Williames Holdings Pty Ltd v Sympac Computing Pty Ltd
[2000] VSC 178
•26 April 2000
| SUPREME COURT OF VICTORIA | |
| PRACTICE COURT | Not Restricted |
No. 4669 of 2000
| WILLIAMES HOLDINGS PTY LTD | Applicant |
| v | |
| SYMPAC COMPUTING PTY LTD & OTHERS | Respondents |
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JUDGE: | Gillard J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 26 April 2000 | |
DATE OF JUDGMENT: | 26 April 2000 | |
CASE MAY BE CITED AS: | Williames Holdings Pty Ltd v Sympac Computing Pty Ltd & Ors | |
MEDIUM NEUTRAL CITATION: | [2000] VSC 178 | |
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Pre-institution of proceeding discovery – Rule 32.05 of Rules of Court – question of possible cause of action – discovery also relates to documents formerly in possession of a party – costs reserved.
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APPEARANCES: | Counsel | Solicitors |
For the Applicant | Mr M. Wise | Home Wilkinson Lowry |
| For the Respondents | Mr J. Dixon | O'Halloran Davis |
HIS HONOUR:
This is an application by summons in a proceeding instituted by originating motion seeking what is in effect pre-institution of proceeding discovery. The originating motion sets out what I can describe as two broad categories of relief. The first is that, pursuant to r.32.03 of the Rules of Court, each respondent make discovery of certain documents. The alternative claim is put pursuant to r.32.05, that each of the respondents make discovery of certain documents which are set out in the schedule. The summons, which was issued pursuant to that origination motion, is, and I accept the criticism of Mr Dixon of counsel who appears for the respondents, a little bit misleading and a little bit confusing. But, having said that, Mr Wise of counsel who appears for the applicant made it quite clear in his opening remarks that he was relying upon r.32.05 of the Rules of Court and seeking discovery from a prospective defendant. The argument between the parties has proceeded on that basis.
The applicant, Williames Holdings Pty Ltd, is a company controlled by a Mr Raymond Williames. The applicant and the third respondent, G.W. Wilson Pty Ltd, a company owned and controlled by the second respondent, Mr Graham Wilson, held all the issued share capital in the first respondent, Sympac Computing Pty Ltd. The applicant owned 50% of the shares, as did the third respondent, but the company was actually controlled by reason of the voting power by the third respondent. So, in the end, Mr Graham Wilson, by reason of his voting power, controlled Sympac Computing Pty Ltd.
The first respondent conducted a computer retail distribution business of some substance. The parties, that is, Mr Williames and Mr Wilson, fell out in October 1999 after conducting the business with some degree of success for some eight years. The evidence shows that proposals were floated that the business and/or the shareholding of the third respondent be sold or that Mr Wilson buy out Mr Williames' interest. Indeed, as I understand it, there was even a suggestion that Mr Williames might buy out Mr Wilson. In the end, the Wilson interests purchased the Williames interest and the purchase was settled on 11 February 2000 for a consideration of $732,000. A formal document was executed between the parties.
After the settlement, which as I say took place on 11 February 2000, Mr Wilson called a meeting of the staff of the first respondent and told them certain things including the change in ownership of the business. A deponent, Sabina Brvar-Ivancic, in her affidavit sworn 11 April 2000, provided evidence as to what took place at this meeting. It took place at approximately 6 p.m. at the business offices in Warrigal. It appears that Mr Wilson told the staff that it was proposed that minutes of the meeting would be recorded. If they were they have not been revealed. He informed the meeting that Sympac Computing was now owned by himself and his wife and that they had bought out Ray Williames. Evidently he went on to say that the staff were not to talk to Mr Williames. He then commenced to talk generally about the business, and the deponent swore as follows:
"The secondnamed respondent went on to talk generally about the future path for Sympac Computing, and stated that he was in the middle of negotiations to sell Sympac Computing and said, 'So you know it's not peanuts'. He went on to mention three or four companies which were involved in the future venture with Sympac Computing. However, I do not recall the names of these individual companies, although I do recall that they were companies of some substance."
It appears from the affidavit of Mr Williames that he did not become aware of these other developments until much later. In his affidavit he swore that on 25 February 2000:
"a former staff member of Sympac, Greg Courtney, rang me to ask if the applicant had sold out of the company. I said that it had. He told me that he'd been in a meeting with Wilson on Tuesday 15 February 2000 where Wilson had said that Sympac was joining some other companies, one being a telecommunications company, and another being point of sale company, and that he was told by Wilson this also involved share allocations."
It is clear from the evidence that Mr Williames was unaware of any possible sale to another company.
