FEDERAL COURT OF AUSTRALIA Brentwood Village Limited (in liq) v Terrigal Grosvenor Lodge Pty Limited (No 3) [2016] FCA 825 File number: NSD 1123 of 2014 Judge: MARKOVIC J Date of judgment: 20 July 2016 Legislation: Evidence Act 1995 (Cth) ss 55, 58 Federal Court Rules 2011 rr 22.05, 22.06 Cases cited: Australian Competition and Consumer Commission v Air New Zealand Ltd (No 1) (2012) 207 FCR 448 Young v Queensland Trustees Limited (1956) 99 CLR 560 Date of hearing: 18 and 19 July 2016 Registry: New South Wales Division: General Division National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Category: No Catchwords Number of paragraphs: 31 Counsel for the Plaintiffs: Mr R C Newlinds SC with Mr J Hynes Solicitor for the Plaintiffs: Corrs Chambers Westgarth Counsel for the First and Fifth Defendants: Mr P S Braham SC with Mr D Neggo Solicitor for the First and Fifth Defendants: Hall & Wilcox Counsel for the Second and Fourth Defendants: Mr J M Ireland (solicitor) Solicitor for the Second and Fourth Defendants: D C Balog & Associates ORDERS NSD 1123 of 2014 BETWEEN: BRENTWOOD VILLAGE LIMITED (IN LIQUIDATION) ACN 002 570 087 First Plaintiff SCOTT DARREN PASCOE AS LIQUIDATOR OF BRENTWOOD VILLAGE LIMITED (IN LIQUIDATION) Second Plaintiff AND: TERRIGAL GROSVENOR LODGE PTY LTD ACN 000 868 057 First Defendant ACN 153 892 436 PTY LIMITED ACN 153 892 436 Second Defendant JOHN GERARD KLUMPER (and others named in the Schedule) Third Defendant JUDGE: MARKOVIC J DATE OF ORDER: 19 JULY 2016 THE COURT ORDERS THAT: 1. Pursuant to r 22.06 of the Federal Court Rules 2011 (the Rules) the plaintiffs be granted leave to withdraw their deemed admission pursuant to r 22.05 of the Rules in relation to the authenticity of the documents at court book tabs 96 and 109. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT MARKOVIC J: 1 On the first day of the hearing two issues arose in relation to the documents proposed to be tendered by the first and fifth defendants. They concerned: (1) a challenge by the plaintiffs to the authenticity of the documents at court book tabs 96 and 109; and (2) an objection to the tender of documents going to what has been termed the repayment issue on the ground of relevance. 2 Having considered the submissions made by the parties in relation to these issues, I indicated to the parties that I had determined that: (1) pursuant to r 22.06 of the Federal Court Rules 2011 (the Rules) the plaintiffs should be granted leave to withdraw their deemed admission pursuant to r 22.05 of the Rules in relation to the authenticity of the documents at court book tabs 96 and 109; and (2) the plaintiffs' objection to the documents going to the repayment issue should not be allowed. 3 My reasons for making those determinations follow. documents at court book tabs 96 and 109 4 The documents at court book tabs 96 and 109 are respectively a letter dated 8 September 2009 from Hones La Hood Lawyers to Brentwood Village Ltd and a letter dated 10 September 2009 from Brentwood Village to the first defendant, Terrigal Grosvenor Lodge Pty Ltd (TGL). The issue concerning these documents arose in the context of an objection by the plaintiffs on the basis of relevance and, a contention that, if found to be relevant, their authenticity would need to be proved. 5 Mr Braham SC submitted on behalf of the first and fifth defendants that the relevance objection could most usefully be dealt with in the course of submissions but that the provenance objection was in a different category and that the Court should proceed to determine that matter. 6 Authenticity of itself is not a basis for an objection to the tender of evidence. The requirement for the admissibility of evidence under the Evidence Act 1995 (Cth) (the Act) is relevance. That is, whether a document is relevant to a fact in issue pursuant to s 55 of the Act. Section 58 sets out what the Court may examine in determining this question: see Australian Competition and Consumer Commission v Air New Zealand Ltd (No 1) (2012) 207 FCR 448 (Perram J) at [92] to [104]. 7 That being the case, and given the deferral of the question of relevance, the issue presently before me is the application by the plaintiffs for leave to withdraw their deemed admission as to authenticity of the documents in question which arises by reason of the operation of r 22.05 of the Rules and on which the first and fifth defendants rely. 8 Rule 22.05 provides that: A party (the first party) will be taken to have admitted the authenticity of any document specified in another party's list of documents for which inspection has been permitted unless: (a) the authenticity has been denied in the first party's pleadings or affidavits; or (b) the first party has given the other party notice within 14 days after inspection was permitted that the authenticity of the document is denied. 