Solicitors:
Russells - First and Second Plaintiffs
Henry Davis York - First and Second Defendants
File Number(s): 2017/106343
[2]
REASONS
HIS HONOUR: The plaintiffs move under Uniform Civil Procedure Rules 2005 (NSW) Pt 5, r 5.3(1) for an order that the defendants give discovery to the plaintiffs of documents in their possession that relate to the question whether or not the plaintiffs are entitled to make a claim for relief against the defendants. That rule is in the following terms:
5.3 Discovery of documents from prospective defendant
(1) If it appears to the court that:
(a) the applicant may be entitled to make a claim for relief from the court against a person ("the prospective defendant") but, having made reasonable inquiries, is unable to obtain sufficient information to decide whether or not to commence proceedings against the prospective defendant, and
(b) the prospective defendant may have or have had possession of a document or thing that can assist in determining whether or not the applicant is entitled to make such a claim for relief, and
(c) inspection of such a document would assist the applicant to make the decision concerned,
the court may order that the prospective defendant must give discovery to the applicant of all documents that are or have been in the person's possession and that relate to the question of whether or not the applicant is entitled to make a claim for relief.
The maximum value of any claim the plaintiffs may ultimately have is $100,000.00 plus interest. Given the relatively modest amount involved, somewhat brief ex tempore reasons are appropriate.
Chop 1 Pty Ltd (now under receivership and in administration) (the Tenant) took a lease of premises at Bligh Street, Sydney from the defendants (the Lessor or the Landlord) from March 2008 to 28 February 2018. The lease incorporated a registered Memorandum, cl 19.1 of which required the Tenant to cause an unconditional bank guarantee in a form acceptable to the Landlord to be issued by an Australian bank for the sum of $100,000.00 in favour of the Landlord, to secure the performance by the Tenant of its obligations under the lease.
The Tenant established a guarantee with the Commonwealth Bank of Australia (the Bank) on 24 December 2012. The guarantee was established with the assistance of the plaintiffs, which are entities related to Chop 1 Pty Ltd. One of the plaintiffs gave a real property mortgage over a rural property to the Bank and the other provided cash cover.
On 28 June 2016, the Tenant was placed under receivership and in voluntary administration.
On 18 October 2016, the defendants terminated the lease effective 1 November 2016.
The evidence, albeit at this preliminary stage, indicates that at termination there were no rental arrears. A new tenant was found and a replacement guarantee was provided by the new tenant.
The receivers and administrators told the Landlord that there were no rental arrears and that no basis upon which the Landlord was entitled to call on the guarantee had been articulated, but the Landlord nevertheless called on (and was paid the full amount of) the bank guarantee.
A fairly extensive exchange of correspondence took place in which, amongst others, the Tenant called for return of the guarantee and an account of how the monies claimed under it had been dealt with. The Landlord declined to provide meaningful information beyond stating that it had incurred significant costs as a direct result of the Tenant's default under the lease which included, but were not limited to, legal costs and management costs.
On 4 April 2017, the Tenant's solicitors foreshadowed a court application.
These proceedings were commenced by the plaintiffs by Summons filed on 7 April 2017 seeking, amongst others, documents which record legal costs, consequential loss, damage or expense incurred by the defendants such as to justify calling on the bank guarantee. Put another way, they seek documents which establish relevant default of an obligation secured by the bank guarantee.
The defendants resist the application on the footing that the plaintiffs have not met the requirement under UCPR Pt 5, r 5.3(1)(a) that it must appear to the Court that the plaintiffs may be entitled to make a claim for relief.
Taking the approach established in the authorities that it is not necessary for the plaintiffs to show a prima facie or pleadable case, and that the rule is to be beneficially construed, and given the fullest scope that its language will reasonably allow, with the proper break on any excesses lying in the discretion of the Court, exercised in the particular circumstances of each case, I am satisfied that the plaintiffs have met the necessary threshold to entitle them to an order for preliminary discovery; see Hatfield v TCN Channel Nine Pty Ltd (2010) 77 NSWLR 506 at [47] - [52]; St George Bank Ltd v Rabo Australia Ltd (2004) 211 ALR 147 at 154; Pioneer Energy Holdings v Seth [2014] NSWSC 492.
