Udp Holdings Pty Ltd v Esposito Holdings Pty Ltd (No 3)
[2020] VSC 260
•14 May 2020
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
PROPERTY LIST
S ECI 2019 04810
| UDP HOLDINGS PTY LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT) (RECEIVERS AND MANAGERS APPOINTED) (ACN 167 100 692) | Plaintiff |
| v | |
| ESPOSITO HOLDINGS PTY LTD (IN LIQUIDATION) (ACN 079 763 303) and ORS (according to the attached Schedule) | Defendants |
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JUDICIAL REGISTRAR: | Matthews JR |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 27 March 2020 (and written submissions from fifth defendant dated 25 March 2020 regarding costs) |
DATE OF RULING: | 14 May 2020 |
CASE MAY BE CITED AS: | UDP Holdings Pty Ltd v Esposito Holdings Pty Ltd & Ors (No 3) |
MEDIUM NEUTRAL CITATION: | [2020] VSC 260 |
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PRACTICE AND PROCEDURE – Discovery – Application for further discovery – Supreme Court (General Civil Procedure) Rules 2015, rr 29.08 and 29.11 – Civil Procedure Act 2010, s 55 – Defendant claims documents are not within its possession as are held by former solicitors and accountants pursuant to liens – Application granted – Documents are within the power of the defendant – Lewis v Powell [1897] 1 Ch 678 applied.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr P E Annabell | Ashurst Australia |
| For the Second Defendant | Mr J Levine | The Law Professionals |
TABLE OF CONTENTS
Introduction........................................................................................................................................ 1
Background......................................................................................................................................... 3
Relevant subject matter of this proceeding............................................................................... 3
AE Brighton’s discovery.............................................................................................................. 6
Applicable law.................................................................................................................................... 9
Submissions...................................................................................................................................... 13
UDP’s submissions..................................................................................................................... 13
Relevance of the documents sought............................................................................... 13
Sufficiency of AE Brighton’s discovery and control of documents........................... 14
AE Brighton’s submissions........................................................................................................ 15
UDP’s submissions in reply....................................................................................................... 16
Consideration.................................................................................................................................... 16
Relevance of the documents sought......................................................................................... 16
Should orders for further discovery by AE Brighton be made?.......................................... 17
Costs.................................................................................................................................................... 19
Costs as between UDP and AE Brighton................................................................................. 19
UDP’s submissions............................................................................................................ 19
AE Brighton’s submissions.............................................................................................. 20
Consideration..................................................................................................................... 20
Costs as between UDP and Mr Temelkovski.......................................................................... 21
Mr Temelkovski’s affidavit of documents..................................................................... 21
The Temelkovski Affidavit............................................................................................... 21
UDP’s submissions............................................................................................................ 22
Mr Temelkovski’s submissions....................................................................................... 22
Consideration..................................................................................................................... 24
Conclusion......................................................................................................................................... 27
JUDICIAL REGISTRAR:
Introduction
By summons filed 6 March 2020 (‘Application’), the plaintiff UDP Holdings Pty Ltd (subject to deed of company arrangement) (receivers and managers appointed) (‘UDP’) applies for discovery from the second defendant AE Brighton Holdings Pty Ltd (‘AE Brighton’) and the fifth defendant, Goran Temelkovski.[1] The Application is made pursuant to r 29.08 and r 29.11 of the Rules, and/or s 55 of the Civil Procedure Act 2010 (‘CPA’).
[1]By order made on the Court’s own motion, pursuant to r 84.04 of the Supreme Court (General Civil Procedure) Rules 2015 (‘Rules’) the Application was referred to me for hearing and determination.
The discovery sought from AE Brighton and Mr Temelkovski is as follows:
(a) all original and supporting documents (including drafts and correspondence such as letters, emails and text messages) that relate to the alleged November 2013 mortgage, facility agreement and guarantee. This includes documents that evidence the negotiations leading up to and following the alleged November 2013 mortgage, facility agreement and guarantee (‘Category A’);
(b) bank statements revealing loan drawdowns and/or payments, and all supporting documents (including correspondence) that evidence the purpose for which the lending was advanced at the time of the drawdowns; (‘Category B’); and
(c) all correspondence between:
(i) AE Brighton, Antonio Esposito, Violeta Esposito and/or related parties; and
(ii) Mr Temelkovski and/or related parties (‘Category C’).
The discovery sought from AE Brighton included an additional category not sought from Mr Temelkovski, being:
Documents evidencing the loan from the first defendant, Esposito Holdings Pty Ltd (‘Esposito Holdings’) to AE Brighton, and the flow of funds used by AE Brighton to buy the properties (including AE Brighton’s bank records, financial statements, accounting records, source documents, the contracts of sale for 2 Kinane Street and 92 Esplanade, Brighton, 101 Trunk Lead Road, Bunkers Hill, 639 and 649 Williams Road, Werona, statement of adjustments for the purchase of the properties, and related conveyancing files) (‘Category D’).
At a directions hearing in the proceeding on 28 February 2020, I made orders in respect of UDP’s (then foreshadowed) discovery application, amongst other things. I ordered that:
(a) UDP file and serve any discovery application by 4:00pm on 6 March 2020;
(b) the defendants were to file and serve any affidavits upon which they wished to rely by 4:00pm on 13 March 2020;
(c) UDP file and serve any affidavits in reply by 4:00pm on 20 March;
(d) the parties file and serve written submissions by 4:00pm on 24 March; and
(e) the application be listed for hearing on 27 March.
In respect of its Application, UDP relies on the affidavits of Michael Sloan sworn 27 February 2020 (‘First Sloan Affidavit’) and 6 March 2020 (‘Second Sloan Affidavit’). Mr Sloan is a partner of Ashurst, solicitors for UDP. UDP also filed a written submission on 24 March 2020 (‘UDP Outline’).
