Plaintiffs v Defendant

63 The issue of 'Payments received' is addressed in Part 5.6, as follows:[53]

5.6 Payments received

Payments in source documents

5.6.1 In this section I compare the source documents and information regarding payments received by the Plaintiffs.

Review of Parties' Schedules and Allocation of Payments

5.6.2 In relation to my review of the payment information in the Parties' Schedules:

1. The Defendant's Schedules record monthly lump sum payments made to the Plaintiffs as cash outflows. They do not record payments on a per invoice basis;
2. The Plaintiffs' Summary Spreadsheet records payments received from the Defendant as allocations of payment amounts to each of the relevant Accounts Receivable amounts. It does not record the separate lump sum payments as identified in the Defendant's Schedules.

However, the total monthly payments (ignoring any allocation applied) in the Plaintiffs' Summary Spreadsheet can be compared with the monthly lump sum payments in the Defendant's Schedules, and agreed in certain instances; and

1. In relation to the allocation of payments to the individual accounts making up the Accounts Receivable:
   1. The allocation of payment to the individual accounts in the Plaintiffs Summary Spreadsheet does not always agree with allocation of the lump sum payments to individual accounts in the Defendant's Schedules;
   2. The disparities are predominantly in relation to accounts 757 and 757B, such that the defendant recorded payments against account 757 that the Plaintiffs have allocated to 757B, or vice versa;

Overall, this results in an under allocation of lump sum payments to account 757B in the Defendant's Schedules and conversely an over allocation in account 757 compared with the Plaintiffs' Summary Spreadsheet;

1. There are also six instances in which the Defendant has allocated a payment to account 2995, that the Plaintiffs have allocated to a 757 account; and
2. There are no Originating Source Documents as to the allocation of payments that were to have applied to the Accounts Receivable at the time of payment.

64 In Table 10, the special referee presents a summary of the source documents and information from the plaintiffs' records, as follows:[54]

65 The special referee noted in relation to the information for Payments as set out in Table 10 (above) that:[55]

1. There are 342 payments in the Plaintiffs' Summary Spreadsheet allocated to accounts for purchases of inventory totalling $19.263 million;

1. I have matched 336 of these 342 payment allocations in the Plaintiffs' Summary Spreadsheet to lump sum payments recorded in the Defendant's Schedules, with a total value of $19.248 million. These are the 'Plaintiffs allocated payments matched to Defendant's payments'.
2. I have been unable to match the remaining six payments that the Plaintiffs' Summary Spreadsheet allocates to the Accounts Receivable to any of the lump sum payments recorded in the Defendant's Schedules.

These are the 'Residual unmatched payments received by the Plaintiffs', with a total value of $0.015 million. This sum represents the value of payments that the Plaintiff has attributed to the Accounts Receivable, but which the Defendant does not record as having paid in the Defendant's Schedules.

1. I have identified an additional $0.137 million of payments in the Plaintiffs' bank statements which are recorded in the Defendant's Schedules but are not included in the Plaintiffs' Summary Spreadsheet;
2. I have also identified an additional $0.035 million of payments made by the Defendant using AMEX that were not recorded correctly in the Plaintiffs' Summary Spreadsheet. The initial payment amounts were under-recorded in the Plaintiffs' Summary Spreadsheet; and
3. I have adopted the total of $19.420 million from the three amounts above in items d, f and g as the 'Total Plaintiffs' payments matched to Plaintiffs documents'.

66 The special referee also prepared a summary of the defendant's record of payments made to the plaintiffs, set out in Table 11 of the Report, as follows:[56]

67 The special referee noted in relation to the information for Payments as set out in Table 11 (above) that:[57]

1. The Defendant's Schedule records 253 lump sum payments to the Accounts Receivable over the Period, with a value of $20.596 million;
2. I have been able to directly match 213 of these 253 lump sum payments to the 336 matched payment allocations in the Plaintiffs' Summary Spreadsheet. The value of these 213 lump sum payments is $18.668 million;

1. I have identified an additional $0.137 million of payments in the Plaintiffs' bank statements which are recorded in the Defendant's Schedules but are excluded from the Plaintiffs' Summary Spreadsheet;

1. I have been unable to match the remaining 35 lump sum payments recorded in the Defendant's Schedules to any of the payment allocations in the Plaintiffs' Summary Spreadsheet. These are the 'Residual unmatched payments in Defendant's Schedules'. In this regard, these payments, with a total value of $1.791 million are not recorded in the Plaintiffs' Summary Spreadsheet.
2. I have identified an additional $0.091 million in payments from the Defendant's AMEX statements that were incorrectly recorded in the Defendant's Schedules. The initial payment amounts were under-recorded in the Defendant's Schedules;
3. I have identified an additional $0.524 million in payments from the Defendant's AMEX statements that were not recorded in the Defendant's Schedules;
4. I have adopted the total of $19.420 million from the four amounts above in items b., c., e. and f. as the 'Total Defendant's payments matched to the Plaintiffs' documents'.

This amount represents the total value of payments that I have matched in the Parties' records, with adjustments for information from bank statements and AMEX statements.

Review and comparison of bank statements, AMEX statements, cheque butts

5.6.11 In relation to the additional payment amounts arising from a review of bank statements at items 5.6.4f and 5.6.10c:

1. I have been provided with the following records retained by each party:
   1. Defendant's bank statements, as set out at paragraph 3.3.37;
   2. Plaintiffs' bank statements, as set out at paragraph 3.3.39; and
   3. Defendant's cheque butts, as set out at paragraph 3.3.43.
2. I have not been provided with the bank statements for the same periods by both the Plaintiffs and the Defendant. To the extent that I have bank statements from the Parties for the same periods, I compared these for the initial unmatched payment amounts.

1. I summarise the results of this comparison below:
   1. There are 49 payments for which the Defendant has provided cheque butts that I have agreed to debit amounts (withdrawals) in the Defendant's bank statements provided to me;
   2. There are four payments made by cheque from item i., above, and one additional electronic deposit with a total value of $0.137 million, that I have also agreed to credit entries (deposits) in the Plaintiffs' bank statements provided to me. I have matched these on the basis of the amounts and dates matching. These amounts are included in my assessment of total matched payments; and
   3. There are certain credit amounts (deposits) in the Plaintiffs' bank statements provided to me that coincide with the dates of debit amounts (withdrawals) in the Defendant's bank statements, but which are for a greater amount than the values in the Defendant's bank statements. The Plaintiffs' bank statements identify these deposits as 'Cash and/or Cheques Deposit' for a lump sum amount of total deposits on a given date.

