Christopher Murray & Anor v RentWorks Limited & Ors

THIRD RESPONDENT: Thumdart Pty Limited (ACN 052 193 352)

FOURTH RESPONDENT: Robert Warwick Medway FILE NUMBER: IRC 2105 of 1999 CORAM: Schmidt J CATCHWORDS : Practice and procedure - further discovery - orders sought under Rule 162 - oppression - general nature of orders sought - further discovery on limited basis ordered and timetable for filing affidavit in reply amended - costs reserved Industrial Relations Act 1996 LEGISLATION CITED : Industrial Relations Commission Rules Supreme Court Rules CASES CITED : Southern Pacific Hotel Services Inc v South Pacific Hotel Corporation (1984) 1 NSWLR 710 National Australia Bank Ltd & Ors v Idoport Pty Ltd & Anor [2000] NSWCA 8 HEARING DATES: 08/24/2001 DATE OF JUDGMENT: 10/16/2001

APPLICANTS: Mr Neil of counsel SOLICITORS: Harmers Workplace Lawyers LEGAL REPRESENTATIVES: RESPONDENTS: Mr A Salgo, solicitor SOLICITORS: Baker & McKenzie

JUDGMENT: - 12 - INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES IN COURT SESSION CORAM: Schmidt J

CHRISTOPHER MURRAY & ANOR v RENTWORKS LIMITED & ORS Application under section 106 of the Industrial Relations Act

1 This matter concerns an application brought under s106 of the Industrial Relations Act 1996 ('the Act') in relation to a certain business arrangement which the parties entered in 1992. Mr Murray worked in and in relation to the business of RentWorks Limited ('RentWorks') between 1988 and 1998 and his family company, MacDome Pty Limited ('MacDome'), at one time a shareholder of RentWorks, received various payments from RentWorks.

2 The claim concerns alleged unfairness of the shareholder's agreement executed by the parties in 1998, as well as unfairness flowing from certain alleged conduct of the respondents. The allegations of unfairness go to the valuation of MacDome's shareholding in RentWorks, undertaken by PriceWaterhouseCoopers, after Mr Murray's resignation from RentWorks, effective from 30 June 1998 and payments made to the applicants as a result.

3 This short summary is taken from a document filed by the parties for the purpose of the Court's consideration of a notice of motion filed by the applicants in August 2001, seeking that further discovery be given by the respondents and that the timetable for preparation of the case set by Glynn J, to enable the applicants to file their affidavits in reply, be amended. There are a wider range of claims made in the summons for relief filed by the applicants. The matter is listed for hearing before her Honour in December next. The motion was allocated to me to deal with, in her Honour's absence on leave.

4 When the matter came before me, the respondents expressed concern about the course taken by the applicants. Nevertheless, an accommodation was reached between the parties as to aspects of the further discovery sought. An arrangement was made whereby the parties filed an agreed document setting out the factual background relevant to an understanding of the application, together with submissions as to those aspects of the request for further discovery which could not be agreed.

5 The motion was supported by an affidavit sworn by Mark Sullivan, a solicitor acting for the applicants in the proceedings. The affidavit recorded the discovery given by the respondents in December 1999, the further discovery which followed the filing of a motion by the applicants in March 2000 and the directions for further discovery given by Maidment J in August 2000, as well as the further discovery which the applicants sought in June 2001. The affidavit also dealt with the correspondence between the parties as to this request.

6 The applicants' submissions were filed on 14 September and the respondents' submissions, together with the agreed background document, on 3 October. Only four categories of documents remained in dispute.

7 Discovery is a process designed to give parties access to documents which are relevant to the issues in the proceedings. The discovery process operates inter parties and requires the party giving discovery to form a view as to whether or not documents in its custody and control are relevant to an issue in the proceedings. (See, for example, Clarke J in Southern Pacific Hotel Services Inc v South Pacific Hotel Corporation (1984) 1 NSWLR 710 at 717 and National Australia Bank Ltd & Ors v Idoport Pty Ltd & Anor [2000] NSWCA 8). Part 22 of the Commission's Rules provides for a limited form of discovery. Like the Supreme Court Rules, there is no provision made in this Court's rules for general discovery, with Rule 162 however giving the Court wide powers to make particular orders as to discovery. It is orders of that kind which are here sought.

