Sportingbet Australia Pty Ltd v K & S Corporation & Ors No. Scciv-02-614

[2004] SASC 31

SPORTINGBET AUSTRALIA PTY LTD
v
K & S CORPORATION LTD & ORS
[2004] SASC 31

Civil

GRAY J   

Introduction

1. This is an application to set aside subpoenas pursuant to Supreme Court Rule 81.10. This Rule provides:

   A subpoena may be set aside by the court where it is vexatious, oppressive or an abuse of process of the court.

2. The subpoenas seek production of documents for use on a Full Court appeal. The appeal is against judgment following trial.[1] The documents are said to be relevant to a complaint that the trial judge wrongly rejected a defence of estoppel.  It is alleged on appeal that inadequate discovery was made by K & S Corporation Limited and K & S Group Pty Ltd (K & S) the plaintiffs in the primary proceedings.  The subpoenaed documents are said to be relevant to this allegation.  It is also contended that the subpoenaed documents will be further evidence that should be received by the appeal court.

   [1] K&S Corp Ltd v Sportingbet (Australia) Pty Ltd (2003) 86 SASR 312

3. Dennis Craig Telford, the company secretary of K & S arranged for the transfer of $3,000,000 to Sportingbet Australia Pty Ltd.  The money was used by Sportingbet to satisfy a gambling debt of $2,680,000 owned by Mr Telford. The balance of $320,000 was held as credit of Mr Telford’s account with Sportingbet.

4. The plaintiffs claimed that Mr Telford had fraudulently misappropriated the $3,000,000.  The matter was reported to the police.  The balance held by Sportingbet was seized by the Director of Public Prosecution pursuant to the Criminal Assets Confiscation Act 1996 (SA). On 9 May 2002 this Court ordered that the $320,000 be paid to K & S. Criminal proceedings have been commenced against Mr Telford. He has been committed to stand trial in the District Court of South Australia. That trial has yet to take place.

5. K & S Corporation instituted proceedings in this court. K & S Group were joined as a plaintiff. They sought a declaration that they were entitled to the monies transferred to Sportingbet by Mr Telford.  It was said that Sportingbet had the requisite knowledge or notice concerning the source of the monies and the circumstances under which payment had been made to give rise to a trust.  It was contended that Sportingbet had knowledge that the monies belonged to another entity and that Mr Telford had no authority to effect the transfer.  These allegations were denied by Sportingbet. The matter proceeded to trial.

6. An issue at trial was whether the plaintiffs were estopped from recovering monies from Sportingbet.  The estoppel was alleged to arise as a result of the inadequacy of prudential controls by K & S over bank accounts.  Reliance was placed on observations of Dixon J in Thompson v Palmer[2]:

   …The object of estoppel in pais is to prevent an unjust departure by one person from an assumption adopted by another as the basis of some act or omission which, unless the assumption be adhered to, will operate to that others detriment.  Whether a departure by a party from the assumption should be considered unjust and inadmissible depends on the part taken by him in occasioning its adoption by the other party.  He may be required to abide by the assumption because it formed the conventional basis upon which the parties headed into contractual or other mutual relations … or because his imprudence, where care was required of him, was a proximate cause of the other party’s adopting and acting upon the faith of the assumption … But, in each case, he is not bound to adhere to the assumption unless, as a result of adopting it as the basis of action or inaction, the other party will have placed himself in a position of material disadvantage if departure from the assumption be permitted.

   [2] (1933) 49 CLR 507 at 547 – see also Warman International Limited v Dwyer (1995) 182 CLR 544

   The Trial Judgment

7. On 28 March 2003 the trial judge delivered judgment.  He found that the plaintiffs had made out its claim and ordered that the plaintiffs recover from Sportingbet the sum of $2,680,000.00 with interest and costs.  The defence of estoppel was dismissed:[3]

   At the outset, Sportingbet would need to establish that it made an assumption.  Precisely what assumption Sportingbet says it made is unclear.  Presumably it says that it assumed that Telford was entitled to the monies he was paying to Sportingbet.

   There are two answers to both propositions (if in fact they are separate propositions).   The first lies in a consideration of the true nature of the plaintiffs’ claim.  There is no doubt that equitable rights and remedies may be defeated, in the sense of being withheld, by defences such as estoppel (Warman International Ltd v Dwyer (1995) 182 CLR 554 at 559). However, there will be cases where it is difficult to see how a particular equitable right or remedy can co-exist with the particular defence asserted. This is such a case. I have found that on receipt of the disputed monies Sportingbet had the knowledge required for the imposition of a constructive trust. That conclusion is inconsistent with the basis of a defence of estoppel ie., the conduct of the plaintiff led the defendant to make a particular assumption. It is not asserted in this case that the plaintiffs led Sportingbet to believe that Telford had authority to deal with monies Sportingbet knew to be the plaintiffs’ monies.