Mr Temelkovski relies on his affidavit sworn 17 March 2020 (‘Temelkovski Affidavit’). A written submission dated 25 March 2020 was provided on Mr Temelkovski’s behalf (‘Temelkovski Outline’). By that time, UDP had informed Mr Temelkovski’s solicitors that they would no longer press the Application against Mr Temelkovski, and therefore the Temelkovski Outline is directed to the question of costs only.
AE Brighton relies on an affidavit of documents affirmed 28 February by Violeta Esposito on its behalf (‘Esposito Affidavit of Documents’). It also relies on an affidavit from Violeta Esposito affirmed 26 March 2020 (‘Esposito Affidavit’). Violeta Esposito is the sole director of AE Brighton. AE Brighton’s written submission was provided on 26 March 2020 (‘AE Brighton Outline’).
For the reasons which follow, I will make orders that AE Brighton make discovery in respect of the categories set out in the summons. In respect of Temelkovski’s costs, I will make orders that the costs of UDP and Mr Temelkovski of the Application, as against each other, be their costs in the proceeding.
Background
Relevant subject matter of this proceeding
It is necessary to briefly summarise the subject matter and issues in this proceeding.
UDP alleges that:
(a) pursuant to a share sale agreement dated 11 December 2013, between the first defendant, Esposito Holdings Pty Ltd (‘Esposito Holdings’), and UDP, on 31 January 2014 Esposito Holdings sold the shares in 5 Star Foods Pty Ltd (‘5 Star Foods’) to UDP;[2]
[2]Statement of Claim dated 21 October 2019 (‘SOC’), [4].
(b) pursuant to that agreement, UDP made the following payments to Esposito Holdings, totalling $22,422,356.06:
(iii) about $2,000,000 on or about 31 December 2013;
(iv) about $2,300,000 on or about 13 January 2014; and
(v) about $18,122,356.06 on or about 31 January 2014
(each a ‘Payment’, together, ‘Purchase Price’);[3]
[3]SOC, [5]-[8].
(c) on and from 31 January 2014, Esposito Holdings held the Purchase Price, including each of the Payments, on constructive trust for UDP (‘Trust’);[4]
[4]SOC, [9].
(d) at all material times, Mr Antonio Esposito was the sole director and controlling mind of, inter alia, Esposito Holdings, 5 Star Foods, and AE Brighton;[5]
[5]SOC, [11].
(e) on a date or dates unknown to UDP, Mr Esposito procured Esposito Holdings to give the Payment monies to AE Brighton and he procured AE Brighton to use the monies to buy property at:
(i) 2 Kinane Street Brighton and 92 Esplanade Brighton (‘Brighton Properties’);
(ii) 101 Trunk Lead Road Bunkers Hill (‘Bunkers Hill Property’); and
(iii) 639 and 649 Williams Road Werona (‘Werona Properties’)
(together, the ‘Properties’);[6]
[6]SOC, [12].
(f) the giving of the monies summarised in paragraph (e) above was a breach of the Trust;[7]
[7]SOC, [13].
(g) AE Brighton received the monies as a volunteer, with actual knowledge of the matters giving rise to the Trust, and knowing it was proceeds of Esposito Holdings’ breach of trust;[8]
(h) as a consequence, UDP seeks declarations that it is entitled to trace the sum of $22,422,356.06 into and has equitable title to the Properties to that extent, and that AE Brighton holds the Properties on trust for UDP to that extent. Alternatively it claims an equitable charge over the Properties to secure payment of that sum;[9] and
(i) UDP claims the payment of $22,422,356.06 from Esposito Holdings, and seeks orders for the removal of the following caveats: those lodged by the third defendant over the Brighton Properties, the Bunkers Hill Property, and 639 Williams Road Werona; that lodged by the fourth defendant over 2 Kinane Street Brighton; and those lodged by Mr Temelkovski over the Brighton Properties, saying that UDP’s estate or interest in the Properties has priority over each estate or interest claimed by the relevant caveator.[10]
[8]SOC, [14].
[9]SOC, Prayer for Relief, [B] and [C].
[10]SOC, [15]-[22]; Prayer for Relief, [E].
Esposito Holdings admits the third Payment and the Trust. It says that on or about 24 February 2014, it paid $17,000,000 to AE Brighton and that this payment was a breach of the Trust.[11]
[11]Esposito Holdings’ Defence dated 20 December 2019, [7], [9], [12], [13].
Essentially, AE Brighton denies UDP’s allegations.[12]
[12]AE Brighton’s Defence dated 29 November 2019.
Mr Temelkovski either does not plead to or does not admit UDP’s allegations in respect of Esposito Holdings and AE Brighton. He says that his caveats over the Brighton Properties arise as a result of:[13]
[13]Temelkovski’s Defence dated 29 November 2019, [14]-[18].
(a) his interest as mortgagee over 2 Kinane Street Brighton pursuant to a mortgage with AE Brighton dated 5 November 2013 (‘2013 Mortgage’);
(b) rhat mortgage is collateral to a facility agreement dated 5 November 2013 between him as lender, AE Brighton as borrower and Mr Esposito as guarantor, whereby he agreed to make cash advances up to a limit of $2.5m and AE Brighton agreed to mortgage and charge its interest in the 2 Kinane Street Brighton property and charged all other presently and future owned property of AE Brighton, which includes the 92 Esplanade Brighton property (‘2013 Loan and Guarantee’) ; and
(c) if UDP does have any estate or interest in either of the Brighton Properties, which is not admitted, then his estate or interest has priority over UDP’s estate or interest.
There is no need to summarise the defences of the third and fourth defendants in these reasons.
