PETGIA Pty Ltd as Trustee for the Valenti Family Trust v Pettigrew
[2013] WADC 82
•30 MAY 2013
JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CHAMBERS
LOCATION: PERTH
CITATION: PETGIA PTY LTD as Trustee for THE VALENTI FAMILY TRUST -v- PETTIGREW [2013] WADC 82
CORAM: GOETZE DCJ
HEARD: 17 MAY 2013
DELIVERED : 30 MAY 2013
FILE NO/S: CIV 1296 of 2012
BETWEEN: PETGIA PTY LTD as Trustee for THE VALENTI FAMILY TRUST
First Plaintiff
PETER STEPHEN VALENTI
Second PlaintiffAND
WILLIAM ALAN PETTIGREW
Defendant
Catchwords:
Practice and procedure - Discovered documents - Implied undertaking to use documents compulsorily acquired in discovery only for purposes of subject litigation - Application to be released from that undertaking
Legislation:
Nil
Result:
Application dismissed
Representation:
Counsel:
First Plaintiff : Mr J Garas
Second Plaintiff : Mr J Garas
Defendant: Mr M Solomon
Solicitors:
First Plaintiff : Tang Legal
Second Plaintiff : Tang Legal
Defendant: Summerslegal
Case(s) referred to in judgment(s):
Andrew Koh Nominees Pty Ltd v Pacific Corporation Ltd [No 2] [2009] WASC 207
Giorginis v Kastrati (1988) 49 SASR 372
Magafas v Carantinos [2007] NSWSC 416
North East Equity Pty Ltd v Goldenwest Equitties Pty Ltd [2008] WASC 190
Perdaman Chemicals & Fertilisers Pty Ltd v Griffin Coal Mining Co Pty Ltd [No 2] [2011] WASC 189
Plate Glass Holdings Pty Limited (as trustee for the R Gregg Family Trust) v Fraser Gordon Investments Pty Limited [2012] FCA 1487
GOETZE DCJ: This is an application by which the plaintiffs seek to be relieved of their implied undertaking to use a document discovered by the defendant in this action only for the purpose of this action.
The plaintiffs wish to provide the defendant's discovered bank statements and business activity statements to the state and federal police and to the Australian Taxation Office (ATO) as evidence of alleged criminal offences by the defendant.
The application is opposed.
Overview of the facts
In August 2010, the defendant, Mr Pettigrew, advertised his business for sale. That business involved the sale of confectionary.
The second plaintiff, Mr Valenti, read the advertisement, was interested in discussing the purchase of the business with Mr Pettigrew and made contact with him.
Discussions were then held between Mr Valenti and Mr Pettigrew during the course of which, Mr Pettigrew provided to Mr Valenti copies of a number of his documents, including a 'progressive incoming and outgoing report' detailing cash receipts of the business on a daily basis between 15 December 2009 and 30 June 2010. He also provided copies of business activity statements lodged by him with the ATO for the quarterly periods ending 31 March 2010 and 30 June 2010.
In due course, Mr Valenti successfully negotiated the purchase of Mr Pettigrew's confectionary business, utilising the services of the first plaintiff, Petgia Pty Ltd as the trustee of his family trust.
After purchasing the business, Mr Valenti found that the daily takings did not match those as represented to him by Mr Valenti. Accordingly, he commenced this action alleging misleading and deceptive conduct in trade or commerce by Mr Pettigrew.
As part of the discovery process, Mr Pettigrew discovered bank statements and business activity statements for the quarterly periods of March, June, September and December 2010. These business activity statements were all stamped 'lodged'.
Mr Valenti then compared the claimed daily receipts from Mr Pettigrew's progressive incoming and outgoing report to the daily bankings disclosed in the bank statements. He alleges that this comparison reveals an over‑representation of daily receipts in the progressive incoming and outgoing report between 15 December 2009 and 12 March 2010, as being mostly twice the amount actually banked. The range of over‑stating is said to be between multiples of 1.25 to 6.
