Quest James Street Northbridge Pty Ltd v West
[2009] WASC 401
•23 DECEMBER 2009
QUEST JAMES STREET NORTHBRIDGE PTY LTD -v- WEST [2009] WASC 401
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2009] WASC 401 | |
| Case No: | CIV:1166/2009 | 15 DECEMBER 2009 | |
| Coram: | MASTER SANDERSON | 23/12/09 | |
| 8 | Judgment Part: | 1 of 1 | |
| Result: | Discovery ordered in part | ||
| B | |||
| PDF Version |
| Parties: | QUEST JAMES STREET NORTHBRIDGE PTY LTD (ACN 097 711 021) ANDREW SCOTT WEST CATRIONA CHUI SAN CHIN CAPUTO & CLAY PTY LTD (ACN 115 205 199) HONDA PIPHATSIRIKAJORN |
Catchwords: | Practice and procedure Application for preaction discovery in relation to counterclaim Turns on own facts |
Legislation: | Nil |
Case References: | Australian Securities & Investments Commission v Enterprise Solutions 2000 Pty Ltd [2000] QCA 452; [2003] 1 Qd R 135 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- Plaintiff
AND
ANDREW SCOTT WEST
CATRIONA CHUI SAN CHIN
Defendants
CAPUTO & CLAY PTY LTD (ACN 115 205 199)
HONDA PIPHATSIRIKAJORN
Third Parties
Catchwords:
Practice and procedure - Application for preaction discovery in relation to counterclaim - Turns on own facts
Legislation:
Nil
(Page 2)
Result:
Discovery ordered in part
Category: B
Representation:
Counsel:
Plaintiff : Mr S C England
Defendants : Mr K C B Staffa
Third Parties : No appearance
Solicitors:
Plaintiff : Lawton Gillon
Defendants : Staffa Lawyers
Third Parties : No appearance
Case(s) referred to in judgment(s):
Australian Securities & Investments Commission v Enterprise Solutions 2000 Pty Ltd [2000] QCA 452; [2003] 1 Qd R 135
(Page 3)
1 MASTER SANDERSON: This is the defendants' application for pre-action discovery. It is slightly unusual in as much as the application is brought in pending proceedings. The defendants say they need discovery to determine whether or not they have a counterclaim. As an alternative, the defendants seek to have the plaintiff give discovery of particular documents in the proceedings. These documents are enumerated in a schedule to the application. Before dealing with the issues raised by the application it is necessary to say something about the facts of the case.
2 The plaintiff carries on the business of letting serviced apartments for short or long-term residential accommodation from an apartment complex known as Quest on James Street. The defendants were, from on or about 3 July 2006 to on or about 19 January 2009, registered proprietors of apartment 105 in the plaintiff's complex. As at the date the defendants purchased their apartment it was subject to a Serviced Apartment Letting Agreement (the Letting Agreement) between the previous owners and the plaintiff. When the defendants purchased the apartment they entered into a deed with the previous owners pursuant to which they agreed to be bound by the terms of the Letting Agreement. The Letting Agreement was originally entered into on 1 September 2001 for a term of five years. It was subsequently renewed with the effect that it would expire in 2011. The Letting Agreement is relatively straightforward and represents a not uncommon arrangement with respect to serviced apartments. The plaintiff undertakes to pay the owners of the apartment a certain guaranteed annual return. In exchange, the owner of the apartment allows the plaintiff to rent out the apartment as part of its business. The return to the owner is not in any way related to the occupancy of the apartment. The rate of return to the owner is guaranteed. So far as the owner is concerned it would not matter whether the apartment was not rented out for a single night during the course of a 12 month period. The owner would still be entitled to his guaranteed return.
3 In the statement of claim the plaintiff alleges the defendants sold the apartment to a third party. Contrary to the terms of the Letting Agreement, the plaintiff says the defendants did not obtain a written agreement from the purchasers that they would abide by the terms of the Letting Agreement. The purchasers have not entered into a new letting agreement and the plaintiff has lost the opportunity to rent out the apartment. The plaintiff alleges the defendants breached the terms of the Letting Agreement. As a consequence the plaintiff has suffered loss and damage and the plaintiff seeks to recover that loss and damage. It must be said on the face of it the claim is quite straightforward. It is clearly and succinctly pleaded and the statement of claim raises no difficult issues of
(Page 4)
- fact or law. The plaintiff's alleged damages are not quantified. The statement of claim says that particulars of loss and damage will be provided prior to trial.