Notwithstanding that these lump sum deposits would otherwise coincide with the date of deposits of the Defendant's cheque payments, since I cannot match the payment amounts to the payee or cheque numbers, I have not included them in my analysis. This is because it is possible that the lump sum 'Cash and/or Cheques deposit' recorded in the Plaintiffs' bank statements could be comprised of deposits from sources that do not include the Defendant's cheque payments. There is insufficient detail in the Plaintiffs' bank statements to identify whether this is the case.[58]

68 The footnote to the last paragraph above records the special referee's observation that 'Deposit batch listings from the Plaintiffs would settle this but I have not received these'.

69 Under the heading 'My assessment of Payments', the special referee summarises her assessment of the payment transactions as follows:[59]

My assessment of Payments

Value of Payments

5.6.13 I have adopted the total of payments received by the Plaintiffs that is supported by Originating Source Documents and Unsupported Records of $19.420 million in my analysis of the Accounts Receivable.

5.6.14 This amount is equal to the total payments that have been reconciled to the Parties' records, and other source documents provided to me, comprising:

a. Originating Source Documents:

1. AMEX statements for the Defendant's account;

ii. Plaintiffs' bank statements; and

iii. Defendant's bank statements.

b. Unsupported Records:

i. the Plaintiffs' Summary Spreadsheet;

ii. the Defendant's Schedules; and

iii. Defendant's handwritten cheque butts.

5.6.15 In summary, I have adopted the following as payment transactions in my analysis:

1. Payments that have been matched across both Plaintiffs' and Defendant's records (336 Plaintiffs', 224 Defendant's), with adjustments for:
   1. corrected and additional payments recorded in the Defendant's AMEX statements;
   2. one additional payment not recorded in the Plaintiff's Summary Spreadsheet but identified in both the Plaintiffs' and Defendant's bank statements; and
   3. four additional payments by cheque not recorded in the Plaintiffs' Summary Spreadsheet but identified in both the Plaintiffs' and Defendant's bank statements, and the Defendant's cheque butts.

5.6.16 In relation to the Plaintiffs and Defendant's residual unmatched payments at 5.6.4e and 5.6.10d:

1. I have been unable to corroborate these payments from the Parties' Schedules with any other Originating Source Documents or Other Source Documents;
2. The Parties have not provided bank statements or other records that can verify the residual unmatched payments. In this regard I have observed[60] that the bank statements of the Plaintiffs and the Defendants do not consistently provide the level of detail that would facilitate this verification exercise;

1. For example, verification of the Defendant's deposits could be facilitated by records of batch deposits for lump sum 'Cash and/or Cheques Deposit' amounts in the Plaintiffs' bank statements[61]; and

1. I provide a schedule of the Parties' respective residual unmatched payments at Appendix H.

Allocation of payments

5.6.17 Having regard to my observations regarding the allocation of payments in the Parties' Schedules at paragraph 5.6.2c, I consider that it is reasonable to adopt the allocations to individual accounts in the Plaintiff's Summary Spreadsheet. This is because the Defendant's Schedule 7 does not systematically record payments to account 757B, which results in an under allocation of lump sum payments to account 757B in the Defendant's Schedules and conversely an over allocation in account 757 compared with the Plaintiffs' Summary Spreadsheet.

5.6.18 However, in relation to payments that are not identified in the Plaintiffs' Summary Spreadsheet, I adopt the account allocation and amount set out in the Defendant's Schedule 7.

70 For convenience, the special referee's Appendix H: Unmatched payments of the Parties is reproduced below:

71 Counsel for the defendant submitted that, in essence, the special referee has acknowledged that there are residual unmatched payments in the defendant's Schedule totalling $1.79 million, in respect of which the defendant has produced records in the form of cheque butts which indicate that payments were made to the plaintiffs (or one of them) on or about the dates recorded. However, because the plaintiffs' bank statements (apparently) identify these deposits as 'Cash and/or Cheque Deposit' for lump sum amounts of total deposits on a given date, and notwithstanding that these lump sum deposits would coincide with the date of deposits of the defendant's cheque payments, there is insufficient information in the plaintiffs' bank statements to enable her to match the payment amounts to the payee or cheque numbers. Accordingly, the special referee has effectively excluded from her analysis payments which the defendant alleges it has made totalling $1.79 million.

72 Further, counsel for the defendant submitted, because the first of those unmatched payments was made on 31 March 2010 and the last was made on 30 June 2016, the interest accruing thereon at a rate of 16.9% per annum is likely to be a very significant figure.

73 The defendant was not provided with, and has not seen, copies of any of the plaintiffs' bank statements the special referee requested on 1 February 2021. The plaintiffs' solicitor delivered those bank statements to the special referee (only) across three tranches, on 5 and 16 February 2021 and 3 March 2021, but opposed them being produced to the defendant.

74 In those circumstances, the defendant submits that he should be permitted to inspect the banking records Westpac has produced in response to the subpoena, and pending the production and inspection of those subpoenaed documents the Court should, in the interests of justice, exercise its discretion under r 50.04 and defer its consideration as to whether the special referee's Report should be adopted.

75 In relation to the subpoena directed to Westpac, the plaintiffs:[62]

(a) seek orders setting aside the subpoena on the grounds that it is an abuse of process and/or has no legitimate forensic purpose; alternatively

(b) object to the inspection by the defendant of the documents the subject matter of the subpoena; alternatively

(c) submit that the consideration, and adoption, of the report of the special referee dated 23 April 2021 should not be delayed for any reason, including the production of documents by Westpac pursuant to the subpoena by the required date of 25 May 2021.

The subpoena is to be characterised as an abuse of process

76 The plaintiffs submit that the plaintiffs have standing to apply to the Court to challenge the subpoena on grounds that it is an abuse of process. They contend that the subpoena is to be characterised as an abuse of process for the following reasons.