AE Brighton’s discovery
On 17 December 2019, I made orders that UDP, Esposito Holdings and AE Brighton make general discovery in accordance with r 29.01.1 of the Rules.
On 31 January 2020, I made orders extending the date for AE Brighton’s discovery to 11 February 2020, and for the third to fifth defendants to make discovery by 21 February 2020. The proceeding was listed for further directions on 28 February 2020.
On the morning of that directions hearing, AE Brighton’s solicitors sent to my Associate and to the parties a copy of the Esposito Affidavit of Documents. That affidavit does not appear to have been filed, however it forms part of an exhibit to the Second Sloan Affidavit.[14]
[14]Second Sloan Affidavit, [5]; Exhibit MGS-1 to that affidavit.
By the Esposito Affidavit of Documents, AE Brighton made discovery of one document: described as Westpac Loan Documents from Westpac Banking Corporation (‘Westpac’) to AE Brighton dated 13 November 2013. A copy of that document was provided to the other parties with the affidavit.
The Esposito Affidavit of Documents also made discovery of documents that AE Brighton once had but no longer has, describing these documents held by third parties which include:
(a) AE Brighton’s original bank statements which are in Westpac’s possession and which AE Brighton is in the process of requesting;
(b) documents which were provided to its accountants PWC and which are subject to an alleged accountant’s lien, and which AE Brighton is in the process of seeking the release of the alleged lien to enable them to be discovered in this proceeding (if relevant), those documents being:
(iv) Copies of bank statements;
(v) Financial statements, accounting records and source documents for AE Brighton for the years ending 30 June 2012 and 30 June 2013; and
(vi) Source documents for AE Brighton from 30 June 2013 to 30 June 2015
(together, the ‘PWC Documents’);
(c) Documents which were provided to AE Brighton’s former solicitors K & L Gates and are subject to an alleged solicitor’s lien, and which AE Brighton is in the process of seeking the release of the alleged lien to enable them to be discovered in this proceeding, those documents being:
(i) Contracts of sale for the Properties;
(ii) Statements of adjustments for the Properties; and
(iii) Conveyancing files for the Properties
(together, the ‘K & L Gates Documents’).
On 28 February 2020, AE Brighton’s solicitors sent an email to Ashurst attaching copies of letters sent to PWC and K & L Gates on that date which requested the documents required to be discovered as part of the proceeding.[15]
[15]Second Sloan Affidavit, [6]; Exhibit MGS-2 to that affidavit.
On 6 March 2020, Ashurst wrote to AE Brighton’s solicitors, stating UDP’s position that AE Brighton’s discovery was incomplete and requesting discovery of categories of documents, which correspond to Categories A to D in the Application. UDP stated that the alleged liens were not a basis for failing to provide discovery of the PWC Documents and the K & L Gates Documents, as these were in the power of AE Brighton as a client. It pointed out that AE Brighton could pay the amounts owing to obtain a release of the liens or issue subpoenas.[16]
[16]Second Sloan Affidavit, [7]; Exhibit MGS-3 to that affidavit.
On 25 March 2020, two days before the scheduled hearing of the Application, AE Brighton issued two subpoenas for production of documents to the Prothonotary under r42A.03 of the Rules, one to PWC and the other to K & L Gates, with the documents to be produced by 6 April 2020. The documents to be produced pursuant to both subpoenas are as follows:
(a) documents evidencing any loans from Esposito Holdings to AE Brighton from 1 July 2013 to 30 June 2015; and
(b) the financial statements, bank records, accounting records, source documents of AE Brighton from 1 July 2013 to 30 June 2015.
In the Esposito Affidavit, Violeta Esposito deposes that:
(a) she is the sole director of AE Brighton;[17]
[17]Esposito Affidavit, [1].
(b) she was appointed a director of AE Brighton on 14 April 2016;[18]
[18]Esposito Affidavit, [3].
(c) the Category A documents are not in AE Brighton’s possession, custody or control. She says they were not provided to her upon becoming a director of AE Brighton. She also says that she has spoken to Mr Esposito who was the previous director and he says that he does not have those documents in his possession, custody or control;[19]
[19]Esposito Affidavit, [4].
(d) the Category B documents are the subject of a request she has made to Westpac. I note that it is apparent from Exhibit VE 2 that this request of Westpac was made by email dated 26 March 2020;[20]
(e) the Category C documents are too wide, unless read down to be limited to correspondence relating to the 2013 Mortgage and the 2013 Loan and Guarantee. She says those documents are not in AE Brighton’s possession, custody or control. She says they were not provided to her upon becoming a director of AE Brighton. She also says that she has spoken to Mr Esposito who was the previous director and he says that he does not have those documents in his possession, custody or control;[21] and
(f) the Category D documents are the subject of the subpoenas issued by AE Brighton to PWC and K & L Gates.[22]
[20]Esposito Affidavit, [5].
[21]Esposito Affidavit, [6].
[22]Esposito Affidavit, [7].
Applicable law
Rule 29.08 of the Rules provides for orders to be made for particular discovery, as follows:
(1) This Rule applies to any proceeding in the Court.
(2)Where, at any stage of a proceeding, it appears to the Court from evidence or from the nature or circumstances of the case or from any document filed in the proceeding that there are grounds for a belief that some document or class of document relating to any question in the proceeding may be or may have been in the possession of a party, the Court may order that party to make and serve on any other party an affidavit stating—
(a)whether that document or any, and if so what, document or documents of that class is or has been in that party's possession; and
(b)if it has been but is no longer in that party's possession, when the party parted with it and that party's belief as to what has become of it.
(3)An order may be made against a party under paragraph (2) notwithstanding that the party has already made or been required to make an affidavit of documents.
