Hancock & Anor v Bilinsky

The Deputy Commissioner of Taxation and proceedings before the AAT 12 In July 2003, the applicants successfully sought a refund from the Deputy Commissioner of Taxation (DCT) for the input credit of $38,636.36 by reason of the issue of the Council's tax invoice. On 14 July 2003, the Council wrote to the applicants seeking to withdraw the tax invoice. The Council notified the DCT of this action. The DCT then sought the return of the refund given to the applicants by reason of the input credit in the tax invoice of $38,636.36. 13 On 3 August 2004, the DCT reversed its decision allowing the input tax credit in favour of the applicants and a notice of assessment was issued, including a penalty. The applicants lodged an objection. 14 On 28 February 2005, the DCT dismissed the objection. On 27 April 2005, the applicants commenced proceedings in the Administrative Appeals Tribunal (AAT) against the DCT in regard to its decision to dismiss the objection. In those proceedings the respondent was given instructions from his client, the Council, to co-operate with the DCT. 15 On 3 August 2004, Senior Counsel, Junior Counsel and a solicitor from the Australian Taxation Office (ATO) came to his office for the purpose of obtaining a statement from him in relation to the proceedings then pending between the applicants and the ATO in the AAT. While at his office, Mr Mark Curran, a solicitor from the ATO, asked to see Council's computer floppy disk 63, containing document 80-DN. As the respondent had been instructed by the Council to give every assistance to the ATO, he provided the disk to Mr Curran. Mr Curran then inserted the disk into the respondent's secretary's computer and showed him [the respondent] how it was possible to ascertain when a particular document was created. The respondent's evidence is he was not aware until then that it was possible to ascertain when a document on a disc had been created. A copy was made of the record appearing on the computer screen at that time. This document showed that 80-DN was created on 3 August 2001 and next accessed on 3 March 2006. 16 Mr Phillip James Goodwin, the expert for the ATO prepared a report, which was to be tendered in the AAT. At paragraphs [27]-[28] of his report, Mr Goodwin concluded that as he was unable to recover any data from the original "80-DN.DOC (original)" file (from 2001). This was due to overwriting that occurred on 3 March 2006 when the document was opened, printed and saved. As a result, it was not possible for him to compare and verify the current text with text dating from 2001. Therefore, he was not able to state with certainty that the text of the document "80-DN.DOC (current)" was the same as the file of the same name dating from 2001. 17 Mr Goodwin says that during his analysis he was unable to locate any temporary, backup, or any other files dated with file activity occurring prior to 3 March 2006. He says that after the last file access activity on 1 March 2001, it was quite unlikely that any changes had affected the files on the disk other than those that occurred on 3 March 2006. Hence, the evidence of Mr Goodwin does not support the applicants' case that the 3 August 2001 file note was a more recent invention. 18 The applicants now say that the respondent's evidence is false and by reason of that false evidence, they withdrew their AAT appeal on 30 March 2006 on terms that they pay back the input credit of $38,636.36 plus interest to the DCT.

The claim for relief 19 The applicants in their draft statement of claim plead deceit (DSC). The elements of a cause of action in deceit are well established, namely, where a respondent makes a false representation, knowing it to be untrue, or being reckless as to whether it is true and intends that the claimant should act in reliance on it, then, in so far as the claimant does so and suffers loss the respondent is liable for that loss - see Clerk & Lindsell on Torts, (19th ed) 2006 approved in Magill v Magill (2006) 226 CLR 551 at [59]. 20 In relation to deceit, the applicants plead at [27]-[33]: "27. The respondent swore a statutory declaration on 10 August 2005 which was served in the AAT proceedings (' the Statutory Declaration '). 28. The Statutory Declaration deposed to the margin scheme applying to the Sale Contract and put in evidence the File Note (' the Testimony '). 29. The AAT proceedings were withdrawn by the plaintiffs on the basis that the plaintiffs pay the DCT the amount of the Adjustment with interest. 30. The plaintiffs withdrew the AAT proceedings because of what was deposed to in the Statutory Declaration and the evidence in regard to the File Note. 31. The Testimony was false (' the False Testimony '). 32. The False Testimony was made by the respondent without belief as to its truth.

