Consolidated with COR 272 of 1997 and CIV 2333 of 1997

JOONDALUP COUNTRY CLUB HOLDINGS LTD (ARBN 060 072 175)

Discovery - Further and better discovery of documents - Whether documents directly or indirectly relevant to a matter in question

Astra-National Productions Ltd v Neo-Art Productions Ltd [1928] WN 218

Beecham Group Ltd v Bristol-Myers Co [1979] VicRp 27; [1979] VR 273

Chantrey Martin & Co v Martin [1953] 2 All ER 459

Glandon Pty Ltd v Strata Consolidated Pty Ltd, unreported; SCt of NSW (Young J); 10 May 1990

Morton v Arbuckle & Ors [1919] VLR 336

Mulley v Manifold [1959] HCA 23; (1959) 103 CLR 341

PDM Australia Pty Ltd v Kellogg Overseas Corp, unreported; SCt of WA; Library No 6646; 26 March 1987

Re McGorm; Ex parte The Co-Operative Building Society of South Australia (1989) 20 FCR 387

Wentworth v De Montfort & Ors (1988) 15 NSWLR 348

1 MASTER BREDMEYER: This is the plaintiff's application of 23 January 2002 for further and better discovery of five categories of documents listed in the chamber summons. The plaintiff relies on three affidavits of Ms Toman sworn 23 January, 13 February and 13 March 2002 which I will refer to as Toman 1, 2 and 3. The defendant relies on three affidavits of discovery of James Chan of 17 July 2001, 18 January and 7 March 2002 which I will refer to as Chan 1, 2 and 3. The defendant also relies on an affidavit of Mr Chan in opposition to this affidavit also of 7 March 2002 which I will refer to as Chan 3A.

2 Under the Peruvian Guano test (Seaman, 26.1.4) discovery can be given of documents going to matters directly in issue or indirectly in issue. The latter refers to documents which may lead to a train of inquiry to something directly in issue. Under O 26 r 7(3)(b)(ii), which is an amendment to the Rules added in 1996, the court can limit an order for discovery to documents directly relevant to a specified matter in question, or to all matters in question. That rule is a compromise between two views. Most States in Australia allow discovery of documents going to matters directly and indirectly in issue. That process may from time to time throw up documents which help a party's case. On the other hand, it is a time-consuming and expensive task, and very often lengthy discovery on both sides involving many hundreds, or at times thousands, of documents produces a small bundle of documents at trial, most or all of which were known to the parties from the start. The other approach is that of Queensland which limits discovery to documents relating to matters directly in issue. Apparently, the profession and Judges are happy with that rule which has been in operation there for about five years.

3 As I have said, our rules are a compromise between the two views. The parties get and give discovery voluntarily of all documents directly and indirectly relevant to matters in issue. However, when a party seeks an order from the court for discovery, the court can limit that to documents directly relevant to a specified matter in question, or to all matters in question. I am not aware of any case law on this rule and there is none quoted in Seaman. I consider it should be applied in accordance with guidelines found in O 1 r 4A. Are the documents "reasonably required for the fair and just determination of the issues in dispute"?

Paragraph 1.1 of the chamber summons - the draft deeds

4 The deeds here refer to the first and second loan deeds, upon which the plaintiff sues, and similar loan deeds documenting loans from other investors and deeds of release and variation deeds. Ms Toman says discovery of any draft deeds might disclose changes between the draft and the final deed and thus reveal part of the negotiations which preceded the signing of the final deed. She said that these draft documents form part of the factual matrix of surrounding circumstances leading up to the signing of the deeds.

5 The leading Australian case on the factual matrix and the surrounding circumstances of a contract is Codelfa Constructions Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337 where Mason CJ, who was in the majority, at 352 said that surrounding circumstances are only admissible to assist in the interpretation of a contract where the language is ambiguous or susceptible of more than one meaning.

6 Some of the draft deeds have been discovered, but, so far as I know, are not relevant to any issues in the case. There is nothing in the pleadings to show that the wording of these deeds is ambiguous. I therefore consider the draft deeds are not relevant to the issues in this case, that is directly relevant or indirectly relevant on the Peruvian Guano test. If I be wrong in that, I apply O 26 r 7(3)(b)(ii) and say that the draft deeds are not directly relevant to any issue and I decline to grant this part of the application.

Paragraph 1.2 of the chamber summons - all correspondence and documents (including deeds) between the defendant and Peter Kwee Seng Chio, Low Tuck Kwong or Henry Liem ("the other investors") with respect to loans (or funds) advanced or to be advanced by them to JCCH

8 The plaintiff here seeks correspondence and any other documents to these deeds. In Toman 3 she has annexed some discovered documents relating to these loans. I have read the pleadings. The loan agreements to the other investors are referred to in par 11(f) of the defence which is, in effect, admitted in the reply.

9 I consider that the correspondence relating to the loan deeds with the other investors is irrelevant to the issues in this case on the Peruvian Guano test. If I be wrong on that, I think this is an appropriate situation to apply O 26 r 7(3)(b)(ii). Doing so, I consider that these documents are not directly relevant to any issue in this case and I therefore refuse this category.

Paragraph 1.3 of the chamber summons - all correspondence in relation to tax and legal advice concerning the structure of loans (or funds) advanced by the plaintiff or by the other investors to the defendant, including but not limited to fax from Mr James Chan to Messrs Heng Lee Seng & Co dated in or around June 1998 and referred to in facsimile dated 16 June 1998 from Heng Lee Seng & Co and Mr James Chan

10 This is said to be relevant to par 9 of the defence and also I think to the factual matrix or surrounding circumstances of the contracts. Some correspondence in these categories has been discovered: see par 11ff of Chan 3A.

