Supreme Court of WA|2005-04-19|Before: Mr J

Youlden Enterprises Pty Ltd & Anor v Health Solutions (WA) Pty Ltd & Ors [2005] WASC 60 (19 April 2005)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : YOULDEN ENTERPRISES PTY LTD & ANOR -v- HEALTH SOLUTIONS (WA) PTY LTD & ORS [2005] WASC 60

BETWEEN : YOULDEN ENTERPRISES PTY LTD (ACN 063 388 947)

HEALTH SOLUTIONS AUSTRALIA PTY LTD (ACN 063 345 077)

Practice and procedure - Particular discovery - Relevant principles - Whether documents relate to matters in issue - Turns on own facts

Astra-National Productions Ltd v Neo-Art Productions Ltd [1928] WN 218

Beecham Group Pty Ltd v Bristol Myers Co [1979] VicRp 27; [1979] VR 273

Compagnie Financiere et Commerciale du Pacifique v Peruvian Guano Co [1882] 11 QBD 55

GE Capital Corporate Finance Group Ltd v Bankers Trust Co [1995] 2 All ER 993

Jones v Andrews (1888) 58 LT 601

Kent Coal Concessions Ltd v Duguid [1910] 1 KB 904

PDM Australia Pty Ltd v Kellogg Overseas Corporation & Ors, unreported; SCt of WA; Library No 6646; 26 March 1987

Schlam v WA Trustee Executor & Agency Co Ltd [ 1964] WAR 178

British Association of Glass Bottle Manufacturers v Nettlefold [1912] AC 709

Youlden Enterprises Pty Ltd & Anor v Health Solutions (WA) Pty Ltd & Ors [2003] WASC 82

1 MASTER NEWNES: This is an application by the first-named plaintiff ("Youlden") for discovery by HSWA ("HSWA") of particular documents. On 11 September 2003 an order was made by which HSWA was to give discovery of documents relating to specified matters in issue in the action. Youlden says that proper discovery has not been given by HSWA pursuant to the order. On this application, Youlden relies on the inherent jurisdiction of the Court and on O 26 r 6 of the Rules of the Supreme Court 1971 (WA). Youlden relies on affidavits of 18 May 2004 and 11 February 2005 sworn by Mr Mason, a solicitor for Youlden, to enliven the Court's jurisdiction under O 26 r 6.

2 I should say that the second-named plaintiff is no longer playing any part in the proceedings. It is also the case that HSWA is not taking any active role but it has in its possession, custody or power many of the documents which relate to the matters in issue between Youlden and the second and third defendants.

3 In determining whether to make an order for further discovery, the Court must have reasonable grounds for being fairly certain that there are other relevant documents which ought to have been discovered: Beecham Group Pty Ltd v Bristol Myers Co [1979] VicRp 27; [1979] VR 273. The Court must be able to infer from the nature of the document in question that it is relevant; it will not speculate as to its relevance. Relevance may either appear from the nature of the document or its contents, and if the latter then there must be a prima facie case as to the contents before an order for further discovery will be made: Astra-National Productions Ltd v Neo-Art Productions Ltd [1928] WN 218 at 219. Where an application is made in respect of a document referred to in a document already discovered (the relevance of the latter being conceded by its discovery) it is generally reasonable to assume, in the absence of a contrary indication in the document discovered, that the document referred to is relevant: see Compagnie Financiere et Commerciale du Pacifique v Peruvian Guano Co [1882] 11 QBD 55; Kent Coal Concessions Ltd v Duguid [1910] 1 KB 904 at 915 and the discussion in PDM Australia Pty Ltd v Kellogg Overseas Corporation & Ors, unreported; SCt of WA; Library No 6646; 26 March 1987 at [5-14].

4 In determining whether a document relates to a matter in question, and, therefore, whether it ought to have been discovered, the test is that set out in Compagnie Financiere et Commerciale du Pacifique v Peruvian Guano Co (supra) as follows:

"It seems to me that every document relates to matters in question in the action which not only would be evidence upon any issue, but also which, it is reasonable to suppose, contains information which may - not which must - either directly or indirectly enable the party requiring the affidavit either to advance his own case or to damage the case of his adversary. I have put in words 'either directly or indirectly' because it seems to me, a document can properly be said to contain information which may enable the party requiring the affidavit either to advance its own case or to damage the case of its adversary, if it is a document which may fairly lead to a chain of inquiry, which may have either of those two consequences."

5 The matters in issue are to be determined by reference to the pleadings: Mulley v Manifold [1959] HCA 23; (1959) 103 CLR 341 per Menzies J at 345. But regard must also be had to the conduct and admissions of the parties and the nature of the action: Schlam v WA Trustee Executor & Agency Co Ltd [ 1964] WAR 178 at 186.

