Procter v Kalivis

The nature of the applicants' proposed claim 17 The applicants' proposed claim arises out of transactions entered into by the applicants in relation to a motel complex in Victor Harbour called the "Bayview Apartments" together with adjoining or nearby vacant land. The Bayview Apartments consist of a number of accommodation units and other facilities. The first applicant is the mother of the second applicant and the first applicant often acted through the third applicant, a company of which she is the sole director and shareholder. 18 In about September and October 2001, the first and second applicants entered into a syndicate agreement with the first, second and fourth respondents, amongst others, for the purchase, partial refurbishment and sale of the units. The syndicate was to operate as a joint venture. I will refer to it as the Bayview Joint Venture. The first and second applicants contributed $20,000 towards the deposit required to establish the syndicate, and collectively paid to the first respondent the sum of $130,000 for the purchase of three of eight interests in the syndicate. In about November 2002 and July 2003, the first and second applicants purchased between them 9.5 accommodation units. 19 From late 2001 until November 2006, either the first respondent or the second respondent, a company under the control of the first respondent, or both of them, acted as the property manager, strata manager and letting agent for and on behalf of the syndicate and the Bayview Apartments. 20 Between April and December 2003, the first and second applicants each received payments of $28,125.00, $30,938.00 and $2,462.50 from the first respondent as distributions of syndicate profits. They claim that these payments did not accurately reflect profits made by the syndicate on the sales of units in the Bayview Apartments. They claim that units were purchased by the third respondent with the benefit of vendor finance and the applicants had not approved such vendor finance. 21 From 2003 to 2006, the first and second applicants' collective net losses on their units in the Bayview Apartments totalled $138,000. They claim that these losses arose as a result of preferential letting, undisclosed letting, overcharging and unaccounted or unrecorded cash transactions on the part of the respondents.

The documents described in Schedule 2 of the List of Documents (the order sought in paragraph 1 of the Motion) 22 The applicants submit that they should be allowed to cross-examine the respondents with respect to the five classes of documents described in Schedule 2 of the List of Documents because the statements made with respect to those documents are insufficient or ambiguous, or both. They submit, by way of example, that in relation to the first class of documents, it is unclear what is meant by "primary records" and that it is unclear what is meant by the statement that the documents were "disposed" of in or about August 2007. Another example of the deficiencies identified by the applicants is that in relation to the second class of documents, to state when the booking books were last seen is not to address the relevant question, which is when the deponent parted with possession, custody or power of the booking books. 23 The applicants submit that there are a number of questions which arise in relation to the issue of what has become of the five classes of documents. They point to the general requirement under various Acts to maintain and preserve documents. They also point to correspondence between the first applicant and the first respondent in October 2007. On 4 October 2007, the first applicant sent an email to the first respondent in which she said, among other things: "1. …