As UDP submits, an order for particular discovery is in the discretion of the Court. In exercising that discretion, a threshold issue is whether the documents are relevant to the proceeding.[23] The Court may make an order for particular discovery if the pleadings or prior discovery indicate inadequate discovery in the proceeding, or where the evidence discloses an admission as to the existence of the documents sought.[24]
[23]Cargill Australia Limited v Viterra Malt Pty Ltd (No 9) [2018] VSC 433, [40].
[24]Opti-Pharm Pty Ltd v Nature One Dairy Pty Ltd (No 2) [2018] VSC 688, [20].
Rule 29.11 of the Rules provides as follows:
Where a party—
(a)fails to make discovery of documents in accordance with Rules 29.03 and 29.04;
(b)fails to serve a notice appointing a time for inspection of documents as required by Rule 29.09 or 29.10;
(c)objects to produce any document for inspection;
(d)offers inspection unreasonable as to time or place; or
(e)objects to allow any document to be photocopied or to supply a photocopy of the document—
the Court may order the party to do such act as the case requires.
Rule 29.03, referred to in r 29.11, does not apply here as it concerns notices for discovery, which were not the source of AE Brighton’s obligations to make discovery in this case. There has therefore been no failure to make discovery in accordance with r 29.03.
Rule 29.04, referred to in r 29.11, provides as follows:
(1)An affidavit of documents for the purpose of making discovery of documents shall be in Form 29B and shall—
(a) identify the documents which are or have been in the possession of the party making the affidavit;
(b) enumerate the documents in convenient order and shall describe each document or, in the case of a group of documents of the same nature, shall describe the group, sufficiently to enable the document or group to be identified;
(c) distinguish those documents which are in the possession of the party making the affidavit from those that have been but are no longer in that party's possession, and shall as to any document which has been but is no longer in the possession of the party—
(i) state when the party parted with the document; and
(ii) the party's belief as to what has become of it;
(d) where the party making the affidavit claims that any document in that party's possession is privileged from production, state sufficiently the grounds of the privilege.
(2) If a party required to give discovery in accordance with Rule 29.01.1 does not, in making a reasonable search as required by Rule 29.01.1, search for a category or class of document, the party must include in the affidavit of documents a statement of—
(a) the category or class of document not searched for; and
(b) the reason why.
Section 55 of the CPA provides as follows:
(1)A court may make any order or give any directions in relation to discovery that it considers necessary or appropriate.
(2)Without limiting subsection (1), a court may make any order or give any directions—
(a) requiring a party to make discovery to another party of—
(i)any documents within a class or classes specified in the order; or
(ii)one or more samples of documents within a class or classes, selected in any manner which the court specifies in the order;
(b) relieving a party from the obligation to provide discovery;
(c) limiting the obligation of discovery to—
(i) a class or classes of documents specified in the order; or
(ii)documents relating to one or more specified facts or issues in dispute; or
(iii)some or all of the issues set out in a statement of issues filed in the proceeding;
(d) that discovery occur in separate stages;
(e)requiring discovery of specified classes of documents prior to the close of pleadings;
(f) expanding a party's obligation to provide discovery;
(g)requiring a list of documents be indexed or arranged in a particular way;
(h)requiring discovery or inspection of documents to be provided by a specific time;
(i)as to which parties are to be provided with inspection of documents by another party;
(j)relieving a party of the obligation to provide an affidavit of documents;
(k)modifying or regulating discovery of documents in any other way the court thinks fit.
(3)A court may make any order or give any directions requiring a party discovering documents to—
(a)provide facilities for the inspection and copying of the documents, including copying and computerised facilities;
(b)make available a person who is able to—
(i)explain the way the documents are arranged; and
(ii)help locate and identify particular documents or classes of documents.
(4)A court may order or direct a party to pay to another party an amount specified or determined by, or in accordance with, the order or direction in relation to the costs of discovery in any manner considered appropriate by the court, including, but not limited to, payment in advance of an amount to the other party for some or all of the estimated costs of discovery.
(5)Without limiting any other power of a court to make costs orders, a court may order or direct that costs payable under an order or a direction under subsection (4) are recoverable as costs in the proceeding.
As UDP submits, s 55 of the CPA gives the Court broad powers to make any order about discovery it considers necessary or appropriate, including by expanding a party’s obligation to provide discovery. The Court may make any order or direction modifying or regulating discovery of documents in any other way that the Court sees fit.[25]
[25]Hanks v Johnston (No 3) [2016] VSC 629, [29].
Submissions
UDP’s submissions
Relevance of the documents sought
UDP submits that the documents in Categories A to C, concerning the 2013 Mortgage and the 2013 Loan and Guarantee, are relevant in at least two ways.
First, the documents are relevant to paragraph 22 of the SOC and paragraphs 13 to 19 of the Temelkovski Defence. Mr Temelkovski contends that he has an interest in some of the Properties because of the 2013 Mortgage and the 2013 Loan and Guarantee and that that interest takes priority over any interest of UDP. Several factual matters material to that priority dispute remain unclear, including the attachment of the mortgage to the properties and the nature and timing of any interest created by the mortgage, which was not registered and was never executed by Mr Temelkovski.[26]
[26]Temelkovski Affidavit, [16].
Secondly, Mr Temelkovski has given evidence suggesting that the loan funds may have been used by Mr Esposito to repay amounts drawn from 5 Star Foods to purchase property or to improve property.[27] The documents are therefore likely to be relevant to the tracing of funds and AE Brighton’s knowledge as alleged in paragraphs 12 to 14 of the SOC.
[27]Temelkovski Affidavit, [11].
