.04(e), SCR 58A.04; Fair Trading Act 1987 s56, s85, referred to.
Alati v Kruger (1955) 94 CLR 216; Federal Commissioner of Taxation v Murry (1998) 193 CLR 605, considered.

JENNINGS v IDAMENEO (NO 123) PTY LTD
[2008] SASC 341
Magistrates Appeal

KOURAKIS J: This is an appeal from a decision of a Master dismissing an application made pursuant to SCR 58.04(e) and SCR 58A.04 for an order of discovery. Those rules provide:
R58.04(e)
Further and better discovery where it appears to the Court that there are grounds for a belief that some document or class of documents relating to any matter in question in the proceedings may be or may have been in the possession, custody or power of a party, order that party:
(i) to file an affidavit stating whether that document, or any of that class, is or has been in his possession, custody or power and, if it has been but is not presently, to state when he parted with it and what has become of it;
(ii) to deliver the affidavit to any other party.
R58A.04
(1) Parties are not to include in their lists of documents any documents which are only indirectly relevant to any issue arising on the pleadings unless it is ordered by the Court where it is in the interests of justice to do so.
(2) Where an order under (1) is made after a list of documents has been filed a supplementary list of documents is to be filed within 14 days of the order.
The appellant is the defendant in the original proceedings below but is also the plaintiff by counterclaim. In these reasons I will refer to the appellant, Idameneo (No. 123) Pty Ltd, as the defendant. The respondent, Dr Reece Ian Jennings, is the plaintiff in proceedings first brought on 27 June 2006. I will refer to him as the plaintiff.
The pleadings
The first step on this application must be to identify the matters in issue on the pleadings. It is an admitted fact that on or about 20 September 2004 the defendant acquired the plaintiff’s medical practice for the sum of $300,000 through a Deed, referred to as the Sale of Practice Deed. It is also common ground that the parties entered into an associated agreement referred to in the pleadings as the Practitioner Contract. By that contract the plaintiff agreed to perform services from premises provided by the defendant for remuneration calculated as a percentage of the fees earnt by the provision of those services. The plaintiff claims that the defendant wrongly terminated the Practitioner Contract by serving a Notice of Serious Breach (the Notice) on about 9 May 2006 when there was no justification for doing so and thereby repudiated the Practitioner Contract. The plaintiff claims that he accepted the repudiation by letter dated 14 June 2006 and claims damages for the wrongful termination of the Practitioner Contract. The defendant pleads that it had proper grounds to serve the Notice. In the alternative, the defendant pleads that it is entitled to rescission of the Sale of Practice Deed and the Practitioner Contract and claims the return of the purchase price of $300,000. The sum of $300,000 is also claimed on the basis that the plaintiff was unjustly enriched by the payment of the purchase price of $300,000. The right to rescind arises from what is alleged to be the plaintiff’s misrepresentation by silence in not disclosing to the defendant the fact of his earlier conviction for fraud and his removal from the Register of Medical Practitioners. The defendant further claims damages for the loss of service fees resulting from the termination it effected.
The defendant also pleads that the plaintiff engaged in misleading or deceptive conduct in contravention of s 56 of the Fair Trading Act 1987 by failing to disclose the conviction for fraud and removal from the Register to which I have referred. By [43] of the counterclaim the defendant pleads:
By reason of the plaintiff’s misleading and/or conduct as pleaded above, the Defendant has suffered loss or damage, or is likely to suffer loss or damage, in that it entered into the Sale Deed and the Practitioner Contract in the circumstances pleaded in paragraphs 30 and 31 of the Further Amended Defence above and has paid the sum of $300,000 to the plaintiff in circumstances where it would otherwise not have done so.