6 It is also important to bear in mind that there is not a strict entitlement to an order for discovery, including an order for further discovery: Kent Coal Concessions Ltd v Duguid (supra) at 910. Moreover, amendments to the Rules in more recent times, including the introduction of O 1 r 4B and O 26 r 7, emphasise the need to have regard to the timely and cost effective disposal of the action in the exercise of the discretion to order discovery.

7 It is against that background that I turn to the specific issues raised on this application.

8 The first complaints by Youlden relate to certain payments which it is alleged HSWA made to Fopar Nominees Pty Ltd ("Fopar"), a company controlled by the third defendant ("Mr Fogarty"), and which are described in the order for discovery of 11 September 2003 as the "Fopar Payments". It is pleaded in par 42 of the statement of claim that, in or about 2000, Mr Fogarty caused HSWA to make five specific payments to Fopar of different amounts. It is pleaded in par 43 and par 44 of the statement of claim that Mr Fogarty caused the payments to be made without the authority of the directors of HSWA, that no consideration was provided by Fopar for the payments and that there was otherwise no reason for the payments to be made. It is pleaded that Mr Fogarty was therefore in breach of his duties as a director of HSWA.

9 In his defence Mr Fogarty admits that the payments pleaded by Youlden were made, but denies that he caused them to be made and denies they were made without the authority of the directors of HSWA, or some of them. Mr Fogarty also denies that the payments to Fopar were made without consideration or that there was no other proper reason for them to be made.

10 Mr Fogarty pleads (at par 43.2.6.4 of his defence) in respect of one of the payments, a payment of $80,000 made on or about 22 June 2000 to Fopar, that in or about May 2000 Mr Gorton advised Mr Fogarty that HSWA had failed to make a payment of $80,000 which was due to HCI (a company then controlled by Mr Fogarty) for management fees. Mr Fogarty pleads that he instructed HSWA's accountant to cause those funds to be forwarded to his (Mr Fogarty's) company, by which Mr Fogarty meant HCI. In error, Mr Fogarty signed an HSWA request for EFT form authorising the funds to be forwarded to Fopar, instead of HCI. Within about two days of the payment being made, Mr Fogarty pleads, he learned of the error and promptly caused Fopar to repay the $80,000 to HSWA.

11 In an affidavit sworn 11 February 2005, on behalf of Youlden, Mr Mason says that no documents apart from some pages of a bank statement and an EFT form have been discovered in relation to this transaction. Youlden seeks the bank statements of HSWA for May and June 2000. Youlden's counsel submitted that it was insufficient to discover simply isolated entries in the bank statements, with the remainder masked, and submitted that Youlden was entitled to discovery of all the bank statements for the relevant months. Youlden also says that in the ordinary course of business, and in accordance with its statutory obligations to maintain proper books and records, HSWA would be expected to have records in the nature of journal or ledger entries and other routine accounting records in respect of payments of this magnitude by and to HSWA.

12 It is clear that a party is entitled to seal up or cover up irrelevant parts of a document so that only discoverable material is disclosed. The oath of a party who has sealed up parts of a document that the unsealed parts are the only parts relating to the matters in question, or that the sealed up parts do not relate to the matters in question, is prima facie conclusive. The claim may only be questioned in the same manner as an ordinary affidavit of discovery: Jones v Andrews (1888) 58 LT 601; GE Capital Corporate Finance Group Ltd v Bankers Trust Co [1995] 2 All ER 993 at 995-6.

13 For reasons I will come to later, I consider that all of the bank statements from 31 December 1999 to 30 June 2002 in respect of five specific accounts of HSWA should be discovered. However, except to the extent that they are included in those bank statements, I consider that in relation to the Fopar payments it is sufficient that HSWA discovers the relevant entry or entries in the bank statements. There is nothing to suggest that any other entries relate to the matters in issue.

14 As to the other documents sought, it is evident from the pleadings that HSWA is a substantial commercial company running a substantial hospital and associated facilities under an arrangement with the State government. It produces annual audited financial statements. HSWA has, of course, statutory obligations under the Corporations Act, 2001 (Cth), to keep written financial records that correctly record and explain its transactions and financial position, and which would enable audited financial statements to be prepared. Quite apart from that, in view of the nature of the company and its business it is reasonably to be expected that records of the type suggested by Youlden would routinely be maintained.

