Meriton Apartments Pty Ltd v Owners of the Strata Plan No 72381

EX TEMPORE Judgment 1REIN J: Currently before the Court is an application for review of the decision of Registrar Musgrave on 6 June this year who, on a motion of the defendant/cross-claimant, ordered the plaintiffs to give discovery of documents. 2The proceedings concern a high rise building in Liverpool Street, Sydney, known as World Tower. The tower was constructed by Meriton Apartments Pty Ltd, ("Meriton"), which is the first plaintiff. The second plaintiff, Meriton Properties Pty Ltd ("High Rise"), is the registered proprietor of levels 61 to78 of the tower. The third party is known as the Owners of Strata Plan 71067 and is the body corporate of levels 10 to 36 of the tower ("Low Rise"). The defendant is known as Owners of Strata Plan 72381 and it is the body corporate for levels 38 to 59 of the tower ("Mid Rise"). 3By an agreement dated 4 February 2004 ("the caretaker agreement": see Exhibit B) Meriton was appointed caretaker for the tower. A dispute has arisen between Meriton and Mid Rise in relation to the caretaker agreement, the fees payable to Meriton in its role as caretaker and as to how it came to be appointed caretaker, at least in relation to the levels for which Mid Rise is responsible. 4The plaintiffs claim that subcontractors engaged by Mid Rise were not authorised to carry out work in the tower and that the contractor has impermissibly interfered with equipment or systems affecting the tower. Mid Rise claims that Meriton and its subcontractor have trespassed on Mid Rise's property. 5Mid Rise disputes that it is bound by the caretaker agreement or the strata management plan on which Meriton, High Rise and Low Rise rely and it asserts that Meriton's entry into the caretaker agreement on behalf of Mid Rise shortly before Meriton ceased to control Mid Rise and whereby Meriton was appointed caretaker involved a breach of fiduciary duty owed by Meriton to Mid Rise. Mid Rise claims that, in consequence, it is entitled to an account of profits made by Meriton from the caretaker agreement. Mid Rise accepts that the profit to which it is entitled in accordance with its claim is only 33% of the profit earned by Meriton under the caretaker agreement because, by the agreement, Mid Rise was to pay 33% of the total fee payable ($1.5M in the first year and thereafter subject to adjustment in accordance with the caretaker agreement). 6For Mid Rise to establish what profits are due to it, it accepts that it will need to establish: (a) the income that Meriton earned as caretaker; (b) the expenses that Meriton incurred as caretaker; and (c) then divide the difference by 33%. 7From what was said in Court today the task of establishing (a) will be simple. Meriton is prepared to admit that its income is to be taken to be the amount due from High Rise, Low Rise and Mid Rise under the agreement, whether paid by those parties or not. Provided Meriton's solicitors provide confirmation in writing of this to the defendant's solicitors there will be no need for the documents in 5 and 7 of the categories for discovery which are in contest. 8From what is before the Court, it is obvious that the task of establishing the expenses that Meriton has incurred as caretaker will not be a simple task. Mid Rise seeks to establish all of the expenses that are attributable to Meriton's role as caretaker. This will include not only direct costs paid out to subcontractors but the cost of employees employed full-time or part-time in World Tower activities and may include office overheads and indirect costs. Even the direct costs may be problematic because apparently security and cleaning contractors engaged by the caretaker may not have contracted solely with reference to the World Tower. 9Meriton complains that the Registrar has not given reasons for his decision. That complaint was not directed to the absence of written reasons for his decision, or even to his conclusion that, notwithstanding Practice Note 11 which provides that the defendant should have discovery before it had put all its evidence on. Rather, the complaint was directed to the manner in which the Registrar expressed himself in relation to matters going to the width of discovery. Mr Weinberger, who appears as counsel for all plaintiffs both today and before the Registrar, contended that the Registrar, although seeming at one point to accept that the categories were too broadly expressed, did not articulate the reasons why he permitted discovery in wider terms than were necessary or relevant. Attention was drawn to T15-20, T19, 21-44, and T21 to T22.21-50 and T22.5-19 and 22.39-48; see tab 9 of Exhibit A. 10Mr Knackstredt, counsel for Mid Rise both today and before the Registrar, conceded that there was little explanation given by the Registrar but he contended that, read as a whole, the transcript revealed that the Registrar had accepted his submissions and that the Registrar did not regard the categories for discovery as too wide. Mr Knackstredt also submitted that some earlier contrary indications by the Registrar could not to be taken to be a final decision. 