Supreme Court New South Wales Medium Neutral Citation: National Australia Bank Ltd v Craig Trevor Smith [2012] NSWSC 1121 Hearing dates: 29 June 2012 Decision date: 16 October 2012 Jurisdiction: Common Law Before: Davies J Decision: Discovery is to be provided by the First and Second Cross-Defendants as indicated in paragraphs 32 to 43 of this judgment. The Motion is otherwise dismissed. Catchwords: PROCEDURE - discovery - late application - width of categories - no question of principle. Legislation Cited: Australian Securities And Investments Commission Act 2001 (Cth) Civil Procedure Act 2005 Contracts Review Act 1980 Uniform Civil Procedure Rules Cases Cited: Ace Hire Aust Pty Ltd v Adi Ltd [2006] NSWSC 969 Commonwealth Northern Land Council (1991) 30 FCR 1; 103 ALR 267 Idoport Pty Ltd v National Australia Bank [1999] NSWSC 1026 Lakator Universal Pty Ltd v Walker [1998] NSWSC 470 Category: Interlocutory applications Parties: National Australia Bank Ltd (Plaintiff/Cross-Defendant on First & Second Cross-Claims) Craig Trevor Smith (First Defendant/First Cross-Claimant on Second Cross-Claim) Denise Vittali-Smith (Second Defendant/Second Cross-Claimant on Second Cross-Claim) GHS Financial Services Pty Ltd (Second Cross-Defendant on Second Cross-Claim, Cross-Defendant on Third Cross-Claim) Patrick George Smith (Third Defendant/ First Cross-Claimant on First and Third Cross Claims) Nadine Ann Smith (Fourth Defendant/Second Cross-Claimant on First and Third Cross-Claims) Representation: Counsel: M Collins (Plaintiff) G Rubagotti (First & Second Defendants/Cross-Claimants) S Propoggia (GHS Financial Services Pty Ltd) M Tibbey (Third & Fourth Defendants/Cross-Claimants) Solicitors: Gadens Lawyers (Plaintiff) Landerer & Company (First & Second Defendants) P Baker, Solicitor (Third & Fourth Defendants/Cross-Claimants) Kennedys (GHS Financial Services Pty Ltd) File Number(s): 2009/296546 Judgment 1In these proceedings the Plaintiff seeks possession of land owned by the Third and Fourth Defendants at Sylvania Waters. The mortgage over the land was given as security for three loan facilities made available to Statewide Telescopic Forks Pty Ltd, a company controlled by the First and Second Defendants. The first facility was an equipment loan made on 23 December 2004 and the other two facilities were provided on 24 January 2006. 2The First and Second Defendants now apply by Notice of Motion to obtain discovery in certain defined categories against the Plaintiff and a cross-defendant joined in the proceedings by the First and Second Defendants, GHS Financial Services Pty Ltd. GHS was the mortgage broker who facilitated the loans from the Bank. The Bank and GHS resist providing discovery. 3A little history is necessary. The proceedings commenced on 1 October 2009. Until 10 October 2011 the First Defendant had always been unrepresented. For the same period the Second Defendant was either represented by the First Defendant or did not appear or, on one occasion, was represented by a barrister who appeared amicus to assist her. During that period I frequently urged the First and Second Defendants to obtain legal advice whether through the duty arrangements with Legal Aid in connection with the Possession List or otherwise. They did not do so until they retained solicitors in October 2011. 4In the meantime a number of interlocutory matters had been dealt with. In particular I had heard an argument on 25 August 2010 where the Third and Fourth Defendants had sought discovery from the Plaintiff. One of the categories of documents consisted of documents associated with loans made to the company from whom Statewide Telescopic Forks purchased the business and equipment. I disallowed discovery of those documents. 5On 5 May 2011 I heard a further application on behalf of the Third and Fourth Defendants where they renewed the claim for discovery of those documents. I gave judgment on that day in which I again rejected the application made on behalf of the Third and Fourth Defendants. It is fair to say that the defences and cross-claims filed on behalf of all of the Defendants to that time relied on the Contracts Review Act 1980, although the self drafted Defence by the First Defendant appeared to raise in an indirect way complaints about the amount of the loan provided to Statewide Telescopic Forks relative to the value of the business. 