Opti-Pharm Pty Ltd v Nature One Dairy Pty Ltd (No 2)
[2018] VSC 688
•16 NOVEMBER 2018
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
| AT MELBOURNE COMMERCIAL COURT |
S ECI 2015 00459
| OPTI-PHARM PTY LTD (ACN 110 511 629) | Plaintiff |
| v | |
| NATURE ONE DAIRY PTY LTD (ACN 602 371 684) | Defendant |
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JUDGE: | ELLIOTT J |
WHERE HELD: | MELBOURNE |
DATE OF HEARING: | 2 NOVEMBER 2018 |
DATE OF RULING: | 16 NOVEMBER 2018 |
CASE MAY BE CITED AS: | OPTI-PHARM PTY LTD V NATURE ONE DAIRY PTY LTD (NO 2) |
MEDIUM NEUTRAL CITATION: | [2018] VSC 688 |
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PRACTICE AND PROCEDURE – Discovery – concurrent applications by plaintiff and defendant for particular discovery – whether documents sought relevant – Supreme Court (General Civil Procedure) Rules 2015 (Vic), r 29.08.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr S Horgan QC Mr T Clarke | KCL Law |
| For the Defendant | Mr P Noonan | Jasper Lawyers |
HIS HONOUR:
A. Introduction
The key facts of this proceeding have been set out in detail elsewhere.[1] For present purposes it is sufficient to note that it concerns an agreement (“the Agreement”) by which the defendant, Nature One Dairy Pty Ltd (“Nature One”), agreed to supply infant milk formula (“the Product”) to the plaintiff, Opti‑Pharm Pty Ltd (“Opti-Pharm”) for a term of 1 year, with the possibility of extension for a further year. The parties entered into the Agreement with the expectation that the Product would ultimately be exported for sale in China.[2]
[1]Opti-Pharm Pty Ltd v Nature One Dairy Pty Ltd [2018] VSC 397, [1]-[2], [7]-[16].
[2]Counsel for Nature One stated that it was “not in dispute” that the parties commenced their relationship and proceeded “for quite some time thereafter” with the intention that the Product would be exported to China.
Pursuant to the Agreement, Nature One undertook to use its best endeavours to obtain registration in respect of the infant milk formula intended to be sold by Opti‑Pharm in China. Broadly speaking, Opti-Pharm alleges that Nature One repudiated the Agreement by breaching this obligation, and that Opti-Pharm accepted this repudiation and lawfully terminated the Agreement.
The court has ordered on 3 previous occasions that the parties make further discovery in the proceeding.[3]
[3]By orders made on 4 May 2018, Opti-Pharm was ordered to discover documents evidencing its alleged loss and damage. By orders made on 6 July 2018, the court ordered that Nature One make discovery of any documents relevant to the allegation in par 15(d) of its defence dated 5 February 2018. By orders made on 20 July 2018, the court ordered that the parties make any further discovery in respect of the amended pleadings.
The parties have each filed summonses seeking further discovery. Opti-Pharm seeks further discovery in respect of dealings by Nature One with certain brand registration slots allocated to it by Chinese regulatory authorities (“Opti-Pharm’s Application”). Nature One seeks further discovery in respect of the expert evidence filed by Opti‑Pharm (“Nature One’s Application”).
For the reasons set out below, orders will be made requiring each party to make further discovery substantially in accordance with the categories ultimately pressed at the hearing of both applications on 2 November 2018.
B. Background
B.1 The Agreement
The Agreement was executed by the parties on 17 December 2015.[4] It provides, relevantly:
[4]The agreement was executed by Opti-Pharm and by “D&H Pacific Pty Ltd [trading as] Nature One Dairy”, which was Nature One’s former name.