77 First, they submit that the subpoena 'is inutile'. In this regard, the plaintiffs observe that the special referee herself sought certain documents during the course of the reference 'but not those that are the subject-matter of the Subpoena.'[63] Further, they observe that the defendant did not seek to obtain the documents from Westpac until after the special referee had delivered her Report, notwithstanding that the Court had earlier indicated to counsel for the defendant that he could seek the documents from the bank, and the defendant has failed to explain this delay. The plaintiffs also contend that '[f]ollowing inspection of the plaintiffs' discovered documents, the defendant ought to have been in a position to identify that the documents the subject-matter of the Subpoena were required by him.'[64] In those circumstances, the plaintiffs submit that these matters and other aspects of the defendant's conduct suggest that he is 'casting about for material in response to the findings contained in the Report'[65] and that by issuing the subpoena, the defendant is 'seeking to discover whether he has a defence, at all.'[66]

(b) The subpoena is not for a legitimate forensic purpose

78 Secondly, the plaintiffs submit that rule 42A.01 of the Rules would only authorise the issue of a subpoena where the documents sought to be produced may potentially be admissible as evidence in the proceeding.[67] Accordingly, they say, it is incumbent on a defendant at whose request a subpoena is issued to:[68]

(a) identify a legitimate forensic purpose for which it seeks access to the documents the subject of the subpoena;

(b) demonstrate that 'it is on the cards' or that 'there is a reasonable possibility' that the documents will materially assist the party's case.[69]

79 In the present case, however, the plaintiffs contend that the evidence gathering process concerning the issues the defendant seeks to have investigated by relying on the documents the subject-matter of the subpoena is complete, because the relevant questions have now been answered by the special referee. Accordingly, they submit 'the documents concerned can no longer have any legitimate forensic purpose, other than to seek to re-open the reference,'[70] and 'such a course cannot be countenanced.'[71]

80 The plaintiffs also contend that rule 42A.01 of the Rules must be read with and subject to rule 32.07,[72] which confers a discretion upon the Court when determining whether to require a non-party to make discovery. They submit that in the absence of a fixed trial date and an application or hearing, the purpose of the subpoena to Westpac can only be to obtain discovery from a non-party, and this is not a legitimate forensic purpose.[73] In essence, the plaintiffs contend that by seeking the issue of the subpoena to Westpac, the defendant has 'impermissibly attempted to utilise rule 42A.01 in a manner which is designed to avoid the operation of rule 32.07'[74] insofar as he has:[75]

(a) sought to avoid the obligation to apply to the Court for non-party discovery under rule 32.07; and

(b) attempted to utilise the subpoena as a means by which he may obtain information sufficient to seek to undermine the findings made by the special referee in the Report.

Objection to inspection of documents identified in the subpoena

81 In the alternative, pursuant to rule 42A.08, the plaintiffs object to the inspection by the defendant of the documents identified in the subpoena, on grounds co-extensive with those set out above.[76]

The consideration, and adoption, of the Report ought not be delayed

82 Alternatively, the plaintiffs submit that the consideration, and adoption, of the special referee's Report should not be deferred by reason of the issue of the subpoena and the possible production of documents by Westpac.[77]

83 First, the plaintiffs contend that even if it be assumed that Westpac produces the cheques or documentation which could operate in the manner suggested by the defendant to reduce by about $3 (or $3.5) million the amount for which the special referee has found the defendant to be indebted to the plaintiffs, nevertheless 'the defendant would by reason of the findings made in the Report[78] remain indebted to the plaintiffs in an amount which far exceeds the amounts claimed by the plaintiffs in the proceeding.'[79] That is because the plaintiffs seek only to have judgment entered for a significantly lesser sum (together with interest and costs) than the indebtedness range indicated in the special referee's Report.[80]

84 In those circumstances, the plaintiffs call in aid the provisions of the Civil Procedure Act 2010 (Vic) (CP Act), and in particular, the overarching purpose established by s 7, the exercise of the Court's powers under s 9, and the principles referred to in s 55(1), as being relevant to the determination of whether the consideration and adoption of the Report should be delayed by reason of the issue of the subpoena.[81] They submit that the attainment of the overarching purpose, which requires the Court to facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute, 'would be undermined were the consideration and adoption of the Report to be delayed at all, let alone because of the late issue of the Subpoena by the defendant.'[82]

85 The plaintiffs submit that the defendant's 'delay in issuing the Subpoena is entirely unexplained'[83] and that his failure to do so 'raises real questions about whether in sitting on his hands during the reference and delaying the issue of the Subpoena until after the delivery of the Report (and implicitly seeking the re-opening of the Report), the defendant has breached one or more of the overarching obligations to which he is subject'.[84] The plaintiffs call in aid several provisions of the CP Act[85] that they contend the defendant has breached, as supplying a foundation for the Court to make an order under s 29 of the CP Act that the subpoena should be set aside, alternatively that the defendant's application should be dismissed.[86]

86 The plaintiffs submit that the defendant's application to defer the consideration of the Report until after the return of the subpoena is, in substance, 'a transparent attempt at delay, and were it to result in delay in the adoption of the Report, would undermine the attainment of the overarching purpose.'[87]

The plaintiffs seek the immediate adoption of the Report

87 The plaintiffs submit that, applying the relevant principles outlined by the Court of Appeal in Wenco Industrial Pty Ltd v WW Industries Pty Ltd[88] concerning the approach to be taken by the court in considering whether to adopt the report of a special referee pursuant to r 50.04, an order should be made immediately for the adoption of the Report in whole.

