Tolefe v CSG Ltd - [2012] WASC 261

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL

CITATION: TOLEFE -v- CSG LTD [2012] WASC 261

CORAM: EM HEENAN J

HEARD: 21 & 22 MARCH 2012

DELIVERED : 24 JULY 2012

FILE NO/S: CIV 3374 of 2011

BETWEEN: GREGORY UCHE TOLEFE
First Applicant
SWOTSMART PTY LTD
Second Applicant
AND
CSG LTD
First Respondent
CSG EDUCATION PTY LTD
Second Respondent
ACN 126 840 542 PTY LTD
Third Respondent
CSG SERVICES PTY LTD
Fourth Respondent
DELEXIAN PTY LTD
Fifth Respondent
CSG SOLUTIONS PTY LTD
Sixth Respondent

Catchwords:

Pre-trial discovery

Legislation:

Rules of Supreme Court O 26A r 4
Corporations Act 2001 (Cth), s 11 to s 16

Result:

Discovery and inspection to be ordered

Category: B

Representation:

Counsel:

First Applicant              :     Mr P C van Hattem SC
Second Applicant          :     Mr P C van Hattem SC
First Respondent           :     Mr R J Price
Second Respondent       :     Mr R J Price
Third Respondent         :     Mr R J Price
Fourth Respondent        :     Mr R J Price
Fifth Respondent          :     Mr R J Price
Sixth Respondent          :     Mr R J Price

Solicitors:

First Applicant              :     MDS Legal
Second Applicant          :     MDS Legal
First Respondent           :     DLA Piper Australia
Second Respondent       :     DLA Piper Australia
Third Respondent         :     DLA Piper Australia
Fourth Respondent        :     DLA Piper Australia
Fifth Respondent          :     DLA Piper Australia
Sixth Respondent          :     DLA Piper Australia

Case(s) referred to in judgment(s):

Austrac Operations Pty Ltd v New South Wales (2003) ATPR 41‑960; [2003] FCA 1013
Central Exchange Ltd v Anaconda Nickel Ltd [2001] WASC 128
Central Exchange Ltd v Anaconda Nickel Ltd [2002] WASCA 94
Crofter Handwoven Harris Tweed Co Ltd v Veitch [1942] AC 435
Dresna Pty Ltd v Misu Nominees Pty Ltd [2004] FCAFC 169
Glencore International AG v Selwyn Mines Ltd (2005) 223 ALR 238
Gliddon Properties Pty Ltd v NP Properties Pty Ltd & Ors [2006] WASC 64
GLR Injection Technology Pty Ltd v Forton Automative Treatments Pty Ltd [2009] WASC 131
Hancock Family Memorial Foundation v Fieldhouse (No 2) [2008] WASC 147
Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41
Ideas Plus Investments Ltd v National Australia Bank Ltd [2006] WASCA 215
JC Williamson Ltd v Lukey & Mulholland (1931) 45 CLR 242; [1931] HCA 15
Lumley v Gye [1853] E&B 216; 118 ER 749
McCarthy v Dolpag [2000] WASCA 106
McKernan v Fraser (1931) 46 CLR 343
Peters (WA) Ltd v Petersville Ltd [2001] HCA 45; (2001) 205 CLR 126
Ray Mullins & Sons Pty Ltd v Skycorp Investment Pty Ltd [2005] WASC 142
Sanders v Snell (1998) 196 CLR 329
Secured Income Real Estate (Aust) Ltd v St Martin's Investments Pty Ltd (1979) 144 CLR 596
Stanley v Layne Christensen Co [2006] WASCA 56
Stratford v Lindley [1965] AC 269
Strzelecki Holdings Pty Ltd v Cable Sands Pty Ltd [2010] WASCA 222
Telstra Corporation Ltd v Minister for Broadband, Communications and Digital Economy [2008] FCAFC 7; (2008) 166 FCR 64
Waller v Waller [2009] WASCA 61
Wright Prospecting Pty Ltd v Hancock Prospecting Pty Ltd (No 9) [2010] WASC 44

EM HEENAN J: A contract for the sale of shares on extended terms as to payment has given rise to a dispute between the vendor and the purchaser over whether or not the final instalment of the purchase price provided for by the contract of sale in certain contingencies is in fact payable and, if so, the amount of the payment due. That, in turn, has given rise to this application by the vendor of the shares and another against the purchaser and others for an order for pre‑action discovery and inspection of documents pursuant to Rules of the Supreme Court 1971 (WA) O 26A r 4.
As the authorities examined later demonstrate, the court has a discretionary power to make such an order, and among the factors to be considered in determining whether or not any such order should be made it is necessary for an applicant to demonstrate that:
(a)it may have a cause of action against a person whose description has been ascertained ‑ the potential party;
(b)the applicant wants to commence proceedings against the potential party;
(c)the applicant has made reasonable enquiries; and
(d)the applicant has not been able to obtain sufficient information to enable a decision to be made as to whether to commence the proceedings
(see O 26A r 4(1) and Central Exchange Ltd v Anaconda Nickel Ltd [2002] WASCA 94 [82] (Steytler J)).
When submitting that all these criteria have been satisfied in the present case the applicants have met with opposing submissions for the respondents to the effect that:
(a)there is no reasonable basis for any belief that a cause of action may lie against the first respondent (purchaser) or the other respondents;
(b)in any event, reasonable enquiries have not been made by the applicants;
(c)the contract of sale for the shares in question itself provides an adequate procedure for the ventilation of any genuine concerns on the part of the applicants;
(d)the categories of documents sought by the applicants go far beyond what is reasonably necessary to obtain sufficient information to enable a decision to be made as to whether to commence or take proceedings; in some instances are plainly irrelevant and involve an oppressive burden upon the respondents; and
(e)the applicants have not demonstrated, in respect of each category of documents for which discovery or inspection is sought, that all of the respondents had, has or is likely to have had or to have possession of the documents.
To evaluate these contentions and to address and consider the factors pertinent to the exercise of the discretion invoked, it is necessary to examine the terms of the contract of sale, the position of the various parties and the series of transactions which have occurred since the contract of sale was made.

