GENEVA FINANCE LTD (Receiver and Manager appointed)

Practice and procedure - Case management - Request for particulars - Refusal to order - Principles

Appellants (Defendants) : Mr M J Buss QC & Mr J Garas

Astrovlanis Compania Naviera SA v Linard [1972] 2 QB 611

Bailey v Federal Commissioner of Taxation [1977] HCA 11; (1977) 136 CLR 214

Barrow v CSR Ltd, unreported; SCt of WA; Library No 6695; 4 May 1987

Dare v Pulham [1982] HCA 70; (1982) 148 CLR 658

Esso Petroleum Co Ltd v Southport Corporation [1956] AC 218

FAI General Insurance Co Ltd v Southern Cross Exploration NL [1988] HCA 13; (1988) 165 CLR 268

Hewson v Cleeve [1904] 2 IR 536

Jingellic Minerals NL v Abigroup Limited (1992) 7 WAR 566

Lemon & Co Pty Ltd v Moran & Cato Pty Ltd [1921] VicLawRp 43; [1921] VLR 240

Miller v Cameron [1936] HCA 13; (1936) 54 CLR 572

Mummery v Irvings Pty Ltd [1956] HCA 45; (1956) 96 CLR 99

Palmos v Georgeson [1961] Qd R 186

Pulham v Dare [1982] VicRp 67; [1982] VR 648

R v Associated Northern Collieries [1910] HCA 61; (1910) 11 CLR 738

Sims v Wran [1948] 1 NSWLR 317

Southern Equities Corporation Ltd v Western Australian Government Holdings Ltd (1993) 10 WAR 1

Western Australia v Bond Corporation Holdings Ltd (1991) 5 WAR 40

Whelan v John Fairfax & Sons Ltd (1988) 12 NSWLR 148

Wilson v Metaxas [1989] WAR 285

Zierenberg v Labouchere [1893] 2 QB 183

1 WALLWORK J: I agree with the reasons for judgment of Anderson J and to the orders proposed by His Honour.

2 ANDERSON J: This matter arises in a large suit which is being case-managed.

3 It is an action by a company against its auditors and a major allegation against the auditors is that they failed to make a proper assessment of the company's bad and doubtful debts in the accounting period ended 31 December 1987. In par 25 of the statement of claim, as it presently stands, there is an allegation that if proper consideration had been given to the debtors' ledger, the auditors would have concluded that a provision of $1,708,232 should be made for "doubtful and bad debts" in the balance sheet and the profit and loss statement should have included that amount as an expense. In par 26, it is pleaded that because the balance sheet and profit and loss statement did not contain that provision, the auditors ought to have concluded that "the profit and loss account and the balance sheet did not give a true and fair view of the state of affairs of the plaintiff at 31 December 1987 ... ".

4 Directions have been made from time to time under the case management provisions in the rules and, as a result of these directions, the pleadings are in a rather unusual form. Considerable resort has been had to the technique of using schedules to set out the averments and particulars of the averments, which would ordinarily be contained in the body of the pleading. Disputation has occurred from time to time as to the adequacy of the schedules. This appeal arises out of one such dispute. The relevant paragraphs of the statement of claim are as follows:

"22. Between January 1986 and on or before 31 December 1987 the plaintiff entered into the loan transactions described in Part A of the attached Schedule 2 ('Schedule 2').

23. Horwath & Horwath in the discharge of their duties and the provision of their services as auditors, of the plaintiff knew, or ought to have known, of the Schedule 2 part A loan transactions and the failures of the plaintiff's borrowers to comply with the terms of the loan agreements as set out in Part A of Schedule 2.

24. The accounts of the plaintiff for the six month period ending 31 December 1987 included a provision for doubtful debts in the sum of $200,000.00.

