HIRSCHBERG (ATF LPH Developments Keegan Street Trust) -v- JAMESON MOORE PTY LTD [2018] WASC 348 (14 November 2018)

1. In CIV 2343 of 2015, LPH Developments Pty Ltd (as trustee for LPH Developments Keegan Street Trust) (LPH) claims breach of contract and damages by way of a lost opportunity to acquire and profit from a commercial development site at 3 Keegan Street O'Connor (the property) owned by the defendant, Jameson Moore Pty Ltd (Jameson Moore).[1]
2. By counterclaim in CIV 2343 of 2015, Jameson Moore claims it properly terminated the contract and seeks damages for the loss of the sale.
3. Jameson Moore subsequently sold the property to a third party it claims at a loss which it quantified at $850,000.
4. Prior to the sale of the property, the only business engaged in by Jameson Moore was to own the property and secure by way of mortgage the bank overdraft of WD Moore Windtech Pty Ltd.
5. The purpose of the application is to obtain disclosure from Jameson Moore of the bank balance in the account which is the only asset of Jameson Moore.
6. In particular, the applicant seeks discovery of bank statements from accounts from which the proceeds of sale of the property were paid to Jameson Moore (the first respondent to this application). The applicant also seeks discovery of a discharge of mortgage document discharging the sale of property and a signed copy of the contract of sale.

Background CIV 2343 of 2015 applications for security of costs and freezing orders

1. On 9 May 2017, BanksSmith J determined that LPH provide $50,000 by way of security for costs to be paid into court. An order was also made staying the proceedings pending payment.[2]
2. In May 2016, LPH applied under O 52A of the Rules of the Supreme Court 1971 (WA) for an order freezing the proceeds of sale of the property sold to the third party.
3. Prior to the hearing of the application for the freezing order, without admitting any obligation to do so, Jameson Moore voluntarily provided the court with an undertaking and the plaintiff's application was dismissed by consent.
4. The terms of the undertaking relevantly provided that Jameson Moore could withdraw the undertaking on five days' notice.
5. On 29 June 2017, Mr Hirschberg as sole director of LPH appointed administrators under s 436A of the Corporations Act 2001 (Cth) to LPH. After being informed of the administration, on 27 July 2017, Jameson Moore gave the court and LPH 30 days' notice of its intention to withdraw from the undertaking.
6. On 24 August 2017 (before the notice of withdrawal from the undertaking was to expire), LPH applied on an urgent basis for a freezing order with respect to the proceeds of sale.
7. On 28 August 2017, BanksSmith J made an interim order, freezing the proceeds, to be vacated if the security for costs was not paid by 4 September 2017.[3]
8. On 1 September 2017, LPH paid the security into court in satisfaction of the order made on 9 May 2017.
9. When the application for security for costs was heard before BanksSmith J on 20 September 2017, LPH did not point to any identified danger of dissipation of the proceeds. It relied on the fact that the proceeds were the only asset of Jameson Moore and the withdrawal of the undertaking.
10. On 3 October 2017, BanksSmith J dismissed the application for the freezing order.[4]
11. Upon an application from Jameson Moore on 22 February 2018, Master Sanderson made an order requiring LPH to provide a further amount for security of costs in the sum of $50,000. The Master also stayed the original action and the counterclaim pending LPH's compliance with the order to provide further security for costs.
12. On 14 June 2018, the Court of Appeal dismissed an appeal by LPH against the orders made by the master on 22 February 2018.[5]
13. As at the time of hearing of this application the payment of the further amount for security of costs had not been paid and CIV 2343 of 2015 remained stayed. However, the applicant had been granted leave to file an application in CIV 2343 of 2015 to amend the name of the plaintiff in that matter to 'Philip Allan Hirschberg (as trustee for LPH Developments Keegan Street Trust)'. The applicant's application in CIV 2343 of 2015 has not yet been determined.

