Mustica Holdings Pty Ltd v Coghlan de Luca Pty Ltd; West Grove Project Pty Ltd v Coghlan de Luca Pty Ltd
[2018] VSC 509
•5 September 2018
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
PROFESSIONAL LIABILITY LIST
S CI 2015 03149
| MUSTICA HOLDINGS PTY LTD IN ITS CAPACITY AS THE TRUSTEE OF THE FRANK MUSTICA FAMILY TRUST, THE JOE MUSTICA FAMILY TRUST AND THE MARINO MUSTICA FAMILY TRUST | Plaintiff |
| v | |
| COGHLAN DE LUCA PTY LTD (IN LIQUIDATION) (ACN 085 174 312) AND OTHERS (according to the schedule) | Defendants |
S CI 2015 03161
| WEST GROVE PROJECT PTY LTD (AS TRUSTEE FOR THE D’ALESSANDRO FAMILY TRUST) AND OTHERS (according to the schedule) | Plaintiffs |
| v | |
| COGHLAN DE LUCA PTY LTD (IN LIQUIDATION) (ACN 085 174 312) & ORS (according to the schedule) | Defendants |
---
JUDICIAL REGISTRAR: | Clayton JR |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 29 August 2018 |
DATE OF RULING: | 5 September 2018 |
CASE MAY BE CITED AS: | Mustica Holdings Pty Ltd v Coghlan de Luca Pty Ltd & Ors; West Grove Project Pty Ltd & Ors v Coghlan de Luca Pty Ltd & Ors |
MEDIUM NEUTRAL CITATION: | [2018] VSC 509 |
---
PRACTICE AND PROCEDURE – Discovery – Order for particular discovery – Supreme Court (General Civil Procedure) Rules 2015 (Vic), r 29.08(2).
---
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr D F McAloon | B2B Lawyers |
| For the Second and Fourth Defendants | Ms R Gorenstein, solicitor | Norton Rose Fulbright |
| For the Third Defendants | Mr P G Cawthorn QC | Moray & Agnew |
JUDICIAL REGISTRAR:
These two proceedings concern financial advice and accounting services provided to the plaintiffs, who are the trustees, or former trustees, of a number of family trusts. The plaintiffs allege that they were risk averse and conservative investors who were not seeking to invest funds, or to borrow funds to invest, for the predominant purpose of obtaining a tax deduction. They allege that in breach of obligations owed to them, and in breach of section 945A of the Corporations Act 2001 (Cth) (repealed by the Corporations Amendment (Further Future of Financial Advice Measures) Act 2012 (Cth) sch 1), the defendants recommended that they invest in the AIL Almond Orchard Project (stage 2 of 2007) (‘the Almond Orchard Project’). In reliance on the advice, the plaintiffs made the investments and suffered loss and damage.
The third defendant in each proceeding made an application for further and better discovery of documents. Although the summons simply seeks an order that the plaintiffs make discovery in certain categories of documents, I apprehend that the application is made pursuant to r 29.08(2) of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) (‘the Rules’) which provides that:
(2) Where, at any stage of a proceeding, it appears to the Court from evidence or from the nature or circumstances of the case or from any document filed in the proceeding that there are grounds for a belief that some document or class of document relating to any question in the proceeding may be or may have been in the possession of a party, the Court may order that party to make and serve on any other party an affidavit stating—
(a)whether that document or any, and if so what, document or documents of that class is or has been in that party’s possession; and
(b)if it has been but is no longer in that party’s possession, when the party parted with it and that party’s belief as to what has become of it.