15 I accordingly consider there are reasonable grounds for being fairly certain that such records do exist and would order that HSWA state on affidavit whether (as specified in the order of 11 September 2003) any "vouchers, cash books, requisitions, authorities, Board minutes, correspondence, memoranda and notes" are or have been in its possession, custody or power relating to the payments in question and, if they were but are not now in its possession, custody or power, when it parted with them and what has become of them.

16 Mr Fogarty pleads in his defence that, in or about late August 2000, Mr Gorton advised Mr Fogarty that he (Mr Gorton) required the other payments made to Fopar to be repaid to HSWA. Mr Fogarty says that, in or about September 2000, he caused Fopar to repay the moneys and, to offset any interest foregone by HSWA by reason of the Fopar Payments, arranged for the delay in payment of further management fees due to Fopar from HSWA and did not recover, or delayed recovery of, any other sums owing by HSWA to Fopar.

17 In his affidavits of 18 May 2004 and 11 February 2005, Mr Mason says that there are no documents among HSWA's discovered documents which disclose the repayment of the balance of the Fopar Payments by Fopar or the date upon which each of the delayed management fees and other sums owing by HSWA to Fopar were paid by HSWA. Youlden seeks discovery of documents relating to those payments, and in particular Youlden seeks copies of the bank statements disclosing when in each case the moneys were paid. HSWA says it will provide discovery of the relevant entries from the bank statements.

18 Once again, I consider that, subject to the exception I have earlier mentioned in relation to the Fopar payments, only the relevant entries from the bank statements need be discovered. Those entries should be discovered by HSWA.

19 It is also contended by Youlden that there should be journal or ledger entries and other routine accounting records in relation to the payments. I accept that that would be the case in the ordinary course of business of HSWA and, accordingly, I consider there are reasonable grounds for being fairly certain that such records do exist. I would order that HSWA state on affidavit whether any vouchers, cash books, requisitions, authorities, Board minutes, correspondence, memoranda and notes are or have been in its possession, custody or power relating to the payments in question and, if they were but are not now in its possession, custody or power, when it parted with them and what has become of them.

20 The next issue related to a payment of $430,000 which, it is alleged in the statement of claim, Fogarty caused HSWA to pay to Corporate Financial Systems Pty Ltd ("CFS") on 21 August 2000. Youlden alleges Mr Fogarty caused the payment to be made without the authority of HSWA, in circumstances where CFS had no commercial relationship with HSWA, no consideration was provided by CFS for the payment and there was no reason for the payment to be made. In his defence, Mr Fogarty admits that he authorised the payment but otherwise denies each of the allegations made by Youlden.

21 Youlden says that it is entitled to discovery of the relevant bank statements and to any journal or ledger entries and other routine accounting documents of HSWA. It says that in the ordinary course of business a company of the nature of HSWA would keep records of that type in relation to the transaction.

22 It was conceded by HSWA that the relevant entry or entries in the bank statements should be discovered but HSWA resisted discovery of anything more than the specific entry or entries in the bank statement. Once again subject to the exception I have mentioned, I consider that discovery of the relevant entries in the bank statements is sufficient in relation to this issue.

23 In light of the size and nature of HSWA's business and its statutory obligations, I consider that there are reasonable grounds for being fairly certain that there exist internal records of HSWA in relation to the payment that ought to have been discovered. I would order that HSWA state on affidavit whether any journal entries or other accounting records are or have been in its possession, custody or power relating to the payment in question and, if they were but are not now in its possession, custody or power, when it parted with them and what has become of them.

24 The next document of which discovery was sought by Youlden was said to relate to the plea in par 48 of the statement of claim. That paragraph was the subject of an amendment when this application first came on for hearing. As amended, it is alleged in par 48 that HSWA has been and is paying to Fogarty, or his nominee, remuneration as executive chairman in a number of ways including, relevantly, the provision of a credit or charge card paid for by HSWA, with a credit limit, as at November 2000, of $30,000. Youlden alleges in par 10 of the statement of claim that Fogarty has been executive chairman since about May 2000.

25 Before the amendment to par 48 of the statement of claim, there was no plea to enliven any obligation on the part of HSWA to discover documents in relation to any credit card. According to Mr Mason's affidavit of 11 February 2005, since the amendment discovery has been given by HSWA of credit card statements for the period 15 December 2000 to 16 January 2004. Youlden says there has been no discovery of credit card statements for the period prior to 14 December 2000 or for the period from 16 January 2004 to date. It is not apparent why statements for those periods have not been discovered. On the basis of the pleadings, and in light of the statements discovered, there are reasonable grounds for being fairly certain that such documents exist which ought to have been discovered. I would order that HSWA state on affidavit whether any other credit card statements are or have been in its possession, custody or power relating to the credit card in question and, if they were but are not now in its possession, custody or power, when it parted with them and what has become of them.

