The plaintiff in these proceedings is the proprietor of a hotel known as the Moore Park View Hotel in the inner Eastern Suburbs of Sydney. The defendant is a former manager of the hotel who was employed in that position between October 2012 and June 2015. In the proceedings, the plaintiff alleges that the defendant misappropriated moneys from the takings of the hotel between about July 2013 and about May 2015. The plaintiff claims that more than $600,000 was misappropriated.
This judgment concerns an application by the plaintiff for disclosure of and access to documents. The background is that the proceedings were commenced in March 2016 by way of Statement of Claim. On 13 April 2016, the plaintiff issued two subpoenas. The first of those subpoenas was issued to the Commonwealth Bank of Australia. The documents required were, first, those "recording or evidencing transactions occurring on the Commonwealth Accounts" in the period 1 July 2014 to date. The subpoena also sought production of all bank statements for the Commonwealth Accounts for the same period. Commonwealth Accounts was defined to mean "bank accounts held at the Commonwealth Bank in the name of" the defendant, whether in his own name or jointly with a Jason Blachowski. It was also defined to include any account held in Mr Blachowski's own name, and also any account for any loan or mortgage advanced by the Bank secured on a property at Elizabeth Street, Waterloo. Mr Blachowski is the domestic partner of the defendant, and the property at Waterloo is where they live.
The second subpoena was issued to a company known as Triple Crown Bloodstock Pty Ltd and related to a horse, which is apparently owned by the defendant or in which the defendant has some interest. The documents sought included those "recording or evidencing the sale, disposal or brokering or otherwise of the change of ownership" of the horse, and all documents recording or evidencing such transactions between Triple Crown Bloodstock and the defendant. The subpoena also covered all documents relating to the registration of the horse.
Omutta Pty Ltd v Wilson [2018] NSWSC 135 | Case summary | Zoe
Documents were produced in answer to these subpoenas, and orders for access were made in the usual course by a Registrar on 2 May 2016. On 26 May, the plaintiff issued a further subpoena to the National Australia Bank in substantially the same terms as the Commonwealth Bank subpoena.
The defendant had apparently not been provided with notice of the issue of the subpoenas until shortly before the documents were produced. The defendant moved to set the subpoenas aside. The application came before White J (as his Honour then was), on 5 August 2016. In an unpublished judgment, his Honour concluded that the issue of the subpoenas had been an attempt to circumvent the philosophy underlying Practice Note 11. His Honour noted that the plaintiff had not served any evidence in support of its serious allegations against the defendant. (In fact, the first two subpoenas had been issued even before the first directions hearing in the proceedings, which did not take place until 18 April). His Honour stated that the philosophy behind Practice Note 11 was that parties, in the usual course, should serve their evidence before orders in relation to the disclosure of documents were made. His Honour recorded the plaintiff's submission that it was "on the cards" that the material called for by the subpoena might assist it in the making of its case, but observed that this had not been demonstrated by reference to any evidence then filed by the plaintiff. He expressed the conclusion (with which I respectfully agree) that this was no way in which to conduct litigation, and, as a result, he made orders setting aside the subpoena to the National Australia Bank and also setting aside the access orders which had been made in relation to the documents already produced by the Commonwealth Bank and Triple Crown Bloodstock. However his Honour noted that his orders would not preclude the plaintiff, in due course, from seeking disclosure of documents after its evidence and the defendant's evidence had been served.
That has now occurred. The plaintiff, albeit apparently after some delay, has filed its evidence-in-chief. The defendant filed evidence in response, and the plaintiff has filed evidence in reply. The plaintiff has also been required to give, and has given, discovery of relevant documents held by it. The plaintiff now seeks orders for discovery against the defendant. The plaintiff also seeks, apparently in the alternative, inspection of documents earlier produced by the Commonwealth Bank and Triple Crown Bloodstock.
It is convenient to deal first with the question of inspection of the documents that were produced in response to the subpoenas issued in April 2016. The defendant's contention is that there is insufficient material before the Court to justify the inspection of the documents. The defendant characterises the plaintiff's application as a fishing expedition.