(a) the Report demonstrates that the reference has been conducted with diligence and care;

(b) the Report is lengthy and is accompanied by many appendices;

(c) the methodology and calculations carried out by the Special Referee are set out, and the workings are transparent; and

(d) the Report on its face shows a thorough, analytical and detailed approach to the assessment of the subject-matter of the reference,

the Court should have a disposition towards the adoption of the Report.[89]

89 Accordingly, they submit that 'Judgment must be forthwith entered in favour of the plaintiffs for the amounts claimed in the prayer for relief forming part of the Amended Statement of Claim.'[90] Further, they say that as the special referee's Report finds that the plaintiffs are not indebted to the defendant in any amount,[91] the defendant's counterclaim 'must be forthwith dismissed.'[92]

Consideration and disposition of the application

90 At the directions hearing on 30 April 2021, the Court made orders including an order listing the matter for a further directions hearing on 21 May 2021 'with a view to the Court hearing submissions pursuant to r 50.04 of the [Rules] concerning the adoption of the report of the special referee in whole or in part, and to make such order or give such judgment as it thinks fit'. Provision was also made for any written submissions proposed to be relied upon by the defendant to be filed and served by 12 noon on 12 May 2021, and the Court indicated that if the plaintiffs proposed to make any responsive submissions, they should be filed and served well in advance of the next hearing.

91 Those orders were made against the background of the defendant's request for some additional time to consider the special referee's Report and its annexures, and the acknowledgement made by counsel for the defendant that once they have had an opportunity to consider the Report it may well be that consent orders could be reached.

92 Having been given additional time, the defendant now seeks a further indulgence from the Court, 'in the interests of justice', to have an opportunity to address the lacuna in the evidence that the special referee herself has identified when seeking to match payments Mr O'Neale contends he made to one or other of the plaintiffs on various dates.

93 Relevantly, in her Report, in describing her 'Review and comparison of bank statements, AMEX statements, cheque butts', the special referee summarised the results of her comparison of the documents as follows (emphasis in bold added):[93]

Review and comparison of bank statements, AMEX statements, cheque butts

5.6.11 . . .

1. I have been provided with the following records retained by each party:
   1. Defendant's bank statements, as set out at paragraph 3.3.37;
   2. Plaintiffs' bank statements, as set out at paragraph 3.3.39; and
   3. Defendant's cheque butts, as set out at paragraph 3.3.43.
2. I have not been provided with the bank statements for the same periods by both the Plaintiffs and the Defendant. To the extent that I have bank statements from the Parties for the same periods, I compared these for the initial unmatched payment amounts.

1. I summarise the results of this comparison below:
   1. There are 49 payments for which the Defendant has provided cheque butts that I have agreed to debit amounts (withdrawals) in the Defendant's bank statements provided to me;
   2. There are four payments made by cheque from item i., above, and one additional electronic deposit with a total value of $0.137 million, that I have also agreed to credit entries (deposits) in the Plaintiffs' bank statements provided to me. I have matched these on the basis of the amounts and dates matching. These amounts are included in my assessment of total matched payments; and
   3. There are certain credit amounts (deposits) in the Plaintiffs' bank statements provided to me that coincide with the dates of debit amounts (withdrawals) in the Defendant's bank statements, but which are for a greater amount than the values in the Defendant's bank statements. The Plaintiffs' bank statements identify these deposits as 'Cash and/or Cheques Deposit' for a lump sum amount of total deposits on a given date.

Notwithstanding that these lump sum deposits would otherwise coincide with the date of deposits of the Defendant's cheque payments, since I cannot match the payment amounts to the payee or cheque numbers, I have not included them in my analysis. This is because it is possible that the lump sum 'Cash and/or Cheques deposit' recorded in the Plaintiffs' bank statements could be comprised of deposits from sources that do not include the Defendant's cheque payments. There is insufficient detail in the Plaintiffs' bank statements to identify whether this is the case.[94]

94 The footnote to the last paragraph above records the special referee's observation that 'Deposit batch listings from the Plaintiffs would settle this but I have not received these'.

95 Under the heading 'My assessment of Payments', the special referee summarises her assessment of the payment transactions as follows (emphasis in bold added):[95]

My assessment of Payments

Value of Payments

5.6.13 I have adopted the total of payments received by the Plaintiffs that is supported by Originating Source Documents and Unsupported Records of $19.420 million in my analysis of the Accounts Receivable.

5.6.14 This amount is equal to the total payments that have been reconciled to the Parties' records, and other source documents provided to me, comprising:

1. Originating Source Documents:
   1. AMEX statements for the Defendant's account;
   2. Plaintiffs' bank statements; and
   3. Defendant's bank statements.
2. Unsupported Records:
   1. the Plaintiffs' Summary Spreadsheet;
   2. the Defendant's Schedules; and
   3. Defendant's handwritten cheque butts.

5.6.15 In summary, I have adopted the following as payment transactions in my analysis:

1. Payments that have been matched across both Plaintiffs' and Defendant's records (336 Plaintiffs', 224 Defendant's), with adjustments for:
   1. corrected and additional payments recorded in the Defendant's AMEX statements;
   2. one additional payment not recorded in the Plaintiff's Summary Spreadsheet but identified in both the Plaintiffs' and Defendant's bank statements; and
   3. four additional payments by cheque not recorded in the Plaintiffs' Summary Spreadsheet but identified in both the Plaintiffs' and Defendant's bank statements, and the Defendant's cheque butts.

5.6.16 In relation to the Plaintiffs and Defendant's residual unmatched payments at 5.6.4e and 5.6.10d:

1. I have been unable to corroborate these payments from the Parties' Schedules with any other Originating Source Documents or Other Source Documents;
2. The Parties have not provided bank statements or other records that can verify the residual unmatched payments. In this regard I have observed[96] that the bank statements of the Plaintiffs and the Defendants do not consistently provide the level of detail that would facilitate this verification exercise;

1. For example, verification of the Defendant's deposits could be facilitated by records of batch deposits for lump sum 'Cash and/or Cheques Deposit' amounts in the Plaintiffs' bank statements[97]; and

1. I provide a schedule of the Parties' respective residual unmatched payments at Appendix H.

96 The defendant was not provided with, and has not seen, copies of any of the plaintiffs' bank statements that were produced in response to the special referee's request, because the plaintiffs opposed them being produced to the defendant in an unredacted form. However, given the observations the special referee made in her Report about the lack of information contained in the plaintiffs' bank statements, it now seems clear that production of the plaintiffs' bank statements (in redacted form) to the defendant would not provide any real assistance to him in matching the residual unmatched payments his cheque butts record him as having made by way of deposits to the plaintiffs' bank accounts, because the plaintiffs' bank statements identify deposits made on the relevant dates as 'Cash and/or Cheque Deposit' for lump sum amounts of total deposits on that given date.