25. By reason of the matters set out in Schedule 2 Part A the plaintiff in its profit and loss statement for the 6 month period ending 31 December 1987 should have included as an expense doubtful and bad debts in an amount of not less than $1,708,232.00 and in its balance sheet as at 31 December 1987 should have included a provision for doubtful and bad debts in an amount of not less than $1,708,232.00 in that:

25.1 The plaintiff had made the advances set out in Part A of Schedule 2 and as to each advance for the reasons therein set out ought to have provisioned as therein set out [sic].

25.2 Each of the advances pleaded in Part A of Schedule 2 was as at 31 December 1987 a bad or doubtful debt for the amount therein specified that is, a debt for which there were reasonable grounds to suspect that the plaintiff would not be able to obtain repayment in whole or in part when due or within a reasonable time thereafter.

26. Horwath & Horwath in breach of the Audit Contract ought to have but failed to conclude that the profit and loss account and the balance sheet did not give a true and fair view of the state of affairs of the plaintiff at 31 December 1987 and of the profit (or loss) of the plaintiff for the period ended on that date in that the provision for bad and doubtful debts was inadequate.

Particulars of Bad and Doubtful Debts

Horwath & Horwath ought to have but failed to conclude, that each advance referred to in Part A of Schedule 2 was one for which a provision as bad or doubtful debts should have been made or substantially made for the aggregate of the amounts stated in Part A of Schedule 2."

5 Schedule 2 is a lengthy document of 106 pages. Part A comprises the first seven pages. The structure of it is that on page 1 seven borrowers are named and against the name of each borrower is a figure entitled "Total Loan Exposure" and, in the next column, a figure entitled "Provision Required". In most cases, the "Provision Required" is less than the "Total Loan Exposure", but in two cases it is the same. We were informed that the phrase "Total Loan Exposure" is intended to mean the balance of the loan due as at 31 December 1987 and the phrase "Provision Required" means the amount of the balance due which was unlikely to be recovered from the debtor. The total of the column headed "Provision Required" is $1,708,232.

6 In the six pages which follow this page in schedule 2, there are particulars of the matters relied on for the contention that the provisions set forth on the first page ought to have been made, and for the contention that the auditors should have acted accordingly. These six pages are divided into five columns. The first column names the borrower. The second column identifies the loan by its loan number and the amount of the loan outstanding as at 31 December 1987, ie, the "Total Loan Exposure". The third column is headed "Reasons For Provision For Doubtful Debt" and contains a statement of the basis upon which it is contended that a "bad or doubtful" provision ought to have been in the accounts. The fourth column nominates which of those matters were known to the auditors and which of them ought to have been known to the auditors by use of the initials "K" and "O" against each item in the third column. The fifth column stipulates the amount of the provision which ought to have been made.

7 In the case of three of the seven borrowers, one of the reasons why it is claimed the auditors ought to have seen that inadequate provision was made is that there was a "shortfall ... in value of assets available to meet Geneva's total loan exposure". In the case of the borrower, Peter F Collins, the shortfall was said to be $24,075. In the case of the Collins company (Peter F Collins Pty Ltd) the shortfall was said to be $122,484, and in the case of the borrower Rowlands Corporation Ltd the shortfall was said to be $351,125.

8 As to this allegation, the auditors delivered a request for particulars in the following terms:

"31. As to Schedule 2 ... in respect of each and every alleged shortfall, state all facts, matters, circumstances and things upon which the Plaintiff relies in support of the allegation that there were shortfalls."

9 The case management Judge declined to make an order that these particulars be delivered and in this appeal it is contended on behalf of the auditors that these were particulars to which the auditors were fairly and reasonably entitled in order to know the case which they had to meet with respect to the allegation that they failed to reveal to the company the true state of its accounts.

10 In my opinion, this submission must be upheld. The shortfall allegation is, in effect, an allegation that the auditors, when auditing the accounts of the company, should have appreciated that the three loans in question were, or might be, inadequately secured. In my opinion, an allegation of that kind against auditors really should be particularised. The auditors are entitled to know, for example, whether it is said against them that they should have seen that no valuations had been obtained of the property put up as security, or whether the case against them is that they should have seen that the valuations which had been obtained were incompetent, or whether the case against them is that the securities on their face were less valuable than the borrowings which they purported to secure; or as the case may be.