The starting point for the plaintiff's evidentiary case is a series of alleged discrepancies between records of cash received from the hotel operations, and amounts of cash actually banked. Detection of the alleged discrepancies can be traced back to concerns on the part of Mr Scott Doble, which developed in the first quarter of the 2014- 2015 financial year, that is, the period July-September 2014. The shareholders in the plaintiff company are Mr Doble's father and uncle, and he is employed by the plaintiff effectively in an oversight role. At relevant times, the defendant, as manager of the hotel, reported to Mr Doble and was assisted by an assistant manager, Ms Joan Williams.
According to Mr Doble's affidavit, he became concerned that despite apparently successful trading of the hotel, the cash balance in its bank account was decreasing. Mr Doble raised this with the defendant in October 2014 and according to Mr Doble, the defendant suggested that it was "just a case of finalising last year's tax and a few other larger items", and expressed the view that the balance would rebound shortly. Early in November 2014, Mr Doble had a stroke which limited his involvement with the affairs of the hotel for several months, but he took the issue up again in early 2015. He conducted a review of the accounts as a result which he noted apparent discrepancies between, on the one hand, the records from gaming machines and from an ATM in the hotel used for the dispensing of cash, and, on the other hand, cash takings as recorded in the records of the hotel and reflected in the hotel's bank accounts.
According to Mr Doble's affidavit, in mid-April 2015 he visited the hotel and had a meeting with the defendant and Ms Williams to discuss the discrepancies which he had identified. Mr Doble's affidavit records the defendant's response as being to the following effect:
I'm worried about this. I know that from time to time there are differences between the DMS figures [these were external figures] and our figures as a result of what time we close the machines off, so you may find some days are down and the next day's up. The first time may be as a result of someone borrowing the money and putting it back the week after. I did have some concerns that you know one or two of our previous staff members might have been involved in theft. It could have been one of the night managers.
According to Mr Doble, he asked the defendant to review and provide a detailed assessment of the figures and a list of the people who the defendant believed could have changed the figures on the weeks in question. Mr Doble also continued his own investigations, in which the hotel's accountant, Christiane Dorrell, was also involved. There appears to have been some disagreement between the defendant and Ms Dorrell and he described her as causing a "witch hunt". The defendant then went on prearranged annual leave on 15 May. After he left, Mr Doble continued his investigations, and formed the view that the defendant had been responsible for the discrepancies. The defendant's employment was subsequently terminated on the basis of alleged misconduct and he did not return to work for the plaintiff. All of this, as I have indicated, is recorded in affidavit evidence from Mr Doble.
There is also evidence from Ms Williams. Her affidavit refers to a number of occasions on which she observed the defendant destroying records which he explained as being old records which were no longer needed. I should interpolate, a part of the plaintiff's case is that supporting records which would independently confirm the actual cash takings or allow cash takings to be calculated, are missing from at least part of the period or in relation to some of the days in question. The plaintiff has also served evidence from Ms Dorell, but that evidence was not before me on this application.
Following the defendant's dismissal, a claim was apparently made on the plaintiff's insurance policy and a report was prepared for the plaintiff's insurer by Celia Reichelt. An affidavit has been filed in these proceedings from Ms Reichelt annexing that report.
The defendant's affidavit contains a clear and robust denial of any misconduct on his part. He gives his version of some of the relevant events, including a suggestion that Mr John Doble had taken approximately $60,000 from the takings of the hotel. Mr Scott Doble had, according to the defendant, complained about this. The suggestion apparently is the absence of cash may be the result of moneys taken by Mr John Doble.
Purportedly by way of reply, the plaintiff relies on an affidavit of Rachel Dulson. Ms Dulson is a majority shareholder of a company which owns another hotel, known as the Concourse Bar, in the Central Business District of Sydney. The defendant was previously employed by the Concourse Bar and at the time he applied for his position as manager with the plaintiff, he gave reference from a person called Rob Stevens, who he asserted had been the licensee of the Concourse Bar. Ms Dulson's evidence is that this is untrue, and further, that the defendant was dismissed from employment at the Concourse Bar because of belief, on her part, that he had misappropriated cash from the bar and gaming takings. Counsel for the plaintiff suggested that this evidence would be admissible as "similar fact" evidence at the hearing.
Counsel for the defendant criticised the plaintiff's case in the proceedings, and the evidentiary case in particular. He observed the case was purely circumstantial. He pointed to the fact that the Statement of Claim does not expressly plead the falsification of records but only in the misappropriation of moneys. He observed that the evidence from Ms Dulson is not reply evidence at all, and contended that it was, in any event, irrelevant. He referred to particulars that had been given of the alleged misappropriations. Those particulars had been given in the form of a figure representing the discrepancy for each relevant week. Some of the figures are extremely small amounting to $100 or even less.