I know mum has been asking you for the Bayview statements for a few years now. The fact is we have to get our taxes done and we need your effort in achieving this by way of the rental property statements. Angelo, if you are opposed to doing this or if this is an unreal expectation on our part, please just let us know so we can evaluate our options. Perhaps I could take a week off work and fly down to Adelaide to help you sort through at least the Bayview books. I am happy to help and have always fully cooperated with your requests for support. Unfortunately, the situation now regarding tax returns is quite serious, and as you pointed out to me yesterday, 'there is too much rhetoric and not enough action'. You are quite right on that point and the time for action is now! 2. With regard to Bayview, would you be so kind as to advise how much money is owed to us and when we can expect to receive it." 24 The first respondent responded on the same day. In the course of his response he said: "1. The trust account is currently being audited as you know and I expect this to be finished this week and when I get all the documentation back I will then be sending the end of the year statements to you, Mcallisters and the other landlords. This should be by end of next week. The bayview final statement will be completed over the next 4-6 weeks and I did tell you on the phone recently that I was about to attend to this and the reconciliation of the Bank S.A. accounts." 25 The applicants submit that, on one view of the facts, primary records were disposed of at a time when the respondents were aware that the applicants were raising queries about whether there had been a proper accounting in relation to the Bayview Joint Venture. 26 In my opinion, the statements made by the respondents about the five classes of documents described in Schedule 2 of the List of Documents are insufficient and ambiguous. The context in which I draw that conclusion is as follows. An order under O 15A r 6 includes documents a person has had or is likely to have had in his or her possession (see paragraph (c)). The respondents acknowledge that obligation in their List of Documents. Although O 15A r 6 does no more than refer to an obligation to make discovery, that obligation incorporates a number of the processes and obligations in O 15. One such obligation is the obligation on a deponent in O 15 r 6(6) to state when he or she parted with a document and what has become of it. Again, the respondents acknowledge that obligation in their List of Documents, although on this occasion they have not complied with it. 27 The fact that O 15A incorporates a number of processes and obligations in O 15 is established by the authorities. I refer to Global Intertrade Pty Ltd v Adelaide Festival Centre Trust [1999] FCA 162 ("Global Intertrade"); Tyco Australia Pty Limited v Leighton Contractors Pty Ltd [2005] FCAFC 115; Imperial Chemical Industries Plc v Echo Tasmanian Pty Ltd [2007] FCA 1731. However, the fact that O 15A incorporates certain parts of O 15 does not mean that it incorporates all parts of the Order. Order 15A does incorporate the provisions of O 15 dealing with inspection (that is, Division 2) but that is done expressly by O 15A r 10. By contrast, O 15 r 8 is a free-standing power available in cases of discovery in existing proceedings. It is not expressly incorporated into O 15A and there is no compelling reason to think that it was intended to be available in a case where an applicant does not have sufficient information to enable a decision to be made whether to commence a proceeding in this Court, that is to say, an applicant for preliminary discovery under O 15A r 6. Put another way, while it might be convenient for there to be a power of the type identified in O 15 r 8 in the case of orders for preliminary discovery, it is not so obviously necessary in such cases that it can be implied in the same way as, for example, the provisions dealing with the contents of a List of Documents (O 15 r 6). 28 None of these conclusions mean that an affidavit of discovery under O 15A r 6 cannot be challenged. They do mean that an order cannot be made under O 15 r 8. 29 The grounds upon which the affidavits of discovery may be challenged have been the subject of various formulations in the authorities. 30 In Noel v Noel 1 D.J. & S. 468, Turner LJ spoke of a reasonable suspicion that the deponent had more documents in his possession. In Lyell v Kennedy (1884) 27 Ch D 1 at 20, Cotton LJ followed this approach. In a case a short time later, his Lordship spoke of a presumption or prima facie case that the deponent had more documents in her possession (Hall v Truman, Hanbury & Co (1885) 29 Ch D 307 at 319-321). 31 In British Association of Glass Bottle Manufacturers, Limited v Nettlefold [1912] AC 673 at 714, the Lord Chancellor, Lord Haldane, spoke in terms of there being reasonable grounds for being fairly certain that there are other relevant documents. 32 In Mulley v Manifold (1959) 103 CLR 341 ("Mulley v Manifold") (at 343), Menzies J said in a well-known passage: "So far as O. 32, r. 13 is concerned, it cannot be shown by a contentious affidavit that the discovery made is insufficient. Before 1912, it was thought that the insufficiency had to appear from the pleadings, the affidavit of documents itself or the documents therein referred to. However, in British Association of Glass Bottle Manufacturers Ltd. v. Nettlefold, it was established that the insufficiency might appear not only from the documents but also from any other source that constituted an admission of the existence of a discoverable document. Furthermore, it is not necessary to infer the existence of a particular document; it is sufficient if it appears that a party has excluded documents under a misconception of the case. Beyond this, the affidavit of discovery is conclusive." 33 I refer also to the detailed discussion of the authorities by Menhennitt J in Beecham Group Ltd v Bristol-Myers Co [1979] VR 273. I think reasonable grounds for being fairly certain that there are other relevant documents is a good workable test and is a test supported by the authorities. 34 As the passage from Mulley v Manifold set out above makes clear, there are limits on the material which may be considered by a Court in determining the sufficiency of an affidavit of discovery. The most significant is that the insufficiency cannot be established by a contentious affidavit. 35 The insufficiency of an affidavit of discovery will ordinarily lead to an order requiring the filing of a further affidavit of discovery. It may, in certain limited circumstances, lead to an order allowing cross-examination of the deponent. I turn now to examine the circumstances in which the Court will make an order for cross-examination of the deponent. 36 In Fruehauf Finance Corporation Pty Ltd v Zurich Australian Insurance Ltd (1990) 20 NSWLR 359, Giles J considered an application to cross-examine the deponent of an affidavit put forward in support of a claim for privilege. He referred to Mulley v Manifold and to the principle that the affidavit of discovery is generally conclusive not only as to the amplitude of discovery, but also in relation to any claim for protection from production. Giles J declined to allow cross-examination in that case. He referred to authority to the effect that there was no power to allow cross-examination and to authority suggesting that there was a power, albeit a power to be exercised in limited circumstances. 37 In Olympic Airways SA v Spiros Alysandratos & Consolidated Travel (Vic) Pty Ltd (Unreported, Supreme Court of Victoria, Harper J, 26 May 1997), Harper J allowed cross-examination on an affidavit of discovery of particular documents. The case was a strong one because of the features identified in the following passage from his Honour's reasons: "It seems to me that the evidence is at present in such a state as to raise serious doubts as to whether the process of the court is being abused by the defendants in relation to discovery. I have, of course, formed no concluded view about this. It would be quite improper for me to do so. I simply say that on the material now before the court serious questions have arisen as to the legitimacy of the position thus far taken by the defendants in relation to discovery. Discovery being of particular importance in this matter, it may well be that if the defendants are seeking illegitimately to avoid their obligations in this regard, the plaintiffs will be disadvantaged in a way which will not subsequently be able to be rectified. The only process by which an important aspect of these proceedings can be explored at this stage is, it seems to me, by ordering the first defendant to attend for cross-examination. I appreciate that such a step is unusual." 38 In Auspine Ltd v H S Lawrence & Sons Pty Ltd [1999] FCA 1749, O'Loughlin J refused an application to cross-examine the deponent of an affidavit of discovery. He clearly accepted that there was a power to order cross-examination, but did not think it should be exercised in the circumstances of the case before him. O'Loughlin J's reasons suggest that he considered that the power should be exercised only in very limited circumstances. 39 In Finance Sector Union of Australia v Commonwealth Bank of Australia Limited [2000] FCA 1389, Moore J declined to make an order for cross-examination of a deponent of an affidavit sworn in response to an order for particular discovery. He considered that there was a power to order cross-examination, but that, as the affidavit of discovery should generally be treated as conclusive, the power should only be exercised "in order to do justice between the parties or to prevent an abuse of the Court's processes". The deponent had filed a supplementary affidavit to explain what he meant by "discarded" in his affidavit of discovery. 40 In IO Group Inc v Prestige Club Australasia Pty Ltd [2008] FCA 1147, a deponent of an affidavit of discovery was cross-examined. The deponent of the affidavit had not opposed an order for cross-examination. Flick J described the course of allowing cross-examination as unusual. His Honour did make the following observation (at [50]): "As events unfolded, it [cross-examination] was probably the only effective means whereby the Applicants could have exposed what they believed were inadequacies in the existing discovery as provided particularly by the Fourth Respondent. As a result of the cross-examination, the Applicants were proved right. An order requiring a further affidavit to be filed in respect to particular documents, without knowledge of the manifest deficiencies in the existing discovery, may well have proved as ineffective as the discovery previously provided." 41 In my opinion, the examples given by the applicants of the insufficiency of the affidavit of discovery in relation to the five classes of documents in Schedule 2 demonstrate the insufficiency. I reject the respondents' contention that the affidavit of discovery is conclusive and that the Court is unable to make orders remedying the defects. In this case, the insufficiency of the affidavit appears on the face of the affidavit. At the same time, I do not think that this is a case where cross-examination should be ordered, at least at this stage. The respondents can be ordered to each file a further affidavit of discovery and this is not a case where there is no effective means other than cross-examination of preventing an injustice to the applicants. 42 Each respondent must file a further affidavit of discovery in relation to the five classes of documents in Schedule 2 of the List of Documents.