4 The defence is a straightforward affair. Apart from not admitting a number of paragraphs in the statement of claim, the defendants admit their contract of the sale of the property did not contain a provision binding the purchaser to the Letting Agreement. It is difficult to see on what basis the defendants intend to defend the claim.
5 In relation to the counterclaim, the defendants say they may have a number of causes of action. First, they claim that the arrangement with respect to the apartments may constitute a managed investment scheme under the provisions of the Corporations Act 2001 (Cth). It is said that the elements of a managed investment scheme are, first, a pooling of funds from different people; second, the purpose of pooling the funds is to produce financial benefits; and third, the benefits must be produced for persons who have an interest in the scheme: see Australian Securities & Investments Commission v Enterprise Solutions 2000 Pty Ltd [2000] QCA 452; [2003] 1 Qd R 135. The defendants say that if the Letting Agreement is a managed investment scheme, it is not registered as such. Presumably the Letting Agreement would then be said to be unenforceable. The defendants say they have potentially a further argument. They said based upon an affidavit of Peter Robert Slater affirmed 15 July 2009 - Mr Slater was the purchaser of the unit - the plaintiff has breached the Letting Agreement with the defendants by failing to pay strata levies. Presumably if this is established the defendants intend to allege the Letting Agreement has been repudiated, the repudiation has been accepted, and the plaintiff is not entitled to sue on the Letting Agreement.
6 Returning to the application, there are five classes of documents of which the defendants seek discovery. They are:
1. Budgets and accounts for management of the units during the period from 3 July 2006 to 19 January 2009.
2. Documents relating to period for which the Defendants' unit has been let during the period from 3 July 2006 to 19 January 2009.
3. Documents relating to expenditure on the upkeep of the Defendants' unit between the periods 3 July 2006 to 19 January 2009.
(Page 5)
- 4. Documents evidencing any pooling of funds received from the units or of any common funds for income or expenditure for the units during the period 3 July 2006 to 19 January 2009.
5. Documents relating to any deliberations (including arbitrations, mediations and expert assessments) pertaining to a guaranteed rate of return for the units for the period from 3 July 2006 to date.
7 It can be seen immediately that some of these documents relate to the damages claimed by the plaintiff. The plaintiff's damages must be the difference between what they would have received in income if they were able to lease out the apartment less the costs they incurred in earning that income - these costs to include the guaranteed rate of return paid to the owner of the apartment. For instance, the documents in category 3 are clearly relevant to that question.
8 When the matter came on for hearing on 2 November 2009 I heard some argument and then ordered the plaintiff provide particulars of its loss and damage. These particulars have now been provided (albeit late). Because the figures provided may be commercially sensitive, I will not set out these particulars in so far as the money amounts are concerned. However, I will set out the methodology used by the plaintiff in calculating its loss. It is as follows:
(a) Income derived from Property
1 July 2006 to 19 January 2009 (934 days)
(b) Average annual income from Property: (a) ÷ 934 x 365
(c) Total operating expenditure
1 July 2006 to 30 June 2009
(d) Total annual expenditure: (c) ÷ 3
(e) Total no. of apartments
(f) Average annual expenditure for Property: (d) ÷ 46
(g) Net annual profit from Property: (b) - (f)
(h) Remainder of term of Letting Agreement including options
(i) Plaintiff's loss and damage: (g) x (h)
(Page 6)
9 (The Letting Agreement contained three further renewal options of five years each. The plaintiff has assumed for the purpose of calculating their damages the renewal would be exercised for each five year period.)
10 It must be said that the way in which the plaintiff has calculated its loss and damage is perfectly straightforward and entirely orthodox. Of course at trial the plaintiff must prove it suffered losses as alleged. So, for instance, it must prove what income it derived from the property - category (a) in the particulars of loss and damage. That will involve providing documents which establish the income for the property.
