Peter Simson v Wotif.com Holdings Limited
[2013] NSWSC 1809
•29 November 2013
Supreme Court
New South Wales
Medium Neutral Citation: Peter Simson v Wotif.com Holdings Limited [2013] NSWSC 1809 Hearing dates: 29 November 2013 Decision date: 29 November 2013 Jurisdiction: Equity Division Before: Kunc J Decision: Limited disclosure before evidence allowed
Catchwords: PRACTICE AND PROCEDURE - Practice Note SC Eq 11 - Disclosure before evidence - Whether exceptional circumstances exist to warrant disclosure before evidence is served in proceedings - No issue of principle Legislation Cited: Civil Procedure Act 2005
UCPR Part 42 r 42.7Cases Cited: In the matter of Mempoll Pty Limited, Anakin Pty Ltd and Gold Kings (Australia) Pty Limited [2012] NSWSC 1057
Leighton International v Hodges; Thiess v Reinforced Earth [2012] NSWSC 458Category: Interlocutory applications Parties: Peter Simson and Naomi Simson (Plaintiffs)
Wotif.com Holdings Limited CAN 093 000 456 (First Defendant)
Wotif.com Holdings Limited CAN 093 000 456 (Cross Claimant to First Cross Claim)
Peter Simson (First Cross Defendant to First Cross Claim)Representation: Counsel: T. North SC, A. Paterson (Plaintiffs)
R. Dick SC, T.L. Wong (Defendant)
Solicitors: Fitzpatrick Legal through its town agent MWA Lawyers (Plaintiffs and Cross Defendants to Cross Claim)
Johnson Winter & Slattery (Defendant/Cross-Claimant)
File Number(s): 2011/00325502 Publication restriction: No
EX TEMPORE Judgment
HIS HONOUR: By notice of motion filed on 24 September 2013, the plaintiffs seek three things:
(1) Discovery of fifty-one categories of documents, referred to in a document before me, signed by or prepared by the plaintiff's solicitors dated 5 June 2013, and referred to as a revised schedule of documents to be discovered by Wotif.com Holdings Pty Limited.
(2) The provision of further and better particulars.
(3) Directions in relation to the preparation and service of expert witness statements.
These proceedings have already been the subject of other interlocutory applications, including one which resulted in a judgment of Associate Justice Macready, delivered on 22 February 2013. His Honour there set out the background of these proceedings, which I gratefully adopt:
3. The proceedings concern a share sale agreement whereby the plaintiffs sold the defendant, Wotif.com Holdings Limited ("Wotif"), all the shares in the company GoDo Pty Ltd with an "earn-out" provision such that Wotif would pay the plaintiffs an adjusted total purchase price after the first 12 months, such amount to be dependent on how well the GoDo business performed during the first year.
4. The plaintiffs, the Simsons, were formerly owners of all the shares issued by GoDo Pty Ltd, a real time online tours and activities booking business. The business operated across a network of websites owned by GoDo and websites owned by third parties.
5. The plaintiffs describe the operating model of the business as simple. GoDo employed a small number of staff, including a full time manager. GoDo's staff were not permitted to operate a business, in competition with GoDo.
6. An agreement was made between the Simsons and Wotif in about December 2009 pursuant to which Wotif purchased the shares, which the Simsons held in GoDo.
7. The plaintiffs plead in par 5A of the amended statement of claim that the share sale agreement (the Agreement) contained the following oral term:
"within the 12 month period after the Completion Date Wotif would not change, nor cause GoDo to change, the operating model which had been used by GoDo in the conduct of its business prior to the sale of its shares."
8. It is common ground that the total purchase price, payable by Wotif under the agreement, depended in part on how well the business of GoDo performed during the next 12 months, the "earn-out" period, following the sale of its shares.
9. The initial purchase price was $2,238,000. Prior to the sale, the plaintiffs' engaged Price Waterhouse Coopers ("PWC") to value GoDo's expected or anticipated EBITDA, based on its prior trading history. This was determined by PWC to be $632,000 in its October 2009 report. Unfortunately, GoDo's performance in the earn-out period did not match the expected or anticipated EBITDA.
10. The share sale agreement contained a minium adjusted purchase price, after the earn-out period, of $1,888,000 and a maximum adjusted purchase price of $8,000,000.
11. The plaintiffs claim that an amount of $4,082,000 should have been payable by Wotif to them at the end of the earn-out period. The defendant, Wotif, by way of cross claim and defence, claim that the plaintiffs owe it a refund of $350,000 with the third cross-defendant, Red Balloon Pty Ltd, as guarantor for the debt. This is based upon its post completion EBITDA calculation of $24,271.