11I accept that registrars and judges cannot be expected to descend into too much detail about why they have concluded that a category for discovery is or is not too wide. But, having said that, I am in some doubt as to whether the Registrar took the view that Mid Rise was seeking documents that went beyond what was necessary and relevant to its pleaded case and he did not address Mr Weinberger's submission that two of the categories did not relate to any pleaded case: see T14 and T16 of tab 9 in relation to those submissions. 12I am conscious of the decision in Tomko v Palasty (No. 2) [2007] 71 NSWLR 61, [5] - [18]. Indeed, I cited this case a few weeks ago in my decision in Noun v Pavey [2013] NSWSC 846, in particular at [9]. I set out the key passages in Hodgson JA's judgment, with whose judgment Ipp JA concurred, at [7] to [10]: [7] In my opinion, this discretion extends to a discretion as to whether, and if so how, to intervene; and in my opinion, there is an onus on a person seeking to have a court set aside or vary a registrar's decision to make out a case that the court, in the interests of justice, should exercise its discretion to do so. [8] In the case of a decision on practice or procedure, this will normally require at least demonstration of an error of law, or a House v The King error, or a material change of circumstances, or evidence satisfying the strict requirements for fresh evidence. Even then, a court may not think that the interests of justice (2007) 71 NSWLR 61 at 65 require intervention. This could be so, for example, if the error of law is a deficiency of reasons and the result is on its face not an unreasonable one. [9] In the case of a decision which finally determines a party's rights, or which (albeit one of practice or procedure) has a decisive impact on those rights, a court may be more willing to intervene. It may permit further evidence to be led which does not satisfy the strict requirements for fresh evidence, if it is satisfied that the interests of justice require this. It may decide to substitute its own discretionary decision for that of the registrar, even though no House v The King error is shown, again if it is satisfied that the interests of justice require this. To that extent, the review may be considered a de novo hearing. [10] In my opinion, this approach is consistent with the position that such reviews are not appeals and involve the exercise of discretion by the reviewing body; and with the policy considerations referred to by Jordan CJ in In the Will of Gilbert (1946) 46 SR (NSW) 318 at 323; 63 WN (NSW) 176 at 179. It is also consistent with the general principles concerning interlocutory applications: They do not finally decide matters, and successive applications can be brought for the same orders; but generally, a later application for orders that have previously been refused will be summarily dismissed unless a change of circumstances is shown or there is evidence satisfying the strict requirements for fresh evidence. 13At the outset of these proceedings I raised with counsel a concern of mine that the circumstances of this case might require a different approach to that taken by the parties before the Registrar and hence by the Registrar in his decision. 14Mr Weinberger embraced the approach which I raised but Mr Knackstredt did not. Before detailing that approach I draw attention to the fact that: (1) This case has been set down for a hearing for eight days in October this year; (2)There has been no order for a separate hearing on liability on the one hand and the taking of accounts for the claim of profits on the other; (3)The one thing on which counsel are agreed is that the issue of profitability of the caretaker agreement for Meriton is relevant to the question of breach of fiduciary duty and not simply to the quantum of profit; (4)Mid Rise, on the assumption that the orders made by the Registrar are now put into effect, has proposed a timetable for evidence relevant to the evidence relating to the account of profits which seemed to my mind at best highly optimistic and probably unrealistic; (5)An estimate for provision of all the documents sought in the Mid Rise motion, and which the Registrar acceded to, is four weeks. 15Although I have some doubt the question of the amount of profits needs to be determined at the hearing, the parties are in agreement on that and accordingly, in my view, the best course would be to have Meriton put on detailed evidence from its accountant as to how much profit Meriton has made on the caretaker agreement. The accountant will have familiarity with Meriton's cost centres, ledgers and documentation, including tax returns and I think it is a far more efficient use of time. It is likely to be less costly if the accountant marshals all the material relevant to calculation of profit rather than to have persons unfamiliar with the books and records of Meriton searching through those records in an endeavour to ascertain and obtain a profit figure and expenses and how they should be apportioned. 16To the extent that costs are said to be incurred it would be helpful if direct costs clearly attributing to World Tower are identified in a separate section to costs which have been apportioned. Further, a basis for apportionment will also need to be clearly set out. All documents relevant to the determination of costs will need to be identified and copies provided to Mid Rise. On receipt of the affidavit and documentation relied on, Mid Rise would then be entitled to ventilate the need for further discovery at that point. The approach which I have outlined, in a sense, has the attraction of being in conformity with the spirit of Practice Note 11 because it requires evidence to be put on before discovery. It also accords with what I understand often occurs in cases where an order for an account of profits is made following a determination of breach of fiduciary duty - namely, that the party ordered to pay profits first puts on an affidavit dealing with monies earned and expenditure incurred (see Young, Croft and Smith, On Equity, 2009, LawBook [16.1360]). 