West Grove Projects Pty Ltd & Ors v Coghlan de Luca Pty Ltd & Ors (‘the West Grove proceedings’)
In the West Grove proceedings the third defendant seeks the follow documents:
(a) tax returns of the D’Alessandro Family Trust for the financial years ending 2005-2008;
(b) all documents concerning or relating to the sale and purchase of investment properties as referred to in paragraph 4 of the outline of evidence of Camillo D’Alessandro dated 29 June 2018 (D’Alessandro outline);
(c) all documents concerning or relating to investment opportunities (and advice in connection with them) referred to in paragraph 11 of D’Alessandro outline;
(d) all documents concerning or relating to the investment in the Great Southern Olives Scheme referred to in paragraph 11 of D’Alessandro outline;
(e) all documents concerning or relating to investments in negatively geared residential property referred to in paragraph 12 of D’Alessandro outline;
(f) all documents concerning or relating to investments in negatively geared real property referred to in paragraph 12 of the Amended Statement of Claim dated 8 January 2018 (ASOC);
(g) all documents concerning or relating to the objectives, financial situation and needs of:
i) the First Plaintiff;
ii) the D’Alessandro Family Trust;
iii) the beneficiaries of that trust;
iv) the Second Plaintiff;
as referred to in paragraphs 14 and 25 of the ASOC;
(h) all documents concerning or relating to the relevant personal circumstances of:
i) the First Plaintiff;
ii) the D’Alessandro Family Trust;
iii) the beneficiaries of that trust;
iv) the Second Plaintiff;
as referred to in paragraphs 19 and 26 of the ASOC.[1]
(i) Documents regarding work product in connection with the claim for legal and accounting costs at paragraph 26 of the Amended Statement of Claim[2]
[1]Amended Summons of the Third Defendant dated 24 August 2018 [1].
[2]Amended Summons of the Third Defendant dated 24 August 2018 [1], verbally amended during the hearing by the third defendants’ counsel.
Counsel for the third defendant submitted that these documents were relevant to the primary allegations in the case - that the plaintiffs were conservative investors; that the defendants had failed to appropriately consider their objectives, financial situation, and needs when providing advice; and that the plaintiffs had incurred losses, including legal and accounting costs, as a result.
Counsel for the plaintiffs submitted that all relevant documents had been discovered and that certain categories of documents were simply beyond the scope of r29.08(2) of the Rules in that there was no grounds for a belief that such documents may be or may have been in the possession of the plaintiffs. Further, the plaintiffs submitted that the scope of the discovery request was too wide, went beyond the pleadings, and was insufficiently connected to a question arising in the proceedings.
I will deal with each category of documents in turn:
Tax returns of the D’Alessandro Family Trust for the financial years ending 2005-2008
The third defendant notes that no tax returns have been provided for the D’Alessandro Family Trust for the years prior to 2008, even though it appears that Mr D’Alessandro was appointed as trustee to that trust on 1 September 2007. Counsel for the plaintiffs admits that the date of appointment to the trust is 1 September 2007, but says that the trust was not, in fact, established until 2008 and no tax returns exist prior to that date because no trust existed prior to that date.
There is clearly an error either in the date of appointment of Mr D’Alessandro as trustee, or in the documents around the setting up of the trust. I do not have any of the documents before me, and cannot determine the matter. This may be of relevance at the trial but for the purposes of this application, I will not make an order in relation to the tax returns prior to 2008.
Documents concerning the sale and purchase of investment property and investment in negatively geared residential property
I have rolled the documents, listed above at paragraph 3(a),(e), and (f), together. The plaintiffs allege that they were conservative investors who, prior to 2006, invested only in negatively geared residential property. The plaintiffs say that the fact that the investments were made is evidenced from tax returns that have been discovered. As an example, the plaintiffs’ counsel handed up a tax return from 1996 which included a ‘Rental Property Statement’, which showed rent received for a property at 12/2 Dickens Street, Elwood against expenses, recording a net loss of $4,192. The tax return records that the property was 100% owned ‘by Camillo’.
I make the following observations. Tax returns are evidence only of the tax return that was filed with the Australian Tax Office (‘the ATO’). They may provide inferential evidence beyond that but they are certainly not the primary documents that demonstrate income, nor do they give much, if any, information about the nature of investments that have been made. Given the allegations in the pleadings and the statements in the outline of evidence about the nature of Mr D’Alessandro’s investments, I consider that his investments in rental property are relevant to the proceeding. The documents that the third defendant seeks are documents in relation to the sale and purchase of investment properties and investments in negatively geared residential properties. What is relevant, for the purposes of this case, are those documents that demonstrate or cast doubt on the plaintiffs’ claims that they were risk averse investors who were not seeking to invest funds for the predominant purpose of obtaining a tax deduction and who invested in negatively geared residential property. Those documents are to be discovered.
