Chopsonion Pty Ltd (Controllers Appointed) v Watts Meat Machinery Pty Ltd

Federal Court of Australia|2022-04-04|Before: Besanko J

With respect to the applicant's Interlocutory application dated 24 November 2021 (the applicant's Interlocutory application): (a) the requests for particulars contained in items 2, 4, 5, 7, 8 (with respect to para 14.a.a. of the Defence), 9, 10, 11 and 12 of the schedule to the applicant's written submissions dated 22 December 2021 (the schedule), be refused; (b) the further and better particulars as identified in the reasons of the Court and relating to items 1, 3, 6 and 8 (with respect to para 14.a.b. of the Defence) of the schedule be provided by the respondents within 28 days; (c) the requests for the production of documents contained in items 13, 15, 16, 17 and 20 of the schedule, be refused; and (d) The respondents produce the documents requested in items 14 and 19 of the schedule within 28 days.
There be no order as to the costs of the applicant's Interlocutory application.
The operation of paragraph 2 of these orders be suspended for 21 days. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

INTRODUCTION 1 This is an Interlocutory application by the applicant for orders for the production of documents contained in a Notice to produce a document referred to in a pleading or affidavit served on the respondents (r 20.31(3) of the Federal Court Rules 2011 (Cth) (the Rules)) and the provision of further and better particulars of the Defence filed by the respondents (r 16.45). The orders sought by the applicant are as follows: 1. The production of documents referred to in the Defence pursuant to FCR Rule 20.31 which are identified in letters from the Applicant to the Respondents dated 29 October 2021. 2. The provision of further and better particulars of the Defence pursuant to FCR Rule 16.45 which are identified in letters from the Applicant to the Respondents dated 29 October 2021 and 4 November 2021. 3. The Respondents pay the Applicant's costs of this application on the basis of an indemnity. 2 On 29 March 2022, I identified the orders I would make on the applicant's Interlocutory application. I said I would give reasons for those orders and these are the reasons.

