The plaintiff (FXA) sues the second defendant (Mr Patel) as the guarantor of first defendant's obligations under an agreement known as the "Preferred Customer Rental Agreement" entered into on 17 March 2016 (the Agreement).
The first defendant (Apps Pacific) is now deregistered. At all material times, Mr Patel was the sole director and shareholder of Apps Pacific. In the Amended Statement of Cross-Claim, Mr Patel seeks orders pursuant to s 237 Australian Consumer Law or s 7 Contracts Review Act 1980 that the guarantee is unenforceable on the basis that the Agreement was entered into as a result of misleading or deceptive conduct or unconscionable conduct on the part of FXA and/or that the contract was unjust. In short, Mr Patel's case is that the sales representatives of FXA who signed him up to the Agreement used high pressure sales tactics to do so.
Before the Court are two competing Notices of Motion, relating to the production of documents by FXA. Mr Patel seeks production of documents pursuant to a Notice to Produce dated 12 June 2020 and verified discovery of documents in 7 categories. The categories have been refined by reference to the understanding gained by Mr Patel from the Investigation Report, referred to below. FXA seeks to set aside the Notice to Produce and resists the application for discovery.
The proceedings are in an advanced stage of preparation for hearing. The Court Book referred to by the parties at the hearing of the Notices of Motion comprises of more than 1,100 pages. FXA has not as yet put on any evidence from the sales representatives who had contact with Mr Patel at the time of entering into the Agreement.
[2]
Background
In December 2019 immediately after Mr Patel filed his Defence he wrote to FXA proposing discovery categories. After extended negotiations, FXA agreed to provide discovery in accordance with the proposed categories.
In May 2020 FXA provided a Verified List of Documents. Mr Patel immediately took issue with FXA's discovery alleging that it was incomplete.
On 12 June 2020 Mr Patel issued the Notice to Produce seeking specified documents. The documents were identified by reference to an Investigation Report published on the Fujifilm Holdings Corporation (FHC) website. FHC is the parent company of FXA. The Investigation Report was prepared by an independent committee to investigate whistle blower allegations that in the relevant period for this litigation that the senior manager of Fuji Xerox New Zealand (FXNZ), who later became the senior manager of FXA, encouraged a "sales at any cost culture" leading to inappropriate accounting practices and overpayment of commissions. The Investigation Report set out the reporting lines within the Fuji Xerox Group and how FXA was controlled by Fuji Xerox Asia Pacific (FXAP) a Singapore based company, through the Asia Pacific Office (APO).
On 30 June 2020 FXA complied in part with the Notice to Produce, indicating that it needed more time to comply with the Notice but not taking issue with it. Mr Patel pressed for compliance with the Notice to Produce in correspondence dated 16 July 2020, 4 August 2020, 19 August 2020, 16 October 2020 and 28 October 2020.
In or about September 2020, FXA changed solicitors.
In October 2020 FXA's current solicitors took issue with the Notice to Produce. FXA has from that time onwards disputed that its discovery was inadequate, while accepting its discovery obligations were ongoing but without producing any further documents.
In the course of argument, FXA accepted that there were some demonstrated deficiencies in its discovery in reference to the deed of novation with the person to whom Apps Pacific sold the business. The documents that should have been discovered but were not, were documents referred to in the pleadings.
[3]
Discovery
Rule 21.1(2) Uniform Civil Procedure Rules 2005 (UCPR) provides:
For the purposes of this Division, a document or matter is to be taken to be relevant to a fact in issue if it could, or contains material that could, rationally affect the assessment of the probability of the existence of that fact (otherwise than by relating solely to the credibility of a witness), regardless of whether the document or matter would be admissible in evidence.
Rule 21.2 UCPR provides:
(1) The court may order that party B must give discovery to party A of:
(a) documents within a class or classes specified in the order, or
(b) one or more samples (selected in such manner as the court may specify) of documents within such a class.
(2) A class of documents must not be specified in more general terms than the court considers to be justified in the circumstances.
