Spyer v Cuddles 'N' Mum

Federal Court of Australia|2002-12-20|Before: Lindgren J

introduction 1 The applicants ("Mr and Mrs Spyer") complain about the adequacy of discovery. As is well known, discovery is the most burdensome, costly and time consuming of all the interlocutory procedures. These problems are exacerbated where, as in the present case, there is protracted disputation over the adequacy of discovery.

The motion and the Federal Court Rules 2 Mr and Mrs Spyer move for the following orders (incorporating an amendment from "December" to "August" made on the hearing): "2. The Third and Fourth Respondents give discovery ... in respect of all documents held by either of them in respect of Armarchi Pty Limited trading as Cuddles 'N Mum Wollongong which fall into Categories 8 or 9 of the Notice for Discovery filed 20 March 2002 and, in particular, without limiting the generality of this Order, such documents to include: (i) customer notes; (ii) financial statements; (iii) internal memoranda; (iv) customer interview records; (v) file notes; (vi) watch lists; (vii) correspondence to and from the Wollongong franchisee; (viii) profitability assessments; (ix) compliance reports. All between the dates of 1 January and 31 August 1998. 3. In the alternative, order that each of the Third and Fourth Respondents file and serve on the Applicants ... an affidavit which states whether or not any document of the class referred to in [2, above] is or has ever been in its/his possession, custody or power and if it has been but is not now in its/his possession, custody or power when it/he parted with it and what has become of it." 3 Mr and Mrs Spyer rely on O 15 r 8 of the Federal Court Rules ("the Rules") which is as follows: "Where, at any stage of the proceeding, it appears to the Court from evidence or from the nature or circumstances of the case or from any document filed in the proceeding that there are grounds for a belief that some document or class of document relating to any matter in question in the proceeding may be or may have been in the possession, custody or power of a party, the Court may order that party - (a) to file any affidavit stating whether that document or any document of that class is or has been in his possession, custody or power and, if it has been but is not then in his possession, custody or power, when he parted with it and what has become of it; and (b) to serve the affidavit on any other party." (my emphasis) 4 The expression "relating to any matter in question" is a familiar one in rules of court defining the ambit of the discovery required by the familiar simple and unqualified form of notice for discovery. Order XXXI r 12 of the Rules of the Supreme Court 1875 (UK), which was in issue in the leading case on the test of discoverability, Compagnie Financiere et Commerciale du Pacifique v The Peruvian Guano Company (1882) 11 QBD 55 ("Peruvian Guano"), used that expression. It was also used in O 15 r 2 of the Rules until 3 December 1999, but amendments then made (SR 295 of 1999) provide a different test. Order 15 subr 2(3) now provides that where a party is required to give discovery pursuant to a notice for discovery, what must be discovered are: "... any of the following documents of which the party giving discovery is, after a reasonable search, aware at the time discovery is given: (a) documents on which the party relies; and (b) documents that adversely affect the party's own case; and (c) documents that adversely affect another party's case; and (d) documents that support another party's case; and (e) documents that the party is required by a relevant practice direction to disclose." This more restricted ambit of discoverability is based on the "Standard Disclosure" of the United Kingdom Rules of Civil Procedure 1999, and, in particular, on Rule 31.6 of those Rules. The Peruvian Guano "relating to" test of discoverability, however, continues to find expression as the ordinary measure of the documents to be discovered by a party in the Rules of Court of the High Court of Australia (O 32 r 9) and of the Supreme Courts of Victoria (O 29 subr 29.02(1)), Western Australia (O 26 subr 1(1)), South Australia (Rule 58.01(1)), the Australian Capital Territory (O 34 subr 13(1)) and the Northern Territory (sects 29.02(1), 29.08(1)). The Supreme Courts of New South Wales (Pt 23 r 3) and Queensland (Uniform Civil Procedure Rules 1999,subr 211(1)), like this Court, have departed from the Peruvian Guano test, though the departures differ as between those three Courts. 5 Order 15 subr 2(4) of the Rules qualifies the discovery obligation defined in O 15 subr 2(3) in a manner not presently relevant, and subrule 2(5) provides that, for the purposes of the "reasonableness" of the search called for by subrule 2(3), a party may take into account the matters referred to in subrule 2(5) (subrule 2(5) is based on the United Kingdom's Rule 31.7). Practice Note 14, also made on 3 December 1999, gives guidance as to the approach which the Court can be expected to take when making orders in relation to discovery. 6 The expression "relating to any matter in question in the proceeding" of O 15 r 8 of the Rules uses "the Peruvian Guano test" of discoverability. In Peruvian Guano, the expression "relating to any matter in question" was given a broad construction. The expression was held to refer to documents containing information which "may - not which must - either directly or indirectly enable the party requiring the affidavit [of discovery] either to advance his own case or to damage the case of his adversary" (at 63 per Brett LJ). In particular, a document which "may fairly lead ... to a chain of inquiry" was to be included (above, per Brett LJ). 7 It follows from the retention of the expression "relating to any matter in question in the proceeding" in O 15 r 8, that there is a disconformity between the narrower and less demanding test of discoverability pursuant to notice of O 15 subr 2(3), and the Peruvian Guano test which provides the basis for the making of an order under O 15 r 8. In other words, where discovery is given in response to the simple form of notice for discovery found in Form 21, (referred to in O 15 r 1), it can no longer be said that the basis for the making of an order under O 15 r 8 is that there has been a failure to give full discovery as required by such a notice. 8 Not only is a much broader test relevant to the present motion than to the giving of discovery in response to the prescribed form of notice for discovery (Form 21); the words "may be or may have been" in O 15 r 8 do not pose a high threshold. But the second "may" in that rule gives the Court an overriding discretion not to make an order even if the power given by the rule to make one is enlivened.

