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Federal Court of Australia
Hillier v Martin (No 4) [2021] FCA 710
File number: SAD 113 of 2020
Judgment of: CHARLESWORTH J
Date of judgment: 25 June 2021
Date of publication of reasons: 29 June 2021
Catchwords: PRACTICE AND PROCEDURE – discovery – parties in dispute as to the ownership structure of a business – applicant asserting the business assets are held on trust pursuant to a joint venture in specified shares – respondent asserting the business is held pursuant to a discretionary trust – respondent's defence putting the applicant to proof on his claims – respondent denying the applicant's entitlement to damages and equitable compensation including for breach of trust – applicant alleging the respondent is in default of an order for standard discovery in respect of a database of information accessible by way of accounting software – whether the database is a discoverable document – information in the database directly relevant to facts in issue, including the quantification of remedies – whether the whole of the database should be produced
PRACTICE AND PROCEDURE – application by a prospective additional respondent for an adjournment of proceedings – prospective respondent having as a director the respondent in the proceedings – whether an adjournment of a discovery application between existing parties is necessary to afford procedural fairness to the prospective respondent – whether the prospective respondent has had sufficient knowledge to intervene in the proceedings in circumstances where both directors of the prospective respondent are to be attributed with knowledge of every step taken and in circumstances where the order for standard discovery was consented to by one of its two directors – adjournment application dismissed
Legislation: Evidence Act 1995 (Cth)
Federal Court of Australia Act 1976 (Cth) ss 37M, 37N
Federal Court Rules 2011 (Cth) rr 1.34, 4.01, 20.14, 20.15, 20.16, 20.17, 20.32
Trustee Act 1936 (SA)
Cases cited: Ammerlaan v The Distillers Co (Bio-Chemicals) Ltd (1992) 58 SASR 164
Austal Ships Pty Ltd (ACN 079 160 679) v Incat Australia Pty Ltd (ACN 051 556 855) [2009] FCA 368
Australian Competition and Consumer Commission v Prysmian Cavi E Sistemi Energia S.R.L. (No 8) [2014] FCA 376
Harris Scarfe Ltd (in liq) v Ernst & Young (No 4) (2005) 93 SASR 300
Hillier v Martin (No 2) [2021] FCA 509
Hillier v Martin (No 3) [2021] FCA 709
Home Office v Harman [1983] 1 AC 280
Kyocera Mita Australia Pty Ltd v Mitronics Corporation Pty Ltd [2005] FCA 242
Lane v Channel 7 Adelaide Pty Ltd [2003] SASC 391
Mulley v Manifold (1959) 103 CLR 341
Sony Music Entertainment (Australia) Ltd v University of Tasmania (No 1) (2003) 129 FCR 472
Westpac Banking Corporation v Hingston [2010] FCA 528
Division: General Division
Registry: South Australia
National Practice Area: Commercial and Corporations
Sub-area: Commercial Contracts, Banking, Finance and Insurance
Number of paragraphs: 89
Date of hearing: 25 June 2021
Counsel for the Applicant: Mr R Whitington QC with Mr O'Leary
Solicitor for the Applicant: Sykes Bidstrup
Counsel for the Respondent: Mr S Ower SC
Solicitor for the Respondent: Norman Waterhouse
ORDERS
SAD 113 of 2020
BETWEEN: JAMES HILLIER
Applicant
AND: VICTORIA MARTIN
Respondent
order made by: CHARLESWORTH J
DATE OF ORDER: 25 JUNE 2021
THE COURT NOTES THAT:
The following applications for costs are yet to be determined:
1. The applicant's application for an order for costs in terms of paragraph 3 of the applicant's proposed minutes provided to the Court on 20 May 2021.
2. The respondent's application for costs of the applicant's application to file a proposed second amended statement of claim.
3. The applicant's application for costs of his interlocutory application dated 18 March 2021.
THE COURT ORDERS THAT:
1. Nordburger Operations Pty Ltd be granted leave to be represented by Mr Thomas Martin for the sole purpose of making submissions in support of an application that the proceedings be adjourned.
2. The application for an adjournment made by Nordburger Operations Pty Ltd is dismissed.
3. Pursuant to the order in paragraph 8 of the orders made on 10 December 2020 the following documents are discoverable:
all Xero programmes and files implemented and maintained, since 2013, in relation to the Nordburger businesses conducted at:
168 The Parade Norwood;
259 Port Road Hindmarsh;
179 Glen Osmond Road Fewville;
31 Moonta Street Adelaide;
(the Xero programmes and files); and
to the extent that the Xero programmes and files referred to above do not identify the income, assets and liabilities of the trust or trusts (trust information) under the control of the Respondent in relation to which the Applicant is a beneficiary or eligible beneficiary, such electronic files in read only format) within the possession, power or control of the Respondent that does contain that trust information.
4. On or before 28 June 2021 the first respondent, Victoria Martin, is to file an amended list of documents in compliance with r 20.16 and r 20.17 of the Federal Court Rules 2011 (Cth) giving discovery of the documents referred to in order 3.
5. On or before 12 July 2021 the first respondent, Victoria Martin, is to produce for inspection the documents referred to in order 3 by way of electronic access to a read only version of the documents, such access to be facilitated by the provision of log in access to software that facilitates readable access to the materials.
6. The first respondent, Victoria Martin, has liberty to apply to vary the order in paragraph 5 to the extent that it defines the means by which production of the documents is to be given, such leave to be exercised by 5 July 2021.