Documents concerning or relating to investment opportunities
Mr D’Alessandro says in his outline of evidence that he was given advice about investment opportunities. The third defendant says that it is entitled to documents about investment opportunities presented to the plaintiffs and rejected by them. The third defendant says such documents are relevant to the plaintiffs’ claim in relation to the knowledge that the third defendant had, or should have had, about their objectives, financial situation, and needs. There is nothing in Mr D’Alessandro’s statement, or in evidence before the Court, to indicate that any documents exist in relation to such investment advice. Pursuant to r 29.08(2) of the Rules, I am not persuaded that there are grounds for a belief that these documents exist.
Documents concerning or relating to the investment in the Great Southern Olives Scheme
Mr D’Alessandro says that he was taken to a seminar regarding possible investment in an agricultural scheme, the Great Southern Olives Scheme, and that he subsequently invested in this scheme.[3] The third defendant says that his investment in an agricultural scheme of this kind is clearly relevant to any reasonable assessment of his objectives, financial situation, and needs and therefore relevant to his investment in another agricultural scheme, the Almond Orchard Project.
[3]Outline of Evidence of Camillo D’Alessandro dated 29 June 2018 [11].
Counsel for the plaintiffs says that the fact that the investment was made is evident from the tax returns and that any additional documents that may exist do not relate to any ‘question in the proceeding’ or, if they do, the degree of relevance is not such as to warrant an order for particular discovery.
As noted before, the tax returns are only evidence of documents that were filed with the ATO. A tax return from 2006 was handed up. This shows that under section P2, the ‘Description of main business or professional activity’ is given as ‘Olive growing’, the status of the business is ‘Commenced Business’, and the Business name is recorded as ‘Camillo D’Alessandro’. The tax return reports that total expenses for this business were $106,402 and there was zero income.
Again, while this tax return and others like it may provide information about the Great Southern Olives Scheme, it is not clear to me that it does. The plaintiffs must have, or had, documents relating to their investment in this scheme, and their investment in this scheme is clearly relevant to the issues in dispute; that is, that the third defendant failed to take account of their objectives, financial situation, and needs. Therefore, documents in this category should be discovered.
Documents concerning the objectives, financial situation, and needs of the first plaintiff, the D’Alessandro Family Trust, the beneficiaries of that trust, and the second plaintiff.
The third defendant submits that the allegations against it entitle it to test those allegations by having access to documents that demonstrate the objectives, financial situation, and needs of the people and entities outlined above. The third defendant submitted that the Court should make a so called ‘Sabre’ order,[4] directing the plaintiffs to take steps to obtain access to and discover documents which are in the possession, power, or control of a third party, as there is a real likelihood that the plaintiffs would be given access to the documents upon request.
[4]Sabre Corporation Pty Ltd v Russ Kalvin’s Hair Company (1993) 124 ALR 400.
The plaintiffs submitted that documents in the form of tax returns and financial statements had already been provided in relation to the plaintiffs but that the objectives, financial situation, and needs of the family trust and an unnamed and unknown group of beneficiaries cannot have any relevance to an issue in the proceedings.
Firstly, it is not at all clear to me what, beyond the tax returns and financial statements already provided, such documents might be. It is therefore difficult to form a belief that those documents may be, or at some stage were, in the possession of a party.
Secondly, I cannot see that the third defendant could be required to take into account the objectives, financial situation, and needs of an unknown, unnamed class of beneficiaries; and if that were the case against them it would need to be clearly pleaded.
As the case is currently pleaded, I cannot see that the objectives, financial situation, and needs of any persons beyond the plaintiffs are relevant and therefore do not consider that such documents should be discovered. It is not clear to me what documents, beyond the documents already discovered, would or might exist in relation to the two plaintiffs and therefore I am not satisfied that additional documents exist that would require discovery.
