Federal Court of Australia Vitamin Co Pty Ltd v Healthy Hab Pty Ltd (Discovery) [2020] FCA 1194 File number: NSD 1021 of 2019 Judgment of: PERRAM J Date of judgment: 20 August 2020 Catchwords: PRACTICE AND PROCEDURE – discovery – where Applicant's list of documents not in accordance with categories ordered under Federal Court Rules 2011 (Cth) r 20.17(3)(a) – whether order for particular discovery should be made Legislation: Competition and Consumer Act 2010 (Cth) Sch 2 Federal Court Rules 1979 (Cth) (repealed) O 15 r 8 Federal Court Rules 2011 (Cth) rr 5.23, 20.16, 20.17, 20.21 High Court Rules 1952 (Cth) (repealed) O 32 r 18 Cases cited: Construction, Forestry, Mining and Energy Union v Rio Tinto Coal Australia Pty Ltd [2014] FCA 462; 232 FCR 560 In the matter of Vitamin Co Pty Ltd (ACN 614 680 367) [2019] VSC 540 Metcash Trading Limited v Bunn [2010] FCA 8; 263 ALR 132 Mulley v Manifold (1959) 103 CLR 341 Division: General Division Registry: New South Wales National Practice Area: Commercial and Corporations Sub-area: Regulator and Consumer Protection Number of paragraphs: 26 Date of hearing: 9 July 2020 Counsel for the Applicant: J Sleight Solicitor for the Applicant: Neville & Hourn Legal Counsel for the Respondents: E Young Solicitor for the Respondents: Comlaw Barristers & Solicitors ORDERS NSD 1021 of 2019 BETWEEN: VITAMIN CO PTY LTD Applicant AND: HEALTHY HAB PTY LTD First Respondent STANLEY GORDON Second Respondent order made by: PERRAM J DATE OF ORDER: 20 AUGUST 2020 THE COURT ORDERS THAT: 1. The Applicant file a fresh list of documents to replace its previous lists of documents in accordance with the Federal Court Rules 2011 (Cth) by 18 September 2020. 2. The list be set out by reference to the categories in Schedule A to the Registrar's orders of 29 January 2020. 3. Within each category the Applicant is to identify each particular document. 4. The Applicant file and serve an affidavit from its solicitor explaining the steps he has taken to explain the Applicant's discovery obligations to it by 18 September 2020. 5. The Applicant file and serve an affidavit setting out the searches and inquiries it has made to comply with its discovery obligations by 18 September 2020. 6. The matter be listed for case management on 25 September 2020 Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT PERRAM J: 1 Before the Court is a storm in a teacup. The First Respondent conducts a franchise business known as 'Healthy Habits'. Franchisees of Healthy Habits sell sandwiches, salads and juices. The Applicant leased a shop at Bridgepoint Shopping Centre in Mosman and entered into a franchise agreement with the First Respondent for the conduct of a Healthy Habits business from it. It alleges in this proceeding that it was induced to open the shop by three misrepresentations made to it by the First Respondent on its website. These were that the First Respondent had over 28 stores on the eastern seaboard of Australia and a store in New Zealand; that there were almost 40,000 people buying sandwiches, salads and juices from Healthy Habits stores each week; and that the Healthy Habits stores averaged between $34,000 and $150,000 in sales turnover per month. The Applicant alleges these representations were incorrect and that the true figures were much lower. The Applicant seeks damages for contraventions of s 18 of the Australian Consumer Law, being Sch 2 of the Competition and Consumer Act 2010 (Cth). It also alleges contraventions of the laws relating to franchising businesses and that the Second Respondent, Mr Gordon, was knowingly involved in the First Respondent's contraventions. Mr Gordon is a director of the First Respondent. 2 The statement of claim is not especially well drawn and, in parts, appears a little inconsistent, as if perhaps drawn in a hurry and at minimum cost. In February 2019 it appears that the First Respondent served a statutory demand on the Applicant and on 23 April 2019 commenced a proceeding in the Supreme Court of Victoria to wind up the Applicant. The current proceeding in this Court was commenced on 24 June 2019. On 23 August 2019 the winding up application was dismissed as a matter of discretion when regard was had to this proceeding and the issues it raised: In the matter of Vitamin Co Pty Ltd (ACN 614 680 367) [2019] VSC 540. The Judicial Registrar commented at [2]: A striking feature of this case is the quantum of the debt claimed in the statutory demand. It is for the mere sum of $2,372.36, which is only slightly higher than the prescribed statutory minimum. Despite this fact, the parties have raised numerous issues for the Court's determination which, on an initial impression, seem disproportionate to the relatively trivial amount in question. 