Pleading 9 In order to understand the relevant "matter in question" in the present proceeding, it is necessary to refer to the further amended statement of claim ("the Pleading"). Mr and Mrs Spyer sue a franchisor (the first respondent) and its director (the second respondent), Mr and Mrs Spyer's financier (the third respondent - "NAB") and its Business Banking Manager (the fourth respondent - "Mr Lloyd") arising out of the purchase from the first respondent of a business conducted at 3/241 The Entrance Road, Erina. Mr and Mrs Spyer caused a company, Inspyer Pty Ltd ("Inspyer"), of which they were the only members and directors, to make the purchase. The first respondent was the operator of the "Cuddles 'N' Mum" franchise group - it granted rights to sell mother and baby products under the name "Cuddles 'N' Mum". The second respondent put Mr and Mrs Spyer in contact with NAB for the purpose of their obtaining finance to purchase the "Cuddles 'N' Mum, Erina" business. At the relevant time there were also "Cuddles 'N' Mum" franchise stores at Penrith, Canberra and Wollongong. 10 Mr and Mrs Spyer met Mr Lloyd at a meeting at the Liverpool branch of the NAB on 12 June 1998. According to the Pleading, at that meeting Mr Lloyd informed Mr and Mrs Spyer that "the NAB was happy with its association with the Cuddles 'N' Mum franchise group" (par 19(d)(3) of the Pleading), and that "all of the stores in the Cuddles 'N' Mum franchise group were doing well" (par 61(h)). But according to the Pleading, "not all of the stores in the Cuddles 'N' Mum franchise were doing well" (par 64(e)). A particular of negligent representation included in the Pleading is that NAB failed "to inform Mr and Mrs Spyer of the financial difficulties experienced by the Wollongong franchisee" (par 78(g)). 11 Each of the following is a "matter in question in the proceeding" for the purposes of O 15 r 8 of the Rules:

whether not all of the stores in the Cuddles 'N' Mum franchise group were doing well; or
whether the Wollongong franchisee was experiencing financial difficulties in each case over the period 1 January 1998 to 31 August 1998 (there has been no controversy on the hearing of the motion as to the appropriateness of this period). The Cuddles 'N' Mum, Wollongong franchise business was conducted by Armarchi Pty Ltd ("Armarchi"). It is only that business to which the motion refers. Accordingly, the first matter in question set out above can be reduced in scope to this: whether Armarchi's "Cuddles 'N' Mum, Wollongong" business was doing well.