26 The next two documents of which discovery is sought by Youlden are said to relate to issues arising in connection with an amount of $2 million which was held on term deposit by National Australia Bank. A letter from National Australia Bank to HSWA dated 26 August 1997 has been discovered by HSWA. That refers to an attached "copy of instructions" in relation to the term deposit. Youlden seeks discovery of a copy of the "instructions".

27 HSWA has also discovered a letter of 8 April 1998 from Health Solutions International to Health Solutions in Melbourne. The letter refers to an enclosed copy of an HSWA directors' resolution relating to the $2 million term deposit, the funds for which had been borrowed from PSC. The resolution has not been discovered. A note to the accounts of HSWA for the financial year ended 30 June 2002, a copy of which are in evidence, records that the $2 million term deposit was repaid in full to PSC on 14 June 2002. A further note records that the loan from PSC was interest free and repayable at call.

28 Youlden say that the terms on which the term deposit was held, and the resolution relating to the loan from PSC, are relevant to the capacity of HSWA to pay dividends in 2001 and 2002 and therefore relevant to the allegations in the statement of claim that Fogarty has caused HSWA not to pay dividends in order to exert financial pressure on Youlden, and to Fogarty's defence that HSWA's funds were required for other legitimate purposes.

29 In my view, the "copy of instructions" and the directors' resolution are each relevant to the matters in issue and should be discovered. I did not understand counsel for HSWA seriously to contend to the contrary.

30 The next matter related to the plea in par 49.2 of the defence, which pleads to the allegation in the statement of claim that Mr Fogarty's remuneration is excessive. It is pleaded in par 49.2 that from April or May 1999 until Mr Gorton ceased to be managing director of HSWA in May 2000, HSWA paid to HCI the sum of $480,000 per annum as recompense for the services provided by Mr Gorton as managing director and Mr Fogarty as executive chairman. Thereafter, it is alleged, HSWA paid Mr Fogarty, as managing director and executive chairman, a fee of $360,000 plus car lease payments, which is an amount in the order of 75% of the amount that would have been payable had Mr Gorton remained as managing director.

31 A matter in issue is the amount that was paid to HCI from April or May 1999 to May 2000 and whether the amount since paid to Mr Fogarty is in the order of 75% of that amount. According to the affidavit of Mr Mason of 11 February 2005, HSWA has not discovered any documents that disclose the amount paid to HCI. In particular, the discovered documents do not include any invoices, remittance advices, memoranda, journal entries or other accounting documents in relation to those payments. Only four memoranda requesting cash cheques and two EFT forms have been discovered.

32 I accept that in the ordinary course of business HSWA would have in its possession documents in the nature of routine accounting documents. I therefore consider that there are reasonable grounds for being fairly certain that there exist internal records of HSWA in relation to the payment which ought to have been discovered. I would order that HSWA state on affidavit whether any invoices, journal entries, remittance advices or other accounting records are or have been in its possession, custody or power relating to the payments in question and, if they were but are not now in its possession, custody or power, when it parted with them and what has become of them.

33 Youlden seeks further discovery in relation to the plea in par 49.6 of the defence that, as part of Mr Fogarty's remuneration package, HSWA pays car lease payments on his behalf. Youlden seeks discovery of the relevant bank statements and accounting documents in respect of such transactions, such as journal or ledger entries, remittance advices and similar accounting material. HSWA simply relied on the conclusiveness of its affidavit of discovery.

34 Once again, having regard to the size and nature of the company and its statutory obligations, I am satisfied there are reasonable grounds for being fairly certain there are accounting records of HSWA relating to the payments which ought to have been discovered. I consider that Youlden is entitled to discovery of the accounting records relating to the lease payments, including the entries in the bank statements which relate to them. I would order that HSWA state on affidavit whether any journal or ledger entries, remittance advices or other accounting records are or have been in its possession, custody or power relating to the payments in question and, if they were but are not now in its possession, custody or power, when it parted with them and what has become of them.

35 The next document of which discovery is sought by Youlden is a shareholder's agreement, apparently signed in July 1999, between a company controlled by Mr Gorton, King Holdings (No 2) Pty Ltd, and Fopar. Youlden has a copy of the agreement but seeks discovery of any copy of the agreement in the possession of the first defendant. On balance I am not satisfied that the document is relevant to the matters in issue and I would refuse to order discovery of it. For similar reasons I would decline to order discovery of any copy of a letter from Mr Fogarty to Healthcare Investments Pty Ltd of 22 September 1999, a copy of which Youlden has produced on this application.