Background

Before October 2008 a company, then called CingleVue Pty Ltd, carried on what appears to have been a very lucrative and expanding business of providing educational software design and development, predominantly it would seem, to major teaching institutions and education departments in various States. That company later changed its name to ACN 126 840 542 Pty Ltd, which is the third respondent in these proceedings. Again until late October 2008 all the issued shares in CingleVue Pty Ltd (the third respondent) were owned and controlled by Swotsmart Pty Ltd, the second applicant. All the shares in Swotsmart Pty Ltd then, and now, were owned by the first applicant, Mr G U Tolefe who, accordingly, controlled Swotsmart and, until late October 2008, the third respondent. He was also the sole director and manager of both those corporations.
By the contract of sale dated 30 October 2008, Swotsmart sold all of its shares in CingleVue Pty Ltd (the third respondent) to CSG Ltd (the first respondent). The respondents allege that this contract of sale was later varied on two occasions. It will be necessary to return to those assertions.
The consideration payable by the third respondent as purchaser to Swotsmart as vendor of the shares was payable by up to four instalments each of which was conditional upon one or more specified events occurring or certain specified conditions being fulfilled. The fourth and final of these instalments, if payable at all, was in an amount to be determined by a mathematical formula relating to the PBT (profit before tax) of the business of the third respondent for the financial year ending 30 June 2011. At this point it is unnecessary to mention all the conditions, contingencies or other obligations on which the four instalments of the purchase price were, variously, payable because the present dispute concerns only those relating to the fourth instalment.
It is sufficient to record that under the contract of sale the first instalment of the consideration was an amount of $1,800,000 which was payable by the purchaser to the vendor on the Completion Date, which was defined to mean the date upon which the ownership of all the shares in CingleVue would be transferred by the second applicant to the third respondent and by which time a series of extensive obligations and warranties should have been performed or fulfilled. That payment was duly made on the due date and there is no dispute about it.
The second instalment of the purchase price known as the 'UltraNet post‑completion payment' in an amount of $3,200,000 was payable as specified in the event that an 'UltraNet agreement' was executed between CingleVue (the third respondent) with the Victorian Department of Education and Early Childhood Development on certain terms and conditions as specified in the contract of sale. It is unnecessary to go into the details of those terms and conditions or, at this stage, the UltraNet agreement, because the various conditions were fulfilled and the payment of $3,200,000 was made to the second applicant in mid‑2009.
A third instalment of the purchase price, termed the 'OTLS post‑completion payment' was to be payable to the second applicant if the so‑termed OTLS agreement was executed by the third respondent (CingleVue) by 31 December 2009. That was defined as an 'on‑line teaching and learning system' agreement between CingleVue Pty Ltd (the third respondent) and the WA Department of Education and Training to be awarded in the 2009 calendar year and again subject to certain conditions. It is not necessary to examine the details of the contract or the conditions or contingencies upon which the OTLS post‑completion payment would be payable because it is acknowledged by the parties that no such OTLS agreement was ever reached and it is agreed that this third contemplated instalment never became payable.
The fourth and final instalment of the purchase price under the contract for the sale of shares has been called the 'PBT post‑completion payment' and it is upon this that the present dispute is focused. It is referred to in the contract as being the payment 'that may be payable by the buyer to the seller in accordance with cl 2.5 to cl 2.9' and, if payable, it was due on 30 September 2011 or upon the date that the post‑completion accounts were agreed in accordance with the contract.
By the combined effect of several of its terms, the contract of sale imposed a maximum amount upon the consideration payable by the third respondent as purchaser of $11 million (cl 2.11) which had the effect of fixing a maximum amount payable as the fourth and final instalment (the PBT post‑completion payment) namely an amount of $11 million less the aggregate of the amounts paid under any one or more of the three previous instalments already mentioned. In the present case, because $5 million had been paid to the second applicant as a result of the completion payment and the UltraNet post‑completion payment, the maximum amount of the PBT post‑completion payment, if due at all, would therefore be $6 million.
With regard to the PBT post‑completion payment the contract of sale provided, among other things, that it should be calculated as follows:
2.5.1Profit Before Tax of the company for the financial year ending 30 June 2011;
2.5.2less $1,500,000;
2.5.3multiplied by 3.75
Describing the calculation in mathematical terms, which may be easier to follow than the draftsman's efforts, the result is as follows:
PBT post‑completion payment = (PBT - $1,500,000) x 3.75 ≤ $6 million
where the PBT is that of the third respondent for the financial year ending 30 June 2011.
From this, it will immediately be apparent that no PBT post‑completion payment at all would be payable unless the PBT of the third respondent for that financial year exceeded $1,500,000. If it did, the amount payable would be calculated in accordance with the formula up to a maximum of $6 million.
More needs to be said about the terms of the contract of sale of these shares and the activities of the third respondent and other respondents over the period from 31 October 2008 to 30 June 2011, including reference to disputes over whether or not the contract of sale has been varied and, if so, to what effect.
Simply stated, the third respondent maintains that it made no profit for the financial year ending 30 June 2011 and, consequently, no PBT post‑completion payment of any kind is due. However, its position is not quite that simple because it accepts that the business of CingleVue which it acquired under the contract of sale in October 2008 has been transferred or assigned to the first respondent, CSG Ltd, which has since that transfer or assignment carried on that business but, again, without making a profit. Indeed, it has made a loss, so that, if the first respondent should properly be regarded as standing in the shoes of the third respondent under the contract of sale, there is still no PBT post‑completion payment due.
In the communications which have passed between the applicants and the first and third respondents since this dispute arose, and even more so since this application was instituted, it has become apparent that some of the business acquired by the third respondent under this contract of sale, and especially some of the expansions and new business which it has since attracted after the assignment or transfer of the business to the first respondent, have in part been conducted by the second, fourth, fifth and possibly sixth respondents, all with the knowledge, agreement and facilitation of the third and/or first respondents. Even so, the first and third respondents maintain that if all the revenues and expenses of the first, second, third, fourth, fifth and sixth respondents which in any proper way could be regarded as emanating from or associated with the profits of the business sold and its due expansion were aggregated, there would still not be a profit of more than $1,500,000 for the financial year ending 30 June 2011. Hence, even if such a wide view were taken of the obligations of the first or third respondents under the contract of sale, there would still be no PBT post‑completion payment due in respect of the financial year ended 30 June 2011.
Part of the dialogue between the parties and the affidavit evidence filed in this application contains some rather superficial accounts provided to the applicants by the first and third respondents purporting to take such an aggregated or consolidated position of the revenue and expenses of the business and which show for the June 2011 financial year that a loss was made, so that no PBT post‑completion payment was due, even on this aggregated or consolidated approach.
These accounts, or explanations, according to the applicants, raise more questions than they answer. The applicants contend that these accounts are deficient in detail and include very large items of expenses, not explained, which, in the view of the applicants, may not be attributable or entirely attributable to the conduct of the business concerned or to the accounting period ended 30 June 2011. As a result, the applicants have applied for pre‑action discovery and inspection in a manner which, broadly stated, would require the respondents to provide all relevant accounting and financial records relating to the business for this financial year so that an objective determination of whether or not there was a profit which would trigger an obligation to make a PBT post‑completion payment and, if so, the amount of that obligation.
This perspective of the dimensions of the applicants' application draws attention to several issues of importance in considering whether or not the applicants may have any cause of action against the respondents, or any of them, for damages, payment of money or for other relief in respect of the alleged obligation by the third respondent, or other respondents, to pay a PBT post‑completion payment or other moneys or damages because of its non‑payment.
First, and obviously, an issue arises as to whether or not there may be any claim by the applicants that the obligation of the third respondent under the contract of sale included obligations not to transfer or assign the business or to do or facilitate any act which would allow the business and its profits to be diverted to other entities and, if so, whether there may be grounds for contending that there is a liability by the third respondent to the second applicant in the events alleged to have happened. This, in turn, requires an examination of the alleged variations to the contract of sale which have already been mentioned and the extent to which they may extend to the first respondent in imposing similar obligations to pay the PBT post‑completion payment.
A second question is the extent to which any such obligation arises and whether such a corresponding obligation extends to the second, fourth, fifth and sixth respondents. There is a related, but not identical, issue over whether or not the first and third respondents have any such obligation for a PBT post‑completion payment arising from profits for the 2011 financial year alleged to have been earned by the second, fourth, fifth and sixth respondents.
According to the submissions of the applicants, these questions in turn give rise to issues, which may in any event arise independently of them, about the proper construction of the contract of sale and, in particular, whether it contains any implied terms which would prevent the third respondent, and/or the first respondent (if the contract has been varied as alleged) from transferring or assigning the benefit of any part of the business which would sound in damages proportional to the benefit of ensuing profits foregone by this alleged breach of contract. The applicants have also raised in their written and oral submissions the question of whether or not there is any arguable basis for a claim for rectification of the contract of sale, either in its original form or, if varied, in its latest form, to require the inclusion of a term or terms giving rise to such a liability.
There are, further, additional questions over what would be the practical consequences if alleged profits from the operation of the business had, in fact, been derived by the first, second, fourth, fifth and sixth respondents. Can or should these be aggregated and which expenses of any one or more of those respondents incurred in the conduct of that business or other businesses should properly be deducted from the aggregate revenues for the purpose of calculating what is or what should be regarded as the PBT?
Underlying all the applicants' assertions is the assumption that 'the business' which was being conducted by CingleVue Pty Ltd, as the third respondent was known at the date of the share sale, is the business or its natural progression and expansion now being conducted by the various respondents to different degrees. The evidence on the present application does not allow that question to be determined in any final way but, as the applicants submit, that is not an impediment to the application for pre‑action discovery because one of the purposes to be served by obtaining such pre‑action discovery is to allow the applicants to have access to information which they could not otherwise obtain on any reasonable basis, which will allow them to decide whether or not that contention should be made the subject of intended litigation against one or more of the respondents.
At this point, it is necessary to look in more detail at the proposed causes of action which the applicants maintain they may have against the respondents, or some of them, and at the terms of the contract of sale. This exercise will also necessitate an examination of the competing allegations over whether or not, and, if so, the extent to which, the original contract of sale has been varied.

Share sale and purchase agreement (SSPA)

The contract of sale of the shares in the third respondent by the second applicant to the third respondent is contained in a document entitled 'Share Sale and Purchase Agreement' finally executed on 30 October 2008. It has been referred to variously in the affidavits and the submissions by the parties as the SSPA. It may not be as hard to decipher as the Rosetta Stone but it is far from being a model of simplicity or clarity either in its form or content.

