Re La Rosa, F.C. & anor Ex parte Norgard, R.S. as Trustee in Bankruptcy v Rodpat Nominees P/L & anor
[1992] FCA 797
•26 OCTOBER 1992
Re: FRANCESCO CANDELORO LA ROSA and LINDA ROBYN LA ROSA
Ex Parte: ROSS STEWART NORGARD AS TRUSTEE IN BANKRUPTCY OF THE ESTATE OF
FRANCESCO CANDELORO LA ROSA AND LINDA ROBYN LA ROSA; RODPAT NOMINEES PTY LTD
and GILPIN PARK PTY LTD
No. 616G of 1988
FED No. 797
Number of pages - 14
Practice and Procedure
COURT
IN THE FEDERAL COURT OF AUSTRALIA
BANKRUPTCY DISTRICT OF THE STATE OF WESTERN AUSTRALIA
GENERAL DIVSION
French J.(1)
CATCHWORDS
Practice and Procedure - motion for specific and third party discovery - documents relating to payments made into and out of solicitors' trust account - principles governing the grant of orders for specific discovery and third party discovery - order for specific discovery not to be made on speculative basis - power to grant third party discovery not to be exercised routinely - order made requiring specific discovery - order requiring third party discovery dismissed pending fuller resort to inter partes discovery processes.
Bankruptcy Act 1966 s.120(1)
Australian Broadcasting Commission v. Parish (1980) 29 ALR 228
Richardson Pacific Ltd v. Fielding (1990) 26 FCR 188
HEARING
PERTH
#DATE 26:10:1992
Counsel for the Applicant: Mr S. Tudgman
Solicitors for the Applicant: Blake Dawson Waldron
Counsel for Gilpin Park Pty Ltd: Mr M. McCusker QC and Mr C. McLeod
Solicitors for Gilpin Park Pty Ltd: Parker and Parker
Counsel for Parker and Parker: Mr A.V. McCarthy
Solicitors for Parker and Parker: Parker and Parker
ORDER
THE COURT ORDERS THAT: On the motion for specific and third party discovery:
1. The second respondent do, on or before 9 November 1992, file
and serve an affidavit stating whether any documents in items 1, 2, 3 and 4 of the schedule to the amended motion filed 13 October 1992 are, or have been in its custody, possession or power but if it is not, when it parted with it and what came of it.
2. The second respondent give inspection of the documents in its
custody, power or control on or before 16 November 1992.
3. The motion, so far as it seeks discovery from Parker and Parker
be dismissed without prejudice to the rights of the applicant to file a further motion for third party discovery or to apply for leave to issue a subpoena returnable before the trial of the action.
4. The costs as between the applicant and the second respondent be
in the course.
5. The applicant to pay Parker and Parker's costs of the motion.
The question whether the applicant may recover those costs against any other party to the action be reserved.
Note: Settlement and entry of Orders is dealt with in Rule 124 of the Bankruptcy Rules.
JUDGE1
Introduction
FRENCH J. By a notice of motion filed 24 September 1992, the applicant sought an order for specific discovery against Gilpin Park Pty Ltd (Gilpin Park) and for third party discovery against that company's solicitors, Parker and Parker. An amended motion was filed on 13 October 1992 and argument on the motion was heard on 20 October 1992. Before turning to the terms of the motion itself, it is desirable to summarise the amended statement of claim and the amended defence.
The Pleadings
2. By the amended statement of claim filed on 26 June 1991, it is alleged that the La Rosas were at all material times the proprietors of a business known as Moor Motors (para.1). They presented their debtors petitions on 26 August 1988 and Mr Norgard became their trustee on 31 August (para.3). Rodpat Nominees Pty Ltd (Rodpat) and Gilpin Park are companies incorporated in Victoria and Western Australia respectively and were unit holders of the Combined Motor Auctions Unit Trust ("CMA Unit Trust") of which Hobourne Pty Ltd (In Liquidation) (Hobourne) was trustee. Rodpat is trustee of the Rod Ferguson Family Trust and Gilpin Park of the JJH No. 1 Trust (para.4). It is also alleged that on 31 March 1988 Mr and Mrs La Rosa had committed an act of bankruptcy by a payment to Mr La Rosa's parents of $250,000 being a settlement void against the trustee under s.120(1) of the Bankruptcy Act 1966 (para.6). The bankruptcy is therefore said to have related back to and to have commenced at 31 March 1988 pursuant to s.115(2)(a) of the Act (para.7).