36 HSWA has discovered minutes of a meeting of directors of HSWA of 17 March 2000 in which reference is made to previous correspondence with the Health Department in relation to a $2 million letter of credit. The minutes record the conclusion by the directors that it should be shown by HSWA as a contingent liability and a belief by the Board of HSWA that the facility was likely to be drawn down in the near future. Youlden seeks discovery of the correspondence referred to. Youlden says the documents are relevant to the financial position of HSWA and its capacity to pay dividends, including for the 18 month period ended 30 June 2001. They are also said to be relevant to the allegation by Mr Fogarty that in 1999 Mr Gorton represented to him that the State government would accept annual instalments of $100,000 for ten years as a condition of granting a sub-lease of the site to HSWA, when in fact it was likely the State Government would require an up-front payment of $2 million. It was submitted that the terms and circumstances on which the letter of credit was provided are therefore relevant.

37 HSWA says that the correspondence is not relevant. HSWA says that the existence of the $2 million letter of credit is admitted and the terms on which it was held appear in the audited financial accounts of HSWA. There was therefore no utility in discovery of the correspondence. I do not agree. In my view, the correspondence with the Health Department relating to the letter of credit should be discovered and I would so order.

38 The next document in issue is a document dated 12 July 2000 and headed "Execution of Super-Management Fee Payment" which, by its terms, appears to have been prepared by the "Executive Chairman" of HSWA. Counsel for HSWA did not put in issue the relevance of the document, but said that his client had not been able to find a copy of it and did not believe that it was in HSWA's possession, custody or power. The document clearly appears, however, to have been prepared by HSWA's executive chairman. If, after reasonable enquiry, HSWA cannot find the document, or anything to suggest that it has ever been in its possession, custody or power, that should be deposed to on affidavit.

39 Youlden seeks discovery of a report prepared by consultants, Morgan & Banks, which is referred to in the minutes of a Board meeting of HSWA of 1 September 2000. In the minutes Mr Fogarty is recorded as having advised the Board that Morgan & Banks had been commissioned to review all executive and middle management personnel at the campus. Mr Fogarty is recorded as saying that a copy of the report will be provided to directors when it is complete. It appears therefore that at that stage the review was still to be completed. The Morgan & Banks review is again referred to in the minutes of a shareholders' meeting of 12 January 2001which have been discovered by HSWA. It appears that Morgan & Banks had by then produced a report which had been made available, at least, to Mr Fogarty.

40 Youlden says that the report is relevant, among other things, to the plea in par 49 of the statement of claim that the remuneration paid to Mr Fogarty is excessive. In the particulars of par 49, Youlden refers in support of that plea to the duties carried out by the chief executive officer of HSWA and other senior employees. Mr Fogarty denies the allegations in par 49. I consider that the Morgan & Banks review relates to the reasonableness of the remuneration paid to Mr Fogarty and I would order that HSWA discover it.

41 Youlden also seeks discovery of a document headed "Consultancy Agreement between Health Solutions WA Pty Ltd and King Holdings Pty Ltd" dated 23 May 2000. An unexecuted copy of the document has been produced by Youlden, which seeks discovery of any copy of the document in the possession, custody or power of HSWA. Mr Mason has said in his affidavit of 18 May 2004 that he has been informed by Mr Gorton and believes that Mr Gorton was given a draft of the document by Mr Fogarty. HSWA says there is no such agreement in existence. It refers to a letter from Mr Gorton to Mr Fogarty of 23 May 2004 stating that the agreement "was to be negotiated" and says the agreement was never negotiated.

42 Mr Fogarty is and was at the relevant time the managing director and executive chairman of HSWA. On the evidence it appears that in such capacity Mr Fogarty has had at least a draft of the agreement. If HSWA says that no such document is or has been in its possession, custody or power it should depose to that on affidavit, and, if it has had but no longer has a copy, it should state when, so far as can be ascertained on reasonable enquiry, it was the last in the possession of HSWA and what has become of it.

43 The next documents of which discovery is sought by Youlden arise from a memorandum from Mr Fogarty, in his capacity as executive chairman of HSWA, to the other directors of HSWA dated 19 October 2000. In that memorandum, Mr Fogarty refers to "A circular resolution for reimbursement of expenses for Fopar Nominees Pty Ltd. These expenses were incurred by Fopar Nominees Pty Ltd prior to the establishment of an official employment agreement with Health Solutions WA Pty Ltd ...". A copy of the circular resolution is attached to the copy of the memorandum produced by Youlden on this application. In the memorandum Mr Fogarty asks the directors to contact him with any concern about the expenses and otherwise to return a signed copy of the circular resolution to him. It is evident from the circular resolution that payment has been made to Fopar for the expenses, cheque numbers and dates being listed against each item of expense.