The second applicant, Swotsmart, is referred to as the seller and the third respondent, CSG Ltd, is referred to as the buyer. The first respondent, Mr G Tolefe, is referred to as the Warrantor. The text of the contract includes, as this name implies, a series of warranties given by Mr Tolefe about the nature of the business, its contracts and assets (see sch 2). Mr Tolefe is defined as being one of the two key employees of the business whose departure from the business at certain times may be an event giving rise to an entitlement to termination (cl 5.1.5(c)). He is also a 'related party' (within the meaning of s 11 to s 16 of the Corporations Act 2001 (Cth)) mentioned in cl 11. That contains protective provisions by which the second respondent covenants and the first respondent warrants that neither would be engaged in any business which is directly competitive or likely to be directly competitive with any of the businesses carried on by the company (or the third respondent) at the completion date or engage in other like competitive conduct. These obligations extend to certain restraints of trade set out in cl 11.2 to cl 11.7 (inclusive) which have the effect of imposing personal obligations on the first applicant.
Somewhat surprisingly, the SSPA does not contain any express description or recognition of the business of CingleVue Pty Ltd which was being carried on at the date of sale and which was to continue to be carried on by the new ownership thereafter. There are, however, references in the second schedule to the assets owned by the company as being those which were particularised in the accounts set out in certain disclosure documents and warranties (sch 2 cl 13.2), and that the third respondent was not then a party to any contract agreement, etc, which is or is likely to be of material importance to its business profit or assets and that the third respondent was the sole legal and beneficial owner of all relevant intellectual property rights used by the company (cl 14.2 to cl 14.5). These provisions, taken in conjunction with the conditions precedent to completion contained in cl 3 are sufficient, at least for the purposes of the present application, to demonstrate that the business of the third defendant, as conducted prior to the sale, would continue to be so conducted and developed by the third respondent after completion at least until 30 June 2011.
As already noted, the exact nature of the business conducted by the third respondent was not defined or described but there are other provisions in the SSPA which identify at least some portions of the business which was being conducted at the time of the agreement or which it was anticipated would be, or might be, conducted by the third respondent after the date of completion and at least up until 30 June 2011. These include:
(a)the UltraNet agreement which it was anticipated may be executed between the company or (in an alleged variation) by the first respondent and the Victorian Department of Education and Early Childhood Development during the 12 months following the completion date;
(b)the OTLS agreement which it was anticipated may be awarded to the third respondent or (in an alleged variation) to the first respondent by the WA Department of Education and Training during the 2009 calendar year, which in fact did not materialise;
(c)an exclusive teaming agreement with Oracle (Oracle International Corporation of California USA) which would provide that the third respondent would act exclusively as the prime contractor with respect to the UltraNet tender response and the subsequent UltraNet agreement.
Greater detail of the nature of the business might appear from the accounts and disclosure documents prepared for the negotiations leading to the SSPA but it is unnecessary to investigate that possibility further at this stage.
Before the first of the alleged variations to the SSPA, the contract of sale contained the following express restrictions upon the first respondent as purchaser in relation to its management of the business of the third respondent following the acquisition. These provisions (alleged to have been removed by the first variation) are as follows:
Restrictions on buyer during Post-Completion Period
8.6During the Post‑Completion Period, the Buyer must procure that the Company conducts its business for the purpose of developing and enhancing its financial position and will not prevent the Company from maximising its profitability in a manner consistent with prudent financial and business management. In addition, during the Post‑Completion‑Period the Buyer will, in terms of its dealings with the Company, act in the best interest of the Company.
8.7The Buyer must procure that during the Post‑Completion Period the business of the Company is not substantially altered, including with reference to the Staffing Costs, unless either the Buyer or the Company, in their sole and absolute discretion, determine that the proposed alteration is in the best interest of the Company. The Buyer must consult with the Seller before such a substantial alteration is implemented.
8.8During the Post‑Completion Period, the Buyer will ensure that all Oracle related business of the Buyer is transacted within the Company, except in relation to the managed services component of such Oracle business, which will be transacted within another subsidiary of the Buyer.
The applicants submit that these express restrictions prohibited the third respondent and/or the first respondent from transferring or assigning any part of the business of the third respondent to any other entity in any manner which would diminish the profitability of the company unless without the consent of the second applicant and the third respondent which, in each case, could be granted or withheld in the absolute discretion of either. The submission proceeds to contend that the transfer or assignment of parts of the business of the third respondent, as originally conducted or as it expanded or evolved during the post‑completion period, to the first, second, fourth, fifth or sixth respondents constitutes a breach of those terms of the SSPA. The applicants further submit that knowing participation in such a breach of contract committed by the first or third respondents, by the actions and co‑operation of any or all of the second, fourth, fifth and sixth respondents, would render those participating liable for knowing inducement of breach of contract and/or for conspiracy to procure such a breach of contract. In those eventualities, the applicants submit that the first and third respondents may be liable in damages for breach of contract and that the second, fourth, fifth and sixth respondents may be liable in damages for inducing a breach of contract or liable in tort for conspiracy to procure such a breach of contract. Brief details of the essentials of such potential causes of action will be examined later.
It is also necessary to note cl 16.2 of the SSPA which contains a qualified prohibition against assignment. The final underlined addition derives from the first alleged variation:
16.2If the Shares or any part of the business of the Company is sold or transferred after Completion Date the benefit of each of the obligations, Warranties and undertakings undertaken or given by the Seller or the Warrantor may be assigned to the purchaser or transferee of the Shares or the business of the Company, who may enforce them as if it had been named in this document as the Buyer. Subject to that, none of the rights or obligations under this document may be assigned or transferred without the written consent of all the parties (except where the assignment or transfer is from the Buyer to XBC (WA) Pty Ltd, in which case no such consent is required).
Although the details of that alleged variation have not been dealt with yet, it is convenient to note the alleged alteration to the restriction on assignment at this point of the narrative.
The applicants also rely on cl 14 of the SSPA, at least before the first alleged variation, as prohibiting the transfer or assignment of profitable sections of the business to the first, second, fourth, fifth or sixth respondents as they allege has now occurred. Again they submit that those alleged breaches would give rise to claims for damages for breach of contract, knowing inducement of breach of contract and/or conspiracy to procure a breach of contract in a manner similar to the consequences of the alleged breaches of cl 8.6 to cl 8.9 as described.
There are further provisions of the SSPA material to the respondent's submissions that the applicants have failed to undertake reasonable enquiries, which failure disentitles them to pre‑action discovery, and in support of their submission that, in the exercise of discretion, discovery and inspection as sought should be refused because the SSPA provides an adequate procedure for the ventilation of any genuine concerns on the part of the applicants. These are cl 13.1 to cl 13.4 which deal with the role of the 'Independent Accountant'. Those provisions read, so far as is relevant, as follows:
Independent Accountant
Scope of activity
13.1If the Seller and the Buyer do not agree any matter or amount referred to in this document within the period stated, and it is stated that the matter may be referred to the 'Independent Accountant', then the matter in dispute must be referred at the request of the Seller or the Buyer to the Independent Accountant for decision.
Appointment
13.2The Independent Accountant is to be appointed by agreement between the Seller and the Buyer or, in default of agreement within 14 days of the request by the Seller or the Buyer, by the President for the time being of the Institute of Chartered Accountants in the place whose laws apply to this document on the application of the Seller or the Buyer.
Acting as an expert
13.3The Independent Accountant will act as an expert and not as an arbitrator and his or her decision will be final and binding on the parties.
Costs
13.4All costs incurred by the Independent Accountant must be borne by the Seller and the Buyer in equal shares unless the Independent Accountant otherwise determines.
One of the matters which the parties to the SSPA are required to agree upon is the post‑completion accounts (cl 8) which are to be utilised, among other purposes, for the calculation of whether, and if so how much, is payable by the first respondent for the PBT post‑completion payment. Subclause 8.5 provides that if the buyer and seller are unable to reach agreement upon the post‑completion accounts which have been prepared within a certain period the matter in dispute may be referred to the decision of the Independent Accountant.
Following the disagreement which has arisen between the applicants and the first and third respondents about whether or not any post‑completion PBT payment is due, and if so how much, the first and third respondents have maintained that this is a matter which should be referred to the Independent Accountant. They also assert that they are ready and willing to have the matter referred to an Independent Accountant and it is only the unjustified refusal of the applicants to agree to this contractual procedure which prevents that from being done and a final and binding decision on the dispute being reached.
The response to this contention put forward by the applicants is that the procedure to allow resolution of such a dispute by the Independent Accountant does not provide for a situation where, as is now apparent, part of the operations of the business have been transferred or assigned (allegedly in breach of the SSPA whether varied or not) to the first, second, fourth, fifth and sixth respondents who are not parties to the SSPA. The position of the applicants in this regard is that if, as has now been conceded by the respondents, part of the revenues of the business have been earned by the second, fourth and fifth respondents, and possibly by the sixth respondent, none of them is a party to the SSPA. Accordingly, an independent accountant if appointed under the SSPA (whether varied or not) would have no jurisdiction or power to examine the activities, revenues, expenses or profits of the second, fourth, fifth or sixth respondents who, even if they voluntarily participated in an investigation by an independent accountant, would do so only to an unsupervisable extent and in manner of their own choosing. This, the applicants submit, would deprive the investigation and decision of any Independent Accountant of any real reliability, confidence or force.
At this early stage of examination of the rights of the parties, it is unnecessary to reach any concluded finding about whether or not the procedure for appointing an independent accountant would inevitably be undone by the factors relied upon by the applicants. It is sufficient to record that I consider that those are strong arguable grounds for contending that the appointment of an independent accountant would be inadequate to resolve the dispute which has arisen between the parties. There are strong arguable grounds for concluding that the scope of the determination needed to resolve the current dispute would be beyond the powers of the Independent Accountant as conferred by the SSPA whether varied or not.
Accordingly, I conclude that the Independent Accountant procedure as contained in the SSPA, whether varied as alleged or not, is not a reason to refuse to grant pre‑action discovery or inspection on this present application. I also conclude that, for the same reasons, the submission by the respondents, that the SSPA contains within its terms adequate procedures for the ventilation of any genuine concerns on the part of the applicants, should also be rejected and that an order for discovery and inspection should not be withheld on that ground. The simple fact is that there is no basis for suggesting that the second, fourth, fifth or sixth respondents, or any of them, has ever been a party to the SSPA, again whether varied or not, and consequently none is contractually bound by its terms. Whether because of their alleged knowledge of the relationship between the first respondent and the applicants and the obligations contained in the SSPA, the alleged breaches of that contract of sale, if committed by the first and third respondents, give rise to liabilities by any one or more of the second, fourth, fifth and sixth respondents for damages in tort or, further, as the applicants contend, for breach of fiduciary duties or for any obligation to make restitution for alleged unjust enrichment which, in magnitude and effect, may resemble obligations for breaches of contract, are other matters entirely. Even if such other potential liabilities or obligations may exist, as the applicants assert, none would have the consequence that an independent accountant appointed under cl 13 of the SSPA would have power or jurisdiction under that contract to examine and determine the dispute in relation to earnings, expenses and profits by entities who are not parties to the SSPA.