1 Definitions and Interpretation
1.1 Definitions
In this Agreement, the following definitions apply unless the context requires otherwise: …
“CNCA” means Certification and Accreditation Administration of the People’s Republic of China (“Accreditation Administration”); …
“Processing” means the processes associated with canning or blending and canning including the sampling and testing of the Product in accordance with the Testing Procedures and “Process” and “Processed” have equivalent meanings;
“Product” means the nutritional milk powder infant formula product that complies with the Specifications; …
“Services” means the Processing and supply of the Product; …
“Term” means the period of twelve (12) Months commencing on the Commencement Date; …
1.2 Interpretation
Except where the context otherwise requires:
…
(c) Headings, capital letters, underlining, layout and numbering are for convenience only; …
3 Provision of Services and Supply of the Product
3.1 Provision of Services
[Nature One] will provide the Services to [Opti-Pharm] in accordance with the terms of this Agreement as from the Commencement Date.
3.2 Supply of the Product
During the Term, [Opti-Pharm] agrees to purchase from [Nature One] all of its requirements for products of the same kind and nature as the Product, except with the prior written consent of [Nature One]. [Nature One] agrees to supply the Product in accordance with the Terms of this Agreement as from the Commencement Date.
…
12.5 Intellectual Property Rights
(a) The parties acknowledge and agree that for duration of the Term, for the purposes of registration with the [Accreditation Administration] of the brand used by [Opti-Pharm] in connection with the Product supplied to [Opti-Pharm] by [Nature One] (“Brand”), all Intellectual Property Rights in such Product (including without limitation Intellectual Property Rights in relation to the Brand name, labelling and packaging) will vest with [Nature One]. [Nature One] and/or its agents will use their best endeavours to register the Brand with [the Accreditation Administration] and [Opti-Pharm] agrees to do all things necessary to facilitate such registration at the direction of [Nature One] (“the Registration Obligation”).
(Emphasis added.)
B.2 The Registration Obligation
B.2.1 Scope of the Registration Obligation
The scope of the Registration Obligation is a key area of dispute between the parties. The Registration Obligation expressly refers to registration of the Brand[5] with the Accreditation Administration.
[5]See par 6 above, clause 12.5. The Brand intended to be used in connection with the Product was Opti‑Gold.
By its amended statement of claim dated 25 July 2018 (“the Amended Statement of Claim”),[6] Opti-Pharm claimed the Registration Obligation required Nature One to use its best endeavours to obtain all Chinese regulatory registrations necessary to permit the Product to be sold in the Chinese retail market. In particular, it contended that the Registration Obligation required Nature One to use its best endeavours to obtain registration with a separate agency, being the China Food and Drug Administration (“the Food and Drug Administration”).[7] Alternatively, if its contended construction is not accepted, Opti‑Pharm seeks rectification of the Agreement on the basis that the Registration Obligation does not reflect the common intention of the parties by reason of a common mistake.
[6]By orders made on 20 July 2018, Opti-Pharm was given leave to amend its statement of claim following a contested hearing of its summons dated 4 July 2018: see Opti-Pharm Pty Ltd v Nature One Dairy Pty Ltd [2018] VSC 397, [4], [6], [49]-[54].
[7]A further regulatory requirement was introduced in China with respect to the sale of infant milk formula products with effect from 1 January 2018, effectively requiring registration of the Product with the Food and Drug Administration: Administrative Measures for the Registration of Infant and Young Children Milk Powder Formula Recipes (Decree No 26, 2016, of the China Food and Drug Administration).
By its amended defence dated 10 August 2018 (“the Amended Defence”), Nature One denies the allegations in respect of the scope of the Registration Obligation and submits the construction contended for by Opti-Pharm, or the rectification sought, misstates the Registration Obligation.
B.2.2 Chinese regulatory requirements
The evidence filed in the proceeding to date indicates that there are at least 2 distinct registration processes applicable to the sale of infant milk formula in China. First, an overseas producer of infant milk formula must obtain accreditation of its manufacturing facility[8] by the Accreditation Administration. Successful accreditation results in allocation of 3 “brand slots”, against which the manufacturer may seek to allocate infant milk formula produced at its facility.[9] Second, the manufacturer must obtain the regulatory approval of the Food and Drug Administration with respect to the specific formulation and ingredients of each infant milk formula to be produced.