Evidence has been provided by the respondents through a Mr Kerridge. He evidently is a director of a company called Australian Authorised Investments Ltd (AAI). He deposes to the fact that he first met Mr Wilson on 15 February through a person called Bruce Pilley, who is described as a business consultant engaged by AAI. A request was made that Mr Kerridge attend a meeting with Mr Wilson. He asserts that he did not know of, and to his knowledge no other director of AAI knew, Mr Wilson. He states he first met Mr Wilson at 6 p.m. on 15 February. Apparently, shortly prior to the meeting, Mr Pilley briefed Mr Kerridge and at the meeting there were some discussions about the businesses of AAI and Sympac Computing. As a result of some discussions it was agreed that an in-principle agreement would be reached. According to Mr Kerridge, the meeting was not documented. What followed was a document called "Heads of Agreement" entered into between AAI and G.W. Wilson Pty Ltd. According to Mr Kerridge, the agreement was negotiated over the weekend of 8 and 9 April. He has produced the document, which is a confidential document, and it is headed "Heads of Agreement".
I have perused the document and I am satisfied that it does not represent a binding contract in law between AAI and G.W. Wilson Pty Ltd. It clearly contemplates further discussion and negotiation between the parties and, as I said, I am satisfied the parties did not intend to be bound by that document.
The document goes on to provide, however, that the events which are contemplated by it should be completed by 30 April. This is apparent from a number of provisions of the document. At the moment the court has not been apprised as to whether a share sale agreement as required by the Heads of Agreement has been prepared and what further negotiations have taken place. One must bear this in mind when considering whether or not the applicant has a potential cause of action.
Mr Williames believes that Mr Wilson was negotiating or discussing proposals with companies of some substance behind his back, whilst he was negotiating with him over the sale of his shares. Mr Williames asserts that Mr Wilson had a duty to disclose to him the nature of these discussions. He alleges that Mr Wilson owed him a fiduciary duty as a director and as a partner in what was clearly a partnership company, and he asserts that he had breached same. Mr Williames also contends there may be claims for breach of s.52 of the Trade Practices Act and a claim for damages for misrepresentation arising out of the failure by Mr Wilson to disclose to Mr Williames any discussions which were taking place with prospective third parties whilst they were negotiating.
The principles that should guide a court on an application pursuant to r.32.05 were discussed by me in an unreported decision of United Energy Ltd v. Energy Risk Management Pty Ltd delivered 13 November 1998. I stated in those reasons that an applicant had to prove the following -
"(i) that there is reasonable cause to believe that the applicant has or may have the right to claim relief from an identified person;
(ii) that it has made all reasonable enquiries, and does not have sufficient information to decide whether to commence a proceeding to obtain relief;
(iii) that there is reasonable cause to believe that the person has or is likely to have or has had or is likely to have had in his possession a document relevant to the question whether the applicant has the right to obtain relief; and
(iv) that inspection of the document by the applicant would assist to make a decision whether to proceed.
Whether the court makes an order is a matter for discretion."
I then went on to discuss the object of the rule, and I stated the following -
"The mischief which the rule seeks to address is the avoidance of a situation where a prospective plaintiff does not have all the relevant documentation to enable him and his advisers to make a decision whether he has a good cause of action or not, nevertheless issues a proceeding, subsequently gains access to relevant documents in the possession of the opposing party, only to find out he does not have a cause of action."
As I went on to say -
"The object of the rule is to avoid that undesirable situation occurring and to enable a prospective plaintiff to see the relevant documents which the prospective defendant has or has had in his possession in order to make an informed decision as to whether he has a good cause of action."
As I indicated in the course of my reasons, and indeed other judges have said the same thing, the rule should be liberally applied for the very obvious common-sense reason that if the application is refused by the court, then the applicant may issue the proceeding on the basis that there must be some evidence there and then find, having completed discovery, that there is no cause of action and as a result much time and expense has been expended for no beneficial result.
Going back then to the elements that have to be proven, the first question is the right to claim relief from the second and/or the third respondent. Mr Wise of counsel indicated that there were a number of possible causes of action, namely, breach of fiduciary duty, breach of s.52 and/or damages for misrepresentation which may either be fraudulent or innocent. In support of the possible claim, reference has been made to the fact that it would appear that the third respondent is to sell its shares to AAI. However, as I have indicated, the document is no more than Heads of Agreement, and one cannot say, as at today, whether the applicant does or may have a cause of action against the second and/or third respondent. I say that because the Heads of Agreement may not be completed in the sense that a binding contract comes into being. If that was the position, then the applicant's possible cause of action against the second and third respondents is of little substance.
However, as Mr Wise points out, and correctly, the rule requires the court to consider whether the applicant may have a right to claim relief, and Mr Wise submitted that that enables the applicant to say here that, even if that agreement was to fall over and not produce any contract in law, nevertheless it would be still open to Mr Williames to say that if he had been told that there were purchasers of substance considering purchasing Sympac, then his attitude to the sale, and in particular the price, may have been completely different.