7. Liberty to apply.
8. The costs applications referred to in the Note to these orders be listed for mention mentioned at the next case management hearing.
9. There be a further case management hearing at 8:45am (ACST) on 4 August 2021.
10. Pursuant to r 35.13 Federal Court Rules 2011 (Cth) the time for making an application for leave to appeal from an order made today be extended to 14 days following the provision of written reasons for the order in question.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
CHARLESWORTH J
INTRODUCTION
1 On 16 March 2021, the Court made an order setting down a number of interlocutory applications and issues for hearing on 23 March 2021. The hearing did not proceed on that day because of a belated application by the respondent for a recusal order. The resolution of the various interlocutory applications was delayed so that the recusal application could be heard and determined. The recusal application was dismissed for reasons explained in Hillier v Martin (No 2) [2021] FCA 509.
2 By orders made on 20 May 2021 the delayed interlocutory applications were subsequently set down to be heard on 24 June 2021. On 16 June 2021 the respondent filed an interlocutory application seeking an order that that hearing be vacated. That application was set down for hearing, also on 24 June 2021. Among the reasons asserted by the respondent for delaying the hearing was that the parties were in dispute as to whether the applicant should have leave to file a second amended statement of claim and that other steps in the proceedings would depend upon the resolution of that dispute. I declined to vacate the hearing, principally because the question of whether the applicant should have leave to file a second amended statement of claim was among the matters that was listed to be heard. I left it open to the respondent to submit that the other issues could not proceed to argument, depending on whether the amendment application could be decided on that day and (if it could be decided) upon the outcome of that application.
3 By his interlocutory application dated 17 June 2021, the applicant sought leave to file an amended statement of claim in the form of annexure JH59 to his affidavit sworn on 17 June 2021. The amendment application was allowed (subject to conditions) for reasons given orally on 24 June 2021. A written record of the judgment on that application has since been published as Hillier v Martin (No 3) [2021] FCA 709 (Hillier No 3). Among the orders made on that application was an order that the applicant have leave to make certain amendments to his prayer for relief, that leave being conditioned by a requirement that the applicant first have leave to join Nordburger Operations Pty Ltd as a party.
4 Also among the applications listed for hearing on 24 June 2021 was an interlocutory application filed by the applicant on 18 March 2021 seeking orders to the effect that the respondent give discovery of specified documents in accordance with an order for standard discovery made on 10 December 2020 (discovery application).
5 Operations has two directors, the respondent Ms Victoria Martin and her husband Mr Thomas Martin. Between 28 November 2019 and 6 December 2020 the respondent was the sole director. The materials presently before the Court indicate that Mr Martin has been a co-director from 7 December 2020. Both directors were present at the hearing of the amendment application, Ms Martin through her solicitor and Senior Counsel and Mr Martin as an observer. Following the delivery of ex tempore reasons on the amendment application, Counsel for the respondent informed the Court that he had been retained to appear for Operations. Counsel informed the Court that he was instructed to consent to an order granting the applicant leave to join Operations as a party. The Court granted that leave.
6 The leave granted to the applicant to make the relevant amendments and to join Operations as a party was to be exercised on or before 28 June 2021. As at 25 June 2021 that leave had not yet been exercised. It was ultimately exercised on 28 June 2021. Operations became a party on that day.
7 After making orders on the amendment application, the Court proceeded to hear argument on the discovery application. Judgment was reserved on that application late in the day on 24 June 2021. The parties were informed that judgment on that application would be delivered on 25 June 2021 at 2.15pm. The Court indicated to the respondent's Counsel that it would be for Operations to apply to reopen argument if it asserted any right to be heard on the discovery application.
8 At the time set down for the delivery of judgment, Counsel for the respondent announced an appearance only for the respondent and not for Operations.
9 Mr Martin then made an application for an order that Operations be granted leave to be represented at the hearing by a non-lawyer (namely himself): see r 1.34 and r 4.01(2) of the Federal Court Rules 2011 (Cth). After hearing submissions, that leave was granted for the sole purpose of permitting Operations to apply for an adjournment so as to defer the delivery of judgment on the discovery application (adjournment application). The adjournment application was dismissed. The Court then proceeded to make orders on the discovery application.
10 Reasons on both the adjournment application and the discovery application were given orally and the parties were informed that a written record of those reasons would be prepared at the earliest opportunity. The Court made an order that the time to make any application for leave to appeal from its orders would be extended so that time would commence to run on the day that the written reasons were published.
11 What follows is a record of the Court's reasons for allowing the discovery application (at [12] to [63] below) and for dismissing the adjournment application (at [64] to [89] below). As foreshadowed to the parties, these written reasons contain some additional background and principles that are not disputed.
THE DISCOVERY APPLICATION
12 It is common ground that the financial information of the Nordburger business is stored and organised in a cloud-based database. The database is organised and accessed by means of a software program known as Xero. The applicant submits that the whole of the database should be discovered in accordance with the order for standard discovery made on 10 December 2020. By an interlocutory application dated 18 March 2021, the applicant seeks an order that the respondent provide:
1. … standard discovery, by electronic means to provide the Applicant log in, but read only, access to all Xero programmes and files implemented and maintained, since 2013, in relation to:
1.1. the Nordburger businesses conducted at:
1.1.1. 168 The Parade Norwood;
1.1.2. 259 Port Road Hindmarsh;
1.1.3. 179 Glen Osmond Road Fewville;
1.1.4. 31 Moonta Street Adelaide;
(the Xero programmes and files); and
1.2. to the extent that the Xero programmes and files referred to above do not identify the income, assets and liabilities of the trust or trusts (trust information) under the control of the Respondent in relation to which the Applicant is a beneficiary or eligible beneficiary, such electronic files (in read only format) within the possession, power or control of the Respondent that does contain that trust information.
