Robert Mario Ferfolia & anor v Mater of Education Services & ors

PARTIES: FIRST RESPONDENT: Master Education Services Pty Ltd

SECOND RESPONDENT: Robert Athol Ollis

THIRD RESPONDENT: Suzanne Gai Ollis

CATCHWORDS: Discovery of current financial records - respondent argued discovery could not rationally affect assessment of probability of existence of a fact in issue. Held: Discovery not permissible - financial circumstances may be relevant to discrete issues such as security for costs or tracing, identifying exposure to a guarantor - not amenable in general terms to discovery process - applicant to pay further costs.

LEGISLATION CITED: Industrial Relations Act 1996 Industrial Relations Commission Rules 1996

CASES CITED: National Commercial Bank v Winbourne, unreported, (BC 9201904 Matter No. 1546 of 1978 4 May 1992) Sogelease Australia Ltd v Griffin [2003] NSWSC 178

APPLICANTS: Mr S Burchett of counsel SOLICITOR: Mr G Gilmour Mason Lawyers LEGAL REPRESENTATIVES:

RESPONDENTS: Mr V Bedrossian of counsel SOLICITOR: Mr P Meehan Meehans Solicitor Corporation

• 5 - INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES

Robert Mario Ferfolia & anor v Master of Education Services Pty Ltd & ors

1 These are proceedings brought under s 106 of the Industrial Relations Act 1996 arising out of a franchise for the provision of educational services granted by Master Education Services Pty Ltd, the first respondent to Robert Mario Ferfolia and Vicki Anne Ferfolia, the applicants. The applicants have sought discovery of a number of categories of documents, which was resisted by the respondents. That resistance led to the filing of a notice of motion that I heard on 28 June 2006. On that occasion, I dealt with the outstanding controversy between the parties in a series of ex tempore decisions that are reflected in the transcript of the proceedings that day. 2 However, there remains one outstanding matter. The applicants sought discovery of documents of the first respondent, which I will describe in general terms as going to the first respondent's current financial situation. The respondents objected because the general financial situation of the respondent is not relevant to any fact in issue in the proceedings, nor was it said could they or do they contain material that could rationally affect the assessment of the probability of the existence of a fact in issue. This refers to the rules of this Court relating to discovery, specifically the provisions of rule 160(d) of the Industrial Relations Commission Rules 1996. I accept, for present purposes, that the statement of principle may be refined in a manner contended for by the applicants as something which may "throw light on the case" or is part of the "evidentiary mosaic" or which may "aid in the effective exercise of the Court's jurisdiction to grant relief." 3 It was said by the applicants in support of the discovery of this material that these were matters that went to the form of decree of relief sought by the applicants and to matters that would show them whether they should proceed with the case or alternatively should formulate the relief in a particular form. In essence, as I understand the applicants' position, they wished to use the discovery process for the purpose of ascertaining, amongst other things, the current financial state of the first respondent with a view to determining, firstly, whether any monetary order which might be made against the first respondent would be capable of being met and, presumably, secondly, whether and to what extent relief should be sought against the second and third respondents who are directors of the first respondent. 4 In support of the applicants' submissions, reliance was placed on two judgments in the Supreme Court of New South Wales. The first was that of Young J in The National Commercial Bank v Winbourne (unreported, BC 9201904 Matter No. 1546 of 1978, 4 May 1992). The plaintiffs were financiers who had guaranteed a loan that the defendants had obtained from a Swiss Bank and which had not been repaid, thereby exposing the plaintiffs to payment under the guarantee. The plaintiffs sought discovery of what I shall describe in general terms as being material relating to the financial circumstances of the defendants. Whilst the question of discovery was not the only matter being considered by Young J, His Honour determined that an issue in the proceedings related to the financial circumstances of the defendants because this would indicate to the plaintiffs the extent of their potential liability under the guarantee that they had given in favour of the Swiss Bank. After referring to authority, His Honour at paragraph [10] of that judgment said: "Accordingly, in equity it may well be that discovery as to the matters which go to relief will throw up such matters as will show the plaintiff that he should not proceed with the case or, alternatively, should take his decree in a particular form. Accordingly, discovery on behalf of the plaintiffs can take place on these issues right from the commencement of the suit."

His Honour also commented that the relief to which the plaintiff may be entitled is a matter that would be subject to discovery. 5 I agree with the submissions of the respondents that the decision in National Commerce Bank does not assist the applicants in these proceedings. In that case it was clear that the exposure of the plaintiffs could not be determined without in turn assessing the ability of the defendants to adjust their indebtedness to the Swiss Bank. That was clearly a matter within the well-known principles as to what material may properly be discoverable. 6 The second decision relied upon by the applicants is Sogelease Australia Ltd v Griffin [2003] NSWSC 178, a decision of Palmer J. The plaintiffs in those proceedings were financiers. There were two defendants. The first was an officer of one of the plaintiffs who had misappropriated more than $10 million dollars in funds and who had paid the proceeds into bank accounts of a number of other defendants, one of which was the second defendant, the wife of the first defendant. A question for determination was whether the plaintiffs could seek discovery against the second defendant with respect to chequebooks and other documents relating to a number of accounts with financial institutions, some of which were said to be in the joint names of the first and second defendants and some of which were in her name alone. Palmer J was also called upon to order discovery against the first defendant, but determined not to do so because discovery might "at that stage, intrude into the first defendant's claim for privilege against self-incrimination." At that stage he was under investigation that might lead to the institution of criminal proceedings. 7 Another complication was the fact that the first defendant had not filed a defence and default judgment had been entered against him. It was argued on his behalf that there was no issue joined in the pleadings as between the plaintiffs and the first defendant and therefore no entitlement to discovery as against him arose. 8 In connection with this last point, at pargraph [11], Palmer J held that discovery was available; "whenever the interests of justice in the conduct of litigation require it. It is available not only when it is relevant to issues of liability as between the parties seeking discovery and the party against whom discovery is sought; it is available when it is relevant to any issue between the party seeking discovery and any other party to the proceedings. It is available in aid of the proper and just disposition of the question of the extent of final relief against a party, even one who has admitted liability, for example, when an accounting of profits or a tracing remedy is sought."

His Honour held that the financial documents that the first defendant was required to discover went to any accounting for profits and the tracing of proceeds of misappropriation and were therefore relevant to issues of both liability and remedy as between the plaintiffs and the other defendants. 9 I understand that Palmer J applied the same approach with respect to the financial documents that the plaintiffs sought to be discovered by the second defendant. 10 Again, I agree with the submissions of the respondents that the judgment of Palmer J does not assist the applicants in these proceedings. There was clearly an issue that justified discovery in Sogelease, namely the ability to trace the proceeds of misappropriation. In the circumstances of these proceedings, no such question arises whether specifically or inferentially and the relief sought by the applicants in these proceedings cannot, even by way of analogy, bear any resemblance to the relief sought by the plaintiffs in Sogelease. 11 In my opinion, it is not permissible to require a party to discover material concerning his, her or its financial circumstances at a contemporary date that bears no relevance to anything that occurred or any conduct that has any bearing on the proceedings. The financial circumstances of plaintiffs/applicants may be relevant for the purpose of discrete issues such as security for costs. The financial circumstances of defendants/respondents may be relevant to questions of tracing, identifying exposure to a guarantor and the like but otherwise are not amenable in general terms to the discovery process. 12 For these reasons, I dismiss the claims made, in general terms, for discovery of the first respondent's financial circumstances. The applicants must pay the further costs of the respondents with respect to the determination of this issue in an amount assessed in default of agreement.

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