FEDERAL COURT OF AUSTRALIA Spyer v Cuddles N' Mum (Franchise) Pty Ltd [2001] FCA 1078 ANNE LOUISE SPYER & ANOR v CUDDLES N' MUM (FRANCHISE) PTY LIMITED (ACN 060 482 993) & ORS N 330 OF 2001 LINDGREN J 2 AUGUST 2001 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 330 OF 2001 BETWEEN: ANNE LOUISE SPYER FIRST APPLICANT MATTHEW NORMAN SPYER SECOND APPLICANT AND: CUDDLES N' MUM (FRANCHISE) PTY LIMITED (ACN 060 482 993) FIRST RESPONDENT STEFANO CENATIEMPO SECOND RESPONDENT NATIONAL AUSTRALIA BANK LIMITED (ACN 004 044 937) THIRD RESPONDENT CHRISTOPHER LLOYD FOURTH RESPONDENT JUDGE: LINDGREN J DATE OF ORDER: 2 AUGUST 2001 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The two notices to produce, the subject of the applicants' notice of motion filed on 28 June 2001, be set aside. 2. The first and second respondents pay the applicants' costs of the motion. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 330 OF 2001 BETWEEN: ANNE LOUISE SPYER FIRST APPLICANT MATTHEW NORMAN SPYER SECOND APPLICANT AND: CUDDLES N' MUM (FRANCHISE) PTY LIMITED (ACN 060 482 993) FIRST RESPONDENT STEFANO CENATIEMPO SECOND RESPONDENT NATIONAL AUSTRALIA BANK LIMITED (ACN 004 044 937) THIRD RESPONDENT CHRISTOPHER LLOYD FOURTH RESPONDENT JUDGE: LINDGREN J DATE: 2 AUGUST 2001 PLACE: SYDNEY REASONS FOR JUDGMENT 1 By a notice of motion filed on 28 June 2001 the applicants seek an order that two notices to produce issued by the first and second respondents dated 14 June 2001 be set aside. There is a question whether the notices to produce are in fact dated 14 June 2001 because, unfortunately, the dates on them are not clearly legible. The legal representatives of the parties and I were inclined to think that the date on them is 10 June 2001 and I will proceed accordingly. Nothing of relevance to my decision on the motion turns on whether the correct date is 10 or 14 June, but it is important that solicitors write legibly in such a case because, for example, in this case many, if not all, of the documents described in the notices to produce are described by reference to a period ending on "the date of [the] notice". 2 One notice to produce is addressed to the first applicant and the other to the second applicant. The two notices are in identical form. The third and fourth respondents are not involved in the present motion. 3 The following reasons will be brief but, I trust, sufficient to show why I have decided that the notices must be set aside. 4 The applicants became franchisees of a "Cuddles N' Mum" franchise at Erina from the first respondent ("the Franchisor"). The second respondent ("Mr Cenatiempo") was at all material times a director of the Franchisor. The third respondent ("NAB") financed the applicants and the fourth respondent ("Mr Lloyd") was at all material times a business banking manager of NAB. 5 The events pleaded in the amended statement of claim filed on 6 July 2001 commence in September 1997 when the first applicant, it is pleaded, applied for a "Cuddles N' Mum" franchise. According to the pleading, in October 1997 Mr Cenatiempo informed the applicants that he could organise finance for them through Mr Lloyd of the Liverpool branch of NAB who was in charge of the Franchisor's account. 6 In April 1998 Mr Cenatiempo informed the first applicant that he had located a suitable site at Erina, New South Wales. Also in April 1998, the Franchisor forwarded to the applicants financial projections and costings and at about the end of April 1998 Mr Cenatiempo suggested that they forward to NAB an application for finance. Soon afterwards, the first applicant provided the Franchisor, through its finance controller, Mr Warton, with further details about her financial position at the Franchisor's request. On the same day Mr Warton orally informed her that NAB had approved the application for finance in principle, subject to the execution of documents. After various discussions, the first applicant caused a company, Inspyer Pty Limited ("Inspyer"), to be incorporated to act as franchisee of "Cuddles 'N Mum Erina". 7 The amended statement of claim recounts a sequence of transactions and financial events over a period from May 1998 to August 1998, as a result of which Inspyer took a lease of the premises at Erina and commenced trading as a franchisee of the Franchisor. The amended statement of claim then pleads the subsequent failure of the business, pressure brought to bear by NAB, a sale of assets by the applicants and a suffering of loss by them. They are not in a position to particularise in detail the loss which they have suffered, details of which they say are known to NAB, but not to themselves, at this stage. 8 The applicants allege that the Franchisor and, collaterally, Mr Cenatiempo contravened s 52 of the Trade Practices Act 1974 (Cth) ("the Act") in misrepresenting what the position of the Erina franchise would be. They also plead a case under s 52 against NAB and, collaterally, against Mr Lloyd. 9 The two notices to produce seek production of a very wide range of financial documents touching the financial position of the respective applicants. I annex to these reasons for judgment a copy of the contents, omitting formal parts, of one of the notices. It can be seen at a glance that many of the paragraphs relate to a period from 1 July 1994 to the date of the notice, while paragraphs 5 and 6 relate to an even more extensive period from 1 July 1990 to the date of the notice. The events pleaded, on the other hand, cover a period of only September 1997 to October 2000, while the business is alleged to have operated over a period of only late August 1998 to August 2000. 