13 In the alternative to that order, the applicant seeks an order for non-standard discovery under r 20.15 of the Rules in the following terms:
2.1. non-standard discovery, by electronic means to provide the Applicant log in, but read only, access to:
2.1.1. all Xero programmes and files implemented and maintained since 2013; and
2.1.2. to the extent that the trust information is not identified in the Xero programmes and files, such electronic files (in read only format) within the possession, power or control of the Respondent that do contain that trust information, pursuant to Rule 20.15; and/ or
2.2. particular discovery, by electronic means to provide the Applicant log in, but read only, access to:
2.2.1. all Xero programmes and files implemented and maintained since 2013;and
2.2.2. to the extent that the trust information is not is identified in the Xero programmes and files, such electronic files (in read only format) within the possession, power or control of the Respondent that do contain that trust information, pursuant to Rule 20.21.
3. Costs of this application.
14 In these reasons, the materials referred to in the interlocutory application as the "Xero programmes and files implemented and maintained since 2013" will be referred to as the Xero database. The materials sought in [1.2] and [2.2.2] of the interlocutory application will be referred to as the Trust documents.
15 The order for standard discovery was made under r 20.14(1). It provides that:
If the Court orders a party to give standard discovery, the party must give discovery of documents:
(a) that are directly relevant to the issues raised by the pleadings or in the affidavits; and
(b) of which, after a reasonable search, the party is aware; and
(c) that are, or have been, in the party's control.
16 The respondent's obligation to comply with the standard discovery order includes an obligation to give discovery of documents that are directly relevant to the issues raised by (in this case) the pleadings. To be directly relevant, a document must meet at least one of the criteria in r 20.14(2), namely:
For paragraph (1)(a), the documents must meet at least one of the following criteria:
(a) the documents are those on which the party intends to rely;
(b) the documents adversely affect the party's own case;
(c) the documents support another party's case;
(d) the documents adversely affect another party's case.
17 Rule 20.16 and r 20.17 provide that a person gives discovery by serving on all parties to the proceeding a list of documents in Form 38. The person giving discovery must identify categories of documents within his or her control in terms sufficient to identify the category, but does not necessarily have to particularise every document in the list. The list must identify those documents for which privilege from production is claimed.
18 Rule 20.32(1) provides that a party may apply to the Court for an order that another party produce for inspection any document that is included in the second party's list of documents and that is in that party's control. The Court may order that production for inspection be by electronic means: Rules, r 20.32(2).
19 The respondent filed a list of documents on 1 March 2020, which includes the following item:
Documents extracted from files maintained by Quantum Accounting, accountants and tax advisers for the Respondent and the Nordburger business, including financial statements, tax returns, working papers and correspondence.
20 The respondent has not claimed privilege from production of that item. Material described in the item has been produced to the respondent.
Document
21 For the purposes of the Rules, the word "document" is defined in a way that includes:
(a) any record of information mentioned in the definition of document in Part 1 of the Dictionary to the Evidence Act 1995 (Cth); and
(b) any other material, data or information stored or recorded by mechanical or electronic means.
22 The Evidence Act 1995 (Cth) defines the word "document" to include (relevantly) "anything from which sounds, images or writings can be reproduced with or without the aid of anything else".
23 The Xero database is a thing from which images or writings can be reproduced with the aid of something else, namely a software program through which the data in the database is stored and rendered readable, including by the production of reports that extract and present the data in a particular way.
24 It has previously been established that a database is a document for the purposes of the Rules: Sony Music Entertainment (Australia) Ltd v University of Tasmania (No 1) (2003) 129 FCR 472 at [48]. So much is apparent from the definition.
Power
25 On this application I must bear in mind that the orders for discovery (and the applicant's present interlocutory application) are directed to the respondent and not to any company that is said by the respondent to hold the assets and enterprise of the Nordburger business on trust. However, the respondent did not suggest that the Xero database and the Trust documents have not been discovered because they are not in her possession, custody or power within the meaning of the Rules.
26 To have power over a document is to have an enforceable right to inspect or to obtain possession or control of it from a person who ordinarily has custody of it in fact, without the need for the consent of anyone else. I am satisfied that the respondent has a presently enforceable right to the whole of the Xero database even if she is not the person who personally owns a subscription to an accounting program through which the database may be accessed. The two things are distinct. It is within the respondent's power to provide all of the data contained in the Xero database to any other accountant and for that matter to the applicant in a way that renders the data readable by him, including by means of another software program. I am reinforced in that view by the circumstance that the respondent has caused to be prepared (and has discovered and has produced) the records described in Item 17 of her list of documents. Her status as a director or co-director of corporate entities that have operated the Nordburger business since its inception also supports the conclusion that she has a presently enforceable legal right to access the whole of the data contained in the Xero database and that she had that right at the time that the order for standard discovery fell to be complied with: see Australian Competition and Consumer Commission v Prysmian Cavi E Sistemi Energia S.R.L. (No 8) [2014] FCA 376 at [17] – [22]. The same considerations, I am satisfied, apply to the Trust documents.