Further and better discovery or an order for particular discovery under O 15 r 8 (the orders sought in paragraphs 2 and 4 of the Motion) 43 For the reasons I have already given, I do not think that O 15 r 8 is incorporated into O 15A. In those circumstances, it is not open to me to make an order for particular discovery under O 15 r 8. Nevertheless, as I have said, an affidavit of discovery under O 15A may be insufficient, and an order may be made that a further affidavit of discovery be filed. 44 The principles are those set out above (see [28]-[34]). I must be satisfied that there are reasonable grounds for being fairly certain that discoverable documents exist. I may not have regard to a contentious affidavit. 45 I have reached the conclusion that the affidavit of discovery sworn by each of the respondents is insufficient in the sense referred to above with respect to the following categories of documents: 1. Documents recording or evidencing the cleaning or other services performed on behalf of the syndicate by Patricia Shaw, Dawn Williams and Sue Baker, including tax invoices for the services performed and records of payment of same. 2. The registered mortgage debenture and unlimited debt and interest guarantee referred to in the letter of offer from the Bank of Cyprus dated 12 October 2001. 3. Documents recording or evidencing the mortgage referred to in Recital A and the dispute referred to in Recital B of the Agreement for Vendor Finance and the vendor finance arrangements between the vendors of the Bayview Apartments Complex on the one hand and the syndicate and/or each of the other respondents on the other. 4. All documents recording or evidencing: (a) instructions provided by the respondents to the accountant, Mr Con Michaladiadis; and (b) financial statements prepared, working papers or advice rendered by Mr Michaladius for and on behalf of the syndicate. 5. Documents recording or evidencing the application of funds withdrawn from the ACN Westpac Bank account (No 137288), such as tax invoices or other supporting documentation. 6. All documents recording or evidencing all invoices rendered by Mr Kalivis and/or ACN as strata manager for and on behalf of the syndicate, for the period late 2001 to July 2004, and payment of same. 46 In reaching this conclusion with respect to the above categories of documents, I have had regard to the exhibits referred to in the schedule handed to the Court. For the most part, those exhibits are part of the respondents' discovered documents. 47 As far as the order sought in paragraph 4 of the Motion is concerned, I think it is appropriate to make an order for discovery, but not for production. Production will follow under the Rules unless there is a claim for privilege. If there is a claim for privilege and that claim is challenged, then it will have to be determined by the Court. I am satisfied that there are reasonable grounds for being fairly certain that there are discoverable documents of the type described in paragraph 4 of the Motion. I have reached that conclusion having regard to the review exercise carried out by Perks and described below (at [51]). I would add that at this stage I draw no conclusion as to the particular documents which are in the possession, custody or power of the respondents. In the first instance at least, that will be a matter for the respondents to determine.