Causes of action

Each of the potential causes of action which the applicants submit they may have against some or all of the several respondents has, by now, been identified but has not been closely examined. The applicants point out that the respondents do not challenge the contention that these potential causes of action may exist. Rather, the applicants submit that the response of the respondents is limited to the assertions that on the facts there is no basis for concluding that there is any reasonable prospect of any of those causes of action being established and that because of that and other discretionary reasons relief in the form of pre‑action discovery and inspection should be refused. I consider that this a correct characterisation of the stance of the respondents in answer to this application but it remains necessary to consider whether there is any objective basis for a claim by the applicants for relief for any of these alleged causes of action in the events which they assert have occurred.
The applicants submit that the transfer or assignment of the business of the third respondent to the first respondent, and further any other transfers or assignments to the second, fourth, fifth or sixth respondents would constitute a breach of the restrictions applied during the post‑completion period contained in cl 8.6 to cl 8.8 of the SSPA. That in turn gives rise to the question of whether or not the SSPA has been varied, as is alleged by the respondents, to delete those clauses and, if so, the extent and effect of any variation. The submission of the applicants is to the effect that if, indeed, the SSPA was varied as alleged so as to authorise transfer or assignment of parts of the business to the first respondent, as all the respondents acknowledge did occur, then the SSPA as varied should be regarded as containing express or implied terms to the effect that no further or other assignment or transfer of the business by either the first or the third respondent should be permitted otherwise than in accordance with similar restrictions and that, if on the proper construction of the SSPA as varied there is no such express or implied term, the applicants have a claim for rectification to provide for the insertion of terms to that effect. The applicants submit that, in any of those last eventualities, they would have a claim for damages for breach of contract against both the first and third respondents because of the transfer of parts of the business or its enterprise to the second, fourth, fifth and six respondents.
The applicants also submit that even if the clauses imposing restrictions on the buyer during the post‑completion period (cl 8.6 to cl 8.8) of the SSPA have been deleted and no corresponding terms have been incorporated expressly or impliedly in the SSPA as varied and if they do not have any claim for rectification as advanced, the second applicant would still have a claim against the first respondent for breach of an implied term of good faith and fair dealing on the basis that the transfer or assignment of parts of the business to other respondents was designed and intended to defeat the second applicant's rights in respect of the PBT post‑completion payment. They submit that these are actions designed to deny the benefit of the contract to the second applicant in contravention of an implied term as recognised in Secured Income Real Estate (Aust) Ltd v St Martin's Investments Pty Ltd (1979) 144 CLR 596, 607 or, in its negative expression, an implied obligation not to hinder or prevent the fulfilment of the purpose of the express promises contained in the contract: Peters (WA) Ltd v Petersville Ltd [2001] HCA 45; (2001) 205 CLR 126 [36] and JC Williamson Ltd v Lukey & Mulholland (1931) 45 CLR 242; [1931] HCA 15. These principles have been recognised and applied in a series of decisions in this court, including Strzelecki Holdings Pty Ltd v Cable Sands Pty Ltd [2010] WASCA 222 [48] ‑ [54] (Pullin JA) where there is to be found an analysis of the so‑called implied obligation to act in good faith in commercial contracts. Even more significantly for present purposes, the existence of such an implied term was recognised as providing a foundation for an argument that an applicant for pre‑trial discovery may have a cause of action against the respondent in Central Exchange Ltd v Anaconda Nickel Ltd [2001] WASC 128 [16] ‑ [22] (Parker J), affirmed on appeal in Central Exchange Ltd v Anaconda Nickel Ltd [2002] WASCA 94.
I am, therefore, satisfied that the second applicant may have an action for damages for breach of contract against the first respondent, and possibly the third respondent, for the breach of cl 8.6 to cl 8.8 of the SSPA or, even if that agreement has been varied by the subsequent deletion of those clauses, for breach by the first respondent for transfer or assignment of the business to any transferee or assignee. It is unnecessary at this point to address the possibility that the applicants may have a claim for rectification of the SSPA or any variation of it as submitted and as there has been little evidence on the question of whether, by mistake or otherwise, there had been a congruence between the parties or an agreement to this effect which was not recorded or fully recorded in the SSPA, or any variation of it, as it should have been.

So far as the alleged breaches of contract by the first or third respondents are concerned, the applicants also submit that the wrongful transfer or assignment of portions of the business to the first respondent or to the second, fourth, fifth or sixth respondent involved each of the transferees or assignees in a knowing inducement or procurement of those breaches of contract leading to damage suffered by the second applicant in being deprived of the benefit of the contract in the calculation of the full measure of its entitlement to the post‑completion PBT instalment. The submission from the applicants is that, because of their association within the same group of companies, the second, fourth, fifth and sixth respondents, if taking such a transfer or assignment of the business, must be regarded as knowingly participating in the breach of contract or in a procurement of that breach, thus making them liable for damages in tort on the principles recognised in Lumley v Gye [1853] E&B 216; 118 ER 749; Stratford v Lindley [1965] AC 269 and McKernan v Fraser (1931) 46 CLR 343. That these principles are 'far from settled' and that whether a tort of wrongful interference with trade or business interests by unlawful means is yet to be fully recognised - see Sanders v Snell (1998) 196 CLR 329, 339 ‑ do not diminish the prospects that the applicants may have such a cause of action.
Furthermore, the applicants submit that they have a claim for damages against the second, third, fourth, fifth and sixth respondents on the basis that they acted in concert with each other and with the first respondent to conduct their affairs in such a manner as to cause or to permit the business to be carried on by an entity other than the third respondent and in a manner which diverted or concealed its true profits for the year ending 30 June 2011 and that this was done to defeat the second applicant's rights to the PBT post‑completion payment. The formulation of the proposed cause of action in this way is to assert the existence of cause of action for damages for unlawful conspiracy such as recognised in Crofter Handwoven Harris Tweed Co Ltd v Veitch [1942] AC 435, 443; Dresna Pty Ltd v Misu Nominees Pty Ltd [2004] FCAFC 169 [11] ‑ [12] and Stanley v Layne Christensen Co [2006] WASCA 56 [46] (Wheeler JA).
With respect to both these last two sets of submissions advancing potential claims for damages for wrongful inducement or procurement of breach of contract and/or conspiracy to deprive the second applicant by unlawful means of the benefit of its contract, I consider that it has been shown that the second applicant may have a cause of action and that this provides the basis for an order for pre‑trial discovery, other discretionary factors so permitting.
The applicants also submitted that the second applicant may have a cause of action against the first, second, fourth, fifth and sixth respondents, or some of them, on the basis that those particular respondents may have been unjustly enriched at the expense of the second applicant as a result of the business being carried on by an entity other than the third respondent in a manner which diverted or concealed its true profits for the particular financial year. For this submission the applicants relied on the observations of Steytler P in Ideas Plus Investments Ltd v National Australia Bank Ltd [2006] WASCA 215 [65]. However, I do not consider that, on the evidence available at present, sufficient has been shown to accept that such a cause of action may lie. The reason is that none of the profits of the business, even if earned solely by the third respondent, were ever due or payable to the second applicant, nor could it be said that the second applicant had a right to receive those profits. The third respondent was not under any obligation to make any form of payment to the second applicant because it was not the purchaser under the SSPA either originally or if varied. The second applicant was entitled, in certain contingencies, to a further instalment of purchase price which was payable under the SSPA by the purchaser, the first respondent. The amount of that instalment was, as already described, to be calculated in accordance with the mathematical formula based upon the profit of the third respondent during the particular financial year, but that did not make any part of the profit by the third respondent payable to the second applicant in any event. Accordingly, receipt of the profit of the business which should have been earned by the third respondent by other respondents does not seem, at least on the evidence presently available, to have been an enrichment of those respondents at the expense of the second applicant. Whoever was entitled to earn those profits was entitled to retain them. It was only the first respondent as buyer who had to discharge the final instalment of the purchase price if, indeed, it was payable. Accordingly, I am not disposed to recognise the asserted existence of a potential cause of action by the second applicant against any of the respondents for unjust enrichment or restitution as providing a foundation for the grant of pre‑action discovery or inspection.
Finally, the applicants submitted that the second applicant may have a cause of action against the respondents, or some of them, for breach of fiduciary duties. The submission was that the terms of the SSPA, whether varied or not, placed the control of the third respondent in the first respondent and fixed the latter with knowledge that the potential entitlement of the second applicant to the final instalment of the purchase price was contingent upon certain profits being obtained by the business for the financial year ending 30 June 2011. The submission proceeded further to contend that, having the control of the affairs of the third defendant in the management of its business with this knowledge, the first respondent was fixed with fiduciary obligations towards the second applicant to avoid any change or diminution in the manner in which the ensuing profit, if any, would be earned and applied. This submission relied upon passages in Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41, 96 ‑ 97 (Mason J) and Wright Prospecting Pty Ltd v Hancock Prospecting Pty Ltd (No 9) [2010] WASC 44 [622] (Murray J).
However, on the question of whether the defendant contracting party was a fiduciary in the Hospital Products case, Mason J was a member of the minority, with Gibbs CJ, Wilson and Dawson JJ deciding that there was no fiduciary relationship between the parties. Gibbs CJ reached that conclusion because, among other reasons, as he observed at [72] Hospital Products did not undertake, whether by representation or contractual provision, to act solely in the interests of United States Surgical Corporation and not in its own interests. In the present case it cannot be overlooked that the relationship between the second applicant and the first respondent was that of vendor and purchaser whose interests are usually regarded as antithetical. Certain restraints and obligations were imposed between the parties by way of contract but neither they nor anything intrinsic in the relationship or the positions deriving from it appears to provide a basis upon which it could be concluded that the first respondent was a fiduciary towards the second applicant.
The observations of Murray J in Wright Prospecting Pty Ltd v Hancock Prospecting Pty Ltd as cited do not take the matter any further. The position in that case was that the contending parties were partners in a commercial enterprise and that as partners they were within a relationship with long‑established and recognised mutual fiduciary obligations and duties. The observations of Murray J at [622] ‑ [627] proceed to explain the nature and extent of obligations within a recognised fiduciary relationship but they do not support the proposition advanced by the applicants in the present case that parties related solely by contractual obligations of vendor and purchaser had the same or comparable obligations.
Those observations should be read and considered in the light of the preliminary and provisional nature of the determinations which need to be made on the present application and it remains, of course, possible that more evidence or different circumstances may emerge which may lead to a different conclusion on this point. For the moment, however, I would not be prepared to recognise a breach of fiduciary duty as a tenable cause of action which would give rise to a discretionary entitlement to pre‑litigation discovery.
This examination of the submissions advanced by the applicants as to the existence of potential causes of action against one or more of the respondents advance claims which, for the most part, would be maintainable by the second applicant alone, thus giving rise to the question of whether or not the first applicant is entitled to any or all of the relief which he seeks jointly with the second applicant. The situation, of course, is that the post‑completion PBT instalment of the purchase price, if payable at all, is payable to the second applicant and not the first. Any wrongful or tortious conduct by any of the respondents which results in the denial or diminution of the entitlement to the post‑completion PBT contract would have the effect of causing damage to the second applicant and not to the first. Nevertheless, as a party to the SSPA, whether in its original form or as varied, the first applicant should be joined in any action brought on that contract where questions concerning the proper construction of the contractual terms, the existence of any implied terms and especially if there were to be a claim for rectification, arise. The fact that the first applicant may not himself seek damages or any form of relief other than declarations as to the proper construction of the contract in the circumstances which have arisen does not prevent him from being a proper co‑plaintiff in any such proceedings and, as such, entitled to join in the application for pre‑litigation discovery and inspection.