[8]This is also referred to in the expert evidence as an “establishment”.
[9]See further, Opti-Pharm Pty Ltd v Nature One Dairy Pty Ltd [2018] VSC 397, [40].
Nature One obtained registration of its manufacturing facility with the Accreditation Administration on 1 October 2017 and was accordingly allocated 3 brand slots. Each brand slot permits the registration of 3 product formulas to be sold by 1 brand, so that 9 product formulas in total may be registered with the Food and Drug Administration
Opti-Pharm has filed evidence of alleged admissions to the effect that Nature One had already allocated 2 of the 3 available brand slots to other companies, namely Sinopharm and Nuchev, as at 24 October 2017.[10] That evidence also refers to an alleged admission that, in addition to the applications referable to the 2 allocated slots, Nature One previously submitted its own formulation for approval by the Food and Drug Administration.
[10]Ibid, [36].
Nature One has admitted that it “has had dealings with third parties who could take advantage of some of the 3 available ‘brand slots’”. However, Nature One denies that it has finally allocated any of its 3 brand slots, and has given evidence that approval has not been given for any brand by the Food and Drug Administration.[11]
[11]In support of this contention, Nature One referred to a document taken from Chemlinked listing all Australian infant milk formulations registered with the Food and Drug Administration. None of Sinopharm, Nuchev or Nature One appear in this list.
B.3 Expert evidence
Opti-Pharm has filed an expert report of Chen Yonghao dated 15 June 2018 (“the Yonghao Report”).[12] The Yonghao Report addressed, amongst other things, the question of registration of infant milk formula with the Food and Drug Administration. Relevantly, the Yonghao Report stated that overseas producers applying for registration of a manufacturing facility with the Accreditation Administration “shall clarify the types and brands of dairy products it plans to export to China when applying for registration” (emphasis added).[13] This has not been disputed by Nature One.
[12]The English translation of the Yonghao Report was not filed until 20 July 2018. The instructions provided by Opti-Pharm’s solicitors were not filed until 23 August 2018, although they are dated 31 May 2018.
[13]The Yonghao Report refers to article 6 of the Administrative Measures on Inspection, Quarantine and Supervision of Imports and Exports of Dairy Products (Decree No 152, 2013 of the General Administration of Quality Supervision, Inspection and Quarantine of the People’s Republic of China).
Further, Opti-Pharm has filed an expert report of John-Henry Eversgerd dated 15 June 2018 (“the Eversgerd Report”). The Eversgerd Report addressed the question of the profit or loss that might have resulted from the sale of the Product in China.
B.4 The Joint Venture
On 23 November 2015, Opti-Pharm signed a heads of agreement establishing a joint venture with Chemist Warehouse (“the Joint Venture”) for the future sale of the Brand in China and domestically.[14] Particulars provided by Opti-Pharm state that the entity through which Opti-Pharm participated in the Joint Venture was Opti Australia Milk Export Pty Ltd.[15]
[14]The heads of agreement was expressed to be entered into between CW Management Pty Ltd (ACN 606 514 390), acting on behalf of itself and the stores trading under the names of My Chemist / Chemist Warehouse, and Opti-Pharm.
[15]Opti Australia Milk Export Pty Ltd is owned 50 per cent each by Opti-Pharm and Chemist Warehouse.
Opti-Pharm has stated that its claim for loss and damage in this proceeding includes any loss of profits that otherwise would have been received by the Joint Venture, including the share of Chemist Warehouse.[16]
[16]Opti-Pharm stated that it was the undisclosed agent for Chemist Warehouse pursuant to the heads of agreement dated 23 November 2015.
C. Legal principles
The legal principles applicable to further discovery may be shortly stated.
Rule 29.08(2) of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) provides:
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 the party’s possession, when the party parted with it and that party’s belief as to what has become of it.
(Emphasis added.)