9 In this case, the plaintiffs did neither. On that basis, Mr Braham SC submitted that his clients are entitled to the benefit of the rule. In response, the plaintiffs applied for leave to withdraw the admission pursuant to r 22.06. 10 Notice of the objection to those documents, which I understand raised the issue of authenticity, was made at a late stage on the evening before the commencement of the hearing. Similarly the application for leave to withdraw the deemed admission has been made at a late stage, literally on the run, in argument before me on the first day of the hearing. No explanation was given for the late notice of the objection or the late application and no evidence has been tendered by the plaintiffs on that issue. Mr Newlinds SC, who appears for the plaintiffs, candidly informed the Court that, while his clients were aware of the two documents now in issue, it was not until the first and fifth defendants provided their opening submissions last week that the plaintiffs became aware of their reliance on those documents. In those circumstances the objection was raised and this application has now been made. 11 In relation to the requirements of r 22.05, Mr Newlinds SC submitted that, as the documents are not pleaded, their authenticity has not been denied in any pleading on behalf of the plaintiffs or in any affidavit. Mr Newlinds SC also submitted that while a document might be discovered, in the absence of it being relevant on the pleadings, it is not unreasonable for a party to "leave it alone". 12 In relation to the particular documents Mr Newlinds SC submitted that: (1) the letter dated 8 September 2009 from Hones La Hood was not produced in answer to the second plaintiff's notice to deliver books of the company served on Hones Lawyers which called for, among other things, all legal files of the first plaintiff, Brentwood Village Ltd (In Liquidation) (BVL). A copy of the liquidator's notice is in evidence. Mr Braham SC submitted that the reason why the document was not produced was because the notice sought documents of BVL and this was a document of TGL in that it was written by Hones La Hood on behalf of that company and sent to BVL. There is no evidence to support that submission and the terms of the letter itself suggest the contrary. An amended tax invoice dated 22 September 2009 from Hones La Hood to TGL, on which the plaintiffs rely, does not refer to the drafting of a letter in the nature of the letter dated 8 September 2009 on 8 September 2009 or any of the surrounding dates; and (2) the letter dated 10 September 2009 from Brentwood Village to TGL was not located in BVL's records. 13 Mr Braham SC on behalf of the first and fifth defendants submitted that: (1) the plaintiffs have been aware of these documents for some time; (2) there is no evidence explaining why the plaintiffs' application is brought so late; (3) the second plaintiff has carried out a series of examinations, the documents in question were included in the examinations bundles and the second plaintiff had plenty of opportunity to ask any of a number of witnesses about the authenticity of the documents when he carried out his examinations but did not; (4) a grant of leave to withdraw the admission would interrupt the hearing of the matter as the first and fifth defendants would then be entitled to put on evidence which will not be a simple matter; and (5) there was nothing unusual about the documents which, in effect, form part of the factual matrix. 14 Mr Ireland, who appears on behalf of the second and fourth defendants, also submitted that an application for leave to withdraw the admission ought not be entertained by the Court at this late stage, particularly in circumstances where no cogent explanation has been given for its lateness despite an affidavit being circulated by the plaintiffs' solicitors on the eve of the hearing but which was not read. 15 The plaintiffs' application to withdraw the deemed admission has been made at a very late stage, with only minimal notice and absent any evidence, other than the amended tax invoice from Hones La Hood, being put before the Court. To an extent this application arose in this way because the first and fifth defendants were concerned to ventilate the issue, it having been notified to them, and to do so prior to having the issue of relevance determined. 16 Leaving that to one side, including the less than ideal way that the application came before me, I am satisfied that the plaintiffs should be given leave to withdraw their deemed admission as to authenticity of the documents at court book tabs 96 and 109. 