McIver v McLean
[2002] QDC 172
•14 June 2002
DISTRICT COURT OF QUEENSLAND
CITATION: McIver & Anor v McLean & Anor [2002] QDC 172
PARTIES: STEPHEN RICHARD McIVER
First Plaintiff
and
MASTERSPORT MOTOR RACING DEVELOPMENTS PTY LTD (ACN 087 551 451)
Second Plaintiff
and
ALEXANDER WILLIAM McLEAN
First Defendant
and
WARANDER PTY LTD (ACN 091 260 829)
Second DefendantFILE NO/S: 1135 / 2001
DIVISION: Civil Jurisdiction
PROCEEDING: Application
ORIGINATING COURT:
District Court, Southport
DELIVERED ON:
14 June 2002 DELIVERED AT: Southport
HEARING DATE: 17 May 2002
JUDGE: Judge Alan Wilson SC
ORDER: 1. Application dismissed
2. Applicant plaintiffs to pay respondent defendants’ costs of and incidental to the application assessed on the standard basis
CATCHWORDS: DISCLOSURE – application for further disclosure
COUNSEL: Mr G Radcliff for the plaintiffs
Mr K F Holyoak for the defendantsSOLICITORS: Messrs Quinn & Box for the plaintiffs
Messrs Saunders Downing Healy for the defendants
The plaintiffs apply for further disclosure of documents by the defendants under UCPR r 223. The defendants have already delivered a List of Documents, on 8 March 2002, but the plaintiffs assert that list does not fully discharge the defendants’ duty, under r 211, to disclose all documents in their possession or under their control, which are directly relevant to an allegation in issue in the pleadings. The plaintiffs assert there is, in the terms used in r 223(4)(b), an objective likelihood the defendants’ duty to disclose has not been complied with, or documents exist which have passed out of their possession or control. In the alternative, the plaintiffs seek an order under r 223(2) requiring the defendants to file and serve an affidavit stating that a specified document or class of documents does not exist or has never existed; or, the circumstances in which a specified document or class of document ceased to exist or passed out of the possession or control of the defendants.
The documents demanded by the plaintiffs are set out in a letter from their solicitors, Quinn & Box to the defendants’ solicitors Saunders Downing Healy of 13 March 2002 (affidavit Justin James Mathews filed 1 May 2002, Exhibit JJM2). They include the first defendant’s tax returns for the years ended 30 June 1999, 2000, and 2001; all its bank statements, from September 1999 to date; all its telephone accounts for all telephone numbers for the same period; and, e.g. all documents relating to motor vehicles and spare parts purchased and shipped from Japan and sold in Australia by it, again for the same period. The second defendant is asked to disclose similar documents, and all its book-keeping records for a business it is alleged to have conducted since February 2000. The defendants oppose the application.
Difficulties which arise in determining the application may be attributed to the plaintiffs’ pleading. Their statement of claim has been amended on several occasions. In its most recent form, it was filed on 22 January 2002. It asserts that before September 1999 the plaintiffs conducted a business consisting of the importation from Japan to Australia of motor vehicle parts and motor vehicle body shells for wrecking purposes. It is asserted the plaintiffs had established a number of suppliers and business contacts in Japan, and built up a substantial business importing motor vehicles and spare parts for resale in Australia. Para 2 of the statement of claim alleges that by virtue of negotiations between the first plaintiff and the first defendant between September 1999 and February 2000 an agreement was reached, which was partly oral and partly in writing, whereby the first defendant agreed to purchase the plaintiff’s business for the sum of $25,000, and to acquire stock belonging to the plaintiffs “…on a consignment basis to enable the first defendant to pay to the plaintiffs the balance purchase price owing to the plaintiffs, pursuant to the agreement to purchase the plaintiff’s business” (sic). Para 2 is followed by particulars which assert, firstly, that the written terms of the agreement were contained in three undated documents, none of which were signed by or on behalf of the defendants; and, the oral terms are said to arise from “numerous discussions” between the first plaintiff and the first defendant in the period September 1999 – 16 February 2000. The words said to constitute the oral agreement have the substance and effect, it is pleaded, of requiring the defendants to take possession of all of some chattels set forth in a schedule to the pleading, sell them for the price shown in that schedule, and then account to the plaintiffs for the proceeds of sale. As the defendants’ counsel Mr Holyoak said, I think correctly, the pleading is really for two agreements: one for the sale of the business for $25,000, and the other reflecting an arrangement for the sale of the plaintiffs’ various chattels etc by the defendants on the plaintiffs’ behalf, the defendants then to account to the plaintiffs for the proceeds.