Application for discovery from nonparties to identify potential parties O 26A r 3 principles and disposition

1. Order 26A r 3 of the Rules of the Supreme Court empowers the court to order discovery against nonparties and potential parties.
2. Under O 26A r 3, the court is empowered to order a nonparty to give discovery to identify a potential party to an existing action where the following four conditions are satisfied:[6]

(1) the applicant wants to take proceedings against the potential party in the course of the action to which the applicant is a party;

(3) the applicant has not been able to ascertain a description of the potential party sufficient for the purposes of taking proceedings against that potential party; and

(4) there are reasonable grounds for believing that the non-party had, has or is likely to have had or to have, possession of information, documents or any object that may assist in ascertaining the description of the potential party.

1. I am not satisfied that conditions (1) and (4) are satisfied.
2. The applicant claims the documents ought to be discovered to assist the applicant and the plaintiff in CIV 2345 of 2015 to determine whether there are grounds to join additional parties to the principal proceedings.
3. Leaving aside the issue of whether the applicant has standing to bring this application as a party to an existing action, at the time this application was heard, the plaintiff in CIV 2343 of 2015 remains LPH Developments Pty Ltd (as trustee for LPH Developments Keegan Street Trust). Jameson Moore is the defendant to CIV 2343 of 2015 and the second, third and fourth respondents to this application are its directors.
4. An order for discovery to identify a potential party is not to be made unless it will be reasonable for the applicant to bring a proceeding within the course of action to which the applicant is a party against a prospective defendant.[7]
5. An order for discovery will not be made if the prospective action is merely speculative.[8]
6. Only those documents which are actually relevant to a cause of action which the potential party may have ought to be the subject of a discovery order.[9]
7. The first respondent has given discovery in CIV 2343 of 2015 which included the contractual documents in the first respondent's possession, custody or power relating to the sale of the property.[10] I accept the submission made on behalf of the respondents that those documents were only required to be discovered as they were relevant to quantify Jameson Moore's counterclaim in CIV 2343 of 2015. This is because the value of the assets of a party and proceeds of the sale of the property, in the circumstances, is not a matter in question in the proceedings in CIV 2343 of 2015.
8. In these circumstances, I am not satisfied that it is open, or alternatively reasonable, for the applicant to bring a proceeding against any other prospective defendant in CIV 2343 of 2015.

Application for discovery from nonparties O26A r 4 principles and disposition

1. To succeed in the application made pursuant to O 26A r 4 the applicant must satisfy the requirements of O 26A r 4 by establishing that:[11]

(a) the applicant may have a cause of action against the potential party or parties;

(b) the applicant wants to commence or take proceedings against the potential party or parties;

(c) after reasonable inquiries, the applicant has not been able to obtain sufficient information to enable a decision to be made as to whether to commence or take the proceedings; and

(d) there are reasonable grounds for believing that the potential party had or has, or is likely to have had or to have, possession of documents that may assist in making the decision whether to commence or to take proceedings.

1. Whether an applicant may have a cause of action against a potential party or reasonable grounds for believing that the potential party has relevant documents are objective questions.[12]
2. However, whether an applicant wants to commence proceedings, the inquiries made by the applicant and the information the applicant has obtained, are all subjective matters. Whether the inquiries are reasonable imports an objective standard. The sufficiency of the information is an objective standard but it is determined by reference to the knowledge and circumstances of the particular applicant.[13]
3. The discretion is only enlivened in circumstances where the applicant has not made a decision to commence or to take proceedings.[14]
4. Consequently, where an applicant has already commenced proceedings or decided to commence proceedings against a respondent to an application then the jurisdiction to make orders under O 26A r 3 or r 4 cannot be enlivened.
5. The applicant says the following matters are relevant to the application:

(a) there has been a refusal by the respondents, or a failure to disclose the bank statements or balance of the account, which the applicant claims may stem from an intention to frustrate the litigation by creating ambiguity around the only asset of Jameson Moore;

(b) the proceeds from the sale of the property may not have been deposited into a bank account in the name of Jameson Moore;