Paragraph 9 of the amended statement of claim alleges that between 22 April 1988 and 3 May 1988 the La Rosas paid to Rodpat and Gilpin Park amounts totalling $4,848,986. Of this, Gilpin Park is said to have received $1,563,400. The payments are said to have been made by cheque to Parker and Parker at the direction of Rodpat and Gilpin Park and to have been deposited into the trust account of that firm as follows:
Date Cheque No Payee Amount 22/4/88 812127 Parker and Parker Trust Account $ 450,000 2/5/88 812178 Parker and Parker Trust Account $3,500,000 3/5/88 812179 R. and I. Bank (converted to bank cheque
payable to
Parker and Parker) $ 893,986
The payments are said to have been a disposition of property of the bankrupts after the commencement of their bankruptcy and to be void as against the trustee.
By its amended defence filed on 13 September 1991, Gilpin Park denies that the La Rosas paid it the sum of $4,848,986 but admits that the cheques referred to in the particulars to that paragraph were drawn on the Moor account and paid into the Parker and Parker trust account on or about the dates shown (para.7). It further says that on or about 3 May 1988 it received from the Parker and Parker trust account a sum of $2,563,400 which comprised the following:
(a) The consideration paid by Feli Pty Ltd (Feli) as trustee of the F.C. La Rosa Family Trust, to Gilpin Park for the delivery to Feli by Gilpin Park of signed transfers of 3,334 units in the CMA Unit Trust to Feli - $1,263,333.
(b) The consideration paid by the La Rosas for the delivery to them of signed registrable transfers of 3,334 fully paid $1 shares in Hobourne to the La Rosas together with the relevant share certificates - $3,334.
(c) The balance of Gilpin Park's entitlement to a distribution made to the unit holders of the CMA Unit Trust by the Trustee Hobourne in respect of the period 1 July 1987 to 2 May 1988 - $1,181,166.
(d) An amount due to Gilpin Park by Ackenfield Pty Ltd as a management fee - $115,567. (para.7)
Apart from the sum of $3,334 particularised in (b) above, no part of the sum received by Gilpin Park from the Parker and Parker trust account was a payment made by the La Rosas to Gilpin Park (para.8). The payment of $1,263,333 referred to in (a) above, was a payment made to Gilpin Park by Feli. Payment of that amount or any part of it into the Parker and Parker trust account by the La Rosas constituted either a gift or a loan by the La Rosas to Feli and not a payment to Gilpin Park (para.9).
Gilpin Park goes on to plead that any payment made by the La Rosa's to it was made before they became bankrupt and made at a time when Gilpin Park had no notice of the presentation of a petition against the La Rosas. Any such payment was also made for valuable consideration in good faith and in the ordinary course of business (para.10).
The Motion for Discovery
6. The applicant seeks discovery from Gilpin Park and from Parker and Parker of the following documents described in a schedule to its motion:
"1. In respect of the sum of $7,443,986.00 deposited in the Parker and Parker trust account on or about the 3rd day of May 1988:-
(a) any deposit slip pertaining thereto;
(b) any document recording how that sum was comprised and the source of the funds comprising that amount;
(c) any transaction record or records kept by the Australia and New Zealand Banking Group Limited
("ANZ") in respect of the negotiation of any cheque or cheques comprised in the deposit;
(d) the documents or documents referred to as "Photocopy" on the schedule of Specified Entries produced by the ANZ in respect of the operation of the Parker and Parker trust account on the 3rd day of May 1988.
2. In respect of the sum of:-
(a) $893,986.00;
(i) $2,000,000.00;
(ii) $1,000,000.00;
(iii) $50,000.00;
(iv) $100,000.00
received by Messrs Parker and Parker on trust on or about the 3rd day of May 1988;
(b) any cheque (or complete copy thereof) pertaining to such sum;
(c) if any such sum was not received by way of cheque any other document pertaining to the receipt of such sum;
(d) if any such sum did not form part of the sum of $7,443,986.00 referred to in item 1 hereof, any deposit slip, withdrawal slip, investment record or receipt pertaining to the disposition of such sum.
