New South Wales Supreme Court CITATION : Gate Gourmet Australia Pty Limited (in liquidation) ACN 089 347 562 v Gate Gourmet Holding AG, Company Number Ch-020.3.003.945-1 & Ors [2005] NSWSC 292 HEARING DATE(S) : 31 March 2004 JUDGMENT DATE : 31 March 2005 Equity Division JURISDICTION : Commercial List JUDGMENT OF : Einstein J DECISION : Part 72 reference to be ordered CATCHWORDS : Quantification of debts of plaintiff in liquidation and ancillary questions inappropriate for decision by Judge - Part 72 reference Evidence Act LEGISLATION CITED : Trade Practises Act Gate Gourmet Australia Pty Limited (in liquidation) ACN 089 347 562 (Plaintiff) Gate Gourmet Holding AG, Company Number CH-020.3.003.945-1 (First Defendant) Gate Gourmet (Holdings) Pty Limited ACN 004 122 872 (Second Defendant) Odd Gunnar Engebretsen (Third Defendant) PARTIES : Lars Fredrik Larsen (Fourth Defendant) Henning Boysen (Fifth Defendant) Lucas Grolimund (Sixth Defendant) Gate Gourmet Switzerland GMBH (Seventh Defendant) FILE NUMBER(S) : SC 50180/01 Mr B Coles QC, Ms E Collins (Plaintiff) COUNSEL : Mr M Pembroke SC, Mr J Stoljar (Second, Fifth, Sixth and Seventh Defendants) Clayton Utz (Plaintiff) SOLICITORS : Mallesons Stephen Jaques (Second, Fifth, Sixth and Seventh Defendants LOWER COURT JURISDICTION : IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST Einstein J Thursday 31 March 2005 ex tempore Revised 5 April 2005 50180/01 Gate Gourmet Australia Pty Limited (in liquidation) ACN 089 347 562 v Gate Gourmet Holding AG, Company Number Ch-020.3.003.945-1 & Ors JUDGMENT The notice of motion 1 There is before the Court a notice of motion filed on 18 March 2005 brought by the plaintiff for an order appointing a Part 72 Referee to enquire and to report on the following questions arising in the proceedings: · what are the debts of the plaintiff in the liquidation; · what was the total amounts of those debts; · what payments have been made by the Administrator and the Liquidator in the course of the administration and subsequent liquidation; · what receipts have been received by the Administrator and the Liquidator in the course of the administration and subsequent liquidation. 2 An order was made pursuant to Part 31, rule 2 of the Supreme Court Rules separating out [to be heard after the hearing of all other issues in the proceedings] the quantification of the plaintiff's damages, if any. 3 The first tranche hearing took place in early March 2004 and a judgment was delivered on 31 Mar 2004 [2004] NSWSC 149. 4 There have been extensive disagreements between the parties between the date of delivery of that judgment and the present time concerning the interlocutory processes said to be necessary to ready the proceedings for the second tranche hearing. A short summary taken from the plaintiff's contentions [made in submissions dated 22 March 2005] in this regard is as follows: · the determination of the quantum of damages to be awarded to the plaintiff will involve, for both the contractual and Trade Practises Act measures, a consideration of: (a) the calculation of GGA's total indebtedness as at 13 September 2001; and (b) the costs incurred and monies received by the Liquidator during the course of the liquidation. · Mr Sherman, GGA's liquidator, has prepared various witness statements in which he sets out the total amount of creditors' claims (being comprised of general unsecured trade creditors and priority creditors in the form of employees claiming their entitlements) which have been adjudicated upon during the course of the liquidation. Mr Grimshaw, a manager employed by Mr Sherman, has sworn an affidavit setting out the mechanics of the adjudication process undertaken. Mr Sherman also deposes to the receipts and payments that have been made during the course of the liquidation; · the information underpinning the evidence referred to above is contained within approximately 52 folders of documents of proofs of debt and approximately a further 10 folders of information relating to receipts and payments; · in August 2004, the plaintiff made an application to have those folders of documents (then 42 or so in number) adduced by way of a series of summaries pursuant to section 50 Evidence Act; · that application was vigorously resisted by the defendants. An order permitting the use of summary evidence was made by this Court on 30 August 2004. That order was subject to a proviso that the plaintiff identify the documents "used or relied upon" in the adjudication of the proofs of debt; · the plaintiff has served several schedules upon the defendants in order to comply with the proviso. The defendants have asserted repeatedly in correspondence that the plaintiff's compliance is not satisfactory and, accordingly, that the plaintiff is not entitled to rely upon summary evidence at trial; · in addition, in November 2004 the plaintiff served two lengthy notices to admit inviting the defendants to admit the existence and amount of each of the proofs of debt then adjudicated upon by the Liquidator. The defendants served a notice disputing facts, disputing the existence of the all but one of the debts; · the defendants have not served any evidence which raises a positive case in relation to the proofs of debt. Instead, it appears from statements made by the defendants in correspondence that the defendants intend to rely upon cross-examination and documentary material alone. The plaintiff apprehends, therefore, that the defendants intend to employ a considerable part, if not all, of the 9 day hearing commencing on 2 May 2005, both objecting to the tender of the material in question and then conducting a proof by proof review of the 52 folders of documents. 5 The plaintiff's following submission was that it did not consider such an approach to be conducive to the just, quick and cheap resolution of the proceedings. Instead, the plaintiff considered that it would be appropriate to refer the question of the calculation of its indebtedness to a referee for the following reasons: · the question of the calculation to be made is clearly appropriate for an expert accountant to determine; · the use of a referee would lead to a significant saving in Court time. In particular: - the plaintiff estimated that the time for the hearing could be reduced to 4 to 5 days; - there would be no need to tender the 52 folders of proofs of debt, nor the 10 or so folders relating to the receipts and payments that have occurred during the liquidation. In the plaintiff's submission, it was not practicable, nor reasonable, to expect a judge of the Supreme Court of NSW to have to receive that volume of material on such an issue; - a reference would avoid the probable present outcome that the 9 day hearing would prove to be insufficient and that the matter will go part heard, requiring a third hearing at some later stage. 