Pegasus Leasing Limited v Donald Martin Dick and Pamthorpe Pty Ltd No. 4265 Judgment No. SCGRG 91/2187 Number of Pages 7 Practice

[1993] SASC 4265

COURT IN THE SUPREME COURT OF SOUTH AUSTRALIA BURLEY J

CWDS
Practice - Application for further and better discovery - applicable principles relating to such an application - whether sufficient evidence or actual or possible existence of material documents in the present or past - nature of order that may be sought - what are material documents. Supreme Court Rules (SA) R.58.04(e). Mulley v Manifold (1954) 103 CLR 341, applied.

HRNG ADELAIDE, 20 September 1993 #DATE 12:11:1993
Counsel for plaintiff:     Mr. Mcnamara with Mr. Durrant
Solicitors for plaintiff:    Kelly and Co
Counsel for respondent:     Mr. Besanko with Mr. Tokley
Solicitors for respondent: Mouldens

ORDER
Orders made.

JUDGE1 BURLEY J By paragraph 2 of the application dated 24th December 1992 the 1st defendant seeks an order for further and better discovery against the plaintiff. The application is made pursuant to the provisions of Rule 58.04(e) of the Supreme Court Rules. 2. The application requires a close examination of the Rule, but before doing so I should say something of the general background. The plaintiff claims that on about the 29th June 1989 the plaintiff and the 1st defendant, to whom I shall refer as "the defendant", entered into a lease agreement in respect of thoroughbred race horses. The lease was for a term of 3 years commencing on 30th June 1989 at a total rental of $1,451.205 with a residual payment of $340,053. The lease agreement provides for the payment of the rental at the commencement of the lease or, alternatively, by specified instalments during the currency of the lease. There is provision for a daily rental to accrue if the thoroughbreds remain in the possession of the lessee after the expiration of the lease. The statement of claim refers to a number of other terms of the lease and at paragraph 7 it is asserted that in August 1991 notification was given by the plaintiff to the defendant that he was in breach of the lease because he had failed to make payments pursuant to the lease. The plaintiff asserts that the defendant failed to comply with the notice, and, in light of his default and failure to comply, has repudiated the lease agreement. The plaintiff says that it accepted the defendant's repudiation and terminated the lease. The plaintiff contends that the defendant is liable to pay the sum of $825,330.73 together with interest, in respect of which two alternatives are pleaded, and, in the further alternative, it is contended that the indebtedness amounts to the sum of $960,105.14 as at 30th June 1992. 3. Paragraphs 12, 13 and 14 of the statement of claim refer to an agreement between the 1st and 2nd defendants whereby the 2nd defendant agreed to manage the horses the subject of the lease agreement as part of the "Zenith Breeding Venture No. 1". 4. The plaintiff alleges that as a result of the defendant's default in respect of the lease, moneys due to the defendant from the 2nd defendant as a result of the management agreement are now recoverable by the plaintiff. 5. The defendant has filed a defence, set-off and counter-claim. He asserts that he is not bound by the lease agreement. He says that he has paid in full for his interest in the leased thoroughbreds. He asserts that at the expiration of the lease the plaintiff was required to sell the thoroughbreds within 60 days and that if the same had not been sold within that period, they were then to be valued and, as the case may be, the amount realised at sale or the amount of the value was to be deducted from any indebtedness of the defendant to the plaintiff under the terms of the lease. The defendant contends that the plaintiff has neither sold, nor obtained valuations in respect of, the thoroughbreds. 6. A number of paragraphs of the defence contain allegations in relation to the plaintiff and it is stated that particulars will be given after discovery. It is also alleged that certain representations were made by a Mr O'Connor who is alleged by the defendant to have been the agent of the plaintiff. The defence also refers to a certain memorandum. It is alleged that the plaintiff was responsible for or contributed to the compilation of the memorandum. It is also alleged that certain representations were made by "the plaintiff". The defendant asserts that the representations contained in the memorandum, made by Mr O'Connor as agent for the plaintiff and made by the plaintiff induced the defendant to enter into the lease agreement and the management agreement. It is contended by the defendant that as a result of the various representations the plaintiff is estopped from asserting various matters. The defendant also contends that certain provisions of the Securities Industry (S.A.) Code apply to the transactions referred to, giving rise to a right of rescission, purportedly exercised in the defence, of the agreements referred to. The defendant also relies upon certain provisions of the Companies (S.A.) Code giving rise to an alleged illegality rendering the lease agreement unenforceable. 7. The above summary of the pleadings is by no means a detailed recitation of their contents but it is a sufficient description of the background to this application. 