New South Wales Supreme Court CITATION : Thomas & Ors v SMP (International) Pty Ltd & Ors [2010] NSWSC 822 This decision has been amended. Please see the end of the judgment for a list of the amendments. HEARING DATE(S) : 26 July 2010 JURISDICTION : Equity JUDGMENT OF : Pembroke J EX TEMPORE JUDGMENT DATE : 26 July 2010 DECISION : See judgment CATCHWORDS : AFFIDAVITS - prolix - oppressive - irrelevant and excessive detail - AFFIDAVITS - evidence in chief - inappropriate in particular circumstances - contentious oral communications - lack of utility and unfairness - oral evidence ordered - BARRISTERS - duty to court - to control bulk of evidence - to restrain clients - to limit waste of time and money CATEGORY : Procedural and other rulings Access to Justice Report, Final Report (HMSO) 1996 Griffiths, Civil Litigation in the Nineties (1991) 57(3) Arbitration 168 A H Engelbach, Anecdotes of Bench & Bar, 1913 TEXTS CITED : J D Heydon, Reciprocal Duties of Bench & Bar, (2007) 81 ALJ 23 New South Wales Law Reform Commission, Working Paper 14 (1975) - Procedure: Common Law Pleadings A Emmett, Practical Litigation in the Federal Court of Australia - Affidavits (2001) 20 Australian Bar Review 28 R C Teece, The Law & Conduct of the Legal Profession in New South Wales, (Law Book Co, Sydney, 1963) 2nd ed PARTIES : Eric Clyde Thomas SMP (International) Pty Ltd FILE NUMBER(S) : SC 2003/00085446 P E King - for second plaintiff COUNSEL : W Carney - for third defendant R J Weber SC with I R Pike - for fourth defendant F Kalyk - for fifth defendant Hayes Partners - for second plaintiff SOLICITORS : Husseini Lawyers - for third defendant Moray & Agnew - for fourth defendant Bartier Perry - for fifth defendant - 11 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION PEMBROKE J MONDAY 26 JULY 2010 2003/85446 – ERIC CLYDE THOMAS v SMP (INTERNATIONAL) PTY LTD EX TEMPORE JUDGMENT Introduction 1 HIS HONOUR: In these proceedings the protagonists are Mr Sullivan, Mr Thomas and Mr Willett and to a lesser extent Mrs Willett. Mr Willett is an accountant. A relationship of trust and confidence is alleged to have existed between Mr Sullivan and Mr Thomas on the one hand and Mr Willett on the other hand. 2 Mr Sullivan, Mr Thomas and their company (the third plaintiff, Softsand Design Investments Pty Ltd), made investments and advanced loans in property and related transactions recommended by Mr Willett. Those investments and loans included transactions in connection with SMP International Pty Ltd and other companies connected with it. SMP is a company that designs manufactures and distributes surfing and ski equipment, clothing and apparel. 3 An issue has arisen concerning the form of the evidence-in-chief that I should permit during the hearing. Having regard to the particular facts and circumstances applicable in this case, I have reached certain conclusions about what is appropriate. I will first explain the structure of the pleaded case. The Pleading – Primary Facts 4 The second further amended statement of claim was filed on 4 September 2009. The primary facts on which the plaintiffs' case depend fall into the following seven categories: Paragraphs 1-31 (a) The first category consists of the background set out in paragraphs 1 to 31. Those paragraphs contain many facts which I would expect to be non-contentious. Paragraphs 31A-34 (b) The second category relates to Softsand. It consists of paragraphs 31A to 34. It contains an allegation of deceit and fraud. Those paragraphs concern the establishment of Softsand and the allotment of shares in it. The allegation of deceit is based upon representations said to have been made to Mr Sullivan and Mr Thomas. It is not clear whether those representations were oral but I infer that they were. The paragraphs plead a number of purchases of properties by Softsand using monies contributed by Mr Thomas. Paragraphs 35-42 (c) The third category is that dealing with the SMP representations, the SMP future representations and certain share agreements. Those paragraphs are 35 to 42. A large number of oral representations are pleaded. A share agreement is also alleged to have been made in September 2000. The share agreement is said to be partly oral and partly written. There is also a share agreement alleged in February 2002 which is said to have been in written form. Paragraphs 43-51 (d) The fourth category concerns loans by Mr Thomas. It is contained in paragraphs 43 to 51. It is based upon oral terms derived from oral conversations. There are said to have been 14 loans, none of which have been repaid. Paragraphs 52-66F (e) The fifth category concerns an NAB overdraft account guaranteed by Mr Thomas. It is set out in paragraphs 52 to 66F. It is based on an oral agreement. It is alleged that the guarantee was called upon, that Mr Thomas paid the guaranteed amount and that he has not been reimbursed by SMP in accordance with the oral agreement. Paragraphs 69-84 (f) The sixth category concerns certain loans by Mr Sullivan to SMP. It is set out in paragraphs 69 to 84. It is based on an oral agreement. Paragraphs 85-90 (g) The seventh category concerns Mr Sullivan's Mastercard loan. It is set out in paragraphs 85 to 90. It is also based on an oral agreement. Causes of Action 5 The causes of action which are said to derive from those primary facts are as follows. First, there are claims in contract and money had and received in respect of the monies outstanding pursuant to the Thomas and Sullivan loans. Second, there are contract claims for breach of the September 2000 and February 2000 share agreements. Third, there is a misleading conduct claim