Tannous Holdings Pty Ltd v IVE Group Australia Pty Ltd

[2023] NSWSC 158

Supreme Court

New South Wales

Medium Neutral Citation:	Tannous Holdings Pty Ltd v IVE Group Australia Pty Ltd [2023] NSWSC 158
Hearing dates:	24 February 2023
Date of orders:	24 February 2023
Decision date:	24 February 2023
Jurisdiction:	Equity - Commercial List
Before:	Darke J
Decision:	See at [17].
Catchwords:	CIVIL PROCEDURE – discovery – Practice Note SC Eq 11 – where defendant has already given preliminary discovery of numerous documents – where categories of documents sought by plaintiff in discovery application include documents already disclosed by the defendant in the course of preliminary discovery – whether application for discovery is unduly burdensome and repetitive – whether disclosure is necessary for the resolution of the real issues in dispute in the proceedings
Legislation Cited:	Uniform Civil Procedure Rules 2005 (NSW) rr 5.3, 21.2
Category:	Procedural rulings
Parties:	Tannous Holdings Pty Ltd (Plaintiff) IVE Group Australia Pty Ltd (Defendant)
Representation:	Counsel: Mr J S Emmett SC with Mr M T Fernandes (Plaintiff) Mr S Duggan (Defendant) Solicitors: Fortis Law (Plaintiff) Bartier Perry Lawyers (Defendant)
File Number(s):	2020/59375
Publication restriction:	None

Judgment – EX TEMPORE (Revised)

1. By Notice of Motion filed on 30 September 2022 the plaintiff seeks orders under Uniform Civil Procedure Rules 2005 (“UCPR”) r 21.2 requiring the defendant to give verified discovery of documents falling within four identified categories. The defendant opposes the application on various grounds.

2. The primary complaint is that in circumstances where the defendant has already given preliminary discovery of numerous documents, the discovery now sought involves an unduly burdensome and repetitive demand for disclosure that does not accord with the principle contained in the Practice Note, that is Equity Practice Note 11, that disclosure will not be ordered unless it is necessary for the resolution of the real issues in dispute in the proceedings.

3. Other complaints are made about: an aspect of the wording of category 1; the relevance of the documents sought in category 2; and the necessity for disclosure of the documents sought in categories 3 and 4.

4. The proceedings arise out of an Asset Purchase Deed entered into in 2014 by the plaintiff (and another company) as seller and the defendant as buyer in respect of a mailing business that had been operated by the plaintiff. In certain circumstances the consideration for the sale would include earn-out amounts if, in the first and second years following the sale, the business earned more than certain amounts. No earn-out amounts have been paid by the defendant to the plaintiff. The plaintiff claims in the proceedings that in fact earn-out amounts of at least about $758,000 for the first year and $772,000 for the second year should have been paid to it. The plaintiff also claims that the defendant breached certain obligations of good faith and co-operation, including by mismanaging the business in various respects thereby causing loss to the plaintiff.

5. The proceedings were commenced in February 2020. The plaintiff had earlier brought proceedings against the defendant seeking preliminary discovery pursuant to r 5.3 of the UCPR. The categories of discovery so sought were directed to the question of the plaintiff's entitlement to earn-out amounts. In the course of those proceedings the defendant made available, for inspection by the plaintiff, four boxes of documents. The cost of doing so was estimated by the defendant to be $7,750. These documents were inspected at the office of the defendant's solicitor in August 2018. The preliminary discovery proceedings continued, however, and were set down to be heard in February 2019. On 28 February 2019 Hallen J made an order by consent in the following terms:

Orders that within 28 days of compliance with the Order in Paragraph 1 the Defendant provide to the Plaintiff, in electronic form, all invoices and quotes issued by the Defendant to the customers identified and listed in Schedule 4 and Schedule 5 of the Asset Purchase Deed dated 10 June 2014 for the period 6 June 2014 to 6 June 2016, other than those issued by its Blue Star Direct Business Unit and already provided to the Plaintiff for inspection.

6. The order was complied with on about 16 April 2019. That effectively brought the preliminary discovery proceedings to an end.

7. It is clear from the terms of the first category of documents now sought by the plaintiff that the category includes the documents the subject of the order made in the preliminary discovery proceedings. The plaintiff has stated, however, that it does not seek discovery of any of the documents that were actually provided to it on 16 April 2019 in accordance with the order of the Court. The plaintiff does seek discovery of documents, however, insofar as they were made available for inspection in August 2018 but not subsequently provided in accordance with the order of the Court.

8. The present discovery application thus involves some repetition of that which occurred in the course of the preliminary discovery proceedings. That element of repetition, and what is described as the associated “tweaking” by the plaintiff of the categories of discovery sought, is the basis of the defendant's contentions that the discovery now sought involves an unduly burdensome and repetitive demand for disclosure and one that is not necessary for the resolution of the real issues in dispute in the proceedings. It is submitted that it is not reasonable for the plaintiff to tweak the categories of discovery during the course of litigation so as to require repeated reviews of essentially the same documents, especially when those reviews have to be undertaken some years apart.

9. It is true that the discovery sought by category 1 would require a further review of many documents that were reviewed in the course of the preliminary discovery proceedings in 2018 and 2019. That repetition is regrettable, but it seems to me that it is a natural consequence of the existence of the preliminary discovery dispute.

10. Of course, as correctly submitted by the plaintiff, and not really challenged by the defendant, the purpose of a preliminary discovery application under r 5.3 differs from that of a discovery application such as the present one under r 21.2. Whilst I accept that what occurred in the preliminary discovery proceedings is relevant to the present application, it seems to me that the present application must be considered in the orthodox manner having regard to the established principles concerning discovery and in particular the applicable rules of the Court and Equity Practice Note 11. It seems to me that, as a general proposition, a plaintiff who has previously succeeded in obtaining documents on a preliminary discovery application ought not be in any worse position than any other plaintiff in seeking discovery in proceedings.

