Kaji Australia Pty Ltd v Glover

Background

1. In 2004 the cross-claimant advanced money to a friend, John Lippits. To do that, the cross-claimant sold shares and incurred a capital gains tax liability of $56,000 which he could not pay.
2. The ATO commenced proceedings against the cross-claimant. It obtained judgment against him in February 2009 and served a bankruptcy notice on him in January 2010. A creditor's petition was filed and served in August 2010.
3. According to the cross-claim the cross-claimant was endeavouring to obtain a loan to pay the ATO debt. It appears that Mr Lippits may have been involved also. At some point the third and fourth cross-defendants were engaged as finance or mortgage brokers to obtain a loan for the cross-claimant.
4. The cross-claimant alleges that the third and fourth cross-defendants submitted a loan application to St George Bank on or about 27 January 2011 but that the cross-claimant's signature on the loan application was a forgery.
5. The cross-claimant alleges that the fourth cross-defendant said, on about 1 February 2011, that he had obtained an approval for a loan from St George Bank and that he gave to Mr Lippits a copy of a letter of conditional approval from St George Bank dated 1 February 2011. Thereafter the fourth cross-defendant is alleged to have advised Mr Lippits that he had been informed by St George Bank that the St George loan could not be settled in time for the cross-claimant to avoid a sequestration order being made against him, and suggested to Mr Lippits that an approach be made to private lenders with a view to obtaining a short-term loan pending the settlement of the St George loan.
6. It was in those circumstances that the cross-claimant came to enter into the loan agreement with the plaintiff on 21 February 2011 to borrow $115,000. That loan was repayable on 21 April 2011.
7. Ultimately the St George loan did not proceed and the cross-claimant failed to repay the loan to the plaintiff.
8. The cross-claimant alleges that the representations made by the fourth cross-defendant about the St George loan were false and/or misleading and deceptive in contravention of the Australian Securities and Investments Commission Act 2001 (Cth), the Australian Consumer Law (Cth) and the Fair Trading Act 1987 (NSW).
9. The cross-claimant identified the following categories of documents for discovery in relation to the third and fourth cross-defendants: 1. All files in their entirety pertaining to work undertaken by Mercia Financial Solutions Pty Ltd and/or Richard Nicholson on behalf of the Cross-Claimant for the purposes of securing finance for the Cross-Claimant in the period 1 January 2010 to 31 December 2011. 2. All communications pertaining to the work described in Clause 1 above between Mercia Financial Solutions Pty Ltd and/or Richard Nicholson with John Lippits including copies of all electronic communications in the period 1 January 2010 to 31 December 2011. 3. Copies of all files in the period 1 January 2010 to 31 December 2014 pertaining to referrals from Mercia Financial Solutions Pty Ltd and/or Richard Nicholson to Rodney Shields for the purposes of arranging finance for the clients of Mercia Financial Solutions Pty Ltd and/or Richard Nicholson. 4. All communications touching and concerning the procuring and provision of finance to the Cross-Claimant whether in hard form or electronic form between Joseph Prestia and Richard Nicholson and/or Mercia Financial Solutions Pty Ltd and/or John Lippits in the period 1 January 2010 to 31 December 2011. 5. All documents evidencing the relationship whether that relationship be in the nature an agency agreement or an employment contract or a joint venture or partnership arrangement between Mercia Financial Solutions Pty Ltd and Joseph Prestia and/or between Richard Nicholson and Joseph Prestia
10. The fourth cross-defendant swore an affidavit of discovery on an unspecified date in October 2017 in these terms: 1. I am the Fourth Cross-Defendant and Director of the Third Cross-Defendant. 2. I have made reasonable enquiries as to the existence and location of the documents referred to in the order. 3. I believe that there are no documents (other than excluded documents) falling within any of the classes specified in the order that are, or that within the last 6 months before the commencement of the proceedings have been, in my possession or the possession of the Third Cross-Defendant, other than the documents referred to in Part 1 or 2 of the list of documents. 4. As to Part 1 of the list, there are no documents in my possession. 5. As to documents in Part 2 of the list in respect of which no person is specified, I do not know who possesses these documents 6. As to the documents in the list that are claimed to be privileged documents, the facts relied on as establishing the existence of the privilege are as follows: (a) Documents brought into existence for the dominant purpose of the Third and/or Fourth Cross-Defendant obtaining legal advice or for the dominant purpose of them being provided with professional legal services relating to current proceedings in which they or either of them are a party.
