Lin & Anor v Lin & Ors [2003] QSC 177

Hogan Besley Boyd for the first and second applicants

[1] AMBROSE J: This is an application by the second defendant ("Macquarie") for an order for non-party disclosure and discovery and production of documents by Pao Lin Investments Co Pty Ltd ("Lin Investments") the non-party respondent to it.

[2] Before descending to consider the arguments advanced by Lin Investments to oppose the application it is convenient to outline very briefly the facts giving rise to the application.

[3] Lin Investments is a company of which the plaintiffs are the shareholders and the plaintiffs and the first defendant are directors.

[4] On 17 August 2001 the plaintiffs claimed against their son, the first defendant, a declaration that he holds certain property at Norman Park on an express trust for them or in the alternative upon a constructive trust or in the further alternative upon a resulting trust. They sought an order pursuant to s 82 of the Trusts Act 1973 vesting in them the first defendant's title in and to that property.

[5] It is unnecessary to analyse the contents of that statement of claim except to observe that the purchase price paid for the property is alleged to have been $6.8M.

[6] Macquarie learnt of the claim made with respect to the property and discovered that the first defendant had not filed any defence contradicting the various assertions of fact made in the claim or opposing the order sought by his parents.

[7] Macquarie then obtained leave to be added as a second defendant to the plaintiffs' claim. The basis upon which Macquarie took this step was the fact that the first defendant had allegedly made use of that property of which he was the registered proprietor claiming to have the beneficial entitlement to it, to persuade Macquarie to accept his otherwise unsecured guarantee of repayment of a loan Macquarie made to Merlin Pacific Development Pty Ltd ("Merlin") to finance a multi-stage apartment development at Point Arkwright to be known as "Papillon Pillars".

[8] It is the contention of Macquarie that at all material times Lin Investments was one of the shareholders in Merlin and the first defendant was one of its directors.

[9] Macquarie claims that with the knowledge and acquiescence of both plaintiffs, to persuade Macquarie to accept his otherwise unsecured guarantee of repayment of money lent to Merlin to fund the development and construction of Papillon Pillars the first defendant represented that he was the beneficial owner of the property and covenanted that he would not sell, transfer, lease, licence or otherwise dispose of any interest he had in that property at Norman Park without the prior written consent of Macquarie and would not allow his net worth to fall below $5M. Macquarie claims that it relied upon this representation/covenant in accepting his otherwise unsecured guarantee of repayment of the loan by Merlin.

[10] It is the case for Macquarie that both plaintiffs were complicit in the first defendant making those representations and giving those covenants.

[11] I have referred only briefly to some of the allegations contained in Macquarie's defence.

[12] It is alleged in that defence that both the plaintiffs and the first defendant and Lin Investments were all directly or indirectly involved with the Merlin development project at Port Arkwright, and to the knowledge of the plaintiffs and the first defendant and Lin Investments crucial to Macquarie advancing monies to Merlin to fund that development, was the beneficial entitlement of the first defendant to the $6.8M house property at Norman Park of which he was the registered proprietor.

[13] Macquarie has already commenced another action in this court against the defendant Konrad Lin to recover from him payment of Merlin's debt which he guaranteed. I was informed that in that action he has sought contribution from other guarantors of payment of the Merlin debt. It is unnecessary to attempt to analyse the issues in that action.

[14] In the present case two of the issues which must be determined are -

(1) Whether at the time the first defendant guaranteed to Macquarie repayment of the money advanced to Merlin for the development project at Point Arkwright he was as registered proprietor of the $6.8M house at Norman Park entitled to the beneficial interest in that property and did not hold it on trust for his parents, the plaintiffs;

(2) Whether if upon the facts pleaded by the plaintiff in this action or upon any other facts emerging at the trial for that matter, the first defendant did hold that property subject to his parents' equitable interest of some sort in it, did he make the alleged representations and covenants concerning his ownership and beneficial interest to Macquarie to the knowledge of and with the assent or permission of his parents, to facilitate Macquarie accepting the first defendant's otherwise unsecured guarantee of repayment of monies advanced to Merlin, in which Lin Investments was a shareholder and in respect of which the first defendant was a director.

[15] Merlin failed to meet its obligations under the loan agreement which it made with Macquarie which then took proceedings against the first defendant upon his guarantee and as indicated he then sought contribution from various other persons involved in the Merlin development who had also guaranteed repayment by Merlin of monies advanced to it for the Papillon project.