6After solicitors commenced to act for the First and Second Defendants there were a number of interlocutory skirmishes concerning amendments to pleadings which ultimately culminated in the filing by leave of an Amended Second Cross-Claim on 24 February 2012 by the First and Second Defendants against the Plaintiff and GHS Financial Services Pty Ltd. That document (which in these reasons I shall call "the Cross-Claim") considerably expanded the claims made by First and Second Defendants and alleged, amongst other things, misleading and deceptive conduct by reason of representations made by both bank officers and an officer of GHS in relation to the value of the business purchased by Statewide Telescopic Forks. 7The Cross-Claim pleads the following facts as the background to the claims now made against the Cross-Defendants (the relevant paragraph numbers appear in parentheses): (a) Craig Smith was an employee and intended purchaser of a Business owned by Statewide Tele-Handlers & Plant Hire Pty Limited. The Business was one of wet and dry hire of motorized telescopic equipment. The equipment itself was owned by Newtral Pty Ltd. Both companies were owned and/or controlled by Claude Provenzale; (5,6,7) (b)"In early 2004" Mr Provenzale offered to sell the Business to Craig Smith; (8) (c)Mr Provenzale referred Craig Smith to GHS, his Companies' broker, and GHS provided financial and business advice to Craig Smith including advice that the Provenzale business was a successful business; (9, 10, 11) (d)GHS referred Craig Smith to the NAB because NAB provided banking services to the Provenzale companies; (12) (e)The NAB gave advice to Craig Smith that the Provenzale business was a successful business which he should purchase and which they would finance; (14) (f)In reliance on that advice Craig Smith sought finance from NAB to purchase the Business and engaged GHS as broker to make that application on his behalf; (15) (g)In about October 2004 GHS provided financial information concerning the Provenzale business to the NAB but neither GHS nor NAB provided that financial information to Craig Smith; (16, 17) (h)On about 18 October 2004 the NAB prepared an internal credit memorandum concerning the Provenzale business but did not provide that memorandum or the information in it to Craig Smith; (18, 19) (i)On 23 November 2004 the NAB obtained a valuation of the business equipment in the Provenzale business; (20) (j)Thereafter in December 2004 Craig Smith and the company he registered, Statewide Telescopic Forks Pty Ltd entered into the facility agreements with the associated guarantees with the NAB; (21, 22, 23) (k)Statewide Telescopic Forks purchased the Business from Statewide Tele-Handlers and the equipment from Newtral in January 2005; (25,26) (l)Further facilities were obtained by Statewide Telescopic Forks in January 2006. (27) 8Craig Smith then alleges that the bank made representations that the business was a profitable one and one that he ought to purchase. These representations were said to be misleading and deceptive and that NAB did not have reasonable grounds for making them. (46-49) In addition it is clear that the NAB failed to inform the Smiths of certain matters about the business that NAB knew which, in total, amounted to the fact that the business was not a profitable one. (53, 54) Similar allegations were made against GHS. (59-63, 67, 68) 9These matters were said also to give rise to unconscionable conduct on the bank's part both under the general law and contrary to the Australian Securities And Investments Commission Act 2001 (Cth). (73-90, 91-101) They are also said to give rise to a claim for breach of contractual warranty (102-109) and negligence by reason of the Banking Code and generally. (149-166, 174-188) In addition, the First Defendant is said to have breached its fiduciary duty to the Smiths (167-173) and the Contracts Review Act is invoked in relation to the guarantees. (192-195) 10Default is alleged to have occurred on three separate dates. The first was 6 March 2007 when a Receiver was appointed to the borrower company. The second was 21 April 2008 when an amount of some $500,000 was due to be paid. The third date was 3 March 2009 when the borrower company was deregistered. A section 57 notice was served on 30 May 2009 and demands were made on the guarantors on 28 August 2009. 11The proceedings were commenced by the Bank on 1 October 2009. 12Discovery has been provided by the Bank to the other Defendants, and made available to the First and Second Defendants. An affidavit was sworn by a bank officer, James Wyatt, on 22 September 2010 concerning the making of reasonable enquiries and what documents were available. I was informed that further documents which had been located were subsequently made available in June 2012. 