The plaintiffs articulate the claim they are entitled to make, as one for damages for unconscionable conduct on the part of the defendants in contravention of s 20(1) of the Australian Consumer Law 2010 (Cth) (ACL), which provides that a person must not in trade or commerce engage in conduct that is unconscionable within the meaning of the unwritten law from time to time. Section 236 ACL provides relevantly, that if a claimant suffers loss or damage because of the conduct of another person in contravention of s 20(1), it may recover the amount of the loss by action against that other person. The plaintiffs put that the Court should be sufficiently satisfied that the defendants engaged in unconscionable conduct on the footing that they called on the guarantee absent any entitlement to do so. They put that they are persons who have suffered loss because of that conduct.
The defendants argue that the plaintiffs have no standing to seek information from the defendants because they have no privity with them and that if anyone is entitled to information, or has a claim, it is the Tenant Chop 1 Pty Ltd. They put that even if they had no basis to call on the guarantee, their doing so does not constitute unconscionable conduct within the meaning of s 20(1) (which they say concerns situations of unequal bargaining positions) but that if it is, it would be unconscionable conduct not towards the plaintiffs but rather towards the tenant. They put that the Court should not be satisfied that the plaintiffs are persons who may have suffered loss as a consequence of this conduct because of the transactional distance between them and the Tenant.
The only claim for relief which the plaintiffs articulate is under the ACL and they seek documents to assist them to make a decision whether to sue the defendants.
The concept of unconscionability under the unwritten law referred to in s 20(1) ACL is not confined to the classes of fact situation dealt with in the authorities or to situations of unequal bargaining power. I consider it sufficiently arguable for present purposes, that if the defendants had no right to call on the bank guarantee, their conduct in doing so would be unconscionable within the meaning of the section: see Clough Engineering Ltd v Oil and Natural Gas Corporation Ltd (2008) 249 ALR 58; Ceresola TLS AG v Thiess Pty Ltd & John Holland Pty Ltd [2011] QSC 115.
The evidentiary material as to what (if anything) founded an entitlement to call on the guarantee and its extent is within the knowledge of the defendants but not the plaintiffs. The plaintiffs have asserted to the defendants that there were no rental arrears, an assertion which the defendants have not countermanded. The defendants have chosen not to provide any information as to what expenses were allegedly incurred as a consequence of the default.
I am satisfied that there is sufficient to infer that the plaintiffs may have an entitlement to make a claim for relief on the footing that the guarantee was called on without a proper basis, so as to make the defendants' conduct unconscionable.
The lack of privity or any substantive legal relationship between the plaintiffs and the defendants entitling them as of right to the information sought, is no answer to the plaintiffs' claim for preliminary discovery under the UCPR.
Section 236 of the ACL does not require the claimant to be the object of the unconscionable conduct. Counsel for the defendants did not suggest otherwise. The plaintiffs are the persons who in effect put up the money to establish the guarantee. The Tenant is under receivership and administration. There is sufficient before me to be satisfied to the requisite degree, that the plaintiffs may have suffered loss or damage by the defendants calling on the bank guarantee and so have a claim under s 236 ACL. The defendants put a submission that because the Tenant would have a claim for restitution or other relief if they had wrongly called on the guarantee, there was a spectre of double recovery. Even if this were so, it does not mean that the plaintiffs are not persons who may have a statutory claim. It concerns more the existence of a possible defence.
This is not the appropriate occasion to assess the merits of the plaintiffs' proposed claim.
I am otherwise satisfied that the remaining requirements of UCPR r 5.3(1) have been met.
I will hear the parties on costs and on the form of the orders to be made.
His Honour heard the parties further and made the following orders:
1. Within ten days, the defendants must give discovery to the plaintiffs of all documents that are or have been in their possession and relate to whether or not the plaintiffs are entitled to make a claim for relief.
2. The defendants are to pay the plaintiffs' costs of these proceedings in the amount of and capped at $10,000.
3. The plaintiffs are to pay the defendants' reasonable costs of giving discovery to the plaintiffs of all documents that are or have been in their possession and relate to whether or not the plaintiffs are entitled to make a claim for relief (that is, that relate to whether or not the plaintiffs suffered loss or damage as a consequence of the defendants' alleged default of the lease as comprehended by the bank guarantee).
4. Those costs are not to exceed $10,000 and are to be paid in advance upon the defendants giving to the plaintiffs the particularised estimate of its costs to comply, on the footing that if the costs turn out to be less than the amount estimated, the excess paid is to be refunded.
[3]
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Decision last updated: 23 May 2017
Parties
Applicant/Plaintiff:
The Good Living Company Pty Limited atf The Warren Duncan Trust No. 3