Yes Family Pty Ltd v Sphere Healthcare Pty Ltd

Supreme Court of NSW|2016-04-05|Before: Slattery J

Judgment

The Plaintiff in these proceedings, Yes Family Pty Ltd ("Yes Family") brings a motion for leave under Equity Practice Notice, SC Eq 11 to issue three subpoenas and a notice to produce (collectively "the subpoenas") prior to the hearing of its application for preliminary discovery under Uniform Civil Procedure Rules 2005 ("UCPR"), r 5.3.
Yes Family has been the registered proprietor of and lessor of a manufacturing facility in the Sydney suburb of Moorebank (the Premises) since 26 October 2011. The Defendant, Sphere Healthcare Pty Ltd ("Sphere") has leased the Premises since 17 April 2008, originally from a previous owner of the Premises and later from Yes Family after it acquired the freehold of the Premises in October 2011. Sphere's lease from the original owner was amended on 27 September 2010 before Yes Family's acquisition of the freehold. Sphere manufactures products for human consumption that are distributed throughout Australia and parts of Asia.
Yes Family's application for the issue of the subpoenas arises in the following way. Yes Family alleges that Sphere is in breach of a number of provisions of the lease. Sphere denies it is in breach. In June 2015 Yes Family issued and served on Sphere a notice of breach of covenant alleging four main breaches. But Yes Family has not yet commenced proceedings for re-entry under the lease or for damages for the alleged breaches. Instead, Yes Family has sought preliminary discovery under UCPR r 5.3 to obtain further information to ascertain whether or not Sphere has committed breaches of the lease.
But in the course of preparation for the preliminary discovery application the defendant, Sphere put on evidence, of information and belief from its solicitor, denying that it is in breach of the lease in any of the ways on which Yes Family relies. Now Yes Family argues that it should be able to issue the subpoenas during the preliminary discovery application, in order to test the evidence that Sphere is fielding. In reply Sphere argues that the subpoenas cannot be issued because it would be an impermissible abuse of process to subpoena the very same documents being sought in the preliminary discovery application.

Yes Family Applies for Preliminary Discovery

On 16 June 2015, Yes Family issued and served on Sphere a Notice of Breaches of Covenant under Conveyancing Act 1919 (NSW), s 129(9) alleging various breaches of the lease. Relevantly for the purposes of the present motion, the alleged breaches were described as including the following: 1. Clause 8: not to assign, sub-let or part with possession of the Demised Premises or any part thereof without the Lessor's consent; 2. Clause 6.1: to use the Demised Premises only for pharmaceutical production and warehouse facility; 3. …
Yes Family subsequently filed a Summons on 5 November 2015 and then an Amended Summons on 27 November 2015 seeking preliminary discovery under UCPR, r 5.3, so it could determine whether Yes Family has a cause of action in relation to a breach of the lease by Sphere. The documents sought in the Amended Summons relate to four alleged beaches of the lease, namely: 1. A change of control of Sphere from its existing shareholders to a shareholding of ROC Partners Pty Ltd, which was alleged to be a deemed assignment of the lease in breach of the cl 8 prohibition on assignments or parting with possession of the Premises; 2. Use of the Premises otherwise than as a pharmaceutical production and warehouse facility in breach of cl 6.1, which only permits the lessee to use the premises for that purpose; 3. Unauthorised physical alteration to the Premises, in breach of cl 7.6, which prohibits such work without the lessor's consent; and 4. An unauthorised parting with part possession of the Premises or part of the Premises to Sphere Healthcare (Asia) Pty Ltd, in breach of cl 8.
Sphere largely denies these alleged breaches. Although with respect to the alleged change in control, it concedes that a breach occurred but contends that the breach was rectified on 3 October 2014.
Yes Family has filed two affidavits of Mr Gang Yin, the Secretary of the Plaintiff, dated 5 November 2015 and 27 January 2016 on the preliminary discovery application.
On 15 December 2015, the Sphere filed an affidavit of its solicitor Mr David Anthony Sim dated 15 December 2015 on the preliminary discovery application.
Yes Family subsequently filed a Notice of Motion on 29 January 2016 seeking leave to issue a Notice to Produce to the Defendant and to issue Subpoenas to ROC Partners Pty Ltd, Miles Advisory Partners Pty Ltd, and the Commonwealth Department of Agriculture and Water Resources. Yes Family submits that it requires disclosure of the documents identified in the Notice and Subpoenas in order to challenge allegations made in Mr Sim's affidavit relating to the alleged breaches of the lease.
This matter was heard on 5 April 2016. Mr V. Gray of counsel appeared for the Plaintiff and Mr J. Knackstredt of counsel appeared for the Defendant.
The key issue raised by this motion is whether an applicant is entitled on an application for preliminary discovery to require that documents be produced for the purposes of challenging assertions made in an affidavit filed by the prospective defendant that go to the merits of the applicant's prospective case. It is not necessary to address the other issue raised on the Motion. As the Court has decided not to grant leave to issue the subpoenas as to do so would be an abuse of process, it is not necessary for the Court to consider whether the proposed subpoenas are appropriately formulated in accordance with the principles laid down by Barrett J in Patonga Beach Holdings Pty Ltd v Lyons [2009] NSWSC 869 at [14].