based on the SMP representations by Mr and Mrs Willett and Mr King, including extensive allegations that Mrs Willett was involved in those allegations and was present when misleading allegations were made knowing that they were false. Fourth, there is a cause of action for negligent misrepresentation arising out of the SMP representations and the SMP future representations. Fifth, there is a cause of action for breach of fiduciary duty. It is based on the fiduciary duties alleged to have been owed by Mr Willett to Mr Thomas, Mr Sullivan and Softsand. The fiduciary claim seeks recovery of all monies that are the subject of the loans and the NAB overdraft claim, as well as dividends from SMP to which it is said Mr Thomas, Mr Sutherland and Softsand were or would have been entitled. Remedies 6 Based on those causes of action, the following remedies are sought: (a) Mr Thomas claims $3,566,588.20. He also claims damages or alternatively equitable compensation. He also claims declarations of trust in relation to the interest of David King in SMP and the interest of Mr Willett in Softsand; (b) Mr Sullivan claims $763,458.22. He also claims damages or alternatively equitable compensation. He also claims a declaration of trust in relation to the interest of David King in SMP; (c) Softsand claims $3,079,588.22, together with damages, equitable compensation and a declaration that it is entitled to half the shares in the SMP entities. The Evidence 7 The transactional evidence recording the purchase of properties and the payment and transfer of monies, including the amounts and dates of each transfer, should be non-contentious and objective. There ought not to be any bona fide dispute about them. If necessary I will make orders to facilitate the proof of those matters. 8 There will need to be evidence from Mr Sullivan and Mr Thomas to prove the conversations, representations and oral agreements that constitute the major part of the plaintiffs' case. That evidence is in truth somewhat limited and should fall within the categories that I have set out above. In relation to some of those categories, the evidence of both Mr Sullivan and Mr Thomas will be relevant. In relation to others, it will only be necessary to hear Mr Thomas. And in relation to others, Mr Sullivan's evidence alone will be necessary. Sullivan Affidavit 9 Against the background of that reasonably orthodox structure involving a relatively clearly pleaded statement of the material facts coupled with causes of action that are conceptually recognisable, the plaintiffs seek to read the affidavit of John Leslie Sullivan sworn 15 December 2009. Although certain concessions have been made this morning, to which I will come, I have to say that, to use the most neutral language, that affidavit is inappropriate, confusing and unhelpful. It is a prolix examination of minutiae carried out without any lawyerly discrimination. The majority of it is irrelevant to the resolution of the particular factual and legal issues that I must decide. 10 It can be fairly described as a gallimaufry - difficult to understand and impossible to disentangle. It is a jumble that masks rather than illuminates the facts that are necessary to determine the issues in dispute. The sheer length of the affidavit is oppressive. It consists of 6,657 paragraphs spread over nearly 500 pages. There are 63 pages of detailed objections by the defendants. Page after page explains in agonising detail the life and times of Mr Sullivan, Mr Thomas and Mr Willett. Dozens and dozens of persons who have no serious involvement in the issues for determination are introduced in cameo roles in the narrative. Minor celebrities and rugby league identities feature frequently. Little attempt has been made to meaningfully correlate the narrative recounted in the affidavit with the particular facts that have been pleaded. 11 The affidavit bears the hallmark of a deponent who is deeply imbued with every step and every detail of his own case. It is clear that Mr Sullivan feels that his trust and confidence have been abused and his money taken wrongfully. He may be right. I will be in a position to determine the correctness of his claims when the evidence supporting them has been elicited clearly and rationally. Procedural History 12 There have been prior warnings about the evidence on which the plaintiffs rely. The issue of the length and apparent irrelevance of large parts of the affidavit of Mr Sullivan was raised before the Chief Judge in Equity on 11 February 2010 and before me on 10 June and 20 July 2010. 13 On 11 February, the Chief Judge in Equity noted: I note that the defendants claim that there are large portions of the plaintiffs' affidavits that are irrelevant and that to enable a saving of costs, the defendants intend not to respond to those parts of the affidavits which they regard as irrelevant to the proceedings. 14 On 10 June, after hearing submissions about the lack of relevance of much of Mr Sullivan's affidavit, I directed that: By 15 July the plaintiff should notify the defendants as to which, if any, of the paragraphs objected to by any defendant in the affidavit of John Leslie Sullivan sworn 15 December 2009 are no longer read. 15 I also noted that: If it becomes clear on reading the affidavits that there are certain critical conversations that are material to a party's case, depending on which version I accept, I am likely to require that the evidence-in-chief of that conversation be elicited orally by each of the witnesses who depose to it. 16 On 20 July, when further complaint was made to me about the failure of the plaintiffs to notify the defendants as to which, if any, of the paragraphs of Mr Sullivan's affidavit they no longer read, I was told that no decision had yet been made about that matter. 