UDP submits that the Category D documents are relevant to paragraphs 12 to 14 of the SOC, where it is alleged amongst other things that Mr Esposito procured Esposito Holdings to give the Payment monies to AE Brighton and to use the money to buy the Properties; that giving the money was in breach of trust; and AE Brighton received the money as a volunteer and with knowledge of that breach. It says that each allegation is denied by AE Brighton under cover of an objection that the SOC does not provide adequate particulars of the allegations. AE Brighton has sought further particulars of paragraphs 12 and 13 of the SOC, which UDP says it cannot provide without further discovery.
The Category D documents are relevant to, inter alia, the tracing of funds from Esposito Holdings to the Properties, AE Brighton’s knowledge, and whether AE Brighton received the funds as a volunteer.
Sufficiency of AE Brighton’s discovery and control of documents
UDP submits that AE Brighton has produced only a single document in discovery.
In respect of the statements made in the Esposito Affidavit of Documents about the whereabouts of the PWC Documents and the K & L Gates Documents, UDP submits that even accepting those statements at face value, none of the reasons provided by AE Brighton resists the inference that the documents are within its control. Even if certain of its bank statements are within the possession of Westpac, there is no evidence that AE Brighton lacks the power to obtain them from Westpac. UDP observed that the Esposito Affidavit of Documents stated that AE Brighton was ‘in the process of requesting’ the bank statements from Westpac, yet the only evidence of a request was the one made on 26 March 2020, just under one month later.
Further, that documents are subject to an accountant’s or solicitor’s lien is not sufficient to resist an order for production. Here, UDP relies on the statement of Stirling J in Lewis v Powell that:[28]
These cases [show] that the mere fact that documents are in possession of a former solicitor who claims a lien upon them is not a sufficient answer to an application in the usual mode for discovery …
[28][1897] 1 Ch 678, 682.
UDP submits that an order for production may also be made even where the party disputes the costs of the solicitor claiming the lien; the question is whether the person called upon to make production has done his best to get possession of the documents claimed by their solicitor. However, the Court may reserve liberty to apply if the party cannot obtain the documents.
In the UDP Outline, UDP also submits that AE Brighton has not given evidence about whether it has access to other copies of its documents, including electronic copies or access to online banking statements. The UDP Outline was prepared prior to receipt of the Esposito Affidavit: it is not clear to me whether this UDP continued to press this aspect of its submissions.
AE Brighton’s submissions
AE Brighton submits that it has met its discovery obligations, as it has discovered and produced relevant documents which it has, and it has set out the documents it once had but no longer has, and identified their location, as it is required to do. It says that it has requested the bank statements from Westpac and, once it obtains them, it will comply with its obligations of continuing discovery.
In relation to the documents sought in the Application, AE Brighton submits that these are in the possession, custody or control of K & L Gates and PWC and it has requested those documents from K & L Gates and PWC. It says it has also issued subpoenas for their production to the Prothonotary. AE Brighton says that if the subpoenaed documents are produced to the Prothonotary, it will comply with its obligations for continuing discovery.
At the hearing, counsel for AE Brighton submitted that it could not discover documents unless they were in its possession. It has made requests for documents which have not been met, and then it issued the subpoenas. Counsel stated that the documents sought in the subpoenas were the same as those set out in the Application. Counsel submitted that AE Brighton could not afford to discharge the liens, and it could do no more than it had done by issuing the subpoenas.
AE Brighton says that it could not have issued these subpoenas prior to the Application being filed, as it would have been an abuse of process to have done so, as there was no application on foot or trial date set at that time.
AE Brighton also submits that it cannot take any further steps to obtain the documents, and it would have been preferable for UDP to have issued the subpoenas as the liens do not bind them, it was well aware of the location of the documents, and it would have been cheaper and easier for UDP to have issued the subpoenas rather than issue the Application, thereby complying with its obligations under s 24 of the CPA to ensure that costs are reasonable and proportionate.
AE Brighton says that the Application should be dismissed with costs, as there is no utility in making the orders sought when the documents have been subpoenaed. It says that if the Court does not dismiss the Application, then it should be adjourned to a date after the documents are produced pursuant to the subpoenas and available for inspection in the usual way.
UDP’s submissions in reply
In respect of AE Brighton’s submission that making a further discovery order at this stage would be futile, UDP submitted that it would not be futile, for two reasons:
(a) AE Brighton has still not complied with its discovery obligations; and
(b) the subpoenas do not include all of the documents sought in Categories A to D. UDP says that the documents set out in the schedules to the subpoenas are merely a subset of the documents sought in Categories A to D.
Counsel for UDP submitted that AE Brighton’s submissions were all based on the discovery obligation arising as to documents in its possession, ignoring the provisions of r 29.01 that it was documents in the possession, custody or power of a party which were required to be discovered. Physical possession does not determine the scope of the discovery obligation.[29] In response, Counsel for AE Brighton stated that the position he outlined in respect of possession was based on the practical aspects, not what the Rules provide.
[29]Hanks v Johnston (No 3) [2016] VSC 629.
Consideration
Relevance of the documents sought
I accept UDP’s submissions as to the relevance of the documents sought in Categories A to D.
I do not accept that the statement in the Esposito Affidavit, as set out in paragraph above, that Category C is too wide unless read down to refer only to the 2013 Mortgage and the 2013 Loan and Guarantee, is evidence. It is an assertion or an opinion only.
While Violeta Esposito does not give any evidence about the relationship between the relevant parties, Mr Temelkovski gives evidence that he is Violeta Esposito’s brother, and that Violeta Esposito is in a de facto relationship with Mr Esposito.[30] One would have thought that if it was possible that there may be correspondence beyond the issues in dispute in this proceeding between AE Brighton, Mr Esposito, Violeta Esposito and/or related parties, and Mr Temelkovski and/or related parties, then it was incumbent on Violeta Esposito to give evidence to substantiate her assertion that Category C was too wide, which evidence may go to the nature of the relationships between the parties.
[30]Temelkovski Affidavit, [10].
