Vantage Holdings Group Pty Ltd v Donnelly [No 2] - [2018] WASC 197

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION:   VANTAGE HOLDINGS GROUP PTY LTD -v- DONNELLY [No 2] [2018] WASC 197
CORAM:   CHANEY J
HEARD:   30 MAY 2018
DELIVERED          :   26 JUNE 2018
PUBLISHED           :   26 JUNE 2018
FILE NO/S:   CIV 1086 of 2016
BETWEEN:   VANTAGE HOLDINGS GROUP PTY LTD
First Plaintiff
RELIANCE FRANCHISE PARTNERS PTY LTD
Second Plaintiff
AUSTRALIAN RELIANCE PTY LTD
Third Plaintiff
AUSTRALIAN RELIANCE GROUP PTY LTD
Fourth Plaintiff
AND
ANDREW PAUL DONNELLY
First Defendant
KIMBERLEY JAMES HANSON
Second Defendant
HAWKSTONE GROUP PTY LTD
Third Defendant
INSUBI PTY LTD
Fourth Defendant
PA AUDIT PTY LTD
Fifth Defendant
MARK ANTHONY ENGLISH
Sixth Defendant
DFK PA PARTNERS PTY LTD
Seventh Defendant

Catchwords:

Practice and procedure - Discovery - Discovery before statement of claim filed - Defendants recently added to existing action - Whether matters in issue in relation to new defendants sufficiently disclosed in pleadings - Whether application constitutes fishing

Legislation:

Rules of the Supreme Court 1971 (WA), O 1 r 4B, O 26A r 4

Result:

Application dismissed

Category: B

Representation:

Counsel:

First Plaintiff	:	Mr M L Bennett
Second Plaintiff	:	No appearance
Third Plaintiff	:	Mr M L Bennett
Fourth Plaintiff	:	Mr M L Bennett
First Defendant	:	No appearance
Second Defendant	:	No appearance
Third Defendant	:	No appearance
Fourth Defendant	:	No appearance
Fifth Defendant	:	Mr J M Feutrill
Sixth Defendant	:	Mr J M Feutrill
Seventh Defendant	:	Mr J M Feutrill

Solicitors:

First Plaintiff	:	Bennett + Co
Second Plaintiff	:	Bennett + Co
Third Plaintiff	:	Bennett + Co
Fourth Plaintiff	:	Bennett + Co
First Defendant	:	Hotchkin Hanly
Second Defendant	:	Lemonis & Tantiprasut Lawyers
Third Defendant	:	Hotchkin Hanly
Fourth Defendant	:	Hotchkin Hanly
Fifth Defendant	:	HWL Ebsworth Lawyers
Sixth Defendant	:	HWL Ebsworth Lawyers
Seventh Defendant	:	HWL Ebsworth Lawyers

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

Erlistoun Gold Pty Ltd v Worth Investments Pty Ltd [1999] WASCA 3
Gollin Holdings Ltd v Adcock [1981] 1 NSWLR 691
Latec Finance Pty Ltd v Jury (1960) 77 WN (NSW) 674
Mt Isa Mines Ltd v Seltrust Mining Corp Pty Ltd (Unreported, WASC, Library No 6016, 27 September 1985)
Waynes Merthyr Co v D Radford & Co [1896] 1 Ch 29

CHANEY J:

These proceedings were commenced on 18 January 2016 initially by the first (VHG), second (Reliance Parties) and third plaintiffs (Australian Reliance) against the first (Mr Donnelly) and second defendants (Mr Hanson). The fourth plaintiff (ARG) was added as a plaintiff in April 2016 and the third (Hawkstone) and fourth (Insubi) defendants were added as defendants in December 2016.
On 27 September 2017, orders were made joining the fifth, sixth and seventh defendants to the proceedings. I will refer to those defendants as the 'new defendants'.
The proceedings involve allegations of misapplication of trust funds by Mr Donnelly and Mr Hanson and breaches of their fiduciary duties to companies which can be broadly described as the Vantage Group of which the plaintiffs were members.
The indorsement of claim in relation to the new defendants on the writ of summons as amended at the time of joinder of those parties reads as follows:
1.13the fifth defendant (PA Audit) as Reliance Partners' and Australian Reliance's accountant and as the auditor of Reliance Partners' and Australian Reliance's financial reports and compliance with their AFSLs and the sixth defendant (Mr English) as the lead auditor for PA Audit in relation to the audit of Reliance Partners' and Australian Reliance's financial reports and compliance with their AFSLs and as a director of PA Audit, in knowing (whether by actual or constructive knowledge) of the conduct referred to in paragraphs 1.4, 1.5, 1.6.1, 1.6.2 and 1.9 above and failing or neglecting to report that conduct to ASIC or to the plaintiffs and such failure therein constituting knowingly assisting and being involved (pursuant to section 79 of the Corporations Act) in the conduct referred to in paragraphs 1.4, 1.5, 1.6.1, 1.6.2 and 1.9 above;
1.14the conduct of PA Audit, in breach of the duties it owed Reliance Partners and Australian Reliance under the Corporations Act and in contract and in tort, relating to the matters referred to in paragraphs 1.4, 1.5, 1.6.1, 1.6.2 and 1.9 above;
1.15the conduct of Mr English in breach of the duties he owed Reliance Partners and Australian Reliance under the Corporations Act and in tort, relating to the matters referred to in paragraphs 1.4, 1.5, 1.6.1, 1.6.2 and 1.9 above.
The pleadings as between the plaintiffs and the first to fourth defendants are well advanced although they have been the subject of a number of amendments. The most recent re‑amended statement of claim was filed on 15 May 2017 (statement of claim). The plaintiffs have not yet pleaded the claims against the fifth to seventh defendants.
By minute filed on 28 January 2018, the plaintiffs sought orders for discovery from the new defendants prior to pleading their claims against those defendants. Although expressed as categories of documents, the documents sought are quite extensive. The orders sought are as follows:
Fifth Defendant
1.Within 7 days, the fifth defendant give discovery verified by affidavit of all:
1.1documents containing the terms of the fifth defendant's engagement(s), to provide audit, taxation and other accounting services in relation to the financial affairs of the plaintiffs, or any of them, or Austin Financial Services Pty Ltd (Austin) during the period from January 2013 to January 2016;
1.2draft and final audit reports in relation to any of the plaintiffs or Austin, relating to or including the period from January 2013 to January 2016, including any draft or final audit reports prepared by the fifth defendant as part of its audit of:
1.2.1any consolidated financial statements that relate to any of the plaintiffs or Austin; and
1.2.2the second or third plaintiffs' compliance with their respective Australian Financial Services Licences;
1.3audit, accounting, taxation and other advice provided by the fifth defendant in relation to the plaintiffs, or any of them, or Austin during the period from January 2013 to January 2016;
1.4correspondence, notes of meetings and records of conversations between the fifth defendant or its representatives (including the sixth defendant) and:
1.4.1any of the plaintiffs or their directors or officers; or
1.4.2Austin or its directors or officers,
during the period from January 2013 to January 2016;
1.5correspondence, notes of meetings and records of conversations between the fifth defendant or its directors or officers (including the sixth defendant) and any third parties in relation to the plaintiffs, or any of them, or Austin during the period from January 2013 to January 2016;
1.6documents transferred from Pitcher Partners to the fifth defendant in or around January 2013 relating to any of the plaintiffs or Austin.
Sixth Defendant
2.Within 7 days, the sixth defendant give discovery verified by affidavit of all meeting notes made and diaries maintained by the sixth defendant relating to any of the plaintiffs or Austin during the period from January 2011 to January 2016;
Seventh Defendant
3.Within 7 days, the seventh defendant give discovery by affidavit of all:
3.1documents containing the terms of the seventh defendant's engagement(s), to provide accounting services in relation to the plaintiffs, or any of them, or Austin during the period from January 2013 to January 2016;
3.2draft and final financial statements in relation to the plaintiffs, or any of them, or Austin relating to the period from January 2013 to January 2016;
3.3accounting, taxation and other advice provided by the seventh defendant in relation to the plaintiffs, or any of them, or Austin during the period from January 2013 to January 2016;
3.4correspondence, notes of meetings and records of conversations between the seventh defendant or its representatives (including the sixth defendant) and;
3.4.1any of the plaintiffs or their directors or officers; or
3.4.2Austin or its directors or officers,
during the period from January 2013 to January 2016;
3.5correspondence, notes of meeting and records of conversations between the seventh defendant or its representatives and any third parties in relation to the financial affairs of the plaintiffs, or any of them, or Austin during the period from January 2013 to January 2016;
3.6documents transferred from Pitcher Partners to the seventh defendant in or about January 2013 relating to any of the plaintiffs or Austin.
4.The fifth, sixth and seventh defendants pay the plaintiffs' costs of this application, to be assessed if not agreed.
This application was argued on 30 May 2018. I have since been advised that Reliance Partners was wound up by order of the Supreme Court of Victoria on 30 May 2018. Because counsel for the plaintiffs was aware that step may be taken on the day on which this matter was heard, he indicated that he did not appear on behalf of Reliance Partners, but did represent the other three plaintiffs. It can be seen that the indorsement of claim relies upon these defendants' duties to Reliance Partners and Australian Reliance. It is not yet known whether the liquidator of Reliance Partners will continue the proceedings, a matter which may affect the scope of the claims made against these defendants and the extent of the issues in respect of which documents may be discoverable. That is a factor which militates against an order for discovery before the issues in the matter are clearly identified, although it is not of itself determinative of the application.
There are a number of bases upon which the plaintiff seeks these unusual orders for discovery before the matters in issue have been identified by pleadings.
First, the plaintiffs submit that the majority of the documents which it seeks are the plaintiffs own documents which they would be entitled to obtain from PA Audit or DFK in any event.
Secondly, the plaintiffs submit that they have no knowledge of the relevant facts that would assist them to plead because:
•there has been a change in control of the plaintiffs;
•the plaintiffs current directors were not directors of nor involved in the management of the plaintiffs during the relevant period;
•at all material times Mr Donnelly and Mr Hanson were directors of the plaintiff, and the claims against them in these proceedings relate to their conduct in those respective roles; and
•the manner in which PA Audit and DFK performed their audit and accounting engagements is peculiarly within their knowledge.
It is said that without the production of documents such as their audit and accounting working papers, the plaintiffs will have no means of knowing what action was and was not taken by DFK and PA Audit.
Thirdly, the plaintiffs submit that the current pleadings sufficiently demonstrate the nature of the plaintiffs' claims against DFK, PA Audit and Mr English such that the documents the plaintiffs seek will be plainly relevant to the proceedings and will ultimately be required to be discovered.