13The First and Second Defendants complained through their solicitor in an affidavit in support of the present application that the Discovery given by the Bank to the Third and Fourth Defendants was inadequate. The solicitor says that in categories 1, 2 and 3 there are particular documents which he would have expected to find but has been unable to do so. 14It was in those circumstances that the First and Second Defendants filed their Motion for Discovery on 31 May 2012. The categories sought against the Bank were these: 1. All documents comprising each file maintained by the first cross-defendant at any time prior to 1 October 2009 in respect of the following (the "financial products"): (a) the equipment loan; (b) the further facilities; (c) the first guarantee; (d) the second guarantee; (e) the mortgage. 2. All documents comprising each file maintained by the first cross-defendant at any time prior to 1 October 2009 in respect of the following (together, the "Smith Group"): (a) Craig Smith; (b) Denise Smith; (c) Patrick Smith; (d) Nadine Smith; (e) Statewide Telescopic Forks Pty Ltd. 3. All documents which contain any information as to the financial position of each member of the Smith Group prior to 1 October 2009. 4. All managers notes or notes of any bank officer which refer or relate to any member of the Smith Group prior to 1 October 2009. 5. All credit reports which refer or relate to any member of the Smith Group prior to 1 October 2009. 6. All documents comprising any file concerning any applications for finance lodged by or on behalf of Craig Smith in the period 2003 to 2004, other than in respect of the financial products, including but not limited at the NAB Sutherland branch, and including but not limited to any declined credit notes. 7. All documents comprising each file maintained by the first cross-defendant at any time in the period 20 December 2001 to 1 January 2005 in respect of each of the following (together, the "Provenzale Group"): (a) Newtral Pty Ltd; (b) Statewide Tele-Handlers & Plant Hire Pty Limited; (c) Claudio (aka Claude) Provenzale; (d) Gina Provenzale. 8. All documents which contain any information as to the financial position of each member of the Provenzale Group from 20December 2001 to 1 January 2005. 9. All managers notes or notes of any bank officer which refer or relate to any member of the Provenzale Group from 20 December 2001 to 1 January 2005. 10. All credit reports which refer or relate to any member of the Provenzale Group from 20 December 2001 to 1 January 2005. 11. All documents being, evidencing, recording, referring to or relating to communications during the period from 20 December 2001 to 1 October 2009 between, on the one hand, any officer or employee of the first cross-defendant, including but not limited to Mark Donovan and Alan Shackleton, and, on the other hand: (a) any officer or employee of the second cross-defendant, including but not limited to Garry Steinberg; (b) Claudio or Gina Provenzale, or any person on their behalf; (c) Craig, Denise, Patrick or Nadine Smith, or any person on their behalf; (d) Greg Hammond; (e) Geoff Stubbs; and concerning the following: (i) the financial products, or any one or more of them; (ii) the Smith Group, or any one or more of its members; (iii) the Provenzale Group, or any one or more of its members. 12. All electronic and paper diaries of any officer or employee of the first cross-defendant, including but not limited to Alan Shackleton and Mark Donovan, evidencing, recording, referring to or relating to meetings or conversations with, or otherwise referencing or relating to: (a) any member of the Smith Group; (b) any member of the Provenzale Group; (c) insofar as they concern the Smith Group, the Provenzale Group, or the financial products: (i) the second cross-defendant; (ii) Garry Steinberg; (iii) any other officer or employee of the first cross-defendant; (iv) Greg Hammond; (v) Geoff Stubbs. 13. All correspondence between any officer or employee of the first cross-defendant, including but not limited to Alan Shackleton, Mark Donovan and John Coupe regarding the financial performance of: (a) any member of the Smith Group, prior to 1 October 2009; (b) any member of the Provenzale Group between 20 December 2001 and 1 January 2005. 14. All correspondence from 20 December 2001 between, on the one hand, any officer or employee of the first cross-defendant, including but not limited to Alan Shackleton, Mark Donovan and John Coupe, and on the other hand, any officer or employee of the second cross-defendant, including but not limited to Gary Steinberg, insofar as it concerns the Smith Group, the Provenzale Group, or the financial products. 15. All documents, including but not limited to manuals, guidelines, requirements, policies, and internal documents, evidence or recording the first cross-defendant's procedures concerning the retention and destruction of client files or documents otherwise relating to the first cross-defendant's clients. 