11 It is then a question of what documents need to be discovered.
12 There are potentially different levels at which discovery might be given. For instance, there may be copies of individual receipts issued to persons who occupied the property. Those documents might be said to be at a primary level. At a secondary level, there may be a register or a running account kept for the property. This document would effectively be drawn up by reference to the individual receipts. On the tertiary level, there might be a profit and loss statement showing the income derived from all apartments over a particular period. This figure would not allow identification of the income from a particular apartment.
13 It may be that the plaintiff's system does not work in the way I have anticipated. But the point, I think, is clear. In the circumstance I have postulated, a document or documents in the secondary level would need to be discovered. It may be applying the relevant test for discovery literally that the defendants would be entitled to discovery of documents in the primary category. Certainly, that is the way counsel for the defendants argued his case. To my mind, to require discovery of all these documents is unnecessary. It places a burden on the plaintiff without any real expectation of a benefit to the defendants. The position is even clearer when it comes to 'Total operating expenditure' - category (c). The amount specified in that category runs into millions of dollars. To require discovery of every document which went into calculating the amount specified would involve the plaintiff in a huge and probably pointless task. In this case the secondary document is the profit and loss statement - that will show in broad terms where the operating expenditure was incurred. In my view, discovering the profit and loss statements of the relevant years is sufficient for the defendants' purposes.
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14 Against that background, each of the defendants' categories can be considered. In relation to category 1, I am not satisfied any further discovery is required. In any event, the category itself is too vague to allow the plaintiff to understand precisely what it is the defendants want by way of discovery.
15 As to category 2, as I have indicated above, the plaintiff will have to provide discovery of what I have characterised as second level documents. As I understand it, the plaintiff accepts that proposition and discovery will be provided.
16 As to category 3, the profit and loss statements of the plaintiff are all that need be discovered. In so far as the defendants might be entitled to discovery of what may be described as the 'source documents' I would be prepared to limit discovery so as not to impose upon the plaintiff the burden which would be occasioned by a blanket order. In the context of this case, such a limitation is appropriate.
17 As to category 4, the plaintiff says there are no documents evidencing the pooling of funds. But the plaintiff does not dispute that funds are 'pooled'. The plaintiff's business model is not in issue. It is plain from the documents which have been filed how the plaintiff's business is run. If the defendants are of the view that such an arrangement constitutes a managed investment scheme then they ought plead to that effect.
18 Category 5 requires some explanation. It would seem that persons who own apartments in the complex managed by the plaintiff have in some cases taken issue with the plaintiff on the rate of return for their particular apartments. But that does not concern the defendants. Their rate of return was settled in 2006. It may be the parties disagree as to what the rate of return might be at the date of the exercise of the further option by the plaintiff. However, that would not justify the discovery sought by the defendants in category 5. There is no warrant for the discovery of these documents.
19 In concluding, I would make two points. First, if the defendants say the plaintiff runs a managed investment scheme, they ought to plead to that effect and they ought do it sooner rather than later. In my view, pre-action discovery or further and better discovery is not a prerequisite to making that decision. In fact, looking at the pleadings and bearing in the mind the evidence filed in relation to this application, it should be possible to agree a set of facts which would obviate the need for witnesses to be
(Page 8)
- called. Perhaps some expert evidence as to future likely returns on the apartment might be necessary but it is difficult to see there could be too much difference between the parties. Appointment of a jointly agreed expert, with both parties having the right to cross-examine that expert, might provide a cost effective method of dealing with this issue. But apart from that limited expert evidence there seems to be very little in the way of factual dispute between the parties. This leads onto the second point. This is a relatively modest claim - well within the jurisdiction of the District Court. It ought not be turned into a saga where the costs of the litigation exceed the amounts at issue. In saying that, I am doing nothing more than restating the principle of proportionality which is embodied in the rules. The next step in these proceedings is for the plaintiff to provide a further affidavit of discovery which reflects these reasons. That should be done by 15 January 2010. If the defendants intend to put on a counterclaim they should do so on or before 29 January 2010. The matter can then be entered for hearing. Of course, if a mediation is to take place, that should be done before the matter is entered for hearing. But if a mediation is to take place then the parties should confer and agree a mediation order which is to be lodged with the court on or before 22 January 2010.
20 As to costs, both parties have in part been successful. The costs of this application including reserved costs ought be costs in the cause.
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