8. The nature of the further and better discovery sought was originally set out in a letter of 1st December 1992 from the defendant's solicitors to the plaintiff's solicitors. However, during the course of argument it became apparent that the demands made in that letter needed to be reviewed and minutes of order were handed up. After the conclusion of argument the parties conferred about the nature of the discovery sought and I was asked to defer any decision on the application until such time as those discussions had concluded. I agreed to this request. The applicant's solicitors subsequently wrote to my secretary by letter dated 8th October 1993 indicating that some agreement had been reached or was likely to be reached between the parties as to some of the categories of documentation. 9. There nevertheless remained matters in dispute. These were set out in copy letters forwarded with the letter of 8th October 1993. In the letter dated 1st October 1993 from the defendant's to the plaintiff's solicitors the further and better discovery sought is as follows:-
    "PROPOSED MINUTES OF ORDER Thoroughbred Investment Services
     1. Any letter(s) between Thoroughbred Investment Services and
    Pegasus Leasing Limited concerning the provision of services by
    Thoroughbred Investment Services regarding the introduction of
    or introducing persons (members of the public) willing to apply
    to or obtain finance from Pegasus Leasing limited for the
    purpose of enabling that person to purchase or acquire
    shares/units in horse breeding syndicates or schemes.
     2. Any pro-forma brochure or circular letter from
    Thoroughbred Investment Services to Pegasus Leasing Limited or
    vice versa concerning a willingness on the part of Pegasus
    Leasing Limited to finance the acquisition of shares/units in
    horse breeding syndicates or schemes.
     3. Any letter or other document evidencing a payment or
    payments from Pegasus Leasing Limited to Thoroughbred Investment
    Services by way of commission for the introduction of investors
    or potential investors to Pegasus.
    Securities/Prescribed Interests
     1. Any letter or pro-forma letter from Pegasus Leasing
    Limited to another person or company in which Pegasus Leasing
    limited invites applications for finance or offers finance to
    enable the purchase of shares or units in a horse breeding
    and/or horse racing syndicate or scheme or venture.
     2. Any brochure produced by or on behalf of Pegasus Leasing
    Limited and sent or given to any company or individual with a
    view to advertising the services by Pegasus Leasing Limited in
    respect of the financing or acquisition of shares or units in
    horse syndicates or schemes or ventures.
     3. Any advertising literature promoting the willingness of
    Pegasus Leasing limited to finance the acquisition of shares or
    units in horse breeding syndicates or schemes or ventures.
     4. Any letter(s) or completed application form(s) showing
    that, in response to either letter(s), brochure(s), or other
    advertising material, persons have contacted Pegasus Leasing
    limited with a view to obtaining a loan or finance to acquire or
    purchase a share or unit in a horse breeding scheme or syndicate
    or venture.
     5. Any Prospectus for the purpose of offering shares or units
    in horse breeding schemes or syndicates or ventures in which
    Pegasus Leasing limited is identified as a/the financier of
    shares or is willing to provide finance for the purchase or
    acquisition of shares or units.
     6. Any exemption granted or given to Pegasus Leasing limited
    under the Companies (Securities Industries) Code in respect of
    any horse breeding scheme, syndicate, or venture in which its
    (sic) was revealed for the period referred to below.
     7. Any letter(s) or other similar document(s) in which
    Pegasus has approved of or disapproved of an application for
    shares (whether described as ownership shares or otherwise) or
    units in a horse breeding syndicate, scheme or venture.
     In respect of categories 1 to 7 above, we request discovery of
    documents that were brought into existence only in the period
    January to June 1989. If, the above categories are likely to
    reveal a significant quantity of documents then, after further
    discussion with you, we may be content to restrict our request
    to the period June 1989." 10. By letter dated 7th October 1993 the defendant's solicitors responded as follows:-
    "With respect to the proposed Minutes of Order we comment as
    follows:-
    Thoroughbred Investment Services
    We are instructed that all documentation relating to the Zenith
    Breeding Syndicate and the involvement of Thoroughbred
    Investment Services has already been provided by way of
    discovery. Any other correspondence between our client and
    Thoroughbred Investment Services (if it in fact exists) is not
    relevant to these proceedings. Security/Prescribed Interest Our
    client does not consent to the provision of discovery in the
    categories of documents headed 1 to 7 in your letter. Our
    client maintains as submitted by counsel that documents relating