44 Prior to the hearing of this application HSWA acceded to Youlden's request that it give discovery of the memorandum and circular resolution. Youlden also seeks discovery by HSWA of all invoices, contracts, wage records and other documents evidencing the expenses referred to and records evidencing the payment by HSWA of those expenses. HSWA has objected that it does not have a copy of the documents in its possession, custody or power and relies on the conclusiveness of its affidavits of discovery. In my view, any records relating to the expenses claimed and paid referred to in the memorandum and the circular resolution should be discovered. Given the size and nature of HSWA's business and its statutory obligations there are grounds for being reasonably that such records exist. I would order that HSWA state on affidavit whether any vouchers, invoices, remittance advices and other accounting records relating to the claims by Fopar for reimbursement of the expenses referred to, and the payments made by HSWA to Fopar in relation to them, are or have been in its possession, custody or power relating to the payments in question and, if they were but are not now in its possession, custody or power, when it parted with them and what has become of them.

45 Youlden has sought discovery of two letters, including the enclosure to one of the letters, addressed to Fopar and written by Mr Gorton in his then capacity as managing director of the first defendant. The letters (copies of which were produced by Youlden on this application) refer to the engagement of Fopar by the first defendant. Mr Mason says in his affidavit that he has been informed by Mr Gorton and believes that the letters were prepared on his (Mr Gorton's) behalf in his capacity as managing director of HSWA. The letters are on HSWA letterhead.

46 In an affidavit sworn on 15 February 2005, a director of HSWA, Mr Stowell, says that while the documents might once have been in the possession of HSWA, enquiries have not located them either in paper form or on HSWA's computer system and he has been informed by Mr Fogarty that Mr Fogarty does not have a copy. Mr Stowell says he is therefore unable to discover the documents in any manner at all. I take that to mean that HSWA cannot say if the letters were ever in its possession, custody or power and accordingly, if they were, when they were last in its possession, custody or power and what has become of them. On that basis, in my view the affidavit is sufficient and I would not order further discovery.

47 The next document in issue was a "Special Purpose Financial Report for the year ended 31 December 2000" referred to in the minutes of the Board meeting of HSWA of 22 June 2001 as having been discussed at the meeting and accepted by the Board as a fair representation of the financial performance of HSWA for that year. Youlden says that the financial position of the company as at December 2000 is directly relevant to the proposed call on shares made on 1 December 2000 to repay the PSC debt. Youlden pleads that the existing funds of HSWA were more than sufficient to repay the debt and a call was improper and unnecessary.

48 HSWA says that the document was prepared by PSC who has the original of it. That, however, is not a reason for HSWA not to discover any copy of the document in its possession. It appears clear from the Board minutes that HSWA has had a copy in its possession. Accordingly, I would order that HSWA state on affidavit whether the "Special Purpose Financial Report for the year ended 31 December 2000" is or has been in its possession, custody or power and, if it was but is not now in its possession, custody or power, when it parted with it and what has become of it.

49 HSWA has discovered a draft letter, dated 11 March 2002, from Mr Fogarty, as the executive chairman of HSWA, addressed to the Health Department. The draft is a response to a letter from the Department in which, it seems from the draft, the Department expressed concern either about the experience of Mr Fogarty or generally about the experience of the directors of HSWA. HSWA has not discovered the letter from the Health Department and Youlden seeks discovery of it. HSWA says that to the best of its knowledge it does not have a copy of the letter and, in any event, it questions the relevance of it.

50 In my view, the experience, or perceived experience, of the directors is relevant as it may lead to a chain of enquiry in relation to HSWA's alleged conduct in relation to the corporate governance issues, pleaded in par 89 to par 92 of the statement of claim, and as pleaded in par 92 of HSWA's defence and, in addition, in relation to the reasonableness of Mr Fogarty's remuneration. If, following proper enquiries, HSWA is unable to find a copy of letter from the Health Department it should state that on affidavit and should say, so far as can be ascertained by reasonable enquiry, when the document was last in its possession and what has become of it.

51 HSWA has discovered minutes of a "Management Meeting" attended by, among others, Mr Fogarty and Mr Marshall, who was then Chairperson of the first defendant. The minutes are dated 12 March 2002 and are signed by Mr Marshall as Chairperson. The minutes refer to the minutes of a previous meeting of 26 February 2002. The minutes of the meeting of 26 February 2002 have not been discovered. Mr Stowell says in his affidavit of 15 February 2005 that enquiries have been made by him and HSWA staff but no copy of the minutes of 26 February 2002 has been located either in paper form or on HSWA's computer system. Mr Stowell says that he is therefore unable to depose that the minutes were in HSWA's possession, custody or power. In my view that is sufficient to discharge HSWA's obligation of discovery in respect of the minutes.