97 Importantly, the special referee has noted that the 'deposit batch listings from the Plaintiffs would settle this' issue of whether or not the lump sum 'Cash and/or Cheques deposit' entries recorded in the plaintiffs' bank statements are comprised of deposits from sources that do not include the defendant's cheque payments. However, the special referee continues, by adding 'but I have not received these.' Expressed in that way, the special referee's comment appears to suggest that the deposit batch listings should have been produced but were not. Yet the Report itself makes no mention of a request having been made by or on behalf of the special referee for production of the 'deposit batch listings from the Plaintiffs' for the relevant time periods. And the email from Mr Shardey on 1 February 2021 requesting provision of the plaintiffs' bank statements made no mention of 'deposit batch listings'. Perusal of Appendix K (correspondence between the parties and the special referee) to the Report does not reveal any reference to a request made by or on behalf of the special referee that the 'deposit batch listings' be produced. Nor does Appendix K record that any request was made of the defendant that he provide 'bank statements or other records that can verify the residual unmatched payments' (which are noted as 'not provided' in paragraph 5.6.16 of the Report).

The parties were given a draft of the special referee's report to confirm matters of factual accuracy

98 Mr Shardey of KordaMentha provided a draft of the special referee's report to the parties (but not to the Court) on the afternoon of 5 March 2021. In his covering email of 5 March 2021, Mr Shardey stated:[98]

As explained in my email of 4 February 2021, this is provided to give the parties the opportunity to confirm matters of factual accuracy.

The draft report does not include answers to the questions addressed to Ms Lincoln in her honour's Orders. It is not intended to provide the parties with an opportunity to make comments on Ms Lincoln's analysis and conclusions to the extent they are not provided in the draft report.

. . .

99 It is unclear whether the version of the special referee's draft report (as provided to the parties) made any reference to the fact that, in respect of the residual unmatched payments, the 'deposit batch listings' for the plaintiffs' accounts had not been provided to her. But the correspondence from the plaintiffs' solicitor to the special referee on 24 March 2021, providing their comments on the special referee's draft report, suggests that the matching exercise recorded in Appendix H to the Report, and in particular Appendix H.2 (Defendant's Unmatched Payments), had not been completed at that point. Therein the plaintiffs' solicitors stated:[99]

• Where appropriate, and to the extent not already included in the Draft Report, we assume that the special referee's final report will include reference to, and take into consideration, the information set out in the bank statements most recently provided by our clients in respect of the National Australia Bank accounts ending 7082 and 2477.

100 If the version of the draft report that was provided to the parties was simply an extract setting out factual matters only, it seems unlikely that the special referee's analysis and summary of the results of her comparison of the banking and other documents would have been disclosed to them.

101 What is clear, however, from the Report is that the special referee is of the view that the deposit batch listings from the plaintiffs (or their banks) for the relevant time periods 'would settle' the issue of whether or not the lump sum 'Cash and/or Cheques deposit' entries recorded in the plaintiffs' bank statements are comprised of deposits from sources that do not include the defendant's cheque payments. In other words, the special referee has identified that she has not received (and has not inspected) documents that in the ordinary course would be regarded as (to adopt the words of s 26(1) of the CP Act) 'critical to the resolution of the dispute' between the parties.

102 The pragmatic expedient adopted by the defendant, in response to the lacuna or gap the special referee has identified in the material before her, was to subpoena from Mr O'Neale's bank, Westpac, production of 22 cheques listed in the schedule, with a view to ascertaining whether or not those cheques were banked by the plaintiffs (and if so, which one). At the hearing on 21 May 2021, counsel for the defendant informed the Court that, according to Westpac, with the effluxion of time, the only way the defendant could obtain copies of those cheques is through a subpoena addressed to the bank.

103 In those circumstances, the defendant submits that, pending the production and inspection of those subpoenaed documents the Court should, in the interests of justice, exercise its discretion under r 50.04 and defer its consideration as to whether the special referee's Report should be adopted.

Procedure for a reference to a special referee under Rule 50

104 At this point it is convenient to say something about the provision made in Order 50 of the Rules for reference to a special referee.

105 The reference of a question to a special referee may be appropriate where the question requires some technical expertise for its proper understanding and resolution. For example, it may be appropriate to do so where an accounting exercise is to be performed for which some accounting expertise is required and it is not cost effective or an appropriate utilisation of the time of a judge to undertake that exercise.[100]

106 Importantly, the report of a special referee is a report to the Court. As Hansen J observed in Wallfire Pty Ltd v Andwendrod Services Pty Ltd:[101]

[31] It is fundamental that the report of a special referee is a report to the Court, and that it is for the Court to decide whether to adopt it in whole or in part. The adoption is for the purpose of the proceeding in which the reference was ordered. If not for the reference, the question referred is one that a judge would decide in determining the litigation. It is, therefore, appropriate that the Court retains the power to decide whether the report will be adopted in whole or in part. The report does not, of itself, operate to determine the rights of the parties in the proceeding. It has no legal effect as between the parties unless and until it is adopted and acted on by the Court in the disposition of the proceeding. It is a matter for the Court, in the exercise of its discretion, having regard to the interests of justice in the circumstances of the particular case, to decide whether to adopt the report. It is thus seen that a special referee acts to aid the Court in the resolution of a proceeding, and does so as its delegate, as it were, subject to the powers of the Court in rules 50.01(2)(c) and 50.03(2)(b), and to the fact that, ultimately, the report may not be adopted at all or, if adopted, only in part. This applies whether, as referred to in rule 50.01(1), the question is referred to the special referee for decision or opinion.[102]

107 Rule 50.01 provides the procedural mechanism for the Court to refer 'any question' to a special referee for the referee to decide the question or give the referee's opinion with respect to it. Rule 50.01 sets out the requirements for such a reference, and where such an order is made under r 50.01, r 50.02 provides that the Court may give directions for the conduct of the reference.

108 Rule 50.03(2), which deals with the Court's powers on receipt of the special referee's report, provides as follows:

Report on reference

. . .