15The categories sought against GHS are these: 1. All documents comprising each file maintained by the first cross-defendant at any time in the period 20 December 2001 to 1 January 2005 in respect of each of the following (together, the "Provenzale Group"): (e) Newtral Pty Ltd; (f) Statewide Tele-Handlers & Plant Hire Pty Limited; (g) Claudio (aka Claude) Provenzale; (h) Gina Provenzale. 2. All documents which contain any information as to the financial position of each member of the Provenzale Group from 20 December 2001 to 1 January 2005. 3. All documents being, evidencing, recording, referring to or relating to communications during the period from 20 December 2001 to 1 October 2009 between, on the one hand, any officer or employee of the second cross-defendant, including but not limited to Garry Steinberg, and, on the other hand: (f) any officer or employee of the second cross-defendant, including but not limited to Mark Donovan and Alan Shackleton; (g) Claudio or Gina Provenzale, or any person on their behalf; (h) Craig, Denise, Patrick or Nadine Smith, or any person on their behalf; (i) Greg Hammond; (j) Geoff Stubbs; and concerning the following: (i) the financial products, or any one or more of them; (ii) the Smith Group, or any one or more of its members; (iii) the Provenzale Group, or any one or more of its members. 4. From 20 December 2011 (sic - 2001), all electronic and paper diaries of any officer or employee of the second cross-defendant, including but not limited to Garry Steinberg, evidencing, recording, referring to or relating to meetings or conversations with, or otherwise referencing or relating to: (d) any member of the Smith Group; (e) any member of the Provenzale Group; (f) insofar as they concern the Smith Group, the Provenzale Group, or the financial products: (i) the first cross-defendant; (ii) Alan Shackleton and Mark Donovan; (iii) any other officer or employee of the first cross-defendant; (iv) Greg Hammond; (v) Geoff Stubbs. 5. All correspondence from 20 December 2001 between, on the one hand, any officer or employee of the second cross-defendant, including but not limited to Garry Steinberg, and on the other hand, any officer or employee of the second cross-defendant, including but not limited to Alan Shackleton, Mark Donovan and John Coupe, insofar as it concerns the Smith Group, the Provenzale Group, or the financial products. 6. All documents being, evidencing, referring or relating to any application for finance made on behalf of the Smith Group, or any member thereof, including but not limited to financial information provided in connection with such applications and any documents relating to any commercial disputes arising out of such applications. 16Rule 21.2(4) UCPR provides that the relevant test for ordering discovery is that "the document is relevant to a fact in issue". The authorities suggest that a restrictive approach is not appropriate: Lakator Universal Pty Ltd v Walker [1998] NSWSC 470; Idoport Pty Ltd v National Australia Bank [1999] NSWSC 1026. Nevertheless the discovery obligation does not extend to a merely speculative possibility or suggestion that a document may contain relevant material: Commonwealth v Northern Land Council (1991) 30 FCR 1; 103 ALR 267 at 290. 17In the present case there is a further consideration and that consideration concerns delay. As mentioned earlier the First and Second Defendants only retained solicitors to act for them some two years after the proceedings commenced despite my frequent urgings to do so at many directions hearings. Discovery issues between the other parties had been argued and determined by May 2011. The documents discovered to the Third and Fourth Defendants were made available to the First and Second Defendants. Ultimately, the First and Second Defendants were given leave to file the Cross-Claim that now forms the basis of their claim and, indirectly, their defence to the Bank's claim. 18The present application is not strictly one for further Discovery although the argument strayed at times into that territory. The Discovery given to the Third and Fourth Defendants was based on the pleadings filed by those Defendants and the issues there raised. The pleadings of the First and Second Defendants, particularly the Cross-Claim, raise further and different issues. The matter of what Discovery should be ordered must be based on the issues in those pleadings. 19Nevertheless, in the light of the history of the proceedings it would be unfair and oppressive towards the Bank and GHS for orders to be made for wide-ranging Discovery as the Notice of Motion seeks nor would it be consistent with s 56 Civil Procedure Act 2005. 