33. The False Testimony was made with the intention that it be relied upon by: (a) the AAT; (b) the DCT; and (c) the plaintiffs." 21 On 10 August 2005, by statutory declaration, the respondent deposed that on 2 August 2001 at exchange of contracts he initially checked the "No box, but latter crossed it out. The box for the Margin Scheme choice was checked "Yes" before the contract was signed (Ex B). 22 The applicants allege that by reason of the respondent's false testimony, they have suffered damages, comprising of firstly, payment of $38,636.36 to the DCT to settle the AAT proceedings; secondly, solicitor/client legal costs of and incidental to the AAT proceedings; thirdly, accountant's fees for the preparation and lodging of the objections and incidental to the AAT proceedings; and fourthly, their costs for travel, accommodation and other expenses related to the prosecution of the AAT proceedings. 23 Before filing the statement of claim, the applicants' solicitor Mr Romano is obliged to certify that there are reasonable grounds for believing, on the basis of provable facts and a reasonably arguable view of the law, that the claim has reasonable prospects of success - see s 347, Legal Profession Act 2004 (NSW) (LPA). 24 The applicants seeks discovery of the following: "(a) Computer floppy disk owned by the respondent containing the following computer files: (i) 80-DN.doc created on 15:30:32, 11 July 2001 and last modified on 02:29:58, 3 August 2001; (ii) Backup of 80-DN.wbk created on 15:30:32, 11 July 2001 and last modified on 02:29:58, 3 August 2001; (iii) 80-DN.doc created on 15:30:32, 11 July 2001 and last modified on 11:33:10, 3 March 2006; (iv) 80-DN.doc created on 15:30:32, 11 July 2001 and last modified on 11:33:30, 3 March 2006." 25 The applicant also sought discovery of the respondent's computer hard drives. The respondent says that the computer hard drives are no longer in his possession or control. The computers used by the respondent in his office in 2001 have been replaced and updated computers have been acquired. The ATO may have a copy of the disk in its possession. In answer to a subpoena, it has declined to produce it on the basis that it would be in contravention of s 16 of the Income Tax Assessment Act 1936 (Cth), s 3C of the Taxation Administration Act 1953 (Cth) and/or other secrecy related provisions. 26 The applicants say that it is crucial to their decision if they should commence proceedings against the respondent as to whether or not the file note dated 3 August 2001 is genuine or of recent invention. The applicants say that it is not possible to determine whether or not the file note is a recent invention merely by looking at it in a hard copy form. 27 In about May 2006, Forensic Data Services Pty Ltd (Forensic Data) received instructions from Susan Hancock to review the affidavit of Phillip James Goodwin sworn 29 March 2006 in proceedings NT 2006/54 in the Administrative Appeals Tribunal. 28 Mitchell Edward Bezzina, senior technical consultant with Forensic Data deposed (Aff, 23/01/2007) that he is a specialist in the area of computer forensics, date reconstruction, data conversion, electronic discovery and data recovery from all forms of electronic storage media. Mr Bezzina instructed Gary Robertson of Forensic Data to perform the work in relation to the matter. 29 Mr Bezzina says that in order for him to determine whether the file note referred to was altered on or after 2 August 2001, he would need access to the floppy disk or disks that the file note was saved to and/or the hard disk drive of the computer from which the file note was created and from which the file note was copied to the disks. 30 The applicants submitted that they have made reasonable enquiries but are unable to obtain sufficient information and that further information is necessary to determine whether or not the file note is genuine or not. 31 The respondent submitted that the granting of preliminary discovery is an extraordinary jurisdiction which provides compulsory access to the private affairs of members of the community in order that someone else can determine if they have a case against that party - see C7 Pty Limited v Foxtel Management Pty Limited [2001] FCA 1864 at [50]. 32 The respondent asserts that the applicants have not made out the elements of deceit as they cannot show a misrepresentation as to a past or existing fact - see Amaltal Corp Ltd v Maruha Corp Ltd [2007] 1 NZLR 608 at [47]. The past or existing fact would be whether the Margin Scheme applied. The respondent also submitted that this application was not sought for the purpose of enabling the applicants to decide whether or not to commence proceedings against the respondent, as the applicants already had sufficient information for that purpose.