6 The responsive submissions of the second, fifth, sixth and seventh the defendants ["the defendants"] dated 22 March 2005 took issue with the plaintiffs proposal on several bases. 7 The submissions took issue with the suggested appropriateness of the referee put forward by the plaintiff namely Mr Billingham. 8 The further submissions contended that: · The parties would not be in a position to conduct a reference between 24 March and 20 April 2005, or prior to the hearing commencing on 2 May 2005; · The defendants were not in a position to take objections or cross-examine Mr Sherman pending the plaintiff complying with the defendant's notices to produce which seek the production of documents for the purposes, amongst others, of taking objections to and cross-examining Mr Sherman upon his statements; · As to the documentary evidence, it appears from paragraph 16 of the affidavit of Ms Padman sworn 16 March 2005 that the plaintiff contemplated tendering at least 48 folders of documents. The content of these folders would need to be reviewed; objections taken; and submissions prepared. As noted below, the current timetable contemplates that this process could take in the order of one month, which appears realistic; · The contemplated reference would give rise to serious and complex procedural and administrative issues including: - if, despite the above, the referee was able to submit a report to the court on or by 20 April 2005, one or other of the parties may wish to apply to have the report either adopted or rejected by the court. it is unclear when the plaintiff contemplates that this application will be heard and determined. - if the referee submits a report on or by 20 April 2005, that may necessitate further or amended expert reports being filed by either or both of the parties prior to the hearing, which is presently listed to begin on 2 May 2005. · The contemplated reference cut across and significantly interferes with the preparations for the hearing commencing 2 May 2005; · There are presently directions in place for the orderly preparation of the proceedings for hearing. Pursuant to the current timetable, the plaintiff is to serve on or by 24 March 2005 its tender bundle and the defendants will have until 20 April 2005 to prepare objections and until 15 April 2005 to prepare their own tender bundle. Such a timetable is realistic considering the likely volume of documents. It was simply not possible to attempt to carry out these tasks on or before 24 March 2005, or indeed in advance of the current timetable; · The plaintiff had failed to establish any clear rationale for such a limited reference taking place prior to the hearing. If there were to be any reference, it should take place following the hearing, once the correct measure of damages has been established as a matter of law – for each cause of action. The reference proposed by the plaintiff is limited to only one aspect of the issues of accounting and quantification which are likely to arise, and which the court may not regard as appropriate for its determination having regard to the subject matter. In particular, the calculation of the plaintiff's total indebtedness as at 13 September 2001 is one aspect of a larger accounting question, namely what was the net financial position of the plaintiff at 13 September 2001 and was it worse than its net financial position at 16 February 2001. Furthermore, it is difficult to see how the issue of costs incurred and monies received by the liquidator during the course of the liquidation has any direct relevance to anything. It is just one step towards addressing a broader accounting question going to quantification. The issues of accounting and quantification should not be bifurcated. That would be the inevitable result if the reference proposed by the plaintiff took place; · In particular, the plaintiff had failed to establish that there is any necessity for a reference to proceed on the dates suggested in its motion and prior to the hearing. If, during the course of or at the conclusion of the hearing, it would appear that there are issues relating to the uncontroversial calculation or addition of amounts owing pursuant to various proofs of debt, then a referral could be made at that stage. · The suggestion made at paragraph 17 of Ms Padman's affidavit that a reference in advance of the hearing would achieve a saving in hearing time of 4 to 5 days was not supported by any detailed reasoning or explanation and thereby lacked weight. In any event, a referral after the hearing had commenced could achieve a commensurate saving of hearing time. 9 During the two occasions when oral submissions were taken from the parties the Court made clear that there was no question of my hearing questions of the type sought by the plaintiff to be referred to a referee. Such a course could not be justified bearing in mind the Overriding Purpose Rule. Subject to precision in terms of the precise orders to be referred to a referee, it is absolutely quintessentially clear that a Part 72 reference out will be made and that the parties will, in the usual way, following the presentation of the Referee's report to the court, be in a position to move for the adoption or rejection of the Report. The quantification of the legitimately admissible claims to proof in this particular insolvent administration is clearly not a matter to be determined by a Commercial List Judge but is appropriate to be referred out to an appropriately qualified expert. 