11 At the directions hearing at which this request for particulars was dealt with (along with many other matters), the case management Judge did not decide that the request for particulars was unreasonable or oppressive. It would appear from the transcript that he formed the view that the defendants were indeed entitled to some further particularisation of the allegation. It is possible to gain the impression from the transcript of the exchanges between counsel and the Judge that his Honour intended to hold over the substance of the request to see whether some other way could be devised to apprise the defendants of the case they had to meet on the point. Later, however, for reasons which are not entirely clear on the papers, without reconvening the court, his Honour dismissed the application. Mr Clifford, who appeared on behalf of the respondent, sought to persuade us that the Judge had not, in fact, finally decided to reject the application for particulars or, if he had so decided, we should approach the matter on the basis that he had a very wide discretion and he was entitled, as case management Judge, to take the view that some other and better means should be found to adequately lay out this aspect of the respondent's case; and that we should not interfere in the matter.

12 In my opinion, flexible though the case management rules may be, fairness remains the touchstone. Once it appears that a party is entitled to particulars of an allegation, those particulars should be ordered if the other party refuses to give them. For myself, I must say that I cannot see any better way to deal with the matter than to simply order the respondent to provide the requested particulars and I would allow the appeal to that extent.

13 Another request for particulars suffered the same fate as the above request. This request was in the following terms:

"32. As to Schedules 2 and 4 ... in respect of each and every loan, state:

(a) the date each loan was made;

(b) the amount of each loan;

(c) the date of each and every advance made pursuant to each loan; and

(d) the amount of each advance."

14 Particulars in terms of this request were refused by the respondent company on the ground that it was a request for evidence and not particulars. When it delivered this answer, the respondent also stated:

"Evidence as to the date of each and every loan and advance made pursuant to each loan and of the amount of each loan and advance is contained in the individual debtors ledger accounts (contract details reports) and loan files for the debtors copies of which have previously been provided to the defendants."

15 It is rarely a good answer to a request for particulars that the party making the request can find out for himself the details requested from documents that have been discovered and/or copied to him. The object of particulars is to enable the party asking for them to know what case he has to meet at the trial. Particulars bind the party delivering them to the matters included in the particulars. They limit the inquiry at the trial to the matters set out in the particulars and in that way tend to narrow issues. This is not achieved by placing the discovered documents at the feet of the party requesting the particulars and telling that party that the answers to the request can be found in the documents.

16 However, particulars will not be ordered unless they are reasonably necessary. I am not persuaded that the appellant auditors fairly and reasonably require these particulars. The case against the auditors is that they failed to detect that the accounts failed to reflect the true extent of bad and doubtful debts as at a particular date. It hardly seems necessary, in order to meet that case, to know the date that each loan was made, the original amount of each loan or the history of the draw-downs with respect to those loans.

18 As this is an appeal within interlocutory proceedings, leave is required and the application for leave was required to be brought within a certain time. The application is made out of time and it was opposed. The explanation for the delay is mainly that the appellants did not appreciate, until too late, that an order dismissing the application had been made. It is further contended on behalf of the appellants that they were given to believe that their desire to have the particulars in question would be satisfied informally. None of this is conceded by the respondent. I do not think there is a need to go into these matters. The application was about a month out of time. It is a very large matter which appears to have started some time in 1993. There does appear to have been some genuine confusion as to what the outcome of the directions hearing was; that is, as to whether formal orders had been made with respect to the requests in question. The orders that were made formally dismissing this part of the application appear not to be orders that were made at the conclusion of the directions hearing, but some time later. I am not persuaded that the respondent has suffered any prejudice by the delay other than the prejudice inherent in all delay. I would grant the application for an extension of time within which to appeal, give leave to appeal and allow the appeal to the extend hereinbefore mentioned.