7Steel Building Solutions v Jason Wright

Judgment (ex tempore) 1HIS HONOUR: The plaintiff (7Steel) supplies fabricated steel products to customers in Australia. It sources those products from a number of companies, including one known as Shang Kai Steel Co. Limited (SKC), a Taiwanese company. At relevant times, the first defendant (Mr Wright) was employed as general manager of 7Steel. The second defendant (Mr Martin) was employed by a competitor of 7Steel known as the Graham Group. It would appear that the Graham Group also sourced steel products from SKC. 2In outline, the 7Steel case is that Mr Wright, Mr Martin and an employee of SKC, Mr Eric Lin, put together a scheme whereby SKC inflated its invoices to 7Steel by adding a margin of five to ten per cent and making charges, allegedly for insurance, which was not taken out; and, following payment of those invoices, paid secret commissions to Mr Wright and Mr Martin. Not surprisingly, 7Steel alleges that, in so acting, Mr Wright breached his contractual obligations and fiduciary duties owed to 7Steel. It says that Mr Martin wrongfully interfered in the contractual relationships both between 7Steel and Mr Wright and between 7Steel and SKC, and is liable in addition pursuant to what is often known as, the rule in Barnes v Addy . 3I am concerned today with two applications. One is 7Steel's application, by second further amended notice of motion filed on 10 June 2011, relating to discovery given, and steps in relation to discovery taken, by Mr Martin. 7Steel asserts that Mr Martin is in breach of court orders made on 6 May and 27 May 2011. It seeks that his defences be struck out, and that judgment by default be entered, pursuant to s 61(3)(c) of the Civil Procedure Act 2005 (NSW), and that the question of quantification of Mr Martin's liability on that hypothetical judgment be referred to an Associate Justice of the court. 4Alternatively, 7Steel seeks that Mr Martin swear a full and sufficient affidavit deposing to various matters; that he give discovery of further documents; and that, in substance, he give proper discovery in relation to documents that were the subject of the court's earlier orders. Leave is sought to cross-examine Mr Martin on his affidavit of discovery. 5The court's orders made on 6 May 2011 required Mr Martin to serve a verified supplementary list of documents by a specified date relating to specified documents. In addition, they ordered that he: "Use his best endeavours to obtain any further documents falling within the categories of documents described...from Hang Seng Bank Limited, [SKC] and [a company known as] SKC International within fourteen days." 6The bank referred to is said to be either the bank, or a bank, into which Mr Martin paid the proceeds of the scheme that I have outlined. 77Steel has unearthed a number of emails passing between Messrs Wright, Martin and Lin. It is not necessary to do more than to observe of those emails that, on one not overly suspicious view, they provide inferential support for the existence of the fraudulent scheme that 7Steel alleges was concocted. Equally, I accept, and as I said in the course of submissions, they may well be innocent explanations of many, if not all, of the matters referred to in those documents. 8One matter of concern emerging from those documents is that, on one reading of one of them, it might be thought that Mr Martin was taking steps to withhold from the Australian Taxation Office knowledge of what he characterises as legitimate earnings made from SKC. I raised with his counsel, Mr Gor, the question of whether I should refer the papers to the ATO in any event. Mr Gor said that he was not, and would not on short notice be, able to deal with that. Frankly, I do not understand why, but since I have not heard from Mr Gor, I shall put that to one side for the moment. 9In relation to the order that required Mr Martin to use his best endeavours to obtain documents from the bank, the evidence is that Mr Martin wrote to the bank, at its head office address and not at the address of the branch where he conducted his account, on 11 May 2011. He asked for a copy of the statements for the account that he identified for the period between the dates that he specified, which were said to be the dates that the account was opened and closed. 10Mr Martin's affidavit evidence is that he received no reply to that letter. He does not suggest that (except as I shall detail in a moment) he took any follow-up action. 11Mr Martin says also that during a business trip to Hong Kong in early January 2011 (i.e, well before the orders in question were made), he went to the relevant branch of the bank and asked for copies of his bank statements. He was told, he says, that he would need to provide three forms of identification and that once he had satisfied those requirements he would have to make a written application and pay a fee of about $1,000 (Australian). Even then, Mr Martin says he was told, he might not get all the information that he requested. 12After the orders of 27 May 2011 were made, Mr Martin's current solicitors wrote to the bank, on 27 May 2011. They referred to, and enclosed, Mr Martin's letter of 11 May 2011. They referred to, and enclosed a copy of, the court's orders of 6 May 2011. They identified from those orders documents that Mr Martin was required to produce and asked for "originals or copies of these documents by way of facsimile, email or post at your earliest convenience". 