The defendant accepts on this appeal that the only paragraphs of the prayer for relief that are applicable to its Fair Trading Act 1987 claim are:
4.     An order pursuant to the Fair Trading Act 1987 (SA);
4.1     The Practitioner Contract and the Sale Deed be set aside ab initio; and
4.2     The plaintiff repay the sum of $300,000 to the defendant. …
8.     Such further or other orders as this Honourable Court deems fit.
The meaning of those paragraphs of the counterclaim is fundamental to the determination of this appeal. By its notice of appeal the defendant alleges that the Master erred in holding that the value of the medical practice, as at the date of acquisition by the defendant, is not relevant to its claim for damages for misleading and deceptive conduct. The defendant also contends that the Master was wrong to hold that the value of the medical practice could not affect the adjustment of the rights and interests of the parties that would necessarily have to be made to give effect to a rescission of the Sale of Practice Deed.
The reasons of the Master
The reasons of the Master appear in the following passage:
I accept Mr Trim’s submission that, to the extent that it has been asserted in the pleadings, for example, that there has been no unjust enrichment because the defendant has retained the relevant medical practice, part of the process of determining what relief is consequent upon such assertions does not involve a calculation of the value as at the date of acquisition. In my opinion, the value of the business after its acquisition may form part of that calculation, but that is not part of the defendant’s request for further and better discovery. It is clear from the valuer’s letter that he has been asked to value as at the date of acquisition, and in my opinion, if valuation is material to any issues in these proceedings, it is a valuation based on the defendant’s conduct of the business after its acquisition. It is for that reason that I consider that the defendant is not entitled to the discovery sought.[1]
[1] Jennings v Idameneo (No 123) Pty Ltd (Unreported, Supreme Court of South Australia, Judge Burley, 1 September 2008), [9].
The Appeal
The defendant appealed the order of the Master insofar as he declined to order discovery of documents that are described in the defendant’s submissions as the “sought documents”. Those documents are:
1      Income tax returns for 2001-2004;
2      Notice of assessment for 2001-2004;
3      Business Activity Statements for 2001-2004;
4      Fee income received for 1/7/00 to 20/9/04; and
5      Evidence of hours worked for the period 1/7/00 to 20/9/04.
The appeal has been argued on the basis that the only relevance of those documents is to the valuation of the practice as at the date of acquisition. It is contended that the value of the practice at that time is relevant for two reasons. First, it is said that it is relevant to the monetary adjustments that will be necessary to do justice between the parties on a rescission of the Sale of Practice Deed. Secondly it is said that the counterclaim includes a claim for damages resulting from the plaintiff’s false and misleading conduct, and that the value of the practice at the time of acquisition, and in particular the difference between that value and the price paid for it, is necessarily the starting point for that claim. I consider each ground in turn.
Rescission
It is accepted that the Court, in giving effect to the defendant’s rescission or ordering rescission pursuant to its statutory powers, may make such ancillary orders as are necessary to do justice between the parties and restore them substantially to the positions they held before the transaction was entered into.[2] Very obviously, ancillary orders will be necessary in the event of rescission of the Sale of Practice Deed in the circumstances of this case. The defendant has operated the plaintiff’s former practice since September 2004 and the real value of money has changed substantially in the ensuing years. The Court will have to take into account changes in the nature of the practice that rescission would restore to the plaintiff. Equally the Court will have to have regard to the extent to which the defendant has profited from that practice and balance that against the loss of use of the purchase price it paid for the business. The converse of those considerations is the profit that the business would have generated for the plaintiff in the same period and the advantage that the plaintiff enjoyed in receiving the purchase price. There must necessarily be an adjustment of the sum of $300,000 before the amount that the plaintiff must pay for the return of his former practice could be fixed. In particular, it may be necessary to place a value on any part of the former practice that for one reason or another cannot now be restored to the plaintiff. For example, there may be patients who will choose to stay with the other medical practitioners employed by the defendant who they have seen in the years since the date of acquisition of the plaintiff’s practice. Some patients may have decided to consult other medical practitioners soon after the plaintiff sold his practice. The way in which the practice is now structured and organised may also be very different. Factors such as these raise a real question as to whether the practice operated by the defendant can in any real way be described as the same practice that was acquired by the Sale of Practice Deed.[3] Nonetheless, the argument before me necessarily proceeded on the assumption that the Court may decide to make orders giving effect to the rescission of the Sale of Practice Deed and Practitioner Contract, and I therefore need not concern myself any further with that issue.