Therefore, to the extent that Violeta Esposito’s assertion is a submission by AE Brighton, it could well be that Category C is too wide. However, I should not have to speculate about how it may be too wide or what amendments to the category should be made. This being AE Brighton’s complaint, it ought to have made appropriate submissions, based on actual evidence, as to the scope of this category. It has not done so. Since any orders to be made will be finalised after the parties have had an opportunity to consider these reasons, it may be appropriate to clarify the scope of Category C.
I note that there were no submissions made by AE Brighton, either in the AE Brighton Outline or in oral submissions, that the documents sought in the Application were not relevant to the proceeding.
Should orders for further discovery by AE Brighton be made?
The orders for further discovery by AE Brighton as sought in the Application should be made.
I am satisfied that the Court’s powers to order further or particular discovery have been enlivened. While AE Brighton has identified documents it no longer has in its physical possession and where those documents are located, it has not fully complied with its discovery obligations as the concept of possession in the Rules encompasses possession, custody or power, not just physical possession.
I accept UDP’s submissions in respect of the PWC Documents and the K & L Gates Documents being documents which are within the power of AE Brighton to discover. The solicitor’s and accountant’s liens are not an answer to AE Brighton’s obligations in this regard. It is within AE Brighton’s power to deal with those liens so as to enable them to obtain the documents and then discover them, by discharging those liens.
I do not accept the submission that AE Brighton has done all that it can to make discovery of these documents. There is no evidence before me at all to substantiate the submission from the Bar table that AE Brighton cannot afford to discharge the liens. Further, the documents sought in the subpoenas do not include all categories of documents sought in the Application, so it can hardly be said that by issuing the subpoenas AE Brighton has taken all steps that it can take. By way of example, the subpoena issued to K & L Gates seeks the same documents as those listed in the subpoena issued to PWC, which do not include the sale contracts for the Properties and the conveyancing file for the Properties.
As was stated in Lewis v Powell:[31]
The test in every case is whether the person called upon to make production has done his best to get possession of the documents claimed by his solicitor.
[31][1897] 1 Ch 678, 683.
I am by no means satisfied that AE Brighton has done its best to get possession of the documents. Other than the statements in the affidavits relied upon by AE Brighton that the K & L Gates Documents and the PWC Documents are the subject of liens, there is no evidence that either of those organisations is maintaining or insisting upon their liens, or has resisted handing over the documents. There is no evidence of any attempts to negotiate with those organisations or to make any sort of arrangement: all that there is are last-minute letters sent requesting the documents, and subpoenas which do not specify the totality of the documents which AE Brighton itself has acknowledged are discoverable or which are contained in Categories A to D of the Application.
Further or alternatively to the exercise of powers under the Rules, in my view it is appropriate to make the orders sought pursuant to s 55 of the CPA. The power to make orders regarding discovery under that provision is, as UDP submits, broad. It is appropriate for the Court to exercise its discretion to make the orders sought. The documents in Categories A to D are clearly relevant to issues in the proceeding; they are documents which AE Brighton are expected to discover, and in any event the fact that the K & L Gates Documents and the PWC Documents have been listed in the Esposito Affidavit of Documents is an acknowledgment of that; and I do not accept that AE Brighton should be relieved of its discovery obligations in respect of those documents because it does not have physical possession (in the narrow sense) of them or that this is a justification for not exercising the discretion to make orders for further discovery.
Costs
Costs as between UDP and AE Brighton
UDP’s submissions
UDP submitted that AE Brighton should pay its costs of the Application, for the following reasons:
(a) AE Brighton had failed to comply with orders for discovery by the time ordered, as I have outlined above;[32]
[32]Orders made on 17 December 2019, [3]; First Sloan Affidavit, [9]; Orders made on 31 January 2020, [3]; First Sloan Affidavit, [13], [18].
(b) on 25 February 2020, AE Brighton’s solicitors wrote to UDP’s solicitors indicating that an affidavit of documents would be provided the next day. It was not;[33]
[33]First Sloan Affidavit, [17]-[18].
(c) on 28 February 2020, AE Brighton’s solicitors emailed the Esposito Affidavit of Documents to UDP’s solicitors, which was not filed;[34]
(d) AE Brighton’s discovery is deficient, having discovered only one document[35] and not requesting documents held by K & L Gates and PWC until 28 February 2020,[36] well past the due date for its discovery; and
(e) UDP’s solicitors have sought to engage with AE Brighton’s solicitors on several occasions regarding discovery,[37] in accordance with their obligations under the CPA, incurring significant costs in doing so. A number of these communications received no, or cursory responses.[38]
[34]Second Sloan Affidavit, [5], [8].
[35]Second Sloan Affidavit, [5].
[36]Second Sloan Affidavit, [6].
[37]First Sloan Affidavit, [6], [9], [13]-[17]; Second Sloan Affidavit, [7].
[38]First Sloan Affidavit, [6], [13]-[15], [17]; Second Sloan Affidavit, [7].
AE Brighton’s submissions
Apart from stating in the AE Brighton Outline that the Application should be dismissed with costs (see paragraph 46 above), AE Brighton has not made any submission in respect of costs. At the hearing, Counsel for AE Brighton indicated that he wished to be heard on the question of costs once the Court’s decision had been handed down.
Consideration
Given AE Brighton’s position on costs as set out in the previous paragraph, I will give UDP and AE Brighton an opportunity to ascertain whether consent orders can be reached in respect of costs or to provide brief submissions if consent is not reached, in accordance with the procedure and timeframe set out in paragraph 88 below. I do not require the submissions already made by UDP in respect of costs to be repeated, as I will take the submissions already made into account. It is sufficient for UDP to only set out any additional matters if it wishes to do so.