3. In respect of the payments of:-
(a) $2,642,187.00 made to Rodpat Nominees Pty Ltd;
(i) $2,563,400.00 made to Gilpin Park Pty Ltd;
(ii) $2,588,399.00 made to Akenfield Pty Ltd on or about the 3rd day of May 1988 from funds held on trust by Messrs Parker and Parker, any cheque comprising such payments (or complete copy thereof).
4. In respect of the payment or other disposition of the sum of $100,000.00 held by Messrs Parker and Parker on trust on or about 3rd day of May 1988, any cheque or other document pertaining to the payment or other disposition of such sum.
5. In respect of two transactions each in an amount of $50,000.00 recorded in the Parker and Parker trust ledger on the 8th day of June 1988, any document pertaining to or recording such transactions.
6. In respect of the instructions given to Messrs Parker and Parker with respect of the sale of the units in the Combined Motor Auctions Unit Trust and the shares in Hobourne Pty Ltd to Feli Pty Ltd, any:-
(a) document recording such instructions;
(b) costs agreement pertaining to the services of Messrs Parker and Parker;
(c) account rendered by Messrs Parker and Parker in respect of their professional services;
(d) record of the professional time spent by Messrs Parker and Parker in providing their professional services;
(e) document recording advice given by Messrs Parker and Parker."
The motion is supported by two affidavits sworn by Michael Joseph Ryan, an accountant who has assisted the applicant in his capacity as trustee of the bankrupt estate of the La Rosas and as liquidator of Hobourne and Feli. Based upon an examination of the various papers held by the applicant relating to the bankrupt estate and the liquidations, Mr Ryan has formed the view that Hobourne was at all material times trustee of the Combined Motor Auctions Unit Trust between 22 June 1987 and 1 February 1989 and through that trust carried on the business of motor vehicle auctioneers under the names Australian Auto Auctions and Town Auto Auctions. Gilpin Park was a member of Hobourne and a unit holder in the CMA Unit Trust between 27 May 1987 and 2 May 1988. Between 8 April 1988 and 2 May 1988, Mr La Rosa on behalf of the bankrupts and Ferguson on behalf of Hobourne entered negotiations for the sale of the auction houses to the bankrupts which involved sale of all units in the CMA Unit Trust and sale of all issued issues in Hobourne. It appeared from Mr Ryan's examination of the papers that Parker and Parker acted for one or more of the parties involved in the auction house agreement. A barely legible photocopy of the trust account records of Parker and Parker was exhibited to his affidavit. That copy, under the designation "Client" bore the words "SYSTEM SYSTEM RE COMBINED MOTOR AUCTIONS UNIT RE LA ROSA". And under the heading "Debtor" it bore the endorsement "COMBINED MOTOR AUCTION UNIT TRUST 234 ABERDEEN STREET".
On 14 April, according to Mr Ryan's examination, $3 million was withdrawn from the Hobourne account and deposited by Hobourne under the name CMA Unit Trust into an account with a finance company Sun Sovereign Ltd. On 2 May 1988 the loan account of Gilpin Park in its capacity as a unit holder in the CMA Unit Trust was credited with a distribution of $1.324 million said to be a distribution of profits from the CMA Unit Trust. The trust account records show, according to Mr Ryan, that:
1. Between 22 April 1988 and 3 May 1988 inclusive the La Rosas caused to be paid into the Parker and Parker trust account a total sum of $4,848,986.
2. On or about 3 May 1988 the total sum of $3,000,000, being the proceeds of the money withdrawn from the Sun Sovereign account was deposited into the Parker and Parker trust account.
3. The bankrupts' monies were mixed with other funds held in the Parker and Parker trust account and in particular the Sun Sovereign monies.
The auction house agreement was completed on or about 3 May 1988. On or about that same day, according to Mr Ryan, Parker and Parker paid Gilpin Park from its trust account the sum of $2,563,400 which included $1,000,000 of the $3,000,000 previously deposited by Hobourne with Sun Sovereign Ltd.