Orders made under r 29.08 are discretionary and are not to be made lightly.[17] Orders under r 29.08 may be made in respect of documents relating to issues raised on the pleadings or connected to any question arising in the proceeding. Accordingly, subject to the overarching obligations,[18] the kinds of documents that may be ordered to be discovered pursuant to r 29.08 are broader than those that may be required to be discovered at the commencement of the proceeding.[19] Particular discovery may be ordered where the pleadings or prior discovery indicate inadequate discovery in the proceeding, or where the evidence discloses an admission as to the existence of the document or documents sought.[20]
D. Opti-Pharm’s Application
[17]Olympic Airways SA v Alysandratos (unreported, Supreme Court of Victoria, Harper J, 26 May 1997), 8‑9; Nestle Australia Ltd v Commissioner of Taxation (1986) 10 FCR 78, 82.9 (Wilcox J).
[18]Civil Procedure Act 2010 (Vic), s 7.
[19]See, for example, Supreme Court (General Civil Procedure) Rules 2018 (Vic), r 29.01.1(1) and (3). See further Murex Diagnostics Australia Pty Ltd v Chiron Corporation (No 2) (1995) 62 FCR 424, 429A, 430D (Burchett J) dealing with the equivalent rule in the Federal Court Rules 1979 (Cth), being r 15.8; Cojuanco v Routley [1983] 1 NSWLR 723, 727G (Yeldham J) dealing with the equivalent rule in the Supreme Court Rules 1970 (NSW), being Pt 24, r 5.
[20]Cf Mulley v Manifold (1959) 103 CLR 341, 343.3 (Menzies J).
D.1 The application as pressed
Opti-Pharm’s Application set out several categories of documents to be the subject of further discovery. Some categories were revised during the course of the hearing so that the application as ultimately pressed by Opti‑Pharm was:
1. [Nature One] make discovery of the following categories of documents forthwith:
(a) [Nature One]’s application to the [Accreditation Administration] for approval as an overseas manufacturer of infant formula; and
(b) all documents pertaining to:
(i) the allocation of 2 of the 3 brand slots available to [Nature One] in consequence of its [Accreditation Administration] registration to Sinopharm and Nuchev; and
(ii) any:
(A) agreement by [Nature One] to allocate the third brand slot to any third party;
(B) proposal or decision by [Nature One] to seek [Food and Drug Administration] approval for any product to be sold under a brand owned by [Nature One] or any of its affiliates; and
(C) application by [Nature One] for [Food and Drug Administration] approval in respect of any product to be sold under a brand owned by [Nature One] or any of its affiliates.
on or prior to 10 November 2017.[21]
[21]The date of 10 November 2017 corresponds with the date on which Opti-Pharm purported to terminate the Agreement.
During the course of the hearing, Nature One agreed to make discovery in respect of categories 1(b)(ii)(A) and 1(b)(ii)(C).[22] The only categories remaining in dispute at the conclusion of the hearing were 1(a), 1(b)(i) and 1(b)(ii)(B).
[22]For completeness, counsel for Nature One stated to the court that “there won’t be anything to discover” with respect to category 1(b)(ii)(A), however that assertion was not a reason not to make the order when there was no basis for the court to determine the position and the order was the subject of agreement.
D.2 Category 1(a): Nature One’s application to the Accreditation Administration
Opti-Pharm contended that the application by Nature One to the Accreditation Administration for accreditation of its manufacturing facility (“the Application”) was relevant to whether Nature One repudiated the Registration Obligation. This was because the Application ought to indicate the types and brands of dairy products that Nature One intended to export to China.[23] Opti-Pharm argued that the Registration Obligation required Nature One to notify the Accreditation Administration that it intended to export the Brand to China. It was further submitted that the exclusion of the Brand from the Application would demonstrate a failure by Nature One to use its best endeavours and pertain directly to the issue of whether Nature One repudiated the Registration Obligation. Finally, Opti-Pharm stated that it would be a “forensic advantage” to identify any correlation between the brands included on the Application and the brand slots later sought to be allocated by Nature One. It submitted that without these documents, the question would be left at large in the lead up to trial.