The Law 33 Rule 5.3 of the Uniform Civil Procedure Rules 2005 (NSW) relevantly reads: "Discovery of documents from prospective respondent

(1) If it appears to the court that: (a) the applicant may be entitled to make a claim for relief from the court against a person ( the prospective respondent ) but, having made reasonable inquiries, is unable to obtain sufficient information to decide whether or not to commence proceedings against the prospective respondent, and

(b) the prospective respondent may have or have had possession of a document or thing that can assist in determining whether or not the applicant is entitled to make such a claim for relief, and

(c) inspection of such a document would assist the applicant to make the decision concerned,

the court may order that the prospective respondent must give discovery to the applicant of all documents that are or have been in the person's possession and that relate to the question of whether or not the applicant is entitled to make a claim for relief.

…" 34 Rule 5.3 of the UCPR is broader than the previous rule for preliminary discovery that fell under Part 3 of the Supreme Court Rules 1970 (NSW). The former rule provided for preliminary discovery only to enable a prospective applicant to ascertain the identity of a party for the purposes of commencing proceedings against that party, whereas the new rule is similar to Order 15A, Rules 6-9 of the Federal Court Rules 1979 (Cth), in that it enables a prospective applicant to seek preliminary discovery not only to determine where the party is that it may wish to sue, but also to assist in determining whether or not proceedings should be commenced against that party. 35 In Papaconstuntinos v Holmes a Court & Anor [2006] NSWSC 945, Her Honour Justice Simpson considered Rule 5.3 and helpfully stated at [14]-[20] which I respectfully reproduce: "14. Analysis of the UCP rule shows that an order may not be made against either defendant unless, in relation to that defendant, the court is satisfied of five separate matters. They are:

(I) that the plaintiff may be entitled to make a claim against that defendant;

(ii) that the plaintiff has made reasonable enquiries;

(iii) that, notwithstanding that the plaintiff has made reasonable enquiries, he/she is unable to obtain sufficient information to decide whether or not to commence proceedings against that defendant;

(iv) that that defendant may have, or may have had, possession of a document or thing that could assist in determining whether or not the plaintiff is entitled to make such a claim for relief;

(v) that inspection of that document would assist the plaintiff to make a decision (whether to commence proceedings).

15 In Alphapharm Pty Ltd v Eli Lilly Australia Pty Ltd (unreported, FCA, 24 May 1996), at [41] Lindgren J set out a number of propositions concerning the application of the rule. Relevantly for the present case, his Honour held that paragraphs 6(a) and 6(c) of the Federal Court rule pose objective tests, although the paragraph 6(b) test also contains a subjective element. These paragraphs are the equivalent of what is identified above as (i), (iv) and (v).

16 Significantly, Lindgren J observed, in the proposition numbered 6, held that the questions posed by the Federal Court rule: "are to be answered in the context of an adversary system of forensic contest in which a proposed respondent is ordinarily entitled to withhold its evidence, certainly prior to the commencement of proceedings." Further, the questions are to be answered in the light of the nature of the cause of action contemplated and the range of information potentially available in respect of a cause of action of that kind. He rejected a submission made on behalf of the respondent in that case that the rule was rendered unavailable where the applicant already had available evidence establishing a prima facie case for the granting of relief. Such a construction would, he held, "impose an artificial constraint" on the rule: "not supported by its terms or its purpose to exclude, a priori , all cases in which the insufficiency of the information possessed by the applicant to enable a decision to be made whether to litigate is due to a matter of 'defence' which would defeat the prima facie case."

17 I take this to mean that Lindgren J was of the view that the power conferred by the rule is available to be invoked by a potential applicant who, it can be seen, on the information and material already in his/her possession, has, prima facie , a cause of action, but who wishes to explore, before embarking on the action, potential defences available to the proposed respondent. In CGU Insurance Ltd v Malaysia International Shipping Corporation Berhad [2001] FCA 1223; 187 ALR 279, Tamberlin J adopted the same view, and, in the context of the case before him, distinguished between making some enquiries and making all reasonable enquiries (as required by the Federal Court rule). That, however, has little application to the rule here under consideration because this is one of the distinguishing features between the two rules. The Federal Court rule makes the power available after "all reasonable enquiries" have been made; the UCP rule merely requires that "reasonable enquiries" be shown to have been made. In this Court Young CJ in Eq has taken the view that the UCP rule is wider than that of the Federal Court: Panasonic Australia Pty Ltd v Ngage Pty Ltd [2006] NSWSC 399.

18 It is also to be noted that, even if the applicant takes all of the five hurdles, the power to make an order remains discretionary: see Alphapharm , proposition 5.