procedural history 12 For reasons which will appear, the procedural history of the dispute over discovery assumes some importance. 13 The proceeding was commenced on 30 March 2001. 14 On 1 March 2002 the Court ordered that on or before 22 March 2002, the parties file and serve a list of those categories of documents of which they required discovery to be given, and that on or before 5 April 2002 each party file and serve a verified list of documents. 15 On 20 March 2002 Mr and Mrs Spyer filed a "List of Categories of Documents". Incorporating the later amendment of "December" to "August", by that document Mr and Mrs Spyer gave notice to NAB and Mr Lloyd that they required verified discovery of: "documents which go to: 8. Whether the other stores in the Cuddles 'N Mum franchise group were or were not doing well between January 1998 and August 1998. 9. Any financial difficulties experienced by the Wollongong franchisee of the Cuddles 'N Mum franchise group in servicing its liability to the NAB between January 1998 and August 1998." 16 Notwithstanding its title, the List of Categories of Documents was a notice for discovery of sorts. But it was not in the simple form of Form 21 referred to in O 15 r 1 of the Rules. A question therefore arises whether O 15 subr 2(3) applies to it and, if so, how. The words in the List of Categories of Documents "which go to", are, in my opinion, approximately equivalent to the words "relating to" used in Peruvian Guano and in O 15 r 8. That is to say, in my opinion the form of the List of Categories of Documents called for discovery according to the broad Peruvian Guano test, limited, relevantly, by reference to the matters in question identified in pars 8 and 9 of that document. Neither NAB nor Mr Lloyd complained about the terms of the document. 17 On 4 April 2002 the Court ordered that each party file and serve its verified list of documents on or before 12 April 2002, identifying any categories of documents which had not been discovered and why. 18 On 18 April 2002, NAB filed its List of Documents verified by an affidavit of Fiona Jane Thomson, solicitor, sworn 18 April 2002. It did not identify any such categories. Accordingly, NAB has accepted throughout that documents "which go to" the matters described in categories 8 and 9 are properly discoverable by it. 19 On 7 June 2002 the Court ordered, relevantly, that the parties were to complete supplementary discovery by 21 June 2002. 20 On 17 July 2002 NAB filed a Supplementary List of Documents verified by an affidavit of Fiona Jane Thomson, solicitor, sworn 17 July 2002. 21 On 22 November 2002, NAB filed a Further Supplementary List of Documents ("FSLD") verified by an affidavit of Fiona Jane Thomson, solicitor, sworn 21 November 2002.

evidence on the hearing of the motion 22 On the motion, Mr and Mrs Spyer relied on an affidavit of their solicitor, Phillip Andrew Bushby, sworn 28 November 2002 and a lengthy course of correspondence between him and the solicitors for NAB and Mr Lloyd comprising letters covering the period from 19 June 2002 to 28 November 2002. In that correspondence contentions were made to and fro on the question of the adequacy of discovery. Mr and Mrs Spyer also relied on NAB documents which were tendered and which can be summarily described as follows: Exhibit A1 NAB bank account statements relating to account No 69 153 8458 of Armarchi trading as "Cuddles 'N' Mum Wollongong" - business cheque account Exhibit A2 NAB bank account statements relating to account No 67 335 2190 of Rosemont Pty Ltd ("Rosemont") trading as "Cuddles 'N' Mum Penrith" - business cheque account Exhibit A3 NAB bank account statements relating to account No 45 320 8103 of Inspyer - business cheque account Exhibit A4 Internal NAB memo dated 6 April 1999 from Mr Lloyd to John Vasseleu being NAB discovered document No 73 Exhibit A5 "Manager's Watch Lists" being NAB discovered documents Nos 90, 92 and 93 23 Ms Hillman, solicitor, who appeared for NAB and Mr Lloyd, read an affidavit by Mr Lloyd to the effect that his role was only ever that of an officer of NAB, that he had no relevant documents to produce, and that he relied on the discovery made by NAB. The hearing proceeded as a contest between Mr and Mrs Spyer and NAB, and I will not refer to Mr Lloyd further as a contestant.

