Vitamin Co Pty Ltd v Healthy Hab Pty Ltd

1. The Applicant file a fresh list of documents to replace its previous lists of documents in accordance with the Federal Court Rules 2011 (Cth) by 18 September 2020.
2. The list be set out by reference to the categories in Schedule A to the Registrar's orders of 29 January 2020.
3. Within each category the Applicant is to identify each particular document.
4. The Applicant file and serve an affidavit from its solicitor explaining the steps he has taken to explain the Applicant's discovery obligations to it by 18 September 2020.
5. The Applicant file and serve an affidavit setting out the searches and inquiries it has made to comply with its discovery obligations by 18 September 2020.
6. The matter be listed for case management on 25 September 2020 Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

PERRAM J: 1 Before the Court is a storm in a teacup. The First Respondent conducts a franchise business known as 'Healthy Habits'. Franchisees of Healthy Habits sell sandwiches, salads and juices. The Applicant leased a shop at Bridgepoint Shopping Centre in Mosman and entered into a franchise agreement with the First Respondent for the conduct of a Healthy Habits business from it. It alleges in this proceeding that it was induced to open the shop by three misrepresentations made to it by the First Respondent on its website. These were that the First Respondent had over 28 stores on the eastern seaboard of Australia and a store in New Zealand; that there were almost 40,000 people buying sandwiches, salads and juices from Healthy Habits stores each week; and that the Healthy Habits stores averaged between $34,000 and $150,000 in sales turnover per month. The Applicant alleges these representations were incorrect and that the true figures were much lower. The Applicant seeks damages for contraventions of s 18 of the Australian Consumer Law, being Sch 2 of the Competition and Consumer Act 2010 (Cth). It also alleges contraventions of the laws relating to franchising businesses and that the Second Respondent, Mr Gordon, was knowingly involved in the First Respondent's contraventions. Mr Gordon is a director of the First Respondent. 2 The statement of claim is not especially well drawn and, in parts, appears a little inconsistent, as if perhaps drawn in a hurry and at minimum cost. In February 2019 it appears that the First Respondent served a statutory demand on the Applicant and on 23 April 2019 commenced a proceeding in the Supreme Court of Victoria to wind up the Applicant. The current proceeding in this Court was commenced on 24 June 2019. On 23 August 2019 the winding up application was dismissed as a matter of discretion when regard was had to this proceeding and the issues it raised: In the matter of Vitamin Co Pty Ltd (ACN 614 680 367) [2019] VSC 540. The Judicial Registrar commented at [2]: A striking feature of this case is the quantum of the debt claimed in the statutory demand. It is for the mere sum of $2,372.36, which is only slightly higher than the prescribed statutory minimum. Despite this fact, the parties have raised numerous issues for the Court's determination which, on an initial impression, seem disproportionate to the relatively trivial amount in question. 3 The same lack of proportionality appears to afflict the present interlocutory dispute. It began as a debate about discovery which was determined by Registrar Priestley on 29 January 2020. The Applicant was ordered to give discovery of the documents in Schedule A to the Court's orders. There were 28 categories although 3 were not used so that in substance there were 25. Those categories were as follows: 1. Certificate of incorporation of the Applicant. 2. Not used 3. All documents evidencing that Nick Abboud viewed the website of the respondent 4. An extract from the company register of the Applicant identifying directorships and shareholdings of the Applicant. 5. All documents concerning the receipt, consideration, completion and return of the confidentiality agreement dated 25 January 2017 by Abboud. 6. All documents concerning the viewing of the website referred to paragraph 4 of the Statement of Claim by Abboud. 7. All documents of Abboud concerning the calculations made by Abboud referred to in paragraph 5 of the Statement of Claim. 8. All documents evidencing and disclosing that the First Respondent represented that there are 28 Healthy Habits on the eastern seaboard of Australian and one healthy habit store in New Zealand as pleaded in paragraph 6a of the Statement of Claim 9. All documents evidencing and disclosing that the First Respondent represented the Healthy Habits store receive almost 40,000 transaction per week. 10. All documents evidencing and disclosing that the First Respondent represented that current Healthy Habits stores average between $34,000 and $150,000 per month on sales turnover. 