John Sheahan v Hertz Australia Pty Ltd No. SCGRG 91/1436 Judgment No. 4063 Number of Pages 6 Practice

[1993] SASC 4063

COURT IN THE SUPREME COURT OF SOUTH AUSTRALIA BURLEY J

CWDS
Practice - notice to admit - application by respondent to strike out - whether cases on oppressive interrogatories applicable - preference claim - need to prove insolvency - factually complex - notice consistency of several hundred paragraphs requiring several thousand responses - whether oppressive - whether cost of responding to notice out of all proportion to likely savings at trial. Supreme Court Rule 54 and Residues Treatment and Trading Co. Ltd. and anor. v. Southern Resources Ltd and ors. (1988) 147 LSJS 425, considered.

HRNG ADELAIDE, 28 April 1993 #DATE 26:7:1993
Counsel for appellant:     Mr. Whitington
   with Mr Voss
Solicitors for appellant:    Thomson Simmons and Co
Counsel for respondent:     Mr. Strawbridge
   with Mr. Nicholson
Solicitors for respondent: Baker O'Loughlin

ORDER
Notice to admit not struck out.

JUDGE1 BURLEY J By application dated 26th March 1993 the defendant seeks the following order:- "That the plaintiff's notice to admit of 23rd March 1993 be struck out on the basis that the said notice as filed is vexatious, oppressive, frivolous and an abuse of process of the Court." 2. The plaintiff is the liquidator of Bosun Pty. Ltd. (the company). By his statement of claim the plaintiff seeks to recover the sum of $776,061.51 pursuant to the provisions of section 451 of the Companies (South Australia) Code and/or section 565 of the Corporations Law. 3. The plaintiff alleges that the following payments were made by the company to the defendant on the dates specified:- 20/7/90 $250,000.00 20/7/90 $ 3,061.51 30/7/90 $250,000.00 6/8/90 $273,000.00 The plaintiff alleges that the payments were made by the company to the defendant in the defendant's capacity as a creditor of the company. It is also alleged that at the time the payments were made the company was insolvent. The plaintiff contends that the payments were preferential and are therefore recoverable under the relevant provisions. 4. The defendant admits that it received from the company the payments referred to above (apart from a minor quibble about one of the amounts of the cheques) but alleges that the payments were made pursuant to contracts for sale and purchase of motor vehicles supplied on consignment. The defendant also pleads, in the alternative, that if the company was insolvent at the relevant date (which is not admitted), and if the payments were preferential (which is denied), the defendant relies upon the provisions of section 122 of the Bankruptcy Act to the extent that the payments were received in good faith for valuable consideration and in the ordinary course of business and that the payments were made in circumstances such that the defendant did not know nor have reason to suspect that the company was insolvent and that the payments were preferential. 5. The notice to admit is an enormous document. It is contained in a series of folders which fill three archive boxes. The requests for admissions of facts run into 80 pages consisting of 64 paragraphs, many of which have multiple sub- paragraphs. The paragraphs consisting of requests for admission of facts incorporate by reference annexures A to V and request admissions in relation to the contents of the annexures. I have not counted the total pages of the annexures but they would run into approximately 100 pages with potentially thousands of items required to be considered by the defendant if proper answer is to be made to the notice to admit. In addition the defendant is required to admit the authenticity and admissibility of the documents referred to in paragraphs 1 to 325 between pages 80 and 118 of the notice to admit. 6. The defendant complains that "the nature of the enquiry that is necessary for the defendant to undertake in order to answer the questions (in the notice to admit) will involve extensive perusal by expert accounting personnel of a very substantial number of documents." The defendant contends that to require the defendant to respond to the notice to admit would add unreasonably to the costs of the action without a commensurate saving of time and expense at trial. 7. I have no doubt that a considerable expense will be incurred by the defendant in responding to the notice to admit. Literally thousands of pieces of information will need to be considered and a response formulated in respect of each particular request. It is not difficult to imagine that this will require many hours work on the part of employees of the defendant, the defendant's solicitors and the defendant's accountants. However, the enormity of the task must be looked at in context. The plaintiff is required to prove insolvency in relation to at least the 3 dates referred to above. The notice to admit requires admissions in that regard to be made in respect of additional dates, namely the 24th October 1990, 23rd August 1990 and 30th June 1990. Proof of insolvency can be an enormous task particularly if the party upon whom the onus lies is put to strict proof. 8. At the hearing of the application on 28th April 1993 Mr. Strawbridge appeared for the defendant (applicant) and Mr. Whitington appeared for the plaintiff (respondent). Mr. Strawbridge referred me to a number of cases, all dealing with interrogatories but submitted that the principles enunciated in those cases applied with equal force to a notice to admit. One of the cases cited was Residues Treatment and Trading Company Ltd. and Odin Mining and Investment Company Ltd. v Southern Resources Ltd. and ors. (1988) 147 LSJS