Power to order pre‑action discovery

The applicants submit that the provisions of O 26A r 4 should be given a beneficial construction to allow full scope to the terms of the rule without any antecedent or implicit qualifications or limitations. They submit specifically that the rule allows what, in other circumstances might be regarded as 'fishing expeditions': Waller v Waller [2009] WASCA 61 [3] ‑ [4] (Martin CJ). They submit that the requirement that the applicant 'may have a cause of action' will be satisfied if there is sufficient evidence to demonstrate an objective foundation for that conclusion: Hancock Family Memorial Foundation v Fieldhouse (No 2) [2008] WASC 147 [36] (Le Miere J); Waller v Waller [4], [72] ‑ [75]. In Waller v Waller at [74] Le Miere AJA referred with approval to the exposition of the principles relating to pre‑action discovery under the Federal Court Rules as discussed in Telstra Corporation Ltd v Minister for Broadband, Communications and Digital Economy [2008] FCAFC 7; (2008) 166 FCR 64 which in turn cited with approval Austrac Operations Pty Ltd v New South Wales (2003) ATPR 41‑960; [2003] FCA 1013 [10] and Glencore International AG v Selwyn Mines Ltd (2005) 223 ALR 238 [16] (Lindgren J) which all led Le Miere J to conclude [75]:
The court must make its own evaluation of the circumstances which ground the applicant's belief that he may have a cause of action against the potential party. The test is objective in the sense that it is not sufficient that the applicant believes that he may have a cause of action against a potential party; the court might determine this belief to be unfounded. It is not necessary that the applicant have a prima facie case. However, there must be material to establish that the applicant may have a cause of action against the potential party. There must be some tangible backing, or objective foundation, that takes the existence of a cause of action beyond a mere allegation, suspicion or assertion …
Counsel for the respondents does not challenge those submissions, as far as they go, but draws attention to observations that to be wrongly subjected to an order for pre‑action discovery is a serious invasion of privacy: Waller v Waller [4], [122] and, from the same source, that the pertinent question is whether there might be a cause of action which could be demonstrated by the provision of the documents sought so that the mere possibility that a cause of action may exist is insufficient to enliven the discretionary power: Ray Mullins & Sons Pty Ltd v Skycorp Investment Pty Ltd [2005] WASC 142 [20] ‑ [21].
Further, counsel for the respondent points to the fact that even if the criteria identified in the rule are all satisfied, the decision of whether or not to grant pre‑action discovery and, if so, the extent and manner of such discovery remains in the discretion of the court and that such discovery ought not be ordered unless it is reasonably necessary to achieve the proper administration of justice: Gliddon Properties Pty Ltd v NP Properties Pty Ltd & Ors [2006] WASC 64 [75]. Another discretionary consideration is whether or not denial of an order, even if the criteria were to be satisfied, would leave the applicant without an effective remedy to pursue the postulated cause of action: Hancock Family Memorial Foundation Ltd v Fieldhouse (No 2) [31].
In coming to the manner in which any such discretion might be exercised, if the applicants establish that the power is enlivened and should, to any extent, be exercised, the respondents submit that any discovery ordered should be no wider than necessary: McCarthy v Dolpag [2000] WASCA 106 [15] and GLR Injection Technology Pty Ltd v Forton Automative Treatments Pty Ltd [2009] WASC 131 [4]. The test of necessity, so the submission goes, is to be exercised with reference to the situation faced by the applicant by the insufficiency of information already in its possession so as to enable a decision to be made whether or not to commence proceedings.
I accept all these submissions but, as in every case, it is the application of principles to the particular facts and circumstances which calls for balance and determination.
In the present case there can be no doubt that, for the determination of the PBT of the third respondent for the financial year ended 30 June 2011, the information is necessary to determine whether, and if so how great, a payment for the fourth instalment of the post‑completion PBT payment is due to the second applicant. The respondents have disclosed that the third respondent made no profit during that period and did not conduct the business. It is equally clear that in or about late 2008 the business was transferred from the third respondent to the second respondent which thereafter conducted some or all of its operations. It has also been established that it was the fourth respondent which applied for and was granted the UltraNet agreement referred to in cl 2.3 of the SSPA and that this was the event which triggered the acknowledged entitlement of the second applicant to be paid the second instalment of the purchase price, the UltraNet post‑completion payment of $3.2 million, which was, in fact, paid. The business, insofar as it concerned the implementation of the UltraNet agreement, was thereafter conducted by the fourth respondent. Evidence filed on behalf of the respondents acknowledges that Oracle‑related revenues have been earned at least to some extent by the fifth respondent. Similarly, the evidence establishes that business‑related revenues and/or the expenses charged against revenues were incurred by the sixth respondent.
All this is apparent from the accounts which have been submitted by the respondents to the applicants in response to the latter's demands which, so the respondents have represented, constitute an aggregation of business revenues earned by the various respondents and expenses associated with that revenue incurred by the various respondents. The objective of the relief being sought by the applicants is to ascertain whether, in fact, all those revenues have been properly disclosed and whether the expenses aggregated in reduction of them to produce the asserted loss are expenses properly attributable to the conduct of the business for the financial year ended 30 June 2011 and, further, whether the division of the revenue earning streams between the various respondents has resulted in additional and unnecessary expenses being incurred. The application is largely, but not entirely, a quest for accounting information relating to the trading details of each of the respondents during that year.
For the applicants to have an objective basis for the foreshadowed causes of action it will, of course, be necessary for them to be able to show, as an objective probability, that the alleged transfers, assignments or diversions of the profit earning capacities of the business from the third respondent to the first respondent and then from the first respondent to the other respondents was contrary to the express or implied terms of the SSPA, as varied or not. If a basis for such a cause of action can be established there would, in my opinion, thereby be established the probability of a cause of action in contract against the first and third respondents. For the foreshadowed causes of action in tort to be established against the second, fourth, fifth and sixth respondents it will be necessary, in addition to establishing to the requisite degree the matters already described, that those respondents were aware of and knowingly participated in the alleged breaches of contract. The fact that they are under the control of the first respondent and each performing parts of what is, effectively, the same enterprise lays the basis for such a cause of action notwithstanding that, if such claims were to be formally commenced and advanced against those respondents, formal proof of each of those elements would be essential for eventual success. Proof to that extent and degree at this stage is not necessary.
For reasons already examined, I consider that there is an objective basis for contending that such causes of action may exist against each of the respondents at the suit of the second applicant and that the first applicant has an interest in any such litigation at least insofar as to establish the proper construction of the SSPA, as varied or not, and the existence of any implied terms as alleged. Accordingly, I consider that it is within the scope of O 26A r 4 and a proper exercise of discretion to order pre‑action discovery to the extent necessary to determine the proper revenues and expenses of each of the respondents from trading in the business of the enterprise sold to the third respondent under the SSPA. Similarly, there should be discover and inspection to scrutinise the expenses of each of the respondents insofar as they have been debited against that revenue in order to establish a profit for each of the respondents, or a collected, aggregate or consolidated profit for the business for the financial year ending 30 June 2011.
My conclusions also extend to the view that it is also within the scope of the rule and within the proper exercise of the discretionary power to order discovery of the documents by each of the respondents dealing with or showing how each came to acquire, receive or conduct portions of the former business of the third respondent or emanations of that business such as the UltraNet agreement, the Oracle agreement and related evolutions of the business. I will also order inspection and discovery of the documents in the possession or power of the respondents bearing upon the knowledge of each respondent, or their managers or directors who participated in the acquisition and the receipt or conduct of those streams of the business about the entitlements and obligations of the third respondent under the SSPA and of the first respondent and how these transfers, assignments or divisions of the business of the third respondent would or might affect the computation of any post‑completion PBT instalment due by the third respondent to the second applicant.