submissions 24 It is common ground that the Cuddles 'N' Mum group consisted of a company store at Casula and franchised operations at Canberra, Penrith, Wollongong and Erina. As already noted, Inspyer operated the Erina franchise, Armarchi the Wollongong franchise, and Rosemont the Penrith franchise. NAB and Mr Lloyd apparently advised Mr and Mrs Spyer that the Canberra franchise banked with NAB, but that its account was not managed by Mr Lloyd. On that basis, Mr and Mrs Spyer have not sought discovery of documents by NAB in respect of the Canberra franchisee. 25 NAB has discovered numerous bank records in relation to the franchise operations of Inspyer, Rosemont and Armarchi. Mr and Mrs Spyer submit that a comparison of those discovered in relation to Inspyer and Rosemont with those discovered in relation to Armarchi suggests that the discovery in relation to Armarchi has been deficient. 26 In the various bank statements in evidence, there are numerous debits of $20.00 each for a "reference fee". It is common ground that this is a fee charged to a customer when a cheque is presented for payment which would render the customer's account in excess of its approved arrangement with NAB. Mr and Mrs Spyer submit that failing to keep an account within its approved limit is one indication that the business standing behind the account is "not doing well" and is "experiencing financial difficulties". Inspyer's bank account statements reveal sixty-four reference fees, those of Rosemont forty reference fees and those of Armarchi sixty-nine reference fees. 27 Mr and Mrs Spyer rely on exhibit A4 which is NAB discovered document No 73 referred to above, in which Mr Lloyd, the Manager of NAB's "Liverpool Business Banking Centre" advised "John Vasseleu, Asset Structuring" that the "file" of the Wollongong store had been sent to the latter's office the previous week. Mr and Mrs Spyer submit that that "file" has not been discovered and that NAB has also not discovered any documents within the following categories: "(i) Reference notes; (ii) Correspondence between the Bank and the account holders in respect of overdrawn accounts; (iii) Internal memoranda in regard to the apparently irregular account; (iv) Correspondence and memoranda between the Branch and the Bank's Credit Bureau; (v) Financial statements or other financial material; (vi) Credit application(s)." 28 Mr and Mrs Spyer point to the facts that NAB's discovered documents Nos 90, 92 and 93 in its FSLD show that Armarchi's account was listed on the "Manager's Watch Lists" dated 30 April 1998, 7 May 1998 and 14 May 1998 and that these are the only such lists discovered in respect of the Armarchi account. They submit that I should infer that Armarchi may have been also recorded on other Manager's Watch Lists which have not been discovered. 29 Mr and Mrs Spyer draw attention to NAB's discovered document No 36 in its FSLD, being "customer notes selection summary - Armarchi P/L C/N 7917-16781" dated 24 October 2002. They submit that there are twenty-six entries in this document, only two of which are in 1998, and that given the delinquent nature of Armarchi's account, I should infer that more than those two customer notes in the period from 1 January 1998 to 31 August 1998 may have been held by NAB. 30 Mr and Mrs Spyer submit that NAB has discovered about seventy-eight documents of the classes specified in categories 8 and 9 in respect of the account of Inspyer and about fifty documents within those categories in respect of Rosemont, yet only nine documents within those categories in respect of Armarchi. They submit that on the basis of the disparity I should infer that there may be further documents within those two categories relating to Armarchi not yet discovered. 31 In summary, Mr and Mrs Spyer submit that, given the apparent similarities in the accounts operated by Inspyer, Rosemont and Armarchi, including the numerous reference fees recorded in each of the three franchisees' accounts, the large number of documents discovered by NAB in respect of Inspyer and Rosemont and the relative "paucity" of documents discovered in respect of Armarchi, I should conclude that there may be, or may have been, documents in respect of Armarchi accounts similar in kind and number to those discovered in respect of the other two accounts, all or many of which have not yet in fact been discovered. 32 NAB relies, in substance, on the three affidavits of Ms Thomson verifying the three lists of discovered documents. NAB also points out that it has, contrary to Mr and Mrs Spyer's submissions, given discovery of some reference notes, applications for credit during the relevant period, and documents referring to communications between NAB and Armarchi in respect of overdrawn accounts.