(3) Subject to sub-rule (2), a class of documents may be specified:
(a) by relevance to one or more facts in issue, or
(b) by description of the nature of the documents and the period within which they were brought into existence, or
(c) in such other manner as the court considers appropriate in the circumstances.
(4) An order for discovery may not be made in respect of a document unless the document is relevant to a fact in issue.
The following legal principles apply, as summarised by Bellew J in Hunter New England Local Health District v Munters Pty Limited [2018] NSWSC 788 at [19]:
1. Discovery cannot be ordered other than in respect of documents that are relevant to a fact in issue. It is therefore necessary to demonstrate a connection between the class of documents of which discovery is sought, and a fact or facts in issue. Where a class is specified in some manner other than by relevance to a fact in issue, it must be apparent that the class so described will capture only documents that are so relevant: Graphite Energy Pty Ltd v Lloyd Energy Systems Pty Ltd [2014] NSWSC 1326 at [22];
2. The facts in issue will be primarily identified by an examination of the pleadings: Schlam v WA Trustee Executor & Agency Co Ltd [1964] WAR 178; Mulley v Manifold (1959) 103 CLR 341; [1959] HCA 23;
3. For the purposes of discovery, a document need not be admissible, and need not be directly probative of the existence of the fact in issue, to be relevant. It follows that in a general sense, the test for discovery under the rule is relatively wide: Hutchinson v Glover (1875) 1 QBD 138;
4. The relevance of a document to a fact in issue is to be determined by its capacity to rationally affect the assessment of the probability of the existence of the contentious fact: Compagnie Financiere et Commerciale du Pacifique v Peruvian Guano Co (1882) 52 LJQB 181;
5. Discovery will be ordered only where it is reasonably required for the fair disposition of the proceedings, and where its legitimate purposes include to obtain evidence and to avoid surprise: In the matter of Felan's Fisheries Pty Ltd [2017] NSWSC 1262;
6. Discovery involves an "inroad", in the interests of justice, upon the right of the individual to keep his own documents to himself: Expense Reduction Analysts Group Pty Ltd v Armstrong Strategic Management and Marketing Pty Ltd (2013) 250 CLR 303; [2013] HCA 46, citing Harman v Home Department State Secretary [1983] 1 AC 280; [1982] 2 WLR 338;
7. The discretion conferred by r 21.2 must be exercised having regard to the provisions of ss 56-60 of the Civil Procedure Act 2005 (NSW). In this regard, case management principles become relevant, although they are not necessarily determinative: Expense Reduction Analysts Group Pty Ltd (supra);
8. Although proper compliance with a party's obligations of discovery is an important and necessary part of modern litigation, the court necessarily has the capacity under the rules to limit discovery, or control the process of giving discovery, so that it does not become unduly onerous: Con Ange v Fairfax Media Publications Pty Ltd [2010] NSWSC 1200;
9. There is no entitlement to "chain of enquiry" discovery. If the process of discovery is abusive, or compliance with an order too onerous, the court can (and should) control it: Palavi v Radio 2UE Sydney Pty Limited [2011] NSWCA 264.
[4]
Setting aside the Notice to Produce
If the court is satisfied that a document sought has no apparent relevance to a fact in issue, it may dispense with production in response to the notice: rule 21.11 UCPR. Rule 21.9 UCPR repeats the definition of relevant to a fact in issue in rule 21.2.
Adjectival relevance refers to the capacity of the documents sought to support a conclusion or proposition that has an arguable relevance to the proceedings: Cosco Holdings Pty Ltd v Cmr of Taxation (1997) 37 ATR 432. A subpoena may be set aside if it requires the production of documents with insufficient apparent relevance to the proceedings: Trade Practices Commission v Arnotts Ltd (No 2) (1989) 21 FCR 306.
[5]
Discovery
Mr Patel has demonstrated that the refined categories are appropriate by reference to the corporate structure identified in the Investigation Report. FXA previously agreed to provide discovery in the proposed categories. It accepts that in some respects that the discovery it has provided to date is deficient.