8 The Rules envisage that the documents sought will be identified with reasonable precision and not simply by reference to a general subject matter. The Rules do not provide for general discovery, because a view has been taken that a balance must be struck between a party's right to have access to all documents, which will ensure a proper determination of the issues which lie between the parties, and unnecessary or unjustified discovery. The importance of this balance cannot be understated, particularly given the voluminous nature of business records which are nowadays created in many businesses which arise for consideration in proceedings such as these, and the costs routinely generated in such proceedings by requests for discovery, particularly when considered in the context of the amount of the claims involved in many of these cases. Discovery is, undoubtedly, an area where parties' legal representatives, in the interests of their own clients, need to exercise discipline and restraint.

9 The first category of documents in issue between the parties, in shorthand, deals with RentWorks' board papers for the period 1 June 1998 to 30 June 1999. The respondents' objection to the discovery sought went to the applicants' alleged failure to ensure that the class of documents sought was limited to those which relate to issues in the proceedings. An alternative was proposed.

10 The applicants' submissions indicated that 'the fundamental issue in the proceedings is the fairness of the valuation of the shareholding' in RentWorks. The applicants thus sought to discover 'all documents which fairly bear upon the value of RentWorks'.

11 It was apparent from this submission that the documents sought by the applicants in this first category, went beyond such documents. In paragraphs 7.3 and 7.4 of the applicants' submissions, examples were given of documents which would go to the matter of the fair valuation of RentWorks. The respondents submitted that discovery should be limited to such specific categories.

12 I am inclined to agree that the discovery should be limited, but not entirely as the respondents sought. I would thus require that discovery be given as to: 'All drafts and originals or, where the originals cannot be located, copies, of documents (other than Excluded Documents and any reference to the actual or anticipated litigation by Christopher Murray and MacDome Pty Limited, which may be masked), being: (a) such parts of the board papers, Business Plans, board reports, agenda and minutes considered, reviewed, presented, created and/or tabled during meetings of the board of directors of RentWorks Limited held during the period from 1 June 1998 until 30 June 1999 as record or evidence: (i) the financial performance of the RentWorks group;

(ii) discussion by the Board of Directors of the valuation prepared by PriceWaterhouseCoopers of MacDome Pty Limited's shareholding in RentWorks Limited.

(iii) information about the business known as 'Sports Service', any application for financing made by RentWorks Limited to any bank and the 5 year plan presented to St George Bank.

13 The second category of documents in issue goes to a wider class of other documents, apart from Board papers, dealing with RentWorks' financial performance, from 30 June 1998 to date. The respondents' objection to this category raised oppression and the time in respect of which the documents were sought.

14 The objection was taken in circumstances where financial records such as monthly management accounts, tax returns, monthly profit and loss accounts and balance sheets have been discovered. It was submitted that previous requests excluded all of the primary documents upon which the discovered documents were based and that discovery on the basis now sought would take many weeks, involve considerable expense and potentially require the hearing dates to be vacated.

15 As to the dates, it was argued that the latest date upon which the applicants sought a valuation of their shareholding was 2 March 1999. It followed that material beyond that date was unnecessary and oppressive.

16 The applicants' submission was that these documents related to 'financial material bearing upon the value of the business conducted by RentWorks' and also went to a confirmation that budgets and projections utilised in a 5 year plan presented to the St George Bank were a genuine and realistic pre-estimate of business performance. Such documents were also likely to refer to information about the business during earlier periods. As to the period sought, it was submitted that this would enable the applicants' expert valuer to consider projections that were or could have been made at the date upon which the valuation here in issue was made.

17 On the material presently before me, it is not possible to conclude that the documents sought in this category are not relevant to the issues in the proceedings. That leads to the arguments advanced in relation to oppression. I note that those arguments were advanced without the support of any affidavit material. Of necessity, that is a matter which must be taken into account in determining the issues which lie between the parties.