3 The same lack of proportionality appears to afflict the present interlocutory dispute. It began as a debate about discovery which was determined by Registrar Priestley on 29 January 2020. The Applicant was ordered to give discovery of the documents in Schedule A to the Court's orders. There were 28 categories although 3 were not used so that in substance there were 25. Those categories were as follows: 1. Certificate of incorporation of the Applicant. 2. Not used 3. All documents evidencing that Nick Abboud viewed the website of the respondent 4. An extract from the company register of the Applicant identifying directorships and shareholdings of the Applicant. 5. All documents concerning the receipt, consideration, completion and return of the confidentiality agreement dated 25 January 2017 by Abboud. 6. All documents concerning the viewing of the website referred to paragraph 4 of the Statement of Claim by Abboud. 7. All documents of Abboud concerning the calculations made by Abboud referred to in paragraph 5 of the Statement of Claim. 8. All documents evidencing and disclosing that the First Respondent represented that there are 28 Healthy Habits on the eastern seaboard of Australian and one healthy habit store in New Zealand as pleaded in paragraph 6a of the Statement of Claim 9. All documents evidencing and disclosing that the First Respondent represented the Healthy Habits store receive almost 40,000 transaction per week. 10. All documents evidencing and disclosing that the First Respondent represented that current Healthy Habits stores average between $34,000 and $150,000 per month on sales turnover. 11. All documents evidencing and disclosing the First Respondent represented that Healthy Habits stores produced $59,770.10 per hour month in average. 12. All documents evidencing and disclosing that the First Respondent represented that Healthy Habits store is profitable. 13. All documents evidencing and disclosing that the document referred to in paragraph 7 of the Statement of Claim was provided to the Applicant after 1 December 2016 as pleaded in paragraph 8 of the Statement of Claim. 14. All documents concerning the receipt and consideration, completion and return of the LMA disclosure statement referred to in paragraph 9 of the defence. 15. All documents concerning the receipt and consideration, completion and return of the LMA legal advice statement referred to in paragraph 10 of the defence. 16. All documents concerning the receipt and consideration of the First Respondent's letter dated 13 April 2017 to LMA and the franchise agreement enclosed therein (refer to paragraph 11 of the defence). 17. All documents of the Applicant, including file notes or records kept by the Applicant concerning the receipt, consideration, completion and return of the Vitamin Disclosure Statement (refer to paragraph 13 of the defence). 18. All documents of the Applicant including file notes or records kept of the Applicant or accounts/invoices rendered to the Applicant concerning the receipt, consideration, completion and return of the Vitamin Legal Advice Statement (refer to paragraph 14 of the defence). 19. All documents of the Applicant including file notes or records kept of the Applicant or accounts/invoices rendered to the Applicant concerning advice given to it by Landers and Rogers lawyers and Eclipse accountants concerning the proposed franchise agreement referred to in paragraph 14 (b) of the defence and the written record of advice given by Landers and Rogers and Eclipse Accountants to the Applicant. 20. All documents of the Applicant including file notes or records kept of the Applicant concerning the receipt and consideration of the information statement (refer to paragraph 14 c of the defence). 21. The following documents: (a) file notes or records kept of the Applicant concerning the negotiation and entering into of the lease referred to in paragraph 9(a) of the Statement of Claim; (b) all the correspondence passing between the landlord of the store and the Applicant prior to entry into the lease; (c) the lease dated on or about 26 Nov 2019; and (d) the letter of offer for lease and/or disclosure statement for the lease. 22. All documents disclosing and evidencing that in the period 27 November 2017 to 3 December 2017. The average sales per Healthy Habits store was $6,443.00. 