The hearing of this motion came before me in the Duty List on 15 March 2017. In order to permit the matter to proceed towards its conclusion, I shall be brief.
An amended notice of motion was filed on 19 December 2016 by the cross-defendants, Gloucester 103 Holdings Pty Ltd (Gloucester) and Klondu Group Pty Limited (Klondu). Many of the orders sought in that notice of motion were resolved, in circumstances that I shall summarise in a moment. The remaining orders that required resolution by me were as follows:
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5. An order setting aside the notice to produce issued by the defendants/cross-claimant to the second cross-defendant dated 9 December 2016.
6. An order that the defendants/cross-claimant pay the costs of and relating to order 5.
The notice to produce of 9 December 2016 that the cross-defendants sought to have set aside was purportedly issued by three defendants, one of whom is the cross-claimant (the first defendant in the proceedings), Southern Environmental Services Pty Ltd (Environmental). It is addressed to Klondu and in the following terms:
You are required to produce the following documents or things to the court:
1. Copies of all Management Accounts for Klondu Group Pty Ltd for the relevant period.
2. Copies of any records maintained by Klondu Group Pty Ltd during the relevant period by which revenue and profits generated by the drum manipulators are recorded.
Drum manipulators means the three Drum Manipulators onsite at Klondu Group Pty Ltd's premises at Steelhaven, Via Gate 9, Five Islands Road, Port Kembla, NSW, 2505.
Relevant Period means from 1 December 2014 to 9 December 2016.
Background
The background of this dispute may be shortly stated. Some time ago, Westpac Banking Corporation (Westpac) advanced funds to the first defendant, Environmental. That was pursuant to a hire purchase agreement pertaining to a number of large and expensive drum manipulators, which are industrial machines that are used to hold in place very large drums so that they can be serviced and repaired. I shall refer to the drum manipulators as "the goods".
Quite apart from the security of the goods themselves, Gyressa Pty Ltd (the second defendant; Gyressa) provided a guarantee of the indebtedness of the debtor Environmental to Westpac. So did the third defendant, Mr Paul Wenham, who is closely associated with the first and second defendants, and with the company Southern Engineering Services (Engineering).
Separately to the loan arrangements, Environmental leased the goods to Engineering. Engineering in turn leased premises at Port Kembla from Gloucester.
Subsequently, Engineering went into liquidation. The liquidators of that company disclaimed the lease of the goods from Environmental, and also the lease of real property from Gloucester. In circumstances that are a little unclear and disputed, the goods remained at the premises at Port Kembla of Gloucester, the lessor.
Eventually, Gloucester permitted Klondu to remove the goods, on the purported basis that the lease of the real property permitted Gloucester, as lessor, to do so. It was not disputed before me that Klondu has been using the goods in its own business.
Of the three defendants, only Environmental has cross-claimed against Gloucester and Klondu. By way of a cross-claim filed on 14 June 2016, the following is asserted. The Port Kembla premises were subject to a lease between Gloucester as lessor and Engineering as lessee. That lease was terminated on 19 December 2014. The goods were present at the premises on 19 December 2014, and were removed between that date and 5 January 2015. The goods were installed at the business premises of Klondu and used in its business. Environmental demanded that the goods be delivered up on 1 June 2016. They were not delivered. Environmental is claiming loss suffered by it being deprived of possession of the goods and the subsequent conversion of them.
By way of a defence to that cross-claim of 29 July 2016, Gloucester and Klondu have (in a nutshell) asserted that it was necessary to remove the goods from the premises to allow for vacant possession on the part of Gloucester, the lessor, and no wrong was committed in doing so.
The principle proceedings between the creditor Westpac, the debtor Environmental, and the two guarantors, Gyressa and Mr Wenham, were settled on the day of the hearing of the motion. To state my understanding of the effect of that settlement very succinctly, Westpac allowed a set-off in the value of the goods in its claim against the debtor Environmental and the two guarantors, and was content to pursue the rest of the money said to be owed to Westpac by way of pursuing its interest in the goods themselves. Accordingly, that resolved dispute can play no role in the question for determination by me.
Similarly settled on the same day was that part of the notice of motion under discussion by which Gloucester and Klondu sought orders against Westpac; their import does not require elaboration.
It is in that context that I am called upon to decide whether the notice to produce of Environmental addressed to Klondu should be permitted to stand.
Undisputed legal principles
Before me, the following propositions were not in dispute.
First, in its statement of claim of 26 October 2015 Environmental has sued Gloucester and Klondu in detinue and conversion.
