Spyer v Cuddles N' Mum (Franchise) Pty Ltd

[2002] FCA 778

FEDERAL COURT OF AUSTRALIA

Spyer v Cuddles N’ Mum (Franchise) Pty Ltd [2002] FCA 778

ANNE LOUISE SPYER & ANOR v CUDDLES N’ MUM (FRANCHISE) PTY LIMITED (ACN 060 482 993) & ORS

N 330 OF 2001

LINDGREN J
14 JUNE 2002
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N 330 OF 2001

BETWEEN:

ANNE LOUISE SPYER
FIRST APPLICANT

MATTHEW NORMAN SPYER
SECOND APPLICANT

AND:

CUDDLES N’ MUM (FRANCHISE) PTY LIMITED
(ACN 060 482 993)
FIRST RESPONDENT

STEFANO CENATIEMPO
SECOND RESPONDENT

NATIONAL AUSTRALIA BANK LIMITED
(ACN 004 044 937)
THIRD RESPONDENT

CHRISTOPHER LLOYD
FOURTH RESPONDENT

CUDDLE N’ MUM (FRANCHISE) PTY LIMITED
(ACN 060 483 993)
FIRST CROSS-CLAIMANT

ANNE LOUISE SPYER
CROSS RESPONDENT

JUDGE:

LINDGREN J

DATE OF ORDER:

14 JUNE 2002

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:

1.The applicants give discovery of the documents referred to in pars 3 and 4 of notice of motion filed on behalf of the third and fourth respondents on 6 June 2002.

2.Otherwise the motion brought by that notice of motion be dismissed.

THE COURT NOTES THAT:

1.There is no order as to the costs of the motion.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N 330 OF 2001

BETWEEN:

ANNE LOUISE SPYER
FIRST APPLICANT

MATTHEW NORMAN SPYER
SECOND APPLICANT

AND:

CUDDLES N’ MUM (FRANCHISE) PTY LIMITED
(ACN 060 482 993)
FIRST RESPONDENT

STEFANO CENATIEMPO
SECOND RESPONDENT

NATIONAL AUSTRALIA BANK LIMITED
(ACN 004 044 937)
THIRD RESPONDENT

CHRISTOPHER LLOYD
FOURTH RESPONDENT

CUDDLE N’ MUM (FRANCHISE) PTY LIMITED
(ACN 060 483 993)
FIRST CROSS-CLAIMANT

ANNE LOUISE SPYER
CROSS-RESPONDENT

JUDGE:	LINDGREN J
DATE:	14 JUNE 2002
PLACE:	SYDNEY

REASONS FOR JUDGMENT

1. There is listed for judgment a motion for discovery.  It is important that I give judgment in this matter today in order that the matter may progress, having regard to the fact that I will be in Kalgoorlie and environs for the next seven weeks on a native title hearing. 

2. The proceeding was commenced on 30 March 2001.   The first and second applicants, Mr and Mrs Spyer, were the principals of a company called “Inspyer Pty Limited” (“Inspyer”), and through that company were the franchisees of a “Cuddles N’ Mum” franchise at Erina, New South Wales.  The franchiser was the first respondent, the principal of which was the second respondent, Mr Cenatiempo.  The financing in connection with the taking of the franchise and associated matters was provided by the third respondent, National Australia Bank Limited (“NAB”).   The fourth respondent, Christopher Lloyd (“Mr Lloyd”) was a Business Banking Manager of NAB and is said to have made representations binding on NAB.  According to the further amended statement of claim (“the Pleading”), Mr Lloyd’s statements gave rise to a liability on the part of NAB to Mr and Mrs Spyer.  Inspyer is in liquidation and is not an applicant in the proceeding.

3. The motion for discovery is brought by NAB and Mr Lloyd against Mr and Mrs Spyer.

4. I need not recount in detail the allegations made in the Pleading.  Mr and Mrs Spyer allege that Mr Cenatiempo made certain representations which were misleading and deceptive and which induced them to become franchisees.  He is said to have done so in April 1998. 