Documents concerning or relating to the relevant personal circumstances of the first plaintiff, the D’Alessandro Family Trust, the beneficiaries of that trust, and the second plaintiff
The third defendant submits that the plaintiffs bring their personal circumstances into issue by pleading at paragraph 19 of the Amended Statement of Claim that the defendants were only permitted to provide advice if they had determined the relevant personal circumstances of the plaintiffs in relation to giving the advice, and made reasonable inquiries in relation to those personal circumstances. The language in the pleading picks up the language in s 945A of the Corporations Act 2001 (Cth).
The plaintiffs submit that the question in this case is the extent to which the provider of the advice had a reasonable basis for the advice and would require discovery pertaining to the steps taken by the advice provider - the defendants - rather than the recipient of the advice – the plaintiffs.
I agree with this submission. Documents relating to personal circumstances encompasses such a wide range of documents that if could, taken to its extreme, include every document that a person possesses. It is plainly too wide. Further, the relevant issue here is what steps were taken by the defendants to determine the plaintiffs’ personal circumstances prior to providing advice. If there are personal circumstances, beyond the objectives, financial situation, and needs that the plaintiffs say the defendants ought to have considered before providing financial advice, then clearly the plaintiffs have an obligation to discover those documents. In the absence of any such circumstances, there is not a general requirement that the plaintiffs discover ‘documents concerning or relating to the relevant personal circumstances’. For the sake of completeness, documents relating to the personal circumstances of the family trust and the beneficiaries are not relevant.
Documents regarding work product in connection with the claim for legal and accounting costs at paragraph 26 of the Amended Statement of Claim
At the hearing, the third defendant amended its summons to alter the wording of what it sought in the way of legal and accounting records. The request for documents that support the plaintiffs’ claims for the costs it says it incurred, separate to these legal proceedings, is difficult to resist. The plaintiffs submit that they have no obligation to waive legal professional privilege and that the documents sought have been discovered and identified in Part 2 of Schedule 1 to the supplementary affidavit of documents which claims legal professional privilege over:
Correspondences, notes, memoranda and documents comprising the Plaintiffs’ solicitor’s file for the purpose of obtaining instructions and obtained (sic) and giving legal advice in relation to the proceeding arising out of the matter and subject of this proceeding.[5]
[5]Affidavit of Document sworn 15 May 2017 and Affidavit of Document sworn 9 August 2018.
I do not consider that Part 2 of Schedule 1 clearly identifies that it relates to the claim for legal costs made at paragraph 26 of the Amended Statement of Claim. Nor does it say anything at all about accounting costs. Further, it is difficult to see how a claim for those legal costs could be made out whilst maintaining a claim for privilege over the product of the legal work. The trier of fact will need to be able to assess whether the amounts claimed are reasonable, correct, and appropriate and related to legal work that was a consequence of the breach of professional duty by the defendants. The documents are not before me and I cannot make any assessment as to whether legal professional privilege arises. However, if the plaintiffs’ intend to pursue the claim for their legal and accounting costs, they must discover, in appropriate detail so that the relevant documents are clearly identifiable, what documents are in their possession that relate to this aspect of their claim. A catch-all statement about ‘correspondences, notes, memoranda and documents’ does not suffice and does not deal with accounting costs claimed.
Mustica Holdings Pty Ltd v Coghlan de Luca Pty Ltd & Ors (‘the Mustica proceeding’)
The documents sought by the third defendant in the Mustica proceeding are broadly similar to those sought in the West Grove proceeding, but there are some differences.
Documents concerning the investments and assets of Guiseppe Mustica and the Mustica Family Trusts
The plaintiff in the Mustica proceeding is an incorporated company trustee for three family trusts. Giuseppe Mustica says, at paragraph 11 of his outline of evidence, that as at 2008 the assets of the Mustica Family Trusts were constituted almost entirely by two real estate properties. The plaintiff says that it has made discovery of tax returns for the three family trusts of which the plaintiff is trustee. I do not consider that the tax returns are sufficient to demonstrate the assets and investments of the Mustica Family trusts and discovery of the assets and investments of those three family trusts is appropriate. Documents of Giuseppe Mustica’s personal assets and investments are not relevant.