THE BACKGROUND TO THE PROCEEDING AND THE ALLEGATIONS IN THE DEFENCE 3 These reasons should be read with my reasons for judgment in Chopsonion Pty Ltd (Controllers Appointed) v Watts Meat Machinery Pty Ltd [2021] FCA 491 (at [2]-[18]). In those reasons, I set out a summary of the key facts and described the three causes of action relied on by the applicant. I then set out a broad description of the nature of the case against the respondents (at [12]): … The essence of the allegations in the Statement of Claim is that the loan was sought by the applicant to fund the purchase by it of two small abattoir chains located in New Zealand, one of which was complete and the other of which was 90% complete (the Chains), and the dismantling and removal of the Chains from New Zealand and their transportation to Australia. The essence of the applicant's case is that in formulating and arranging the loan for this purpose, Mr Sharpe, Ms Sharpe and the second respondent, on his own behalf, and on behalf of the first respondent, engaged in a fraudulent and dishonest design for the following purposes: (1) ensuring that the Chains were sold by the first respondent; (2) inflating the cost of the purchase of the Chains to ensure the purchase of additional plant and equipment for Ms Sharpe and Mr Sharpe or to, or for, their benefit; and (3) the payment of commissions from the first respondent to, or for, the benefit of Mr Sharpe and Ms Sharpe. 4 A Defence dated 28 October 2021 has been filed by the respondents and the important allegations in the Defence are as follows. 5 The respondents allege that at no time did the applicant, Mr Sharpe and/or Ms Sharpe disclose to them the identity of PFM and/or the Lenders (para 4.a. of the Defence). The respondents say they prepared an invoice dated 24 June 2014 bearing an invoice number: 01148 (para 4.b.i.) as a "pro forma invoice" following a request from Ms Sharpe for the specific purpose of negotiation with a Mr Warwick Keane, who was described by Ms Sharpe as a potential investor in her business (para 4.b.iii.). The respondents allege that the document referred to as the "Chains Invoice" in para 4.1.1 of the Statement of Claim (the SOC) is not the document prepared by them on 24 June 2014 and bearing invoice number 01148 (para 4.b.ii. of the Defence) and they say they do not know who created the Chains Invoice (para 4.b.iv.). They also allege they did not author the document referred to as the "WMM Email" in para 4.2 of the SOC, nor the document referred to as the "Open Letter" in para 4.3, and say that those documents are fraudulent documents or a forgery (paras 4.c. and 4.d. of the Defence). The respondents deny that the Chains Invoice, the WMM Email or the Open Letter contain representations capable of being relied on by the Lenders (para 6, particularly para 6.c.). 6 In response to para 12 of the SOC which contains the allegation of a fraudulent and dishonest design, the respondents deny they engaged in any "Design" whether fraudulent, dishonest or otherwise (para 12.a. of the Defence). The respondents say that Silver Fern Farms (SFF) owned abattoir machinery which included two small animal abattoir chains and "other various items" required for its mechanical operation (referred to as the "SFF Abattoir Items") (para 12.b.) and that in about 2012, SFF engaged the respondents to act as their agent to procure buyers to purchase the SFF Abattoir Items (para 12.d.). Between the period 2012 and prior to January 2014, the respondents allege they had been in negotiation with potential buyers other than the applicant for the acquisition of the SFF Abattoir Items (para 12.e.). From at least 2012 up to about 2015, Ms Sharpe on numerous occasions requested the respondents to procure pricing for various abattoir machinery including other meat processing machinery from other sellers (para 12.g.) and the respondents provided Ms Sharp with pro forma invoices (para 12.h.) and invoices itemising such machinery (para 12.i.). Prior to January 2015, Ms Sharpe advised the respondents that the applicant would proceed with the acquisition of the SFF Abattoir Items and other various abattoir machinery (para 12.j.). The respondents issued the applicant with four invoices dated 22 January 2015 including for the acquisition of the SFF Abattoir Items (para 12.k.). 7 The respondents admit that on around 22 January 2015, they received the sum of $760,000 from an account in the name of Private Funds Management (paras 13.b. and 13.o.), which constituted an overpayment of $74,292.02 (para 13.c.). The respondents deny that the sale price for the SFF Abattoir Items to the applicant in January 2015 was recorded as $850,000 (para 13.q.ii.). They say that the sums of $20,000 and $54,292.02 were returned to the applicant on 22 January 2015 and 2 February 2015 respectively, in accordance with the direction of Ms Sharpe (para 13.d.). The respondents say they were not aware of Ms Sharpe's or the applicant's dealings with PFM or the Lenders (para 13.e.) and deny that any conduct of Ms Sharpe, Mr Sharpe or the applicant is attributable to the respondents or otherwise renders the respondents liable to the applicant (para 13.f.). 8 The respondents deny paras 15 to 19 (alleged breach of statutory duties and fiduciary duties), 20 (alleged knowing assistance) and 21 (alleged misleading and deceptive conduct) of the SOC. 9 The Defence also contains an allegation that after the respondents were served with a draft statement of claim on or around 12 October 2016 (para 24), in or about mid-October 2016 a Ms Annette How of PFM made representations to the second respondent by which she promised the respondents that in exchange for their assistance in selling abattoirs and abattoir equipment, the applicant and the Lenders would not pursue the respondents in respect of the claims the subject of the draft statement of claim (para 25), referred to in the Defence as the "How Representation". The respondents allege that they acted in reliance on the How Representation (para 26) so that the applicant and/or the Lenders are estopped from claiming loss and damage as against the respondents (para 28). 10 The applicant filed a Reply on 4 November 2021. It is not necessary for me to refer to that document. 11 Orders for discovery were made by consent on 5 November 2021 and the discovery process is underway or shortly to be underway.

THE APPLICANT'S APPLICATION 12 In support of its Interlocutory application, the applicant relies on an affidavit sworn by its solicitor, Mr Luke Rowley on 24 November 2021. For their part, the respondents rely on an affidavit affirmed by their solicitor, Ms Isabella Brennan on 13 December 2021. 13 The relevant chronology is as follows. On 29 October 2021, the applicant's solicitors wrote to the respondents' solicitors requesting the provision of further and better particulars of the Defence and enclosing a Notice to produce a document in a pleading or affidavit. On 2 November 2021, the solicitors for the respondents wrote to the applicant's solicitors providing a response to the Notice to produce and enclosing various documents. On 4 November 2021, the applicant made a further request for particulars by letter from its solicitors to the respondents' solicitors and by letter dated 18 November 2021, it made further requests for production. The respondents provided a response to the requests for particulars by letter dated 18 November 2021. 14 In the schedule to its written submissions, the applicant identifies the matters with respect to which it seeks orders for the provision of further and better particulars and for production. It is convenient to set the schedule out in full: No. Particulars Request No.1 Defence Inadequacy of Pleading Prejudice