5. Inspyer was incorporated on 12 May 1998, at the instance of Mr and Mrs Spyer.

6. On 12 June 1998 there was a meeting at the Liverpool branch of NAB (“the Liverpool meeting”) at which Mr Lloyd is alleged to have made the representations said to give rise to the liability on the part of NAB and himself as accessory, to Mr and Mrs Spyer.  The franchise agreement was entered into on 19 June 1998 and a lease in August 1998.  Inspyer commenced trading on 25 August 1998.  As at that date the borrowing from NAB was $577,000 and in addition a lease liability of $100,905 was undertaken.  Inspyer's liabilities were guaranteed by Mr and Mrs Spyer.

7. By August 1999, about a year later, the amount owing to NAB had risen to $723,606.  There were securities for the debt.  On 10 August 1999 NAB told Mr and Mrs Spyer it required repayment by the end of August.   Mr and Mrs Spyer commenced a process of realisation of assets.  On 17 July 2000, however, an external administrator was appointed to Inspyer and on 11 August 2000 creditors of Inspyer resolved that it should be wound up.

8. The cause of action alleged against NAB is one under s 52 of the Trade Practices Act 1974 (Cth) (“the Act”) supported by s 51A of the Act. The representations Mr Lloyd is said to have made are set out in par 61 of the Pleading. According to par 63 of the Pleading, but for the representations Mr and Mrs Spyer would not have entered into the relevant transactions, which are set out in that paragraph. Paragraph 66 of the Pleading sets out further allegedly misleading or deceptive conduct on the part of NAB arising from omissions on its part. Paragraph 67 pleads the suffering of loss and damage by Mr and Mrs Spyer.

9. Inevitably with a degree of inaccuracy, I think I can summarise sufficiently for present purposes the case which Mr and Mrs Spyer seek to make against NAB in this way.  It was their intention to enter into a transaction of one kind, but, on the advice of Mr Lloyd, they went about things in a different manner.

10. On 22 March 2002 NAB gave to Mr and Mrs Spyer a notice for discovery pursuant to an order of the Court made on 1 March.  It referred to nineteen categories of documents of which four categories were the subject of objection.  Those four were numbers 4, 9, 16 and 18 and were as follows:

    “4.All documents evidencing, recording or relating to any applications made by the Applicants or Inspyer for financial accommodation (whether by lease, loan or otherwise) from any person in the period from 1 January 1997 to date.”

    “9.All documents, including but not limited to file notes, diary notes, minutes of meeting and/or memoranda, documenting, evidencing or relating to any approval (whether conditional, indicative or otherwise) from any person of financial accommodation to any of the Applicants or Inspyer.”

    “16.All documents, including but not limited to contracts, letters of offer, facility agreements, guarantees, loan documentation, certificates of advice, file notes, diary notes, correspondence, spread sheets, balance sheets, profit and loss statements, financial reports, minutes of meeting and/or memoranda, documenting, evidencing or relating to loans and security provided to or by the Applicants or Inspyer.”

    “18.All documents, including but not limited to tax returns, bank account statements, insurance policy statements, accountant's correspondence, spread sheets, balance sheets, profit and loss statements, financial reports, minutes of meeting and/or memoranda, documenting, evidencing or relating to the financial position of the Applicants from the period from 1 September 1997 to date.”

11. The applicants filed a list of documents on 10 April 2002 in which they set out their objections to categories 4, 9, 16 and 18.  In each case, the objection was as follows:

    “i.       the breadth of this category;

    ii.        the length of the time period; and

    iii.       the relevance of the documents to an issue in the proceedings.”

12. On 21 May 2002, Mallesons Stephen Jaques ("MSJ"), the solicitors for NAB and Mr Lloyd, responded to Phillip Bushby International ("PBI"), the solicitors for Mr and Mrs Spyer, about categories 4, 9, 16 and 18.  MSJ said that categories 4 and 9 were relevant because they went to the issue of Mr and Mrs Spyer’s reliance on NAB and Mr Lloyd for financial accommodation.  They also defended categories 16 and 18, although they agreed to a modification of those categories.  On 3 June 2002, PBI replied, maintaining that the changes proposed by MSJ did not meet PBI’s objection to giving discovery of documents in the categories mentioned.