    to that category are not relevant to these proceedings. In any
    event, we suggest that your proposed Minutes of Order are too
    vague to allow our client to properly identify documents you
    seek. We do not have any objection to you putting your letter
    of 1 October 1993 before the Court but ask that you also make it
    clear to the Court at that time that we are not happy with the
    form of those Minutes as they do not properly identify any
    particular documents which (sic) respect to which you seek
    discovery and that we object to discovery of those documents for
    the reasons put by counsel." 11. Rule 58.04(e) of the Supreme Court Rules is as follows:-
    "58.04 The Court may on application for discovery made
    at any stage of the proceedings:
     (e) Where it appears to the Court there are grounds for a
    belief that some documents or class of documents relating to any
    matter in question in the proceedings may be or may have been in
    the possession custody or power of a party, order that party:
        (i) to file an affidavit stating whether that document, or
    any of that class, is or has been in his possession, custody or
    power and, if it has been but is not presently, to state when he
    parted with it and what has become of it;
(ii) to deliver the affidavit to any other party." 12. The matters required to be established by the defendant on this application are:- - Grounds for belief - That documents or a class of documents - Relating to any matter in question in the proceedings - May be or may have been in the possession custody or power of the plaintiff. 13. If those matters are established then the Court may order the plaintiff to file an affidavit stating whether the documents or class of documents are or have been in the possession, custody or power of the plaintiff and, if they have been, to state when the plaintiff parted with them and what has become of them. 14. A similar Rule was considered by Menzies J in Mulley v Manifold (1959) 103 CLR 341. His Honour said that the grounds for belief as to the evidence of documents may be established by reference to the pleadings or by affidavit evidence. In this matter the defendant has adopted the latter course. His Honour pointed out that the order for which application could be made was limited to an order for an affidavit to be filed in accordance with the equivalent of Rule 58.04(e)(i). It was observed that if such an affidavit disclosed the existence of material documents which had not been discovered, that affidavit may form the basis for an order that such documents be discovered by way of supplementary list. In my view such an approach is required to be taken to the provisions of Rule 58.04(e). The provisions of Rule 58.04(e) and the corresponding High Court Rule are not materially different. Each is designed to elicit whether or not, for whatever reason, a party's initial discovery (in this jurisdiction by way of list of documents) can be said to be sufficient. The applicant for further and better discovery must point to the existence of documents which have not been discovered and which are material to the matters in question in the proceedings. The respondent to the application is then given the opportunity to confirm by way of affidavit whether such material documents are or have been in that party's possession, custody or power. Such an approach is necessary because the evidence adduced by the applicant as to the existence or possible existence of further documentation will not necessarily be conclusive. Consequently the Rules should not be construed so as to require the Court to order the discovery of specified documents which may not exist and may never have existed. 15. Menzies J also said that an application under the equivalent of Rule 58.04(e) is not a vehicle for a fishing expedition on the part of the applicant. In addition, his Honour said that the materiality of a document is to be determined by reference to the pleadings and not by reference to an argumentative affidavit. 16. It was common ground that the test of materiality was that set out in the Peruvian Guano Co. case (1882) 11 QBD 55 where Brett LJ said, at page 63:-
    "It seems to me that every document relates to the matters
    in question in the action, which not only would be evidence upon
    any issue, but also which, it is reasonable to suppose, contains
    information which may - not which must - either directly or
    indirectly enable the party requiring the affidavit either to
    advance his own case or to damage the case of his adversary. I
    have put in the words "either directly or indirectly," because,
    as it seems to me, a document can properly be said to contain
    information which may enable the party requiring the affidavit
    either to advance his own case or to damage the case of his
    adversary, if it is a document which may fairly lead him to a
    train of enquiry, which may have either of these two
