Moss v Frontier Holdings Pty Ltd

[2005] SASC 144

SUPREME COURT OF SOUTH AUSTRALIA

(Civil: Application)

MOSS v FRONTIER HOLDINGS PTY LTD

Reasons of Judge Lunn a Master of the Supreme Court

22 April 2005

PROCEDURE

Discovery of documents before close of pleadings - plaintiff seeking relief against oppression in affairs of the defendant company - seeking order for discovery in broad terms of the defendant's records prior to pleading the statement of claim - held to be an impermissible "fishing" expedition - application dismissed.

MOSS v FRONTIER HOLDINGS PTY LTD
[2005] SASC 144

Reasons on Plaintiff’s Application for Discovery of Documents Before Close of Pleadings.

1. JUDGE LUNN      By an application dated 7 March 2005 the plaintiff seeks an order that the defendant make discovery of all documents relevant to the action.  This raises the vexed question of the right of a party to obtain discovery of documents between the institution of the action and the close of pleadings.

2. The plaintiff issued the proceedings under the Corporations Act 2001 seeking relief against alleged oppressive conduct in the affairs of the defendant company. He supported his originating process by an affidavit of himself outlining a history of his dealings with the company and the others involved in it. He is a shareholder in the defendant. Previously he was a director, but he was removed from that office by a resolution of the members.

3. On 3 November 2004 another Master made a direction that the action proceed on pleadings.  The plaintiff filed a statement of claim on 30 November 2004.  There was then correspondence passing between solicitors in which the defendant’s solicitors alleged various defects in the statement of claim.  The plaintiff’s solicitors agreed to re-formulate it, but as yet they have not done so.  No answering affidavit or defence has been filed, but it was not suggested that the defendant was in default in not having done so.  The application for discovery mentioned in the first paragraph was supported by an affidavit of the plaintiff saying that full and adequate discovery was needed from the defendant before he could plead all the matters of oppression which he might wish to pursue.  It is clear from the affidavits that the plaintiff does not know very much about how the affairs of the company have been conducted in recent times.  He is obviously suspicious that the current directors have acted contrary to his interests, but, apart from a few matters set out in his first affidavit, he does not know much of what they have done.  Hence the application for discovery has been made so that he can attempt to ascertain from the documents disclosed what, if anything, he alleges is oppressive over and above what was contained in his first affidavit.

4. The applications seeks “discovery of all documents … relevant to the within action”.  What is relevant to the action cannot be assessed until the pleadings have closed which has not yet occurred.  It is for this reason that R 58A does not require parties to make discovery until after the close of pleadings.  However, in order to overcome this difficulty, in paragraph 9 of the plaintiff’s second affidavit he sets out in detail the classes of the documents of which he seeks discovery.  It reads:

   “9    In the first instance, and without limiting the generality thereof, the documents for which I seek an order for discovery by the defendant and verified by affidavit are as follows:

   9.1all documents relating to the receipt of monthly commissions and trailer payments paid to the defendant since January 2001 to the present date;

   9.2all documents relating to commissions paid to consultants of the defendant since January 2001 to the present date;

   9.3all bank statements in respect of all accounts conducted by the defendant since January 2001 to the present date;

   9.4all documents relating to any periodical debits to the accounts of the defendant;

   9.5all financial statements prepared by Rinaldi & Co of such other accountants as may have been instructed by the defendant for the period 2001 to the present date together with any signed statements by the directors;

   9.6all Company Returns of the defendant submitted to ASIC;

   9.7all documents detailing amounts paid to directors or associated entities in the form of salary and motor vehicle payments;

   9.8all Minutes of Meeting of directors and members since January 2001 to the present date;

   9.9all company records referred to or detailed in such Minutes of Meeting;

   9.10all financial information supplied to any third party since January 2001 to the present date;

   9.11all such agreements, documents or writings in r3elation to the lease of Suite 1, 148 Greenhill Road and any subsequent agreements, documents or writings to extend the term of the original Lease.”

5. The application was treated as it if was one for discovery of the classes of documents set out there.

6. The Court has a general discretion to make an order for discovery before the close of pleadings under R 58.04, which applies by virtue of R 58A.10. While the older authorities, which require exceptional circumstances for such discovery to be ordered, are no longer applicable, there are no clear guidelines about the circumstances in which the discretion is to be exercised. It is unclear whether the discretion under R 58.04 for discovery prior to the close of pleadings is narrower than the discretion under R 60.01 for ordering discovery before action.

7. The scope of the discovery sought in paragraph 9 of the plaintiff’s second affidavit is very broad and is probably wider than the discovery which the defendant will be obliged to make under R 58A.03after the close of pleadings of documents “directly relevant”.  I accept the submission of counsel for the defendant that the exercise is properly categorised as a “fishing” expedition.  Other than in relation to certain discrete matters referred to in the existing statement of claim and the plaintiff’s first affidavit, the plaintiff by the breadth of the discovery now sought is seeking to ascertain whether the defendant has otherwise been engaged in any potentially oppressive conduct of which he is not aware.  He is seeking to trawl through the documents of the defendant to see what if anything they might disclose as a further ground of oppression which he could then plead in his new statement of claim.  This is impermissible:  Santos Pty Ltd v Pipelines Authority of SA (1996) 66 SASR 38 at 57; Barbarian Motor Cycle Club v Koithan (1984) 35 SASR 481 at 486; Trade Practice Commission v CC (NSW) Pty Ltd (1995) 131 ALR 581.

8. In my view the discretion to order discovery before the close of pleadings should be confined to documents relating to issues of alleged oppression which the plaintiff can reasonable particularise, but which he cannot properly plead without disclosure of documents relevant to those issues.  Those issues of alleged oppression need to be the subject of affidavit evidence.  It is not for the Court to construct out of the generality of the discovery requested an order in far more limited terms for documents relevant to instances of alleged oppression which have been reasonably particularised in the plaintiff’s existing statement of claim and affidavits.  It is for the plaintiff to put forward his claim for discovery in terms which can be accepted by the Court, albeit with minor modifications needing to be made to reach the final order.  As the plaintiff has not done this his application is to be dismissed.

9. An alternative discretionary ground for refusing the plaintiff’s application is that he may well be able to obtain the documents which he seeks by an application under s 247A(1) of the Corporations Act 2001.

10. The application also seeks an order for discovery against Rinaldi & Co, the company’s accountants. It was conceded that the steps necessary to have an order for discovery made against a non-party under R 60 had not been complied with. As Rinaldi & Co are agents of the defendant it may be that the documents held by them could be within the defendant’s power and thus ultimately discoverable by the defendant. It was agreed that this part of the application would not be pursued for the time being.

11. The defendant had taken out an application on 1 March 2005 to strike out the statement of claim.  As it was conceded that the plaintiff was to file a new statement of claim it was agreed that the plaintiff’s discovery application should be dealt with before the defendant’s application.

12. I will hear counsel on precisely what orders I should now make.