Rickard v Swenrick Building & Construction Pty Ltd
[2006] VSC 382
•12 October 2006
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 6653 of 2006
| ANDREW RICKARD | Plaintiff |
| v | |
| SWENRICK BUILDING & CONSTRUCTION PTY LTD (ACN 005 176 803) AS TRUSTEE OF THE RICKARD FAMILY TRUST NO. 2 | Defendant |
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JUDGE: | Morris J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 12 October 2006 | |
DATE OF JUDGMENT: | 12 October 2006 | |
CASE MAY BE CITED AS: | Rickard v Swenrick Building and Construction Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2006] VSC 382 | |
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Search Order – Anton Piller Order - Order 37B of Rules of Court – Discretionary trust where specified beneficiary sought search order of trustee – Destruction of documents must be a real possibility – Notice given to defendant of application for search order – Prima facie case required – Inappropriate to exercise discretion
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Dr J. Glover | Mr A. Thapliyal of Challenge Lawyers |
| For the Defendant | Mr R.D. Shepard | Mr P. Colman of Mason Sier Turnbull |
HIS HONOUR:[1]
[1]These reasons were given orally at the hearing and subsequently revised.
Andrew James Rickard has applied to the court for a search order pursuant to Order 37B.02 of the Rules of Court. The search order is to be directed to Gary John Rickard and Swenrick Building & Construction Pty Ltd (“Swenrick”). The search order relates to financial and related documents concerning the Rickard Family Trust No. 2 (“the trust”). The trustee of the trust is Swenrick.
The application to the court was made by summons and notice was given to both Gary Rickard and Swenrick.
Background facts
The applicant, Andrew Rickard, is the son of Gordon Rickard and Shirley Rickard. In 1974, Gordon Rickard established a building business, then known as Swenrick Building Constructions. Subsequently this business was incorporated as Swenrick. The business was carried out, at least in part, as trustee for the Rickard Family Trust No. 2. That trust was established in 1985.
The trust is a fairly standard discretionary trust. It names as specified beneficiaries “the children of Gordon and Shirley Rickard”. However, the range of beneficiaries extends beyond the children of Gordon and Shirley Rickard and includes a number of natural and artificial persons who are in some way related to Gordon and Shirley Rickard. The deed of the trust provides that the trustee shall keep complete and accurate books of account and records of all receipts and expenditures on account of the trust fund.
Gary Rickard is the son of Shirley Rickard and is the stepson of Gordon Rickard. In 2002, the control of Swenrick passed from Gordon and Shirley Rickard (together with their children, including Gary Rickard) to Gary Rickard and his wife, Donna Rickard. It would appear that this change in control of Swenrick was the result of a reorganisation of the family’s affairs. Gary Rickard had worked in the Swenrick business for many years - indeed he may have been a joint owner of the business.
In November 2005, Andrew Rickard made a demand on Swenrick and Gary Rickard that he be provided with information about the affairs of the trust. He did this on the basis that he was a person named as a "specified beneficiary" under the trust and pursuant to a right that he claimed to have to be acquainted with the financial affairs of the trust. On 16 November 2005, solicitors for Swenrick formally refused to provide the accounting records that Andrew Rickard had sought. This was based upon the assertion that Swenrick had no obligation to provide such records. In March 2006, a further demand was made by Andrew Rickard, a demand which was, once again, not acceded to.
In June 2006 Andrew Rickard initiated proceeding 6653 of 2006 in this court. In that proceeding Andrew Rickard sought an order: first, that Swenrick produce to him relevant books of account of the trust; and, second, an account of the property subject of the trusts which had been received, and of dealings of Swenrick in that property. This proceeding came on for hearing before the Senior Master on 26 June 2006 at which time he made certain consent orders of a procedural nature. That order was varied on 12 September 2006. The consequence of the variation was that the matter is to be listed for directions on 25 October 2006.
The matter before the court
The application for an order under order 37B.02 of the Rules of Court is formally made in proceeding 6653 of 2006. But as I will note, it is really partly based on a prospective action, as well as being based upon the proceeding that is already on foot.
Affidavits were filed in proceeding 6653 of 2006 by both Andrew Rickard, being dated 12 July 2006, and Gary Rickard, being dated 23 August 2006. In support of the current summons there is a further affidavit of Andrew Rickard, sworn 6 October 2006, and an affidavit in reply of Gary Rickard, sworn 11 October 2006. The parties have relied upon both the sets of affidavits in the current application.