23. All documents disclosing and evidencing that in the 6 weeks to 3 December 2017 the average sales per Healthy Habit stores did not exceed $7,000 per week. 24. All documents disclosing and evidencing that as at December 2017 Healthy Habits stores conducted about 7,076 transactions per a week. 25. All documents disclosing and evidencing that as at December 2017 there were approximately 13 Healthy Habits stores. 26. General Ledger, profit and loss, financial statements and tax returns of the Applicant for the period 1 July 2017 to 30 June 2019. 27. Not used 28. Not used 4 The Respondents now claim that the Applicant has failed to give full discovery. This they do by an interlocutory application filed on 29 June 2020. The Applicant says it has given discovery and that many of the documents sought by the Respondents do not exist. 5 On 13 March 2020 the Applicant served a list of documents. By Federal Court Rules 2011 (Cth) ('FCR') r 20.16 this is how a party gives discovery. The list was accompanied by an affidavit of discovery made by a director of the Applicant. This affidavit verified that he had made reasonable inquiries as to the existence and location of the documents specified in the order of 29 January 2020 and that to the best of his knowledge there were no documents specified in the order that were or had previously been in the Applicant's control other than those specified in the accompanying list. Following the structure required by Form 38, in Part 1 of the appended list of documents the Applicant's director purported to set out documents which were in the control of the Applicant and which were not privileged. In Part 3 (Part 2 was not used) he set out those documents which had been in the Applicant's control but were no longer in its control. These consisted of the Applicant's accounting records which the director said were in the control of the Applicant's accountant. He said that the accountant had been asked to provide copies and that it was expected that copies would be provided. As will be seen, the list did not comply with the FCR. 6 The relief sought in the interlocutory application is as follows: 1. The Applicant provide discovery by giving, a more detailed list of documents whereby each document discovered is enumerated and listed below each the 26 categories of documents listed in schedule A to the orders made 29 June 2020 ("the Orders"). 2. The Applicant verified by an affidavit whether it has in its control or does not have any documents which fall within the categories of documents described in paragraphs numbered 1 and 3 to 16 listed in schedule A of the Orders. 3. The Applicant comply with order made 29 January 2020 by providing discovery of documents within paragraphs numbered 1,4, 5, 14, 16, 17, 20, 25 in schedule A of the Orders. 4. The Applicant provide discovery of : a. the signed financial statements for the financial years ended 30 June 2018 and 30 June 2019 of the applicant; b. the signed tax returns for the financial years ended 30 June 2018 and 30 June 2019 of the applicant lodged with the Australian Taxation Office; c. the wage records and employee records of the applicant for the period 1 July 2017 to 30 June 2019; d. the invoices making up each of the amounts claimed as an Operating Expense in the Profit and Loss Statement being Annexure CL-20 to the Affidavit of Charles Leonidas sworn 26 June 2020; e. the invoices or receipts making up each of the amounts of Total Income in the Profit and Loss Statement being Annexure CL-20 to the Affidavit of Charles Leonidas sworn 26 June 2020; and f. the invoices or receipts making up each of the amounts of Total Costs of Sales in the Profit and Loss Statement being Annexure CL-20 to the Affidavit of Charles Leonidas sworn 26 June 2020. 6. The Applicant pay the Respondents' costs of and incidental to this application for security of costs. 7. Such further orders as the Court deems appropriate. (Errors in the original.) 7 It is convenient to deal with Prayer 1 first which seeks a more detailed list of documents. Part 1 of the Applicant's list was as follows: No. Description of document(s)/category Number of documents in category (if applicable) Date/period 1 Copy of email referring to Nick Abboud reviewing the first respondent's website and application franchising form 2 2 February 2017 to 22 March 2017 2 Copy of company extract of the applicant held by ASIC and share register of applicant 2 3 Copy of 2 emails related to, and confidentiality deed signed by Nick Abboud 3 25 January 2017 to 27 February 2017 4 Copy of email referring to Nick Abboud reviewing the first respondent's website and application franchising form 2 2 February 2017 to 22 March 2017 5 Copy of website maintained by first respondent stating we have grown to over 28 stores on the eastern seaboard of Australia with a further store in New Zealand 2 11 November 2016 to 18 February 2017 6 Copy of website maintained by first respondent stating with almost 40,000 people each week buying our delicious sandwiches, salads and juices. 