[2] Alati v Kruger (1955) 94 CLR 216 at 223-4.
[3] Federal Commissioner of Taxation v Murry (1998) 193 CLR 605 at 623, [45], [46].
What is important in this appeal is whether the quantification of the adjustments to which I have referred could in any way be affected by the value of the practice at the date of acquisition.[4] It is difficult to see why there might need to be any recourse to that value at all. The defendant’s position is that the accountant it has engaged believes that it is necessary to do so, but the reason for his belief was never articulated.
[4] The application for discovery was not supported on the basis that the sought documents would allow changes in the practice between the date of acquisition and the date of any adjustment to be identified.
It can be accepted that those parts of the former practice that cannot be returned to the plaintiff must be valued. However, that valuation must be made as at the date of the orders the Court may make. For example, if 50 former patients have already left the practice, or choose not to see the plaintiff and to remain patients of the defendant’s practitioners, the present day value of the future fees they are likely to generate must be struck. I cannot see how the value of the fees that could be earnt from those patients at the date of acquisition could have any bearing on the present day value of the fee earning potential of those patients of the plaintiff’s former practice that have been lost. It is not suggested, for example, that there is an accepted industry formula that can be applied to historical values to determine the present day value of the practice or any part of it.
It follows that the sought documents have no relevance to the issue of the proper adjustment that would be necessary between the parties to effect a rescission of the Sale Deed and Practitioner Contract.
Damages for misleading conduct
It remains necessary to consider whether the defendant has pleaded a case for damages for the loss it has suffered by purchasing a practice that was worth less than the amount of $300,000 that it paid for it. Plainly if that claim has been pleaded the value of the practice at the date of its acquisition is a relevant issue. It is accepted by the plaintiff that such a claim is available in law, if properly pleaded, even though the misrepresentation complained of concerned the plaintiff’s antecedents and may not in any way be the reason for the difference between the value of the practice and the purchase price. To put the proposition in another way, the plaintiff accepts that it is sufficient in law, again if properly pleaded, that the misrepresentation (if it be that) about the plaintiff’s prior history induced the defendant to enter into the contract to purchase the practice at what turned out to be an over-value for reasons quite unrelated to the plaintiff’s past. The plaintiff’s objection to the application for discovery is that such a case has not been pleaded.
Plainly enough the defendant has not expressly referred to any difference between the value of the practice it purchased and the amount it paid for it. Moreover, the relief it has expressly sought is limited to the relief necessary to give effect to the rescission of the Sale of Practice Deed and Practitioner Contract. However [43] of the defendant’s counterclaim does plead that the defendant has suffered “loss or damage”. I accept that one would not ordinarily refer to the consideration for a contract that has been rescinded and which the moving party seeks to have returned as loss or damage. However, the only loss or damage particularised by the pleading in [43] is as the fact that the defendant entered into the Sale of Practice Deed and the Practitioner Contract and paid the sum of $300,000. The particularisation of the loss and damage in that way suggests that the defendant meant by that phrase to suggest nothing more than that it had entered into those contractual arrangements and paid $300,000 by way of contractual consideration as a result of the false and misleading conduct. The failure to expressly seek damages as an alternative to rescission in the prayer for relief supports that limited construction of the phrase “loss or damage” in [43].
I accept that a practical rather than a technical approach should be taken to the construction of pleadings. However, it seems to me that to hold that the claim made by the defendant extends to a claim for damages for a difference in value would be to give [43] of the counterclaim a meaning which is artificial in the context of the pleading as a whole. On a construction of the counterclaim as a whole I conclude that [43] does not plead that the defendant has suffered any loss or damage over and above the payment by it of the contractual considerations. Paragraph [43] does not allege that the value of the practice was less than the purchase price.