(2) On the receipt of the special referee's report, the Court -

(a) shall give notice thereof to the parties; and

(b) may by order -

(i) require the special referee to provide a further report explaining any matter mentioned or not mentioned in the report;

(ii) remit the whole or any part of the question originally referred to the special referee for further consideration by that referee or any other special referee;

(iii) vary the report.

(3) An application by a party for an order under paragraph (2)(b) shall be made on not less than three days' notice to the other party or parties.

109 Rule 50.04 deals with the 'Use of report', as follows:

Use of report

The Court may as the interests of justice require adopt the report of a special referee or decline to adopt the report in whole or in part, and make such order or give such judgement as it thinks fit.

110 Read as a whole, the foregoing provisions in Rule 50 make clear that once the Court has received the special referee's report, and before the Court considers the 'use' to be made of the special referee's report and whether to adopt it in whole or in part, the Court has power to remit any matter mentioned or not mentioned in the report to the special referee for further consideration, or to seek the provision of a further report. In Wallfire Hansen J stated (emphasis in bold added):[103]

[32] Rules 50.01(2)(c)[104] and 50.03(2)(b) do not state the criteria to be considered by the Court in deciding whether to exercise the discretion to make the orders they authorise. Rule 50.04 refers to the "interests of justice", and that is understandable because the report is obtained by the Court in aid of the due administration of justice, and the attainment of that purpose must remain the principal object. It is fundamental that the Court retain control over that exercise. As Buchanan JA observed in Plumley v Adgauge Pty Ltd [1998] VSCA 70; (1998) 29 ACSR 315 in relation to the Court's discretion under rule 50.04:

The courts' discretion is confined only by the interests of justice, which will depend upon the circumstances attending particular cases.

. . .

[34] The wide terms of rules 50.01(2)(c) and 50.03(2)(b) ensure that the Court has power to do that which is just and appropriate in all cases. That is consistent with its control over the orders it makes and the supervision of that which is done under them by its appointee. The rules aid in ensuring that a report sufficiently deals with the question it addresses. The further information ordered under rule 50.01(2)(c) or the further report or consideration ordered under rule 50.03(2)(b)(i) or (ii) will serve to fulfil the reference and provide a report better able to be considered for adoption. Moreover, the wide powers seem only reasonable, and necessary, having regard to the power to vary or to refuse to adopt the report. In other words, they assist the Court's delegate to better perform the task which the Court itself requires to dispose of the litigation.

Inspection of the subpoenaed documents will promote the overarching purpose and enhance the utility of the special referee process in this proceeding

111 In the present case, the defendant did not formally make an application for an order under r 50.03(2)(b). But the practical effect of him seeking an order that the Court exercise its discretion under r 50.04 and defer its consideration as to whether the special referee's Report should be adopted, pending the production and inspection of the subpoenaed documents, plainly entailed the consequence that if those documents demonstrated that cheques drawn by the defendant were banked in the plaintiffs' bank accounts, then they should be produced to the special referee for further consideration.

112 Counsel for the plaintiffs recognised as much, in that when making submissions about the application being no more than a delaying strategy, Mr Di Lallo stated (words to the effect that):[105]

This application is a transparent attempt at delay. In the event that cheques are produced on 25 May 2021, then the defendant will have to consider the cheques, and if the Court accepts the defendant's position, the special reference will have to be re-opened. There will be further costs and delay. It will make no difference anyway.

113 Counsel for the plaintiffs submitted that there is nothing unsafe or unsatisfactory about the special referee's Report, and the Court should reject the defendant's application and instead proceed forthwith to adopt the Report in whole, following the approach of the Court of Appeal in Wenco.[106]

114 I do not agree. In my view, the process of hearing the defendant's application has drawn attention to what appears to be a significant gap in the material placed before the special referee, that the special referee has identified 'would settle' the issue of whether or not the lump sum 'Cash and/or Cheques deposit' entries recorded in the plaintiffs' bank statements are comprised of deposits from sources that do not include the defendant's cheque payments. Yet it appears no request was made by or on behalf of the special referee for the provision of that material.

115 To the extent that there is a gap in the material before the special referee, it is not one that the defendant has caused. Counsel for the defendant informed the Court that at no stage did the special referee ask the defendant to justify whether the cheques for the residual unmatched payments had been banked. It is unlikely that Mr O'Neale could have been aware of this gap before he received (at earliest) the extract of the draft report, or (more likely) the Report, because the additional suite of the plaintiffs' bank statements that the special referee had called for had not been produced by the plaintiffs on discovery, and it was not until the special referee had attempted (unsuccessfully) to match them to the defendant's payments that the issue of the lump sum 'Cash and/or Cheques deposit' entries recorded in the plaintiffs' bank statements was revealed.

116 In circumstances where no request was made of the defendant that he provide records sourced from his bank(s) (as opposed to his cheque butts) that would facilitate this verification exercise in accordance with the special referee's 'Hierarchy of source documents',[107] the pragmatic expedient the defendant has now adopted, is to seek the production of records from his bank concerning the entity to whom Westpac paid the proceeds of the cheques and details of the accounts into which these cheques were deposited. In my view, that is the pursuit of a legitimate forensic purpose. Indeed, it is a course that the Court indicated to the defendant's counsel at the directions hearing on 31 March 2021 would likely be available to Mr O'Neale to pursue, in circumstances where the plaintiffs' bank statements had not been provided on discovery or otherwise made available to him.

Meanwhile it is appropriate for the Court to defer its consideration under r 50.04 as to whether the special referee's Report should be adopted

117 If it transpires that documents have been produced by Westpac in response to the subpoena, then inspection of those documents may, in the absence of production of the deposit batch listings, provide at least some of the information that the special referee has identified that she does not have.

118 In those circumstances, in my view, it is appropriate for the Court to defer its consideration as to whether the special referee's Report should be adopted under r 50.04, and allow inspection of the subpoenaed documents to take place. In reaching that view, I have had regard to the overarching purpose set out in s 7(1) of the CP Act, which is to facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute in this proceeding.