2 11 November 2016 to 22 March 2017 7 Copy of website maintained by first respondent and copy of email re-stating representation that the first respondent's stores currently range between $34,000 – $150,000 per month 3 11 November 2016 to 22 March 2017 8 Copy of website maintained by first respondent and copy of email re-stating representation that the first respondent's stores currently range between $34,000 - $150,000 per month 5 11 November 2016 to 22 March 2017 9 Email attaching document titled "Disclosure Document for Franchisee or Prospective Franchisee" 1 8 February 2017 10 Copy of the legal advice statement 1 24 March 2017 11 Copy of 2 emails related to, and confidentiality deed signed by Nick Abboud 3 25 January 2017 to 27 February 2017 12 Copy of the legal advice statement 1 23 July 2017 13 Copy of 3 emails related to the legal advice statement and copy of statement 4 25 January 2017 to 23 July 2017 14 Copy of 1 emails related to the legal advice provided by Landers & Rogers 4 3 April 2017 15 Emails relating to the lease, legal advice relating to lease, contribution deed, lease, and license agreement 27 January 2017 to 26 October 2017 16 Scorecard for Mossman franchise disclosing average sales, transactions and number of stores 1 27 November 2017 to 3 December 2017 17 Profit and loss and financial statements of applicant 2017 to 2019 8 The requirements for a list are set out in FCR r 20.17: 20.17 List of documents (1) A list of documents must be in accordance with Form 38. (2) The list must describe: (a) each category of documents in the party's control sufficiently to identify the category but not necessarily the particular document; and (b) each document that has been, but is no longer in the party's control, a statement of when the document was last in the party's control and what became of it; and (c) each document in the party's control for which privilege from production is claimed and the grounds of the privilege. (3) A party may apply to the Court, before or after the list of documents has been served, for an order: (a) about the use of categories in the list; or (b) that a more detailed list of documents be provided; or (c) that each document in a category be separately described. (4) The list of documents must be verified by an affidavit sworn in accordance with rule 20.22. Note: Control is defined in the Dictionary. 9 The Applicant's list does not comply with FCR r 20.17. It is not actually set out by category despite what its heading says. To comply with FCR r 20.17(3)(a) it would need to be set out according to the categories in Schedule A to the Registrar's orders. I will direct that this occur. 10 As it happens, when the Respondents' solicitor asked for copies of the documents he was given a single PDF file 429 pages in length. The Respondents submitted that some of the documents in the Applicant's list could not be found in this PDF file. Counsel for the Applicant refuted this. There will therefore be a further direction that in the next list each document discovered will now be identified individually. 11 Turning then to Prayers 2 and 3, what is involved here is an allegation that there has been a failure to give discovery. For example, the Respondents point to documents which one might expect to exist that have not been discovered, such as the Applicant's certificate of incorporation (Category 1 in Schedule A of the Registrar's orders). 12 The relevant rule is FCR r 20.21 which provides: 20.21 Order for particular discovery (1) If a party (the first party) claims that a document or category of documents may be or may have been in another party's control (the second party), the first party may apply to the Court for an order that the second party file an affidavit stating: (a) whether the document or any document of that category is or has been in the second party's control; and (b) if the document or category of documents has been but is no longer in the second party's control—when it was last in the second party's control and what became of it. (2) The first party seeking an order under subrule (1) must identify the document or category of documents as precisely as possible. 