As I have said to Mr Dixon, who put some fairly strong arguments against that approach, in the end it will be a question of looking at all the facts and circumstances, and this court is not in a position, on an application such as the present, to resolve whether or not that claim may be established. In this respect one has to closely consider the nature and extent of any alleged fiduciary duty. As between vendor and purchaser the normal rule is caveat emptor and it may be that in those circumstances there is no room for any fiduciary duty being owed by Mr Wilson to Mr Williames. But, in the end, that is all a matter of fact and one could only say after full investigation whether that claim would have any merit.
Further, one can consider and have little difficulty in coming to the view that there may be a s.52 claim, namely, that the circumstances do show that
Mr Williames entrusted Mr Wilson to look into selling the business elsewhere, and that by Mr Wilson failing to reveal, if it is the position, and I say no more than that, failing to reveal, that may - and I say may - constitute a representation the breach of which would breach s.52. I do see the force of a lot of what
Mr Dixon has said, and I am prepared to say, on this evidence, that the applicant may have a right to claim relief from the second and/or third respondents on the basis of some breach of fiduciary duty and/or a breach of s.52 of the Trade Practices Act. Of course, if this sale goes through to AAI, then, based upon the material, one would say that the applicant's possible cause of action gathers a degree of strength from that fact.
But, having considered whether I should adjourn this off for a week to see whether that is to take place, I am persuaded, on the second part of the first element, that the applicant may have a right to claim relief from the second and/or third respondents in the alternative way the submission has been put, namely breach of fiduciary duty by failure to inform Mr Williames of the interest of a substantial purchaser.
That brings me to the second element, and that is whether reasonable enquiries have been made and, despite those enquiries being made, the applicant still does not have sufficient information. The obvious source of gathering information is from Mr Wilson himself. There has been correspondence passing between his solicitors and the applicant's solicitors now for some couple of months, and it leads me to the view that the applicant has made all reasonable enquiries because Mr Wilson is the person in the position to provide it and nothing has been forthcoming.
That leads me to the third element, whether there is reasonable cause to believe the person has or is likely to have documents, and Mr Dixon again makes a fairly forceful argument here based upon the fact that
Mr Wilson has, in two affidavits, stated that he does not have any documents of relevance. The first affidavit is sworn on 31 March of this year, and in paragraph 6
Mr Wilson deposes as follows:
"In any event, I have conducted all due and proper enquiries and state that no documents exist in respect of any potential sale or negotiations for any possible sale of the assets and/or the shares in Sympac Computing Pty Ltd answering the descriptions or categories defined in the originating motion."
The first part of the paragraph does not really address the question of discussions or conversations in relation to possible purchasers, and the second part does not seem to me to meet the obligation of discovery.
Discovery is not only concerned with documents that a party now has in his possession or control but of course also relates to any documents that he may have had in his possession or control in the past. When all is said and done, the relevant periods in the present matter run from about mid-1999 up to today. As I have indicated, and I discussed this with counsel, the parties fell out in about October last year and the settlement was on 11 February of this year. The documents on either side of that period may have a bearing upon what was going on inside the period. For example, it is not difficult to understand that if documents are revealed from 1 June to middle of October last year, they may provide a view as to what in fact Mr Wilson was doing, assuming, and I say no more, that he may have been discussing a prospective sale with another purchaser. So those documents can have some relevance either side of the relevant period. If documents came into existence and were subsequently destroyed, those documents have to be discovered, and I do not accept that paragraph 6 of the affidavit quite addresses the question of documents that may have been in existence and which no longer are in the possession or control of Mr Wilson, or indeed have since been destroyed or lost.
That brings me to the second affidavit of Mr Wilson sworn 17 April this year. In paragraph 4 he says:
"4. I confirm that I have no other documents relating to a possible business relationship with AAI (or any other person for that matter) other than the Heads of Agreement exhibited to Mr Kerridge's affidavit."
Again, that clause suffers from the fact that it does not address the questions of documents in the past that he may have had in his possession or control which either have passed out of his possession or control or have been lost or destroyed. It may be that I am being a little unfair to Mr Wilson and his lawyers. That it may be that these paragraphs were not as carefully drawn as they might be, but I have to take them on their face and in my view they do not quite answer the question which I think is, whether or not there were documents that have been in existence in the past.
I may say in relation to this and to the question of possible causes of action, that there is some evidence to support not only a possible cause of action, but also the existence of some documents. There is sufficient evidence to show that, due to the coincidence of dates, namely, the settlement taking place on 11 February, followed immediately by a staff meeting at which revelations are made about impending sales to others, tends to support the view that the approach relating to prospective purchasers occurred earlier than 11 February. Also, one cannot overlook what Mr Greg Courtney said in his affidavit, in that he was told on 15 February that there was some type of sale proposed.