Secondly, in order for an impugned notice to produce (or subpoena to produce documents, or like compulsory process) to stand, a legitimate forensic purpose must be demonstrated by the issuing party.
Thirdly, in civil proceedings, analysis of the pleadings plays a significant role in determining whether a legitimate forensic purpose exists, because the pleadings should readily show the true areas of factual dispute between the parties.
Submissions of counsel for Environmental
With regard to the question of the legitimate forensic purpose of a notice to produce to Klondu seeking its internal financial records, in particular with regard to its revenue and profits from the use of goods in its business, Mr Robertson of counsel accepted that his client Environmental had not sued Gloucester or Klondu for account of profits. In other words, he accepted that the income derived by Klondu from its use of the goods was not directly relevant to the claim of Environmental.
He did submit, however, that any such income is indirectly relevant, and serves a legitimate forensic purpose. That is because, he submitted, the goods are rare, and establishing the loss to Environmental of not possessing them is difficult. It was said that the remunerative use to which Klondu put the goods can shed light on the loss to Environmental as a result of the alleged torts of detinue and conversion. In that way, he submitted, evidence of the income derived by Klondu from the goods allegedly wrongfully retained by it serves a legitimate forensic purpose in the proceedings. He noted that the material sought in the notice to produce had been requested by an expert retained by Environmental, and was not, he submitted, a speculative fishing expedition.
Submissions of counsel for Gloucester and Klondu
Counsel for Gloucester and Klondu impugned the notice to produce on various bases, the most significant of which were as follows.
First, the notice to produce has no direct legitimate forensic purpose, because there is no claim for the profits of Klondu.
Secondly, as for the asserted indirect legitimate forensic purpose, whereas Environmental has claimed for lost profits as a result of it being unable to hire out the goods that were not in its possession, Klondu was never in the business of hiring them out.
Thirdly, Klondu has already complied, to the extent that it is able, with an earlier notice to produce of Environmental dealing with the same subject matter.
Fourthly, cl 1 of the notice to produce is far too broad; so is cl 2, if it is to be interpreted literally.
Determination
Turning to my determination, I do not propose to deal with every ancillary position of each counsel. That is because my primary determination is straightforward.
To my mind, there is no legitimate forensic purpose to this notice to produce. As can be seen, the claim of Environmental is based on lost hiring profits of Environmental, not on an account to Environmental for the profits of Klondu.
It is true that the profits that Klondu derived from hiring out unusual items could shed light, perhaps, on lost profits from similar hiring out of Environmental. But there is no evidence that Klondu hired out the goods. Rather, it used them in its own business.
To my mind, the details of the profits of Klondu are simply too remote to the claim brought by Environmental, founded as it is on its own lost profits by hiring out.
And in any event, the loss said to have been occasioned to Environmental by that lost opportunity to hire out the goods is specifically stated in the cross-claim at [13]:
[13] The Cross Claimant is suffering loss by being deprived of possession of the drum manipulators and by the Cross Defendants' conversion of the drum manipulators.
Particulars
(i) The Cross Claimant has been unable to deliver the drum manipulators to Westpac or negotiate any sale of the drum manipulators so as to satisfy or reduce its liability to Westpac under its Commercial Hire Purchase Agreement.
(ii) The Cross Claimant had, prior to a disclaimer dated 2 September 2014 by the administrators appointed to Southern Engineering Services Pty Ltd, leased the drum manipulators to Southern Engineering Services Pty Limited at a rental of $44,000.00 per month (inclusive of GST).
(iii) The Cross Claimant claims the sum of $704,000.00 to the date of this Cross Claim and continuing.
In other words, the cross-claimant has "pinned its colours to the mast" already with regard to what it has allegedly lost by way of the alleged detinue and conversion, with regard to its inability to hire out the goods: the precise sum of $704,000.
For those reasons - the legal irrelevance of the profits of Klondu; their evidentiary remoteness, in the absence of evidence of hiring out of the goods by Klondu; and the fact that the loss alleged to have been suffered by the inability of Environmental to hire out the goods is already particularised in the cross-claim - I am affirmatively satisfied that the notice to produce has no legitimate forensic purpose.
In those circumstances, the notice to produce must be set aside.
Costs
Each counsel accepted that there is no reason why the costs of the motion should not follow the event.
Orders
I make the following orders:
1. The notice to produce issued by the defendants/cross-claimant to the second cross-defendant dated 9 December 2016 is set aside.
2. The defendants/cross-claimant must pay the costs of the second cross-defendant of the notice of motion.
[2]
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Decision last updated: 31 March 2017