17 Prior to the commencement of the hearing I embarked on a close examination of Mr Sullivan's affidavit, comparing it line by line with the objections that have been made to it. It has been a time consuming, painstaking but ultimately unrewarding task. After 3,000 paragraphs I ceased. I could go no further. I would have been prepared to uphold almost all of the objections if I thought it was appropriate to rule on each and every objection. But I do not propose to do so. I do not think that it is appropriate. 18 I have now been informed that a number of paragraphs are not read. The number of paragraphs in this category is not inconsiderable. There has been some recognition of the oppressive and largely irrelevant nature of Mr Sullivan's affidavit. There now appears to have been some informed exercise of the requisite judgment and experience called for in the circumstances. However, although the requests and warnings made on 11 February, 10 June and 20 July have been heeded in part, it has been made clear to me that the extent of the objections and the number of paragraphs have rendered it impossible even for the plaintiffs' counsel to address all of them meaningfully. Much irrelevant and objectionable material remains. The affidavit still contains approximately 4,000 paragraphs. Importantly the contentious conversations and oral communications that underpin the plaintiffs' case remain in the affidavit. Duty to Court 19 It is common for some litigants to want to use their evidence as an opportunity to unburden themselves in unmanageable detail of the many facts which have preoccupied them in the years preceding the hearing of their case. But a fair hearing of their case can be seriously hindered by such unfiltered outpourings. That is why, among other things, counsel have a duty to the court which is additional to their duty to the party whom they represent. This duty is a legal duty, not merely a rule of practice or etiquette: Teece, The Law & Conduct of the Legal Profession in New South Wales, second edition, Law Book Co, pages 30-35 and 41-44. 20 The efficient hearing of a large or complex case requires recognition of that duty and sensible co-operation and sound judgment on the part of the Bar. Justice Heydon, writing extra-curially in an article entitled "Reciprocal Duties of Bench & Bar" (2007) 81 ALJ 23 at 28-29, has stated: Both court and counsel have duties to maintain control over the bulk of the evidence and the time which the matter takes to try. Modern conditions have made these duties acutely difficult to comply with. Every aspect of litigation has tended to become sprawling, disorganised and bloated. The tendency can be seen in preparation; allegations in pleadings; the scope of discovery; the contents of statements and affidavits; cross-examination; oral, and in particular written, argument; citation of authority; and summings up and judgments themselves. When oral evidence which is unnecessary (in the sense of being only marginally relevant) is elicited in chief, the shared tedium of the experience usually ensures that objections succeed even if the tendering party fails of its own motion to bring the process to a close. The problem of control is more acute with written testimony. Lord Upjohn said that counsel is "under a duty with a view to the proper and speedy administration of justice to refuse to call witnesses, though his client may desire him to do so, if counsel believes that they will do nothing to advance his client's case or retard that of his opponent". The coming years may see principles emerge to guide judicial intervention against evils – the waste of time and money – that result from unhelpful or excessive tenders of both oral and documentary evidence. But whether or not legal principles capable of dealing with these evils emerge, there must be an ethical duty on counsel to abstain from excessive tenders. Lord Hoffmann said that counsel "should not waste time on irrelevancies even if the client thinks that they are important." 21 Lord Griffiths also railed against the failure of lawyers to contain cases in a speech entitled Civil Litigation in the Nineties, published in (1991) 57(3) Arbitration 168: There are … all too many cases which are not in the ultimate analysis complex but which have been made to appear so by indiscriminate deployment of nigh hopeless arguments bolstered by a mass of material of barely peripheral relevance… If the profession is not itself able to control the overloading of cases with stacks of unnecessary files of material, the judges will have to strike back by stringent costs orders … or more sophisticated orders disallowing costs of unnecessary issues. 22 For those reasons, a strictly adversarial approach to the presentation of a party's case must sometimes be tempered. Counsel's duty to the court requires them, where necessary, to restrain the enthusiasms of the client and to confine their evidence to what is legally necessary, whatever misapprehensions the client may have about the utility or the relevance of that evidence. In all cases, to a greater or lesser degree, the efficient administration of justice depends upon this co-operation and collaboration. Ultimately this is in the client's best interest. It is more likely to ensure that a just result is reached - sooner and with less expense. Limitations of Affidavits 23 The objections to Mr Sullivan's affidavit have given rise to a more fundamental issue. Affidavits have an important function and serve a useful purpose. But they are not necessarily always the best means of leading evidence-in-chief. Where there are disputed issues of fact involving oral representations and conversations, affidavit evidence can sometimes be an unsatisfactory medium for leading the evidence-in-chief. 