Documents relating to investments in managed investment schemes and documents relating to numerous investment opportunities
At paragraph 12 of his outline, Giuseppe Mustica says that he was made aware of the prospect of investing in various managed investment schemes, he was verbally informed about the opportunities, and was not inclined to take those opportunities. There is nothing in this, or any other evidence before the Court, to suggest that documents relating to investments in managed investment schemes, or other investment opportunities that were not taken, exist.
Documents relating to the objectives, financial situation, and needs, and the personal circumstances of the plaintiff, the three family trusts, and the beneficiaries of those trusts.
For the same reasons as in the West Grove proceedings, the third defendant submits that these documents are relevant to the issues in the proceeding and they are entitled to test the allegations against it by investigating the personal and financial circumstances of not only the plaintiff, but the family trusts and the beneficiaries.
The plaintiff submits that documents including tax returns and trust deeds, deeds of variation, and deeds of settlement for the various family trusts have already been discovered.
Beyond the documents provided, it is not clear what documents are sought and, for the same reasons set out in relation to the West Grove proceeding, no further discovery in these categories is required.
For clarity, Schedule A contains a summary of the categories of documents sought in each proceeding, the paragraph(s) of the Amended Summons to which they relate, and whether discovery is required.
Schedule A
West Grove Proceeding Discovery Required Mustica Proceeding Discovery Required Pre-2008 tax returns of the D’Alessandro Family Trust [1(b)] No Assets and investments of plaintiff and family trusts [1(c)] Yes Investment properties documents [1(d), 1(g), 1(h)] Yes Assets and investment of Giuseppe Mustica [1(c)] No Investment opportunity documents [1(e)] No Investment opportunity documents [1(d), 1(e)] No Great Southern Olive documents [1(f)] Yes Objectives, financial situation, needs and personal circumstances [1(i), 1(j)] No further discovery Objectives, financial situation, needs and personal circumstances [1(i), 1(j)] No further discovery Documents concerning legal and accounting costs [1(k)] Yes
Schedule of Parties
S CI 2015 03149
| Mustica Holdings Pty Ltd in its Capacity as the Trustee of The Frank Mustica Family Trust, The Joe Mustica Family Trust And The Marino Mustica Family Trust | Plaintiff |
| v | |
| Coghlan de Luca Pty Ltd (in liquidation) (ACN 085 174 312) | First Defendant |
| Coghlan Partners Pty Ltd (ACN 085 174 312) | Second Defendant |
| Coghlans Accountants & Advisors Pty Ltd (ACN 085 974 625) | Third Defendant |
| Court Financial Limited (ACN 001 974 625) | Fourth Defendant |
| Great Southern Securities Pty Ltd (in liquidation) (ACN 009 283 621) | Fifth Defendant |
| Aldo de Luca | Sixth Defendant |
| Lotus Securities Pty Ltd (in liquidation) (ACN 121 418 317) | Seventh Defendant |
| Andrew Ludekens | Eight Defendant |
S CI 2015 03161
| West Grove Project Pty Ltd (as Trustee for The D’Alessandro Family Trust) | First Plaintiff |
| Camillo D’Alessandro | Second Plaintiff |
| v | |
| Coghlan de Luca Pty Ltd (in liquidation) (ACN 085 174 312) | First Defendant |
| Coghlan Partners Pty Ltd (ACN 085 174 312) | Second Defendant |
| Coghlans Accountants & Advisors Pty Ltd (ACN 085 974 625) | Third Defendant |
| Court Financial Limited (ACN 001 974 625) | Fourth Defendant |
| Aldo de Luca | Fifth Defendant |
| Lotus Securities Pty Ltd (in liquidation) (ACN 121 418 317) | Sixth Defendant |
| Andrew Ludekens | Seventh Defendant |
0
1
0