The documents described in Schedule 1 Part 2 of the List of Documents (the order sought in paragraph 3 of the Motion) 48 The applicants did not concede that the computer records of Perks Accountants were privileged when they were first created. However, they put no substantive submissions in support of a contention that they were not privileged when first created. 49 The applicants submit that privilege in the computer records has been waived by the provision of other information by the respondents to the applicants. They rely on what their counsel referred to as an associated material waiver. 50 On 3 November 2009, the solicitors acting for the respondents sent a letter to the applicants' solicitors. The letter contained a number of enclosures. 51 The first enclosure was a copy of a letter from Perks, chartered accountants, to the first respondent dated 18 September 2009 and a number of enclosures to that letter. It is evident from the letter that Perks were engaged by the respondents to carry out a review of what is referred to as the Bayview Holiday Units Joint Venture for the period from 1 July 2002 to 30 June 2005. The enclosures to the letter dated 18 September 2009 included profit and loss summaries for various financial years, all but one of which was prepared by Perks. The enclosures also included spreadsheets showing the following: (a) Proceeds Summary for the sale of individual units, including summary allocation of proceeds; and (b) Summary of Investors' Contributions and Withdrawals, for the period from 8 November 2001 to 30 June 2005. 52 The second enclosure was a copy of a letter from Perks to the first respondent dated 13 October 2009. For present purposes, it is not necessary to refer to the details of this letter. It is in substantially similar terms to the letter dated 18 September 2009. 53 The third enclosure was a copy of a letter from Perks to the first respondent dated 16 October 2009. This letter contains a response by Perks to various matters raised by the applicants' solicitors in a letter from them to the respondents' solicitors dated 18 September 2009. At the conclusion of the letter the author states: "We advise that Perks Chartered Accountants currently acts as the registered tax agent for Mr Angelo Kalivis and his associated entities. Perks Chartered Accountants has completed a review of the Bayview Holiday Units JV Syndicate in response to litigation brought against Mr Angelo Kalivis and as part of our ongoing work in preparing tax returns for Mr Angelo Kalivis and Patricia Dabrowski and Timothy Dabrowski and ACN 088370996 Pty Ltd. Mr Angelo Kalivis meets all Perks Chartered Accountants professional fees personally. Perks Chartered Accountants does not act for the Bayview Holiday Units JV directly.