Relevant principles

It is a well settled principle that, in general, discovery will not be afforded prior to pleading.[1] In Gollin Holdings Ltd v Adcock,[2] Rogers J observed that that rule of practice will always yield to the demands of justice in the particular instance. He identified the two grounds upon which that principle is founded. Firstly, that it is impossible to determine what documents are material until the issues have been defined by pleadings and secondly, the need to avoid fishing expeditions. In that case, a detailed statement of claim had been filed, but a very extensive request for particulars had not been answered, and no defence yet filed. Rogers J made an order for discovery by the defendants on the basis that the plaintiffs had already delineated their case by the pleading comprised in the statement of claim, and he did not consider the application to be a fishing expedition.
[1] Latec Finance Pty Ltd v Jury (1960) 77 WN (NSW) 674.
[2] Gollin Holdings Ltd v Adcock [1981] 1 NSWLR 691, 696.
Erlistoun Gold Pty Ltd[3] concerned an appeal against an order of the master for specific discovery of certain nominated documents in circumstances where there had been a challenge to the statement of claim which had been conceded by the plaintiff, but no new statement of claim had been filed. White J, with whom Parker J agreed, referred to Mt Isa Mines Ltd[4] in which Seaman J approved the statement of principle enunciated by Brett LJ in Waynes Merthyr Co v D Radford & Co[5] where his Lordship said:
There is no hard and fast rule as to the class of cases in which particulars should precede discovery, or discovery be ordered before particulars; but the judge must exercise a reasonable discretion in every case after carefully looking at all the facts, and taking into account any special circumstances. Now, on the facts alleged in the statement of claim, it cannot be said that the plaintiffs are presenting a fishing case: there has already been a motion for an interim injunction, when the defendants admitted the fraudulent use of two of the plaintiffs' permits, one of the specific charges made against them in the statement of claim.
[3] Erlistoun Gold Pty Ltd v Worth Investments Pty Ltd [1999] WASCA 3.
[4] Mt Isa Mines Ltd v Seltrust Mining Corp Pty Ltd (Unreported, WASC, Library No 6016, 27 September 1985).
[5] Waynes Merthyr Co v D Radford & Co [1896] 1 Ch 29 [35].
White J said that it must 'be rare indeed for an order for discovery to be made against a defendant before the plaintiff has properly formulated his statement of claim, albeit without detailed particulars of all complaints. Usually, such an order will not be made until at least the nature of the plaintiff's case has been identified'.[6] He concluded that as the claims against the defendant were indicated, albeit defectively, in the statement of claim, and the intention was to repeat the same claims in a proper form, he was not persuaded that the Master's decision was in the circumstances in error.
[6] Erlistoun Gold Pty Ltd v Worth Investments Pty Ltd [1999] WASCA 3 [23].