52 Youlden seeks discovery of bank statements in respect of five accounts of HSWA for the period from July 1999 to the present day. I understand that they are in effect the banking statements for all of HSWA's working accounts. HSWA says the request is "fishing" and it is not required to do more than give discovery in respect of those entries in the bank statements that are relevant to the specific issues in the action.

53 It was submitted on behalf of Youlden that the discovery obligation of HSWA could not be approached in that way because a number of broad issues bear upon HSWA's financial position from time to time.

54 First, it was submitted that HSWA's financial position from time to time was relevant to the allegations in the statement of claim that by failing to cause HSWA to pay dividends when it ought to have done, Mr Fogarty sought to exert commercial pressure on Youlden, and that the second respondent ("HSA") acquiesced in that conduct.

55 In that connection it is pleaded by Youlden that, as at 31 December 1999, HSWA had not declared a dividend. Youlden pleads that for the following 18 months ending 30 June 2001 the total cash accumulated (before certain one-off payments and receipts) was $6,370,623 and the total cash accumulated per month for that period was $353,923. It is further pleaded by Youlden that in that period HSWA made two one-off cash payments, one to repay borrowings in the sum of $2,955,123 and the other to pay management fees to shareholders in the net sum of $750,000. Mr Fogarty denies the alleged repayment of borrowings. Youlden pleads that for the period ended 30 June 2001 HSWA had retained profits of $4,654,149 from which dividends could have been paid. That is not admitted by Mr Fogarty.

56 Similar allegations are made in respect of the 12 month period ended 30 June 2002 in respect of payments and receipts by HSWA, and the total cash accumulated for the period and the monthly cash accumulation for that period. It is alleged by Youlden that as at 30 June 2002 HSWA had cash assets of $6,579,372 and $8,703,699 in retained profits. The latter allegations are admitted by Mr Fogarty.

57 Youlden alleges that Mr Fogarty caused HSWA not to pay dividends for the 18 month period ended 30 June 2001 and the financial year ended 30 June 2002 in order to exert financial pressure on Youlden and accordingly did not exercise his powers as a director for a proper purpose, conduct in which HSA acquiesced or which it failed to prevent.

58 It was submitted on behalf of Youlden that the source documents, including the bank statements, are relevant to HSWA's financial position in the relevant period and the capacity of HSWA to pay dividends.

59 It is also pleaded by Youlden that HSWA did not make payments of interest to Youlden for relatively small loans made by it to HSWA on the various dates when those interest payments were due, although the existing funds of HSWA were more than sufficient to pay the interest on the loans on the due dates. It is pleaded that Mr Fogarty did not cause HSWA to pay the interest when it was due in order to exert financial pressure on Youlden. Mr Fogarty denies the latter plea and, among other things, admits that HSWA had the financial capacity to pay the interest when Youlden alleges it was due but says that the interest was in fact paid by HSWA before it fell due.

60 It is also alleged by Youlden that in December 2000 Mr Fogarty sought to cause HSWA to make a call on shares to repay a debt to PSC when the existing funds of HSWA were more than sufficient to repay the debt and there was no reason not to use HSWA's own funds. Again, it is pleaded that Mr Fogarty did that in order to exert financial pressure on Youlden. Mr Fogarty denies the latter plea and, among other things, pleads that the existing funds of HSWA were not sufficient to repay the PSC debt and says HSWA's funds were required for certain other purposes.

61 It was submitted on behalf of Youlden that giving discovery of all of the bank statements would not cause any undue difficulty for HSWA as it was to be expected that those documents would be separately stored and readily accessible. There was no evidence that it would be unduly burdensome.

62 I do not consider that discovery of the bank statements on the basis sought is justified by the issues arising in connection with the payment of interest on the loans made to HSWA by Youlden. Those issues are quite confined and specific. So far as the bank statements are relevant to when interest payments were made it would be sufficient to give discovery of the relevant entries.

63 I am satisfied, however, that having regard to the nature and breadth of the matters arising in relation to the payment of dividends and the capacity of HSWA to repay the PSC loan from its own money, Youlden should give discovery of all of the bank statements from the specified accounts for the period in question. But I am not satisfied on what has been put before me on this application that the relevant period extends to the present date. It appears to me that those issues relate to the financial position of HSWA from 31 December 1999 to 30 June 2002. If Youlden seeks bank statements extending outside that period a proper basis for that will have to be established. I would therefore order that HSWA give discovery of the bank statements from the nominated banks for the period 31 December 1999 to 30 June 2002.