Mr Ryan said he had examined Gilpin Park's list of documents in these proceedings and believed that there were various classes of documents which were likely to exist and to be in the possession, custody or power of Gilpin Park, Parker and Parker, the Australian and New Zealand Bank and Westpac Banking Corporation. The classes of documents so specified were:
"(a) Original and copy file notes, memoranda, correspondence and other documents relating to the conduct of the Parker and Parker trust account, including but not limited to authorisations, requisitions and directions given in relation to the payment of monies into or out of that account.
(b) Original and copy file notes, memoranda, correspondence and other documents relating to the physical receipt and delivery of cheques paid into or out of the Parker and Parker trust account.
(c) Original and copy bank statements relating to or dealing with all monies paid into or out of the Parker and Parker trust account.
(d) Original and copy records relating to all monies paid out of the Parker and Parker trust account and deposited with Australian and New Zealand Banking Ltd and Westpac Banking Corporation including but limited to deposit slips, receipts and other like documents.
(e) The originals of all cheques paid into or out of the Parker and Parker trust account."
The classes of documents so described are broad and go well beyond the scope of those covered in the affidavit.
In a further affidavit sworn on 13 October 1992, Mr Ryan said he had given further consideration to the Parker and Parker trust account records exhibited to his earlier affidavit and to other documents discovered formally and informally by Gilpin Park. He referred in particular to a bank statement covering the operation of the Parker and Parker trust account in respect of the period from late April to early May 1988. This was exhibited to his affidavit. Mr Ryan said that following an analysis of the documents presently discovered pertaining to the various transactions through the Parker and Parker trust account, he believed, based on that analysis, and his own commercial experience, that there were documents in relation to those transactions which had not yet been discovered. The documents were those set out in the schedule to the applicant's amended motion. The classes there described were considerably narrower than those referred to in the schedule to his first affidavit.
With respect to the first item in the schedule to the amended motion, Mr Ryan said, in his second affidavit, that the bank statement showed that $7,443,986 was deposited in the Parker and Parker trust account on or about 3 May 1988. This appeared to be a combination of a number of sums separately identified in the trust account ledger. No documents have been discovered in that regard. In Mr Ryan's opinion it is likely that a deposit slip or record would have been prepared at the time the funds were deposited in the bank with which Parker and Parker maintained their trust account and that either Parker and Parker would have retained a copy of that slip or the relevant bank would have retained such a copy which would be available to Parker and Parker on request. In answer to this contention Mr McLeod, a solicitor with Parker and Parker, deposed that documents 15 to 20 inclusive of Gilpin Park's list of documents had disclosed copies of two of the relevant cheques paid into the trust account on 3 May 1988 and trust receipts for all 5 deposits totalling $7,443,986. In reply the applicant says he still does not know how the sum of $7.4 million was made up but that without the documents relating to deposits of funds in the bank it is not possible to prove by admissible evidence how the deposit was made up.
As to item 2 in the schedule to the amended motion, Mr Ryan says the various transactions there referred to have been the subject of limited discovery by Gilpin Park, but in some cases only a copy of the face of the relevant cheque has been discovered. In other cases only one cheque has been discovered. Mr McLeod says that the document numbered 15 in Gilpin Park's list refers to copies of the front of two cheques made payable to Parker and Parker's trust account in the sum of $893,986 and $3,500,000 respectively. He believes that the originals could be with the bank of the drawers of the cheques. Mr McLeod went on to refer to documents 16 to 20 inclusive of Gilpin Park's list being trust receipts disclosing the date, account and payer of all relevant amounts on 3 May 1988 totalling $7,443,986. No part of the total payment was received other than by cheque. In respect of the figure of $100,000, that was said to be an amount invested and not received on trust. Other documents discovered but not referred to by Ryan were identified. It was not said however that these documents constituted a complete account of all documents held or which had been held by Gilpin Park with respect to the transactions in question. The applicant maintains that it does not have and requires full copies of the cheques and other documents necessary to complete its proof of the transactions at trial. As to item 3, Mr Ryan says that the payments referred to are identified in the trust account ledger but that the cheques have not been discovered. Mr McLeod says that the relevant cheque requisitions have been discovered (items 29, 30 and 31 of the Gilpin Park list). This is not however a sufficient answer to the obligation to make discovery of all relevant documents.