I have also taken into account that FXA has decided not to put on evidence from the sales representatives who dealt with Mr Patel. Accordingly, it is appropriate to order discovery in favour of Mr Patel to give him an opportunity to make good the relevant allegations in the Investigation Report. In my view, some of those allegations are relevant to facts in issue in the proceedings. Whether any material obtained in discovery is admissible will ultimately be a matter for the trial judge.
FXA has not put on evidence to say that discovery in the proposed terms is oppressive.
I am not sure that this application is an application for "further and better discovery", but if it is, I am satisfied that FXA should provide discovery in accordance with the refined categories.
[6]
Notice to Produce
The documents sought in paragraphs 2 and 3 of the Notice to Produce are documents that were referred to in the Investigation Report. FXA did not object to paragraph 1 of the Notice to Produce and produced an internal memorandum prepared by Mr Devlin clarifying and tightening the rules in relation to upfront revenue recognition that was used to calculate sales commissions (the internal memorandum).
It was submitted by FXA that on a fair reading of the Investigation Report it could be implied that the document sought in paragraph 2 of the Notice to Produce could be the internal memorandum. I am satisfied that FXA was right to produce the internal memorandum in response to paragraph 1 of the Notice to Produce because it was a document that was created in a response to the sales at all costs culture and payment of inflated sales commissions at FXA. It is a business record that tends to prove the existence of the sales at all costs culture within FXA. It follows that if paragraph 2 of the Notice to Produce refers to a different document then it should also be produced. I am satisfied that FXA should be required to produce documents in response to paragraph 2 of the Notice to Produce, even if that is only to confirm on instructions that the document sought is the same as the internal memorandum.
Paragraph 3 of the Notice to Produce seeks production of emails referred to at page 122 of the Investigation Report under the heading "(iii) Inappropriate Credit Risk Assessment Process", "implying that transactions were made with counterparties posing a high credit risk in order to achieve sales targets". [1] To provide some context, this sub-paragraph concluded on the basis of the interviews conducted and emails viewed that there were instances where transactions were carried out at the discretion of a certain person, despite the credit team's determination that the party was an inappropriate customer, that agreements were approved without complying with criteria, products were being delivered months before completion of the approval process and transactions were being entered into on assumed volumes of printing that were unlikely to be achieved.
FXA submitted that the Investigation Report at this point was expressly referring to "bundled agreements" and not to the type of agreements entered into by Apps Pacific and Mr Patel. Whilst that may be so, I am satisfied that the emails referred to in paragraph 3 of the Notice to Produce do tend to prove the sales at all costs culture and payment of inflated sales commissions in FXA in the relevant period. I am satisfied that the documents sought in paragraph 3 of the Notice to Produce are sufficiently relevant to warrant their production.
[7]
Orders
The orders I make are as follows:
1. The plaintiff is to provide verified discovery of the documents specified in the amended categories of documents referred to in the schedule to the second defendant's written submissions within 28 days of the date of this order.
2. The plaintiff is to provide the discovered documents for inspection in accordance with the UCPR within a further 21 days (49 days from the date of this order).
3. The plaintiff is to produce for inspection by the second defendant the documents referred to in paragraphs 2 and 3 of the Notice to Produce dated 15 June 2020, within 14 days from the date of this order.
4. The plaintiff's Notice of Motion filed on 23 November 2020 is dismissed.
5. The plaintiff is to pay the second defendant's costs of the plaintiff's Notice of Motion filed on 23 November 2020 and the second defendant's Notice of Motion filed 23 November 2020 on the ordinary basis, as agreed or assessed.
6. In the event that any party wants to apply for a different costs order, I grant leave to the parties to approach my Associate within 14 days to list that application for argument.
[8]
Endnote
The Notice to Produce incorrectly described the sub-paragraph as (iv).
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 05 October 2021
Parties
Applicant/Plaintiff:
Fuji Xerox Australia Pty Ltd
Respondent/Defendant:
Patel
Legislation Cited (2)
Australian Consumer Law Civil Procedure Act 2005(NSW)