Most of the hearing before me as Applications Judge was taken up with argument concerning the plaintiffs' application for discovery. I shall return to that in due course. I shall first deal with the second and third aspects of the plaintiffs' notice of motion.
Application for further and better particulars
The plaintiffs' application for further and better particulars concerned two paragraphs of the amended defence. By the time the matter came on for hearing before me, the plaintiffs accepted that they had in effect been given the answer which they had sought in relation to one of those paragraphs, through the submissions which the defendants had filed on the present application. Accordingly, the request for further and better particulars was pressed only in relation to paragraph 16c(iii) of the amended defence (italics in original):
iii. the financial performance of the GoDo business in the 12 months following the Completion Date was adversely affected by the poor quality of the IT upgrade project for GoDo's systems undertaken by or for the Simsons prior to and following the Completion Date, which resulted in instability of the primary GoDo website and substantial site errors, and the effect of which was exacerbated by poor responsiveness from the Simsons' IT personnel during attempts to resolve those issues;
By letter dated 16 May 2013, the plaintiffs' solicitors sought particulars of that paragraph (italics in original):
3. Provide particulars of GoDo's financial performance as at the Completion Date.
4. Provide particulars of GoDo's financial performance during the 12 months period following the Completion Date.
5. Provide the usual details by reason of which it is alleged that the financial performance of the GoDo business, in the 12 months following the Completion Date was adversely affected by the poor quality of the IT upgrade project for GoDo's systems undertaken by or for the Simsons prior to and following the Completion Date.
6. Provide particulars of the manner in which it is alleged that GoDo's website was unstable.
7. Provide particulars of the "substantial site errors" which are alleged.
8. Provide the usual details by reason of which it is alleged that the IT upgrade project for GoDo's systems which was undertaken by or for the Simsons prior to and following the Completion Date resulted in instability of the primary GoDo website.
9. Provide the usual details by reason of which it is alleged that the IT upgrade project for GoDo's systems which was undertaken by or for the Simsons prior to and following the Completion Date resulted in "substantial site errors".
10. Provide the usual particulars of each occasion on which it is alleged a response was sought from the Simons' IT personnel by the Defendant or GoDo and in respect of which it is alleged that such response was "poor".
11. In respect of each occasion the subject of paragraph 10 above provide
12. particulars of the specific problem or concern which was the subject of a request by the Defendant or GoDo; and
13. the usual details by reason of which it is alleged that the response from the Simons' IT personnel was "poor".
As is well known, the purpose of particulars is to ensure that a party is able to understand the case which it has to meet and is not taken by surprise. Whether or not particulars are required is determined by considering whether the allegation in relation to which particulars are sought is sufficient to put the recipient of the pleading on notice of the case which they have to meet.
The allegation in paragraph 16c(iii) of the amended defence is sufficiently pleaded to put the plaintiffs on notice of the case which the defendants wish to make in relation to that part of the claim. I accept the submission, made on behalf of the defendants, that the detailed request for particulars of that paragraph is really a request to be told the evidence that will be adduced in support of it. That is not a proper purpose for particulars and, accordingly, I will not allow the request for further and better particulars.
Expert evidence
After I have given these reasons I propose to make directions for the provision of limited discovery in advance of the evidence being adduced by the parties. I will also make directions for the filing of the parties' lay evidence. In those circumstances there is no reason for expert evidence to be exchanged in advance of those procedures occurring.
While I appreciate the plaintiffs' view that much of this case will eventually turn on expert analysis of the accounts of GoDo Pty Ltd, I am not satisfied that there is any basis as a matter of case management or otherwise for directions of the kind sought in relation to the expert evidence to be made at this stage. Rather, it seems clear to me that the ordinary course should be followed, namely that once the lay evidence is on and any further application for discovery has been made, then the expert evidence should be filed. Any application for further discovery may well be supported by some indication from experts proposed to be briefed by the plaintiffs of the kind of material which they require, which may not have already been included in the lay evidence that will be filed in due course by the parties.
The third part of the plaintiff's notice of motion will also be dismissed.
Discovery
The present application must be considered against the background of Practice Note SC Eq11, "Disclosure in the Equity Division" (the "Practice Note"):
4. The Court will not make an order for disclosure of documents (disclosure) until the parties to the proceedings have served their evidence, unless there are exceptional circumstances necessitating disclosure.
5. There will be no order for disclosure in any proceedings in the Equity Division unless it is necessary for the resolution of the real issues in dispute in the proceedings.
6. Any application for an order for disclosure, consensual or otherwise, must be supported by an affidavit setting out;
the reason why disclosure is necessary for the resolution of the real issues in dispute in the proceedings;
the classes of documents in respect of which disclosure is sought; and
the likely cost of such disclosure.
