Zhu v Yingle Culture Exchange [2010] NSWSC 107 | Case summary

JUDGMENT 1 HIS HONOUR: The plaintiffs seek discovery from the second and third defendants, to which those defendants object. In the substantive proceedings, the plaintiffs, Yi Lin Zhu and Lei Jiang, claim damages against Yingle Cultural Exchange (Australia) Pty Ltd ("Yingle") and two others, who, it is alleged, at all material times were directors and/or the company secretary of Yingle. The plaintiffs allege that the second and third defendants (hereinafter "the defendants") engaged in misleading and deceptive conduct, on their own behalf and on behalf of Yingle, in relation to the plaintiffs, and upon which the plaintiffs relied, and as a consequence the plaintiffs lent sums of money to Yingle. Yingle has gone into liquidation and the plaintiffs have lost their money and now claim damages, being a consequence of that loss of money. 2 The misrepresentations engaged in by the defendants relate to assistance offered for a visa application for work in Australia. There were two loans made by the plaintiffs, the first for the duration of the application period to obtain the relevant visa, and, the second, for one year. 3 It is alleged that the misrepresentations were made in trade or commerce and that there are contraventions of the Trade Practices Act 1974 (Cth) or, alternatively, the Fair Trading Act 1987. The misrepresentations related to the expertise of the defendants and/or Yingle in relation to visa applications and the requirements therefor. Further, misrepresentations were made relating to steps that could be taken to qualify for a visa, including investing monies in Yingle, the minimum requirements for annual turnovers in the relevant business, and the necessity to lend monies for that purpose. These representations were misleading and/or deceptive, induced the plaintiffs to lend the money, and directly caused the damage for which the plaintiffs sue. 4 Yingle was placed into administration on or about 23 February 2005 and, on 17 July 2008, by resolution of creditors, was placed into liquidation, in which it remains. For that reason, the proceedings against Yingle are currently stayed: s 500(2) of the Corporations Act 2001 (Cth). 5 The defendants deny misleading and deceptive conduct and defend the damages action. In the public examinations of Yingle by the liquidator, the second defendant answered questions to the effect that she had used $400,000 of the amounts lent by the plaintiffs to reduce her personal home loan; one or other of the plaintiffs consented to that course; and, some, at least, of the $400,000, has been repaid. 6 The plaintiffs deny the last two of those contentions. The plaintiffs seek discovery in accordance with the schedule and say the categories of documents are relevant to issues in dispute, being:

(a) the allegations of fraud; (b) whether there existed a proper basis for the representations, in particular in relation to the potential future turnover of Yingle; (c) the truth or falsity of the representations pleaded; (d) the use made of loan monies and Yingle's other monies; (e) the exercise of discretion to grant certain relief; (f) the credit of the defendants. 7 Certain of the categories of discovery, it is said, concern production of documents relating specifically to the visas, the relevance of which is that the experience of the defendants in obtaining visas is relevant to the likelihood that representations as to that experience were made to the plaintiffs, and the lack of experience is relevant to the falsity of representations as to their experience, and, indirectly, to the fraud alleged. Principles for the Grant of Discovery 8 Discovery and inspection of documents during proceedings are governed by UCPR 21 of the Uniform Civil Procedure Rules 2005, which now requires discovery by category or class: UCPR 21.2(1)(a). General discovery is no longer available under the rules. While there may be a continuing inherent jurisdiction in this Court to grant general discovery, it would be an extraordinary circumstance to warrant a departure from the provisions now contained within the Uniform Civil Procedure Rules. 9 The class or category by which discovery may be ordered may be specified by the class itself, by compliance with one or more samples, by relevance to one or more facts in issue, by a description of the nature of the document and the period within which it was brought into existence, or in any other manner that the Court considers appropriate: UCPR 21.2(1) and UCPR 21.2(3); but may not be specified in more general terms than the Court considers to be justified in the circumstances: UCPR 21.2(2). 10 For the purpose of discovery, a document is defined to be "relevant" in terms not dissimilar to the definition of relevance under the Evidence Act 1995, although admissibility is irrelevant to the determination of whether discovery of a particular document should be ordered. A document is relevant to the fact in issue if: "it could, or contains material that could, rationally affect the assessment of the probability of the existence of that fact (otherwise than by relating solely to the credibility of a witness), regardless of whether the document or matter would be admissible in evidence."(UCPR 21.1(2).) 11 The former delineation, if there were one, between that which would damage the other party's case and that which would be merely detrimental to it, has been eliminated. Further, while the Court may not order the discovery of documents that relate solely to the credibility of witnesses, documents may be discovered that relate to the likelihood that the facts to which a witness is attesting, or is likely to attest, did not occur. In that situation, the credibility of the witness may be a by-product of the relevance of the document to other issues. And, where, as here, the allegation is that a party misled another, there may be documents that are relevant to the fact of misrepresentation, or the probability of its existence, that, in other circumstances, would be relevant only to credit. Categories of Documents and Determination 12 Category 1 in the motion seeks discovery of statements of account of a number of deposits, managed funds, trust accounts, and the like. The statements of account are sought for the period from 1 January 2005 to 27 January 2009. Each of the accounts sought, on the material before the Court, are, or seem to be, personal bank accounts of either the second or third defendant. In each case the category has been specified for the purpose of ensuring that all possible accounts into which funds, properly funds of Yingle, may have been deposited. This includes an account in the name of the defendants' daughter. 13 As a consequence of the method by which Category 1 has been derived, the information that would be produced would necessarily go beyond that which would be relevant, in the sense used in the Rules. The plaintiffs request discovery as an alternative to Category 1, namely, Category 1A. Every general description of the category of documents would, it seems, require the production of some documents that would be irrelevant, in the defined sense. The test, however, is whether the document "could" rationally affect the assessment of the probability of the existence of a fact. Given the allegations that are before the Court, it seems that all of the documents, described in Category 1, "could, or contains material that could, rationally affect the assessment of the probability of the existence" of a fact in issue in the proceedings. Subject to the issue of the period to which the production relates, to which I will return, the Court allows discovery in Category 1. 14 As a consequence of the foregoing, it is unnecessary to deal with Category 1A. Were the Court not minded to grant discovery for Category 1, it would grant discovery for Category 1A. 15 The same reasoning that has been applied to Category 1, applies to Category 2(a). For the same reasons, the Court allows discovery in the terms sought in Category 2(a) of the schedule to the notice of motion. 16 There is no issue between the parties in relation to other sub-categories of Category 2, except Category 2(i). It is unnecessary to deal with them. It is not clear what would be the relevance of the documents sought in Category 2(i). It is clear that the plaintiffs seek to investigate all accounts for which the defendants have responsibility, in order to ascertain whether monies that were properly owned by Yingle have been misappropriated. But it is not absolutely clear why that is necessary or to what issue it is relevant. 17 It seems relevant to ascertain whether Yingle's funds have been utilised for the personal use of the defendants. However, ultimately, the defendants have either engaged in misleading or deceptive conduct, or they have not. And the defendants either have the resources to pay the damages, or they do not. At best, it seems this sub-category is relevant to the enforcement of orders rather than the exercise of discretion to issue orders, nor does it relate to any issue relating to liability. The Court disallows the documents described in Category 2(i). 18 The only issue, in relation to the sub-categories sought to be discovered in Category 3, concerns the discovery of documents relating to the purchase of real property, other than the property at Hurstville, for which Yingle funds have been used. The evidence before the Court establishes, at least at this interlocutory stage, that some such funds have been used to purchase some property in the names of the defendants. That property was the Hurstville property, for which discovery has already been given. Because the classification is confined to property purchased with the money of Yingle, of necessity, such documents, if any were to exist, would be relevant, in the defined sense. The Court allows discovery in the terms sought in Category 3(b). 19 In Category 4, the only documents for which discovery is pressed are those in sub-categories (c) and (d). These sub-categories are objected to, on the basis of relevance and otherwise (although this latter matter would affect relevance in the defined sense) because they can relate only to credibility. The plaintiffs seek to discover, in these sub-categories, visa applications prepared by the defendants, or either of them. Part of the alleged misrepresentation relates to the expertise of the defendants in preparing and filing visa applications. The existence, or non-existence, of such applications directly affects the probability of the existence, or non-existence, of the alleged expertise. The Court allows discovery of the documents described in these sub-categories. 20 The next contentious category of documents relates to those described in Category 10. As is conceded by all parties, these documents are in precisely the same position as those that are described in Category 1. For the same reasons as given in relation to Category 1, the Court allows discovery of the documents described in Category 10. 21 The defendants answered the request for documents described in Category 11, by informing the Court, it seems, that the documents falling within this category are in the possession of the liquidator. Such a submission is not an objection to discovery being granted. If there were no documents in the possession of the defendants, then no documents would be produced for inspection, but, in accordance with the rules, if they once were in their possession, that would be noted. The documents described in Category 11 are plainly relevant. 22 Category 12 documents are the subject of the same submission as that for Category 11. Both categories are plainly relevant. Discovery will be ordered in relation to both categories. 23 Lastly, the Court deals with the issue raised previously, relating to the period for which the documents should be produced. The defendants raise objection to the period for which documents are sought, on the basis that they fall outside periods for which any relevance could be shown to the justiciable controversy that is before the Court. There is much merit in the defendants' objection. 24 Generally, for any category for which a period of time is specified, I would allow documents only for the period between the incorporation of Yingle and the date on which it went into liquidation. That period is from 23 February 2005 until 25 July 2008. That limitation applies to the documents sought, in their entirety. 25 The only exception to the immediately foregoing limitation is that the Court does not accept that the documents described in sub-categories 4(c) and 4(d) ought to be available for that extended period. Nor should the documents be confined to the precise date upon which the misrepresentations are alleged to have occurred, as is the submission of the defendants. In relation to those latter sub-categories, the period should be from 1 July 2004 until 30 June 2006. These documents, as earlier expressed, relate to the defendants' experience, or lack of it, and, therefore, periods during which the defendants, or either of them, have undertaken work of that kind, up to the date of the last representation, are relevant. The Court has allowed a reasonable period before the first representation. 26 The Court will make orders in the terms described in these reasons for judgment and, at this time, makes the following orders:

Zhu v Yingle Culture Exchange

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