Alleged variations of the SSPA

Two sets of variations to the SSPA are alleged by the respondents. The first is said to have been effected by a letter dated 30 October 2008 and the second by a Deed of Release executed on or about 11 November 2010. There is a conflict in the evidence over whether or not the letter of 30 October 2008 effected any variation of the SSPA and, if it did, the nature and extent of that variation. The applicants, however, accept that the SSPA was varied to an extent by the Deed of Release of November 2010 but, again, there is controversy over the extent and effect of such second variation.
Reference has already been made to cl 16.14 of the SSPA which provides that no variation of that contract of sale would be of any force or effect unless in writing, signed by each party to the document. Part of the variations alleged to have been made by the Deed of Release is the insertion of a further provision to cl 16.14 that the parties acknowledged and agreed that the SSPA should continue to apply after the Deed of Release as amended by the variation of 30 October 2008 and by the Deed of Release. The respondents rely upon this provision and other provisions of the Deed of Release generally to confirm that the applicants did, in fact, agree to the earlier variation said to have been effected by the letter of 30 October 2008 which the applicants dispute.
The letter of 30 October 2008 is annexed to the affidavit of L A Warren sworn 13 February 2012. It is a letter from the first respondent, GSG Ltd, to Swotsmart, the second applicant, and to Mr Tolefe, the first applicant, and it refers to variations demanded by the first respondent to the terms of the SSPA in order to allow the first respondent to be satisfied with the due diligence which it was then in the course of completing under cl 3.1.2 of the SSPA. It includes the sentence:
It is noted that, unless agreed variations are made to the SSPA, the Condition Precedent [set out in cl 3.1.2) will not be satisfied. Under cl 3.3 of the SSPA if all of the Conditions Precedent to Completion have not been satisfied by 31 October 2008, CSG has the right to terminate the SSPA.
As such, CSG requires the variations to the SSPA as set out below …
No submissions were made about whether or not the first respondent was entitled to demand the proposed variations or any variations to the SSPA at that point or for the reasons advanced. I have not been referred to any provision in the SSPA which would entitle the first respondent or either of the other parties to the SSPA to insist upon any such variation. Nevertheless, the case for the respondents is that the variations demanded, whether enforceable or not, were in fact agreed and it is on this basis of a simple dispute of fact as to whether or not they were so agreed, that I shall now proceed.
Two sets of proposed variations were demanded. The first need only be mentioned in order to be put aside. They are amendments designed to recognise and address the fact that the second applicant, Swotsmart Pty Ltd, as vendor under the SSPA, was acting as trustee for the Tolefe Family Trust.
The second set of variations demanded in October 2008 are presently significant. These were proposed in order to allow the rights of the first respondent, CSG, under the SSPA to be assigned to its wholly owned subsidiary, XBC (WA) Pty Ltd (which was later renamed CSG Education Pty Ltd ‑ the second respondent). In order to allow and facilitate this assignment neither the first respondent nor its named subsidiary XBC (WA) Pty Ltd would be subject to the restrictions as contemplated in the SSPA in its original form with respect to the post‑completion operations of the company as set out in cl 8.6 to cl 8.8. These proposed variations also included variations to cl 2.2, cl 2.4 and cl 2.5 to acknowledge and allow that the various post‑completion payments ‑ the UltraNet post‑completion payment; the OTLS post‑completion payment and the PBT post‑completion payment ‑ would be due and payable if the conditions originally stipulated were satisfied by either the first respondent, or its new named subsidiary, XBC (WA) Pty Ltd, entering into either the UltraNet agreement or the OTLS post‑completion payment and that the final PBT post‑completion payment would take into account the profit not only of the first respondent but also the profit before tax of XBC (WA) Pty Ltd. Other consequential amendments to recognise the entitlement of the subsidiary XBC (WA) Pty Ltd to conduct the business or to enter into the named agreements were made to other provisions in the original SSPA. Importantly, however, the restrictions in cl 8.6, cl 8.7 and cl 8.8 were to be removed entirely.
The letter of 30 October 2008 from the first respondent called for the written acceptance of the terms and variations to the SSPA by both applicants. One copy of the document annexed to the affidavit of Mr Warren appears to have been signed by Mr Tolefe in his capacity as sole director and secretary of Swotsmart Pty Ltd and in his personal capacity agreeing to the variations demanded. In his affidavit evidence Mr Tolefe says that he is unable to remember signing that letter and may have signed it inadvertently with other papers. The respondents, however, have adduced further evidence of antecedent correspondence, including emails to and from Mr Tolefe's email address, to the effect that the terms of the letter and desired variations were discussed and acknowledged before the letter of 30 October 2008 by Mr Tolefe in a manner which suggests that his assent was considered, advised and deliberate.
The second variation to the SPPA was by the Deed of Release of 11 November 2010. This appears as annexures GUT23 and GUT24 to the affidavit of Mr Tolefe sworn 9 December 2011. It is a deed formally prepared by the respondents' solicitors and, unlike the SSPA, which is a contract not under seal, this document is referred to as a deed and purports to have been formally executed as a deed. There are two counterparts, the first executed by the applicants and the second executed by the first respondent. This deed recites that the parties entered into the SSPA (which is recorded as being an agreement made on 3 October 2008). It also recites that on 1 November 2008 the first applicant was employed by the first respondent as general manager of CSG Education Pty Ltd but that that employment was terminated on 23 May 2010, resulting in a dispute between the applicants on the one hand and the first respondent on the other about the application of certain clauses in the SSPA and over the period of notice required for the termination of the employment of the first applicant. The deed then recites that the parties have agreed to settle all matters relating to the employment termination dispute on the terms of that deed 'save for any matters arising under the SSPA which have not been the subject of the dispute'. The terms of the settlement are then embodied in the deed. The terms of settlement included an employment termination payment of $62,498.79 to be paid to the first applicant. The deed contains a covenant that, except to the extent specifically provided, all parties remain bound by all obligations under the SSPA.
One of the further variations effected by the SSPA was that the post‑completion period was redefined and extended to mean the period from the completion date to 30 June 2011 and then, by subclause 3.2, the deed provided:
The parties acknowledge and agree that the provisions of the Share Sale and Purchase Agreement shall continue to apply as amended by the variation of 30 October 2008 and by this deed.
There are further provisions in the Deed of Release providing for confidentiality, non‑disparagement and for a release of obligations or liabilities arising from the termination of the first applicant from his employment.
The respondents submit that on this evidence I should conclude that the SSPA has been varied both by the letter of 30 October 2008 and by the Deed of Release of November 2010, and that no other conclusion is reasonably open. Importantly, acceptance of this submission, according to the respondents, would mean concluding that there were no restraints upon the conduct of either the first respondent or its subsidiary XBC (WA) Pty Ltd as contemplated in cl 8.6 to cl 8.8 (inclusive) of the SSPA in its original form. As these submissions go, the consequence of accepting them would be that there would be no actual or potential liability for the first, second, fourth, fifth or sixth respondents in assigning, transferring or accepting the assignment or transfer of the portions of the business of the third respondent after 30 October 2008.
Again it is necessary to mention that for the determination of this application for pre‑action discovery no final decision need be made about the actual terms of the SSPA whether as they originally stood or as they may have been varied because the test for the relief sought is whether there might be a course of action which could be demonstrated by the provision of the documents sought. All that is necessary is that the applicants demonstrate that upon an objective foundation they may have a cause of action. However, upon the evidence as it stands, I consider that I should proceed on the footing that, objectively, the appearances are that the SSPA was varied as alleged by the respondents both by the letter of 30 October 2008 and by the Deed of Release of November 2010.
Nevertheless, the position of the applicants is that the obligations on the first respondent, and by extension XBC (WA) Pty Ltd, the subsidiary introduced by the variation of 30 October 2008 are not only limited or controlled by cl 8.6 to cl 8.8, they contend are no more than acknowledgements of part of the general duty of co‑operation relied upon to preserve the benefit of the contract. The applicants' submissions are that the implied obligation to preserve the benefit of the contract and its negative counterpart not to do anything to derogate from or to diminish the benefit of the contract remain during the whole of the period until 30 June 2011, by which time the post‑completion PBT instalment, if any, would be due. The submissions of the applicants, in effect, are that any other view would be to allow the first respondent or its subsidiary to empty the third respondent of any economic benefit or profit without regard to their obligations to pay the post‑completion PBT instalment. The applicants contend that this obligation of co‑operation endures notwithstanding the variations to the SSPA. They submit that the extent to which it may have been diminished by the removal of cl 8.6 cl 8.7 and cl 8.8 by the October 2008 variations that was unintended. They claim that, in that eventuality, they would have a claim for rectification to have the SSPA as varied rectified to impose obligations against assignment or transfer of the benefits of the business from either the third or first respondents or the first respondent's named subsidiary to any other entity. However, for reasons set out earlier, I do not consider that it is necessary for present purposes to determine whether or not there may be a cause of action for rectification as submitted because I consider that the present application can be fully determined on the basis that the implied obligation of co‑operation continues notwithstanding the variations.