17 Given the circumstances of this case and the way in which the parties have chosen to run it, it is understandable that the liquidators took no earlier steps to dispute the authenticity of the documents. As Mr Newlinds SC submitted the documents are not particularised in the defence nor are they included in any affidavit evidence filed on behalf of the first and fifth defendants. They were discovered some time ago and, as the plaintiffs concede, they were aware of the existence of the documents and in fact they were included in examination bundles to be used in the course of examinations carried out by the second plaintiff. But the plaintiffs submit, and I accept, that they were not aware of the first and fifth defendants' proposed reliance on them until they received their outline of submissions last week. 18 The plaintiffs' concern about the authenticity of the documents arises in circumstances where, despite an order for production being served on the relevant law firm and the liquidators having access to the books of BVL, neither of these documents was produced or found in BVL's documents. Further there is evidence which raises an issue about one of the documents. Given that and, in circumstances where I accept the submissions provided to explain the delay, the leave sought should be granted. Objection to documents relating to "repayment issue" 19 In their further amended statement of claim (FASOC) the plaintiffs seek repayment of a loan by BVL to TGL. In answer to that claim, TGL says in its opening submissions, among other things, that the loan the subject of the claim has been repaid. It seeks to tender documents going to that issue. 20 The plaintiffs object to the tender of documents by the first and fifth defendants relating to the issue of repayment of the loan. They submit that the question of repayment of the loan is not part of the case: it is not pleaded by TGL in the first and fifth defendants' amended defence (the Amended Defence). 21 The plaintiffs plead the loan by BVL to TGL at [40] to [45] of the FASOC under the heading "Liquidated Claim and Charge". Relevantly, at [40] the plaintiffs allege that, from time to time prior to 31 August 2007, BVL loaned monies to TGL (defined as the Initial Advance) and at [41] they plead the loan agreement dated 31 August 2007 between BVL as lender and TGL as borrower pursuant to which BVL agreed to advance to TGL the sum of $35 million and any further advances pursuant to cl 2(c) of that agreement. At [43] the plaintiffs plead that on or about 31 August 2007 BVL made funds available to TGL under the loan agreement (referred to as the Loan Agreement Advance). The plaintiffs then allege at [45] that: 45. As at the date of this Amended Statement of Claim, TGL remains indebted to TGL (sic) in respect of: (a) the Initial Advance; (b) Loan Agreement Advance; (c) in the alternative to paragraph 45(a) and 45(b) above, such amount as remains owing in respect of the Initial Advance and the Loan Agreement Advance. Particulars (i) Brentwood Village Ltd Financial Statements for Year Ended 30 June 2007, Note 2 "Trade and Other Receivables: Loan - Terrigal Grosvenor Lodge Pty Ltd $20,595,676.96 (2007), $53,748,536.14 (2008)"; (ii) Brentwood Village Ltd Financial Statements for Year Ended 30 June 2009, Note 4 "Trade and Other Receivables: Loan - Terrigal Grosvenor Lodge Pty Ltd $45,517,560.82 (2008), $30,432,114.00 (2009)"; (iii) Brentwood Village Ltd Financial Statements for Year Ended 30 June 2012, Note 10 "Trade and Other Payables: Loan- Terrigal Grosvenor Lodge Pty Ltd $17,818,674.35 (2011), $18,700,816.26 (2009)". 22 TGL's defence to the loan claim is at [36] to [45] of the Amended Defence. In particular at [45] TGL responds to [45] of the FASOC and pleads that: The first defendant denies paragraph 45 of the FASOC and further says that, as at 19 December 2013, Brentwood was indebted to TGL in the sum of approximately $2,139,698.57 and remains indebted to TGL for approximately that amount, and that the first defendant is entitled to set-off against any liability it may have to Brentwood the amount to which Brentwood is indebted to TGL. 23 The plaintiffs submitted that if TGL relies on a defence of repayment then that ought to be clearly pleaded and it is not. In support of that proposition, they rely on the judgment of the High Court in Young v Queensland Trustees Limited (1956) 99 CLR 560 (Young). The plaintiffs submitted that a bare denial of indebtedness, as pleaded by TGL, is not sufficient to raise the defence of repayment as it could relate to a range of possibilities: for example, a release, an estoppel, set off or repayment. The plaintiffs also submitted that the pleading of set off could not be seen as an allegation of repayment. 24 Mr Newlinds SC also submitted on behalf of the plaintiffs that their claim in relation to the loan account was really a running account claim. He submitted that all those involved in the case had always understood that to be so. He said that was so despite the fact that, on a strict reading of the pleading in relation to the claim for repayment of the loan account, that does not arise. 