Further, Mr Wilson did not adequately cover the matters raised by some of the affidavit material, in particular what he told Mr Courtney. It is unwise to say as Mr Wilson did that he denies that he gave information sworn to by Mr Courtney because that is ambiguous; it may mean that he puts him to his proof, rather than saying he never said it. But that is how he approached that issue, and it seems to me that that, together with the fact that there is no evidence by Mr Wilson as to his first discussion with Mr Pilley who was evidently a "go between". His first involvement is an important issue, especially his contact with Mr Wilson. Again, that is a gap in the affidavit material which would tend to support the conclusion that something was going on prior to 11 February between Mr Wilson and a prospective purchaser. As Mr Wise pointed out, in the end it is a question whether there is a genesis for this agreement with AAI prior to 11 February, and there is some evidence to suggest that there may have been, and if that be so one would expect that there is some document which was prepared at some stage, even if it only be a note in a diary of any such discussions.
That brings me to the last point in what the applicant has to prove, and that is that inspection of the document by the applicant would assist to make a decision whether to proceed. The inspection of any document may show that there was a genesis in the relevant period, namely, prior to 11 February, which led to the AAI Heads of Agreement, or indeed would lead to a conclusion that if the information had been disclosed Mr Williames would have held out for more money, and it seems to me that if the document is in existence it would assist to make a decision whether to proceed.
Mr Dixon said that I should accept the evidence of the respondents, namely, Mr Wilson, that there are no documents, but, as I say, I am satisfied that there is some basis for thinking that there may have been a document in existence. Mr Dixon also submitted that this is a pre-institution of proceeding application and that discretionary matters are relevant. He referred to what was said by the Full Court in the decision of Scarletti Pty Ltd & Ors v. Millwood Printing Co Pty Ltd (unreported, 28 July 1994) and what Vincent, J. said in Clime Investments Holding. I do accept that there are discretionary matters that can be taken into account, but I think the point that he is putting to the court really is a question that is bound up with the applicant's proof. Mr Dixon said that the applicant had failed to carefully analyse the evidence of this proposed course of action and accordingly the relief should be refused because the court could not be satisfied there would be any real benefit from making the order.
There is no doubt that a court would refuse to make an order if it was considered to be futile, but I think in the present case the applicant has satisfied the court that it was entitled to the order it seeks, and I do not think there are any discretionary matters that should deny it its prima facie entitlement to relief.
For all those reasons I propose to make the appropriate order.
What I propose to do in this case relating to costs is different to what I did in the United Energy case. It is clear that the prospective defendants should have their costs of complying with the orders. As a general proposition, where a respondent takes upon itself the task of objecting to an application such as the present, in the circumstances it is appropriate to order the respondent to pay the costs by reason of the fact that it failed in its opposition to the application. But I propose to vary that approach in this matter, and order that the costs of this application be reserved, because it may be that in the end result nothing may come of all this.
I say that for a number of reasons: first of all, because if the Heads of Agreement do not produce a transaction that is enforceable in law, in other words the parties do not proceed further, then query the strength of any claim by the applicant. As I put to Mr Wise, and this must be so, the duty that rests upon Mr Wilson cannot be open-ended, and if, for example, this transaction was to fall over, then Mr Wilson could sell to whom he liked, and unless it was established that the genesis of that transaction was to be found prior to 11 February then the applicant would be out of court. I have a degree of uncertainty about the end result of this application and I think justice demands that the costs be reserved. In order to avoid the parties coming back, if in the event AAI the transaction goes ahead, then my strong indication is that the applicant should have its costs of this application, but it all depends upon whether or not that proceeds.
I will reserve the costs, with that clear indication. I do not want the parties coming back unless they really have to for me to make a further order. I will not be in the Practice Court after this week but I can be found. If in the end the AAI transaction goes ahead, then in my view the applicant should have its costs. Because there is that risk I will reserve the costs with that strong indication.
These will be the orders:
1.Pursuant to r.32.05 of Chapter I of the Rules of Court, the respondents by 4 p.m. on 10 May 2000 make discovery of the documents referred to in the schedule to the originating motion filed 16 March 2000 by making, filing and serving an affidavit of documents in Form 29B of the Rules and in accordance with r.29.04 of the Rules.
2.That the documents discovered be kept confidential and only available to inspection by Mr Raymond Williames and the applicant's lawyers.
3.That the applicant pay the reasonable costs of the respondents' compliance with these orders.
4.That the costs of the application be reserved.
5.That there be general liberty to apply.
6.That the applicant's solicitors draw up this order and it be signed by a judge pursuant to r.60.04(1) of the Rules of Court.
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