Production of documents on an application for preliminary discovery

Under UCPR, r 5.3(1), preliminary discovery may be ordered by a court if three criteria are satisfied: (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
Yes Family submits that leave should be granted to issue the subpoenas to enable it to challenge Mr Sim's allegations with respect to the purported breaches of the lease on the hearing of the application for preliminary discovery. The allegations that the Plaintiff contends are made by Mr Sim in his affidavit may be summarised as follows: 1. That the change of control in breach of cl 8 has been rectified; 2. That Infant formula is a pharmaceutical product such that the Defendant has not breached cl 6.1 with respect to the authorised use of the Premises; 3. That the Defendant has not made unauthorised physical alterations to the Premises in breach of cl 7.6; and 4. That Sphere Healthcare (Asia) Pty Ltd was incorporated for the sole purpose of holding a licence issued by the Government of the People's Republic of China and has not manufactured products at the Premises such as would constitute a breach by the Defendant of cl 8.
These allegations were variously phrased by Mr Sim as matters of which he was informed by Mr Riley, a principal of Sphere, and believes to be true. It is not necessary for the disposal of this Motion to resolve a dispute between the parties as to whether Mr Sim's statements are properly described as allegations or simply a repetition of his instructions.
Yes Family submits that leave should be granted to issue the subpoenas because Mr Sim's affidavit has brought forward into the preliminary discovery contest the substantive issues between the parties and represents a forensic decision on the part of Sphere to address the merits of Yes Family's prospective case on the application for preliminary discovery. It submits that the documents sought by the proposed subpoenas would be likely to either verify or disprove Mr Sim's allegations. It submits that if the documents contradict the allegations, the documents would be relevant to Mr Sim's credit and the reliability of his affidavit evidence. It submits that if the affidavit were shown to be unreliable, that would be relevant to the criteria to be considered under r 5.3(1) as it would support Yes Family's contention that it presently lacks sufficient information to decide whether or not to commence proceedings, such that it should be entitled to preliminary discovery.
Yes Family also submits that if it were not able to test Mr Sim's affidavit, the processes of the courts would be able to be exploited by litigants instructing their legal representative on matters that are untrue and the legal representative subsequently swearing an affidavit based upon those instructions. It further submits that the grant of leave to issue the subpoenas would accord with the overriding purpose of the Rules - the facilitation of the "just, quick and cheap resolution of the real issues in the proceedings" (Civil Procedure Act 2005, s 56) - because the documents would allow the Plaintiff to determine "sooner not later" whether Mr Sim's allegations are correct or false and therefore whether it has a prospective case.