3.1 4(b)(iii) The Respondents must articulate with reasonable specificity when the telephone call was said to have occurred and what was said in the telephone conversation etc. Who prepared the various versions of Invoice No.01148 and in what circumstances is an of serious contention on the pleadings (see Claim at [4] and Defence at [4]). The Relationship between Watts and Wendy Sharpe and their historic dealings is relevant to a number of matters on the pleadings (see Claim at [4] and Defence at [4] and Claim at [13] and [20]). The Applicant is unable to forensically assess and test the assertion without particulars appropriately describing the conversation and giving it temporal and circumstantial parameters.
3.2 4(b)(iii) No particulars have been given as to the "description" given by Wendy Sharpe to Watts as to Warwick Keen being an investor in her business. See and repeat [1] herein.
3.3 12(b) Use of the word "various" in both the pleading and the particulars. The ownership of the Chains/SFF Abattoir Equipment is in dispute (see Claim at [13.1.1] and Defence at [13g]). The Defence expands the dealings of WMM and the Wendy Sharpe from the Chains (a concept in the Claim at [3.1]) to the SFF Abattoir Items in the Defence at [12b]). The effect of the plea in the Defence is that WMM "supplied" not only the Chains but the SFF Abattoir Items to the Applicant. The detail of these arrangements is at the heart of the plea in paragraph [13] of the Claim. The SFF Abattoir Items are never itemised in the Defence. Unable to forensically assess and test the assertion without particulars appropriately describing the conversation and giving it temporal and circumstantial parameters.
3.4 12(d) It is not clear whether the terms of the "engagement" are limited to the terms of the Letter of Intent or arise on some other basis which should be particularised. The Applicant pleads that WMM owned the Chains (see Claim at [13.1.1]). That plea is relevant to the formulation and implementation of the Design (see Claim at [13). The Respondents plead that WMM never owned the SFF Abattoir Items (which appear to include the Chains) (see Defence at [13g]). The Respondents further plead that WMM was selling the SFF Abattoir Items as agent for SFF (see Defence at [12d]). The relationship between SFF and Watts should be explained in light of the pleas in the Defence. The dealings between WMM and SFF go to the knowledge of WMM of the Chains and the reasonableness or otherwise of the representations pleaded in paragraph [4.3] of the Claim. Unable to forensically assess and test the assertion without particulars appropriately describing the conversation and giving it temporal and circumstantial parameters.
3.5 12(e) No particulars have been given as to the "negotiations" between the Respondents and the Respondents and potential buyers of the abattoir equipment. The plea in the Defence at [13e] relates to the dealings between WMM and interested third parties in respect of the SFF Abattoir Items (which include the Chains). The dealings between WMM and third parties in respect of the SFF Abattoir Items goes to the knowledge of WMM of the Chains and the reasonableness or otherwise of the representations pleaded in paragraph [4.3] of the Claim. Unable to forensically assess and test the assertion without particulars appropriately describing the conversation and giving it temporal and circumstantial parameters.
3.6 12(g) No particulars have been given as to "requests" made by Wendy Sharpe to the Respondents to procure pricing of abattoir equipment. The plea in the Defence at [12g] relates to the dealings between WMM and Wendy Sharpe in respect of the SFF Abattoir Items. This goes to both the knowledge of WMM of the Chains and the reasonableness or otherwise of the representations pleaded in paragraph [4.3] of the Claim and the relationship between WMM and Wendy Sharpe as to the formulation and implantation of the Design (see Claim at [13]). Unable to forensically assess and test the assertion without particulars appropriately describing the conversation and giving it temporal and circumstantial parameters.
3.7 12(j) No particulars have been given as to the "advice" provided by Wendy Sharpe to the Respondents that the Applicant wished to proceed with the purchase of the abattoir equipment. WMM pleads he had no knowledge of the existence of the Lenders (see Defence at [4a] and [13e]). Precisely what was said between Wendy Sharpe and Watts at this time is relevant to this plea and the formulation and implementation of the Design (see Claim at [13]). Unable to forensically assess and test the assertion without particulars appropriately describing the conversation and giving it temporal and circumstantial parameters.
3.12 14(a)(a) It is not clear whether the terms of the "engagement" are limited to the terms of the Letter of Intent or arise on some other basis. See and repeat [4] herein.
3.13 25 It is not appropriate to refer to an affidavit filed on an interlocutory basis in proceedings as a response to a request for particulars. The plea should be incorporated in the pleading. The "How Representations" are representations of the kind contemplated in FCR Rule 16.42 and should be the subject of equivalent obligations as to pleading. Particulars Request No.2 Defence Inadequacy of Pleading
5.1 26 See and repeat [9] herein.
5.2 25 See and repeat [9] herein.
5.3 4 There is a reference to an "understanding" of the Respondents but the basis on which that "understanding" was formed is not pleaded or particularised. The "understanding" is a "condition of mind" within the meaning of FCR Rule 16.43(1) and should be particularised. NTP Defence Document Complaint
1 4(b)(i) Invoices Document not provided in native format and metadata not provided.
2 12(f) Invoices Not produced.
3 12(i) Proforma Invoices referred to in paragraph 12(h) of the Defence Not produced
4 12(k) Invoice No.1204, Invoice No.1205, Invoice No.1206 and Invoice No.1207 Documents not provided in native format and metadata not provided.
6 14(a)(b) Agreement Document not provided in native format and metadata not provided.
Documents Request No.1 Defence Document Complaint
4 12(b) "various proforma invoices issued by WMM to prospective purchasers between 2013 - 2015" Not produced.
5 12(d) Letter of Intent Documents not provided in native format and metadata not provided.