Mr Ryan contends that no document has been discovered in relation to the transaction referred to in item 4 of the schedule to the motion. Mr McLeod refers to document 21 in the Gilpin Park list being a funds investment receipt in the sum of $100,000 and document 44 being a Statement of Funds Invested with respect to the sum of $100,000. In my opinion however, full discovery is required and this has not been given.
Item 5 refers to two transactions each in the amount of $50,000 which took place on 8 June 1988. No case has been made for the relevance of these transactions to any issue in the case and I am not prepared to make the orders sought with respect to them.
So far as item 6 is concerned, there is a question whether Parker and Parker in these transactions were acting for Hobourne or some other party. If they were acting for Hobourne no question of third party discovery would arise because Hobourne would be entitled to require that they hand over all files relating to its own affairs and the applicant, standing in the shoes of Hobourne as its liquidator, could likewise make that demand. There is however a dispute on the papers as to the identity of Parker and Parker's client and that I think will have to be resolved in some other way. It does not arise for determination where an order for third party discovery is sought. And as item 6 seems to go to that issue, I do not propose at this time to make any order in relation to it.
Specific Discovery and Third Party Discovery
16. Order 15 r.8 provides:
"Where, at any stage of the 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 matter in question in the proceeding may be or may have been in the possession, custody or power of a party, the Court may order that party-
(a) to file any affidavit stating whether that document or any document of that class is or has been in his possession, custody or power and, if it has been but is not then in his possession, custody or power, when he parted with it and what has become of it; and
(b) to serve the affidavit on any other party."
The determination whether or not to make an order under O.15 r.8 is discretionary - Australian Broadcasting Commission v. Parish (1980) 29 ALR 228. It does not authorise the making of orders for specific discovery on the speculative basis that documents of the class claimed might exist. It must appear to the Court from evidence or from the nature or circumstances of the case that the documents exist.
In the present case I am satisfied that an order should be made requiring specific discovery by Gilpin Park in relation to the documents described in items 1, 2, 3 and 4 of the schedule to the motion. The bases upon which the order was resisted by Gilpin Park do not persuade me that complete discovery has been given in respect of those classes of documents. So far as item 5 is concerned, the relevance of the two transactions mentioned, to the issues in these proceedings, has not been made out and no order will be made in that regard. And so far as Gilpin Park is concerned, there is no basis for any belief that it would have or has had documents described in item 6 of the schedule in its possession, custody or power.
Third party discovery is governed by O.15A r.8 which provides:
"On the application of any party to a proceeding the Court may order that a person who is not a party and in respect of whom it appears that the person has or is likely to have or has had or is likely to have had in the person's possession any document which relates to any question in the proceeding shall make discovery to the applicant of any such document."
The rule was discussed by Burchett J. in Richardson Pacific Ltd v. Fielding (1990) 26 FCR 188. As appears from his Honour's discussion the power is not one to be exercised routinely. It is of its nature exceptional. The facilities for inter partes discovery provided by the Rules of Court and for the issue of subpoenas may well, if sufficient for the purposes of the litigation, exclude resort to O.15A. Of course, as his Honour said, the language of the rule is not to be read down by that approach for it may be that in particular cases the evidence will suggest that third party discovery will provide an appropriate and reasonable solution to real problems whether or not insufficiency of the normal discovery and subpoena processes has been demonstrated.
In the present case I consider it would be premature to make an order against Parker and Parker until the processes of discovery sought against Gilpin Park have been exhausted. The question whether Parker and Parker have in their possession documents which can be demanded by the liquidator of Hobourne on the basis of solicitor-client relationship that subsisted between Parker and Parker and Hobourne may have to be determined in some other way. It may be that it would only arise on a claim for legal professional privilege in objection to production of documents under subpoena. But that need not be determined today. I leave open the question whether all or any of the classes of documents referred to in the motion could be required to be produced under a subpoena returnable prior to trial. So far as the motion is concerned, the orders made will be limited to specific discovery in respect of items 1 to 4 inclusive.
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