11. Part 2 of the List of Documents identified the documents in possession of other persons as being: Hard and soft copy documents comprising the file of the third and fourth cross-defendants in connection with work performed for or at the request of the cross-claimant. The name of the person who the deponent believed had possession was said to be "unknown".
12. Subsequently, on 18 October 2017, the cross-claimant's solicitors served a Notice to Produce on the third and fourth cross-defendants seeking production of the following documents: 1. The file or copy of same pertaining to the loan application alleged to have been processed on behalf of Johann Benson Glover and/or J Benson pursuant to which the letter annexed hereto and marked with the letter "A" was alleged to have issued from St George Bank. 2. The file or copy of same pertaining to the loan application alleged to have been processed on behalf of Johann Benson Glover and/or J Benson pursuant to which the letter annexed hereto and marked with the letter "B" was alleged to have issued from Bank West.
13. On 19 October 2017 DLA Piper, for the third and fourth cross-defendants, wrote to the Court saying that their clients did not have any documents to produce in answer to the Notice to Produce.
14. On 23 October 2017 the cross-claimant's solicitors wrote to DLA Piper noting the List of Documents provided by the third and fourth cross-defendants, asserting that the response did not comply with UCPR 21.3, and saying that it was simply not credible that their clients did not or could not know in whose possession the documents described in the Schedule were, nor to claim that they were in the possession of an unknown person.
15. DLA Piper responded the following day saying (inter alia) that they were instructed to inform the cross-claimant's solicitors: 4.1 our clients ceased to conduct business from office space in Alexandria in later September 2012 or early October 2012, at which time only selected paper files were removed from the office; 4.2 our clients do not know who now possesses the paper files left at their former office space in 2012; 4.3 Mr Nicholson has searched his current office and home for any files or documents relating to the proceeding but did not locate any; and 4.4 our client does not have access to the server on which our clients' electronic records were held and does not know the current whereabouts of the server.
16. Mr Newell, solicitor for the cross-claimant, essentially put his argument on two bases. The first was on the implausibility of the fourth cross-defendant having simply moved offices without taking both hard copy and, particularly, soft copy documents with him. Further, the evidence showed a clear relationship of some sort between the fourth cross-defendant and Mr Prestia, with whom he occupied the Alexandria office and shared both document storage facilities and an email server. In those circumstances, reasonable enquiries would have involved contacting Mr Prestia to retrieve or ascertain the whereabouts of the material, both soft and hard copy, left at those premises which Mr Prestia still occupies.
17. The second basis concerned the suspicion surrounding the fourth cross-defendant and his involvement with the loan applications. Subpoenas had been issued by the cross-claimant to St George Bank and to BankWest which had resulted in information from those banks that no such loan applications were received by them. A copy of a loan application purportedly made to St George was available from a source other than the Bank, but the cross-claimant denied that what purported to be his signature on the face of the document was really his signature. In relation to St George Bank there was what purported to be an approval-in-principle dated 1 February 2011 faxed on that morning from St George to a fax number that was said to be the fourth cross-defendant's fax machine in offices he then occupied in Clarence Street in the city.
18. In relation to BankWest there was what purported to be an unconditional loan approval dated 20 December 2010. The reference on the letter was 6057963, and although the letter was addressed to Johann Benson Glover, it commenced: Hi Bruno We are writing to confirm that your loan application has been unconditionally approved. It has not been established who was named or was known as Bruno.
19. In answer to the subpoena to BankWest, a compliance officer said that the Bank was unable to locate any documents in relation to Johann Benson Glover, that the property said in the BankWest letter to be used as security in Mt Druitt had never been mortgaged to them, and that the reference number 6057963 was assigned to "a different processing" not related to any loan applications or to Mr Glover.