17In this case the defendant, I accept, as did the Registrar, cannot put that evidence on without discovery, so it is the plaintiff who will put on evidence. Since Mid Rise can readily establish the net income received by Meriton, particularly in the light of the concession to which I have referred, the onus, in a practical sense at least, falls on Meriton to establish the expense which is to be subtracted from the profit. 18In my view this approach is one which has the most prospect of enabling the October hearing date to be maintained, although I accept that there may still be difficulty, and of placing the parties in a position to deal with the question of profit more speedily and cost effectively than if the defendant's expert was forced to trawl through extensive documents with no guidance as to Meriton's records and cost accounting. The approach which I have indicated does not preclude Mid Rise from seeking documents once it has had access to all of the material referred to by Meriton's accountant. 19Rule 19 of Part 49 of the Uniform Civil Procedure Rules 2005 (NSW) ("the Rules") is in the following terms: 49.19 Review of registrar's directions, certificates, orders, decisions and other acts (cf SCR Part 61, rule 3; DCR Part 43, rule 15) If in any proceedings a registrar gives a direction or certificate, makes an order or decision or does any other act, the court may, on application by any party, review the direction, certificate, order, decision or other act and make such order, by way of confirmation, variation, discharge or otherwise, as the court thinks fit. Rule 19 grants to the Court a discretion as to whether, and if so how, to intervene accepting as stated in Tomko that the onus on the person seeking to have the Court set aside or vary the Registrar's decision is to persuade the Court that it is in the interests of justice that the Court intervene an onus more difficult to discharge where the Registrar's decision is one of practice and procedure. The interests of justice incorporate, in my view, considerations of the dictates of ss 56 to 59 of the Civil Procedure Act 2005 (NSW) which in any event are required to be taken into account in applying the Rules. 20Mr Knackstredt contended that I had no power to make the orders that I propose to make unless I formed a view that the Registrar's decision was wrong and within the constraints of Tomko (see [12] above). I think that the word "normally" which appears in [7] of Hodgson J's judgment allows for the possibility that the Court might exercise the discretion to intervene even without error being found in the Registrar's decision being demonstrated. Hence, whilst there are concerns about the reasoning of the Registrar, I base my decision rather on the desirability of evidence being marshalled and served first by Meriton before any discovery is proceeded with as a matter likely to be conducive to the more efficient conduct of the litigation. 21I propose to provide Mr Knackstredt with an opportunity to be heard on whether the regime, which I propose be put in place, needs any adjustment. I will mention three matters which were raised in the course of the argument concerning the review and which will be relevant to the affidavit to be prepared by the Meriton accountant, namely: (1) I think that expenses should be taken up to 30 June 2013 and not be limited to the date that Mid Rise stopped paying the fees in 2012; (2) Mr Knackstredt raised the question of whether Meriton has been providing services as caretaker to High Rise, which is run as serviced apartments or a hotel, that go beyond anything provided to Mid Rise or perhaps Low Rise. Mr Weinberger asserted that there was no case pleaded to this effect. There is no express pleading of this point, but it could be relevant to the profit that Meriton has derived that it has been able to provide services to High Rise and the affidavit from Meriton's accountant should deal with that topic; (3)One of the matters which Mr Knackstredt raised was the existence of documents relating to calculation of the figure of $1.5M as the fee contained in the caretaker agreement. Those documents may not be covered by the accountant's affidavit and should be specifically discovered. (4)So far as quotations from persons who were not successful in obtaining from Meriton the security contract or cleaning contract (for example) are concerned, Mr Knackstredt contended that they were relevant because they might demonstrate that Meriton entered into disadvantageous contracts at a higher rate. I cannot discern in the pleading any case to which that claim relates. Discovery was sought to establish the profit and I am not satisfied that discovery should extend to quotations from unsuccessful tenderers, which do not have any bearing on the profits earned, and hence this is not a matter which the affidavit need address.