10 I have been troubled by two particular matters: · the first concerns the closeness of the hearing date 2 May 2005 presently fixed for the second tranche of the proceedings [the concern is the unfairness to the defendants in being required at the same time to litigate before the referee as well as to prepare for and to litigate before the Court]; · the second is to ensure that even if the second tranche hearing is to precede the commencement of the hearing of the reference, there should be clarity from both sides of the Bar table in terms of a consensus that there is to be no common issue arising for determination by me as well as by the referee. 11 The position of the defendants has now moved from the time when their written submissions were submitted to the court. Particularly is it the case that during the taking of submissions on 30 March 2005, the defendants have accepted the propriety of the appointment of an appropriate referee, subject to some accommodation being given in terms of the precise questions to be the subject of the reference. 12 Further as I have understood what passed at the Bar table, both parties are able to indicate, and have indicated, that neither of them sees any particular difficulty in terms of a likely conflict the subject of the second concern set out above. The transcript of 30 March 2005 included in this respect: "His Honour: … I suppose the only other matter I want to ask you is this: Sometimes there are real difficulties raised when one party asks the Court to adopt and the other not to adopt a referee's report or part of it. I presume that in compliance with their duties of frankness to the court neither counsel sees any particular obvious difficulty which could arise in that regard. I mean obviously if the referee does something which is impugned as incorrect the ordinary full rights to resist adoption of the report will be there, but there is not suggested, as I gather, clear chance that by holding the hearing and then the reference when we come to adoption time there may be a conflict between what I decide and what the referee has reported. Mr Stoljar: Well, certainly not from my part, your Honour, and I very much doubt from Mr Coles' part. I mean the defendants would wish to be in the position that I think your Honour has just indicated, namely, that if the defendants apprehended at the end of the day that there was some error of law in the way that the referee had approached or resolved the issues before him or her, whoever he or she may be, the defendants would wish in that event to take instructions and act as appropriate, but there is certainly, as we stand here today, no apprehension that making orders of this form could facilitate or otherwise that course and indeed, as we stand here today, it would appear to have no bearing on it." [at [11] – [12]] 13 It does seem to me that there is real substance in the plaintiff's contention that an extraordinary amount of time has been taken by the defendants in procedural steps generally claiming an inability to move further in relation to dealing with the issues concerning quantification of the legitimately admissible claims to proof in the insolvent administration. Having said that, it is also true that the plaintiff has on a number of occasions taken real time to comply with notices to produce issued by the defendants seeking the production of particular documents. 14 At the end of the day the proper exercise of the Court's principled discretion is to: · proceed to shortly order the appointment of an appropriately qualified expert; · make orders identifying the questions to be the subject of a report to the Court by the expert; · order that the reference hearing not commence until seven working days after the conclusion of address in the second tranche of the trial. 15 There is no reason why preliminary directions hearings may not be held by the referee before the commencement of the second tranche of the trial. In particular it is likely that there will be a consensus as to a mass of material which the referee will in any event be required to privately read, even if there be likely some objections taken to the admissibility of some or a deal of that material. The evidence before the Court is that something in the order of in excess of 50 folders of documents will be sought to be tendered by the plaintiff before the referee. My understanding is that it is likely that there will be tendered the materials either in summary form or in full form comprising the folders of proof of debt. To my mind there is no reason why the referee should not be in a position to use the next several weeks to apprise himself or herself of the content of all of that material notwithstanding that there be reserved to the defendants an entitlement to take objections to parts of that material. Those objections can be ruled upon before the referee reports: [in any event at some time or other it would be necessary for the referee to read the materials to which objection is taken in order to rule upon the objections]. 16 The particular questions which are to be the subject of the Part 72 inquiry and report will be: 1 What was the net financial position of the plaintiff as at: (a) 16 February 2001; and (b) 13 September 2001. 2 What were the amounts (present or future, certain or contingent, ascertained or sounding only in damages) owing by the plaintiff to either or both of the first or seventh defendants as at: (a) 16th February 2001 and (b) 13 September 2001. 3 What are the debts of the plaintiff in the liquidation. 4 What was the total amounts of those debts. 5 What payments have been made by the Administrator and the Liquidator in the course of the administration and subsequent liquidation. 6 What receipts have been received by the Administrator and the Liquidator in the course of the administration and subsequent liquidation. 17 Clearly it is possible that some additional matter may arise during the hearing of the second tranche of the proceedings which is also appropriate to be added to the questions to be referred to the referee. That would always be the case and should not be a reason for holding back from the appointment being presently made and urgently made. I certify that paragraphs 1 - 17 are a true copy of the reasons for judgment herein of the Hon. Justice Einstein given on 31 March 2005 and revised 5 April 2005 ___________________ Susan Piggott Associate 5 April 2005 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.