There is force in much of counsel's criticisms, at least so far as the presentation of the plaintiff's case at the final hearing is concerned. As I have mentioned, the filing and service of the plaintiff's evidence was protracted and an order had to be made that no further evidence could be relied upon, except with leave of the Court. Even so, it appears that the plaintiff's evidence is incomplete. Ms Reichelt's report does not, as the Rules require, say that she has agreed to be bound by the Code of Conduct. This is not necessarily a formality. The difficulty with the report is emphasised by the fact that it was originally apparently prepared for a different purpose. Perhaps as a result of this, the precise opinions being expressed and the basis of those opinions in the supporting documents are not, in my view, as clear as they might be. To be admissible, the report would have to be supplemented or perhaps reworked.
Furthermore, I agree that Ms Dulson's evidence is not properly reply evidence at all. It might have been alleged that the misrepresentation which it is contended was made by the defendant at the time of his employment, was, itself, some sort of breach of his obligations, but this has not been pleaded. In these circumstances, I question whether the evidence of the alleged misrepresentation is relevant at all. Whether the defendant in fact misappropriated moneys from the Concourse Bar is not established by Ms Dalson's evidence. All she says is she believed that he did, and even if he did, the relationship of that allegation to the pleaded breaches strikes me as potentially insufficient to justify the admissibility of evidence on alleged defalcations was while the defendant was the manager of the Concourse Bar, for the purpose of resolving these proceedings.
But I do not necessarily accept all the criticisms that counsel made. In particular, there is no objection to the plaintiff's case that the case is a circumstantial one. Of its nature, a claim of this kind would usually have to be based on circumstantial evidence (if it was to be made at all). Nor is it necessary that the falsification of records should have been specifically pleaded. In my opinion, the allegation of defalcation is sufficient to permit evidence to be given of concealment of the alleged defalcations, if such it be.
In my opinion, two particular features of the defendant's evidentiary case stand out. First, the defendant has not disputed (or at least clearly disputed) that the discrepancies were real. I accept that some of the figures shown in the particulars for some of the weeks, are trivial amounts, but others are not. The defendant's submissions focused on some of the trivial amounts by way of example, but larger amounts were not addressed. The passage from Mr Doble's affidavit in which the defendant apparently accepted that there were discrepancies and suggested that others might be responsible for them, is not disputed in the defendant's affidavit. In fact he has not directly addressed Mr Doble's version of that meeting at all. The defendant has not, in his evidence, suggested any other explanation for the discrepancies or led any expert evidence to contest the interpretation by Mr Doble and Ms Reichelt that the records demonstrate discrepancies in the hotel's takings and records.
The second feature is that if the discrepancies are real, they point clearly to fraud on someone's part. It is not credible that mere accident or random fluctuations would result in a $600,000 deficiency. If that is so, there is only a limited number of people who could be responsible. The defendant has not, in his evidence, pointed the finger at anybody else, nor has he addressed Ms Williams' evidence of the destruction of records so as to explain what it was he was doing on the particular days in question. His evidentiary case simply consists of a denial of misconduct. While the defendant is entitled to take that forensic stance, I think that for the purposes of this application, his failure to confront the plaintiffs' case at a level of detail, and directly, is significant. In my opinion, evidence of the defendant's private financial affairs would clearly assist in clarifying the position. It could not, of course, be decisive, but if the defendant's financial records show that there is no unexplained influx of cash, then that would go a long way to meeting the plaintiff's case. One might expect the defendant would have tendered such evidence himself as part of his defence (even though he is not required to do so) because of the compelling nature of such evidence.
I will now deal with the question of whether access to the documents should be granted for the purposes of the plaintiff's subpoenas. The test for whether documents should be produced on subpoena is whether it is "on the cards" that they will result in the production of documents, which have a legitimate forensic bearing on the case. That test was outlined by Brereton J in A v Z (2007) 212 FLR 255 at [11], citing R v Saleam (1989) 16 NSWLR 14 at 18 per Hunt J. The application of this test is a matter for judgment, and perhaps impression. In my opinion, on the evidence currently filed, the plaintiff's case is sufficiently substantial that it requires an answer. It may be that the defendant's case can be improved, or that some of the omissions to which I have referred were accidental, but on the evidence before the Court at present, I think it is sufficiently possible that the defendant's financial records will be relevant to meet the "on the cards" test. In my view, this applies not only to records of the defendant's bank accounts, but also to those of Mr Blachowski as his domestic partner.