reasoning 33 I have considered carefully the submissions made by Mr Bushby on behalf of Mr and Mrs Spyer. For the reasons which appear below, notwithstanding his submissions, I do not think there are grounds for belief that there may be, or may have been, some documents or classes of documents within category 8 or 9 relating to the question whether the Cuddles 'N' Mum Wollongong franchise was not doing well or was experiencing financial difficulties, which have not yet been discovered. If, however, contrary to this conclusion, there are some grounds for such a belief, they are so slight and unpersuasive that I would not, in the exercise of my discretion, make an order under O 15 r 8 of the Rules. 34 Order 15 r 8, although expressed widely, does not invite the making of an order based on mere speculation. It is to be expected that there will be less documents of a particular kind in relation to one franchisee than there are in relation to another franchisee or in relation to each of two other franchisees. Moreover, it is possible that some classes of documents will not exist at all in relation to one franchisee, although they may exist in relation to another franchisee or to each of two other franchisees. Finally, it is to be expected that NAB will hold unequal numbers of documents within categories 8 and 9 in respect of Inspyer, Rosemont and Armarchi (the only circumstance in which this will not be so are if there are precisely the same number held by all three): in respect of one of those companies a less number of documents within categories 8 and 9 will be held by NAB than in respect of each of the other two companies. Why should that one not be Armarchi? 35 Ultimately the present question seems to me to resolve itself into whether I should draw the inference which Mr Bushby seeks in the light of Ms Thomson's three affidavits of discovery. Mr Bushby submits that I should not give as much weight to those affidavits as might otherwise be the case in view of the fact that, by the filing of the Supplementary List of Documents and of the FSLD, NAB has conceded that on two occasions earlier discovery has been deficient. While there is some substance in this argument, I am not persuaded by it to infer that the FSLD does not now complete the picture. 36 The matters urged by Mr Bushby in his submissions were put to the solicitors for NAB and, no doubt, by them to NAB's officers. That is to say, in the correspondence Mr Bushby put to NAB's solicitors arguments to the general effect of those which constitute his submissions to this Court in the present motion. Moreover, the fact that NAB has discovered documents in relation to Inspyer and Rosemont of the kind now sought in relation to Armarchi, shows that NAB was conscious of the need to discover such documents in relation to Armarchi, if they existed. Notwithstanding these matters, Ms Thomson has been prepared to swear as recently as 21 November 2002 that, to the best of NAB's knowledge, information and belief, neither it nor its solicitors nor any other person on its behalf has, or ever had, in its or their possession, custody or power, any document called for by Mr and Mrs Spyer by the agreed List of Categories, as subsequently limited by correspondence between the parties, other than the documents enumerated in the Schedules to the original List of Discovered Documents, the Supplementary List of Discovered Documents and the FSLD. 37 It is well established that ordinarily: · an affidavit verifying discovery will be accepted as conclusive as to the adequacy of discovery; · cross-examination of the deponent of an affidavit verifying discovery for the purpose of showing that discovery has been inadequate will not ordinarily be permitted; and · while the inadequacy of verified discovery can be shown from the affidavit verifying the list of discovered documents, from the documents discovered or from an admission in the pleading, it will not be permitted to be shown by an opposing affidavit. Of the many authorities that might be cited for these propositions, reference need be made only to Jones v Monte Video Gas Co (1880) 5 QBD 556; Mulley v Manifold (1959) 103 CLR 341; Fruehauf Finance Corporation Pty Ltd v Zurich Australian Insurance Ltd (1990) 20 NSWLR 359; Auspine Ltd v HS Lawrence & Sons Pty Ltd [1999] FCA 1749; Finance Sector Union of Australia v Commonwealth Bank of Australia Ltd [2000] FCA 1389 and Brookfield v Yevad Products Pty Ltd [2002] FCA 1376. In none of these cases was it argued that the verification went to anything less than satisfaction of the Peruvian Guano test. 38 Mr and Mrs Spyer did not submit that this line of authority was inapplicable on the basis that Ms Thomson's three affidavits verifying discovery should be understood as going only to the categories of documents referred to in O 15 subr 2(3) of the Rules rather than those encompassed by the broader Peruvian Guano words, "relating to any matter in question in the proceeding", used in O 15 r 8. Because of the approximate equivalence of the expression "which go to" in the List of Categories of Documents served by Mr and Mrs Spyer on NAB to the expression "relating to" of the Peruvian Guano test of discoverability (see [16] above) used in O 15 r 8, the basis on which the motion was argued and the terms of the three affidavits verifying discovery and items of correspondence annexed to those affidavits, I think NAB's discovery is properly regarded as having in fact been given and verified by reference to the Peruvian Guano test. It follows that the line of authority referred to in [37] above is applicable. 39 I therefore accept Ms Thomson's affidavit sworn 21 November 2002 verifying the FSLD as conclusive and do not, in contradiction of it, draw the inference that the further documents referred to earlier may exist or may have existed.

conclusion 40 The motion will be dismissed with costs. I certify that the preceding forty (40) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lindgren.

Solicitor for the Applicants Mr PA Bushby of Phillip Bushby International (applicants on the motion)

Solicitor for the Third and Fourth Respondents (respondents on the motion): Ms ZLM Hillman of Mallesons Stephen Jaques

Date of Hearing: 11 December 2002

Date of Judgment: 20 December 2002

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Judgment (12 paragraphs)

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