13. On 6 June 2002, NAB and Mr Lloyd filed their notice of motion seeking discovery. The orders sought are as follows:

    “1.That the Applicants give discovery of all documents evidencing, recording or relating to any applications made by the Applicants or Inspyer for financial accommodation (whether by lease, loan or otherwise) from any person in the period from 1 January 1997 until 3 March 2001 (being the date of commencement of proceedings).

    2.That the Applicants give discovery of all documents, including but not limited to file notes, diary notes, minutes of meeting and/or memoranda, documenting, evidencing or relating to any approval (whether conditional, indicative or otherwise), from any person, of financial accommodation to any of the Applicants and/or Inspyer in the period from 1 January 1997 until 3 March 2001 (being the date of commencement of proceedings).

    3.That the Applicants give discovery of all contracts, letters of offer, facility agreements, guarantees, loan documentation, certificates of advice, file notes, diary notes, correspondence, spread sheets, balance sheets, profit and loss statements, financial reports, minutes of meeting and/or memoranda documenting, evidencing or relating to loans and security provided to or by the Applicants or Inspyer from the period 1 January 1997 to 11 August 2000 (being the date of the appointment of a liquidator to Inspyer).

    4.That the Applicants give discovery of all tax returns, bank account statements, insurance policy statements, accountant’s correspondence, spread sheets, balance sheets, profit and loss statements, financial reports, minutes of meeting and/or memoranda, documenting, evidencing or relating to the financial position of the Applicants from the period 1 January 1997 to 3 March 2001 (being the date of commencement of proceedings).”

    Paragraphs numbered 1, 2, 3 and 4 above correspond with categories 4, 9, 16 and 18 in the notice for discovery but the paragraphs incorporate the amendments which MSJ said they would adopt.

14. On 11 June 2002, PBI wrote a lengthy letter to MSJ in relation to categories 4, 9, 16 and 18 agreeing to produce certain documents but basically maintaining the stance that discovery should not have to be given.  In the letter, PBI agreed that in perhaps one or two minor respects discovery should be given.  By a letter dated 12 June 2002, MSJ replied to PBI, joining issue and advancing arguments why discovery should be given in relation to all four categories.  On 13 June 2002, when the motion was heard, Mr and Mrs Spyer’s solicitor, Mr Bushby, following a discussion the preceding day, filed in Court an affidavit by him dealing with certain aspects of the matter on instructions from his clients. 

15. The issue of reliance which is said to support categories 4 and 9 is to be identified by reference to the Pleading.  According to that document Mr and Mrs Spyer would not have entered into the changed arrangement but for what Mr Lloyd told them at the Liverpool meeting.  I do not see how it is relevant to that question whether Mr and Mrs Spyer applied to other sources for finance or obtained finance from other sources.  Accordingly, I would not order discovery in respect of categories 4 and 9 (pars 1 and 2 of the notice of motion).

16. The position is different, however, in relation to categories 16 and 18 (pars 3 and 4 of the notice of motion).  As was put in written submissions by Ms Hillman for NAB and Mr Lloyd, pars 21, 23, 39 and 40 of the Pleading refer to certain loans and transactions which are not admitted by NAB or Mr Lloyd, and pars 18, 41 and 67 of the Pleading make certain allegations with respect to the financial positions of Mr and Mrs Spyer which are also not admitted by NAB or Mr Lloyd.  Over and above that, in the letter of PBI it is, I think, conceded that at least some documents within categories 16 and 18 are discoverable.

17. In the result, the appropriate order on the motion is an order in terms of par 3 and 4 of the notice of motion, but not pars 1 and 2.  Both parties have had some success, and there will be no order as to costs.

I certify that the preceding seventeen (17) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lindgren.

Associate:

Dated:             26 June 2002

Solicitor for the Applicants (respondents on the motion):	Mr PA Bushby of Phillip Bushby International
Solicitor for the Third and Fourth Respondents (applicants on the motion):	Ms ZLM Hillman of Mallesons Stephen Jaques
Date of Hearing:	14 June 2002
Date of Judgment:	14 June 2002