[23]See par 14 above.
Nature One contended that there was no relevant connection between the brands included in the Application and those brands that would ultimately be submitted for approval by the Food and Drug Administration. In this respect, Nature One argued that its subjective intentions at the time of making the Application were not relevant to any issue in dispute between the parties on the pleadings.
Further, Nature One argued that the allegations in the Amended Statement of Claim concerning the Registration Obligation constituted an “express abandonment of reliance on the [Accreditation Administration] registration process”. In particular, Nature One argued that the rectification claim of Opti-Pharm sought to remove any reference to the Accreditation Administration in the Agreement.[24]
[24]See par 8 above.
In response, Opti-Pharm submitted that its contended construction of the Registration Obligation encompassed registration with both the Accreditation Administration and the Food and Drug Administration (and any other necessary registrations). Further, Opti‑Pharm pointed to the fact that the Amended Defence made express reference to both registration processes in alleging that it was not possible for Nature One to procure registration of the Product or the Brand with the Food and Drug Administration by 24 October 2017.[25]
[25]The date of 24 October 2017 is a date that Opti-Pharm alleges Nature One repudiated the Agreement.
Leaving aside the issue of relevance, counsel for Nature One submitted that discovery pursuant to this category would be unduly onerous on the basis that there was “a very substantial volume” of documents involved. It was submitted that Nature One had been engaged in the Accreditation Administration registration process for between 3 to 4 years prior to gaining accreditation of its manufacturing facility on 1 October 2017.[26] It was further submitted that the relevant documents were located in China, Singapore and Australia. There was no evidence before the court to support this submission. However, in an attempt to narrow the scope of any discovery obligation if the order as sought were made, senior counsel for Opti-Pharm stated he was content to limit the documents sought in this category to “the parts of the Application that indicate the brands or formulas that were intended to be manufactured”.
[26]See par 11 above.
D.3 Category 1(b)(i): Allocation of 2 of 3 of the brand slots by Nature One
Opti-Pharm contended that the allocation of any of the available brand slots by Nature One was relevant to whether Nature One used its best endeavours to obtain all necessary Chinese regulatory registrations in respect of the Brand (including the Product). In particular, Opti-Pharm argued that the allocation of brand slots to date was relevant to whether Nature One had, before the purported termination, finally prevented itself from facilitating the sale of the Product in China contrary to the Registration Obligation.[27]
[27]See further Opti-Pharm Pty Ltd v Nature One Dairy Pty Ltd [2018] VSC 397, [36].
Initially, Nature One appeared to contend that the allocation of 2 of the 3 brand slots to Sinopharm and Nuchev was not in issue and was therefore not properly a matter for discovery. However, counsel for Nature One later said it was not accepted that any arrangement for Nature One to provide a brand slot to each of Sinopharm and Nuchev was the subject of any binding agreement.[28]
D.4 Category 1(b)(ii)(B): Proposal or decision by Nature One to seek Food and Drug Administration approval for any product to be sold under a brand owned by Nature One or its affiliates
[28]See par 13 above.
Opti-Pharm contended that the documents in this category were relevant to whether Nature One breached the Registration Obligation by taking steps towards allocating each of the 3 available brand slots to parties other than Opti-Pharm. Counsel for Opti‑Pharm clarified that the reference to a proposal in this category was only intended to capture conduct, in the sense of a formal proposal, as opposed to any unexpressed intention of Nature One. It was clear from the submissions made by both parties that this category was understood to relate to any internal proposal or decision of Nature One.
Nature One contended that the allocation its available brand slots was not relevant to any issue in dispute between the parties. In this respect, Nature One pointed to the fact that Opti-Pharm did not plead that the remaining brand slot was no longer available. Nature One emphasised that its alleged breaches of the Agreement, as pleaded by Opti-Pharm, were limited to:
(1) Informing Opti-Pharm that the Brand would not be registered for sale in China as it did not have a history of sale in the Chinese market when, in fact, the Brand was capable of registration for sale in China.