13 The predecessor to FCR r 20.21(1) was the now repealed O 15 r 8 of the Federal Court Rules 1979 (Cth). It came into force on 1 August 1979. Prior to the insertion of that rule and its equivalents in other courts such as O 32 r 18 of the now superseded High Court Rules 1952 (Cth), the position was that the affidavit of discovery could not be contradicted by, for example, further affidavit evidence from the opposing party. Any insufficiency in the affidavit of discovery had to appear from the pleadings, the affidavit of discovery itself or the documents it referred to or from any other source from which an admission that a discoverable document existed might be inferred: Mulley v Manifold (1959) 103 CLR 341 at 343. As Menzies J there observed, beyond that, 'the affidavit of discovery is conclusive.' 14 FCR r 20.21(1) and its predecessor therefore relaxes the former position by allowing a party to seek further discovery where it is contended that the opposing party has not complied with its obligations: Metcash Trading Limited v Bunn [2010] FCA 8; 263 ALR 132 at [17] per Lander J; Construction, Forestry, Mining and Energy Union v Rio Tinto Coal Australia Pty Ltd [2014] FCA 462; 232 FCR 560 at [97] per Flick J. 15 It remains necessary to demonstrate that an inference should be drawn that a document exists which has not been discovered. I pause to note that the mere fact that a document that the Respondents expected to be discovered has not been discovered does not necessarily suggest the existence of that document or, by extension, that such a document has not been discovered when it should have been. It may just not exist. 16 Items which have generated particular excitement on the present application are those relating to the financial records of the Applicant and any records relating to viewing by the Applicant's employee, Mr Abboud, of the First Respondent's website from which the allegedly misleading representations are said to derive. 17 During the present hearing, the Applicant's counsel impressed upon me that much of what the Respondents sought simply did not exist. This brings me to Part 3 of the list which is meant to give effect to FCR r 20.17(2)(b), that is to say, documents which were once in the Applicant's possession but are no longer so. Part 3 of the Applicant's list filed 13 March 2020 is as follows: No. Description of document Date of document What became of document 18 General ledger of Vitamin Co Pty Ltd The document is held by the accountant of the applicant, Peter Hervir. Mr Hervir has advised that the document will be provided to the applicant by Friday, 20 March 2020 when a further list of documents will be provided. 18 The Applicant filed a further list on 4 May 2020 which consisted only of a Part 1 as follows: No. Description of document(s)/category Number of documents in category (if applicable) Date/period 1 Tax returns 2 2018 to 2019 2 General ledger 2 2018 to 2019 19 I am not going to deal seriatim with the Respondents' voluminous complaints about discovery at this stage, including assessing whether an order for particular discovery should be made under FCR r 20.21 for each of the documents identified in Prayer 4. What is apparent is that the Applicant's list does not comply with FCR r 20.17. Part 1 is not set out by the categories in Schedule A to the Registrar's orders and it is obvious from what was said to me during argument that Part 3 is somewhat underdone. 20 The Applicant will need to redo their list and this time to do it properly. Many of the complaints by the Respondents really arise from the fact that the list is deficient. Insofar as the Respondents contend that there are documents which exist but which have not been discovered it is premature to deal with that until such time as Part 3 of the Applicant's list is put in order. I would make these points for completeness: (1) Insofar as information about Mr Abboud's viewing of the First Respondent's website is concerned, he will need to conduct searches of his computer to see if his search history includes any entries for the First Respondent's website. If it does not and if he visited the website then he will need to explain in Part 3 of his list where that history went. I do not think that the Applicant's discovery obligations would run as far as requesting his internet service provider ('ISP') for any history it has of the URL addresses his account visited, as counsel for the Respondents suggested. That, so it seems to me, is a matter for the Respondents to pursue with the ISP if they choose. (2) Presumably there was at some point a certificate of incorporation. If it has been lost this will need to appear in Part 3. I do not think that the Applicant, if it has lost the certificate, is obliged to purchase another one from ASIC so that it may give discovery of it. (3) As I have said, the mere fact that a document has not been discovered does not suggest that there has been a failure to give discovery. The document, for example, may not exist. 