10 Mr Bushby, the solicitor for the applicants in the proceeding and on the motion to set aside, complains that the giving of the notice to produce is premature and is in the nature of discovery before suit in anticipation of a cross-claim. However, on the hearing he did not press prematurity on the basis of support of an anticipated cross-claim, while maintaining his objection that the notices are premature in that they "seek discovery" and are "fishing". Mr Laughton, counsel for the Franchisor and Mr Cenatiempo, submits that his clients are placed in a difficult position because they do not know many of the facts pleaded against them and would wish to ascertain what the facts are before filing their defence, which, I note, is to be filed by 17 August. 11 A notice to produce might have been given in relation to particular documents which are referred to expressly or by implication in the respective paragraphs of the amended statement of claim, but this was not the course followed. Rather, by their notices to produce the Franchisor and Mr Cenatiempo have sought discovery of financial documents generally. Mr Laughton says, with some justification, that it is unsatisfactory for his clients to have to plead "do not admit" to so many paragraphs of the amended statement of claim, but the way to overcome this problem is not to seek discovery by the use of notices to produce, but to give a notice to produce a particular document or particular documents by reference to particular paragraphs of the amended statement of claim. The notices to produce here give the impression that they may well have been drawn without a reading, except a cursory one, of that document at all. 12 Quantification of loss in this case presents a problem of a different order. The applicants themselves can not give adequate particulars of their loss because the facts are known to NAB but not yet to the applicants. It may be that the only satisfactory way for the Franchisor and Mr Cenatiempo to address the issue of quantification of loss is for them to inspect documents as a result of discovery. Likewise, it may be that the only way the applicants can grapple with that issue is by obtaining discovery from NAB. Sooner or later, all parties will have to give discovery. Mr Laughton says that the procedure followed by the applicants is an admirable attempt to achieve this result earlier rather than later so that his clients' defence will be the more meaningful. As I have already indicated, I have some sympathy with that position but do not think that his clients have followed the correct procedure. 13 The distinction between the role of a subpoena or notice to produce on the one hand, and that of discovery on the other, is too well established to be ignored by me. Even though it is a party rather than a stranger to the litigation who receives a notice to produce, a litigant cannot be permitted to use the giving of a notice to produce, in effect, to use a notice to produce to take the process of discovery out of the judicial case management system which operates in this Court. Discovery may be required only after the question whether there is to be discovery at all has been considered and decided by the Docket Judge. 14 I will not attempt, of course, to re-draft the notices to produce. I note that Mr Laughton himself does not press paragraphs 20 to 23 of them but in my view there is no simple way of finding, in paragraphs 1 to 19, a satisfactory reference to any particular document or class of documents referred to in any particular paragraph of the amended statement of claim. Therefore the only satisfactory approach is to set aside the notices to produce in their entirety. 15 I have raised with the parties informally the prospect of a mediation in this proceeding. It is clear that all parties will have to be forthcoming in relation to documents in their possession and, when the matter is next before the Court for directions on 29 August 2001, I expect to be informed of the parties' attitude both to discovery and to mediation. 16 The two notices to produce, the subject of the applicants' notice of motion filed on 28 June 2001, will be set aside. [There followed discussion on costs.] 17 There is no reason why the usual order as to costs should not be made. On 16 July 2001 the solicitor for the applicants wrote to the solicitors for the Franchisor and Mr Cenatiempo offering to settle the motion on the basis that the notices to produce be set aside and that each party to the motion pay its own costs. The Franchisor and Mr Cenatiempo should pay the applicants' costs of the motion. I certify that the preceding seventeen (17) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lindgren. Associate: Dated: 9 August 2001 Solicitor for the Applicants: Mr P Bushby of Phillip Bushby International Counsel for the First and Second Respondents: Mr G Laughton Solicitors for the First and Second Beverley Foster & Associates Respondents: Date of Hearing: 2 August 2001 Date of Judgment: 2 August 2001 ANNEXURE NOTICE TO PRODUCE To: ANNE LOUISE SPYER TAKE NOTICE that you are required to produce at the Court at 9.15 a.m. o'clock on 27th June 2001 the following documents: 1. All your taxation returns and assessments for the period commencing 1st July 1994 to the date of this Notice. 2. All group certificates and/or tax stamp sheets and/or other evidence of wages, bonuses, commissions, allowances, refunds or other monies received by you from your employer in respect of work performed by you during the period commencing 1st July 1994 to the date of this Notice. 3. All books of account, sales records, pay slips, statements of commission earned, entertainment and travelling allowances, records, vouchers and all other records in relation to all monies received by you or in your name or any other name from any other source from 1st July 1994 to the date of this Notice. 4. All cheque butts, bank deposit books, bank statements and pass sheets for the period commencing 1st July 1994 to the date of this Notice relating to any current account in which you have or partnership with which you are associated has either beneficially or as trustee an interest. 