Reasonable enquiries

Under O 26A r 4(1) it is necessary for an applicant for pre‑action discovery to have made reasonable enquiries in order to obtain sufficient information to enable a decision to be made as to whether to commence or take proceedings against the respondents. In the present case, the respondents submit that the applicants have failed to make such reasonable enquiries. The alleged failure is said to consist of two separate positions adopted by the applicants. The first is the applicants' refusal to participate in the process contemplated by cl 13 of the SSPA to refer disputes where there has been an inability to agree on the payment of the post‑completion PBT instalment to an independent accountant in the manner provided. I have examined this submission earlier in the context of the various causes of action being considered by the applicants and the responses of the respondents. The result of that examination has led to my conclusion that there has been no failure or neglect by the applicants to make reasonable enquiries because of their decision to decline to avail of the independent accountant procedure under the SSPA. It is sufficient here to repeat only that that process could not lead to a determination of the matters in dispute in this case.
The second contention by the respondent that there has been a refusal or neglect by the applicants to make reasonable enquiries stems from the respondents' solicitors' recent offer to have the respondents' chief financial officer (CFO) meet with the first applicant, his solicitors or accountants and answer questions which they may have about the financial information which has so far been submitted by the respondents. The applicants' position is that such a meeting and any information provided in answer to questions if the meeting were to take place would not be useful or determinative unless full prior disclosure of the financial and accounting records now being sought had been made. This is because, only then, could there be any prospect of verification of any assertions made by the respondent and of determining that all proper revenue had been disclosed and only justifiable expenses debited against the revenues earned. I consider that it is reasonable for the applicants to insist that they be provided with all relevant financial information and supporting records in order to determine the true profit of the business over the financial year ending 30 June 2011 and that a meeting without provision of this information would not lead to a resolution of the dispute or enable them to obtain sufficient information to make a decision as to whether to commence the proceedings proposed.
The first respondent sent to the applicants' solicitors on 20 September 2011 the so‑called post‑completion accounts under the SSPA. These are at GUT10 to the affidavit of the first applicant of 9 December 2011 and show only a one‑page statement of profit and loss for the 'CSG Education Group' for the year ended 30 June 2011. There is no indication of which company or companies within the group have derived the income or incurred the expenses listed but the implication is that the statement of profit and loss covers more than one entity. It shows income of $19.3 million for the year ended 30 June 2011 and total expenses of $21.51 million, producing a net loss before tax of $2.21 million. The major expenses were salaries and wages of $6.08 million and 'other' of $9.83 million.
The applicants' solicitors followed this up with a further letter pointing out that there was no explanation or composition of the group of companies, that there was no balance sheet or notes identifying the basis of preparation or explaining critical items in the accounts. By that letter the applicants' solicitors gave notice of disagreement about the accounts to the respondents. This was followed by several emails which disclosed that the 'education business inside CSG is run across several entities'. A letter from the respondents' solicitors of 27 September 2011 included the passage:
Please note that the accounts were prepared to reflect the profit or loss of CSG Education Pty Ltd and the UltraNet contract, and have been prepared in accordance with Schedule 3 of the SSPA.
CSG is willing to provide the profit and loss statement and balance sheet of ACN 126 840 542 Pty Ltd (the previous CingleVue Pty Ltd) as requested (this is a dormant company). CSG is also willing to provide the profit and loss statement and balance sheet for CSG Education Pty Ltd (formerly XBC (WA) Pty Ltd) and the UltraNet contract.
By email transmission of 30 September 2011 the respondents' solicitors provided what were said to be post‑completion accounts for CingleVue Pty Ltd, CSG Education Pty Ltd and the UltraNet project. These are comprised in a document entitled 'CSG Education Group Financial Report 2011' (annexure GUT13 to the affidavit of Mr Tolefe already mentioned) and take the form of consolidated accounts tabulated under four columns as follows:
(a)CingleVue Pty Ltd (for which the income and expenditure was nil);
(b)CSG Education Pty Ltd which showed income of $157,695 and expenditure of $1,017,635 which together with other overhead expenditure produced a loss of $1,422,978;
(c)the UltraNet project showing income of $18,130,019 and expenses of $19,832,711 with a net loss of $788,745; and
(d)Education Group with an income of $18,287,000 and expenses of $22,111,926 with a net loss of $2,211,722.
These accounts included a consolidated statement of financial position showing that each of the four entities named had a substantial deficit in total equity.
The notes to these statements indicated that the report had not been specifically audited. Further notes showed that major expenses on the UltraNet project under the heading Cost of Sales were as follows:
(a)Development team - $3.33 million
(b)Software licences - $2.15 million
(c)Software maintenance - $0.507 million
(d)Helpdesk - $3.053 million
(e)Other - $0.662
but without any explanation of these.
Again the solicitors for the applicants advised that these accounts were not agreed and gave a further notice of disagreement pursuant to cl 8.3 of the SSPA. That was followed by a letter from the respondents' solicitors of 13 October 2011 which can only be described as a sparring feint, whereupon the applicants' solicitors replied on 20 October 2011 seeking copies of the full accounting records for the UltraNet project, CSG Education Pty Ltd and CingleVue Pty Ltd.
This was followed by a letter from the respondents' solicitors of 4 November 2011 in which they asserted that the applicants' 'grounds of disagreement remain unclear' but proffering, in an attempt to resolve the disagreement, a trial balance for the CST Education Pty Ltd and the UltraNet project which had been 'prepared to reflect the position of CSG Education Pty Ltd and the UltraNet contract'. This letter included the offer:
Our client is willing to meet with your client or your client's advisers within 10 business days of the date of this letter to answer any reasonable questions your client may have in relation to the Post‑Completion Accounts provided to your client on 20 and 30 September 2011 and the enclosed trial balances.
The computerised trial balances which were enclosed were uninformative on any question about the extent of the earnings of the former business, the identity of the company or companies by which the earnings were derived, and the matching of expenses to the revenues disclosed. The applicants' solicitors declined that offer and foreshadowed bringing proceedings in this court for relief as now sought. The response of the solicitors for the respondents was to insist that the applicants follow the independent accountant process provided for by cl 13 of the SSPA although, by then, it was clearly apparent that revenue from the business had been derived by entities other than those who were parties to the SSPA as originally formulated or as later varied.
The position which existed at the commencement of these proceedings and which, in all essential elements, remains is that the identity of the companies or other entities associated with the first respondent which have derived income from the business have not been clearly disclosed, although it has been acknowledged that their number extends beyond the first, third and second respondents. No basic financial information or records from which the financial statements proffered by the respondents have been prepared have been disclosed.