    consequences." 17. It is also necessary to bear in mind that the list of documents is conclusive: cf. Mulley v Manifold (supra). 18. Unless there are grounds to draw a contrary inference, it must be accepted that the plaintiff has discovered all material documents. 19. I consider the above principles to be applicable to the application before me. 20. The first heading referred to in the letter of 1st October 1993 is "Thoroughbred Investment Services". It seems to me that each of the three paragraphs under this heading, commencing as they do with the word "Any", assumes the existence of such documentation without providing proof by affidavit of that assumption. Proof that the documents may or do exist is required because in its absence the list of documents filed by the plaintiff is regarded as being conclusive. Consequently the application for further and better discovery under this heading must fail. In addition, even if it is assumed that documents of the nature set out in paragraphs 1, 2 and 3 are or were in existence, their materiality has not been established. The defendant relies on paragraphs 55 to 60 of the defence and paragraphs 1(b), 4, 11 and 13 of the plaintiff's reply to establish materiality. However, having read those paragraphs, I am unable to identify why the documentation sought in relation to Thoroughbred Investment Services is material. It seems to me that this aspect of the application is no more than a fishing expedition which attempts to obtain information which may or may not relate to the matters set out in paragraphs 55 to 60 of the defendant's defence. The plaintiff has given discovery in the context that the issues defined in the paragraphs of the defence and reply referred to above have been joined between the parties. There is nothing before me to suggest that the plaintiff has done other than discover all material documentation. Consequently, I refuse that aspect of the defendant's application. 21. In arriving at that conclusion I have taken into account the fact that the defendant relies upon paragraphs 17, 18 and 20 of the affidavit of Mr Tokely sworn on 24th December 1992 and exhibit 11 to that affidavit. In my view, neither those paragraphs nor the exhibit, taken individually or cumulatively provide evidence of the actual or possible existence in the present or past of the documents referred to under this heading. Paragraph 20 refers to exhibit 13 which is a lease application. It is recorded in that document that the applicant was introduced by Thoroughbred Investment Services Australia. That is insufficient to support the application. 22. The second heading referred to in the letter of 1st October 1993 is "Securities/Prescribed Interest". In my view, the defendant has failed to provide evidence of the actual or possible existence in the past or present of such documentation. Admittedly, in the letter dated 7th October 1993 from the plaintiff's solicitors, there is no specific denial of the existence of such documentation, but the point is made that the description of the documents is too vague. Be that as it may, the defendant must at least establish by evidence that the documents, the subject of the application, may exist or may have existed. The only evidential support is contained in paragraph 21 of Mr Tokely's affidavit. He refers to exhibit 14 which is an application to take up ownership shares in a breeding syndicate. He says: "It is my belief, and it is the defendant's case, based upon inter alia, that document, that there may be in existence other documents 11 indicating that the plaintiff was involved in dealing in shares and that there would be other documents in existence which would support the 1st defendant's contention that the plaintiff was involved in such matters." In my view that evidence does not give rise to the inference that the documents referred to in paragraphs 1 to 7 of this heading, even if limited to the period between January and June 1989, exist or were in existence. It may be that individually some of the documentation referred to in those paragraphs is or was in existence and should be discovered, bearing in mind the reliance placed by the defendant upon the provisions of the Securities Industries Code and the Companies Code. However, the nature of the documentation sought in paragraphs 1 to 7, when looked at overall, constitutes no more than a fishing expedition on the part of the defendant. Accordingly I refuse the defendant's application under this heading. 23. I should say before leaving this matter that my refusal of the defendant's application does not constitute a determination that the plaintiff's discovery is necessarily sufficient. It is to be emphasised that the application has been decided by reference to the principles referred to earlier in these reasons. The defendant has failed to establish that these documents are or may be in existence, and if they are, that they are material to the matters in question on this action. My determination does not proceed beyond that point because, of necessity, only the plaintiff and its advisers can know, at this stage of the proceedings, whether or not sufficient discovery has been given. 24. For the above reasons my orders on the application are:

     1. That paragraph 2 of the application dated 24th December
    1992 be dismissed.
     2. That the 1st defendant pay the plaintiff's costs of and
    incidental thereto.
     3. Fit for counsel for the attendances on 23rd June 1993 and
    20th September 1993.
     4. Application for directions adjourned to 25th November 1993
    at 9.40 a.m.