20. The cross-claimant issued a further subpoena to BankWest which sought employment files of Adam Zammit, the person said in the letter of 20 December 2010 to have been the cross-claimant's personal lending representative, and Mark Reid, the head of retail sales who purportedly signed the letter. Subsequently, BankWest wrote to the Registrar of the Court saying that Mr Reid was an ex-employee of the Bank, that Mr Zammit was not a current employee but more information would be needed for them to search to see if he had been such an employee, and suggesting that the loan approval document might not be a genuine bank document.
21. In all of those circumstances and, taking into account the fact that the St George loan never proceeded, Mr Newell submitted that there were a number of suspicious matters with which the fourth cross-defendant was clearly involved, and which gave him an incentive not to produce files.
22. Mr Newell submitted that a further matter to be taken into account was that the fourth cross-defendant swore an affidavit in support of the plaintiff's case against the cross-claimant/defendant on 29 October 2015. He submitted that it was likely that the fourth cross-defendant would have made some enquiries about or searches for his files, electronic or otherwise. In that affidavit the fourth cross-defendant said this: 4. In January 2011, the CEO of Crest, Mr Joseph Prestia (Mr Prestia) introduced me to Mr John Lippits (Lippits). This introduction took place in Mr Prestia's office, at level 11, 50 Clarence Street, Sydney. … 6. I was made aware at the start of this meeting that Mr Prestia had just undertaken some work for a friend of Mr Lippits, to prevent a bankruptcy occurring. Neither I nor Mercia had any involvement or participation in this work.
23. The affidavit then went on to set out the explanation that Mr Prestia and Mr Lippits gave to him concerning the cross-claimant and his need to borrow money. At the end of the January 2011 meeting, it was agreed that Mr Lippits was to organise for the cross-claimant to meet with the fourth cross-defendant, and the fourth cross-defendant asked Mr Lippits to ensure that the cross-claimant brought identification documents with him including a driver's licence, Medicare card and up-to-date council rates notice.
24. All of that material contrasts starkly with an email dated 23 December 2010 from the fourth cross-defendant to Mr Lippits which reads as follows: John, As discussed with Joseph Prestia, the $2,000 for services rendered remains outstanding and we are now out of pocket to this effect. As such, the funds should be deposited into the following Bank Account immediately: Bank: Westpac Bank Account Name: Mercia Financial Solutions Fly Ltd BS8: 032 044 Account Number 185 891 Reference: Borrower Mama In light of your conversation, I have amended the mandate to reflect fees being deducted from the proceeds of settlement. Please ask Mr Glover to execute this ASAP and return to me, along with: • Completed and signed application form (copy attached) • 100 points ID • Rates Notice • Letter of employment Any questions, please call my mobile. Regards Richard
25. The third and fourth cross-defendants submitted that there was nothing by reference to the documents discovered, the affidavit verifying discovery, the pleadings or from any other source that the discovery was inadequate. The third and fourth cross-defendants submitted that they had not misconceived the nature of the obligation of discovery because of the detailed letter of advice provided by their solicitors to them. The third and fourth cross-defendants noted that in written submissions in support of the notice of motion, allegations of fraud against the fourth cross-defendant were made in a way which could only amount to a contention that he had sworn a false verifying affidavit. The cross-defendants submitted that neither the pleadings nor the evidence supported the allegations of fraud that were made and in that way the submissions went well beyond the case pleaded.
26. At the end of his submissions, Mr Lloyd of counsel for the third and fourth cross-defendants proposed that, before a final decision was made in the matter, his clients would agree to an order for the provision of a further affidavit in terms that were to be forwarded to me for consideration. The proposal was not to foreclose the decision in the matter which was essentially between two alternatives, being either that the fourth cross-defendant provide a supplementary affidavit or attend for cross-examination on his existing affidavit.