20Having regard to the principles outlined in paragraph [16] above and to the procedural history discussed I now turn to consider the documents in the categories sought against the Bank. In doing so I bear in mind (a) that the loan facilities were provided on 23 December 2004 and 24 January 2006, and (b) the allegations made by the First and Second Defendants as summarised in paras [7], [8] and [9] above. 21Before turning to the specific categories a number of general observations should be made. 22It is noted that a number of categories seek all documents of particular types dated prior to 1 October 2009. The only apparent relevance of the date 1 October 2009 is that it is the date upon which the Statement of Claim was filed. It is difficult to see any other relevance to enable documents in many of the categories to be required to be produced up to that time bearing in mind the issues in the case. 23The First and Second Defendants argued that there may be material in documents up to the time of commencement of proceedings which throw some light on the Bank's approach to the granting of the facilities and the representations said to have been made by the Bank in 2004. They were not able to point to anything suggesting the existence of such documents. Reliance by the First and Second Defendants upon what was said by Einstein J in Ace Hire Aust Pty Ltd v Adi Ltd [2006] NSWSC 969 was misplaced. That was an application for further and better discovery, and in any event the factual situation in that case is not analogous to the present. 24At the other end, it is difficult to see the relevance of documents as early as 2001. This was three years prior to the purchase of the business and the entry into the First Facility. The particular complaint in the Cross-Claim concerns an internal credit memorandum of 18 October 2004 prepared from some other documents which were seen not to be provided to the First and Second Defendants - see paras [18] and [19] of the Cross-Claim, noting that the reference in para [19] to para [16] of the Cross-Claim appears to be an error. 25It is alleged that it was only "in early 2004" when Mr Provenzale offered to sell the business to Craig Smith. The relevant enquiry is the state and value of the business at about that time and up until the facilities were entered into, the last being 24 January 2006. It is difficult to see how documents associated with how Mr Provenzale ran the business prior to that time can be of any relevance. I rejected such an argument when put by the Third and Fourth Defendants in their application for Discovery. The significant matter is the state of the business at the time that the Bank came to make the representations in the internal credit memorandum in October 2004. The representations are set out in paragraphs 18 and 46 of the cross-claim. 26In relation to a starting date for documents Ms Rubagotti of counsel for the First and Second Defendants said that 1 January 2004 was an appropriate starting point in relation to the documents sought in categories 7, 8, 9, 10 and 11. However, when pressed Ms Rubagotti accepted that the first specific time mentioned in the Cross-Claim was August 2004 (paragraphs 11 and 14). She pointed to a reference by Craig Smith in an affidavit he had sworn to May 2004. I am prepared to accept that May 2004 may be a particularisation of "early 2004". In those circumstances the categories should commence no earlier than May 2004. 27The Bank relied partly on a letter its solicitors had sent to the solicitors for the First and Second Defendants dated 4 June 2012. That letter set out the Bank's views on the Discovery now sought. I have taken the statements in that letter as supplemented in oral argument to be the submissions of the Bank resisting the Discovery now sought. In that letter the Bank drew attention to what it alleged was the unsatisfactory pleading in the Cross Claim, and suggested that the Discovery now sought was a fishing expedition. 28The Bank argued further that the Discovery it had already given to the Third and Fourth Defendants, and which was provided to the First and Second Defendants, together with the later documents it made available when found, is a sufficient response to what is now sought by the First and Second Defendants particularly in relation to Categories 11 and 12. 29GHS largely adopted the Bank's submissions and approach to the question of the Discovery now sought. 