Zhu v Yingle Culture Exchange [2011] NSWSC 473 | Case summary

Judgment 1The plaintiffs seek remedies in relation to allegedly inadequate discovery filed by the second and third defendants. The discovery arises from earlier orders of the Court. 2On 26 February 2010, the Court issued reasons for judgment dealing with the plaintiffs' contested request for discovery. The substantive proceedings relate to monies advanced, by loan or otherwise, by the first and/or second plaintiffs to the first, second and third defendants in consideration for, or relating to, the provision of assistance by the first, second and third defendants to the first and second plaintiffs for the obtaining of a work visa in Australia. The first defendant, the corporation, is in liquidation. The cause of action raises misleading and deceptive conduct under the Trade Practices Act 1974 (Cth), misappropriation and conversion, and fraud. 3On 26 February 2010, the Court, as presently constituted, issued reasons for judgment granting the plaintiffs discovery against the second and third defendants. Part of the allegation is that monies of the first defendant (now in liquidation) were transferred to the second and third defendants, which monies derived from the loans of the first and second plaintiffs. A tracing exercise is in progress. 4The Court ordered discovery, after a further dispute as to the terms on which discovery would be ordered notwithstanding the reasons for judgment issued on 26 February 2010. That further order was made on 21 April 2010 and is, relevantly, the extant order for discovery. Hereinafter, the orders of 21 April 2010 will be referred to as the discovery orders. 5The plaintiffs allege that there has not been full discovery in accordance with the discovery orders and, by notice of motion filed 27 July 2010, seek supplementary orders for discovery. For reasons associated with attempts by the parties to resolve the issues between themselves, and the need to obtain from third parties other documents relating to these issues, the motion was not sought to be listed and ultimately came on for hearing on 27 April 2011. 6The orders sought in the motion require more than discovery. The motion seeks orders for the production of certain documents, explanations as to what has occurred to some alleged documents and, in that case, when it was the document was last in the possession of the second and/or third defendant. 7Notwithstanding that the motion does not seek discovery, as such, it seeks orders the effect of which would be to facilitate the quick, cheap and just resolution of the real issue between the parties (s 56 of the Civil Procedure Act 2005) and prevent, what the plaintiffs allege, is a degree of obfuscation on the part of the defendants. The plaintiffs rely on the Affidavit of Peter Justin Hergarty dated 26 July 2010, which details the attempts made to obtain documents and some of the correspondence between the parties. It also details evidence from which the Court is asked to infer the existence of documents that have not been the subject of discovery. 8In response, the defendants (by which term I refer only to the personal defendants) refer to the discovery to date and the categories thereof and submitted that full discovery had been given. The defendants also relied upon the presumption as to the veracity of the verifying discovery affidavit, on appropriate advice, and otherwise referred to the correspondence between the parties as explaining any alleged omission. The defendants submit that the claims of the plaintiff rely upon mere speculation and conjecture. 9A party that has been ordered to give discovery is under a continuing obligation to disclose any documents that come to that party's attention and have not previously been discovered. As a consequence the discovery orders, originally made, are still in force and require production of all documents fitting the categories there described. 10The defendants are correct in their general submission as to the attitude of the courts to a verifying affidavit as to the list of discovery. The qualification is that there must be demonstrable compliance with the requirements before the supporting affidavit (and certifying advice) is generally conclusive. But in those circumstances, the affidavit and certificate are conclusive of whether the party had undisclosed documents; and the relevance of any undisclosed documents. 11If the Court were to order further discovery, or material going to the accuracy of the discovery, it should not do so merely on the basis of some speculation. 12It is necessary to deal, in as little detail as possible, with the list of documents already discovered. I shall use, for that purpose the list provided by Qin Fen Dai. It contains a list of documents, being 122 different groups or documents. There are a number of categories in which there was nothing to produce and Part 2, which is headed "documents in possession of other persons" refers to the books and records of the corporate defendant being of an unknown number and an unknown date that are in the possession of the corporate defendant's liquidator. I add that, on the material before the Court, the liquidator has cooperated with the plaintiffs in relation to the issues and documents necessary for agitation in this matter. 13Plainly, the description of documents not in the possession of the defendants has not been described in the manner required by the Uniform Civil Procedure Rules 2005, r 21.3(b). Nevertheless, the documents are, on the understanding of the Court, voluminous and it would be an impossible task in relation to documents to which there is no access to describe them in the detail required by r 21.3. However, the difficulty with Part 2 of the List of Documents is that it discloses a misunderstanding of those documents that must be discovered in Part 2. 14Part 2 of the List of Discovery requires the discovery of all documents that, within the last six months, prior to the commencement of the proceedings, i.e. since 30 November 2007, have been, but are not now, in the possession of the defendants. Such a part is not confined to those documents "in the possession of other persons". It requires the defendants to list those documents that have been lost, destroyed or otherwise not in the possession of the defendants including, but not limited to, those known to be in the possession of others. 15The plaintiffs refer to the discovery relating to Category 6 and Category 8 and the lack of documentation provided. Category 6 documents require all documents "in relation to any funds transfers" of a particular description. Category 8 refers to all documents "in relation to withdrawal" of certain sums that are thereafter described in various subcategories. The list of documents in relation to Category 6 discovers 86 documents being Foreign Exchange Transaction Confirmation slips between July 2005 and June 2008. No other documents are produced. The Category 8 list includes only bank account statements. 