425. In that matter extensive interrogatories had been administered and it was complained that they were prolix and oppressive. Perry J dealt with the authorities on interrogatories and, at page 428, referred to interrogatories facilitating proof of matters in issue. His Honour said:- "But facilitating proof does not mean providing a means by which the plaintiffs may make out their cause of action, which they otherwise lack." 9. In my view, that passage serves to illustrate an important difference between interrogatories and a notice to admit. The former, in a given case, may well be criticised and held to be oppressive in the circumstances referred to by Perry J. But with a notice to admit, the preparation of same is usually attended by a party giving consideration to that which needs to be proved, listing the factual matters required to be proved and marshalling the relevant evidence and documentation. Whilst I recognise that this process may well overlap with the administration of interrogatories, it seems to me that, if it is apparent from the notice to admit that the party serving the notice is doing no more than making a legitimate request for admissions (as opposed to seeking an admission where proof is not otherwise available), the notice is prima facie a proper use of the relevant Rules of Court. It has not been contended by the defendant that the plaintiff is seeking admissions because it otherwise lacks proof. It could not, in my view, be so contended. Whatever might be said about the notice to admit as a whole and as to the inadequacies of some of its paragraphs, it is clear that the notice the subject of this application has been very carefully prepared with a view to obtaining admissions of those many facts which will need to be established in order to prove, on the balance of probabilities, that at the relevant times, the company was insolvent. 10. I do not pretend to have read the notice to admit in detail. I have read parts of it in detail but most of it I have skimmed in order to ascertain the nature of the contents of the document. I do not need to do more. The application has been made pursuant to Rule 3.04 and I assume that sub-paragraph (e) of that Rule is relied upon. That being the case I need to determine whether the step taken, namely the filing and service of the notice to admit, is a legitimate exercise of the rights conferred on the parties by Rule 54. Such an approach was taken by Perry J in Residues Treatment (at page 429) and by Judge Anderson in Duntech Technologies Pty. Ltd. v Pike Industries Pty. Ltd. and ors. (an unreported decision in action no. 2829/85 delivered on 25th February 1993) at page 1. 11. Returning to Mr. Strawbridge's submissions as to the applicable legal principles, I accept that in general terms the principles enunciated in the cases as to oppressive interrogatories may be of some assistance as to ascertaining whether or not a given notice to admit should be struck out as oppressive. However, I do not consider that all of the principles applicable to interrogatories apply with equal force to notices to admit. There are essential differences between the two processes, not the least of which is that the motivation for a notice to admit may be with a view to ultimately recovering costs against a party who unreasonably refuses to make admissions. 12. In dealing with this application I have derived considerable benefit from a passage in Residues Treatment where, at page 429, Perry J said:-
    "I have reached that view (that the interrogatories
    were prolix and oppressive) after considering the nature of
    the litigation, the issues to be addressed at the trial, the
    number and complexity of the questions, the extent of the
    enquiries likely to be necessary to furnish answers, the
    expense and delay associated with the preparation of the
    answers, the consequent diversion of resources from the
    preparations necessary for the trial, and the fact that the
    very considerable cost and expense involved in answering the
    interrogatories would not be matched by commensurate saving
    in time and cost at the trial." 13. With one exception all of those factors apply and need to be considered on this application. The only factor which is not applicable in this case is the one concerning the diversion of resources from the preparations necessary for trial. In Residues Treatment the application was made to Perry J at a time when the parties were required to direct their attention to preparation for trial which was eminent. That is not the case here. 14. In so far as this application is concerned, the nature of the litigation and the issues to be addressed at trial require principally a consideration of the need on the part of the plaintiff to prove insolvency at relevant dates. I do not limit my consideration to those issues because of the debtor/creditor issue is important as are the issues raised by section 122 of the Bankruptcy Act. However, the principal function of the notice to admit is to obtain admissions with regard to those matters required to be proved to establish that at the relevant dates the company was insolvent. It is readily apparent from the contents of the notice to admit, the annexures thereto and the documents in respect of which admissions are sought, that that question is factually complex. In view of the fact that I consider the notice to admit to have been prepared in a bona fide manner, the extent of the complexity is evidenced by the complexity of the notice to admit. 