Costs as between UDP and Mr Temelkovski
Mr Temelkovski’s affidavit of documents
Mr Temelkovski made discovery by his affidavit of documents sworn 25 February 2020 and filed on that date (‘Temelkovski Affidavit of Documents’). In that affidavit, he made discovery of the following documents:
(a) facility Agreement dated 5 November 2013;
(b) mortgage dated 5 November 2013;
(c) five bank statements, of various dates; and
(d) 31 drawing notices, of various dates, between 4 December 2015 and 25 September 2018.
Other than the originals of those documents noted as copies, there were no documents discovered in the Temelkovski Affidavit of Documents as documents which Mr Temelkovski once had but no longer has.
The Temelkovski Affidavit
The Temelkovski Affidavit is relatively detailed. I will mention some aspects of it which are relevant on costs below.
In summary, in respect of the documents sought in Categories A to C of the Application, Mr Temlkovski deposes that:[39]
[39]Temelkovski Affidavit, [26].
(a) in relation to Category A, all negotiations/discussions were face to face between him and Mr Esposito and to the best of his knowledge there are no drafts, correspondence, letters, emails or text messages in existence relating to the 2013 Mortgage and/or the 2013 Loan and Guarantee;
(b) in relation to Category B, all drawdown notices and bank statements have already been discovered and he is not privy to any documentation evidencing the purposes for which each requested advance was made. Each time Mr Esposito or Violeta Esposito requested an advance, the request was made face to face or by telephone; and
(c) in relation to Category C, there is no relevant correspondence between him and AE Brighton or him and Violeta Esposito.
UDP’s submissions
UDP submits that although it no longer presses the Application in respect of Mr Temelkovski, costs as between it and Mr Temelkovski should be reserved, as:
(a) Mr Temelkovski failed to make timely discovery as ordered;[40]
[40]Orders made 27 January 2020, [2]; First Sloan Affidavit, [26]-[27].
(b) the full position of Mr Temelkovski regarding discovery was only explained in an affidavit provided to UDP’s solicitors following filing of the Application;
(c) UDP’s solicitors sought to engage with Mr Temelkovski about his discovery;[41] and
(d) Mr Temelkovski’s solicitors did not respond to initial correspondence about his discovery, which could have obviated the need for the Application.[42]
[41]First Sloan Affidavit, [25]-[32].
[42]First Sloan Affidavit, [25].
Mr Temelkovski’s submissions
In summary, Mr Temelkovski submits that UDP should pay his costs of the Application, as it has been withdrawn as against him and there was no need for UDP to include him in the Application.
Mr Temelkovski relies on correspondence between his solicitors (Stenta Legal) and UDP’s solicitors (Ashurst) prior to the issuing of the Application, which I have summarised below.
On 6 February 2020, Ashurst wrote to Stenta Legal seeking specific discovery including:[43]
[43]Temelkovski Affidavit, [4]; Exhibit GT-2.
(a) the original mortgages in respect of the 2 Kinane Street Brighton property;
(b) bank statements evidencing loan drawdowns and/or payments (or lack thereof);
(c) all original and supporting documents (including correspondence such as letters, emails and text messages) that relate to the 2013 Mortgage and the 2013 Loan and Guarantee; and
(d) all correspondence with the other defendants.
Stenta Legal provided copies of Mr Temelkovski’s discovered documents to all parties on 26 February 2020.[44]
[44]Temelkovski Affidavit, [5]; Exhibit GT-3.
Also on 26 February, Stenta Legal wrote to Ashurst, stating that the documents requested by UDP (as described in paragraph 71 above) had been adequately discovered in the Temelkovski Affidavit of Documents.[45]
[45]Temelkovski Affidavit, [6]; Exhibit GT-4.
Ashurst wrote to Stenta Legal on 5 March 2020 pressing for the further discovery and stating that:[46]
[46]Temelkovski Affidavit, [7]; Exhibit GT-5.
(a) the Temelkovski Affidavit of Documents did not include substantive original and supporting documents;
(b) UDP had not been given documents surrounding the negotiation and agreement of the alleged mortgage, particularly correspondence such as letters, emails and text messages. Loans and mortgages simply do not come into existence without documents recording the requests and negotiations; and
(c) the bank statements discovered do not reveal the purpose for which the lending was advanced at the time of drawdowns. There are no communications or documents regarding drawdown notices.
In response to these three matters, Mr Temelkovski submits that:
(a) reference to originals was made in the Temelkovski Affidavit of Documents;
(b) negotiations are irrelevant when there are executed documents, however UDP’s assertions are bullish and manifestly incorrect. The Temelkovski Affidavit makes it clear that this is a case where there were no documents except the final executed ones, and Mr Temelkovski was under no obligation to explain such matters in his affidavit of documents; and
(c) the Temelkovski Affidavit makes it clear that communications regarding the drawdowns were face to face or over telephone, and UDP was in no position to assert that there were communications which ought to have been discovered. Again, Mr Temelkovski was not obliged to explain this in his affidavit of documents.
Mr Temelkovski submits that bullish assertions by UDP as to the existence of documents and the ‘failure’ to discover them is not a basis for the Application against him. He says that Ashurst did not, in their letter of 5 March 2020, ask if the documents they complained of existed and simply assumed that they did.
Consideration
Mr Temelkovski did not appear at the hearing of the Application, and his solicitor indicated prior to the hearing that he was content for the question of his costs to be dealt with on the papers.
True it is that an affidavit of documents is no place to state that requested categories of documents have never existed or to explain why that is the case. If all that was at play here was the order for discovery and then the provision of the Temelkovski Affidavit of Documents, without any of the correspondence, then filing the Application against Mr Temelkovski may well be premature and that would likely carry costs consequences.