Mr Valenti says that the progressive incoming and outgoing report is consistent with total sales in the business activity statement for the March quarter as provided to him by Mr Pettigrew in their pre‑purchase negotiations. They both disclosed a figure of $132,556. In the discovery process however, the copy business activity statement stamped 'lodged' on 18 June 2010 for the March quarter showed total sales of only $64,594.
During the course of negotiations for the purchase of the business, Mr Pettigrew also supplied Mr Valenti with his business activity statement for the quarter ending 30 June 2010 showing total sales of $153,142, whereas the document stamped 'lodged' on 20 April 2011, as revealed in the discovery process, showed total sales of $163,142.
Mr Pettigrew also provided discovery of the business activity statements for the September and December 2010 quarterly periods showing total sales of $66,836 and $62,886 respectively. These two latter mentioned statements were not provided during the negotiations.
Mr Valenti alleges that documents obtained in the discovery process show that he was misled and deceived by Mr Pettigrew in the negotiations leading to the purchase of the business.
Mr Pettigrew denies the allegations against him and says that the bank statements discovered by him did not include cash receipts which were not banked. Further, on 6 February 2013, he filed amended business activity statements showing total sales for the quarters ending 31 March 2010 in the sum of $156,092, 30 June 2010 in the sum of $135,788, 30 September 2010 in the sum of $134,782 and 31 December 2010 in the sum of $126,882. All figures mentioned above are inclusive of GST.
Mr Valenti's submissions
Mr J Garas, counsel for Mr Valenti and his corporate trustee, submitted that 'special circumstances' exist which provide reason to release Mr Valenti and his corporate trustee from their implied undertaking to not disclose the documents obtained during the discovery process. He says these documents show that Mr Pettigrew has been guilty of offences of a fraudulent nature at both Commonwealth and State levels and that he has also set out to defraud the ATO. He argued that the public interest requires their release from the undertaking.
It was further argued that prejudice would not result to Mr Pettigrew from the disclosure of the discovered documents to the police or the ATO. That a prosecution might result is not the kind of prejudice to be taken into account in weighing the competing public interests in holding the plaintiffs to their implied undertaking as against the public interest in exposing alleged serious offending by Mr Pettigrew. The public interest requires such serious alleged offending to be investigated.
Mr Pettigrew's submissions
Mr Pettigrew has filed amended business activity statements. Therefore, his counsel, Mr M Solomon, submitted that the documents now sought to be provided to the ATO do not of themselves take the matter any further.
Counsel submitted that Mr Pettigrew denied all allegations of fraud and maintained that the figures he gave to Mr Valenti as set out in the progressive incoming and outgoing report were true, but that the cash component of the business takings were not reflected in either the bank deposits or in the initially lodged business activity statement for the March 2010 quarter. This is no different from the great majority of many civil disputes arising from alleged representations made in the course of the sale of a business.
Legal principles
The parties did not dispute the well established legal principles which bear upon applications of this kind. They have been well set out in North East Equity Pty Ltd v Goldenwest Equitties Pty Ltd [2008] WASC 190, Andrew Koh Nominees Pty Ltd v Pacific Corporation Ltd [No 2] [2009] WASC 207 and Perdaman Chemicals & Fertilisers Pty Ltd v Griffin Coal Mining Co Pty Ltd [No 2] [2011] WASC 189 [11] – [18] in which Beech J said as follows:
The following summary of the relevant legal principles draws heavily from the decision of Newnes J in North East Equity Pty Ltd v Goldenwest Equities Pty Ltd [2008] WASC 190 [35] - [45]. See also my summary in Andrew Koh Nominees Pty Ltd v Pacific Corporation Ltd [No 2] [2009] WASC 207 [11] - [16], [18].
Where one party to litigation is compelled, by reason of a rule of the court or a specific order of the court or otherwise, to disclose documents or information, the party obtaining the disclosure cannot, without the leave of the court, use that disclosure for any purpose other than that for which it was given, unless it is received into evidence. This principle applies to a range of material including discovered documents and answers to interrogatories: Hearne v Street [2008] HCA 36; (2008) 235 CLR 125 [96].
Traditionally, the obligation has been described as an implied undertaking. However, it is properly understood as an obligation of substantive law: Hearne v Street [106] - [108].