119 In the present case, the course that is most likely to facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute is for the Court to permit inspection of the banking records produced by Westpac on the subpoena, and to defer consideration of the issue of whether the special referee's Report should be adopted, pending such inspection.

120 Depending on the outcome of the inspection of those documents by Mr O'Neale and his legal representatives, if they do record one or other of the plaintiffs as the entity to whom Westpac paid the proceeds of the cheques, and provide details of the accounts into which these cheques were deposited, then it is likely the defendant will wish to provide those documents to the special referee. At that point, if the defendant contends that the issue of the residual unmatched payments should be the subject of further consideration, or a further report, by the special referee it will be necessary for the defendant to make a formal application under r 50.03(2).

121 In my view, were the Court instead to accede to the course proposed by the plaintiffs, and press on with the r 50.04 issue and determine whether to adopt the Report in whole or in part, before allowing for any further consideration by the special referee of the issue of the residual unmatched payments in light of the subpoenaed documents from Westpac, it would likely undermine the efficacy and utility of the special referee process ordered by the Court, and would not promote the overarching purpose.

122 In the present case, the appointment of the special referee took place against the background of the Court observing to the parties and their legal representatives that the issues in dispute between them appeared to be largely an accounting exercise, that could more readily and efficiently be resolved with the assistance of an expert with the requisite accounting skills undertaking a review of the documentation and tracing the payments made both through bank accounts and AMEX card payments. This was so notwithstanding that the dispute between Mr O'Neale and the plaintiffs had earlier been the subject of a determination by Mr Graeme Lavelle of Lavelle & Co Chartered Accountants, and it was that determination which led to this proceeding being commenced against Mr O'Neale in late November 2018.

123 Importantly, when the orders for the appointment of the special referee and the Reference were made on 1 May 2020, the Court ordered that the special referee must address three relevant time periods, being the period from:

(a) 30 September 2009 (being the date of the Credit Account Agreement) to the date of the Report;

(b) 1 December 2012 (being the date 6 years prior to the commencement of the proceeding) to the date of the Report; and

(c) 9 November 2013 (being the date 6 years prior to the date of the (original) D&C) to the date of the Report.

124 The accounting exercise has taken considerably longer than was anticipated, necessitating the time for delivery of the Report to be extended on several occasions, and the exercise has been more costly than was estimated by the parties.[108]

125 At or about the time when the special referee was appointed, Mr O'Neale informed the Court that he had recovered from his earlier cancer diagnosis and treatment and was in good health. Unfortunately, with the recurrence of his cancer in late 2020, he underwent further chemotherapy and radiotherapy treatment in early 2021, when the special referee was seeking input from the parties on the draft report. Notwithstanding the side effects of those treatment regimes, and the attendant fatigue Mr O'Neale was experiencing throughout that time, he has endeavoured to remain involved and provide some comments. I am not satisfied that he has conducted himself in a manner that could fairly be described as a deliberate delaying strategy.

126 For completeness I should also record that I reject the submission advanced by the plaintiffs to the effect that in seeking the issue of the subpoena to, and the production of banking records by, Westpac and the associated deferral of consideration as to whether the special referee's Report should be adopted, the defendant has engaged in a delaying strategy that would undermine the attainment of the overarching purpose. Nor do I accept that the defendant's conduct in this regard manifests an abuse of process.

127 In my view, the course most likely to facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute is for the Court to make orders along the following lines:

(1) The defendant shall be permitted forthwith to inspect and make copies of the banking records produced by Westpac Banking Corporation on the subpoena for production to the Prothonotary filed on 4 May 2021 (the subpoenaed documents).

(2) Subject to the outcome of that inspection, any application the defendant wishes to make pursuant to r 50.03(2)(b) for the Court to -

(a) refer to the special referee any of the subpoenaed documents that he considers may be relevant to the issue of matching any residual unmatched payments made by the defendant to the plaintiffs or one or other of them (as listed in Appendix H.2 of the special referee's Report); and

(b) request that the issue of matching any residual unmatched payments made by the defendant to the plaintiffs or one or other of them (as listed in Appendix H.2 of the special referee's Report) be the subject of further consideration and/or further reporting by the special referee, pursuant to r 50.03(2)(b)

shall be filed and served within 7 days of inspection of the subpoenaed documents.

(3) Subject to any further or other order, the Court's consideration of the use of the special referee's report pursuant to r 50.04 be deferred and held over pending completion of the steps outlined in paragraphs (1) and (2) above.

128 I will hear from the parties on the precise form of the orders to be made.

NEW PRICE RETAIL SERVICES PTY LTD (ACN 100 732 750)

[1] Much of the relevant background to the proceeding, and the gist of the rival arguments, as set out in these reasons, is drawn from the letter of instruction to the special referee which was prepared in consultation with the parties to form Annexure A to the Orders made by the Court on 1 May 2020.

[2] The 'Credit Account Agreement' is a reference to the agreement entitled "Application for Credit Account" that each of API, Priceline and NPRS entered into with Mr O'Neale on or about 30 September 2009 pursuant to which each of API, Priceline and NPRS agreed to supply goods on credit to Mr O'Neale in respect of the Pharmacy Business on the terms and conditions forming part of, inter alia, the Credit Account Agreement or as published on the Internet page of any one or more of API, Priceline or NPRS at the time of delivery of goods.

[3] On or about 21 April 2017, agreement was reached between the parties that Mr Graeme Lavelle of Lavelle & Co Chartered Accountants would be engaged in the context of the dispute between them - the plaintiffs plead that Mr Lavelle's role under the agreement (called the 'Reference Agreement') was to resolve the dispute by expert determination whereas the defendant pleads Mr Lavelle was to be engaged as an expert to undertake an investigation (and reconciliation) of the rival claims made by each other and report to both. The plaintiffs plead that on 23 March 2018, Mr Lavelle issued the 'preliminary assessment' of the amount owing as between API and its related entities (including Priceline, NPRS and API Victoria) on the one hand and Mr O'Neale on the other, and in doing so determined that Mr O'Neale owed API the amount of $1,352,358.97. Further they plead that subsequently, on or about 13 August 2018, Mr Lavelle completed the reconciliation and made a final and conclusive determination of the amount owing as between API and its related entities (including Priceline, NPRS and API Victoria) on the one hand and Mr O'Neale on the other, and in doing so determined that Mr O'Neale owed API the amount of $1,660,569.86. Mr O'Neale admits that Mr Lavelle provided his initial report on 23 March 2018 and a revised assessment in a further report on 13 August 2018 but he denies that either report determined finally and conclusively any indebtedness he might have to API and its related entities (including Priceline, NPRS and API Victoria).