25 Mr Braham SC submitted on behalf of TGL that there had to be an issue on the pleadings about repayment of the debt for evidence of repayment to become a relevant issue and that there was such an issue on the pleadings. Mr Braham SC submitted that TGL's denial of the allegation as pleaded at [45] of the FASOC is sufficient to raise the issue of repayment, that no elaborate form of pleading is required and that it is clear that the plaintiffs and TGL are at issue on the question of whether there is any amount outstanding under the loan agreement at the date the amended statement of claim was filed. No more detailed form of pleading is required. 26 Mr Braham SC also submitted that it had always been the case that the plaintiffs would rely on a report prepared by the second plaintiff in relation to the loan. However, at some point in the week preceding the commencement of the hearing his clients were notified that the plaintiffs would no longer rely on that report but would rely on intercompany loan accounts to prove the current state of the intercompany loan. Mr Braham SC submitted that TGL was adopting its current approach, that is the tender of the "repayment documents", in response to the "very late change of position" by the plaintiffs. 27 In Young the High Court was concerned with the issue of whether a finding by the trial judge that the appellant did not repay a debt for money lent should be sustained. In considering that issue the High Court (Dixon CJ, McTiernan and Taylor JJ) rejected the appellant's contention that the burden of disproving repayment lies on the plaintiff and disapproved of the judgment in Nelson v Campbell (1928) VLR 364 (Nelson v Campbell). The Court reviewed the authorities which demonstrated that the Supreme Court of Victoria in Nelson v Campbell had fallen into error in deciding that a burden rests on the plaintiff to disprove a defence of repayment. At 569 to 570 the Court said: … The law was and is that, speaking generally, the defendant must allege and prove payment by way of discharge as a defence to an action for indebtedness in respect of an executed consideration. It is interesting to notice that it was soon settled that upon a plea of payment the defendant had the right to begin at the trial: see "An Exposition of the Practice in relation to the Right to Begin and to Reply", by W. M. Best (1837) pp. 60, 61. The same author in his well known work on Evidence treats the rule placing upon the defendant the burden of proving payment as a special application of the presumption of continuance. Writing of this presumption he includes as a case requiring special consideration, "the presumption of the continuance of debts, obligations etc. until discharged or otherwise extinguished". And he says "a debt once proved to have existed, is presumed to continue unless payment, or some other discharge, be either proved, or established by circumstances." – Best on Evidence 12th ed. (1922) p. 346, s. 406. Though this no doubt supplies a rationale that it is not unsatisfactory, the truth is that the rule arises from the nature of debt itself. Once it is seen that the burden of proving payment falls upon a defendant setting it up as a defence the present appellant's case assumes a different aspect. … 28 The High Court in Young was concerned with the issue of the burden of proof on a defence of repayment, which it found was clearly one for the defendant raising the defence, rather than the manner in which such a defence must be pleaded. To the extent the Court commented on the pleading of such a defence it did so in a general way – that was not the issue before it. 29 In any event, to the extent such a defence must be pleaded it has, in my opinion, been sufficiently pleaded by TGL. A denial is, on Mr Newlinds SC's own submission, broad enough to cover repayment. In my view, that is the position in this case. The pleading at [45] of the Amended Defence is sufficient to raise the defence of repayment. It was open to the plaintiffs to seek particulars if there was any confusion or ambiguity about the exact nature of TGL's defence. That avenue was one which would more likely be pursued in circumstances where it became apparent that no affidavit evidence was to be relied upon by the defendants. They did not do so. 30 I do not think that the plaintiffs' submission that everyone involved in the case had always understood the plaintiffs' loan claim as a running account claim takes the matter any further. There was no evidence before me in relation to that matter. The plaintiffs' claim is for the amounts defined as the Initial Advance and the Loan Agreement Advance or, in the alternative, such amounts as remain owing in respect of the Initial Advance and the Loan Agreement Advance. The matters in issue in the proceedings are defined by the pleadings. 31 The objection is not allowed. I certify that the preceding thirty-one (31) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Markovic. Associate: Dated: 20 July 2016 SCHEDULE OF PARTIES NSD 1123 of 2014 Defendants Fourth Defendant: PAUL-ALEXANDER JOHN KLUMPER Fifth Defendant: VERONICA KLUMPER-PETERS