(2) Representing to Opti-Pharm that it had available a brand slot for the Brand but would only provide it to Opti-Pharm if Nature One had partial ownership of the Brand.
On this basis, Nature One contended that there was no allegation on the pleadings that there were not any brand slots available. Nature One indicated that if this allegation were to be expressly pleaded then Nature One would either admit that fact or, if the alleged fact remained in issue, make discovery in respect of it.
In response, Opti-Pharm contended that any dealings by Nature One resulting in the third brand slot becoming unavailable to be allocated to Opti-Pharm would come within the allegation contained in the Amended Statement of Claim that Nature One:
(a) Repudiated its obligation to use its best endeavours to obtain all necessary Chinese regulatory registrations to permit the retail sale of the Brand in China.
(b) Alternatively, failed to use its best endeavours to obtain all necessary Chinese regulatory registrations to permit the retail sale of the Brand in China.
Further, Opti-Pharm relied upon the denial by Nature One in the Amended Defence “that it was possible, by best endeavours, for Nature One to procure registration of Opti-Pharm’s Product or Brand with [the Food and Drug Administration]”. Finally, Opti-Pharm pointed to the allegation in the Amended Defence that “’best endeavours did not require Nature One to put forward [Opti-Pharm]’s infant formula for 3 of Nature One’s 9 available [Food and Drug Administration] registrations when, on the available advice, [Opti-Pharm] was ineligible for [Food and Drug Administration] registration”.
E. Ruling – Opti-Pharm’s Application
I will deal with each category of documents sought by Opti-Pharm in turn.
First, the Application submitted by Nature One to the Accreditation Administration is relevant to whether Nature One used its best endeavours within the meaning of the Registration Obligation. There was a mandatory requirement for Nature One to disclose the brands it intended to export to China as part of its Application. Whether or not the non-inclusion of the Brand on the Application would have prevented Nature One from ultimately obtaining registration of the Brand with the Food and Drug Administration is not to the point. Such conduct might indicate that Nature One was unwilling to perform the Registration Obligation at a relevant point in time. Equally, the inclusion of the Brand may be relevant to any assessment about a willingness to perform. There is no doubt that the documents sought to be discovered are in existence. In circumstances where Opti-Pharm has offered to limit the scope of the documents sought,[29] the request is proportionate and sufficiently focussed. Accordingly, an order for further discovery will be made in a more limited form, to reflect the more limited request.
[29]See par 27 above.
Second, documents relating to dealings by Nature One with respect to 2 of the 3 available brand slots are relevant to the availability or otherwise of a brand slot that could be allocated to Opti-Pharm and the ability of Nature One to fulfil the Registration Obligation. Counsel for Nature One withdrew any previous position in relation to whether 2 of the 3 available brand slots had been finally allocated to other companies.[30] Further, the Amended Defence denies the representations in the Amended Statement of Claim relating to the allocation of some of the brand slots. The allocation by Nature One of any of the available brand slots therefore remains a live issue between the parties. Furthermore, the possibility of Nature One having proceeded to allocate all available slots without including Opti-Pharm is materially relevant.
[30]See par 29 above.
Third, for similar reasons to those addressed in paragraphs 36 and 37 above, any documented proposal or decision by Nature One to seek approval by the Food and Drug Administration for any product to be sold by a brand owned by Nature One or its affiliates is directly relevant to the question of whether Nature One used its best endeavours consistently with the Registration Obligation. This issue is raised squarely on the pleadings and is properly a matter for discovery. In particular, documents in this category may indicate whether Nature One precluded or impaired itself in some way from facilitating the sale of the Brand in China, or otherwise failed to use its best endeavours.
Thus, orders will be made requiring Nature One to make discovery in respect of the 3 categories of documents pressed by Opti-Pharm at the hearing of the application.
F. Nature One’s Application
Some categories of documents raised in Nature One’s Application were conceded prior to the hearing.[31] Other categories related to issues that did not appear to be immediately relevant on the face of the pleadings.