15 The respondents' written submissions contained a schedule adopting the same itemisation and responding to the applicant's requests. I have carefully considered those responses.

RELEVANT PRINCIPLES 16 There was no dispute as to the applicable principles and a short summary will suffice. 17 With respect to its application for an order for particulars, the applicant relies on r 16.45 of the Rules which provides as follows, relevantly: (1) If a pleading does not give a party fair notice of the case to be made against that party at trial and, as a result, the party may be prejudiced in the conduct of the party's case, the party may apply to the Court for an order that the party who filed the pleading serve on the party: (a) particulars of the claim, defence or other matter stated in the pleading; or (b) a statement of the nature of the case relied on; or (c) if there is a claim for damages - particulars of the damages claimed. (2) An application under subrule (1) may be made only if: (a) the particulars in the pleading are inadequate; and (b) the party seeking the order could not conduct the party's case without further particulars. … Note: The intent of the pleading rules is that a party should include all material facts in its pleadings as initially filed so that there is no unfairness to another party by any lack of particularity. If the party has not done so, the Court may at trial refuse to allow the party to present a case that is outside the terms of their pleading. 18 The power to make an order for particulars is discretionary and in exercising the discretion, it will be relevant to have regard to the important function served by particulars as well as the object of ensuring the efficient process of the Court (Deemah Marble & Granite Pty Ltd (in liq) v Sutherland [2001] NSWSC 829 at [6] per Young CJ in Eq; Power Infrastructure Pty Ltd v Downer EDI Engineering Power Pty Ltd (No 3) [2011] FCA 539 at [10] per Katzmann J; see also s 37M of the Federal Court of Australia Act 1976 (Cth)). As is made clear by r 16.45(2)(b) of the Rules, an application for particulars may only be made if the party seeking the order could not conduct its case without further particulars and that is an additional consideration in exercising the discretion (DP World Sydney Ltd v Maritime Union of Australia (No 1) [2013] FCA 278 at [9] per Perram J). 19 With respect to the application for the production of documents, the applicant relies on r 20.31 of the Rules which is in the following terms: (1) A party (the first party) may serve on another party (the second party) a notice to produce, in accordance with Form 39, for the inspection of any document mentioned in a pleading or affidavit filed by the second party. (2) The second party must, within 4 days after being served with the notice to produce, serve the first party with a notice: (a) stating: (i) a time, within 7 days after service of the notice, when the document may be inspected; and (ii) a place where the document may be inspected; or (b) stating: (i) that the document is not in the second party's control; and (ii) to the best of the second party's knowledge - where the document is and in whose control it is; or (c) claiming that the document is privileged and stating the grounds of the privilege. (3) If the second party does not comply with paragraph (2)(a) or (b) or claims that the document is privileged, the first party may apply to the Court for an order for production for inspection of the document. 20 It is sufficient to note that as a general proposition, the documents sought do not have to be particularly identified or described in the Notice to produce and it is sufficient that they are referred to generally (Smith v Harris (1883) 48 LT 869). 21 The final point to note is that as I have said, the process of discovery is underway or will shortly be underway in this proceeding. Generally speaking, Notices to produce, like Subpoenas to produce, should not be used as a substitute for or to circumvent the discovery process (Construction, Forestry, Mining and Energy Union v BHP Coal Pty Ltd (No 3) [2012] FCA 61).