Discovery is an invasion of the privacy and confidentiality of a litigant's affairs. The rationale for the imposition of this obligation is to ensure that privacy and confidentiality are not invaded more than is necessary for the purpose of doing justice: Hearne v Street [107]; Minister for Education v Bailey [2000] WASCA 377; (2000) 23 WAR 149 [25] - [27].
The power to dispense with or modify the obligation is not freely exercised, but it will be exercised if there are special circumstances which make it just to do so: Esso Australia Resources Ltd v Plowman [1995] HCA 19; (1995) 183 CLR 10, 37; Hearne v Street [107].
The obligation should be modified or released only to the extent that it is in the interests of the administration of justice or in the public interest to do so: Springfield Nominees Pty Ltd v Bridgelands Securities Ltd (1992) 38 FCR 217, 225; North East Equity Pty Ltd [40].
In Liberty Funding Pty Ltd v Phoenix Capital Ltd [2005] FCAFC 3; (2005) 218 ALR 283 (a passage cited with approval by Newnes J in North East Equity Pty Ltd [41]) the Full Court of the Federal Court said the following in relation to the requirement of special circumstances:
'The notion of "special circumstances" does not require that some extraordinary factors must bear on the question before the discretion will be exercised. It is sufficient to say that, in all the circumstances, good reason must be shown why, contrary to the usual position, documents produced or information obtained in one piece of litigation should be used for the advantage of a party in another piece of litigation or for other non-litigious purposes. The discretion is a broad one and all the circumstances of the case must be examined [31].
In weighing up the competing public interests, the importance of the public interest in the preservation of the confidentiality of discovered documents must be kept squarely in mind: North East Equity Pty Ltd [45]; Bailey v Australian Broadcasting Corporation [1995] 1 Qd R 476, 488.
There must be special circumstances justifying a departure from the obligation of substantive law to not disclose documents or information obtained during the discovery process without the leave of the court. The interests of the administration of justice or the public interest must require a departure from the usual rule seeking to ensure privacy and confidentiality, so that a party will be encouraged to make full disclosure without succumbing to the temptation of destroying or concealing the existence of relevant documents.
In North East Equity [43], Newnes J identified some of the factors relevant to the exercise of the court's discretion on an application such as the present being:
•the nature of the offence alleged;
•the cogency of the evidence sought to be adduced in support of it;
•the authority to which the documents are sought to be disclosed;
•the manner of the authority's intended use and the possibility of misuse by that authority;
•any prejudice, actual or potential, which may be occasioned to the respondent by the disclosure.
This is not an exhaustive list. It has not been suggested that the application has been brought for some personal advantage or improper purpose, rather than to advance the public interest.
It is important to preserve the confidentiality of the discovered documents in weighing up the competing public interests in determining where the public interest truly lies.
Disposition of the application
The onus lies on Mr Valenti to demonstrate special circumstances that justify the release or modification of the obligation so that he can provide information to the authorities.
In his submissions, Mr Valenti's counsel only sought to rely on the different figures for the March 2010 quarter.
The first advertisement for the sale of the business read by Mr Valenti was in a newspaper on 13 August 2010. The business activity statement which Mr Pettigrew had already lodged showing total sales of only $64,594 was, according to the face of it, lodged two months earlier on 18 June 2010.
However, the progressive incoming and outgoing report reveals daily takings over a six month period which are consistent with the two business activity statements for the quarters ending 31 March and 30 June 2010 as provided to Mr Valenti for negotiation and due diligence purposes. These show total sales of $132,556 and $153,142 respectively.
This suggests that Mr Pettigrew must have known that one of the two business activity statements for the quarter ending 31 March 2010 claiming total sales of $64,594 and $132,556 respectively was incorrect. The document provided to Mr Valenti is approximately double the sales figure in the discovered statement stamped as lodged for the same quarter.
Mr Pettigrew has not sought to explain the reason for the existence of the two different business activity statements to 31 March 2010, one as provided by him to Mr Valenti and the other business activity statement as lodged by him. Mr Pettigrew concedes that the bank statements reflect that substantially lesser amounts were deposited by him into the bank, as compared to the progressive incoming and outing receipts, with the difference said to be cash receipts that were not banked. Nonetheless, he maintains that the representations made by him to Mr Valenti, together with the documents provided by him, reflect the true historical sales of the business.