[16] It is clear from a lengthy reply by the plaintiffs to the defence that most of the allegations made in it are denied and in particular they assert that they had no knowledge of any representations which the first defendant may have made to Macquarie. They deny that they in any way permitted or suffered the first defendant to make the representations as to his ownership of the house property and indeed assert that they believe that such allegations by Macquarie are untrue and they reaffirm their assertion that the first defendant holds the property at Norman Park on trust for them and that they are entitled to be registered as owners of that property free of any beneficial interest in the first defendant.

[17] Similarly paras 4(e), (f), (g) and (h) of the plaintiffs' reply admit allegations made by Macquarie in para 3 of its defence relating to the execution of various documents in connection with the advance of monies by Macquarie to Merlin and admit that Lin Investments became a shareholder in Merlin prior to Macquarie lending money to Merlin a month or so later. They also admit that the first defendant became a director of Merlin on 31 May 1999.

[18] It is unnecessary to further analyse the content of the plaintiffs' reply.

[19] In December 2002 Macquarie issued notices of non-party disclosure to Lin Investments, Merlin and another non-party Chinese investment group and also to a firm of solicitors.

[20] Presumably non-party disclosure has been effected by the other affected parties. No further disclosure is presently sought from them.

[21] However Lin Investments has declined to disclose documents of the sort enumerated in the notice.

[22] Lin Investments has objected to the disclosure and/or production of the documents sought and that objection has had the effect of staying the obligations to comply with the notice.

[23] Macquarie has provided 8 pages of further and better particulars of its defence pursuant to the request of the plaintiffs. Those particulars relate to the first defendant's involvement with Merlin at the time of the alleged representation made to and covenants given by the first defendant to Macquarie to persuade it to accept his guarantee of repayment by Merlin of monies Macquarie advanced to it. Included in those particulars is the provision by the first defendant in June 1999 of financial statements for himself and for Lin Investments as trustee for the FS & PL Lin Family Trust which I infer from the terms of the particulars, were produced to the second defendant by the first defendant prior to it making the loan to Merlin. Particulars are also provided of a payment by Lin Investments to the first defendant of the sum of $100,000 to meet an obligation of Merlin and the first defendant with respect to interest and construction costs involved in the development.

[24] Although it apparently has purported copies of various documents of Lin Investments produced by the first defendant to persuade it to accept his unsecured guarantee to meet Merlin's obligation to repay the loan made to it, Macquarie seeks to have Lin Investments produce for its inspection the originals of those copies. It does this for two reasons. The first is that it wishes to make sure that the document or documents which the first defendant gave to it while negotiating for the advance of funds to Merlin for the development project, are in fact true copies of original documents as they purport to be. Unsurprisingly perhaps in the context of the nature of the issues raised in the pleadings it desires to be in a position to subpoena the original documents which of course must be adduced in evidence unless it can be demonstrated for some valid reason that they cannot be produced - such as by reason of their loss or destruction.

[25] It is the desire of Macquarie to inspect and if necessary copy any original documents disclosed and produced by Lin Investments as documents in its possession to ensure that documents given to it by the first defendant purporting to be copies of those documents are true copies.

[26] As I understand the contention of the respondent, Lin Investments, Macquarie in its notice requiring non-party disclosure and production of documents must provide more specific details and description of the precise documents in respect of which it seeks production from Lin Investments than it would have to provide were Lin Investments a party to the action.

[27] This contention seems founded upon an approach taken in the exercise of discretion upon an application for non-party discovery under RSC 040 r 38A which of course has since been replaced by UCPR r 243 and r 244. The principle for the exercise of discretion under the repealed rules of court are helpfully summarised in the judgment of Lee J in Uthmann v Ipswich City Council [1998] 1 Qd R 435 at 450. It is necessary to keep in mind that those statements of principle were made in a personal injury action where third party discovery was sought from a bank. It was sought to have the bank produce "...extensive bank records of a customer other than those of the plaintiff. The customer is not a party to the action and is the plaintiff's wife." It would be unhelpful and it is unnecessary for me to analyse the 10 general principles enumerated by Lee J for exercising of discretion upon an application for third party discovery under the old rules. However His Honour observed inter alia -

"(2) Documents sought must be shown by the issuer of the writ to probably relate to a matter in question in the cause. This "matter" is usually demonstrated by the pleadings and/or particulars but may in some cases be shown in some other way.