11. Having considered the nature of the issues raised in the proceedings by reference to the List Statement and the List Response, I think it is clear that the documents sought by category 1 are relevant or are likely to be relevant to those issues such that their disclosure is necessary for the resolution of the real issues in dispute. I have taken into account the circumstance that the giving of such discovery involves some repetition, and that the defendant has already expended time and money undergoing earlier similar tasks, but it seems to me that such a burden is not one that overcomes the central point, namely, that disclosure of these documents is necessary for the resolution of the real issues in dispute. Subject to one matter, discovery will be ordered to be given in respect of category 1.

12. That matter concerns paragraph (iv) of the category which employs the term "any related entity", which is itself defined in the Notice of Motion by reference to the Corporations Act 2001 (Cth). I would not regard it as appropriate to require the defendant to make judgments in the course of discovery about whether an entity is "any related entity" so defined. Ultimately, senior counsel for the plaintiff accepted that there was a difficulty in that regard, and indicated that he would not press that particular aspect of the category. It was suggested that instead the plaintiff would nominate additional named entities to be included in the Annexure A which is referred to in paragraph (iii) of the category. Given the manner in which this issue emerged, and the nature of the issue, that should not cause any particular difficulties for the defendant and I do not see that as a reason to decline to make any order for discovery at this stage. If the additional names sought to be added to Annexure A cause particular difficulties for the defendant, it will be open to the defendant to raise that matter, although I would have thought that any such issue ought to be able to be readily dealt with by the parties without a further approach to the Court. An order will therefore be made in accordance with the Notice of Motion in respect of category 1 as indicated, namely, that it will not include paragraph (iv).

13. Turning then to category 2, the plaintiff says that the documents sought are relevant to its claim that the defendant breached the Deed by its mismanagement of the business that was sold to it. The defendant submitted that the category is not directed to any relevant fact in issue. This submission is based on the contention that the plaintiff's pleading in respect of alleged mismanagement is deficient in that it fails to identify how any mismanagement gave rise to breaches of the duties of good faith and co-operation.

14. The relevant paragraphs of the List Statement (paragraphs 46 and 47) do leave something to be desired in that regard. Nevertheless, no application has been made to strike out those paragraphs, and I think it is likely that any lack of clarity should be able to be overcome by the provision of further particulars, if they are required. The documents sought by category 2 seem to me to be relevant to the issue of breach by mismanagement. To the extent that the documents extend beyond the particular customers presently identified in paragraph 46 of the List Statement, it can be said that it extends beyond the pleaded case. So much was accepted by the plaintiff in submissions. However, I do not see this as an impermissible fishing exercise. The documents are not apparently sought so as to see whether a cause of action might exist, so much as to ascertain the extent of breaches of the kind already alleged. On balance, I consider that disclosure of the documents sought by category 2 is necessary for the resolution of the real issues in dispute.

15. Categories 3 and 4 can be dealt with together. They concern revenue reports (or drafts thereof) produced by the defendant. The revenue reports are apparently relied upon by the defendant in support of the contention that no earn-out amounts became payable, although it seems to be accepted that there are at least some errors in those reports. That some reliance seems to be placed upon the reports in that way by the defendant appears from the affidavit of Mr Dunkley, who is the Chief Financial Officer of the defendant. Category 3 seeks internal communications related to the preparation of the reports and category 4 seeks all draft reports prepared by the defendant.

16. The defendant submits that the plaintiff seeks to prove its entitlement to earn-out amounts by reference to invoices and quotes as sought in category 1, so it is unnecessary and unreasonable to require the defendant to disclose the documents in categories 3 and 4. Were it not for the fact that the defendant seems to be placing some reliance upon the revenue reports I think that submission may have had some force. However, in the circumstances I have described, I think that the disclosure of documents in categories 3 and 4 is necessary for the resolution of the real issues in dispute.

17. Accordingly, the Court will make the following orders:

1. Orders pursuant to rule 21.2 of the Uniform Civil Procedure Rules 2005 (NSW) that the defendant give verified discovery to the defendant of documents falling within the following categories:

1. All invoices and quotes issued by the defendant to:

1. any person identified in Schedule 4 of the Asset Purchase Deed; or

2. any person identified in Schedule 5 of the Asset Purchase Deed; or

3. any person set out in Annexure A,

in respect of which the defendant derived revenue in the period 6 June 2014 to 6 June 2016.

2. All records of communications during the period 6 June 2014 to 6 August 2016 between the defendant and any person identified in category 1 for the period 6 June 2014 to 6 June 2016 recording or referring to:

1. complaints;

2. allegations by customers that there was defective work;

3. delay or perceived delay in the provision of services; and

4. termination of services or the stated reasons why particular customers terminated services.

3. All records of communications between Mr Dunkley and Christine Emms (or one of them and any other employee or representative of the defendant) related to the preparation of the Revenue Reports (as defined at [26] of the affidavit of Darren Dunkley dated 27 April 2022) including for the avoidance of doubt any communications recording or referring to consideration or instruction as to what should be included in the Revenue Reports.

4. All draft Revenue Reports prepared by the defendant.

2. Orders that the defendant pay the plaintiff’s costs of the Notice of Motion filed on 30 September 2022;

3. Orders that the above orders not take effect until 13 March 2023;

4. Notes that it is envisaged that the parties will provide to the Associate to Darke J by no later than 10 March 2023 an agreed form of orders that will include an amended Annexure A;

5. Stands the matter over to 17 March 2023 for further directions.

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Decision last updated: 27 February 2023