64 The next documents sought by Youlden arise out of an email from Mr Fogarty to Mr Foo (with a copy to Mr Chee), which HSWA has discovered. Mr Foo and Mr Chee were both directors of HSWA. The email deals with issues of corporate governance. In it Mr Fogarty refers to the KPMG report on corporate governance, and among other things, says "a formal budget is now in place, and monitored stringently" and "a clear Strategic Objective is in place". Youlden seeks discovery of the budget and the Strategic Objective. As those are referred to in the email, in the context of compliance by HSWA with the KPMG report on corporate governance, the documents are, in my view, relevant to the matters in issue, including the plea in par 92 of the defence that the Board of HSWA had considered the recommendations and had explained to Youlden the changes to corporate governance that had been implemented.

65 I would order that HSWA state on affidavit whether the budget and the "Strategic Objective" are or have been in its possession, custody or power relating to the payments in question and, if they were but are not now in its possession, custody or power, when it parted with them and what has become of them.

66 The next document in issue was a copy of a letter from HSWA to Ms Fletcher of 24 September 2002 offering Ms Fletcher employment as chief executive officer. HSWA has discovered the letter but the amount of the remuneration and the bonus payable to Ms Fletcher have been blanked out. There is a further letter to Ms Fletcher dated 30 October 2002 in which the same issue arises.

67 Youlden also seeks discovery of contracts of employment between HSWA and Messrs Wiggin and Marshall. Counsel for HSWA acknowledged that Mr Wiggin and Mr Marshall were former chief executives of HSWA.

68 Youlden contends that a comparison of the level of remuneration of Mr Fogarty, as executive chairman and managing director, with that of Ms Fletcher and Messrs Wiggin and Marshall, respectively, as chief executives is relevant to the issue of whether, as claimed by Youlden, Mr Fogarty's remuneration is excessive. In that connection, one of the particulars Youlden pleads in support of its allegation that Mr Fogarty's remuneration is excessive is that HSWA employs a chief executive officer who is responsible for the day-to-day activities and management of the day-to-day operations of the Peel Health Campus. Mr Fogarty pleads that his remuneration is reasonable for the tasks performed by him.

69 I consider that the level of remuneration paid to the chief executives of HSWA is relevant to the issue of the reasonableness of the level of remuneration paid to Mr Fogarty and accordingly, complete copies of the contracts of employment of Ms Fletcher and Messrs Wiggin and Marshall should be discovered.

70 Youlden seeks discovery of any loan agreements or documents evidencing loans between HSA and HSWA. HSWA says there are no such documents and that the loans were organised by Mr Gorton.

71 It is clear on the pleadings that loans were made by HSWA to HSA. The issue is as to the nature and circumstances of the loans. Youlden alleges that the loans to HSA were unsecured, interest free and with no repayment time, and that they were uncommercial transactions. Mr Fogarty admits that, in the period 1999 to mid 2000, HSWA made a number of loans to HSA and says that as at 31 July 2000 they were fully repaid. He otherwise denies Youlden's allegations.

72 Youlden has produced a letter from Mr Fogarty, as chairman of HSWA, to Mr Youlden of 7 December 1999 where, among other things, Mr Fogarty says, "Loans to HSA stand at $282,2000 and are unsecured. A commercial interest rate is being applied. No repayment time has been stipulated at this time."

73 In his affidavit of 15 February 2005 on behalf of HSWA, Mr Stowell says that searches he and his staff have conducted have failed to locate any documents of the nature sought by Youlden. The affidavit does not, however, clearly state whether such documents have ever been in the possession, custody or power of HSWA and, if so, when they were last in its possession, custody or power and what has become of them. Discovery should at least be given to that further extent.

74 In an amended application dated 22 July 2004, Youlden sought discovery of all documents relating to a change in control of HSWA that took place in February 2000 and, in particular, any application to, or correspondence with, the State government or the relevant Minister in relation to the change of control. Youlden's solicitors filed an outline of submissions in respect of this part of the application but the matter was not developed in oral argument on either side. As matters currently stand I am not persuaded that Youlden is entitled to discovery of those documents but if the application is sought to be pressed I will hear the parties on it.

75 Youlden's solicitors should bring in a minute to give effect to these reasons. I will hear the parties on the form of the orders and on costs.

Youlden Enterprises Pty Ltd & Anor v Health Solutions

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (93 paragraphs)

Youlden Enterprises Pty Ltd & Anor v Health Solutions (WA) Pty Ltd & Ors [2005] WASC 60 (19 April 2005)

Parties

Cases Cited (1)