FEDERAL COURT OF AUSTRALIA Mignon Cakes Pty Limited v Hiltide Pty Limited [2004] FCA 1453 MIGNON CAKES PTY LIMITED v HILTIDE PTY LIMITED & ORS NSD 1475 OF 2003 ALLSOP J 8 NOVEMBER 2004 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD 1475 of 2003 BETWEEN: MIGNON CAKES PTY LIMITED APPLICANT AND: HILTIDE PTY LIMITED FIRST RESPONDENT DANJAB PTY LIMITED SECOND RESPONDENT JOHN LEWIS SCHLEDERER THIRD RESPONDENT HILTIDE PTY LIMITED CROSS CLAIMANT MIGNON CAKES CROSS RESPONDENT JUDGE: ALLSOP J DATE OF ORDER: 8 NOVEMBER 2004 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The motion brought orally be dismissed. 2. Costs of that motion be reserved. 3. Any interlocutory step of any kind sought to be made in relation to paragraphs (e) and (g) to (p) on pages 153 to 157 of Mr Schlederer's affidavit be by leave only. 4. The matter be stood over to 9.15 am, Monday, 15 November 2004 on which occasion, the issue of mediation of this matter prior to the middle of February 2005 before an agreed mediator, or alternatively a mediator identified by the Court will be discussed. 5. Leave be granted to the applicant to file and serve any affidavit in reply to subparagraphs (e) and (g) to (p) on pages 153 to 157 of Mr Schlederer's affidavit on or before 22 November 2004. 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 NSD 1475 of 2003 BETWEEN: MIGNON CAKES PTY LIMITED APPLICANT AND: HILTIDE PTY LIMITED FIRST RESPONDENT DANJAB PTY LIMITED SECOND RESPONDENT JOHN LEWIS SCHLEDERER THIRD RESPONDENT HILTIDE PTY LIMITED CROSS CLAIMANT MIGNON CAKES CROSS RESPONDENT JUDGE: ALLSOP J DATE: 8 NOVEMBER 2004 PLACE: SYDNEY REASONS FOR JUDGMENT 1 This is an application made orally by the applicant in these proceedings for an order that subparagraphs (e) and (g) to (p) on pages 153 to 157 of the affidavit of John Lewis Schlederer sworn 2 July 2004 be struck out or that otherwise the respondents not be permitted to reply upon those paragraphs at the hearing. 2 Those subparagraphs form part of a section of Mr Schlederer's affidavit said to be in answer to paragraph 30 of the affidavit of the principal of the applicant, Mr David Robert Bottomley. 3 I do not propose to deal with the matter in the detail identified in the written submissions of the respondents. I propose to deal with the matter at a fairly broad level. My view is that an application such as this in advance of the hearing should be dealt with with some caution given that I have not had the advantage of an immersion into the material by a detailed opening and by an examination of evidence as it falls out. Notwithstanding that, the course adopted by the applicant is, if not overused, a useful one in difficult cases where the evidence complained of may lead to an unnecessary lengthening of the case. 4 Those general comments made, I should state my views as to why I do not at this point propose to accede to the request of the applicant. 5 On a review of the impugned paragraphs, to a greater or lesser extent, it appears to me that there may well be real difficulties in any successful argument that the paragraphs are truly probative of any matter in issue or relevant to a factum issue. However, the case, if I may put it this way, without disrespect to the parties, is likely to be a messy one. It is about the purchase of a business said to contain large cash takings in respect of which there are allegations of false and misleading conduct in and around the representations made about that business. 6 The applicant restricts its claims for damages to one based on the comparison of the worth of the business at the time of payment and completion and what was paid for the business. Thus, it is said that the body of material in Mr Schlederer's affidavit, about which complaint is made, is irrelevant. It is said to be irrelevant because what Mr Schlederer does in large part is examine discovered documents of the applicant and give some considerable detail about what those documents show about the conduct of the business and the profitability of the business after purchase. 7 Notwithstanding that the primary claim for damages is one based on the worth of the business at the time of completion, the applicant does use post-completion events to prove some aspects of its case. It wishes to prove the takings of two businesses – one at Leichhardt and one at Chester Hill – in aid of a body of material from which I will be asked to conclude that the representations about takings from Leichhardt and Chester Hill were false. Those matters would lead to the conclusion, ineluctably it seems to me, that evidence of the competence or other aspects of the running of Leichhardt and Chester Hill after completion would be naturally admissible to disprove or weaken the inferences the applicant seeks to draw in the respects I have identified. 8 However, Mr Schlederer ranges more widely than that. It is said that the conduct of the other shops after completion will assist me in drawing the inference as to how the takings of Leichhardt, at least, can be assessed in a way contrary to a way that the applicant would want me to. Put more clearly perhaps, it is said that one needs to understand how the totality of the group of businesses worked after completion before one can draw conclusions as to the reliability of the takings evidence of Leichhardt. The reliability of that proposition is not self-evident, but using the cautious approach I have identified, I think I would prefer to leave it to a matter for trial at the hearing. 