Direct relevance
27 The applicant's principle argument is that the documents, that is, the database and the Trust documents, are directly relevant for the purposes of the standard discovery order and so must be both discovered and produced under that order.
28 The principles that assist in discerning whether or not a document is directly relevant are well established. The fundamental policy underpinning the discovery process is to ensure that litigation is not conducted by ambush or surprise: Kyocera Mita Australia Pty Ltd v Mitronics Corporation Pty Ltd [2005] FCA 242, Stone J (at [5]); Ammerlaan v The Distillers Co (Bio-Chemicals) Ltd (1992) 58 SASR 164, Olsson J (at 173). The discovery process has been described as an "invasive procedure": Austal Ships Pty Ltd (ACN 079 160 679) v Incat Australia Pty Ltd (ACN 051 556 855) [2009] FCA 368, McKerracher J (at [129]). Discovery should not be used as a fishing exercise: Westpac Banking Corporation v Hingston [2010] FCA 528, Cowdroy J (at [19]); Ammerlaan, Olsson J (at 173). Only documents that relate to a matter at issue can be discoverable because discovery is a procedure directed to ensuring a proper examination of the issues. The determination of what is an issue is to be ascertained by reference to the pleadings: Mulley v Manifold (1959) 103 CLR 341, Menzies J (at 345). A document will not be directly relevant if there is "merely a chance that the document will prove or disprove a matter in issue": Harris Scarfe Ltd (in liq) v Ernst & Young (No 4) (2005) 93 SASR 300, Bleby J (at [15]). Where a list of documents is filed there exists a presumption that the discovery obligations have been complied with. The onus of proving an allegation of a failure to comply with discovery obligations and displacing the presumption lies with the party making the complaint: Lane v Channel 7 Adelaide Pty Ltd [2003] SASC 391, Prior J (at [6]).
29 Having regard to those principles, I am satisfied that the documents described in the first order sought by the applicant are directly relevant and so discoverable in accordance with the standard discovery order.
30 Before turning to the pleadings to explain that conclusion, I note again that the respondent has discovered the financial reports described in Item 17 of her list documents. That supports an inference that those reports are either documents upon which she intends to rely, or that adversely affect either her own case or the case of the applicant, such that they are regarded by the respondent as directly relevant for the purpose of r 20.14. Counsel for the respondent submitted that the reports are summative of the financial records of the Nordburger business. It is reasonable to infer that the totalled figures set out the reports are sourced from the information contained in the Xero database, and I so find. If the total sums are relevant, so too are the component parts of each sum, given the context described below.
31 In the course of submissions, the respondent's resistance to discovering the documents was articulated in a way that is more properly understood as a resistance to producing the documents in full for inspection. Care should be taken not to conflate the issues in the same way when deciding whether the respondent must give discovery of the documents in the manner provided for in r 20.16 and r 20.17 in accordance with the standard discovery order. That obligation ought not to be confused with the question of whether or not an order for production of a document should be made, and if so, what form that order should take. The Xero database, as a single document, is either discoverable under the standard discovery order or it is not. If it is discoverable, then a distinct question arises as to whether the respondent should be ordered to produce the data contained in the database for inspection without any qualification: r 20.32.
32 For the purposes of r 20.14 it is necessary to identify what is the applicant's case and what is the respondent's case. That task can only be done by reference to the pleadings.
33 At the time of argument on the present application, the applicant had been granted leave to file a second amended statement of claim, but has not yet exercised that grant. The discovery application may be resolved by reference to the first amended statement of claim.
34 The respondent filed a defence on 15 January 2021. On 29 January 2021, applicant filed a reply, joining issue for present purposes with everything said in the defence. On the same day, that is, 29 January 2021, the respondent filed a document titled "first amended defence". The parties have been in dispute as to whether the latter document was a document that could be filed without the leave of the Court. In the result, I do not consider the differences between the defence filed on 15 January 2021 and the first amended defence filed on 29 January 2021 to affect the outcome of the present application. Each of those pleadings adopts a common structure by which each and every allegation in the 75 paragraphs of the first amended statement of claim (save for the allegations in [1] and [40]) is met with a bare denial.
35 Paragraph 76 of the defence then contains nearly nine pages of allegations, in the form of a narrative, which are not directed to any particular allegation in the first amended statement of claim. The pleading filed on 29 January 2021 adds a further two long paragraphs, the first of which asserts reasons why the applicant should not be entitled to equitable relief and the second of which addresses a claim for relief that is no longer pressed by the applicant.
36 As Counsel for the respondent properly acknowledged, each of these pleadings is bad in form.
37 In determining the facts that are and are not in issue, the Court will not embark on an exercise by which [76] of the defence dated 15 January 2021 is examined for factual allegations that might be consistent in any way with the applicant's case. The bare denials of almost every substantive paragraph of the first amended statement of claim will be taken for what they are. Their collective effect is to put the applicant to proof in respect of the whole of the claim, save for two uncontroversial pleas in [1] and [40].
38 Counsel for the respondent submitted that each of the bare denials must be understood in the context of each particular paragraph of the first amended statement of claim. By way of illustration, Counsel referred to [61] of the first amended statement of claim, which states:
Since April 2016, the Nordberg Joint Venture has earned profits which have been received and dealt with by the respondent.