5. All deposit books and/or butts, savings books, bank statements, pass sheets and other books or letters relating to deposits made by or on your behalf in any bank account or building society account in your name either solely and/or jointly with any other person or persons or in respect of which you have any interest whatsoever, from 1 July 1990 to the date of this Notice. 6. All receipts or other records of all monies held by you on fixed deposit with any bank or other institution from 1 July 1990 to the date of this Notice.. 7. All policies of insurance or assurance held by you or in which you have an interest either beneficially or as trustee or on which you make or cause to be made payments of premiums and all documents relating to the surrender by you of any policy of insurance or assurance for the period commencing 1st July 1994 to the date of this Notice and all receipts for premiums paid in respect of all and any policies of insurance or assurance held by you or in which you have an interest either beneficially or as trustee during the same period. 8. All hire purchase agreements, lease agreements, statements of account, letters, mortgages and bills of sale, and all other documents relating to any personal property in respect of which you have or have had an interest whether legal or equitable at any time during 1st July 1994 to the date of this Notice. 9. Certificates of registration of all motor vehicles and boats owned by you or any company with whom you are associated either beneficially or as trustee or in respect of which you have an interest including the certificates of registration of all motor vehicles leased by you or by a company in respect of which you have an interest or are associated either beneficially or as trustee. 10. Bank records and statements, income tax returns, balance sheets, insurance endowment and superannuation policies, deeds of title, minute books, share register, books of account, wages records, land tax returns, cash received book, balance sheets and private ledger and journals of all businesses in which you have been involved either as an employee; shareholder; partner or as a sole trader from 1 July 1994 to the date of this Notice. 11. Bank records and statements, income tax returns, balance sheets, insurance endowment and superannuation policies, deed of title, minute books, share register, books of account, wages records, land tax returns, cash received book, balance sheets and private ledger and journals of all businesses in which you have been involved either as an employee; shareholder; partner or as a sole trader from 1 July 1994 to the date of this Notice. 12. All pension cards and any other evidence in your possession showing the present receipt of pension assistance and the type of pension payable to you from 1 July 1994 to the date of this Notice. 13. All share certificates, contract notes, script, statements from sharebrokers, trust units, debentures, notes and bonds in which you have or had an interest either beneficially or as trustee for the period commencing 1st July 1994 to the date of this Notice. 14. All agreements and letters relating to any loan made by you either beneficially or as trustee to any person or entity for the period commencing 1st July 1994 to the date of this Notice. 15. All certificates of title, deeds, conveyances, mortgages, leases, contracts for sale, settlement sheets, real estate reports, valuations, rate notices, Valuer General valuation, land tax assessments and letters from solicitors and/or real estate agents in relation to any property which you have owned, purchased, sold or entered into negotiations for purchase either solely or jointly with any other person or persons, beneficially or as trustee for the period commencing 1st July 1994 to the date of this Notice. 16. All leases, agreements, rent receipts, registers, invoices, statements and letters from real estate agents and/or solicitors in relation to premises owned and/or leased by you either solely or jointly with any other person or persons, beneficially or as trustee from 1st July 1994 to the date of this Notice. 17. All documents and letters containing particulars of any loan made by any person or entity to you either solely or jointly with any other person or persons, beneficially or as trustee from 1st July 1994 to the date of this Notice. 18. All deeds of trust in which you are the settler, trustee or beneficiary. 19. All invoices, statements, credit discs and letters relating to any credit or charge account held by you either beneficially or as trustee from 1st July 1994 to the date of this Notice. 20. All airline or shipping receipts of tickets, travel documents, hotel and motel accounts and receipts, travel or accommodation vouchers, correspondence and other documents showing the amounts of money expended by you or on your behalf by any other person or company in travel either for business or for personal reasons during the 2 years immediately preceding the date of this notice. 21. Any passport held by you during the 2 years immediately preceding the date of this notice. 22. Any other deed, agreement or document evidencing any asset owned either beneficially or as trustee by you solely and/or jointly with any other person or persons, partnership or company in which you have or have had an interest together with any other document tending in any way to disclose your financial position. 23. All accounts, receipts, invoices or documents evidencing expenses incurred by you and payments made in respect of insurance; medical, dental or hospital expenses; medical fund subscriptions; water and council rates; land taxes; mortgage payments; monies expended on house repairs; electricity; gas; fuel; telephone; clothing; child care; education; motor vehicle registration; insurance; petrol and maintenance expenses; driver's licence; union fees; and subscriptions to clubs.