However, in this instance we have correspondence setting out the types of documents UDP expected Mr Temelkovski to discover. I interpose here to say that there is nothing remarkable about the documents sought, they are clearly relevant on the pleadings. It is also not uncommon for parties to write to each other prior to discovery being due, making their expectations clear as to the sorts of documents to be discovered. Such conduct can assist the parties in avoiding discovery disputes in future. That expectation was conveyed in the Ashurst letter of 5 February 2020. There is no evidence of any correspondence between then and the provision of the Temelkovski Affidavit of Documents, let alone any correspondence stating that Mr Temelkovski disagreed with the documents sought by UDP.
The Temelkovski Affidavit of Documents was served on the parties on 25 February 2020.[47] Discovery was ordered to have been done by 21 February 2020.[48]
[47]First Sloan Affidavit, [27].
[48]Orders made on 31 January 2020.
The chronology set out in the Temelkovski Outline, which I have set out above in paragraphs 71 to 74, omits what I consider to be relevant correspondence:
(a) on 21 February 2020, Ashurst sent an email to Stenta Legal stating that Mr Temelkovski’s discovery had not been provided as ordered, and requested it by 26 February or it would serve a notice of default under the Rules, No response was received;[49] and
(b) on 25 February 2020, after receiving the Temelkovski Affidavit of Documents, Ashurst sent Stenta Legal an email requesting copies of the discovered documents. In that email, Ashurst referred to and attached a copy of its 5 February letter, and said that the affidavit of documents did not include original supporting documents, correspondence regarding the 2013 Mortgage and the 2013 Loan and Guarantee, and correspondence with the other defendants.[50] A copy of this email was exhibited to the Temelkovski Affidavit but was not referred to in the Temelkovski Outline.[51]
[49]First Sloan Affidavit, [26]; MGS-11 to that affidavit.
[50]First Sloan Affidavit, [28]; Exhibit MGS-13 to that affidavit.
[51]Exhibit GT-2 to the Temelkovski Affidavit.
The Temelkovski Outline repeatedly refers to the Temelkovski Affidavit as being dated 13 March 2020: that was the original date on it, but it is crossed out and handwritten as 17 March 2020, the date it was sworn and filed. Under the orders made on 28 February, it was to have been filed and served by 13 March 2020.
At the directions hearing on 28 February 2020, UDP’s counsel indicated that it had issues with AE Brighton’s and Mr Temelkovski’s discovery, and as set out above, orders were made for any application to be filed in respect of that by 6 March 2020. The Ashurst email of 25 February 2020 also indicated that UDP had issues with Mr Temelkovski’s discovery and it was apparent from that email that UDP continued to press the categories set out in the Ashurst letter of 5 February. The Ashurst letter of 5 March set out UDP’s concerns with Mr Temelkovski’s discovery in more detail and states that if complete discovery and inspection is provided by 12 March 2020 then UDP will withdraw the Application as against Mr Temelkovski.[52]
[52]Second Sloan Affidavit, [9]; Exhibit MGS-4 to that affidavit.
As set out above, the categories of documents set out in the Ashurst 5 February are relevant on the pleadings. It was not unreasonable for UDP to consider that Mr Temelkovski’s discovery was deficient, when all it had to go on was his affidavit of documents. The concerns with that discovery were raised straight away but no response was forthcoming. The concerns were further elucidated in the 5 March letter from Ashurst. UDP filed the Application on the due date. At that time, it was not unreasonable for UDP to include Mr Temelkovski in that application. It was clear that if full discovery and inspection was made by 12 March, the Application would be withdrawn against him.
It was open to Mr Temelkovski to address the concerns much earlier than he did, thereby avoiding being included in the Application or having it continue. Instead, he waited until after the date ordered to file the Temelkovski Affidavit, in which he set out his explanation as to why he did not have the originals of the 2013 Mortgage and 2013 Loan and Guarantee, and why there were no drafts or correspondence. Timely responses addressing concerns about discovery which are bona fide is one way of avoiding incurring costs associated with applications for discovery.
In all of the circumstances, I do not consider that it is appropriate to order UDP to pay Mr Temelkovski’s costs of the Application. Rather, the costs of both of these parties in respect of the Application should be there costs in the proceeding. That is preferable to reserving the costs, as it is better to deal with it now and in the context of the Application.
Conclusion
Accordingly, there will be orders made that AE Brighton make discovery of the documents sought in Categories A to D of the Application.
Following receipt of these reasons, UDP and AE Brighton are requested to confer as to the form of orders between them and provide consent orders to my Chambers, including as to costs, within one week of the date of handing down these reasons. If consent cannot be reached, then each party should provide my Chambers with its proposed orders (including as to costs) and a submission of no more than two pages as to why its orders ought to be preferred, within one week of the date of handing down these reasons. The orders will then be made on the papers.
Further, there will be orders made dismissing the Application as against Mr Temelkovski, with the costs as between UDP and Mr Temelkovski to be costs in the proceeding. When the orders relating to the Application are finalised pursuant to the previous paragraph, these orders will be included.
SCHEDULE OF PARTIES
| S ECI 2019 04810 | |
| BETWEEN: | |
| UDP HOLDINGS PTY LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT) (RECEIVERS AND MANAGERS APPOINTED) (ACN 167 100 692) | Plaintiff |
| - v - | |
| ESPOSITO HOLDINGS PTY LTD (IN LIQUIDATION) (ACN 079 763 303) | First Defendant |
| AE BRIGHTON HOLDINGS PTY LTD (ACN 166 492 306) | Second Defendant |
| MARGARET MARY ESPOSITO | Third Defendant |
| HAGIT PTY LTD (ACN 150 965 825) | Fourth Defendant |
| GORAN TEMELKOVSKI | Fifth Defendant |
| REGISTRAR OF TITLES | Sixth Defendant |
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