ANALYSIS 22 It is convenient to adopt the same itemisation of the applicant's requests as the parties did in their submissions and my rulings on the requests are as follows:

The Application for Further and Better Particulars (1) Para 4.b.iii. of the Defence: In my opinion, particulars by way of the words used, or the effect of the words used, comprising the request insofar as they relate to the document requested - described as a "pro forma invoice" in the pleading - should be provided. (2) Para 4.b.iii. of the Defence: In my opinion, the pleading is adequate and the application for particulars is refused. (3) Para 12.b. of the Defence: In my opinion, the particulars provided by the respondents introduce an element of confusion insofar as they refer to items "substantially the same". Further particulars identifying precisely the "other various items" should be provided. (4) Para 12.d. of the Defence: The engagement pleaded is the engagement in 2012. The engagement is said to be embodied in a "Letter of Intent" which the applicant has. I decline to make an order for further and better particulars. (5) Para 12.e. of the Defence: In my opinion, the error made by the applicant in its request was and is obvious. However, in light of the plea in para 12.f. and the documents requested in para 2 of the Notice to produce, a proper response to para 2 of the Notice to produce obviates any need for particulars of para 12.e. of the Defence. (6) Para 12.g. of the Defence: In my opinion, the respondents' written submissions should be stated as particulars. That is, that it is their case that the requests were for the items listed in the invoices and that the requests were made on each occasion prior to the date of the invoice. (7) Para 12. j. of the Defence: In my opinion, the particulars provided are adequate. (8) Paras 14.a.a. and 14.a.b. of the Defence: The response in relation to para 14.a.a. is sufficient. The response in relation to para 14.a.b. is not sufficient because it does not make clear whether the terms of the agreement/engagement were the same on 28 January 2015 as they were on 10 October 2013. Further particulars should be provided. (9-11) Paras 25 and 26 of the Defence: In my opinion, the applicant has adequate notice of the respondents' case by reference to the affidavit of the second respondent sworn on 13 October 2020 and I decline to make an order for further and better particulars. (12) Para 4 of the Defence: In my opinion, the particulars provided are adequate and I decline to make an order for further and better particulars.

The Notice to Produce (13) Para 1 of the Notice: This paragraph seeks the production of invoice no 01148 referred to in para 4.b.i. of the Defence. That document has been produced by the respondents. The applicant now seeks the document in native format and the metadata in relation to the document. That request is not contained in the Notice to produce, although a statement that the requests in the Notice to produce included requests for the electronic metadata files appears in the solicitor's letter accompanying the Notice to produce. It is common ground that metadata falls within the definition of "document" in the Rules, but in my view, if there is to be an obligation to produce, then it must be specifically requested in the Notice to produce. It has not been specifically requested. In my opinion, with the discovery process underway, or shortly to be underway, it is appropriate that the native format and metadata issue be dealt with as part of the discovery process. (14) Para 2 of the Notice: These documents have not been produced. They should be produced. (15) Para 3 of the Notice: These documents have been produced. Otherwise, see (13) above. (16) Para 4 of the Notice: These documents have been produced. Otherwise, see (13) above. (17) Para 6 of the Notice: This document has been produced. Otherwise, see (13) above.

The Request for Documents in the Letter dated 18 November 2021 of the Applicant's Solicitors The requests here relate to documents referred to in the particulars that have been provided by the respondents. (19) These documents have not been produced. I do not think that they are the same documents referred to in para 3 of the Notice to produce as submitted by the respondents. The pursuit of this request should be part of the discovery process and an order should not be made independently of that process. (20) This document has been produced. Pursuit of the document in its native format and the metadata in relation to the document, should be part of the discovery process. An order should not be made independently of that process.

CONCLUSION 23 I make the following orders: (1) The requests for particulars contained in items 2, 4, 5, 7, 8 (with respect to para 14.a.a. of the Defence), 9, 10, 11 and 12 of the schedule to the applicant's written submissions dated 22 December 2021 (the schedule), be refused; (2) The further and better particulars as identified in the reasons of the Court and relating to items 1, 3, 6 and 8 (with respect to para 14.a.b. of the Defence) of the schedule be provided by the respondents within 28 days; (3) The requests for the production of documents contained in items 13, 15, 16, 17 and 20 of the schedule, be refused; and (4) The respondents produce the documents requested in items 14 and 19 of the schedule within 28 days. 24 I make an additional order that there be no order as to the costs of the applicant's Interlocutory application. I also order that the operation of that order be suspended for 21 days should either party wish to challenge the costs order. I certify that the preceding twenty-four (24) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Besanko.

Federal Court Rules 2011(Cth)rr 16.45, 20.31

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