19 The purpose for which the power is conferred by r 5.3 is stated within sub-paragraph (a). It is: "to obtain sufficient information to decide whether or not to commence proceedings against the prospective respondent …"

20 These questions are also to be considered against the background of the nature of the relief made available by r 5.3. This is, before any substantive proceedings have been commenced, to require a prospective respondent to give discovery of documents that are or have been in the prospective respondent's possession and that relate to the question of whether or not the applicant is entitled to make a claim for relief. This is potentially an extremely demanding task and a considerable imposition upon a respondent. Depending upon the specificity with which the documents ordered to be discovered are identified, it may require the prospective respondent to make an assessment of the potential relevance of documents or other things to putative proceedings that have not yet been formulated. It may require a very lengthy and detailed examination of documents and records. It is not a power to be exercised lightly. It is, no doubt, for that reason that the power is not to be exercised unless and until the applicant has been shown to have made reasonable enquiries otherwise." 36 It is my view that the applicants may be entitled to make a claim against the respondent in deceit. There is conflicting evidence between the applicants and the respondent as to what occurred. On both accounts the applicants' prior accountant Mr Thirlwell was present on the exchange. On the issue of whether the Margin Scheme applied, Mr Thirlwell supports the respondent's version of events. Mr Sutton, who on the respondent's account was also present, supports the respondent's version of events. Where there is conflicting oral evidence, the Court normally evaluates any contemporaneous written record as to what occurred. In this case the contemporaneous record supports the respondent's version of events. 37 On the current state of this evidence, there are conflicting accounts given by the parties. There is no forensic evidence to support the applicants' contention that the file note is of more recent invention. One can well understand the applicants' solicitor's difficulty in deciding whether he can certify there are reasonable grounds for believing on the basis of provable facts and a reasonably arguable view of the law that the claim has reasonable prospects of success. An allegation of deceit levelled against a solicitor is a serious matter indeed. 38 It is my view that the applicants may be entitled to make a claim for relief. This claim for relief arises from deceit. The elements of the tort of deceit have been made out in the pleading. The evidence of most of the witnesses who were present at the exchange of the contract has been obtained, as has the file note and the opinion of Mr Goodwin. The evidence of Mr Hancock, the first applicant, is not before the Court but is most likely to corroborate the evidence of his wife. The evidence of Mr Finch who, on the applicants' version of events, was present at the exchange of contracts has not been obtained. Even if Mr Finch's evidence had been obtained, regardless of whether he agreed or disagreed with the Hancocks' version, there would still be conflicting versions of events. I am of the view that the applicants have made reasonable enquiries and are unable to obtain sufficient information to decide whether or not to commence proceedings against the respondent. 39 It is my view if there is no forensic evidence to support the applicants' claim that the file note was of recent invention, there is not sufficient information to decide whether or not to commence proceedings. The respondent does have the floppy disk in his possession and if it is made available for forensic examination it would assist the applicants in determining whether or not they are entitled to make the claim for relief. 40 Any claim for privilege over this file note was waived by the Council when it used it in the AAT proceedings. The respondent is rightly concerned that material relating to other clients contained on the disk should be kept confidential as it is the subject of legal professional privilege. However, the information contained on the disk as to when the file note was created and accessed is not privileged information. 41 It is my view that the applicant has satisfied the provision of Rule 5.3(1) of the UCPR. In the exercise of my discretion, it is my view that the respondents should provide preliminary discovery to the disk referred to in paragraph [24] of this judgment to the applicants. The disk should be made available by the respondent to the applicants' solicitor within 14 days. 42 The respondent submitted that if preliminary discovery is ordered, adequate provision for the maintenance of the integrity of the documents discovered should be made. I agree. Further, arrangements should be made to ensure that other confidential data contained on the floppy disk remains confidential. 43 The respondent further submitted that a Court expert should be appointed for the purpose of the examination sought by the applicants, that orders should be made to preserve the Court's continuing supervision of the possession of the documents, and the applicants should not be given possession of any documents discovered. The respondent also submitted that an order for security for the costs of the examination should be made and be borne by the applicants. 44 The issue of whether a Court appointed expert should be appointed and costs of this application are reserved. It should be the applicants who bear the costs of having the disk forensically examined.

(1) The respondent is to provide preliminary discovery of the disk referred to in paragraph [24] of this judgment to the applicants' solicitor within 14 days.

(2) The issues of firstly, costs and secondly, whether a Court appointed expert should be appointed are reserved. **********

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