The basis of the current application is explained in paragraph 2 of the affidavit of Andrew Rickard, dated 6 October 2006, namely:
“There are two related reasons for my commencing these proceedings against the defendant as trustee of the Rickard Family Trust No. 2, the trust. Each is based on my status as a specified beneficiary of the trust. First, I wish to be informed of the management and administration of the trust during the time that Gary John Rickard was in effective control of the defendant. Secondly, based on what the defendant discovers, I expect to commence proceedings against Gary John Rickard to oblige him to compensate the trust and against the defendant as trustee to consider my claim to be paid distributions of trust income and capital.”
The nature of a search order
An application under order 37B of the Rules of Court is now described as a "search order"; although it was formerly known as an “Anton Piller” order after the case Anton Piller KG v. Manufacturing Processes Ltd (1976) Ch 55. As part of the harmonisation of court rules throughout Australia, order 37B was recently inserted into the Rules of Court and took effect on 1 September 2006. It was accompanied by the issuing of Practice Note No.2 of 2006 which explained the new rule and set out principles to guide its exercise. Indeed, order 37B(3) specifically provides that in making a search order the court shall have regard to the Practice Note concerning search orders.
Paragraph (4) of the Practice Note provides:
“Ordinarily a search order is made without notice and compels the respondent to permit persons specified in the order ('search party') to enter premises and to search for, inspect, copy and remove the things described in the order. The order is designed to preserve important evidence pending the hearing and determination of the applicant's claim in a proceeding brought or to be brought by the applicant against the respondent or against another person. The order is an extraordinary remedy in that it is intrusive, potentially disruptive and made without notice and prior to judgment.”
Order 37B.02(1) provides:
“The court may make an order (‘a search order’) in any proceeding or in anticipation of any proceeding in the court with or without notice to the respondent for the purpose of securing or preserving evidence and requiring a respondent to permit persons to enter premises for the purpose of securing the preservation of evidence which is or may be relevant to an issue in the proceeding or anticipated proceeding.”
Order 37B.03(1) then provides:
“The court may make a search order if the court is satisfied that:
(a) an applicant seeking the order has a strong prima facie case on an accrued cause of action;
(b) the potential or actual loss or damage to the applicant will be serious if the search order is not made; and
(c)there is sufficient evidence in relation to the respondent that:
(i) the respondent possesses important evidentiary material; and
(ii) there is a real possibility that the respondent might destroy such material or cause it to be unavailable for use in evidence in a proceeding or an anticipated proceeding before the court.”
The balance of order 37B.03 sets out matters which must be included in an affidavit in support of an application and the types of undertakings which must be given to the court. I need not dwell upon the latter topic as necessary undertakings either have been, or will be, given to the court to satisfy those aspects of the matter.
The key questions
The key questions to be determined are, first, whether the court should be satisfied that the applicant, Andrew Rickard, has a strong prima facie case on an accrued cause of action; and, second, whether the court should be satisfied that there is sufficient evidence in relation to Gary Rickard and Swenrick that there is a real possibility that they might destroy evidentiary material which they have in their possession relevant to the affairs of the trust so that it is unavailable for use in evidence in Proceeding 6653 of 2006 or in some fresh proceeding alleging misappropriation of the funds of the trust.
It is also important to note that, in addition to those two issues, the court does have a discretion as to whether or not to make a search order under Rule 37B.03. This is indicated by the use of the word "may" in the opening words of that rule. In a sense, whether that discretion should be exercised is a third issue.
Strong prima facie case
I turn to the question of whether I should be satisfied that Andrew Rickard has a strong prima facie case on an accrued cause of action. As best as I can discern it, two causes of action have been identified. The first is a cause of action to enforce a right to obtain information about the management and administration of the trust. The second is a cause of action obliging Gary Rickard to compensate the trust for funds which, it is claimed, have been misappropriated from the trust; and a cause of action against Swenrick requiring it to consider Andrew Rickard's claim to be paid distributions from the trust.
Both possible actions depend upon the proposition that a beneficiary - or perhaps I should say a potential beneficiary - of a discretionary trust has a right to be informed about the management and administration of such a trust; and, for that matter, to require the trustee to act pursuant to the trustee's obligations. The first cause of action would solely depend on this. I was told by Dr Glover, who appeared for Andrew Rickard, that recent cases in the New South Wales Court of Appeal and in the Privy Council supported the notion that a person named as a potential beneficiary in a discretionary trust did have standing to bring such an action. As I am presently informed, I would be prepared to conclude that a person who is a potential beneficiary of a discretionary trust has at least a prima facie case to require the obligations of the trustee to be complied with. Based on the submissions that were made today it is difficult to assess the strength of such a case, as that question was skimmed over during submissions. However I am prepared though to assume that the nature of that prima facie case fits within the requirement of being a strong prima facie case.