27. Subsequently the solicitors for the fourth cross-defendant forwarded a proposed order in these terms: 1. The Fourth Cross-Defendant to the First Cross-Claim, Richard Nicholson, is to swear a further affidavit addressing: 1.1 the circumstances in which he left paper file(s) and the server on which his document(s) were stored at the Alexandria premises in 2012; and 1.2 any enquiries Mr Nicholson has made to obtain the documents in the discovery order, and provide such further affidavit to the Court by 5pm on 7 March 2018.
28. Accordingly, I adjourned the proceedings for a short time to enable the further affidavit to be prepared.
29. On 7 April 2018 the fourth cross-defendant swore a further affidavit that detailed his relationship and dealings with Mr Prestia, including the sharing of offices with him. The fourth cross-defendant said that in his time at the shared office with Mr Prestia in Alexandria the majority of the work he performed was done electronically by email. He said it was his usual practice to maintain a hard copy file for each loan application which would not usually contain many documents but which would usually include a copy of the loan application and borrower identification. He said that he stored the hard copy files for work he was undertaking on a bookshelf near his desk, that he would store hard copy files for work he had completed in archived boxes, and that he would store electronic files on the server.
30. The affidavit then continued: 5. Sometime in late September/early October 2012, Mr Prestia telephoned me one morning, while I was at the Alexandria Premises, and said words to the effect of, "there has been an incident at my home. Lock the office and do not answer the door to anyone you do not know". Mr Prestia telephoned me again a short time later and said words to the effect of, "are you able to gel my laptop and bring it to my house"? Mr Prestia then provided me with his home address. 6. On the same day as the telephone calls in paragraph 5, I collected Mr Prestia's laptop and drove to Mr Prestia's home. Upon arriving at Mr Prestia's home, I saw the large, tempered glass front door had been shattered and observed Mr Prestia and his family were in a state of distress. Mr Prestia stated to me words to the effect of "someone tried to gain entry to the house shortly after I left for work, Rod slammed the door on "them" and then a paving slab from the front garden was thrown through the front door". Mr Prestia informed me the Police had been called and visited the home. I exchanged words with Mr Prestia to the following effect; Mr Prestia: I'm taking my family away until this blows over. Me: OK Joe, let me know when you're back. 7. I genuinely was in fear for my own safety. I did not return to the Alexandria Premises that day. That night, I made the decision to immediately cease working from the Alexandria Premises. 8. The following morning, at approximately 5.00am, I attended the Alexandria Premises and removed the hard copy files stored on the bookshelf I describe in paragraph 4.2.2 above. I considered these documents were essential to the ongoing business of Mercia. I also collected a desktop computer. I did this in as short an amount of time as possible. After that day. I did not return to the Alexandria Premises. I had irregular contact with Mr Prestia for the following months while I completed work for a mutual client. 9. I have not had any contact with Mr Prestia since approximately 2013. Occasionally since then I have seen that he has telephoned my mobile number, and I have missed a call. I have not returned his call. I do not wish to have any association with him in light of the events of late September/early October 2012. 10. In mid-2017, I watched an episode of the TV program "60 minutes", which featured a story about Mr Prestia and which made reference to Mr Prestia's claim to have connections with the mafia.
31. The fourth cross-defendant then said that in early 2013 he telephoned Mr Prestia to ask him about the old server because he thought he had some old files on it. Mr Prestia said that he did not have it anymore because it was constantly breaking down.
32. The fourth cross-defendant said that, in about 2014, the desktop computer that he had used at Alexandria suffered an irrecoverable breakdown, and that he disposed of it at a recycling facility. He said that he did not think it was likely that the computer had stored on it any data relating to the cross-claimant.
33. In 2015 the fourth cross-defendant was contacted by his solicitor asking him to search his office and home for any files or documents relating to the cross-claimant. He said he searched his office and home but did not locate any such documents.
34. In late 2017, after receiving a letter from his present solicitors concerning his discovery obligations, he said that he thoroughly searched his home and office for any documents about the cross-claimant or Mr Lippits but again did not locate any such documents.