11 I consider par 9 of the defence of some relevance to what happened in par 10, namely, that the accountant, Mr Chan, moved the investors' loans between different companies within the group. How an agreement to do that could be implied, I do not know. How it could be done without the plaintiff's consent, I do not know.

12 I refer to par 11 and following of Chan 3A. Ms Toman assumed that all the documents listed there in the table refer to tax and legal advice regarding the structures of the loans. Mrs Bradley, for the defendant, says that that assumption is not true. Not all the documents refer to that kind of advice.

13 I will allow some further discovery under this head. I am going to apply O 7 r 3(b)(ii). I do not consider all the correspondence in this category is reasonable required for the fair and just determination of the issues. I will order further and better discovery of the following documents mentioned in Pioneer's letter of 20 May 1993, CCT22, found at pages 37 - 41 of Toman 3. I refer to items 1 and 3 under the heading "WORK DONE" on page 1 of that letter. I omit item 2. The deeds have already been discovered and I do not think that the draft prospectus and the loan deeds are relevant. I also will allow appendices 1 to 6 under item 4 on page 2 of that letter.

14 I do not consider the draft deed of loan referred to on page 4 of that letter under the heading "OTHER ISSUES" is relevant for the reasons I gave above on the draft deeds.

15 I consider the Chan affidavit reasonably adequate evidence that he has made necessary inquiries of the accountants and lawyers involved. Regarding the inquiries of Michael Yeap, Mr Chan is not relying on Mrs Bradley's search of documents that Mr Chan sent to Freehills. He also refers to Richard Yeap & Associates at par 11 and, more relevantly, at par 17:

"I made further searches of JCCH's records in an effort to locate any advices received from Richard Yeap & Associates. I located an advice from Richard Yeap & Associates dated 8 December 1994 ... "

Paragraph 1.4 of the chamber summons - all correspondence with the defendant's auditors in relation to the plaintiff's loans or any similar loans

16 The plaintiff referred me to exhibit CCT 8, 9, 10 and 12. I was referred to the entry on page 7 of CCT 8 (page 29 of Toman 1) which shows:

Loan due to a shareholder-cum-a former director $5,678,875

17 The plaintiff would like to see correspondence with auditors to explain that separate entry for the plaintiff in the annual accounts. I consider that matter not directly relevant to any issue in this case. Those accounts were for the year ending 31 December 1996. Mr Basuki retired as a director on 7 August 1996. His loans were properly shown in the accounts as loans from a former director.

18 Similar entries exist in the accounts for the next four years. In the 2000 accounts, the sum due to the plaintiff is shown as a loan plus interest, although the heading refers to "capital contribution". I consider that of no significance. It is basically showing the accounts as a loan.

19 Documents sought in pars 15 and 17 of Toman 1 have now been discovered.

20 Paragraph 16 of Toman 1 refers to CCT11, which is an acknowledgment of loans outstanding as at 31 December 1995 by Peter Kwee Seng Chio. It is the kind of letter auditors send out to be signed by lenders or creditors. It is part of the auditors' work for the annual audit.

21 The sums of money owing to the plaintiff are in dispute on the pleadings. I consider any equivalent letter signed by Mr Basuki to the auditors, KPMG or Heng Lee Seng & Co, certifying moneys due to him is relevant. Also the letter presumably sent to him asking him to sign is also arguably relevant.

22 Mr Chan in Chan 3A has said that he has the auditors' letters on the company's taxation files. He says he has searched them thoroughly and sent documents thought relevant to Freehills and that Mrs Bradley of that firm has also gone through the documents sent to her, and any relevant documents have been included in the defendant's third affidavit of discovery.

23 I think it possible that the significance of the letters mentioned has not been realised. Also, the letters may not be on the company's taxation files. They may be held on the auditors' files. I will order the defendant to make inquiries of its auditors as to letters sent to the plaintiff and signed by the plaintiff certifying the sums due to him to appear in the company's annual accounts for the period 1996 - 2001. I do not require these documents for the earlier period, as the sums loaned to the company by the plaintiff as at 31 December 1995 are not in dispute.

Paragraph 1.5 of the chamber summons - all correspondence with and documents prepared for or by the defendant's bankers concerning or dealing with loans made by the shareholders to the defendant and/or other companies within the Joondalup Group

24 This item is said to be relevant to par 10 of the defence which refers to an express or an implied term that lenders would provide extensions of their loans from time to time until such time as all lenders could be repaid in proportion to their respective loans.

25 In par 27 of Toman 1 she refers to company minutes of 27 December 1996, CCT18. Paragraph 6 of these minutes refers to the investors' loans repayment date which was forthcoming (November 1997) and a review report provided by the bank.

26 I fail to see the relevance of such a bank report and the bank's periodic reviews of its loan facilities of about $6,000,000 or $7,000,000 to the company. Whether the investors' loans were due or not, whether the investors agreed to defer them beyond the repayment date, etcetera, are matters between the investors and the company, especially between the plaintiff and the company, and I fail to see the relevance of the bank's reference to these loans. If I be wrong on that and the documents are thought to be indirectly relevant to matters in issue, then I think it appropriate to apply O 26 r 7(3)(b)(ii). I say that these documents are not directly relevant to matters in issue and I decline to order their discovery.

27 In summary, I order further and better discovery of:

1.3 The following documents mentioned in Pioneer's letter of 20 May 1993, CCT22, found at pages 37 - 51 of Ms Toman's affidavit of 13 March 2002.

P1 - Documents 1 and 3 under the heading "WORK DONE".

1.4 Any letters signed by the plaintiff to auditors confirming loan moneys due to him for the period 1996 to 2001. Also any letters from the auditors to the plaintiff requesting him to sign such letters. I direct the defendant to make inquiries of its auditors on this matter.