There can be no doubt that the financial records, accounts, management accounts and documents associated with any transfer or assignment of the business within the so‑called CSG group are within the control of one or more of the respondents and are not, by means other than the present application or discovery in the course of an action, accessible to the applicants. The course of correspondence just described indicates that the respondents have not been willing to provide informative detail. The first set of so‑called post‑completion accounts which were delivered raised more questions than answers about the reliability and extent of the accounts for the business operations from which the post‑completion PBT instalment, if any, might be calculated. In these circumstances, I am satisfied that the applicants have made reasonable efforts to obtain the information upon which a decision may reasonably be based whether or not to commence proceedings and that the submissions to the opposite effect by the respondent should not be accepted.

Entitlement to relief

For these reasons, sufficient has been established by the applicants to entitle them to a suitable order requiring pre‑action discovery. The question which remains is the nature and extent of the relief which should be ordered. The respondents oppose the extent of relief sought by the appellants on the basis that the documents sought:
(a)go far beyond what is reasonably necessary 'to obtain sufficient information to enable a decision to be made as to whether to commence or take the proceedings';
(b)in some instances are plainly irrelevant;
(c)involve an oppressive burden upon the respondents; and
(d)with respect to one category there is no evidential basis indicating that the documents are likely to have existed.
Accordingly, it becomes necessary to consider with some scrutiny the scope of discovery being sought by the applicants.
By the originating summons as amended, the applicants are seeking an order requiring the respondents to make and file one affidavit sworn by the company secretary of the first respondent relating to discovery by all respondents of the following categories of documents:
(a)documents relating to the purchase in or about October 2008 by the first respondent of the shares in the third respondent;
(b)documents relating to any sale, assignment or transfer of a business which was carried on by the third respondent during or before November 2008 (CingleVue business), or any part of the CingleVue business, after October 2008;
(c)documents relating to the operation and financial affairs of the CingleVue business and each part of the CingleVue business, howsoever carried on by the respondents (or any of them), covering the period from November 2008 to 30 June 2011, including correspondence, agreements, financial accounts, management accounts, journals, ledgers, spreadsheets, purchase orders, invoices, receipts, cheque butts and bank statements;
(d)documents relating to the provision of the UltraNet Project by the respondents (or any of them) to the Victorian Department of Education and Early Childhood Development covering the period from November 2008 to 30 June 2011, and including correspondence, agreements, financial accounts, management accounts, journals, ledgers, spreadsheets, purchase orders, invoices, receipts, cheque butts and bank statements;
(e)documents relating to the purchase in or about July 2009 by the first respondent of shares in the fifth respondent;
(f)documents relating to any sale, assignment or transfer of the business which was carried on by the fifth respondent during or before July 2009 (Delexian business), or any part of the Delexian business, after June 2009;
(g)documents relating to the operation and financial affairs of the Delexian business and each part of the Delexian business, howsoever carried on by the respondents (or any of them), covering the period from July 2009 to 30 June 2011, including correspondence, agreements, financial accounts, management accounts, journals, ledgers, spreadsheets, purchase orders, invoices, receipts, cheque butts and bank statements.
The applicants are also seeking an order that, subject to all just objections, the respondents thereafter for a period of three months do at all reasonable times and on reasonable notice produce at the office of their solicitors in Perth the documents specified in the list or lists and that the applicants be at liberty to inspect, peruse and take copies of the documents so produced.
The first issue arising from the terms of the relief sought is the application for the respondents to make one affidavit giving discovery of all the documents within the specified categories. As observed during the course of the hearing, I do not consider that the court can make such an order in view of the separate character and existence of each of the six respondents, at least not in the absence of proof that the affairs and businesses of each respondent are controlled by a single entity who is required to give the discovery. The usual order would be to require specified discovery by each respondent of the relevant documents within its possession, custody or power or at any material time within its possession, custody or power. I consider that is the form of order which should be made unless both the applicants and all the respondents agree that one list of comprehensive discovery can be given on behalf of all the respondents, that list to be verified, so far as it can be, by each of the individual respondents.
As the respondents do appear to be members of the one group, it is entirely possible that such a practical accommodation may be reached. The parties have indicated that, if any order for discovery were to be made as a result of these proceedings, they may be able to reach agreement as to the form in which it may be given. Accordingly, I propose to publish these reasons for decision and allow the parties a short time to propose some practical expedient by which one or more lists of documents may be prepared and verified on behalf of each respondent. Failing that, the order of the court must be that each respondent give discovery of documents within the identified categories on its own behalf by a duly authorised officer.
A further objection to discovery as proposed advanced by the respondents was that many of the documents which may need to be discovered are commercially confidential and that their disclosure could be prejudicial to the respondents. They submit that the applicants are still in the business of educational software suppliers and, although not direct competitors, may be in a position to profit from the information disclosed to the prejudice of the respondents. Counsel for the applicants rightly submits that the usual obligations attendant upon discovery will be imposed upon the applicants and that the information derived from the contents of documents disclosed may be used only for the purposes for which the order is made or any ensuing litigation. However, if any of the documents is particularly sensitive then, upon application made to establish such an objection, a supervised regime of discovery and inspection to protect susceptible confidences may well be implemented or ordered. Again, there will be an opportunity for the parties to confer to deal with this aspect of the case before final orders or implementation of orders are made or occur.
As to the magnitude of the task of giving discovery and the submission that insofar as it extends to invoices, vouchers, receipts, cheque butts, etc, the task imposed is likely to be colossal for an enterprise of the respondents' magnitude, that remains to be seen. If, for example, the books showing the cash and other receipts for each of the businesses and/or banking records confirm, within reasonable approximations, the revenues disclosed in the accounts, there may be no need to go to the extent of examining individual invoices, receipts, payment vouchers, bank deposits and the like. Similar observations may be made in relation to the expenditure of each of the respondents because, if properly kept, the books of accounts should record the identity of the payees and the nature of the expenditure incurred in an informative way, so that it may not be necessary to go to individual payment records or vouchers or receipts to verify this. Again, much will depend upon the quality of the books of account kept for each of the respondents which record the income and expenditure for that respondent over the period in question. Again there seems to be scope for agreement between the parties to devise a practical method of addressing the nature and extent of this obligation but, in the absence of such an agreement or for other good reason, I consider that the court should order full discovery, sufficiently extensive to identify and tabulate all items of expenditure and revenue for the various respondents for the year in question.
As to the objections concerning relevance of the documents sought, I can dispose firstly of the objections relating to the accounting details and information. Plainly, in view of the formula for the calculation of the post‑completion PBT instalment, it may be necessary to identify all the revenue and expenditure of the CingleVue business, by whomever it has been derived, for the financial year ended 30 June 2011. For that reason, all the accounting records sought appear to me to be relevant and hence discoverable.
Secondly, in relation to discovery as sought under subparagraphs (a), (b), (d) and (f) of the originating summons as amended, that is, documents relating to the sale, transfer or assignment of the CingleVue business or any part of it, or the assignment or transfer of any part of that business by the first respondent to other respondents, or the development or acquisition of the UltraNet project, I consider that such documents are material, and hence relevant and discoverable. This is because of their potential bearing on questions of whether, how and to whom the benefits of that business were transferred or assigned, or allowed to be developed or acquired. They would also seem to bear upon the degree of knowledge and participation in all such transfers, assignments or developments by those respondents who are not themselves parties to the SSPA and who, consequently, might be liable in tort for knowing inducement or procurement of a breach of contract or conspiracy to procure a breach of contract or to damage the second applicant in its trade or business. For those reasons, I consider that the applicants are entitled to orders for discovery which include those categories of documents.
Further points are taken by the respondents that, at least in relation to the sale of the CingleVue business from the second applicant to the first respondent, the applicants have in their possession all the material documents. I do not consider that that should be assumed. Without in any way making a finding in this regard, there may be documents within the possession of one or more of the respondents relating to that transaction which reveal that a further transfer or assignment of the benefit of the CingleVue business was intended or in contemplation and, if so, they may have some bearing on the foreshadowed claims for damages in tort. Similarly, there may be documents in existence which may suggest that, notwithstanding the variations to the SSPA effected by the letter of 30 October 2008, it was nevertheless the objective intentions of the parties that the preservation of the identity of the CingleVue business would be maintained at least until 30 June 2011 for the purposes of computing the post‑completion PBT instalment, if any. Any such document showing the existence of a contemporary objective intention to that effect may well have a bearing upon the proper construction of the SSPA as varied and, accordingly, support the applicants' foreshadowed claim for an action for damages for breach of an implied term of that contract.
Again, at a practical level, I consider that a regime may well be worked out between the parties which will allow discovery of documents within the various classes to be organised in an efficient and comprehensive way. I shall, accordingly, again refrain from proposing any detailed orders in this regard until there has been an opportunity for counsel to confer with a view to producing a schema for such discovery. Failing that, further submissions as to the details and scope of discovery may be made in order to fix upon terms which will deliver the substance of the entitlement which I consider should now be recognised.
These reasons will be published to the parties on a confidential basis before they are formally delivered, at which time further submissions as to the terms of the orders can be made.