18 Were difficulties to be encountered by the respondents, as foreshadowed in submissions, so as to put them into a position where an application for adjournment of the hearing before Glynn J was made, that situation would have to be considered by the applicants, and if necessary, determined by her Honour. That possibility cannot be considered here, or be determinative of the issues which here arise for consideration.

19 The documents sought in this category are expressed in wide terms, albeit in relation to documents which touch upon RentWorks' financial performance.

20 Here, it cannot be overlooked that this is a case where much discovery has already been given by the respondents and this latest request is brought relatively late in the day and seemingly, in respect of this claim, for a period after the relationship between the parties ended, on a wider basis than similar material sought in relation to the period during which the relationship subsisted.

21 I have concluded that it would not be justified in the circumstances of this case to grant the discovery sought in this category and that it should be limited, as follows: 'All drafts and originals or, where the originals cannot be located, copies, of documents (other than Excluded Documents):

(b) concerning, recording, evidencing and/or referring to the financial performance of the RentWorks Group and/or of each entity within the RentWorks Group during the period from 30 June 1998 to date, being: · financial reports and/or financial discussion papers prepared for the purpose of board meetings of the companies in the RentWorks Group; · profit and loss statements (divisional and consolidated); · monthly management accounts; · annual financial statements (divisional and consolidated), including preliminary and draft versions; · monthly summaries of new business written within each branch within each country; · board minutes and reports pertaining to financial matters including, but not limited to, records of all discussions relating to historical and prospective financial information; and/or · management reports pertaining to financial matters.'

22 The third category relates to documents in the period from 1 January 1998 to 30 June 1999, concerning matters such as customer relations, competitors, new products, the distribution framework, recruitment and demand. The respondents' objections raised oppression and clarity.

23 It was submitted that the search would be very onerous, involving almost all of RentWorks' records. The potential relevance of such documents to any issue was submitted to be negligible, given the assertion that the documents related to the veracity of a 5 year financial projection for RentWorks prepared in late 1998. An alternative was proposed, which however appeared in its terms to differ little from what the respondents had proposed, the suggestion that discovery should be limited to high level or summary documents, not being included in the alternative itself.

24 For the applicants it was submitted that the 5 year plan provided to St George bank included an assessment of market and economic conditions; that the documents sought bore upon such conditions and would accordingly bear upon the veracity of that assessment. There was also an evidentiary issue between evidence to be called by the applicants and the respondents, as to the market and economic environment in which RentWorks operated. It would be argued that the views expressed by some of the respondents' witnesses were inconsistent with the presentation RentWorks made to the St George bank.

25 It followed, so it was submitted, that the documents sought were relevant to the issues in the proceedings.

26 It seems as if the material sought under this category is, at least, of some relevance to issues in the proceedings. Given the width of the call however, concerns about oppression, are understandable. It follows that the discovery sought should be limited, as follows: 'All drafts and originals or, where the originals cannot be located, copies, of high level or summary documents (other than Excluded Documents):

(c) being, concerning, recording, evidencing and/or referring to any reviews, summaries, reports, analyses and/or forecasts prepared in the period from 1 January 1998 to 30 June 1999 regarding: (i) the relationship between the RentWorks Group, or any part thereof, and its existing and/or potential and/or target customers;

(ii) existing competitors and/or potential competitors of the RentWorks Group, or any part thereof;

(iii) new products, services and/or projects being or proposed to be offered by the RentWorks Group or any part thereof;

(iv) the existing and/or proposed distribution framework and/or technology and/or employee structure of the RentWorks Group or any part hereof;

(v) the recruitment and/or re-employment by the RentWorks Group, or any part thereof, of sales people but not individual employees or potential employees;

(vi) the historical, existing and/or anticipated demand for the services provided by the RentWorks Group or any part thereof.'

27 The fourth category concerns documents created since 8 December 1999 about the value of any part of the RentWorks' group. The respondents' objection to this category raised uncertainty as to the documents which might be caught by the description, irrelevance, and the potential wide ambit of the search required, if the documents could be identified at all.