11. All documents evidencing and disclosing the First Respondent represented that Healthy Habits stores produced $59,770.10 per hour month in average. 12. All documents evidencing and disclosing that the First Respondent represented that Healthy Habits store is profitable. 13. All documents evidencing and disclosing that the document referred to in paragraph 7 of the Statement of Claim was provided to the Applicant after 1 December 2016 as pleaded in paragraph 8 of the Statement of Claim. 14. All documents concerning the receipt and consideration, completion and return of the LMA disclosure statement referred to in paragraph 9 of the defence. 15. All documents concerning the receipt and consideration, completion and return of the LMA legal advice statement referred to in paragraph 10 of the defence. 16. All documents concerning the receipt and consideration of the First Respondent's letter dated 13 April 2017 to LMA and the franchise agreement enclosed therein (refer to paragraph 11 of the defence). 17. All documents of the Applicant, including file notes or records kept by the Applicant concerning the receipt, consideration, completion and return of the Vitamin Disclosure Statement (refer to paragraph 13 of the defence). 18. All documents of the Applicant including file notes or records kept of the Applicant or accounts/invoices rendered to the Applicant concerning the receipt, consideration, completion and return of the Vitamin Legal Advice Statement (refer to paragraph 14 of the defence). 19. All documents of the Applicant including file notes or records kept of the Applicant or accounts/invoices rendered to the Applicant concerning advice given to it by Landers and Rogers lawyers and Eclipse accountants concerning the proposed franchise agreement referred to in paragraph 14 (b) of the defence and the written record of advice given by Landers and Rogers and Eclipse Accountants to the Applicant. 20. All documents of the Applicant including file notes or records kept of the Applicant concerning the receipt and consideration of the information statement (refer to paragraph 14 c of the defence). 21. The following documents: (a) file notes or records kept of the Applicant concerning the negotiation and entering into of the lease referred to in paragraph 9(a) of the Statement of Claim; (b) all the correspondence passing between the landlord of the store and the Applicant prior to entry into the lease; (c) the lease dated on or about 26 Nov 2019; and (d) the letter of offer for lease and/or disclosure statement for the lease. 22. All documents disclosing and evidencing that in the period 27 November 2017 to 3 December 2017. The average sales per Healthy Habits store was $6,443.00. 23. All documents disclosing and evidencing that in the 6 weeks to 3 December 2017 the average sales per Healthy Habit stores did not exceed $7,000 per week. 24. All documents disclosing and evidencing that as at December 2017 Healthy Habits stores conducted about 7,076 transactions per a week. 25. All documents disclosing and evidencing that as at December 2017 there were approximately 13 Healthy Habits stores. 26. General Ledger, profit and loss, financial statements and tax returns of the Applicant for the period 1 July 2017 to 30 June 2019. 27. Not used 28. Not used 4 The Respondents now claim that the Applicant has failed to give full discovery. This they do by an interlocutory application filed on 29 June 2020. The Applicant says it has given discovery and that many of the documents sought by the Respondents do not exist. 5 On 13 March 2020 the Applicant served a list of documents. By Federal Court Rules 2011 (Cth) ('FCR') r 20.16 this is how a party gives discovery. The list was accompanied by an affidavit of discovery made by a director of the Applicant. This affidavit verified that he had made reasonable inquiries as to the existence and location of the documents specified in the order of 29 January 2020 and that to the best of his knowledge there were no documents specified in the order that were or had previously been in the Applicant's control other than those specified in the accompanying list. Following the structure required by Form 38, in Part 1 of the appended list of documents the Applicant's director purported to set out documents which were in the control of the Applicant and which were not privileged. In Part 3 (Part 2 was not used) he set out those documents which had been in the Applicant's control but were no longer in its control. These consisted of the Applicant's accounting records which the director said were in the control of the Applicant's accountant. He said that the accountant had been asked to provide copies and that it was expected that copies would be provided. As will be seen, the list did not comply with the FCR. 6 The relief sought in the interlocutory application is as follows: 1. The Applicant provide discovery by giving, a more detailed list of documents whereby each document discovered is enumerated and listed below each the 26 categories of documents listed in schedule A to the orders made 29 June 2020 ("the Orders"). 