QBE Insurance (Australia) Limited v Kalead Etri

T Rickard (third defendant) Sparke Helmore Lawyers (plaintiffs)

Sid Hawach & Co solicitors (third defendant) File Number(s): 2010/396682

Judgment - EX TEMPORE 1This is an application brought by the third defendant to set aside four subpoenas issued by the plaintiff. Those four subpoenas are addressed to the National Australia Bank, the Partners of Queen Street Chambers Solicitors & Barristers, Sid Hawach & Co Solicitors at Parramatta and the Proper Officer of Hazlett & Co, which I understand is a conveyancing agency. 2The context in which this application is made is that in December 2010 McDougall J made orders for preliminary discovery against the first, second and third defendants. The third defendant is the sister of the first defendant and the second defendant is the wife of the first defendant. The first and second defendant borrowed money from the second plaintiff, Suncorp-Metway Ltd, and in securing that loan Suncorp-Metway obtained mortgages over two properties that have been referred to in the proceedings as the Berala property and the Auburn property. 3In June 2009 the loan was in arrears and the amount outstanding was approximately $1.2 million. Negotiations took place between the the first and second defendants and Suncorp-Metway via the solicitors for the first and second defendants, Queen Street Chambers Solicitors & Barristers. 4The proposal was that Suncorp-Metway would accept either $1.2 million and discharge the mortgages over both the Berala and Auburn properties, or approximately $350,000 in exchange for a discharge of the mortgage over only the Auburn property. It is apparent that agreement was reached whereby $347,000 was to be paid by the first and second defendants for the discharge of the mortgage on the Auburn property but the mortgage would remain on the Berala property. 5On settlement of the loan in respect of the Auburn property on 24 June 2009, the payment was made by the first and second defendants' agents and the discharge of mortgage was handed over to the defendants' agents by Suncorp-Metway. Unfortunately, and it would appear prima facie inadvertently, the discharge of the mortgage in respect of the Berala property was also handed over to the defendants' agents. The relevant Certificates of Title were also handed over to the first and second defendants' agents. Thereafter the unencumbered Berala property was transferred to the third defendant and a mortgage was registered in the name of Ausgrow Pty Ltd, the fourth defendant. For various reasons that mortgage has now been discharged (it being suggested that the director of Ausgrow knew nothing about that mortgage). 6The first, second and third defendants have provided verified Lists of Documents and it seems to be common ground that the first and second defendants have produced eight pages and the third defendant has produced thirty pages. There does not seem to be any communication at all in those documents between the solicitors and the defendants and I understand that the Lists do not contain sections relating to privileged documents, or documents that were previously in the possession of the defendants that are now not in their possession. 7The plaintiff has filed a motion for leave to cross-examine the defendants in relation to their verified Lists of Documents. That Motion is listed before Windeyer AJ on 27 May 2011. 8In preparing for the hearing of that Motion the plaintiff has issued the four subpoenas to which I have referred. There is no objection to the terms of the subpoenas. The objection is at a higher, more principled level. The subpoenas seek the communications between each of the recipients who are the lawyer recipients or conveyancing clerk recipients in relation to the transactional documents regarding the discharge of mortgage, the transfer of the property, the settlement sheets and the like and any communications about the settlement. The National Australia Bank subpoena is in different terms. Once again there is no objection to it terms. It seeks documents relating to loan applications and the like in respect of the defendants. 9Mr T Rickard of counsel, who appears for the third defendant, submits that the subpoenas are an abuse of process. His first submission is that there is no case in respect of which these subpoenas could be issued. I respectfully disagree with that submission. True it is there is no main claim against the defendants because this is an interlocutory application within the confines of the orders made by McDougall J on the Summons for preliminary discovery. Those proceedings were not finalised by McDougall J making orders. The matter has been before the Court on a number of occasions and I am of the view that the proceedings are extant. 10One of the matters that the plaintiff wishes to establish at the hearing before Windeyer AJ on 27 May 2011 is the irresistible inference that there are other documents that should be discovered by each of the defendants. 11In support of his submissions Mr Rickard relied each on the following passage of Garling J's decision in Con Ange v Fairfax Media Publications Pty Ltd [2010] NSWSC 1200 : [36] A number of cases have discussed the principles to be applied in considering the relief sought by Fairfax. As to whether the court should allow cross-examination of the deponent as part of its determination on the adequacy of discovery, Giles J said in Fruehauf Finance Corporation Pty Ltd v Zurich Australian Insurance Ltd (1990) 20 NSWLR 359 at 363F (after discussing the applicable principles for allowing further discovery): Consistently with this approach, cross-examination of the maker of the affidavit of discovery has not been permitted. To permit cross-examination would be to open up the prohibited areas of investigation, and nullify the restrictions upon contesting both the amplitude of discovery and any claim for protection from inspection ... [37] It should be noted that the issue in that case was