In opposition to the application, counsel for the defendant complained about the cost and inconvenience of producing the relevant documents. That may be accepted so far as any obligation on the defendant to discover documents is concerned, but it is not so for subpoenaed documents. The cost in that case largely falls, in the first instance, on the bank, and on the plaintiff (through conduct money). The cost of the defendant is small. Of course intrusion into the defendant's and his partner's financial affairs is such that the defendant may legitimately resent it, but both the defendant and his partner are protected by the obligation imposed on the plaintiff to use the documents only for the purposes of these proceedings. If the documents do show nothing, they will not become public.
For these reasons, I propose to order that inspection of the documents produced by the Commonwealth Bank and Triple Crown Bloodstock be permitted.
The conclusions that I have reached would also justify a somewhat wider production of documents over a somewhat wider period than that covered by the subpoenas. (In passing, I note that the subpoenas to the bank required production of "all documents recording or evidencing transactions" occurring on the accounts as well as the bank statements. In my view, it is only the bank statements which are properly sought. Strictly speaking, the call for all documents recording or evidencing transactions on the bank statements could require the production of individual cheques, vouchers and other documents, to say nothing of loan agreements and the like for any transactions or fees which may have been raised by the bank. I do not think that that is justified, but I suspect that the Bank or those advising the Bank overlooked the potentially broad extent of the subpoena and accordingly, no harm has been done). As I have mentioned, the subpoena included documents from the period from 1 July 2014 to date, but in my view, it would be legitimate to require production for the period from 1 July 2012. Counsel for the defendant suggested that any production should be limited to the period of the alleged defalcation - which as I have mentioned commenced July 2013 - but I think that, as a matter of context, it is legitimate to require production of documents going back to the commencement of the defendant's employment and a reasonable period before that in order understand the nature of his financial affairs and his partner's, generally. Although leave is not required for the issue of subpoenas, I should indicate that I would see a subpoena limited to bank statements covering that earlier period to be legitimate, as also would be a subpoena to the National Australia Bank in similar terms, or indeed a subpoena to any other financial institution where the defendant holds a current account or a credit card account.
This leaves the question of discovery. The application before the Court seeks orders in essentially the same terms as the subpoenas to which I have referred, including all documents "recording or evidencing transactions" on relevant bank accounts. For reasons I have already given, I think this is too broad and oppressive. It would likely give rise to the production of a large number of documents, many of which could have no conceivable relevance to the allegations that the plaintiff has made. More broadly, I consider that if the plaintiff is permitted to subpoena bank statements, there is no need for discovery on this question at all. The financial institutions in question can be expected to have a full set of statements for the relevant period, and there is no need to require the defendant to duplicate that effort. If the bank documents disclose specific transactions which give rise to reasonable suspicions, then the appropriate course would be to investigate those particular transactions (if identified) by means of some sort of targeted notice to produce, or further subpoena.
Discovery is also sought in relation to the defendant's dealings with Mr Stevens and the production of documents concerning his employment at the Concourse Bar, but for reasons which I have given, I consider these matters to be peripheral, at best, and I am not prepared to grant the discovery sought, at least on the current pleadings and evidence. Accordingly, I do not propose to make any order for discovery against the defendant.
The parties to this application have each enjoyed mixed success, but the measure of their success will depend on the outcome. In these circumstances, costs in the application will be costs in the cause.
The plaintiff needs to consider what further supplementation of evidence-in-chief it will be seeking. I am content for the proceedings to stay before me for that purpose for a brief time to give the plaintiff an opportunity to consider its position and for the defendant to respond.
The orders of the Court are:
I make the usual order for inspection of the documents produced on subpoena by Commonwealth Bank of Australia and Triple Crown Bloodstock Pty Ltd.
The plaintiff's notice of motion is otherwise dismissed.
I order that the costs of the motion be costs in the cause.
I adjourn proceedings for further directions in the call over list on 3 April 2018.
[2]
Amendments
09 May 2018 - Amend typographical error at [28]
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Decision last updated: 09 May 2018