35. He then said that he had not contacted Mr Prestia to ask what had happened to the hard copy files he left at the Alexandria premises because he did not wish to have any contact with Mr Prestia, especially after he became aware of Mr Prestia's possible involvement with the Mafia. He said that he had made deliberate attempts to have no contact with Mr Prestia since about early 2013. He said that if the Court ordered him to contact Mr Prestia to fulfil his discovery obligations he would comply with it, but he preferred the contact to be between Mr Prestia and his solicitors.
36. When the hearing resumed on 8 March 2018 Mr Newell submitted that the further affidavit was inadequate in three ways. He said it was not relevant to speak about locating the server when, in ordinary circumstances, a person in the fourth cross-defendant's position would ordinarily have a data file.
37. Secondly, Mr Newell submitted that the cross-claimant was informed by this further affidavit for the first time that there had been a destruction of the fourth cross-defendant's computer. Thirdly, Mr Newell submitted that it was fanciful that the fourth cross-defendant so feared for his life that there was no way he could get a handful of archived boxes out of the premises at Alexandria. He submitted that the archived boxes would have been necessary for taxation purposes and yet the fourth cross-defendant was not ingenious enough to find a way to have them retrieved from the Alexandria offices.

Legal principles

1. In Proctor & Gamble v Medical Research Pty Ltd [2001] NSWSC 183 Hunter J said at [64]: [64] I think the true rule in resolving a question of sufficiency of discovery is as follows: The affidavit verifying discovery is conclusive of the question unless it can be shown (i) by recourse to the documents discovered; (ii) from the content of the affidavit verifying discovery; (iii) from the pleadings, or "from any other source that constituted an admission of the existence of a discoverable document" that the discovery has been insufficient. Further, where the discovering party has misconceived the nature of the obligation of discovery it is not necessary to infer the existence of relevant documents other than those discovered (see Mulley v Manifold(1959) 103 CLR 341 at 343 and Falk v Finlay, Supreme Court of New South Wales, Austin J, 24 December 1999, unreported).
2. In Preston v Star City Pty Ltd [2007] NSWSC 293 Hoeben J (as his Honour then was) said at [21]: Although the basic rule remains that an affidavit of discovery is conclusive some exceptions to that rule have been recognised by the common law and by the rules of court (Mulley v Manifold (1959) 103 CLR 341, Fruehouf Corporation Pty Limited v Zurich Australian Insurance Ltd (1990) 20 NSWLR 359). Those exceptions are narrow and require that the insufficiency of the affidavit of discovery appear either from the documents themselves or from any other source that constitutes an admission of the existence of a discoverable document. In applying one of those exceptions the court has to "on the face of it or from admissions in other documents … have reasonable grounds for being fairly certain that there were other relevant documents which ought to have been disclosed …" (British Association of Glass Bottle Manufacturers Limited v Nettlefold (1912) AC 709 at 714, Beecham Group Ltd v Bristol Myers Co (1979) VR 273 at 276).
3. In Dai v Zhu [2013] NSWCA 412 the Court of Appeal said: [124] The applicants' submissions did not canvass the authorities dealing with the circumstances in which a court can go behind an affidavit of discovery, although the respondents' submissions did refer briefly to the relevant principles. Giles J examined the authorities in Fruehauf Finance Corp Pty Ltd v Zurich Australian Insurance Ltd (1990) 20 NSWLR 359. His Honour concluded (at 366) that in general an affidavit of discovery is conclusive in relation to the "amplitude of discovery" and that cross-examination of a deponent will not be permitted. Other authorities take a different view and hold that the court has a discretion to permit cross-examination of a deponent who has verified a list of documents: Hartogen Energy Ltd (in liq) v Australian Gas Light Co (1992) 36 FCR 557, at 560-561, per Gummow J; Commissioner of Australian Federal Police v Propend Finance Pty Ltd [1997] HCA 3; 188 CLR 501, at 574, n 315, per Gummow J; cf Procter v Kalivis [2009] FCA 1518; 263 ALR 461, at [34]-[41], per Besanko J. Of course in the present case, Ms Dai was not cross-examined. [125] As Giles J's survey of the authorities demonstrates, there are exceptions to the conclusiveness of affidavits of discovery. Courts have adopted various formulations of the circumstances in which affidavits of discovery may be challenged. A frequently cited authority is Mulley v Manifold [1959] HCA 23; 103 CLR 341, where