whether a claim for legal professional privilege in the affidavit of discovery could be sustained, although Giles J treated that issue as the same in substance as an application to cross-examine the deponent of an affidavit of discovery about the adequacy of discovery. [38] In Proctor & Gamble Australia Pty Ltd v Medical Research Pty Ltd [2001] NSWSC 183 at [64], Hunter J summarised the principles for granting an order for further discovery as follows: The affidavit verifying discovery is conclusive of the question unless it can be shown (i) by recourse to the documents discovered; (ii) from the content of the affidavit verifying discovery; (iii) from the pleadings, or "from any other source that constituted an admission of the existence of a discoverable document" that the discovery has been insufficient. Further, where the discovering party has misconceived the nature of the obligation of discovery it is not necessary to infer the existence of relevant documents other than those discovered ... [39] The principles were further discussed by Hoeben J in Preston v Star City Pty Ltd [2007] NSWSC 293 at [21]: Although the basic rule remains that an affidavit of discovery is conclusive , some exceptions to that rule have been recognised by the common law and by the rules of court ( Mulley v Manifold (1959) 103 CLR 341; Fruehouf Corporation Pty Ltd v Zurich Australian Insurance Ltd (1990) 20 NSWLR 359). Those exceptions are narrow and require that the insufficiency of the affidavit of discovery appear either from the documents themselves or from any other source that constitutes an admission of the existence of a discoverable document. In applying one of those exceptions the court has to "on the face of it or from admissions in other documents ... have reasonable grounds for being fairly certain that there were other relevant documents which ought to have been disclosed ..." ( British Association of Glass Bottle Manufacturers Ltd v Nettlefold (1912) AC 709 at 714; Beecham Group Ltd v Bristol Myers Co (1979) VR 273 at 276). [40] The same principles were applied by James J in Economos & Co Pty Ltd v Bowlers Club of NSW Ltd [2000] NSWSC 1065 at [45]-[67], by Harrison J in NM Rural Enterprises Pty Ltd v Rimanui Farms Ltd [2008] NSWSC 472 at [11], by R.A. Hulme J in Adelaide Bank Ltd v Property Builders Pty Ltd [2009] NSWSC 1147 at [20]-[38], and by Einstein J in Ace Hire Aust Pty Ltd v ADI Ltd [2006] NSWSC 969, in circumstances which may have some similarity with the current proceedings. [41] I note that Giles J in Fruehauf (at 366F) expressed his disquiet as to whether the "old Chancery aversion to a "conflict of affidavits" was a proper justification for limiting the investigation with which the matter before him was concerned. [42] For my part, particularly in light of the provisions of s 56 of the Civil Procedure Act 2005 and the extensive use of the modern tools of case management to ensure that the real issues in dispute are addressed in a cost effective manner, I share in the disquiet of Giles J. I see no compelling reason to accord to an affidavit verifying a list of documents by way of discovery any special status. Proper compliance with a party's obligations of discovery under the overall supervision of the court is an important and necessary part of modern litigation. The court has the capacity to limit discovery, or control the process of giving discovery, so that it does not become unduly onerous. [43] That said, it is appropriate in determining this application that I pay regard to the existing authorities. 12In these more modern times of judicial case management applications such as these and the Motion on 27 May 2011 are heard in the context in which statutory obligations now exist: Dennis v Australian Broadcasting Corporation [2008] NSWCA 37 at [22]; Barescape Pty Ltd (as trustee for the Vs Family Trust) and Anor v Bacchus Holdings Pty Ltd as trustee for the Bacchus Holdings Trust and Anor [2011] NSWSC 437. 13Mr Rickard submitted that there is no legitimate forensic purpose in the subpoenas. I also disagree with that submission. It seems to me that Suncorp-Metway, as applicant on the Motion for leave to cross-examine, is entitled to pursue forensic steps to obtain evidence that may assist it in obtaining the leave for which it will argue on 27 May 2011. 14Accordingly, I am satisfied that there is a legitimate forensic purpose. To state the obvious, if there is correspondence between the recipients of the subpoenas and the defendants then it may assist the submission that the irresistible inference is that there were and would be in existence other documents that should have been the subject of the verified List of Documents filed by the defendants in accordance with McDougall J's orders. 15Mr Rickard's third submission was that the subpoenas are an abuse of process because they are being used merely to impugn his client's credit. He also submitted that there may be very good reasons why there are no other documents because this was a family arrangement whereby the Auburn property, apparently worth $700,000, was transferred to the third defendant. That may well be a matter of evidence or later submission, however, the subpoenas have the legitimate forensic purpose to prove more probably than not that there would be other documents that should have been discovered, in support of the application for leave to cross-examine. Even if Suncorp-Metway, as applicant on the Motion, is able to establish that there was communication between the recipients of the subpoenas and the third defendant (the other defendants), it will still be a matter of discretion for the Judge hearing the Motion as to whether cross-examination is allowed in all the circumstances of the case. 16I am not satisfied that these subpoenas are an abuse of process as claimed by the third defendant. Accordingly, I refuse the relief sought in the third defendant's motion. The third defendant is to pay the plaintiff's costs of this application.