39 Counsel submitted that the allegation in that paragraph was denied because the respondent denied the very existence of the Nordburger joint venture. Counsel said that the respondent did not intend to deny the existence of the Nordburger business, nor to deny that she had received and dealt with profits derived from that business. Counsel submitted that the profitability of the business was not in issue, nor was it in issue, he submitted, that the applicant had not received any share of its profits. Counsel submitted that the gravamen of the dispute was whether the applicant was entitled to receive a share of the profits of the business at all. If that be the respondent's case in fact, in my view it is not a case that is fairly and plainly foreshadowed in her pleading as it is presently formulated.
40 If I am wrong in that regard, then the difficulty for the respondent is that the relief sought in this proceeding includes orders for financial remedies which are founded upon the existence of a joint venture and a breach by the respondent of an obligation to hold the assets of the joint venture on trust on the terms asserted not by her but by the applicant. The applicant may succeed in that principle allegation or he may not. If he does succeed then the onus will be upon him to show that he is entitled to an award of damages for breach of the joint venture agreement, or equitable compensation for breach of trust, or the refund of moneys or property taken by the respondent in excess of any money or property due to her under the terms of the trust. The relevant trust is the trust asserted by him, not under the trust asserted by the respondent.
41 The Xero database and the Trust documents are directly relevant to the assessment of the quantum of that relief. The Court has not made an order that the question of the respondent's liability be tried separately from the question of any remedy to which the applicant might be entitled should his various causes of action be made out. Accordingly, the onus is upon the applicant to demonstrate not only the entitlement to damages or compensation but the amount of the award. The applicant is entitled to present his case on that topic as he sees fit. He is not obliged to accept the validity of the reports contained in Item 17 of the respondent's list of documents which may be premised on assumptions that he does not accept.
42 In considering the applicant's asserted entitlements to financial remedies, I have borne in mind that the applicant has sought additional or alternative remedies or various orders that have the form of an account of profits. I have not taken those alternative remedies into account in asking whether the materials are discoverable. It is enough to find the remedies of damages and equitable compensation sought by the applicant are themselves sufficient to support the finding that the materials are directly relevant.
43 The respondent submits that the present application amounted to a fishing exercise. There are two aspects to that submission as I understand it. The respondent submitted that the applicant has made baseless allegations in his first amended statement of claim and is now using the discovery process in an attempt to fish for information that might make those allegations good. Counsel referred to the pleas in [62] and [64] of the first amended statement of claim. They are expressed as follows:
62. The Respondent has failed to pay to the Applicant his agreed share of the profits derived from the Nordburger Joint Venture in respect of the period since she has assumed control of the Joint Venture to the exclusion of the Applicant
Particulars
The Applicant will provide particulars of the profits which the Respondent has failed to pay to the Applicant following discovery of the financial records of the operations of the Joint Venture.
…
64. Further, the Respondent has:
64.1 paid or kept to herself the profits of the Nordburger Joint Venture in excess of her entitlement to a share of the profits; and
64.2 paid to herself a salary of $200,000 per annum without providing services to the Nordburger Joint Venture commensurate with and justifying such payments.
Particulars
The Applicant will provide further particulars of the profits paid or kept to herself by the Respondent following discovery.
44 Counsel for the respondent submitted that there is no prima facie basis for a plea that the respondent had engaged in a breach of trust of the kind alleged in those paragraphs. However, by that submission the respondent must be understood as referring to the trust arrangements that she established in 2019. The terms of that trust are not consistent with the trust arrangement alleged by the applicant in these proceedings. The parties are at odds as to the terms of the trust that govern their relations. The respondent maintains and has always maintained an entitlement to cause the corporate trustee to distribute the profits of the business at its absolute discretion and in a way that does not recognise that the applicant has an equitable share in the business assets and income.
45 In relation to [62] and [64] of the first amended statement of claim, I will have regard to the submissions of the respondent in light of the history of these proceedings as a whole from the date of their commencement. Between August and December 2020, the parties were in dispute about the asserted entitlement of the applicant to an interlocutory order sought on the originating application. By that proposed order, he sought the provision of information to him which is similar in its terms to that forming the subject matter of this application. In December 2020, the Court heard and determined an application by the applicant to make amendments to his statement of claim. Those amendments included the pleas at [62] and [64]. The respondent took no issue with those pleas at that time. In and around December 2020 Senior Counsel for both parties acknowledged that it would be sensible for the resolution of the applicant's original interlocutory application to be deferred because it was anticipated that some or all of the records sought by the applicant might be yielded in the course of discovery, both parties at that time agreeing that an order for standard discovery in the proceedings was appropriate. Senior Counsel were correct to identify that as a sensible approach.
46 The respondent's agreeance to the order for standard discovery is not taken as a concession by her that the documents now contested were discoverable on the order for standard discovery. At the time that the order was made, that issue was yet to be determined. The point is that the argument now raised about [62] and [64] to the effect that those paragraphs cannot properly form the basis of a discovery order is to be understood in the historical context I have just stated. So understood, the documents should be discovered in order to assist the applicant to particularise the pleas in those paragraphs. To the extent that the respondent now asserts that the paragraphs constitute an abuse of the Court's processes in the proceedings as between her and the applicant, I consider that to be a change in position to that previously communicated to the Court. Accordingly, the issues in those paragraphs remain in dispute. There being no application before me to strike out the pleas, I will proceed on the basis that those pleas properly form a part of the subject matter of the controversy.