(3) The issuer of a writ must demand production only of specific documents which would be the subject of a subpoena duces tecum at the trial, which he can show are probably in the possession or control of the third party and which probably relate to a matter in question in the cause. If this is not done, the issuer of the writ may be at risk as to costs if an application is brought to the Court by either party.

(4) The issuer of the writ must formally give sufficient information in writing to enable the third party to make an informed decision. If this is not done, the issuer of the writ may again be at risk as to costs if an application is brought to the Court.

(5) The third party must independently be satisfied that the documents relate to a matter in question in the cause, before they are produced."

[28] More recently Mackenzie J in Leighton Contractors Pty Ltd v Western Metals Resources Ltd [2001] 1 Qd R 261 dismissed an application for inspection and copying of the documents produced to the court under subpoena. In para 9 of his unreported judgment Mackenzie J observed -

"Rule 243 (UCPR Qld) requires the notice served on the non-party to state the allegation in issue in the pleading to which the document sought is directly relevant---"

"Rule 243(2) and 244 relate to the giving of notice to other affected persons. The provision of rules 243(2) and 244 recognise the intrusion involved in inspecting a non-party's documents and the fact that persons may have a legitimate ground to object which must be taken account of as well as legitimate claims of the party to obtain information relevant to the action and the wider public interest in the due administration of justice. The provision relating to the contents of the notice require an applicant to restrict the ambit of disclosure to documents directly related to allegations in issue in the pleading and thereby relieves the non-party of the oppressive need to make a judgment as to which of his documents may relate to an issue in the pleadings."

[30] In my judgment the real issue in this case is between the plaintiffs and Macquarie. The first defendant took no steps to oppose the declaration sought by his parents against him which if made would have the consequence that title to his house property at Norman Park would be vested in his parents and thus arguably not be available as his asset to satisfy any judgement which Macquarie may obtain against him in another action taken in this court upon his failure to meet his obligations under the guarantee to Macquarie to which I have referred.

[31] In my view therefore the only issues in this action will be between the plaintiffs and Macquarie.

[32] In para 3(b) of Macquarie's defence it is pleaded inter alia -

"(b) The plaintiffs were complicit in, alternatively permitted or suffered the first defendant to make the representations.

[33] In para 4 of the plaintiff's reply it is pleaded inter alia -

"As to the allegations made in paragraph 3(b) of the defence the plaintiffs:

(a) Deny the allegations that they were complicit in or alternatively permitted or suffered the defendant to make the representation as the plaintiffs believe the allegations to be untrue."

[34] Read in the context of the rest of para 3(b) of the defence and para 4 of the reply I would construe the content of para 4(a) to be an assertion that the plaintiffs believe the allegations made as to the first defendant making the representation pleaded in para 3(a) of the defence to be untrue. One might reasonably infer from this pleading their expectation that the first defendant would deny making the representation if called as a witness in the action. The first defendant of course has not attempted to defend the plaintiff's claim against him and indeed has not taken any steps to oppose the order which they seek vesting in themselves the property registered in his name.

[35] Looking at the history of the progress of this action and the matters contained in the pleadings, Macquarie I think can reasonably anticipate that when the matter comes to trial the plaintiffs and the first defendant will support the plaintiff's claim for an order vesting the property of which the first defendant is presently the registered owner in them, free of any equities that Macquarie may hold in it by reason of the matters it has pleaded as to the plaintiffs' complicity in the first defendant's making representations and giving covenants etc to which I have referred.

[36] In my view there is a very substantial identity in the interests of Lin Investments and those of the plaintiffs and the first defendant. It is the trustee for the FS & PL Lin Family Trust. The plaintiffs and the first defendant are all directors of that company. The plaintiffs are the sole shareholders in that company which allegedly is a shareholder in Merlin and so indirectly involved with its development at Point Arkwright for which money was advanced by Macquarie upon the first defendant's guarantee.

[37] Having regard to the terms of the pleadings to which I have referred in my view it is open to infer that the plaintiffs and the first defendant may well have an identity of interest in preventing or hindering any attempt by Macquarie to execute any judgment it may recover against the first defendant on his guarantee by having recourse to the house property of which he is currently the registered owner and which the plaintiffs assert was acquired for $6.8M.