24 It is well known that eminent jurists with unparalleled trial experience have expressed misgivings about the elicitation of evidence-in-chief by affidavits in cases whose success or failure depends on disputed representations and conversations. A colourful but apposite aphorism frequently invoked by Hon T E F Hughes QC, and attributed to Lord Buckmaster, is that "the truth sometimes leaks out of an affidavit - like water from the bottom of a well". A similar observation has also been attributed to Matthew L J. See A H Engelbach, Anecdotes of Bench & Bar; London, G Richards Ltd, 1913 page 243. And Lord Griffiths used similar language in his speech to which I have already referred – transposing "rusty bucket" for "well". 25 Justice Emmett elaborated more fully on the difficulties to which affidavits and witness statements can give rise in Practical Litigation in the Federal Court of Australia – Affidavits (2001) 20 Australian Bar Review 28: Where evidence is controversial, particularly where credibility of the witness is involved, the adducing of the evidence in written form is often undesirable and can be quite unfair. An honest witness, albeit nervous, in unfamiliar and overbearing surroundings, will be better able to defend in cross-examination evidence given by the witness in his or her own words. With the very best of intentions a lawyer who settles an affidavit or a witness statement will invariably reduce the language of the witness to the lawyer's own language. That may entail changes in meaning and emphasis that, although not intended, may expose a witness to unnecessary difficulties in the course of cross-examination. On the other hand, a dishonest witness will always be assisted by having evidence put into credible form by a lawyer. Where an assessment of credit is required, a judge will have a much better prospect of assessing a witness who gives evidence-in-chief orally rather than being exposed to cross-examination immediately upon entering the witness box. 26 In 1996 in the Access to Justice Report, Final Report (HMSO), 1996 at [55], Lord Woolf pithily observed: Witness statements have ceased to be the authentic account of the lay witness; instead they have become an elaborate, costly branch of legal drafting. 27 And as long ago as 1975, the New South Wales Law Reform Commission, in Working Paper 14, (1975) – Procedure: Common Law Pleadings, also observed (paragraph 7.3): "affidavit evidence is said (and with justification) to be more the evidence of the legal advisor than the witness". 28 A common thread in the commentary is that the studied reconstruction, and formulation in writing, of contentious conversations and oral communications in language that is usually settled and refined by lawyers, can sometimes be unreliable and unintentionally misleading. In an appropriate case, a more reliable touchstone of the truth is the witness' frank and honest recollection of the communication, given orally in the witness box, without the formality of an affidavit or the supervising hand of an interested lawyer. Even if the recollection is spare, and perhaps because it is so, it will very often be more credible. And the process of leading the evidence in chief orally may well be fairer to the witness. 29 There is also another factor. In an appropriate case, oral evidence-in-chief can advance the interests of the efficient administration of justice. If evidence in chief of contentious conversations and representations is adduced orally, the evidence will usually be more economical and more confined than it would otherwise have been. Affidavits, on the other hand, can consume inordinate amounts of time in their making, in ruling on objections to them and in their patient deconstruction by cross-examination. As this case demonstrates. Conclusions and Orders 30 For those reasons I propose to reject the whole of the affidavit of Mr Sullivan sworn 15 December, 2009. The nature of the evidence on which Mr Sullivan relies in this case, particularly the primary evidence of conversations and oral representations, is not apposite to be elicited in-chief by affidavit. The dangers of doing so are amply demonstrated by the form of Mr Sullivan's affidavit, the objections it has generated and the time that has been consumed in considering them. Mr Sullivan's legitimate interests will, in fact, be better served if his evidence-in-chief were led orally. 31 I note the concessions made this morning by Mr King. I have recorded on the file the numbers of the paragraphs which he no longer reads. But given the quantity and form of what remains, it makes no difference to my reasoning. 32 Nothing that I have said, of course, is intended to suggest that I have formed an adverse view of Mr Sullivan's case. Quite the reverse - at least at this preliminary stage and without having heard any evidence or submissions from the defendants. 33 I will not make an order for costs at this stage. I will consider the appropriate order that should be made given the costs which have been thrown away by the Sullivan affidavit when all of the issues are determined at the conclusion of the hearing. oOo 29/07/2010 - Amendment to paragraph 21 - Paragraph(s) Paragraph 21 24/08/2010 - Amendment to cover sheet - Paragraph(s) Citations 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.