47 I have already concluded that the plea for entitlement to equitable compensation is sufficient to support a finding that the documents are directly relevant, but if I'm wrong in that regard, they are directly relevant for that additional reason. They are discoverable under the standard discovery order previously made in December 2020. It is appropriate to identify those documents as discoverable under the previous order and to fix a time by which an amended list of documents giving discovery of them is to be filed.
48 To the extent that the present application was otherwise said to amount to a fishing exercise, that submission must be rejected on the basis that the Xero database is directly relevant in the way I have described. The circumstance that the Xero database may also contain information that is not directly relevant does not denude it of its quality as a discoverable document. The inclusion of irrelevant material in the database may nonetheless be relevant in the exercise of my discretion as to whether and how the data in the Xero database should be produced to the applicant.
49 It is not necessary to consider the alternative application for an order for non-standard discovery under r 20.15 of the Rules.
The documents should be produced
50 The parties have proceeded on the basis that documents discovered by them should be produced, and they have attended to the production and inspection process without the need for orders directing or supervising that process. As I have mentioned, the respondent has already produced financial information concerning the operation of the trustee company in compliance with the order for standard discovery. At the time that the orders for standard discovery was made, the respondent did not assert that if the Xero documents were discoverable they should not be and would not be produced. In accordance with s 37M and s 37N of the Federal Court of Australia Act 1976 (Cth) (FCA Act), the time for foreshadowing such a position was at least as far back as December 2020 when the order for standard discovery was made.
51 On the basis that the Xero database was discoverable, the respondent submitted that the requirement for production should be dispensed with and instead she would cause reports to be prepared going to topics that were in dispute in the proceedings. To the extent that that argument was advanced in part as a basis for asserting that the database as a whole was not discoverable I have rejected it. I nonetheless accept that it may form a basis for the exercise of my discretion under r 20.32 for an order that there not be production of the whole of the database.
52 The respondent acknowledged that the task and costs associated with the production of the database to the applicant is not onerous in the sense that it would not be productive of undue time or expense. There is otherwise no evidence to support a conclusion that the task of producing the database for inspection is costly or burdensome.
53 The respondent nonetheless submits that the requirement for production is onerous in the sense that the applicant operates a business in competition with Nordburger and production of the whole of the database would secure for him a competitive advantage and so prejudice the operations of the Nordburger business.
54 The competition is said to arise from the circumstance that in 2019 the applicant opened a hamburger store in a southern suburbs shopping centre. From the bar table, Counsel for the applicant asserted that the business had recently ceased to operate, but there is no evidence before me about the cessation of the business and so I will proceed on the assumption that the business continues to operate.
55 On the material before me there is a contest between with the applicant and the respondent as to whether or not the applicant's business is one that operates in competition with the Nordburger business in the sense that might give rise to any real competitive advantage if the documents were to be produced.
56 Given my conclusion that the database and Trust documents are directly relevant, I consider the onus to be on the respondent to show that there is a proper basis for those documents not to be produced to the applicant in full. Whether or not the applicant is or has operated a business that is relevantly in competition with the Nordburger business may depend on the reason the question is asked. On the present interlocutory application, I do not consider it necessary to resolve the contest of testimony on that question. The relevant question is whether or not commercial harm might be suffered by the Nordburger business if the documents were produced in full. If disadvantage of that kind can be demonstrated, it is necessary to weigh that disadvantage against the utility of production of the documents in the proceedings, again having regard to the provisions of the FCA Act to which I have referred.
57 In respect of the asserted potential for disadvantage, I have had regard to the circumstance that on the respondent's case (at least as presently formulated) the applicant actively participated in the Nordburger business until sometime in 2019. That participation is said by the respondent to have included consultancy services remunerated at $4,000 a week. At least until that time, the applicant cannot be said to be a true stranger to the business such that the documents now sought are truly confidential in their nature. After 2019, it has been the respondent's position that the applicant is a beneficiary of a discretionary trust, and perhaps before that time. Whilst the instruments creating that asserted discretionary trust do not on their terms provide the applicant with a direct right to access the Xero database, on the respondent's own case the applicant is a person who has a right to the proper observance by the trustee of the trust in the exercise of its powers, which include the power to conduct the Nordburger business. The applicant does not need to rely on the Trustee Act 1936 (SA) or any trust Deed in order to obtain production of the documents. His entitlements are to be discerned under r 20.14 and r 20.32 of the Rules. But for the purposes of the application of those rules, I do not consider the documents to be truly commercially confidential vis à vis the respondent (and the entities controlled by her) and the applicant in the sense that might be argued in relation to a true stranger to the proceedings or business.
58 In addition, my conclusions above as to the quantification of equitable compensation makes it difficult to identify which parts of the Xero database are not directly relevant. To the extent that the respondent identified particular ledgers that might be commercially confidential or topics of subject matter, in my view those parts of the record should be disclosed to facilitate proof of the assets and income which in turn informs quantification of the applicant's asserted right to a share in the corpus and income of a different trust that he asserts. In other words, it is difficult to identify an aspect of the Xero database that would not relevantly inform the quantification of equitable damages. It is that interest of the applicant that needs to be weighed against the potential for disadvantage asserted by the respondent.