(c) the second and third respondents (directors of Jameson Moore) may have dissipated a substantial portion of Jameson Moore's funds for their own personal use and/or benefit or for other third parties in contravention of the undertaking and to the detriment of the plaintiff in CIV 2343 of 2015;

(d) the fourth respondent (who is also a director of Jameson Moore) may have dissipated some of the funds of Jameson Moore for his own personal use and/or benefit or for other third parties in contravention of the undertaking and to the detriment of the plaintiff in CIV 2343 of 2015; and

(e) such dissipation of funds may have been partly done with the intention to frustrate the litigation by making the remaining balance uneconomic for the plaintiff in CIV 2343 of 2015 to continue to pursue its claim.

1. The applicant states it is also a purpose of the application to assist the plaintiff in CIV 2343 of 2015 to determine whether there is a need for a further application within the principal proceedings, for example a further application for a freezing order.
2. The applicant also claims that the documents are sought to assist the applicant and the plaintiff in CIV 2343 of 2015 to determine whether there are grounds to initiate new proceedings against the respondents to this application and possibly other parties.
3. In written submissions dated 19 October 2018 and filed on 22 October 2018 under the heading 'Appears to have a cause of action', the applicant contends that if the proceeds from the property are not in the account (nominated) or the account is not in any name other than Jameson Moore, then Jameson Moore is in breach of the undertaking (given in May 2016 after the first freezing application was made).
4. One of the difficulties with this submission is that the undertaking given in May 2016 and subsequent interim freezing order ceased to have effect on 3 October 2017 when BanksSmith J made orders dismissing the second application for a freezing order.
5. In reply submissions filed on 29 October 2018, the applicant contends that he is also concerned whether:

(a) any other parties beyond the respondents have 'misused' or otherwise dealt with the funds with the effect (or intention) of frustrating and/or defeating LPH's claim against Jameson Moore;

(b) the respondents or any other parties have engaged in unjust enrichment with the effect (or intention) of frustrating and/or defeating LPH's claim against Jameson Moore;

(c) the respondents or any other parties have engaged in tortious misrepresentations with the effect (or intention) of frustrating and/or defeating LPH's claim against Jameson Moore;

(d) the respondents or any other parties have engaged in tortious civil fraud with the effect (or intention) of frustrating and/or defeating LPH's claim against Jameson Moore;

(e) the respondents or any other parties have engaged in breaches of trust with the effect (or intention) of frustrating and/or defeating LPH's claim against Jameson Moore; and

(f) the respondents or any other parties have engaged in negligent conduct with the effect (or intention) of frustrating and/or defeating LPH's claim against Jameson Moore.

1. Insofar as the applicant seeks to establish whether he may have a cause of action against any party who is not a party to CIV 2343 of 2015, this is an objective question and must be raised by way of more than suspicion or conjecture.[15]
2. There are a number of substantial fatal flaws in the applicant's application.
3. Firstly, it is not open to bring an application pursuant to O 26A r 4 in order to make a decision whether or not to continue with the proceedings in CIV 2343 of 2015 or to join any other party to those proceedings. Order 26A r 4 cannot be enlivened for this purpose.
4. Secondly, the value of assets of a party and the proceeds of sale of the property are not matters in question in the proceedings in CIV 2343 of 2015 and, as such, Jameson Moore is not required to disclose its bank balance in those proceedings.
5. Thirdly, it is patently clear that the purpose of the application is an attempt to ascertain whether the proceeds of sale of the property by Jameson Moore in CIV 2343 of 2015 have been dissipated. An application brought for this purpose constitutes an abuse of process on grounds that:

(a) insofar as it relates to the withdrawal of the undertaking that was in place in 2016 until the interim freezing order ceased to have effect on 3 October 2017, this application is an attempt to relitigate the issues determined in the previously unsuccessful application for a freezing order;[16] and

(b) the effect of the order sought in this application would, if made, avoid the effect of the order staying proceedings in CIV 2343 of 2015 (pursuant to the order made by Master Sanderson on 22 February 2018). In the absence of compliance with the order for payment of $50,000 as additional security for costs no further application for a freezing order or any steps to progress the action in CIV 2343 of 2015 by the plaintiff in that action can be instituted.