28 It was submitted that the question of whether a particular document goes to the value of RentWorks was a matter upon which the parties had already put on expert evidence in the proceedings and not one upon which commercial business people should be called upon to make a judgment. It was submitted that the practical result would be to require the production of all of RentWorks' primary financial records and many non-financial records kept since December 1999.

29 It was argued that such production would take many weeks, involve considerable expense and probably require the hearing dates to be vacated.

30 The applicants submitted that the documents were relevant to the valuation issue at the heart of the proceedings and that the documents were required by the obligation to give continuing discovery. The same arguments were advanced in relation to the date sought for this category, as were advanced in relation to the second category.

31 While it cannot be concluded that the respondents' complaints as to the date of the documents can be accepted, it is apparent from the general description of the documents used, that some of the documents referred to in the second category would also fall within this category. The description used is in the most general terms and I am satisfied that it is not an appropriate basis for further discovery to be given in this case, having in mind the issues between the parties, the description here used and the undoubted work involved in anyone attempting to comply with it. I am not convinced that in the circumstances the exercise is necessary or justified. Nor is it a matter for the Court to seek to rewrite such an inappropriately drafted description, when orders under Rule 162 are sought. This necessarily follows from Rule 162(2).

32 I turn then to the three issues described by the parties as 'incidental' to the four categories already dealt with, which were also raised by the parties for the Court's determination.

33 The first went to the use of the words 'concern' or 'concerning', in various of the requests made. The respondents consented to the use of these words, on the understanding proffered by the applicants, that they connoted a direct connection between the documents and the identified subject matter, so that they embraced 'only a document which is about that subject matter'. It follows that the use of those words in the order is to be so understood.

34 The second and third incidental issues concerned whether discovery should be given after the date 31 March 1999 in respect to various categories of documents. That controversy arose in a context where the applicants submitted that a date after 2 March 1999, might be regarded by the Court as the appropriate date for the transfer of the shares in question. The actual date of the transfer was 2 March 1999.

35 The respondents submitted that the correct date required for valuation was 30 June 1998, the latest date contended for by the applicants was 2 March 1999 and that none of the evidence thus far filed by the parties as to valuation, was directed to any date thereafter. It followed that the documents now sought, relevant to the applicants' case in reply, could not go to establish any date later than that sought in the applicants' case in chief. Reliance was also placed upon Rule 160(b)(ii), which it was submitted adopted the prima facie position that documents created after the commencement of the proceedings were not discoverable.

36 The applicants submitted that documents created after 2 March 1999 were relevant to a determination of the value of the shares and should thus be discovered. The 5 year business plan created for St George bank, which was in issue, in any event, went beyond that date.

37 I am satisfied on the material presently before me that in the circumstances of this case, it would not be justified to generally limit discovery of documents to those created before 31 March 1999. The conclusions reached in relation to the second category above, for example, indicate the reasons for that view in a particular context, which must equally apply to the general incidental issues raised here.

38 I also note in passing that I do not accept as an accurate reflection of Rule 160(b)(ii), that it adopts a prima facie position that documents coming into existence after the commencement of the proceedings are not discoverable. In my view, the rule cannot be so read on its face.

39 The applicants are directed to file short minutes of the orders reflecting this judgment within 7 days. The orders will operate on and from the date of the judgment and will require that discovery in relation to the three disputed categories in respect of which discovery is to be given, be given within 42 days of the judgment, the applicant having made no submission to the contrary, as to that suggestion of the respondent.

40 The parties had earlier discussed the filing of any further affidavit in reply by the applicants in relation to the documents discovered. The timetable fixed by Glynn J is amended to permit such an affidavit to be filed within 14 days of discovery of the documents being given.

41 I reserve the question of costs, the parties having not addressed submissions to that issue at this stage.

42 The parties have liberty to apply. Such liberty should be exercised by reference to Glynn J, to whom the file will now be returned for hearing, I having heard and determined the motion which was allocated to me in her Honour's absence, as earlier outlined. ------------------------

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