9 A second basis for seeking to use this post-completion evidence is that it is said by the respondents that it demonstrates the continued cash takings of the business. This assists, it is said, in an acceptance of Mr Schlederer's evidence as to what he said prior to completion about how the business was run. Counsel identified various matters today as to how Mr Schlederer's evidence is said to make this relevant. Once again, for my part at the moment, it is less than pellucid as to how this later evidence will be of assistance in this regard. But, once again, taking a cautious approach as I think is proper given the nature of the application, I am not prepared to shut the respondents out from seeking to propound this evidence. 10 The third basis for which this evidence is put forward is that it is said that it assists in drawing the inference that what Mr Schlederer apparently says he said prior to completion was accurate. That is, that this evidence of later conduct of the business assists in a conclusion that with cash taken into account the gross profit of the businesses as a whole was in the region of $600,000 per annum. Given that in other parts of Mr Schlederer's affidavit he is at pains to identify the changes made to the business after completion by Mr Bottomley it is not entirely clear, once again, how this asserted relevance will be made good. But, once again, on the approach that I have identified, I think this should be left as a matter for trial. 11 As I have said, applications of this kind as long as not frivolously made, which this one was not, can play a useful part in attempting to narrow issues and bring some light to bear upon how a case will be conducted. Hopefully that has occurred to some degree today. 12 The matter is set down for hearing on 14 March 2005, for something in the order of two weeks. Two accountants, Mr Lonergan and Dr Ferrier, have been retained by the respective parties. Significant expense has gone into the preparation of this case thus far and a security for costs application has been made. 13 Whilst I do not propose to make the orders sought and would dismiss the oral motion brought in terms that I have earlier identified the nature of the proceedings, the nature of the application and the nature of the argument leads me to make a number of other orders. 14 First, that costs of this motion be reserved. I do so for the same reasons I make the next comment. I put the parties on notice, although that is perhaps unnecessary given the experience of both solicitors and counsel involved, that I will not hesitate to make indemnity cost orders in relation to evidence that is led that is held to be substantively, as opposed to a matter of form, irrelevant to the proceedings. When I say, I will not hesitate, I will, of course, hear the parties through their legal representatives. But in a matter of this nature, if I am of the view has been extended in scope or time unnecessarily will attract indemnity cost orders of a flexible kind. 15 Secondly, I am not aware at the moment of what further discovery or interlocutory processes are being sought hinging upon these paragraphs. If there are any they will stop and any application for interlocutory steps whether of a subpoena, further production of documents, or other order as to these subparagraphs will be made by leave only. 16 Finally, I propose to raise a matter identified in s 53A of the Federal Court of Australia Act 1976 (Cth) I do not know whether the parties have sought to mediate this case. The matter will take as I have said at least two weeks, and I suspect longer, at considerable expense to the parties in the retention not only of skilled and experienced counsel and solicitors, but skilled and experienced expert investigating accountants. The matter involves commercial aspects as to running businesses of this kind, which if it has not already attracted the attention of the Revenue may well do so after I have finished with the matter. 17 In many cases it is not appropriate to order parties to mediation over their opposition. However, I propose at least to consider making such an order in this case. I have not raised it with the parties and I do not recall whether mediation has been attempted. I would not order mediation in a case such as the present before a Registrar of this Court. But I would order it to take place briefly, at least for one day, before an experienced commercial person. It might be able to bring the parties to a modicum of agreement or at least bring the parties to a position where the issues may conceivably be narrowed. Although I appreciate the difficulty of that if the case cannot be brokered completely. 18 I will not make orders about indemnity costs. Also nothing in these reasons is to be taken as a ruling at the trial on the admissibility or otherwise of the paragraphs in question either by reference to form or substance. 19 The orders that I make are as follows: 1. The motion brought orally be dismissed. 2. Costs of that motion be reserved. 3. Any interlocutory step of any kind sought to be made in relation to paragraphs (e) and (g) to (p) on pages 153 to 157 of Mr Schlederer's affidavit be by leave only. 4. The matter be stood over to 9.15 am, Monday, 15 November 2004 on which occasion, the issue of mediation of this matter prior to the middle of February 2005 before an agreed mediator, or alternatively a mediator identified by the Court, will be discussed. 5. Leave be granted to the applicant to file and serve any affidavit in reply to subparagraphs (e) and (g) to (p) on pages 153 to 157 of Mr Schlederer's affidavit on or before 22 November 2004. I certify that the preceding nineteen (19) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Allsop. Associate: Dated: 12 November 2004 Counsel for the Applicant: Mr S T White SC Solicitor for the Applicant: Freidman Reeves Counsel for the Respondent: Mr F G Lever SC Solicitor for the Respondent: Swaab Attorneys Date of Hearing: 8 November 2004 Date of Judgment: 8 November 2004