[31]An affidavit of Opti-Pharm’s solicitor, affirmed on 25 October 2018, stated that 2-3 weeks would be required to compile further discovery pursuant to conceded categories. Counsel for Opti-Pharm stated that discovery pursuant to categories 4 and 5 of Nature One’s Application would be provided on 12 November 2018.
During the hearing when this issue of the pleadings was raised, Nature One sought and was granted leave to amend the Amended Defence to raise matters concerning the relevance of sales of the Product in the Australian market. Senior counsel for Opti‑Pharm indicated that Opti-Pharm would make discovery in respect of the amended pleadings, which may or may not result in the discovery by Opti-Pharm of the categories presently sought, depending upon what matters remained in issue.
In circumstances where a material amendment to the pleadings had been foreshadowed, the court stated, in substance, that it was inappropriate to deal with these matters proleptically and that any discovery issues outstanding at the conclusion of the process foreshadowed could be brought back before the court, if and when they arose.
The result was that only 1 subparagraph of Nature One’s Application remained in dispute at the conclusion of the hearing:
3. By 4:00 pm on 16 November 2018, [Opti-Pharm] make discovery of the following categories of documents:
(b) business records of the [Joint Venture], which go to the question of the profit that Opti-Pharm might have earned by the export of Opti-Gold to China, including:
…
q. the extent of salaries necessary to maintain Opti-Pharm’s operations, including those paid to Mr Vanas and Mr McDonald; …
Opti-Pharm contended that the Eversgerd Report[32] adopted “objectively reasonable assumptions for management salaries” in estimating the salaries to be paid to the directors of Opti-Pharm, being Peter Vanas (“Vanas”) and Garry McDonald (McDonald”),[33] for the purposes of calculating the loss of profits incurred by the Joint Venture. In particular, the Eversgerd Report relied upon a salary survey prepared by the Australian Institute of Management.
[32]See par 15 above.
[33]McDonald was the managing director.
Nature One submitted that documents recording the actual salaries paid to Vanas and McDonald should be discovered in the proceeding. It argued that this information would most likely be documented and was a relevant factor in calculating the profits that would have been earned by the Joint Venture. In particular, Nature One argued that any assumption that would result in an “overpayment” of salaries in this respect would reduce the calculation of overall profits and that any “underpayment” would increase profits. Whatever be the position, Nature One submitted that the amount of the actual remuneration was relevant to a proper allowance for salaries in the assessment of any alleged profits.
Opti-Pharm contended that any actual salaries were irrelevant to the calculation of damages. In this respect, it was submitted that the appropriate figure for any future assessment of damages would be reasonable salaries rather than the actual salaries of “non-arms length parties” who might also be paid a share of profits.[34] Having said this, senior counsel for Opti-Pharm conceded, quite properly, that the actual wages charged to the Joint Venture for any managers or staff were relevant to the assessment of loss and damage.
[34]It was also submitted that the salaries of non-arms length parties were irrelevant to any calculation of profit “in oppression cases and like cases” generally. How the approach to be taken in such cases was analogous to any appropriate approach in this case was not explained.
G. Ruling – Nature One’s Application
On the assumption that Opti-Pharm were to succeed on liability, the actual salaries paid to McDonald and Vanas are known costs that, arguably, should be taken into account by the experts in assessing the profits that would have been generated by the Joint Venture, had the Agreement been performed. The discovery of documents pursuant to this category will allow the assumptions underlying the expert evidence contained in the Eversgerd Report to be tested against the known facts.[35] Accordingly, orders will be made requiring Opti-Pharm to produce documents recording the known salaries necessary to maintain Opti‑Pharm’s operations.
[35]See, for example, Dasreef Pty Ltd v Hawchar (2011) 243 CLR 588, 622 [89]-[90] (Heydon J).
H. Conclusion
For these reasons, orders will be made requiring both parties to the proceeding to make particular discovery in substantially the form ultimately sought by the opposing party.
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