Para 3 appears to allege that until the full purchase price for the business had been paid ownership of all the items set out in the schedule, and some other motor vehicles, remained with the plaintiffs. This term is said to flow from the conversations pleaded in the particulars to para 2 and some matters deposed to in an affidavit of the first plaintiff. Presumably, this retention of title by the plaintiffs is some form of security for the performance of both agreements, although that is not clear.
Para 5 asserts that on 18 February 2000 the plaintiffs delivered the chattels in the schedule to the first defendant, in compliance with the agreement. Then, notwithstanding the pleading of a concluded agreement, para 6 asserts that by reason of the earlier matters pleaded a fiduciary relationship arose between the plaintiffs, and the first defendant. Then, para 7 asserts breaches of the agreement including:
(a) the first defendant’s failure to pay the balance of the purchase price for the business of $15,000 (he having, it is alleged, paid $10,000 towards the purchase price on 8 November 1999);
(b) the first defendant’s failure to account to the plaintiffs for the proceeds of sale of some of the chattels, or for the chattels themselves;
(c) the first defendant’s assuming “…the benefit of the plaintiffs’ business” which “…thereby caused the plaintiffs loss and damage in that the plaintiffs were unable to and did not trade and import spare parts between December 1999 and March 2001 such that the plaintiffs have lost profits during this period in being unable to import and sell spare parts from Japan to Australia calculated to equate to a sum of approximately $60,000.”; and
(d) the first defendant incorporating “…the second defendant on or about 19 January 2000 of which the first defendant is the controlling mind, for the purpose of defrauding the plaintiffs, and has continued to deal with the plaintiffs’ Japanese contacts and suppliers to the purported exclusion of the plaintiffs to personally benefit and to make personal financial gain to the detriment of the plaintiffs and has thereby caused loss and damage to the plaintiffs’ business.”
Paras 6 and 7 are in obvious respects, then, surprising. Previously the pleading seems to assert two affirmed contracts for the sale of a business, and chattels on consignment; and the claim for the balance purchase price of $15,000 for the business itself cannot be understood in any other light. There are no additional allegations to support either the establishment of a fiduciary relationship, or the claim of fraud, and no particulars are given of the latter.
Para 8 then pleads that in addition or alternative to the breaches of agreement, the first defendant is also in breach of the alleged fiduciary duties, with similar particulars but with added assertions that the first defendant has continued to use the plaintiffs’ business contacts “…for the purpose of obtaining financial benefit to the detriment of the plaintiff, either on his own behalf or via the second defendant”; and, that the first defendant “…has made improper and undisclosed profits in his dealings with the plaintiffs either on his own behalf or via his interest in the second defendant such profits belonging to the plaintiffs”. (My underlining).
The defendants have not pleaded to this further amended statement of claim, but their amended defence and counter-claim filed 20 December 2001 relevantly traverses these parts of that pleading. The defendants categorically deny the allegation they ever negotiated or contracted to buy the plaintiff’s business, while conceding there were some negotiations between the first plaintiff and the first defendant for the engagement, by the defendants, of the first plaintiff as a consultant; but, no consultancy agreement was ever signed. This appears to be corroborated by the first plaintiff’s affidavit filed 14 November 2001, which seems to be the affidavit referred to in the statement of claim, to which is exhibited various documents called “Consultancy Agreements”. As to the chattels, the defence concedes that in about March 2000 the second defendant agreed with the first plaintiff that it would sell some of the first plaintiff’s old motor vehicle parts on a consignment basis, paying the first plaintiff for it when it was sold. These chattels were, the defendants assert, delivered to its premises in about March 2000 and it has sold a very small fraction of them and offset the money it received ($200) against money alleged to be owed by the first plaintiff to the defendants. The defence further asserts that the sum of $10,000 which the first defendant paid the plaintiffs on 8 November 1999 (which the plaintiffs say was part of the contract price) was in fact for the purchase of vehicles and had no connection with any agreement to buy a business from the plaintiffs. On 15 November 2001 this Court ordered that a Receiver be appointed to take possession of the chattels set forth in the statement of claim and, the defendants say, all the remaining chattels have been delivered up to him.
An order under UCPR 223(1) or (2) can only be made if there are special circumstances required in the interests of justice, or there appears to be an “objective likelihood” that the duty to disclose has not been complied with, or a specified document or class of documents exists or existed and has passed out of the possession or control of a party. The requirement of an “objective likelihood” sets a bench mark that there must be a probability the duty of disclosure has not been complied with, or that a specified document or class exists.