21 What should now happen is as follows: (1) The Applicant is to file and serve a new list of documents to replace its previous lists. (2) The list in Part 1 is to set out in an enumerated list each of the categories ordered by the Registrar and the particular documents which it is discovering for that category and their dates. To be clear, each document is to be separately identified. If no documents are discovered from a particular category the list is to record that fact. (3) The list in Part 3 is to set out those documents which the Applicant agrees it did once have but no longer has. (4) I will direct the Applicant's solicitor to file and serve an affidavit explaining the steps he has taken to explain the Applicant's discovery obligations to it. (5) I will direct the Applicant to file and serve an affidavit setting out the searches and inquiries it has made to comply with its discovery obligations. 22 This will require more work from the Applicant's side than has been done to date. Finally I note that this is a case about a sandwich bar and three misrepresentations on a website. It is not, on any view, a large case and the amounts at stake are comparatively modest so far as litigation in this Court is concerned. This makes relevant FCR r 20.11 which provides: 20.11 Discovery must be for the just resolution of the proceeding A party must not apply for an order for discovery unless the making of the order sought will facilitate the just resolution of the proceeding as quickly, inexpensively and efficiently as possible. 23 The issue of discovery in this matter has now been debated before a Registrar of this Court and before me. A third discovery debate would be out of all proportion to what this case requires. To avoid this there will need to be some adjustment of attitude on both sides of the record. The Applicant will need to lift its game and the Respondents will need to ease off the throttle quite a bit. For the Applicant's side, it will now be necessary to do properly what has not been done properly yet. This is the Federal Court not petty sessions. I will shortly make directions which will ensure that this occurs. Where a party defaults in compliance with a direction, the Court is empowered to dismiss a proceeding (FCR r 5.23(1)). If the Applicant does not start taking the case it has commenced seriously then these rules may become relevant. 24 For the Respondents' side of the ledger, the energy being applied to the discovery issue is disproportionate to the nature of the case. For example, it is not rational to be spending money debating whether the Applicant should discover a copy of the certificate of incorporation when the Respondents can easily obtain a copy of it from ASIC. It is a waste of their client's time and money, the Applicant's time and money and my time. If disproportionate squabbling continues, I will disallow the entitlement of the lawyers to charge for it. Discovery is not a process by which one side can persecute the other. Granted that the Applicant has not exactly done what it should have, it is apparent that the approach of the Respondents is disproportionate to what is at stake. 25 The orders I will make are: (1) The Applicant file a fresh list of documents to replace its previous lists of documents in accordance with the rules by 18 September 2020. (2) The list be set out by reference to the categories in Schedule A to the Registrar's orders of 29 January 2020. (3) Within each category the Applicant is to identify each particular document. (4) The Applicant file and serve an affidavit from its solicitor explaining the steps he has taken to explain the Applicant's discovery obligations to it by 18 September 2020. (5) The Applicant file and serve an affidavit setting out the searches and inquiries it has made to comply with its discovery obligations by 18 September 2020. (6) The matter be listed for case management on 25 September 2020 26 This is not precisely what the Respondents sought but their application was understandable if a little overzealous. In the circumstances, the Applicant will pay the Respondents' costs of the interlocutory application. I certify that the preceding twenty-six (26) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Perram. Associate: Dated: 20 August 2020