13On 2 June 2011, the bank replied (from its head office). That reply stated, relevantly: "As regards your inquires [sic], we regret that we, as bankers, owe a duty of secrecy towards our customer. Hence, unless we have the consent of the captioned customer [Mr Martin] or otherwise, we cannot accede to your present request". 14Neither the solicitors nor Mr Martin followed up, as clearly that letter invited them to do, by forwarding to the bank, in reply to the letter of 2 June 2011, Mr Martin's written consent for the bank to comply with his solicitors' request. 15Mr Martin explains the failure to take that step as follows (para 11 of his affidavit sworn 28 June 2011): "I did not email or call the bank and I did not instruct my solicitors to email or call the bank because I had already made initial inquiries as to the process to be undertaken as to obtain copies of documents and information as to accounts that had been closed. Other than hoping that the bank will reply to the letters I was of the view that calling or emailing the bank would not assist with obtaining the documents from the bank". 16I do not regard that explanation (which is the only explanation given of a failure to follow-up the bank's letter of 2 June 2011) as in any way acceptable, let alone as showing any use of best endeavours, or anything remotely approaching best endeavours. First, there is no basis for Mr Martin's "hoping that the bank would reply to the letters", in circumstances where the bank had said precisely what it was that would enable it to do so in a substantive way. Secondly, whatever his initial experiences with the bank might have been in January 2011, it is clear from the bank's letter of 2 June 2011 that it was taking a somewhat different attitude. I do not regard the alleged events of January 2011 as informing, in any way, the merits of providing to the bank the consent requested in its letter. 17It seems to me that Mr Martin has trifled with the orders of this court, both in his attempts (such as they were) at compliance, and as to the explanation that he has given for not following up the arrangements that the bank clearly invited to be made. In this context, I will note that it appears from the emails to which I have referred that Mr Martin was extremely careful to follow-up, and to make detailed arrangements in relation to, his business dealings with Mr Wright, Mr Lin and SKC; and for what might euphemistically be called pleasure excursions related to those dealings. I observed in the course of argument that if Mr Martin had devoted the same diligence with complying with this court's orders, we might not be where we are today. Reflecting on the matter has not caused me to change that view. 18It follows, in my view, that the court's power under s 61(3)(c) has been enlivened. That is a power that is to be exercised in accordance with the dictates of justice, but informed by the overriding purpose set out in s 56 of the Civil Procedure Act . In making an order as serious as the one sought, the court is required to consider the possible injustice that would be occasioned to the defendant if his defence were struck out, with the injustice that has been caused to the plaintiff by the defendant's non-compliance. Had the non-compliance continued over a longer period of time, had it been more repeated, or had it been even more clearly aimed at frustrating the plaintiff's legitimate attempts to prepare its case, a ground might be made out for the exercise of the power. But in the present case, I think, balancing the interests of justice between the parties does not require such a serious step to be taken. 19I was initially attracted to the proposition that the non-compliance (particularly viewed in the light of what I regard as the trifling excuse given for it) was so serious as to justify the step. But, again on reflection, I think that the better course is to give Mr Martin one last attempt to act in accordance with the court's orders, and to expand the ambit of the orders so that the preparation of this case for hearing can be moved along. In saying that, I take into account also that an inquiry as to what (if anything) should be paid by Mr Martin to 7Steel, if judgment were entered pursuant to s 61(3)(c), would be facilitated by the documents, production of which is sought. 20In those circumstances, I think it is not appropriate to make the orders sought by prayers 2 and 3 of the second further amended notice of motion, but to make the orders sought by prayers 4, 8 and 10. 21Prayer 4 seeks from Mr Martin an affidavit setting out details of all bank accounts that he holds or has held, or controls or has controlled, from 17 November 2006 to date, together with details of all deposits, withdrawals et cetera and other information that would enable the solicitors for 7Steel to investigate their client's claim. In the alternative, and to the extent that compliance may expose Mr Martin to a civil or criminal penalty, an order is sought in the usual way for a confidential affidavit setting out the incriminating material and a separate affidavit setting out the non-incriminating material. 