The analysis of the plaintiffs’ pleading set out above suggests two concluded agreements - one for the sale of the business, and the other for the sale of goods on consignment; and, claims for damages for breach of them. It is possible, but not at all clear, that the claim for breach of fiduciary duty is intended to find its basis in the oral terms of the agreement: para 2(b); and, see the particulars of the fiduciary duties set out in para 6. Presumably, the relationship between the parties said to give rise to these fiduciary duties occurs during the term of the contracts, and it is not at all clear how or why that gives the plaintiff an additional remedy over and above that arising from the contracts themselves. Further, the pleading does not contain any specific allegations pointing to particular transactions, contractors, suppliers or amounts which have been wrongfully gained, or diverted, from the plaintiffs – but the prayer contains claims for accounts for profits for breach of the fiduciary duties: A(v), B(iii). I accept Mr Holyoak’s submission that, in applying for further discovery the plaintiffs seek to make a virtue of the vice in their own pleading – namely, its lack of particularity and, probably, superfluous claims. I do not think the plaintiffs can use the uncertainty engendered by their pleading to widen the defendant’s obligations to provide disclosure beyond the causes of action which can, at least, be discerned from the present statement of claim; and, nothing in the defendants’ list of documents or the plaintiffs’ subsequent correspondence or demands persuades me there is an objective likelihood that other documents, directly relevant to the question whether or not the contracts were made, or performed or breached, exist.
In his written submissions (Exhibit 1) counsel for the applicant plaintiffs argues (at page 3, para 5) that a mere denial of an allegation does not afford a party a right to ignore the obligation of disclosure. He goes on to submit, however, that the party with the duty of disclosure must “…demonstrate its documents which substantiate its financial records to show that it has had no dealings of the kind of which the plaintiffs’ complain, or alternatively state unequivocally that it has no relevant documents.” That does not, with respect, accord with the duty of disclosure defined in r 211. It encapsulates an error which Mr Holyoak has I think, properly categorised in his submissions (Exhibit 2, p 8 para 17) as a classic case of “fishing” by casting with a very wide pleading, and then demanding the widest possible disclosure in the face of any denials. Unless the plaintiffs’ pleading is wrong when it sets up, and relies upon the agreements and their breach, disclosure (at least in respect of the agreement for sale) would be in very short compass.
As to the second of these agreements (the consignment agreement), the simple issue is whether or not the defendants have failed to account to the plaintiffs for those chattels, and any monies they might have received for the sale of some of them. In his written submissions counsel for the applicant plaintiff said (Exhibit 1, p 2, para 4):
“(4) Whilst the pleadings of the plaintiffs are somewhat complex and convoluted, the plaintiffs claim that as a result of the relationship between the parties over the last years, the remedy which the plaintiffs seek are for there to be Court intervention to, in effect, determine what chattels belong to the plaintiffs, what chattels have been sold by the defendants or disposed of by the defendants and what monies are owed by the defendants to the plaintiffs.”
The defendants’ response to these assertions is carefully set out in paras 13, 14 and 15 of their amended defence and counter-claim filed 20 December 2001. The schedule to the further amended statement of claim lists these chattels, including motor vehicles and parts, and alleges they have a market value of $96,240. The plaintiffs’ particulars of damages claimed under paras 12A(ii) and 12B(i) of the further amended statement of claim, delivered 25 January 2002, suggest that $66,090 worth of vehicles and spare parts have been delivered up to the Receiver by the defendants. The difference is $30,150 but the same particulars allege, in section B, that $45,600 worth of motor vehicle and spare parts have not been delivered to the Receiver. To add to this uncertainty, in his oral submissions counsel for the plaintiffs referred to the “missing” parts as having a value of $30,000: transcript p5, l 39.
The issues which arise in respect of the consignment contract are again, I think, relatively straightforward. The defendants admit they received most of the chattels, although they specifically deny receiving a few. They concede they have sold two of them, for $200. All the rest, they assert, have been delivered to the Receiver. These issues will devolve to questions of credit.
If the defendants have wrongfully and dishonestly retained chattels held on consignment from the plaintiff it is improbable any documents exist which relate to them. In any event, the plaintiffs were unable to point to anything in the defendants’ present list, or any other evidence, establishing an “objective likelihood” of the kind mentioned in r 223(4)(b). It is also possible, of course, that the defendants have wrongfully converted some chattels but I, again, was not referred to anything in the defendants’ List of documents, or anything else establishing the appearance of an objective likelihood.
In those circumstances, the application must be dismissed.
It is possible the plaintiffs have grounds for other relief, but unless and until the statement of claim pleads them clearly, with particulars, this application is excessive, and mistaken. The applicant plaintiffs must pay the costs of the defendant respondents’ of and incidental to the application, assessed on the standard basis.
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