Plaintiff v First Defendant

2 I have already set out the background to these proceedings in some detail in my previous ruling in Buckley v The Herald and Weekly Times Pty Ltd & Anor[1]. The matters, in respect of which the defendants seek third party discovery, relate principally to two issues raised by the pleadings. First, the defendants have pleaded justification, and contextual truth, to imputations, alleged by the plaintiff to derive from the first article published by the defendants, to the effect that the plaintiff had made secret and illicit payments, totalling $1,000,000 in cash, to drug baron X. Secondly, the defendants have also pleaded justification to the imputation, alleged by the plaintiff to arise from the first article, that, as part of the plaintiff's illicit and improper dealings with drug baron X, the plaintiff had acquired X's Kilmore property at a gross under value.

3 In the first article it was stated that the plaintiff had handed about $1,000,000 in cash to X in a series of weekly payments at the plaintiff's hair salon in East Melbourne. The defendants have provided particulars to the plea of justification alleging: that between October 2003 and July 2004 X collected cash payments totalling $1,000,000 at the plaintiff's hair salon; that the plaintiff claimed in a television interview that he had made those payments pursuant to a lease agreement in relation to a horse property at Kilmore which he had agreed to purchase from X; that the payments were made to X at a time when X's assets were the subject of restraining orders obtained by the Director of Public Prosecutions pursuant to the Confiscation Act 1997 (Vic); that the payments were not made pursuant to the lease agreement as claimed (in the television interview) by the plaintiff or for any other legitimate purpose; and that the payments were made in breach of the restraining orders.

4 The five summonses, which are now before me, may be dealt with in two sets. The first set consists of a summons to the Office of Public Prosecutions ("OPP") and a summons to the Assistant Director, Asset Confiscation Operations, Department of Justice ("ACO"). The second set, of three summonses, is directed to three bookmakers, namely, Mr Simon Beasley, Mr Allan Eskander and Mr Frank Hudson ("the bookmakers").

5 The applications by the defendants for non-party discovery are made pursuant to rule 32.07, which provides that, on the application of any party to the proceeding, the Court may order that a person, who is not a party to the proceeding, make discovery of any document, which that person has, or is likely to have, in that person's possession, and which "relates to any question" in the proceeding. That test is similar to the test for discovery between parties under rule 29.02. In particular, it is, in my view, appropriate to apply the "Peruvian Guano" test to determine whether, under rule 32.07, a party might possess a document which "relates to any question in the proceeding"[2]. In any event, the argument before me proceeded on the basis that that test is applicable to the applications by the defendants under rule 32.07.

6 I shall deal, first, with the summonses directed to the OPP and ACO. Mr R McInnes, who appeared on behalf of the ACO, advised me that his client does not object to discovery of the documents sought in the summons. The Court was notified in writing by the solicitor for OPP that the OPP, similarly, does not object to discovery of those documents.

7 The summonses to the OPP and ACO seek discovery of two classes of documents. The first class of documents concerns a lease of a horse farm situated at Maranding Road, Kilmore ("the Kilmore property") by Finchfield Holdings Pty Ltd ("Finchefield") to Ultra Thoroughbreds Pty Ltd, a property controlled by the plaintiff. Finchfield was a company controlled by the wife of X. The second class of documents relates to the valuation of the Kilmore property, and to the sale of that property by Finchfield to a company controlled by the plaintiff.

8 The evidence before me discloses that in October 2003 Finchfield entered into an agreement, by which it agreed to sell the Kilmore property to Horse Farm Pty Ltd; a company controlled by the plaintiff. That contract was subject to a lease, of the same date, between Finchfield and Ultra Thoroughbred Racing Pty Ltd. The plaintiff has discovered a document, which appears to be a copy of a ledger account, entitled "Payments made to Finchfield Holdings lease dated 30 October 2003 payments made to X for commission and lease on sale of farm". The document records some twenty one payments, totalling $510,500, made between 22 December 2003 and 1 July 2005. The first two payments consisted of cash payable to X totalling $37,500. The other nineteen payments were made by cheque to the bookmakers; one to Mr Beasley, thirteen to Mr Hudson and five to Mr Eskander.