We can also confirm that we are not aware of being in possession of any Bayview Holiday Units JV Syndicate documentation that has not already been made available to Iles Selley Lawyers and EL & BM Procter." 54 I return to the letter from the respondents' solicitors to the applicants' solicitors dated 3 November 2009. The author states that privilege is waived over the letters from Perks to the first respondent dated 18 September 2009 and 13 October 2009 respectively and the enclosures to those letters. The author encloses a cheque for $1,769.37 which is said to represent part payment of an amount calculated by Perks. 55 The applicants submit that the Perks computer records referred to in Schedule 1 Part 2 of the List of Documents must form the basis of the spreadsheets and other calculations disclosed to them on 3 November 2009 and the subject of an express waiver by the respondents. They submit that the computer records are material associated with material which has been the subject of an express waiver of privilege. 56 I think the applicants' contention is correct. The respondents instructed Perks to carry out an analysis of the Joint Venture and Perks reached a conclusion as to the balance owing by or to the various members of the Joint Venture. No doubt that was done, in part at least, to satisfy the applicants that a proper accounting had been performed. The respondents decided to expressly waive privilege over the material they provided to the applicants. They thereby waived privilege over associated material (AWB Limited v Honourable Terence Rhoderic Hudson Cole (No 5) [2006] FCA 1234 at [127]-[176]). The class of documents in Schedule 1 Part 2 is associated material because it deals with the same subject matter as the material over which privilege has been waived and it forms the basis of that material. 57 I will make an order that the respondents produce for inspection the documents in Schedule 1 Part 2 of the List of Documents.

Conclusion 58 In my opinion, an order should be made that each respondent file a further affidavit of discovery. Furthermore, an order should be made that the documents in Schedule 1 Part 2 of the Amended List of Documents filed and served on 14 October 2009 should be produced to the applicants by the respondents. I will hear the parties as to the precise terms of the orders to be made. I certify that the preceding fifty-eight (58) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Besanko.

Solicitor for the Applicants: Iles Selley Lawyers

Solicitor for the Respondents: Fitzpatrick Solicitors Pty Ltd