   The matter may be put in another way with the same result.  The conduct of the plaintiff must be the proximate cause in the relevant sense of the assumption made by Sportingbet (Thompson v Palmer (1933) 49 CLR 507 per Dixon J at 547; Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 per Gaudron J at 461 – 462). In view of my findings in relation to knowledge, I do not see how it can be said that any conduct of the plaintiffs contributed to Sportingbet’s assumption. It was Sportingbet’s wilful and reckless failure to inquire which led it to make an assumption which was incorrect.

   The second answer to Sportingbet’s two submissions is that they fail on the facts.  I do not think the plaintiffs acted imprudently.  Sportingbet submits that viewed together the following acts constitute imprudence.  First, there was no limit on the amount Telford could arrange to be transferred electronically and there was no requirement that he obtain approval from any person in the plaintiffs’ organization superior to him or that he report to such a person.  It is true that the sums of money are large, but Telford held a senior position in the organization and to all intents and purposes the money was being paid into an investment account at another bank.  Secondly, Sportingbet submits that there is no evidence of the person keying in the transaction or from the second signatory to the effect that they asked any questions or carried out any inquiries.  It does seem to be a fault in the system that the only person in the company who could have “got away” with the misappropriation was Telford as the chief financial controller.  Nevertheless, I accept Mr Allen’s evidence as to what he was told by the accounting staff and I do not think the plaintiffs’ conduct rises to the level of imprudence.  Thirdly, Sportingbet submits that there was no check carried out by the plaintiffs either by their own officers or by external officers.  No one took the obvious step of calling for bank statements.  Such a request would have disclosed the fraud because of course bank statements did not exist.  Even putting hindsight to one side, criticisms can be made of the plaintiffs’ system.  Presumably a proper annual audit would have revealed the misappropriations and there is force in the submission that there should have been a review or check by reference to bank statements within a shorter period than 12 months.  Perhaps that was not done because Telford was the person responsible for implementing this type of review or check.  Whatever criticisms can be levelled at the plaintiffs’ system it does not to my mind amount to imprudence. Fourthly, Sportingbet submits that the plaintiffs acted in breach of their own policy in that Telford both requested the transfer and was one of the persons who authorised it.  I do not think there is anything in this point.  It does not indicate imprudence and in any event the strong inference is that a different first signatory would have followed Telford’s instructions in the same way as the second signatory in fact did.  Fifthly, Sportingbet submits that in fact it was another employee (Mr Richards) who authorised the transfer of the $3,000,000.  It is not clear to me what point Sportingbet is making.  It seems that there was a problem with the transfer of $3,000,000 because the plaintiffs had exceeded their credit limit and that a Mr Richards telephoned the ANZ Bank and authorised the transaction.  Mr Richards was the chief accountant in the group.  Telford was his superior.  I do not think the point goes anywhere because I accept that Telford was directing the staff below him and in fact had lied to them.

   For these reasons Sportingbet’s defence based on estoppel or discretionary considerations fails.

   [3] (2003) 86 SASR 312 at 348-350

8. It is to be observed that the trial judge made the finding that the plaintiff’s conduct did not rise to the level of imprudence.  Counsel for Sportingbet asserted that the subpoenaed documents were directly relevant to the issue of the alleged imprudence nd in particular the question of the inadequacy of prudential controls.

   The Appeal

9. Before coming to discuss the attack on the subpoenas, it is necessary to identify the particular complaints raised on the appeal.

10. Sportingbet’s grounds of appeal include an allegation that the plaintiffs made inadequate discovery in the primary proceedings:

    5.The first respondent and the second respondent and each of them have breached their obligations of discovery and thereby deprived the appellant of a fair trial whereof the appeal should be allowed and a new trial ordered;

    5.1.in particular the first respondent and/or second respondent failed to discover documents:

    5.1.1.copies of which were released to the police in relation to the criminal prosecution of third respondent;

    5.1.2.relating to recovery of assets already obtained from the third respondent and his wife;

    5.1.3.relating to proceedings 547 of 2002;

    5.1.4.which were statements taken by the police in the control of employees of the first and/or second respondent in their capacity as employees including but not limited to the following:

    5.1.4.1.Allan Headley Wallace of 18 July 2002;

    5.1.4.2.John Legh Winser of 22 July 2002;

    5.1.4.3.Michelle Annette Nicholls of 22 July 2002;

    5.1.4.4.Leona Jane Nulty of 22 July 2002;

    5.1.4.5.Craig Richards of 18 July 2002;

    5.1.4.6.John Francis D’Souza of 18 July 2002;

    5.1.5.which constituted communications with the accounting firm Deloitte Touche Tohmatsu including but not limited to being:

    5.1.5.1.instructions to prepare a special audit and recommendations as to defects in, and recommendations in relation to improving, prudential safety of bank accounts operated by the first respondent and/or second respondent;

    5.1.5.2.documents constituting a special audit as to, defects in, and recommendations as to improving, prudential safety of bank accounts operated by the first respondent and/or second respondent;

    5.1.6.which were file notes of employees of the first respondent and/or second respondent of communications with the accounting firm Deloitte Touche Tohmatsu in relation to the special audit report;

    5.1.7.which constituted communications with the accounting firm KPMG including but not limited to being:

    5.1.7.1.instructions to prepare a special audit and recommendations as to defects in, and recommendations in relation to improving, prudential safety of bank accounts operated by the first respondent and/or second respondent;

    5.1.7.2.in relation to the general statutory audit for the year ended 30 June 2001 referring to or recording prudential controls over bank accounts and defects in the same;

    5.1.8.file notes of employees of the first respondent and/or second respondent of communications with the accounting firm KPMG relating to auditing of prudential controls of bank accounts;

    5.2.the appellant will provide further particulars prior to the hearing of the appeal by affidavit;

11. An application that the appeal court receive further evidence has also been advanced.

    5A.Further and in the alternative, the appellant seeks leave to introduce fresh evidence that was neither known nor reasonably available to the appellant at trial as follows:

    5A.1documents referred to in sub-paragraph 5.1 herein;

    5A.2evidence from Allan Headley Wallace in relation to:

    5A.2.1knowledge of facts indicative of irregularities in the accounts of the first respondent and/or second respondent;

    5A.2.2prudential protocols in relation to bank accounts of the first respondent and/or second respondent that were not in fact being adhered to;

    5A.2.3knowledge of actions by Craig Telford indicative of fraud;

    5A.3evidence from John Legh Winser in relation to prudential protocols in relation to bank accounts of the first respondent and/or second respondent that were not in fact being adhered to;

    5A.4evidence from Michelle Annette Nicholls in relation to knowledge of information that Craig Telford had placed large bets and owned assets such as race horses;

    5A.5evidence from Leona Jane Nulty in relation to prudential protocols in relation to bank accounts of the first respondent and/or second respondent that were not in fact being adhered to;

    5A.6evidence from Craig Richards in relation to:

    5A.6.1prudential protocols in relation to bank accounts of the first respondent and/or second respondent that were not in fact being adhered to;

    5A.6.2knowledge of actions by Craig Telford indicative of taking steps to prevent more senior management knowing the cash position and liquidity of the first respondent and/or second respondent;

    5A.6.3knowledge of facts indicative of irregularities in the accounts of the first respondent and/or second respondent;

    5A.7evidence from John Francis D’Souza in relation to:

    5A.7.1knowledge that Craig Telford lived beyond the means from his emolument;

    5A.7.1knowledge of facts indicative of defects in the prudential controls over bank accounts of the first respondent and/or second respondent.

    The Subpoenas

12. Subpoenas have been issued to accounting firms, KPMG and Deloittes and to the Director of Public Prosecutions.

    The Accounting Firms

13. The subpoenas to the accounting firms seek documents said to relate to the issues of prudential management and ultimately to the alleged imprudence.  The documents sought were said not to have been discovered.

14. Documents referring to prudential controls concerning the operation of the bank accounts of K & S are sought.  Those documents include reports that in the ordinary course could be expected to deal with issues of prudential management.  It is also apparent that a special audit was conducted by Deloittes as a result of the alleged fraudulent conduct of Mr Telford.  The subpoenas seek the production of documents relating to any actual or suspected defalcation by Mr Telford.  The material before this court demonstrates the existence of an arguable case that there were relevant documents that were not before the trial judge.

15. As earlier observed Sportingbet alleged that inadequate discovery was made by K & S. It was said that assurances were given by the solicitors for K & S about the adequacy of discovery.

