Kestral Trading Pty Limited v Montano Corp Pty Limited [2003] FCA 1382

FEDERAL COURT OF AUSTRALIA

Kestral Trading Pty Limited v Montano Corp Pty Limited [2003] FCA 1382 KESTRAL TRADING PTY LIMITED, ADAM JOHN HENNESSY & CELIA MARY HENNESSY v MONTANO CORP PTY LIMITED & PETER MONTANO N 1251 OF 2002 WHITLAM J 28 NOVEMBER 2003 SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY N 1251 OF 2002

BETWEEN: KESTRAL TRADING PTY LIMITED

FIRST APPLICANT

ADAM JOHN HENNESSY

SECOND APPLICANT

CELIA MARY HENNESSY

THIRD APPLICANT

AND: MONTANO CORP PTY LIMITED

FIRST RESPONDENT

PETER MONTANO

SECOND RESPONDENT

JUDGE: WHITLAM J

DATE OF ORDER: 28 NOVEMBER 2003

WHERE MADE: SYDNEY

THE COURT ORDERS THAT: 1. The applicants' motion for judgment is refused. 2. The respondents are to pay the applicants' costs of their motion, such costs to be taxed and paid forthwith. 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 1251 OF 2002

BETWEEN: KESTRAL TRADING PTY LIMITED

FIRST APPLICANT

ADAM JOHN HENNESSY

SECOND APPLICANT

CELIA MARY HENNESSY

THIRD APPLICANT

AND: MONTANO CORP PTY LIMITED

FIRST RESPONDENT

PETER MONTANO

SECOND RESPONDENT

JUDGE: WHITLAM J

DATE: 28 NOVEMBER 2003

PLACE: SYDNEY

REASONS FOR JUDGMENT 1 This is an application for judgment against the respondents pursuant to O 15 r 16(1)(b) of the Federal Court Rules. The applicants allege that the respondents are in default of an order for particular discovery that I made on 8 July 2003. The respondents do not admit any such default. 2 The proceeding involves an alleged contravention of the Franchising Code of Conduct ('the Code') prescribed for the purposes of Pt IVB of the Trade Practices Act 1974. Clause 6(1) of the Code obliged a franchisor to give a disclosure document to a prospective franchisee, and the information to be contained in that document was set out in Annexure 1 to the Code. The order of 8 July 2003 required the respondents to give discovery of categories of documents, which were defined by using the headings in Annexure 1 to the Code. 3 The respondents initially filed a list of documents on 6 May 2003. In purported compliance with the order of 8 July 2003, they filed further lists, one on 24 July 2003 and the other on 11 August 2003. The latest list disclosed documents under some of the headings used in Annexure 1 to the Code and was certified by Frederick Forster as solicitor. 4 Mr Forster was cross-examined about his instructions in relation to the correctness of the discovery by the respondents. In particular, he was asked a series of questions about cheque stubs in the initial discovery. It was put to Mr Forster that markings on those documents suggested that separate ledgers or books of account must have existed for the City and Petersham businesses of the respondent corporation prior to the purchase of the City franchise by the applicant corporation. 5 The applicants' case depends to some extent upon the failure of the corporate respondent to give a disclosure document under the Code. Whilst it is not apparent from the defence, it is now clear as a result of a concession made in argument by their counsel that the respondents do not assert that such a document was ever given. The applicants have, therefore, to show the consequences of such an omission. To do so, they need to establish what information might have been contained in such a disclosure document. (There is no allegation made by the applicants that such a document ever existed and was simply not handed over.) 6 The pieces of information called for in Annexure 1 to the Code overlap under some of its headings. The shorthand reference to those headings in the discovery order of 8 July 2003 required the respondents to use a degree of common sense in disclosing the documents that might be the sources of such information. The meticulous analysis by the applicants' legal representatives of the documents so far disclosed leads to the inescapable conclusion that the respondents have not approached their task with the necessary attention to detail. For example, the disclosure of balance sheets and profit and loss statements for various periods that do not discriminate between various branches is not sufficient. The applicants are entitled to have disclosed the records of all the book-keeping entries that underlie such financial statements. In a case such as the present where the applicants are particularly concerned with the City branch or business, it is essential that all books of account, such as separate ledgers for different locations, must be disclosed. Where O 15 r 6(6) applies, the position in respect of any relevant documents must be clearly stated. 7 The respondents, in my view, are in default of the order made on 8 July 2003. The principles explained in Lenijamar Pty Ltd v AGC Advances Ltd (1990) 27 FCR 388 provide useful guidance in the present circumstances. That case concerned default by an applicant. Here the default is that of the respondents and, whilst it has passed beyond that which might be regarded as merely the result of obtuseness to that which gives off more than a whiff of bloody-mindedness, I do not think that their behaviour may be characterized as exhibiting such an unwillingness to co-operate with the Court as would justify in any form an order for judgment at this stage. 8 The motion will accordingly be refused. The respondents must, however, pay the costs of the applicants' motion and such costs may be taxed and paid forthwith. I certify that the preceding 8 (eight) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Whitlam.