9 It is clear from the foregoing that the plaintiff's case is that he did not make any cash payments to X at his hair salon, but, rather, that he made the payments, reflected in the ledger document, to or on behalf of X, in discharge of obligations under the lease of the Kilmore property by his company from Finchfield Holdings, and also in payment of commission due to X on the sale of the Kilmore property in October 2003. In response, the defendants will contend that those payments were not made pursuant to any lease agreement, or any other legal obligation by the plaintiff to X, and will also allege that the payments were made in contravention of the restraining order which had been made (inter alia) in respect of the Kilmore property. In response to that second proposition, the plaintiff has discovered a letter dated 13 November 2003, addressed to him by Mr Raimondo of the Office of Public Prosecutions, entitled "Proposed lease and sale of the Kilmore farm property". The letter stated:

"I refer to your letter dated 24th October 2003 and to our recent discussions in relation to this matter.

I confirm that the Restraining Order does not prevent the owner of a restrained property from granting a lease over the restrained property."

10 That letter was relied upon by Ms G Schoff, who appeared on behalf of the defendants, in respect of the application for discovery from the OPP and ACO of documents relating to the proposed lease of the Kilmore property by Ultra Thoroughbreds Pty Ltd from Finchfield. She submitted that there are two main issues relating to the payments, which the plaintiff has admitted to making to and on behalf of X. The first issue is whether those payments were made pursuant to or in respect of the lease. The second issue is whether the payments were made in breach of the restraining order made under the Confiscation Act. In respect of that second issue, she submitted that it is likely that the plaintiff will rely on the letter dated 13 November 2003, which he received from the OPP. Ms Schoff contended that, in that event, it will be relevant to ascertain what communications were made to the OPP, by or on behalf of the plaintiff, as to the nature and substance of the proposed lease agreement.

11 In response, Mr S K Wilson QC, who appeared with Mr M Clarke for the plaintiff, submitted that those documents would not be relevant to the principal issue between the parties, namely, the characterisation of the payments which the plaintiff had made to and on behalf of X. He submitted that the restraining order made under the Confiscation Act speaks for itself. It will be a matter of law (or mixed fact and law) whether the payments, made by the plaintiff in respect of the lease, breached the restraining order, which had been made by the Court.

12 In my view, the documents in relation to the lease, sought by the defendants from the OPP and ACO, are sufficiently relevant to the issues in the case to entitle the defendants to an order for non-party discovery of them under Rule 32.07. The restraining order made by Judge Holt of the County Court on 22 November 2001 (inter alia) restrained X and Finchfield from "disposing of or in any way dealing with" the Kilmore property. On its face, it would seem that a lease of the property would have come within the terms of that order. As I understand it, the defendants will contend that if the plaintiff made the payments to or on behalf of X pursuant to the lease, those payments were illegal, because the lease itself constituted a contravention of the restraining order. The merits of the underlying assumption contained in that proposition will remain to be tested at trial. However, it is in that context that the letter of the OPP dated 13 November 2003, to which I have already referred, becomes relevant. That letter specifically refers to a communication to the OPP by letter, and to discussions between the solicitors to whom the letter was addressed and the writer of the letter. In my view, Ms Schoff is correct in submitting that, in light of the issues relating to the lease, it is relevant for the defendants to ascertain the information relating to the lease which was provided to the OPP, on the basis of which Mr Raimondo of the OPP expressed the view, contained in the letter of 13 November 2003, that the restraining order would not prevent the grant of a lease over the restrained property. Based on that conclusion, I shall make an order in the terms contained in paragraph 1(b) of the summons to the ACO and the OPP, so far as it relates to the lease (or proposed lease) of the Kilmore property. I shall shortly return to the form of order which I intend to make in that respect.