2. The Applicant verified by an affidavit whether it has in its control or does not have any documents which fall within the categories of documents described in paragraphs numbered 1 and 3 to 16 listed in schedule A of the Orders. 3. The Applicant comply with order made 29 January 2020 by providing discovery of documents within paragraphs numbered 1,4, 5, 14, 16, 17, 20, 25 in schedule A of the Orders. 4. The Applicant provide discovery of : a. the signed financial statements for the financial years ended 30 June 2018 and 30 June 2019 of the applicant; b. the signed tax returns for the financial years ended 30 June 2018 and 30 June 2019 of the applicant lodged with the Australian Taxation Office; c. the wage records and employee records of the applicant for the period 1 July 2017 to 30 June 2019; d. the invoices making up each of the amounts claimed as an Operating Expense in the Profit and Loss Statement being Annexure CL-20 to the Affidavit of Charles Leonidas sworn 26 June 2020; e. the invoices or receipts making up each of the amounts of Total Income in the Profit and Loss Statement being Annexure CL-20 to the Affidavit of Charles Leonidas sworn 26 June 2020; and f. the invoices or receipts making up each of the amounts of Total Costs of Sales in the Profit and Loss Statement being Annexure CL-20 to the Affidavit of Charles Leonidas sworn 26 June 2020. 6. The Applicant pay the Respondents' costs of and incidental to this application for security of costs. 7. Such further orders as the Court deems appropriate. (Errors in the original.) 7 It is convenient to deal with Prayer 1 first which seeks a more detailed list of documents. Part 1 of the Applicant's list was as follows: No. Description of document(s)/category Number of documents in category (if applicable) Date/period 1 Copy of email referring to Nick Abboud reviewing the first respondent's website and application franchising form 2 2 February 2017 to 22 March 2017 2 Copy of company extract of the applicant held by ASIC and share register of applicant 2 3 Copy of 2 emails related to, and confidentiality deed signed by Nick Abboud 3 25 January 2017 to 27 February 2017 4 Copy of email referring to Nick Abboud reviewing the first respondent's website and application franchising form 2 2 February 2017 to 22 March 2017 5 Copy of website maintained by first respondent stating we have grown to over 28 stores on the eastern seaboard of Australia with a further store in New Zealand 2 11 November 2016 to 18 February 2017 6 Copy of website maintained by first respondent stating with almost 40,000 people each week buying our delicious sandwiches, salads and juices. 2 11 November 2016 to 22 March 2017 7 Copy of website maintained by first respondent and copy of email re-stating representation that the first respondent's stores currently range between $34,000 - $150,000 per month 3 11 November 2016 to 22 March 2017 8 Copy of website maintained by first respondent and copy of email re-stating representation that the first respondent's stores currently range between $34,000 - $150,000 per month 5 11 November 2016 to 22 March 2017 9 Email attaching document titled "Disclosure Document for Franchisee or Prospective Franchisee" 1 8 February 2017 10 Copy of the legal advice statement 1 24 March 2017 11 Copy of 2 emails related to, and confidentiality deed signed by Nick Abboud 3 25 January 2017 to 27 February 2017 12 Copy of the legal advice statement 1 23 July 2017 13 Copy of 3 emails related to the legal advice statement and copy of statement 4 25 January 2017 to 23 July 2017 14 Copy of 1 emails related to the legal advice provided by Landers & Rogers 4 3 April 2017 15 Emails relating to the lease, legal advice relating to lease, contribution deed, lease, and license agreement 27 January 2017 to 26 October 2017 16 Scorecard for Mossman franchise disclosing average sales, transactions and number of stores 1 27 November 2017 to 3 December 2017 17 Profit and loss and financial statements of applicant 2017 to 2019