59 In my view, even if it could be shown that there was some potential for commercial disadvantage occasioned by the production of the whole of the database and the Trust documents, the resolution of the overall controversy by reference to those documents as between the applicant and the respondent outweighs that consideration. In so concluding I have had regard to the interests of the Nordburger Holdings Trust as they have been asserted by the respondent, through her Counsel, including in the expression of her evidence particularly her affidavit sworn on 16 November 2020.
60 In reaching the above conclusion, I have again had regard to the requirements in s 37M and s 37N of the FCA Act. As I have mentioned, the production of the whole of the data contained in the database is not an onerous exercise in terms of time and expense. In contrast, adopting a procedure by which the respondent produces reports on particular topics could only be productive of yet further disputes and yet further interlocutory applications in this action in which there is a considerable degree of acrimony and distrust between the parties.
61 I do not consider it to be an appropriate case for the provision of documents to the applicant's expert witnesses with a confidentiality regime limited to that person or to legal counsel. That is because the nature of the enquiry in these proceedings is such that there may be assumptions underlying entries in the financial records in respect of which the applicant has some familiarity, that would not necessarily be recognised by the experts. In order to give meaningful instructions to his legal advisers, and in turn to his expert witness, the applicant should have access to the records.
62 The applicant has deposed to his awareness of the Harman undertaking that attaches to the documents produced under compulsion under the Rules: Home Office v Harman [1983] 1 AC 280. That undertaking is one that is given not only to the respondent, but to this Court. Breach of the undertaking would constitute an actionable contempt. There is no reason to suppose that the applicant is unaware of the nature of that undertaking and the serious consequences of its breach.
63 I consider it appropriate to hear from the parties as to the appropriate form of the production order. The relevant document, as I have found, is the data that is contained in the database. The Xero software, in contrast, is a means, but not the only means, by which the data may be accessed and read. The parties should be encouraged to explore the means by which the data may be provided so as to enable the applicant to view it by means of, if possible, his own database software, without the need for the applicant to be provided with login details in respect of a subscription that might be held by a non-party.
ADJOURNMENT APPLICATION
64 What now follows is a record of the reasons given by the Court for refusing to defer judgment on the discovery application and to adjourn the proceedings on the application made by Operations through its representative Mr Martin. The oral reasons commenced with a statement to the effect that the Court had made orders joining the company Operations as a respondent in the proceedings. That reference was incorrect. As explained in Hillier No 3, the relevant order was that granting leave to the applicant to join Operations as a party, which leave had not been exercised at the time that the adjournment application was made, although Counsel for the applicant had indicated that it would be.
65 Against that background, the oral reasons proceeded substantively as follows.
66 In support of the adjournment application, Operations relies on the affidavit of Mr Martin affirmed on 25 June 2021.
67 Much of the affidavit contains depositions in the nature of submissions that reflect submissions that have been made in opposition to the discovery application on behalf of the respondent in her capacity as a present party. In addition to seeking the opportunity to make those submissions on behalf of Operations in its own right, Mr Martin submitted that the order for discovery, although directed to the respondent, was one that affected the property of Nordburger Holdings Trust of which Operations is the trustee. Mr Martin pointed to the circumstance that Operations had only just been joined and hadn't yet been served. He submitted that Operations was a party in respect of whom the Court should afford procedural fairness, as is the entitlement of any party in a proceeding.
68 Mr Martin referred to the interests of the beneficiaries of the trust as being distinct from the interest of the respondent in her own capacity and right. Mr Martin pointed to the desirability of Operations having separate legal representation because the interests of the beneficiaries represented by the trustee company did not necessarily coincide with those of the respondent personally. Generally speaking I accept that that to be the case.
69 Mr Martin pointed to the circumstance that there were provisions under the Trustee Act for the provision of information to a person having an interest in the trust, including a beneficiary of the trust.
70 Mr Martin based the adjournment application on there being a need for more time for Operations to arrange legal representation to represent the interests of the Nordburger Holdings Trust insofar as they diverge from those of the respondent. That included for the purposes of obtaining legal advice as to whether or not to commence an application for advice and directions in the Supreme Court of South Australia under the Trustee Act, specifically about whether or not to oppose the discovery application and, if so, on what basis.
71 Mr Martin also submitted that the applicant had alleged in an affidavit that he needed access to documents for certain purposes. Whilst he was not specific, Mr Martin asserted from the bar table that he had in his possession documents that contradicted the assertions of the applicant in that regard.
72 Mr Martin submitted that the respondent had conducted the proceedings with a degree of restraint, but that is not necessarily the approach to the litigation that Operations would take in respect of its own interests or the interests of the beneficiaries of the Nordburger Holdings Trust.
73 I have otherwise had regard to the additional depositions in Mr Martin's affidavit which, as I have noted, were repetitive of submissions already made on the discovery application.
74 In the submissions, the respondent (through her Counsel) opposed the discovery application on multiple bases. The vast majority of the submissions and evidence upon which she relied were directed to the protection of the interests of the Nordburger business, and particularly to prevent the misuse of Nordburger's asserted confidential information in the material. The basis of those submissions is, firstly, that the documents were not directly relevant on the pleadings as between her and the applicant. Secondly, it was submitted that even if the documents were directly relevant, she should not be required to produce them in full. Thirdly, she submitted that the application for access to the whole of the Xero database was tantamount to fishing. Fourthly, she alleged that the documents were commercially confidential because the applicant was the proponent and owner of a competitive business, such that he would have a competitive advantage and that, even if he were not presently conducting such a business, access to the document may give him a springboard advantage in any other competitive business that might be established. All of those submissions and evidence, it seems to me, were directed to the protection of the interests of the business conducted by the trust of which Operations is the trustee.