13 I turn, then, to the second aspect of the orders sought by the two summonses, namely, an order for discovery of documents relating to the valuation of the Kilmore property, and of documents relating to the sale of the Kilmore property. Discovery is also sought of documents relating to the application in the County Court before his Honour Judge McInerney on 15 February 2005 to vary the restraining orders hitherto made by Judge Holt so as to permit the sale of the Kilmore property.

14 In support of that part of the application, Ms Schoff submitted that the documents, sought in respect of the valuation and sale of the property, are relevant to the issues between the parties. In particular, she submitted that the sale of the property was interconnected with the lease, and therefore it is relevant for the defendants to obtain non-party discovery in relation to the consent given by the OPP to the sale of the property. In that respect, she contended that it is relevant to obtain non-party discovery from the OPP as to any valuation provided to or obtained by the OPP of the Kilmore property.

15 In assessing those submissions, it is important to bear in mind the issues in the proceeding relating to the sale of the Kilmore property. The first article, complained of by the plaintiff, alleged that the plaintiff had bought the property for $1.1 million, and alleged that that price was "several million dollars below its true value". In his statement of claim, the plaintiff has pleaded an imputation that those words meant:

"As part of the plaintiff's illicit and improper dealings with drug baron X, the plaintiff acquired X's Kilmore property at gross undervalue."

16 In their defence, the defendants have pleaded (inter alia) justification of that imputation. They have not provided any particulars of that part of their defence. The pleadings, nevertheless, thus enliven the issue as to the value of the Kilmore property at the time at which it was sold by Finchfield Holdings to the plaintiff's company, Horse Farm Victoria Pty Ltd. I would anticipate that ultimately that issue will be addressed at trial by appropriate valuation evidence on each side. In that context, it has not been demonstrated how documentation obtained from the OPP, relating to the value of the property, might be relevant to the proceeding. In particular, it has not been demonstrated that any view held by the OPP, or indeed by any expert commissioned on its behalf, as to the value of the property, could appropriately bear on the issues in this case. In this respect, I agree with Mr Wilson that this aspect of the application for non-party discovery does have a fishing quality about it. For those reasons, I do not accede to the application by the defendants for non-party discovery relating to the valuation material.

17 The summonses to the OPP and the ACO also seek copies of correspondence and notes of conversations relating to the sale of the Kilmore property. Those documents are even further remote from the issues in the case than any documents held by the OPP relating to the valuation of the Kilmore property. It is not alleged in the article, nor is it pleaded, that the plaintiff in some way misled the OPP, in order to obtain the OPP's consent to a variation of the restraining order to enable the plaintiff's company to purchase the Kilmore property from Finchfield. In my view, the documents sought by that part of the summons directed to the OPP and the ACO are irrelevant, and that part of the application will be refused.

18 For the foregoing reasons, and subject to hearing from counsel as to the precise phraseology of the order, I propose to make the following orders in relation to the summonses by the defendants to the OPP and the ACO:

Pursuant to Rule 32.07, the Victorian Office of Public Prosecutions, by its proper officer, and the Assistant Director, Asset Confiscation Operations Infringement Management and Enforcement Services, of the Department of Justice, by its proper officer, each make discovery to the defendants of the following documents, namely:

Correspondence and notes of correspondence between the following parties in respect of the lease or proposed lease of the property at 445 and 465 Forbes Maranding Road, Kilmore, being the land more particularly described in certificate of title volume 10285 folio 719 and 720 ("the Kilmore property") by Finchfield Holdings Pty Ltd to Ultra Thoroughbred Pty Ltd:

(ii) X or lawyers acting for X (including Robert James Solicitors)

(iii) Finchfield Holdings Pty Ltd or lawyers acting for Finchfield Holdings Pty Ltd (including Robert James Solicitors)

(iv) Peter Sean Buckley or lawyers acting for Peter Sean Buckley (including Albert Chong and Fetter Gdanski Solicitors)

Summonses to Messrs Beasley, Hudson and Eskander ("the Bookmakers")

19 I turn to the three summonses respectively addressed to the bookmakers Mr Simon Beasley, Mr Frank Hudson and Mr Allan Eskander. Each of those three summonses relate to the nineteen payments which are recorded on the ledger document as being made by the plaintiff on behalf of X to Messrs Beasley, Hudson and Eskander, and which, in that document, are recorded as being made in respect of lease payments and commissions payable to or on behalf of X. The three summonses each seek discovery of records of the three bookmakers relating to those payments, records relating to any arrangement between the plaintiff (or his companies) to make payments to the non-party on behalf of X, and records of any other similar payments, which were purportedly made for or on behalf of X by the plaintiff or his companies.