[17] See also clause 2(d) of the March 2015 Terms and Conditions.

[18] See also clause 3 of the March 2015 Terms and Conditions.

[19] See also clause 31 of the March 2015 Terms and Conditions.

[20] From and subsequently to 1 March 2015, this analysis should be conducted having regard to the March 2015 Terms and Conditions.

[21] Affidavit of Peter Michael Lucarelli sworn on 30 March 2021. The information concerning the bank statements is based on information provided by Mr Craig Vaughan, National Debt and Credit Manager of API.

• NAB account 51-656-2477 in the name of Priceline,

[24] Bank statements in respect of NAB account 51-656-2477 in the name of Priceline.

[25] Bank statements in respect of NAB account 02-617-7082 in the name of API.

[30] Document bundle provided by the plaintiffs on 30 March 2021 in relation to the defendant's request for a further extension to the deadline for the special referee's final report (Bundle TE), 13.

[45] These bank statements comprised the second tranche. The email from the plaintiffs' solicitors to Mr Shardey and the special referee dated 16 February 2021 (Ex PML-1, 1), which was copied to the defendant's solicitor, confirms that the bank statements provided on or about that day were 'the bank statements in respect of NAB account 51-656-2477 in the name of Priceline Pty Ltd.'

[46] The hearing was recorded by the Court's transcript provider, but as yet no transcript has been made available.

[47] The hearing was recorded by the Court's transcript provider, but as yet no transcript has been made available.

[51] The special referee explains that the KM Database is a listing of relevant transactions identified through source documents and other information provided to her: Report, [4.1.2].

[58] Deposit batch listings from the Plaintiffs would settle this but I have not received these (this footnote appears as footnote 92 in the Report).

[60] Report, [3.3.38] and [5.6.11.c.iii].

[62] Plaintiffs' outline of submissions, [1].

[63] Plaintiffs' outline of submissions, [4] (emphasis in original).

[64] Plaintiffs' outline of submissions, [8].

[65] Plaintiffs' outline of submissions, [9].

[66] Plaintiffs' outline of submissions, [9].

[67] Newnham v Davis [2010] VSC 13, [6] (Kaye J). See also Volunteer Fire Brigades Victoria Inc v Country Fire Authority [2016] VSC 573, [61] (J Forrest J).

[68] Plaintiffs' outline of submissions, [10].

[69] Webb v Wheatley [2015] VSC 153, [55] (Derham AsJ) where his Honour summarises the relevant legal principles.

[70] Plaintiffs' outline of submissions, [12].

[72] BHP Petroleum, 5-7 (Brooking J); Kennedy Taylor (Vic) Pty Ltd v Grocon Pty Ltd [1999] VSC 242, [78] (Gillard J); Burchell v Hill [2010] VSC 96, [15] (Mukhtar AsJ).

[73] Botany Bay Instrumentation, [100] (Powell J); Yunghanns v Candoora No. 19 Pty Ltd [2000] VSC 505, [8] (Byrne J).

[74] Plaintiffs' outline of submissions, [15].

[75] Plaintiffs' outline of submissions, [14].

[76] Plaintiffs' outline of submissions, [16].

[77] Plaintiffs' outline of submissions, [17].

[79] Plaintiffs' outline of submissions, [18].

[80] As the plaintiffs explain (outline of submissions, [25]):

(a) by the Amended Statement of Claim, the four plaintiffs claim the total amount of approximately $1.6 million plus interest and costs from Mr O'Neale;

(b) the Report indicates that the indebtedness of Mr O'Neale to the plaintiffs is significantly greater than this amount, and ranges from $7.108 million to $5.554 million [2.3.4] as at each of three dates [1.2.1]. The reasons for the disparity between the amounts claimed by the plaintiffs and the findings in the Report are explained by the Special Referee [2.4.3], and results from the difference in treatment of interest, rebates, the identification of total amounts paid by the defendant, and his other credit adjustments. . . .

[81] Volunteer Fire Brigades Victoria Inc, [55]-[62] (J Forrest J).

[82] Plaintiffs' outline of submissions, [20].

[83] Plaintiffs' outline of submissions, [21].

[85] They refer to s 19 (only take steps to resolve or determine the dispute), s 23 (narrow the issues in dispute), s 24 (ensure costs are reasonable and proportionate) and s 25 (minimise delay) of the CP Act in particular.

[86] Plaintiffs' outline of submissions, [22].

[87] Plaintiffs' outline of submissions, [23].

[88] [2009] VSCA 191; (2009) 25 VR 119 (Wenco).

[89] Plaintiffs' outline of submissions, [24].

[90] Plaintiffs' outline of submissions, [25(b)].

[92] Plaintiffs' outline of submissions, [25(c)].

[94] Deposit batch listings from the Plaintiffs would settle this but I have not received these.

[96] Report, [3.3.38] and [5.6.11c.iii].

[100] See LexisNexis Australia, Civil Procedure: Victoria, vol 1 (at Service 318) [I50.01.0].

[101] [2003] VSC 348; (2003) 176 FLR 408, 416 [31]; [2003] VSC 348 (Wallfire).

[102] Re Markbys Renaissance Pty Ltd [1999] 3 VR 851.

[103] [2003] VSC 348; (2003) 176 FLR 408, 416-417 [32], [34]; [2003] VSC 348 (Wallfire).

[104] Rule 50.01(2)(c) provides that the Court may direct that the special referee give such further information in the referee's report as it thinks fit.

[105] The hearing was recorded by the Court's transcript provider, but as yet no transcript has been made available.

[106] [2009] VSCA 191; (2009) 25 VR 119.

[108] To date, KordaMentha has rendered tax invoices for preparation of the special referee's Report totalling $247,540.98 (including GST), which have been paid by the parties in equal shares.