75 I bear in mind that the respondent is not joined in these proceedings in her capacity as a director of Operations as such, but I will have regard to the manner in which she has conducted the proceedings and the extent of the interests that she has sought to advance and protect in the proceedings when asking myself whether in fairness there should be an adjournment granted for the reasons advanced by Mr Martin.
76 I consider that the respondent as a director of Operations has intimate knowledge of these proceedings and that knowledge is to be attributed to the company. I consider that every step in the proceeding, every application, every submission made, every step taken by her are matters of which Operations has knowledge.
77 If that were not sufficient, as and from 7 December 2020, the respondent's husband Mr Martin has been a co-director. I have observed on a number of occasions (and it has been said in previous judgments of the Court) that Mr Martin has himself attended at hearings and has at times asserted an entitlement to be heard in his own personal capacity and on one occasion in his capacity as a beneficiary of the Nordburger Holdings Trust.
78 Operations is not to be regarded as in a position of a previous non-party who has been recently joined to proceedings in respect of which it previously has had no knowledge. In respect of the discovery application itself, when the proceedings were commenced in August 2020, they were accompanied by an interlocutory application seeking orders that were subsequently varied and now find expression in minutes of order of 17 September 2020. By that interlocutory application, the applicant sought documents specified in [2] that appear to me to be equivalent in scope to the documents now sought on the discovery application. The applicant has always asserted that the documents are discoverable under the order for standard discovery that was subsequently made. They include trading statements, management accounts, financial accounts, tax returns, bank statements and records of payments made out of the assets and funds of the Nordburger businesses to the respondent, her husband etcetera.
79 The parties were for some months intractable in their dispute in relation to that application. Judgment was previously reserved on it. Judgment was then re-opened on it. In December 2020, through her Senior Counsel, the respondent acknowledged that it was sensible that resolution of that application be deferred because of the parties' agreement that there would be an order for standard discovery given the possibility that the documents sought on the earlier interlocutory application might well be yielded by way of discovery processes in any event. Both Senior Counsel acknowledged and agreed that that was a sensible course. That is the background against which the application for standard discovery was then made.
80 The order for standard discovery was directed to the respondent personally. The respondent has not asserted that the documents that are contained in the Xero database are documents that are not within her possession, power, and control. That is a subject in respect of which the Court should be satisfied on the discovery application in any event.
81 I am therefore satisfied that if the documents are within the respondent's control, the access to those documents and the provision of them to the applicant may, depending on the merits of the argument, affect the interests of the business operated by Operations in its capacity as trustee. They are, after all, the financial documents in respect of the operation of the Nordburger business. That circumstance has been well known to the respondent throughout a period in which she has been the director of Operations. She has, in fact, made submissions and adduced evidence that, as I have said, reflect what has now been said by Mr Martin on behalf of Operations.
82 I have asked myself whether or not Operations should have an opportunity to seek legal advice as to whether or not to make an application for advice or other relief under the Trustee Act in the Supreme Court of South Australia and whether or not I should adjourn this application to facilitate that happening. In my view, an application for advice could have been made by Operations at any time since the commencement of these proceedings. Indeed, at the hearing of the interlocutory application made by the applicant at the outset, it was asserted on behalf of the respondent (through her then Senior Counsel) that the appropriate procedures for obtaining documents was under the Trustee Act.
83 If it was asserted by the respondent or considered by Operations that an order for discovery was inappropriate for this classification of documents, that invites the question why the respondent as a director of Operations later acknowledged that an order for standard discovery in relation to the documents could be made in this proceeding. It might be that her co-director takes a different view. But for the purposes of the proper case management of these proceedings I consider the knowledge of the respondent to be that of the company.
84 In other words, the making of an order granting leave for the joinder of the company to this proceeding was not, in my view, the critical event that gives rise to any entitlement in Operations to be heard in opposition to the discovery application. To the extent that Operations was a third party whose rights might be affected by an order against the respondent in these proceedings, it is a third party that has had intimate knowledge of the proceedings, and is an entity that at any time has had the right to apply to be heard to the extent that its interests were affected..
85 The test for standard discovery is to be applied by reference to those pleadings as between the applicant and the respondent. It matters not that Operations might take a different view as to the issues that are or are not joined on the pleadings between them
86 None of that is to say that the respondent should be regarded as having been a legal representative of the company and that the company was effectively a party throughout. But I must have regard to what is required in the interests of affording natural justice. What Operations has known at various times in the proceedings is a relevant question of fact. As I stated above, its knowledge is that of the respondent.
87 Mr Martin otherwise submitted that there is no urgency attending the discovery application.
88 As has been mentioned, the discovery application was made by way of an interlocutory application filed in March 2021 in light of the unfortunately torturous start to the proceedings. The previous hearing of the discovery application was delayed. There was then an application during the course of the 24th of June hearing to delay it again. The discovery application has been heard in the ordinary course and has been set down for judgment. In all of the circumstances, I consider that the application should now proceed to judgment.
89 The adjournment application made on Operations' behalf by Mr Martin is refused.
I certify that the preceding eighty-nine (89) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Charlesworth.
Associate:
Dated: 25 June 2021