20 In response to the summonses, Mr Hudson and Mr Eskander each sent letters to the defendants' solicitors advising that they will each abide any order for discovery made by the court. Mr Beasley did not respond to the summons which was served on him. Mr Mengolian, who appeared for Mr Eskander, stated that his client neither consented to, nor opposed, the making of the orders specified in the summons.

21 In support of the summonses, Ms Schoff submitted that the documents, which are sought by discovery from the three bookmakers, are relevant to the issue whether the payments, recorded in those documents, were made by the plaintiff to or on behalf of X, and, if so, whether the payments were made in respect of any obligation by the plaintiff to make such payments to X pursuant to the lease of the Kilmore property, or in respect of any commission owing to X in relation to the sale of the Kilmore property. In particular, she submitted that, in respect of those questions, it is relevant to ascertain to what account each of the bookmakers credited the payments, what use they made of the payments, and whether those payments, received by the bookmakers, were ultimately accounted for by the bookmakers to X.

22 On the other hand, Mr Wilson submitted that it is not material to ascertain how the bookmakers dealt with the payments, which were made by the plaintiff or his companies to the bookmakers on behalf of X. He contended that any documents held by the bookmakers could not be relevant to the characterisation of the payments. Rather, the issue, whether the payments were made pursuant to any obligation by the plaintiff or his companies to X, depends on a proper analysis of the contractual relationship between the plaintiff and X, and the obligations existing between them.

23 In my view, the submissions by Ms Schoff are correct. It is clear that a principal issue in the trial will concern the proper characterisation of the payments, which the plaintiff has made to or on behalf of X. In determining that issue, it is potentially relevant to ascertain the identity of the accounts to which the bookmakers credited the payments, to whom the bookmakers accounted for the proceeds of the payments, and how they accounted for the proceeds of the payments. Each of those matters may shed light on the proper characterisation of the payments, which were made by the plaintiff to the bookmakers, and, in particular, on the question whether they were made in relation to the discharge by the plaintiff of obligations, which his companies or he had incurred to X in respect of a commercial transaction between them. For those reasons, I accede to the application by the defendants for discovery from Mr Beasley, Mr Eskander and Mr Hudson of the documents sought in the summons. I shall therefore make orders for such discovery in the form of the draft of such orders which were submitted to me by Ms Schoff in the course of argument.

24 For the foregoing reasons, I have reached the following conclusions:

(1) In respect of the summonses directed to the OPP and the ACO, the defendants are entitled to discovery of the documents relating to the lease of the Kilmore property by Finchfield Holdings Pty Ltd to Ultra Thoroughbred Pty Ltd; but the defendants are not entitled to discovery of the documents relating to the valuation of the Kilmore property, or the sale of the Kilmore property by Finchfield Holdings Pty Ltd to Horse Farm Victoria Pty Ltd.

(2) On those summonses, I shall make the orders set out in paragraph [18] of these reasons.

(3) I uphold the applications for non-party discovery by the defendants from Messrs Beasley, Hudson and Eskander, and I shall make orders for such discovery in the form of the draft orders submitted to me in the course of argument.

[1] [2008] VSC 459.

[2] Compagnie Financier Du Pacifique v Peruvian Guano Co (1882) 11 QBD 55, 62 to 63 (Brett LJ); Keviris Pty Ltd v Capital Building Society (Supreme Court of Victoria, Unreported, 9 February 1988, Kaye J; BC8800814).