The Practice Note was put into place in response to a concern on the part of the Court, joined in by those who regularly appeared before it, that the practice of extensive disclosure being ordered prior to the parties being required to put on their evidence was producing a result in many cases that was contrary to the overriding purpose set out in ss 56 to 58 of the Civil Procedure Act 2005 (NSW) (the "CPA"). The fundamental overriding purpose is that proceedings be conducted in a way that leads to the just, cheap and quick resolution of the matters really in issue between the parties.
A particular feature of these proceedings is that they were commenced before the introduction of the Practice Note. Furthermore, consent orders were made for disclosure to take place between the parties in accordance with the practice that existed before the introduction of the Practice Note. However, as events developed, no documents were in fact ever produced in accordance with the earlier arrangements for discovery. I am informed by counsel for the defendants, and accept, that the categories for discovery proposed by the plaintiffs under that earlier arrangement were all objected to.
The process of discovery, such as it was, was interrupted by interlocutory applications brought by the defendants in relation to, amongst other things, the adequacy of the plaintiffs' pleadings. Those applications resulted in the further amended statement of claim which is now before the Court.
While the parties were involved in those other interlocutory applications, the Practice Note was introduced. These proceedings therefore fall into the second of the categories identified by Justice McDougall in Leighton International v Hodges; Thiess v Reinforced Earth [2012] NSWSC 458 at [25], being where a regime for discovery was in place but "which had been in effect overtaken by events or abandoned." In those circumstances, the fact that discovery may once have been agreed between the parties prior to the introduction of the Practice Note will not, of itself, constitute or assist in building a case for "the exceptional circumstances necessitating disclosure" referred to in paragraph 4 of the Practice Note.
Accordingly, I approach the present application as being one that is squarely governed by the Practice Note. That being said, the Practice Note itself must be applied in accordance with the requirements of ss 56 to 58 of the CPA, and, in particular, the overriding purpose to which I have already referred.
There is much to be said for the defendants' criticism of the form of the application that has been brought by the plaintiffs today. There has not been compliance with the requirement for an affidavit setting out the matters referred to in paragraph 6 of the Practice Note. However, that omission has been remedied in the written and oral submissions put on behalf of the plaintiffs. That is an observation born of the reality of the situation and is not to be taken as a general licence for parties not to comply with the requirements of the Practice Note.
That being said, having regard to the requirement for progressing this matter to achieve a just, cheap and quick resolution, it is appropriate that I should set aside the question of formal compliance with the Practice Note and look to the real merits of the situation in this particular case.
Viewing the matter in this way, I am firmly of the view that no circumstances, exceptional or otherwise, have been demonstrated by the plaintiffs so as to justify disclosure being ordered before the filing of evidence of the fiftyone categories of documents to which I referred at the outset of these reasons. Without listing them in detail, most of those categories relate to material which is either already in the possession of the plaintiffs or is of a kind which, under the Practice Note, would almost never be the subject of an order for disclosure prior to the filing of evidence. A good example is those categories which are directed to obtaining the defendants' notes and records of conversations said to have taken place between representatives of the parties. Such material now classically falls within the view taken by the Court that a plaintiff should be readily able to file his, her or its evidence of such matters unaided by file notes and other material from the defendant's camp.
Recognising the almost insuperable difficulty posed for the plaintiffs by the fifty-one categories, I extended to the plaintiffs an opportunity over the luncheon adjournment to refine their request to a more targeted group of documents which they might be able to demonstrate to me would be discoverable, on the basis that there were "exceptional circumstances necessitating disclosure." That was done and a document produced entitled "Further Schedule of Documents to be Discovered by Wotif.Com Holdings Limited".
It is necessary then to consider what the circumstances are that the plaintiffs say are "exceptional". Without descending into the detail of the claims between the parties, it is clear that a substantial part of the plaintiffs' case will turn on material that is not presently in the possession of the plaintiffs. However, an examination of the particulars appended to the various allegations in the further amended statement of claim makes it clear that the plaintiffs must have some material on which they are able to make the allegations that they have pleaded, and which one would expect will be included in the evidence which they file as part of their evidence-inchief in due course.
It nevertheless also appears that there will be a deal of material that may ultimately become relevant which is solely in the possession of the defendants. There is authority for the proposition that such a circumstance, particularly when added to the overriding purpose in s 56 of the CPA, will constitute the exceptional circumstances: In the matter of Mempoll Pty Limited, Anakin Pty Ltd and Gold Kings (Australia) Pty Limited [2012] NSWSC 1057 at [21] per Black J.