Menzies J said (at 343): ... it cannot be shown by a contentious affidavit that the discovery made is insufficient. Before 1912, it was thought that the insufficiency had to appear from the pleadings, the affidavit of documents itself or the documents therein referred to. However, in British Association of Glass Bottle Manufacturers Ltd v Nettlefold [[1912] AC 709], it was established that the insufficiency might appear not only from the documents but also from any other source that constituted an admission of the existence of a discoverable document. Furthermore, it is not necessary to infer the existence of a particular document; it is sufficient if it appears that a party has excluded documents under a misconception of the case. Beyond this, the affidavit of discovery is conclusive. Other cases have used somewhat broader language. Thus in Frankenstein v Gavin's House-to-House Cycle Cleaning and Insurance Co [1897] 2 QB 62, AL Smith LJ said (at 64-65) that a plaintiff had to establish: ... by some means other than by a conflicting affidavit that the defendants' affidavit is incorrect. In order that the plaintiff may succeed in doing so, the Court must be satisfied with reasonable certainty either from the defendants' own statements that they have erroneously represented or misconceived the nature of the documents ..., or from some source other than by affidavit that the defendants' affidavit is incorrect. (This passage was cited by Giles J in Fruehauf, at 363). Besanko J's review of the cases in Procter v Kalivis led him to conclude (at [33]) that: reasonable grounds for being fairly certain that there are other relevant documents is a good workable test and is a test supported by the authorities.

Determination

1. Notwithstanding Mr Newell's objections to the further affidavit, in my opinion it was inadequate in one respect only, namely, the fourth cross-defendant's reluctance to contact Mr Prestia to obtain any archived boxes belonging to the fourth cross-defendant at the Alexandria premises.
2. Mr Lloyd accepted that a subpoena should issue to Mr Prestia and his company for any documents of the fourth cross-defendant in his possession or control. Mr Lloyd offered that it would be appropriate if his instructing solicitors were to issue that subpoena.
3. Apart from the matter of the archived boxes, I consider that the affidavits sworn by the fourth cross-defendant demonstrate a sufficient compliance with his obligations to provide discovery. I do not consider that the cross-claimant brings himself within any of the tests discussed in the authorities. I am not satisfied that from the pleadings, the affidavits of discovery or from any other source, there may still be documents not discovered or searched for apart from what may be found on service of the subpoena already mentioned.
4. Much of the cross-claimant's argument depends on inferences being drawn from matters that might be thought to relate to the fourth cross-defendant's credit. Some questions of Mr Nicholson's credit may arise, but they are not appropriate matters to be dealt with in relation to discovery. A number of inferences can be said to be no more than speculation about what might be the case if there had not been irregularities such as the asserted fraudulent signature of the cross-claimant on one loan application, the addressing of the loan approval to "Bruno", and the suggestion from BankWest that the loan approval might not have been genuine.
5. Matters concerning the fourth cross-defendant's credit previously raised and which are outlined at [23]-[25] above are also dealt with in the fourth cross-defendant's affidavit. It is not necessary to make findings about those matters on this application in relation to discovery. It is sufficient to say that I accept, for the purposes of the fourth cross-defendant's obligations with regard to discovery, the evidence he has given in his recent affidavit of 7 March 2018.
6. Had it not been for the offer by the fourth cross-defendant through his counsel to swear a further affidavit as to the performance of his obligations to discover documents, I would have been minded to make an order to similar effect. I would not have required the fourth cross-defendant to attend for cross-examination unless that further affidavit had proved to be completely inadequate. I note in that regard that prayer 2 in the notice of motion sought a further affidavit, although with a greater degree of specificity than I consider is necessary.
7. In the light of the events that have happened, it is appropriate simply to make an order dismissing the notice of motion. I will hear the parties on the costs of the motion.
8. I make the following order: (1) The defendant/cross-claimant's notice of motion filed 15 February 2018 is dismissed.

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: 09 April 2018