1. Fourthly, the potential claims identified by the applicant do not have any evidential basis. At their highest, the applicant simply lists a number of causes of action. In the affidavits sworn on 18 September 2018 and 29 October 2018 by the applicant, Philip Allan Hirschberg, there is no evidential material to support any of the allegations. The applicant, in his affidavits, makes unfounded allegations and assertions and draws conclusions in his submissions that are not based upon any admissible evidence to support the assertions he makes that he may have a cause or causes of action against the respondents or other persons (that is, separate causes of action from CIV 2343 of 2015).
2. Fifthly, the conditions enlivening the discretion cannot be met if the applicant requires the information in order to determine whether or not he wants to take proceedings.[17]
3. In circumstances where the discretion to make the order sought is not enlivened, the question whether the discretion should be exercised by regard to any relevant considerations going to the question of the cost of compliance with an order does not arise.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

[1] These facts and the facts that follow were recited by Banks-Smith J in LPH Developments Pty Ltd v Jameson Moore Pty Ltd [No 3] [2017] WASC 284.

[2] LPH Developments Pty Ltd v Jameson Moore Pty Ltd [No 2] [2017] WASC 128.

[3] The interim freezing order was made until further order and upon the undertaking as to damages of Philip Allan Hirschberg pending the final hearing of the plaintiff's application for a freezing order and subject to:

(a) the defendant not being prevented from using the funds for specified purposes, which included $500 per week on ordinary expenses and the reasonable costs of defending or prosecuting the proceedings in CIV 2343 of 2015;

(b) the time for payment of security being extended to 4 September 2017; and

[4] LPH Developments Pty Ltd v Jameson Moore Pty Ltd [No 3] [2017] WASC 284.

[5] LPH Developments Pty Ltd v Jameson Moore Pty Ltd [2018] WASCA 95.

[6] The Hancock Family Memorial Foundation Ltd v Fieldhouse [No 2] [2008] WASC 147 [19].

[7] The Hancock Family Memorial Foundation Ltd v Fieldhouse [No 2] [2008] WASC 147 [20].

[8] The Hancock Family Memorial Foundation Ltd v Fieldhouse [No 2] [2008] WASC 147 [20]; applying Stewart v Miller [1979] NSWLR 128.

[9] McCarthy v Dolpag Pty Ltd [2000] WASCA 106 [16].

[10] Affidavit of Gregory John Mettam sworn 24 October 2018 [7], [16], [26] and [27].

[11] The New South Wales Solicitors Mutual Indemnity Fund v The Hancock Family Memorial Foundation Ltd [No 2] [2009] WASCA 146 [12] (McLure JA, Miller JA agreeing).

[12] The New South Wales Solicitors Mutual Indemnity Fund v The Hancock Family Memorial Foundation Ltd [No 2] [2009] WASCA 146 [13] (McLure JA, Miller JA agreeing).

[13] The New South Wales Solicitors Mutual Indemnity Fund v The Hancock Family Memorial Foundation Ltd [No 2] [2009] WASCA 146 [14] (McLure JA, Miller JA agreeing).

[14] The New South Wales Solicitors Mutual Indemnity Fund v The Hancock Family Memorial Foundation Ltd [No 2] [2009] WASCA 146 [17] (McLure JA, Miller JA agreeing).

[15] The Hancock Family Memorial Foundation Ltd v Fieldhouse [No 2] [2008] WASC 147 [36].

[16] See the discussion in Sheraz Pty Ltd v Vegas Enterprises Pty Ltd [2015] WASCA 4; (2015) 48 WAR 93 [11] [12] (Buss JA).

[17] The New South Wales Solicitors Mutual Indemnity Fund v The Hancock Family Memorial Foundation Ltd (No 2) [2009] WASCA 146 [16] (McLure JA, Miller JA agreeing).