16. Ultimately these complaints are to be resolved by the appeal court. At this interlocutory stage, Sportingbet seeks the production of documents to support the allegations to be advanced on appeal.  In the alternative Sportingbet seeks production to allow the tender of further evidence before the appeal court.  The subpoenas seek the production of documents that are said to form part of that further evidence. Again this is a matter to be determined by the appeal court.

17. Neither KPMG nor Deloittes sought to set aside the subpoenas.  Both advised that the requested documents could be produced on relatively short notice without difficulty.  Neither accounting firm allege that the subpoenas are oppressive, vexatious or an abuse of process.  No issues of confidentiality were raised.

18. K & S challenged the subpoenas on the grounds that they were an abuse of process of the court.  It was said that the defence of estoppel had been properly rejected by the trial judge. It was contended that on any view the defence had to fail.  It was said that proper and complete discovery had been made. It was argued that Sportingbet was attempting to undermine the finality of the trial process reopening the discovery issue  and by the attempted introduction of further evidence. It was said that Sportingbet was either aware or should have been aware of the existence of the documents pre-trial. It was claimed that Sportingbet had not adequately pursued pre-trial procedures.

19. As earlier observed it will be for the appeal court to determine whether the appeal raising the issue of estoppel has been made out.  The alleged inadequacy of discovery and the question of the reception of further evidence are matters for that court.  It is not appropriate on an application to set aside subpoenas to determine these issues.

20. Sportingbet has demonstrated that documents relevant to the issue of prudential management were in existence and were not before the trial judge.  In these circumstances it would be wrong to set aside the subpoenas as an abuse of process.  The required documents can be conveniently produced to the court. The appeal court can then determine what use, if any, can be made of the documents produced.  The application to set aside the subpoenas to KPMG and Deloittes should be rejected.

    The DPP

21. The subpoena to the Director of Public Prosecutions seeks the production of correspondence between solicitors for K & S and the DPP, and the production of witness statements and annexures held by the DPP.

22. Sportingbet made application to the criminal court registry for copies of witness statements held on the criminal court file relevant to the proceedings against Mr Telford. Following this request, permission was given to Sportingbet to peruse the file and copy statements were provided. Those copy statements were made by officers or employees of K & S and appear to be relevant to the level of prudential management exercised by K & S. A number of the statements refer to annexures that have not been provided to Sportingbet.

23. No particular objection was taken to the production of correspondence between solicitors for K & S and the DPP.  Those documents, in so far as they relate to the issues of prudential management, should be produced.  Again it will be for the appeal court to determine the use, if any, that can be made of those documents.

24. In so far as the subpoena seeks witness statements and annexures held by the DPP different considerations arise.  Those statements and annexures were prepared or obtained for the purposes of ongoing criminal proceedings against Mr Telford.  In the ordinary course the statements and annexures would be the subject of legal professional privilege.

25. However, it is apparent the certain witness statements and annexures were tendered to the court during a public committal hearing concerning the charges against Mr Telford.  Legal professional privilege no longer attaches to the documents tendered at the committal.

26. Following the committal proceedings the tendered statements and annexures were forwarded to the District Court.  The statements have been inspected and copied by Sportingbet.  Sportingbet seeks the annexures to those statements that have not yet been made available by the criminal court registry.  In that respect Sportingbet are able to make an application through the appropriate administrative channels for access to those annexures.

1. The copies held by the DPP remain privileged.  This privilege is supported by the decision in The Commissioner of the Australian Federal Police v Propend.[4]

   [4] (1997) 188 CLR 501

2. Further, copies of the witness statements subpoenaed are already in the possession of Sportingbet.  The relevant annexures may be available to Sportingbet through the appropriate administrative processes.  It is oppressive and vexatious that the DPP be required to answer subpoenas to produce documents (assuming the documents held by the DPP were not privileged) when copies of the documents may be already in the possession of Sportingbet or otherwise available from the court.  There is a public interest in the DPP being able to address its statutory responsibilities toward ongoing prosecutions without being required to produce documents said to be relevant to related civil proceedings.

3. For these reasons the subpoena to the DPP in so far as it seeks production of witness statements and annexures should be set aside.

   JUDGMENT CITATIONS LISTED IN ORDER OF APPEARANCE IN JUDGMENT

   1      K&S Corp Ltd v Sportingbet (Australia) Pty Ltd (2003) 86 SASR 312

   2(1933) 49 CLR 507 at 547 – see also Warman International Limited v Dwyer (1995) 182 CLR 544

   3 (2003) 86 SASR 312 at 348-350

   4 (1997) 188 CLR 501