The defendants vigorously disputed the proposition that the unavailability to the plaintiffs of material solely in the defendants' possession constituted exceptional circumstances in this case. That submission reached its high point in the defendants' written submissions where they observed:
There is no expectation that the plaintiffs would prepare lay affidavits in relation to matters that are solely within the knowledge of the defendant. Rather, the defendant will respond to the allegations that it changed the business model of GoDo as it sees fit by way of its own lay evidence, exhibiting any documents it considers appropriate.
That response exposes the tension that has arisen since the introduction of the Practice Note. The Practice Note contemplates, necessarily, the possibility of a further round of evidence if, after evidence is filed on the first occasion, an application for discovery is successfully made. There is nothing in and of itself wrong with that. However, in exercising the Court's discretion on an application of this kind it seems to me important to bear in mind the possibility that where (as here) I am satisfied much relevant material is only in the possession of the defendants, an application will be made for discovery after the filing of evidence.
This gives rise to the matter which has persuaded me that in the exercise of my discretion, being satisfied that there are exceptional circumstances in the fact that much of the material that may ultimately come to be relied upon is in the possession of the defendants only, I should ensure that the plaintiffs are in a position to at least advance a sufficiently clear case in the first round of evidence to limit, or perhaps eliminate, the need for a future application for discovery.
In other words, it seems to me that where one has a case, of which I consider this to be an example, that an application after the filing of evidence is almost inevitable, parties ought to be put in the position where their first round of evidence will go as far as possible to highlight what discovery may in fact be required to fill in gaps that the filing of that evidence discloses. I have reached the view that not to allow discovery of the more limited categories now advanced by the plaintiffs before evidence in this case will mean that any future application for discovery will not be assisted, as far as I think it should be, by a delineating of the issues through the first round of evidence in the fullest way practicable, having regard to the provisions of the Practice Note.
I am satisfied that the categories in the further revised schedule to which I have referred will elicit material that is solely in the possession of the defendants and are not, on their face, oppressive by reason of the amount of material or the difficulty in identifying it. The disclosure will facilitate the plaintiffs in crafting their evidence-in-chief consistently with the case as pleaded in a way which will ultimately assist in delineating the real issues once the defendants have had an opportunity to respond. My expectation is that if this material is discovered and the parties are then required to put on their evidence, then the combination of the material advanced by the plaintiffs, both from their own resources and that which has been discovered to them by the defendants, as well as the defendants' evidence from their own resources, will put the Court and the parties in the best position to determine what, if any, more discovery is required.
In reaching this conclusion I have particularly taken into account the fact that as matters presently stand there does appear to be a case for the plaintiffs to be entitled to access to what has been referred to before me today as the "books and records of GoDo Pty Limited". However, I would certainly not make such an order today and I would be very surprised if an order in those terms would ever be made in proceedings before this Court. There are clearly identifiable categories of documents which fall within the general description of "books and records". The orders that I make today should ultimately assist the parties and the Court to determine with appropriate (and considerably greater) precision what, if any, further documents from the "books and records of GoDo Pty Limited" the plaintiffs may be able to satisfy the Court that they would be entitled to have disclosed once the evidence has been filed.
For these reasons I propose to order discovery in advance of the filing of evidence of the categories identified in the further schedule that was provided after the luncheon adjournment.
Costs
The plaintiffs have only succeeded in obtaining discovery of the limited categories of documents propounded during the course of the hearing. They have failed to obtain the discovery or any of the other relief sought by their notice of motion. The plaintiffs should therefore pay the defendants' costs of and incidental to the motion.
The defendants apply for an "order otherwise" under UCPR Part 42 Rule 42.7(2) to the effect that those costs be assessed and paid forthwith. That rule provides:
(1) Unless the court orders otherwise, the costs of any application or other step in any proceedings, including:
(a) costs that are reserved, and
(b) costs in respect of any such application or step in respect of which no order as to costs is made,
are to be paid and otherwise dealt with in the same way as the general costs of the proceedings.
(2) Unless the court orders otherwise, costs referred to in subrule (1) do not become payable until the conclusion of the proceedings.
I am satisfied that it is appropriate to make such an order in this case for three reasons.
First, this application has dealt with an entirely discrete or self-contained question.
Second, the proceedings, on any view, are a long way from conclusion and have already been the subject of extended interlocutory arguments. There is no reason to suppose that will not continue to be the case.
Third, the scope of the discovery sought, and which was pressed until shortly after the luncheon adjournment, was in my view so unreasonable that, as I indicated to Senior Counsel for the plaintiffs, it was almost certainly bound to fail in the form in which it was pressed.
For these reasons I will accede to the defendants' application.
Decision last updated: 05 December 2013
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