22Prayer 8 seeks further discovery of specified categories of documents. Again, the documents sought seem to me to be ones that are directly relevant to the case that 7Steel seeks to make out, and to the quantification of any entitlement that it may have. 23Prayer 10 is directed to attempting to ensure, one more time, that Mr Martin complies with the order for discovery already made (twice). Although Mr Gor submitted that Mr Martin had complied, and that there was no point in ordering him to do so again, I have the very strong view that Mr Martin may not have appreciated fully the significance of the discovery orders that were made, and thus there may be some utility in remaking the order. 24I wish to stress, and this is particularly for the benefit of Mr Martin, that he has narrowly escaped having default judgment entered against him for non-compliance with the court's orders. It is possible (indeed, it may be thought having regard to what I have said, likely) that no further interlocutory application will come back before me. But from my perspective, if Mr Martin does not comply with these orders, I would not be disposed to grant him any further indulgence. I trust that he understands both this and the serious nature of the obligations that will be imposed on him by the orders that I am about to make. 25In addition, I think that it is appropriate to direct Mr Martin and his solicitors to follow up the letter received from the bank dated 2 June 2011, and to file an affidavit showing that they have done so and what (if any) response was received. 26For those reasons I make the following orders: (1) Orders in accordance with prayers 4, 8 and 10 of the second further amended notice of motion filed on 10 June 2011. (2) Order Mr Martin and his solicitors to send forthwith a letter to the Hang Seng Bank by prepaid registered post, addressed for the attention of the person in the account services department who signed that bank's letter of 2 June 2011, referring to the solicitor's letter of 27 May 2011, renewing the request made in that letter and furnishing Mr Martin's written consent to the bank's complying with that request. (3) Direct Mr Martin's solicitors to provide a copy of that letter and its enclosures to the plaintiff's solicitors at the time the letter is sent and to provide to the plaintiff's solicitors at the time it is received a copy of any reply from the bank, including its enclosures. (4) Direct the defendant's solicitors to file and serve an affidavit showing compliance with the two preceding orders within seven days of receipt of the bank's reply to the letter that I have directed to be sent. 27It does not seem to me to be appropriate to inquire further into the question of cross-examination of Mr Martin on his various affidavits of discovery. The need for that may disappear once he has complied (to the extent that he does comply) with the orders that I have just made. In those circumstances, I think, the better course is otherwise (and save as for costs) to dismiss the second further amended notice of motion. I do that not to indicate any view on the merits of the relief that it claims, but on the basis that if some further application is to be made for judgment, or for cross-examination, it will be better for that be to done by a fresh notice of motion. I am also conscious that the notice of motion sought some relief against Mr Wright, but since he did not appear and the relief against him was not argued, I do not think that otherwise dismissing the notice of motion would have any impact on 7Steel's ability to move for that relief, if so advised, by separate notice of motion. 28Accordingly I order that the second further amended notice of motion filed on 10 June 2011 be otherwise dismissed, except for costs and I will hear the parties on costs. (Counsel addressed) 297Steel asked for its costs, fees be assessed on an indemnity basis and that they be payable forthwith. Mr Gor submitted that costs should be costs in the cause. I do not agree. If ever there were a case of "relevant delinquency" (see Gaudron and Gummow JJ in Oshlack v Richmond River Council (1998) 193 CLR 72 at 89), this is it. 30This application was necessitated because of what I perceive as Mr Martin's unwillingness to comply with the court's orders, and his readiness to give what I regard as a trifling explanation for his failure to do so. In the circumstances it is appropriate that the orders be made. Further, so that 7Steel will not have to wait until some assessment has been carried out before recovering the fruits of the order, I propose to fix a sum payable forthwith which can be contested by either party on assessment. 31When I raised that proposal in argument, Mr McInerney of counsel, who appeared with Mr O'Mahoney of counsel for 7Steel, submitted (on instructions) that the appropriate amount was $10,000. Mr Gor, once reassured that it could be challenged on assessment, did not submit that the amount was so far beyond what could be recoverable on the indemnity basis that I should not order it. 32Accordingly, I make the following further orders: (1) Order the second defendant to pay the plaintiff's costs of the second further amended notice of motion filed on 10 June 2011. (2) Order that those costs be assessed on the indemnity basis. (3) Assess the sum of $10,000 payable by the second defendant to the plaintiff on account of those costs, without prejudice to the right of either party to contend for a different sum to be allowed on any assessment of costs. (4) Order that the said sum of $10,000 be paid within 28 days. 33I will retain the court books including exhibits.