Is the plaintiffs' claim sufficiently identified?

The plaintiffs contend that the impugned transactions by the first and second defendants having been fully pleaded and identified in the statement of claim, the nature of the claim against the new defendants can be adequately discerned so as to demonstrate that the documents sought are relevant to the claims made. I do not accept those submissions. While the indorsement of claim against the new defendants refers back to paragraphs of the indorsement of claim relating to conduct of other defendants, which conduct is pleaded with particularity in the statement of claim, the claims against each of the new defendants is based upon the conduct of each of those defendants which, save for the conduct of the fifth defendant referred to in par 1.13 of the indorsement, is completely unspecified. In my view, the new defendants cannot reasonably ascertain what duties or what conduct by them is said to provide a basis for the claims against them.

Fishing

The second of the reasons put forward by the plaintiffs in support of their application for early discovery demonstrates that the nature of the plaintiffs' enquiries are essentially to ascertain whether they have a claim against the new defendants or not. In his conclusion in his written submissions, counsel for the plaintiffs submitted that 'the current pleadings are sufficient to show that there is a suspicion that the applicant has a case which is likely to be aided by discovery'. Those suspicions would be apposite to an application under O 26A r 4 of the Rules of the Supreme Court 1971 (WA) for pre‑action discovery against a potential party. This is not, however, such an application. In this case, the new defendants have been joined and the writ amended to express in broad terms the nature of the claims to be made. It is to be assumed that that step has been taken because those advising the plaintiffs have assessed that there is a proper factual and legal basis to make the claim.
In my view, the plaintiffs should be required to identify the case which the new defendants have to meet before they are required to undertake the broad discovery which the plaintiff seeks. This application can fairly be regarded as fishing.

Prejudice

The new defendants relied upon affidavits of the sixth defendant, Mr English and Ms Mohamed Jazeema Noordeen who each deposed to the burden which discovery of the enumerated categories would impose. It is unnecessary to recount that evidence. Ms Noordeen gave estimates which suggested that the task would take an enormous amount of time totalling years rather than months. I do not accept that, with appropriate conferral and the provision of documents in electronic form, the task would necessarily take anything like the time estimated by Ms Noordeen. I do accept, however, that given the extent of the documents created by numerous staff members of the fifth and seventh defendants and the extent of the work done by the new defendants in relation to companies within the plaintiffs group, discovery of the broad categories of documents sought would be an onerous, time consuming and extensive task. The suggestion by counsel for the plaintiffs that these defendants could simply hand over their electronic records and allow the plaintiff to sort through them is no answer to that burden. A party giving discovery is entitled to ensure that only relevant documents are discovered, privileged documents are identified and the privilege claimed, and should not be requested to simply provide wholesale access to their books and records so as to make the task less onerous.
In my view, in the absence of the clear identification of the matters in issue and proper consideration of the categories of documents for which discovery should be given in light of those matters in issue, it is inappropriate to order discovery having regard to the case management principles found in O 1 r 4B of the Rules of the Supreme Court.
The plaintiffs contend that principles of efficient case management would be better served by making the orders sought. That submission is made on the basis that, if the plaintiffs are required to plead as against the new defendants without having access to all relevant documents, then it is inevitable that there will be request for particulars made by the defendants which will not be able to be answered without the documents, and that there is a high likelihood that amendments would be required to the pleadings in light of the discovery that is ultimately obtained. I accept that those are the likely consequences of the refusal of the present application. It is, however, a matter of weighing that disadvantage against the prejudice to the new defendants in having to undertake a burdensome process of discovery in relation to documents which may ultimately not be relevant or discoverable.

The plaintiffs claim to ownership of the documents

The reason put forward by the plaintiffs in support of the application was that the majority of documents are the plaintiffs own documents. The new defendants acknowledge that at least some of the documents sought are the plaintiffs' documents, although do not concede that the majority of the documents are the plaintiffs property. The new defendants contend however that they hold a lien over the documents for unpaid fees. That is not a dispute which can or should be resolved in the context of an application for discovery. Ownership of the documents in respect of which discovery is sought is not a factor which weighs in the balance. Discovery is given in relation to documents within the party's possession, custody or power regardless of ownership.

Conclusion

I am not satisfied that this is a case in which discovery should be ordered before the delivery of a statement of claim, and the application should be dismissed.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
TS
ASSOCIATE TO THE HONOURABLE JUSTICE CHANEY
27 JUNE 2018