The second case which is said to arise is a case to the effect that Gary Rickard has misappropriated funds from the trust and ought be required to compensate the trust. The evidence in support of this allegation is thin. In substance it consists just of a single paragraph of the affidavit of Andrew Rickard, being paragraph 4 of his affidavit of 6 October 2006. This states, in effect, that when he was a director of the defendant, which I note was in the period March 1996 to April 2002, he witnessed many wrongful expense claims being made by Gary Rickard. Examples given relate to the cost of constructing a private dwelling for Gary Rickard, personal loans from the trust to Gary Rickard and the payment of school fees for Gary Rickard's children. I say this paragraph is thin in establishing a prima facie case because such payments can easily be explained as legitimate payments from a family trust with there being a compensating set off in the loan account of Gary Rickard. Indeed, it is common for family trusts to make payments of a private kind on behalf of beneficiaries who have a loan account with the trust with such private payments being offset by a compensating entry in the loan account of the individual beneficiary on whose behalf such a payment is made. Indeed, in this particular case, Gary Rickard has sworn an affidavit being the affidavit of 11 October 2006, saying that this was what occurred. He asserts that all construction and labour expenses relating to the construction of his home were accounted for in the trust's accounts. He also asserts that money that he drew out of the trust's business from time to time was either his payment of salary or a part repayment of loans; and, further, that when personal expenses like school fees were paid his loan account, or the loan account of his family members, were adjusted accordingly.
Having regard to the paucity of the evidence in relation to misappropriation and the apparent adequacy of the response, I am not satisfied that there is a strong prima facie case in relation to that cause of action. In forming this view I am also influenced by the fact that it would appear the first time this allegation was made was in the affidavit dated 6 October 2006, which is more than four years after the time when Andrew Rickard ceased to be a director of Swenrick and almost a year since the first demands were made for accounting of the affairs of the trust. In this respect I also note that Gary Rickard has given evidence that this is the first time he has been made aware of these allegations. A fact that allegations are made belatedly does not mean that they are untrue; but it reduces the weight which a court can place upon such allegations compared to when allegations are made promptly after an event has occurred and then consistently maintained. When allegations are made for the first time, many years after the events about which they are concerned have happened, there is always a risk that the allegations have been made unreliably.
Real possibility of destruction
Assuming that the applicant has shown that he has a strong prima facie case in relation to the assertion of his right to be informed about the administration and management of the affairs of the trust, what then should be said about whether there is sufficient evidence in relation to Swenrick or Gary Rickard that there is a “real possibility” that they might destroy such material or cause it to be unavailable for use in evidence in a proceeding or an anticipated proceeding before the court? The notion of a real possibility does not require the court to be satisfied that the probability of the event happening is more than 50 per cent. However, it does require a probability that is more than that which one would dismiss as fanciful or insubstantial: it requires a degree of likelihood that gives rise to a genuine concern that evidence might be destroyed. Whether or not there is such a genuine concern is, of course, to be assessed in the context that the purpose of a search order is to secure and preserve evidence, and that such an order is an extraordinary remedy in that it is intrusive, potentially disruptive, usually made without notice, and made prior to judgment.
The case put by the applicant in support of the case that there is a real possibility that Gary Rickard or Swenrick might destroy relevant material is principally based upon two things. First, it is said that Andrew Rickard believes that unless a search order is made Gary Rickard will destroy books and records and conceal his wrongful misappropriation of past property. Second, it is said that while Andrew Rickard was a director of Swenrick he witnessed dishonest behaviour by Gary Rickard in relation to the trust, being the behaviour I have previously referred to, such as using trust funds to pay for his private dwelling, for his children's school fees and the like.
The fact that Andrew Rickard believes that Gary Rickard will act dishonourably and fraudulently might be thought to be a necessary component of an application for a search order, but it is hardly a sufficient component. Every applicant who applies for a search order and who is acting bona fide is likely to believe that the respondent is likely to act dishonestly. Indeed, the whole point of obtaining such an order is to prevent dishonest and fraudulent conduct occurring or being rewarded. So the fact that Andrew Rickard believes that Gary Rickard may, or will, destroy books or materials in itself does not demonstrate a real possibility that this might occur. It might demonstrate that there is antagonism between Andrew Rickard and Gary Rickard. It might demonstrate that these family members are engaged in some personal battle, possibly with roots sown many years ago. Bearing in mind that this application is one that cannot conveniently be conducted with extensive cross-examination, it is necessary that I contemplate a number of possibilities which might give rise to such a belief.
It may be that a real possibility might be shown that a person might destroy relevant evidence if, in addition to having a belief about the matter, the applicant could show that the respondent was habitually dishonest. If a person is shown to be habitually dishonest then the possibility that they might act dishonestly on a future occasion is greater than if the person is shown to be a person of integrity. Hence, I do regard the content of paragraph 4 as relevant. But, for the reasons I have given earlier, I would regard these allegations as thin, as being capable of an alternate explanation, and having been explained by Gary Rickard in a sworn affidavit.