16The difference between the parties centres on the meaning of the words "in relation to". These are words of some ambiguity and while they do not apply to every connection or relationship no matter how remote, they do describe documents that are "related" in the sense that they are documents which evidence the cause of the transaction or the existence of the transaction. Thus, in the case of a withdrawal to meet an invoice, a copy of the invoice would be a document related to the withdrawal. Likewise, a fund transfer to meet a particular liability or on the basis of a particular request would mean that documents evidencing the liability and/or request would be documents "in relation to" the transfer: see Technical Products Pty Ltd v State Government Insurance Office (Qld) [1989] HCA 24; (1989) 167 CLR 45 at 51; Smith v Federal Commissioner of Taxation [1987] HCA 48; (1987) 164 CLR 513 at 533; PMT Partners Pty Ltd (In Liq) v Australian National Parks & Wildlife Service [1995] HCA 36; (1995) 184 CLR 301 at 328; Australian Competition & Consumer Commission v The Maritime Union of Australia [2001] FCA 1549; (2001) 114 FCR 472 at [68]-[74]. 17It seems that the defendants have taken a narrower view of the expression in relation to than is appropriate. At the same time, judging from the correspondence, it seems that the plaintiffs have taken a broader view of the expression. However, as a consequence, there has been inadequate discovery in relation to documents sought under Category 6 and Category 8. The discovery thus far provided does not include invoices or documents upon which basis a cheque would be drawn or any document authorising and/or explaining a transfer and it should. 18I next deal with the complaint in relation to Category 1 of the discovery orders. The defendants have produced no bank statements relating to certain transactions of which there is evidence before the Court. They are transactions involving the Bank of South Australia. There is evidence before the Court from which the Court is entitled to draw the inference that the accounts are accounts of one or other of the defendants. 19It may be that the accounts and/or statements or other documents in relation thereto are not in the possession of the defendants, but possession includes custody and power: see s 3 of the Civil Procedure Act , and obliges a party, on discovery, to identify documents: in the party's immediate physical custody; in the possession or power of any agent of the party giving discovery; in the party's possession as an agent of another; or, over which the party has a right to obtain possession or would be likely to obtain possession, if an appropriate request were made. I am satisfied of the existence of such a document or documents, or the existence, at some stage, in the possession, as properly defined, of the defendants and that satisfaction is not mere speculation. Adequate discovery has not been given. 20The next complaint relates to documents that were not produced being documents relating to a loan by Westpac to each of the individual defendants. The plaintiff submits that these documents ought to have been discovered under Category 3(c). However, that Category requires the listing of documents relating to payments made, during a particular period, in respect of which, monies from the corporate defendant were used to reduce individual or personal loans of the individual defendants. It does not require the production of statements of loan accounts in relation to those individual loans, save to the extent that those statements evidence or reflect a reduction of the personal loans of the individual defendants on account of monies provided, directly or indirectly, by the corporate defendant. It would be, on the material before the Court, conjecture as to whether those statements reflect such payments. 21Lastly, I deal with the complaint made in relation to Category 2, sub-categories (b) and (c) of the discovery orders. This Category relates to tax returns and the complaint relates to the tax returns for the years ending June 2005 through to June 2008. On the material before the Court, Westpac provided loans to the individual defendants, in which applications the defendants referred to certain assets and a joint income of $144,500. Yet, it is said, no tax returns exist for those years. It is of course possible that a tax return was not lodged, notwithstanding the receipt of income. Nevertheless, the more probable inference is that a tax return was lodged and tax returns exist, or did exist, and there has been no discovery in relation to those documents. 22For the foregoing reasons, I consider that, on the balance of probabilities, adequate discovery has not been given, but not in each respect about which there has been complaint. 23I turn then to the terms of the motion. The order sought in prayer 1(a) is an obligation that continues once a request for discovery has been made in accordance with the orders of the Court or the Rules. Likewise, order 1(b) is an order that, largely, reflects the requirements on any party that is discovering a document. Prayer 2(a) is not an order in relation to discovery. Once discovery is provided, the documents that have been discovered are, subject to any arguments as to privilege, able to be inspected. There is no requirement for their production or for their copying by the party giving discovery. Prayer 2(b) states, with particularity, that which is required in relation to documents falling within Part 2 of a list of discovery, which information has not been provided. 24The Court will make orders in accordance with prayer 1 and prayer 2(b), in relation to those categories in respect of which I have found there has been inadequate discovery. The plaintiffs are directed to file short minutes of order. The second and third defendants shall pay the plaintiffs' costs of and incidental to the motion, as agreed or assessed. Liberty is granted to the parties to approach in relation to the terms of the short minutes and in relation to any special or different order as to costs. 25The Court directs that: (i) The plaintiffs file and serve short minutes of order to reflect these reasons for judgment within 14 days; (ii) Any objection to such short minutes be notified to the Court and the plaintiffs within 7 days of the receipt thereof.

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: 27 May 2011

Zhu v Yingle Culture Exchange

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