15. I have already indicated that it seems to me to be clear that the extent of the enquiries likely to be necessary to furnish responses to the notice to admit is considerable if not daunting. I also accept that there will be considerable expense incurred by the defendant to respond to the notice to admit. If the application by the defendant to strike out the notice to admit were to be determined merely by reference to the factors just mentioned, it seems to me that no basis has been established for the striking out of the notice. However, I must also consider whether the work, time and expense required to respond to the notice to admit bears a reasonable proportion to the saving in time and cost at the trial. If the effort and expense required to respond to the notice to admit is out of all proportion to whatever saving may be gained at trial, then I consider that the notice to admit should be struck out. In light of that reasoning it is obvious that I need carefully to consider the extent of the detriment to the defendant in responding to the notice to admit and compare that to the likely benefit that may accrue if the notice to admit is responded to. 16. It is impossible to form an accurate view as to what might be needed to respond to the notice to admit. If the plaintiff is successful in proving insolvency, and if it is subsequently found that the defendant unreasonably refused to make appropriate admissions, the costs that might therefore be payable in any event by the defendant might lead the defendant to take the line of least resistance in relation to at least some of the requests made in the notice. But, then again, the defendant may take the view that admissions will not be made unless it is clearly unwise to refuse to do so. Whatever view the defendant takes if required to respond to the notice to admit, a consideration of the notice to admit and a formulation of the response will require an enormous amount of work from representatives of the defendant, from the defendant's solicitors and from the defendant's accountants. The cost associated with that will no doubt be considerable. As against that, the defendant must necessarily also prepare its case in opposing the plaintiff's claim. A considerable part of the preparation for trial will no doubt be directed to the question of insolvency. I bear in mind that the defendant has not pleaded a positive case in relation to insolvency. Indeed, the defendant has not denied insolvency but has merely said that it does not know and cannot admit that aspect of the plaintiff's claim. Nevertheless, the defendant will have to consider and prepare for the plaintiff's case on the question of insolvency. According to the affidavit of Mr. Voss sworn on 20th April 1993 the defendant had not by that time taken inspection of many of the documents relied upon by the plaintiff in support of its case on the question of insolvency. Consequently a consideration and examination of that documentation remains to be done and there is no reason why it could not be done as part of the defendant's response to the notice to admit. 17. Just as it is impossible to ascertain with any accuracy the extent of the work and effort required if the defendant is compelled to respond to the notice to admit, so it is equally impossible to ascertain, now, with any accuracy, what benefits might accrue by way of saving time and expense at trial. At one end of the spectrum, if the notice to admit is struck out, the plaintiff could well take one or two weeks at trial in order to prove insolvency at the relevant dates. A similar situation might apply even if the defendant is compelled to respond to the notice to admit, because the defendant may take the view that it is legitimate not to make any admissions or merely to make very few admissions. It would not be appropriate on an application such as this to speculate on that question. If the defendant is compelled to respond to the notice to admit then the appropriateness of those responses may fall for determination by the Court at a later stage. On the other hand it is at least possible that there would be a considerable saving of time and expense at trial if extensive admissions are made by the defendant. Given the uncertainties that apply I am not persuaded that the time, effort and expense required to respond to the notice to admit is such that it is likely to be out of all proportion to the cost savings that may eventuate with a response to the notice to admit. Accordingly, for the above reasons, I do not consider it appropriate to strike out the notice to admit. 18. Lest it be thought to the contrary, my refusal to strike out the notice to admit does not in any way affect the rights and obligations of the defendant in relation to its response to the individual parts of the notice. 19. I adjourn further consideration of the application to the 30th day of July 1993 at 10 a.m. when I will hear counsel as to costs and as to what further extension of time is necessary within which the defendant must respond to the notice to admit.