Consideration

For the reasons that follow, Yes Family's motion cannot succeed.
An application for preliminary discovery cannot be used to conduct a trial of the merits of the prospective case: Ian Edward Morton v Nylex Ltd [2007] NSWSC 562 at [33] (White J). Just because Mr Sim seeks in his affidavit to put in issue some of the matters that would be debated on a trial on the merits, does not change the nature of the hearing under UCPR, r 5.3 which is only to determine the various matters identified in [14] above.
At the hearing of this motion, Yes Family emphasised the remarks of Hill J in Tyco Australia Pty Ltd v Leighton Contractors Pty Ltd [2005] FCAFC 115 at [38] that: "It is true that an application for pre-action discovery does not determine substantive rights in the normal sense. It does not follow from this that factual matters may not be in dispute. No doubt, there is a right to keep documents private and an order for discovery acts to abrogate that right. This suggests that in an appropriate case it should be appropriate for the Court to investigate the claim for discovery and whether it is warranted. Indeed, the suggestion that no cross-examination would be possible in a proceeding for pre-action discovery was put, but faintly. Once it is accepted that cross-examination, even to a limited extent, may be undertaken, it must follow that it must be possible to require documents to be produced in aid of that cross-examination." [Emphasis added]
But those remarks must be read in the broader context of His Honour's reasons. At [37], his Honour gave the example that: "Because, as noted earlier, it will be for an applicant under rule 3 to establish that reasonable inquires have been made, it would be possible for a respondent to call this matter into question. A notice to produce addressed to the applicant and relating to inquiries said to have been undertaken would be forensically possible where this was an issue".
In the same case, Conti J stated at [58] that: "… A respondent to an Order 15A proceeding who engages in the service of a notice to produce must therefore address the question whether the documentary or other material minded to be sought is truly 'of apparent relevance' to issues apparently raised by or involved in the application for preliminary discovery in order to obviate the need for what might eventuate in a further layer of adjectival litigation."
In the present case, nothing would arise out of the subpoenas and on which Mr Sim might be cross-examined that would affect the matters required to be satisfied under r 5.3(1) as opposed to the substantive issues in prospective proceedings between the parties. The documents sought would not assist for example in the determination: whether Yes Family has made reasonable inquiries for the information; whether Yes Family lacks sufficient information to decide whether or not to commence proceedings or whether the documents concerned would assist in deciding if Yes Family has a claim for relief.
As to Yes Family's submission that it would be unable to test the veracity of Mr Sim's affidavit, it remains open to Yes Family on the hearing of the application for preliminary discovery to contend that it lacks sufficient information to decide whether or not to commence proceedings against the prospective defendant because it cannot verify the truth of the matters alleged in Mr Sim's affidavit, which remain mere allegations at this interlocutory stage.
Civil Procedure Act, s 56 does not assist Yes Family's argument on the present Motion. The remarks of Hill J in Tyco Australia Pty Ltd v Leighton Contractors Pty Ltd at [38] remind that a party such as Sphere has a "right to keep documents private". UCPR, r 5.3 provides the procedure by which an applicant may be granted discovery without having commenced proceedings. The procedure cannot be circumvented. If Yes Family's motion were granted, the application for preliminary discovery would be rendered otiose. The remarks Hill J in Tyco Australia Pty Ltd v Leighton Contractors Pty Ltd at [34] are apt in this respect: " … However, while it would be clearly an abuse of process for an applicant for pre-action discovery to issue a notice to produce the very documents sought by the application for pre-action discovery that is not a matter necessarily going to the power to issue a notice to produce. Rather, it would go to whether the Court would decline to order compliance with the notice on the basis of abuse of process." [Emphasis added]
His Honour went on to state at [46] that: "… An applicant who seeks to use a notice to produce, in effect, to gain production of the very documents which are the subject of the pre-action discovery will not have given the notice to produce in good faith, but rather, will have acted in a way that is an abuse of process. Otherwise, in principle at least, the notice to produce procedure may be exercised by both parties if otherwise relevant to issues in dispute. However, I would emphasise that it clearly is not contemplated that a pre-action discovery proceeding become a full-blown factual contest between the parties. The judge hearing the application will, no doubt, confine cross-examination and examine the subject matter of any notice to produce to ensure this does not become the case."
Hill J's statement of principle in Tyco directly covers the present application. The documents being sought by the subpoenas are identical to the documents sought in the application for preliminary discovery under UCPR, r 5.3. Indeed the documents sought under the subpoenas are somewhat more extensive. The essence of the abuse of process in these circumstances is that the delivery of the documents to Yes Family in response to the subpoenas would set at nought the whole preliminary discovery application, the purpose of which is to determine whether or not Yes Family should have those documents before action. Granting the application would allow Yes Family to bypass the requirements of UCPR, r 5.3. When it was put to Mr Gray of counsel for Yes Family that this would in substance be the effect of issuing and responding to the subpoenas, despite putting everything that he could against the conclusion, he really could not answer it. This is not criticism of Mr Gray, as in my view there is no answer.
Conclusions and Orders
For the reasons given the Court concludes that the grant of leave to Yes Family to issue these subpoenas and the notice to produce in the course of its present application for preliminary discovery under UCPR, r 5.3 would result in an abuse of process and should be denied. Costs should follow the event.
Accordingly the Court orders that:- 1. The plaintiff's motion dated 29 January 2016 be dismissed; and 2. The plaintiff pay the defendant's costs of the motion.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 08 April 2016

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