There are further matters that support my construction of [43] of the counterclaim. Firstly, before the further amended defence and counterclaim was filed by the defendant on 14 May 2008 it had unsuccessfully sought to amend its earlier defence and counterclaim. That application was heard and determined by Master Withers on 15 January 2008.
The counterclaim the defendant advanced on that application had included the following prayer for relief:
Under Section 85 of the Fair Trading Act:
1.     compensation for the loss and damage suffered by the Defendant as a result of:
1.1     formation and completion of the Practitioner Contract and Sale Deed;
1.2     reliance by the Defendant upon the representation;
2.an order for payment of the amount of the loss or damage sustained by the Defendant by virtue of the Plaintiff contravention of that Act;
3.an order avoiding, in part, the Practitioner Contract and the Sale Deed.
4.in the alternative, an order for the variation of the Practitioner Contract and the Sale Deed;
5.an order directing the refund of money to the Defendant of moneys paid by it under the Practitioner Contract and the Sale Deed.
Master Withers refused leave to amend the counterclaim as sought by the defendant because of a deficiency in the way in which the proposed counterclaim pleaded the alleged misrepresentation by omission. However, Master Withers made the following comments about the prayer for relief:
However, I do make the comment that paragraph 33 in which the defendant pleads it suffered loss and damage as the result of the formation and completion of the Practitioner Contract and Sale Deed in reliance by it upon the representation and as a result of the breaches of warranty, contains no material facts as to the loss and damage suffered. The plaintiff is entitled to have those material facts pleaded. On any revised pleading leave would only be given to file if those material facts were included.[5]
[5] Jennings v Idameneo (No 123) Pty Ltd (Unreported, Supreme Court of South Australia, Judge Withers, 20 February 2008), [28].
In my view it is permissible to have regard to the history of the attempts to amend the defence and counterclaim in arriving at a proper construction of [43]. The failure to expressly plead, as an item of the damage, the difference between the value of the practice and its purchase price after that warning was given supports the construction of [43] that I prefer.

Further support for the construction that I prefer appears from the concession of counsel for the defendant that although the defendant suspects that it bought the practice at an over-value, it is not yet in a position to allege it and, for that reason, is reluctant to amend its pleadings to expressly include a claim for the difference. Counsel indicated that the defendant never intended to plead that it had suffered a loss because there was a difference between the value of the practice and the purchase price. It appears that the defendant meant to plead only that it had suffered loss or damage but without intending to plead in any way what that loss or damage was. In the circumstances of this case the only possible loss is that the practice was not worth $300,000, but as I have just explained the defendant disavows any intention to plead that loss in [43] of the counterclaim. Instead, the defendant contends that it is entitled to the discovery that it seeks because if it has suffered any loss, the difference between value at the time of acquisition and purchase price would be the proper measure of it and it wishes to investigate whether there is such a difference. In those circumstances it appears to me that the application for discovery can, as Mr Trim QC contended, be described as a fishing expedition.
The very tests posed by the applicable rules that I have set out above expressly limit discovery to matters “in question in the proceedings” or to “issue[s] arising on the pleadings”. Discovery can only be ordered on issues which arise from the relief actually sought and not from a consideration of the law of damages generally and all of the heads of damages that could, in a proper case, be claimed. Nor can discovery be ordered on the basis that the discovered documents might reveal grounds for alternative relief which the Court should, in the interests of justice, give if the party fails to make good its pleaded case. It can be accepted that a Trial Judge may in some circumstances ultimately grant relief demanded by the evidence given at trial even where that relief has not been pleaded. A Trial Judge will of course not do so without giving the other parties an opportunity to meet that case. However, the need to do justice where, for one reason or another, evidence has been received at trial which supports an alternative claim that has not been pleaded does not arise at this stage of the proceedings.
For these reasons I have concluded that no issue as to the value of the practice at the date of acquisition arises on the pleadings. Unless and until the pleading is amended, discovery of the sought documents cannot be ordered.
Conclusion
For the reasons given herein I dismiss the appeal.