There are other factors which I regard as relevant in relation to the question of whether there is sufficient evidence in relation to Gary Rickard and Swenrick that there is a real possibility that they might destroy relevant material. The first other matter is that this proceeding was one where notice was given of the application. As the practice note observes, ordinarily this type of application would be made ex parte. I agree with Dr Glover that that does not mean that an application cannot be made on notice. Indeed, the giving of notice for interlocutory applications is generally regarded as wise because it is more likely to put the court in a position where it can act fairly. By giving notice, however, the applicant must be taken to have been willing to accept the risk that the giving of notice might lead Gary Rickard to destroy documents in advance of any search order being made. To take such a risk it is likely that the applicant regarded that risk as an acceptable risk. Unfortunately, in a sense, by giving notice on the basis that there is an acceptable risk in relation to the destruction of documents before the application is heard, it now becomes more difficult for the applicant to show that that risk is sufficiently significant to create a real possibility that relevant evidentiary material might be destroyed.
A second additional matter is that in his affidavit dated 11 October 2006 Gary Rickard states that he has not intentionally destroyed or disposed of any of the documents of the type under consideration. Significantly he has also stated that he is prepared on behalf of Swenrick and himself to undertake to the court to preserve and not destroy or dispose of such documents until the hearing and determination of this proceeding or any further proceeding of the type referred to in paragraph 2 of Andrew Rickard's affidavit of 6 October 2006, provided that such proceeding is commenced without further delay. He adds that he has no hesitation in offering that undertaking. If I was to receive such an undertaking, and I take it from the affidavit material that it is being offered without hesitation, that is a further factor that is relevant in assessing whether there is a real possibility that Gary Rickard might destroy relevant evidentiary material.
The third additional factor I want to mention is this. Recently the laws in Victoria have been amended so as to create a crime if a person destroys documents that are relevant to litigation. That crime is punishable with severe penalties. The fact that that law is now in place provides an extremely strong incentive for people to comply with the law, especially when, as is the case here, the person is put on notice that an action is in contemplation and that documents in the possession of a person are likely to be relevant to that action. When I take these factors together, namely, the fact that belief is necessary but not sufficient, the paucity of the evidence in support of the contention that Gary Rickard might destroy documents, the fact that this proceeding has been commenced with notice and hence a risk has already been accepted, the fact that an undertaking has been proffered and I am willing to accept it, and the legislation that has recently been passed making document destruction a criminal offence, I conclude that the applicant has not satisfied the court that there is a real possibility that a respondent might destroy relevant evidentiary material or cause it to be unavailable for use in evidence in a proceeding or anticipated proceeding before the court.
Conclusion
What this means is that notwithstanding that I was prepared to assume that there was established a strong prima facie case in relation to one aspect of the matter, the necessary preconditions required to make a search order have not been met. Even if I have applied too high a hurdle in the context of what is a “real possibility”, I would not think this is a case where I ought exercise the court's discretion to make a search order. This is because the principal basis upon which I would be prepared to conclude that there was a case on an accrued cause of action is one that can be effectively dealt with in the proceeding that is already on foot and by use of rules, such as order 37, to require discovery of that information. As the Practice Note in relation to search orders makes clear, because a search order is an extraordinary remedy, care ought be taken before exercising the court's power to grant such relief. Having regard to the delay and the other proceeding being on foot, it would be inappropriate to exercise my discretion, even if I thought there was a real possibility that documents might be destroyed. Hence the appropriate order is that the application is dismissed.
Costs
In relation to costs, the order of the court is that the applicant, who is the plaintiff, is to pay the costs of the respondents, who are Swenrick Building and Construction Pty Ltd and Gary John Rickard. Save for the undertaking that Gary Rickard has given the court, is it is clear that the applicant has failed in his application for a search order. Ordinarily when an application of this type is made and it fails, the usual and appropriate order is that the applicant pay the costs of the respondents. It is true that by bringing the proceeding the applicants have obtained the benefit of an undertaking that has been given to the court. It may also be true that Gary Rickard first communicated his willingness to give such an undertaking after the proceeding was initiated and shortly before the hearing. However, I regard the giving of the undertaking as a minor element in my decision to refuse the relief that is sought. Although I took the undertaking into account in deciding whether or not I was satisfied that there was sufficient evidence that there was a real possibility that relevant material might be destroyed, the other factors which I adverted to in forming that conclusion were strong factors, particularly when taken together. If the undertaking had not been proffered, it is likely that I would have come to precisely the same conclusion. Hence I am not persuaded that I should depart from the usual rule as I regard this to be a proceeding in which the applicant has substantially failed, even though it has obtained some benefit as a result of the undertaking that has been given to the court.
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