[38] In the exercise of my discretion paying full regard to the need to relieve true "non-parties" of the oppressive need to make a judgment as to the relevance of documents in its possession to issues in the pleadings, in my view for all practical purposes Lin Investments may be regarded as the alter ego of the plaintiffs and the first defendant in this action.

[39] In my judgment in the circumstances of this particular case, the non-party should be required to make discovery of precisely the same relevant documents in its possession or under its control as would be the case if disclosure was required of it as a third plaintiff in this action.

[40] In my view Lin Investments ought not be able successfully to invoke the exercise of discretion relating to particularity of documents in its possession which might quite properly be invoked by a non-party who had no identity of interest with parties to that action. If that were permitted a family trust company the function of which is to assist and protect the interests of its beneficiaries who happen to be litigants might use the rules relating to the exercise of discretion upon a non-party discovery application as a shield to support in effect the interests of litigant beneficiaries which they were never designed to support. Lin Investments is in fact a party to the other action instituted by Macquarie against various persons as guarantors of payment of the Merlin debt to Macquarie.

[41] In my judgment Lin Investments should make the same disclosure and produce the same documents in its possession in this action between Macquarie and the plaintiffs (and probably the first defendant) as would be the case if Lin Investments was also a party to the action seeking relief which would deprive Macquarie of a substantial asset against which to execute any judgment it recovers against the first defendant in the other action which it has taken to enforce the guarantees in this court. In my view it would not be unduly oppressive of Lin Investments to make such disclosure and production.

[42] I approach therefore the exercise of discretion on the basis that in the circumstances of this case Lin Investments should have the same obligation as a non-party to disclose documents to Macquarie as it would have if it were a party to the action - ie a third plaintiff in the action. I reject any contention on behalf Lin Investments that the proper disclosure of the documents required by the plaintiffs in the circumstances would be any more oppressive to it as non-party than it would be if it were a party.

[43] The test of the obligation to disclose is one of the direct relevance of documents in the possession of Lin Investments ie whether it would tend to prove or disprove an allegation in issue on the pleadings between the plaintiffs and Macquarie. The obligation of course is not limited to produce only documents which would strictly be admissible in evidence.

[44] In Southern Equities Corp Ltd (in liq) v Arthur Anderson & Co No 5 [2001] SASC 335 Bleby J observed with respect to a non-party's obligation to discover documents relevant to issues between parties to an action that the qualification "directly" to the characterisation of a relevant document does not mean it is irrelevant "...if the document is not itself proof of the fact in issue but is merely a piece of circumstantial evidence tending along with other evidence to prove the fact in issue. Many a case is provable and in fact proved by circumstantial evidence including documents ----- The rule cannot be allowed to govern in practice the admission of documents into evidence merely because they have not been revealed in the discovery process. Bleby J adopted the approach of De Jersey J (as he then was) in Robson v R E B Engineering Pty Ltd [1997] 2 Qd R 102 at 105 - "directly relevant" means something which tends to prove or disprove the allegation in issue.

[45] The notice directed to Lin Investments refers to specific allegations in the pleadings between Macquarie and the plaintiffs which are asserted to be directly relevant. This however does not in my view in any way confine the obligation of Lin Investments to disclose all documents directly relevant to all matters in issue on the pleadings and the particulars which have been provided of facts pleaded in Macquarie's defence and/or in the plaintiffs' reply.

[46] To avoid any further technical objections of the sort that were canvassed upon this application I propose to order that upon service by Macquarie upon it of all the current pleadings (including particulars), between the plaintiffs and Macquarie, Lin Investments comply with the non-party notice served upon it and disclose and produce to Macquarie all documents in its possession or under its control in compliance with the requirements of UCPR r 242(1).

[47] I therefore order that Pao Lin Investments Pty Ltd upon being provided with copies of all the current pleadings and particulars thereof in this action between the plaintiffs and the second defendant, produce to the second defendant within 14 days all the documents coming within the class of the documents specified in UCPR 242(1)(a), (b) and (c), within its possession, power or control to the same extent as it would be obliged to do if it were a party to this action and I further order that Pao Lin Investments Pty Ltd comply with the requirements of UCPR 248(1) and that the second defendant be entitled to make a copy of any documents produced pursuant to this order.

[48] With respect to the costs of this contested application I exercise my discretion under UCPR 247(3) and 249 and order that the costs of this application be the second defendant's costs in the cause in this action between the plaintiffs and the second defendant.