The filing of amended business activity statements was undertaken, it would seem, on or about 6 February 2013, such being the date shown on the face of each statement. Those amended statements relate to the periods ending 31 March 2010, 30 June 2010, 30 June 2010, 30 September 2010 and 31 December 2010.
A summary of the figures, all inclusive of GST, is as follows:
Quarterly period ending
Sales as disclosed in BAS's provided to Mr Valenti
Sales as disclosed in BAS's lodged by Mr Pettigrew
Sales as disclosed in amended BAS's lodged by Mr Valenti
31.03.2010
$132,556
$ 64,594
$156,092
30.06.2010
$153,142
$163,142
$135,788
30.09.2010
‑
$ 66,836
$134,782
31.12.2010
‑
$ 62,886
$126,882
The total banking detailed in the progressive incoming and outgoing report between 15 December 2010 and 12 March 2010 is the sum of $132,556.25 ie, the exact figure stated in the BAS for the March quarter as provided to Mr Valenti.
The total banking detailed in the progressive incoming and outgoing report between 17 March 2010 and 30 June 2010 is the sum of $168,141.56.
On the face of it, the progressive incoming and outgoing report for the period between 14 December 2009 and 30 June 2010 is consistent with the two business activity statements for the periods ending 31 March 2010 and 30 June 2010 which were provided to Mr Valenti by Mr Pettigrew.
One explanation for the variation in figures between the business activity statement to 31 March 2010 and the progressive incoming and outgoing report is that Mr Pettigrew did not include cash receipts in the business activity statement which were not banked.
There remains however, an obvious conflict between the March business activity statement as provided to Mr Valenti and that which was lodged on 18 June 2010.
Mr Valenti urges that this shows an attempt to evade tax, but Mr Pettigrew has now filed amended business activity statements for the March, June, September and December 2010 periods. Mr Valenti says, there was also an attempt to mislead and deceive him on the basis that there were no cash receipts as claimed. He alleges this to have been fraudulent. Further, it is possible that the amended business activity statements were created and lodged to overcome Mr Valenti's claims in this action against Mr Pettigrew.
Mr Pettigrew denies any intention to mislead or defraud and says that by lodging amended business activity statements, he has corrected the position with respect to the ATO. He claims this is also consistent with his representations to Mr Valenti.
In Plate Glass Holdings Pty Limited (as trustee for the R Gregg Family Trust) v Fraser Gordon Investments Pty Limited [2012] FCA 1487 [33] Flick J said that:
…it will not be in every case where the criminal law is infringed that the Court will grant the leave sought.
There may well be an explanation as to why the business activity statement for the March 2010 period as originally lodged was understated by approximately one half of the total sales for the relevant period. There may also be an explanation as to why the business activity statement for the period ending June 2010 overstated total sales and further, there may be an explanation as to why the two subsequent business activity statements for the periods ending September and December 2010 both understated total sales. However, the ATO has now been advised of these matters. Whatever the explanation, it cannot be determined on the papers. It therefore cannot be said with any certainty that an offence has been committed. Mr Pettigrew is not under any obligation to explain matters.
It is also pertinent to note that this matter can be listed for trial and a trial date can be obtained in the near future.
In these circumstances, the public interest in overriding the obligation of substantive law requiring Mr Valenti to not disclose the discovered documents should not be disturbed at this stage of the proceedings. The public interest is better served by allowing this matter to proceed to trial when the trial judge will have the benefit of hearing the evidence and he or she can then authorise the release of such evidence as considered appropriate to the attention of any relevant authority – Giorginis v Kastrati (1988) 49 SASR 372, 376 and Magafas v Carantinos [2007] NSWSC 416 [224].
It is clear that the trial judge will scrutinise Mr Pettigrew's evidence with special care given the difference in his original business activity statements and the amended business activity statements. Plainly, the provision of those amended statements calls Mr Pettigrew's conduct into question. His professional advisors who prepared the returns may also come under scrutiny.
This application must be dismissed.
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