30Obviously, many or all of the documents discovered to the Third and Fourth Defendants will be relevant to the issues in the present application but further documents are sought and, in some cases, will have to be discovered because they are relevant to facts in issue as between the First and Second Defendants on the one hand and the Bank and GHS on the other. There is some force in the Bank's submissions that the majority of relevant documents have already been made available to the First and Second Defendants through Discovery to the Third and Fourth Defendants. Whilst those documents will form the core of documents to be discovered pursuant to the orders I shall make, it will be necessary for the Bank and GHS to indicate in one form or another to which category each of those documents relates. 31I consider that the issues raised by the Cross-Claim of the First and Second Defendants are sufficiently clear to be able to determine the appropriate categories for Discovery and the limits on the documents within those categories. By reason of matters referred to earlier and which will be referred to below the documents and categories will be limited to prevent the process being employed as a fishing expedition. Categories 1- 5 - NAB 32If there are further documents in these categories not already discovered, Discovery should be made available of such documents with a limitation on time. I have indicated already that the starting point should be May 2004 for the documents in these categories. The relevant period is the time at which the applications for finance were made and the time at which the Bank is alleged to have prepared the internal credit memorandum and made the representations. The way Mr Provenzale may have run the Company does not seem to me to be relevant to a fact in issue. What is relevant is the state of the Company at the time the applications for finance were made and at the time any advice or representations were made by the Bank. 33Similarly, once the agreements for the facilities had been effected by the end of January 2006 there can be no relevance of documents after that time to any fact in issue in the proceedings. Complaint is not made about acts or omissions of the Bank after that time. On one view it is only to the advance of the first facility that is relevant because that was when the Business was purchased. However, since two further facilities were made available in January 2006 it is appropriate to include documents up to that time. Category 6 - NAB 34I cannot discern anything in the Cross-Claim about other applications for finance lodged by Craig Smith other than those that are in issue in these proceedings. Discovery in relation to this category should be refused. Categories 7-11 - NAB Categories 1- 3 - GHS 35Again, the period should commence in May 2004. 36The Bank submitted that these categories should be limited to providing documents associated with the Bank's credit assessment. Documents of the entities referred to in the Provenzale Group, it was submitted, should only relate to matters connected with the Business so that, for example, if the persons or entities had other unrelated facilities those documents should not have to be discovered. 37In my opinion these categories should be limited to exclude documents in respect of Claudio Provenzale and Gina Provenzale. The allegation in the Cross-Claim is that the First and Second Defendants purchased the Business as defined and paragraphs 5 and 6 make it clear that the Business was owned by the two companies Statement Tele-Handlers and Plant Hire Pty Ltd and Newtral Pty Ltd. Documents concerning the financial position or other things about Claudio Provenzale whose only connection was a director and shareholder of those companies are not relevant to a fact in issue. Nothing in the Cross-Claim makes clear what the relevance of Gina Provenzale is or might be. 38However, contrary to the Bank's submission it seems to me that, since the two companies owned the Business or aspects of it, matters concerning any facilities they had with the Bank would be relevant to the formation of the Bank's opinion about the worth of the Business. Category 12 - NAB Category 4 - GHS 39This category should be limited in time from May 2004 to 24 January 2006 for reasons given. It should also be limited so that it does not include documents concerning Claudio Provenzale or Gina Provenzale who are defined as forming part of "the Provenzale Group". Categories 13 and 14 - NAB Category 5 - GHS 40In relation to the Smith Group this should be limited to the period from May 2004 to 24 January 2006. In relation to the Provenzale Group it should be limited to May 2004 to 1 January 2005. 41It should exclude documents in respect of Claudio and Gina Provenzale. Category 15 - NAB 42Ms Rubagotti accepted that the issue of destruction of time trials of documents was not an issue in the case. Discovery in relation to this category should be refused. Category 6 - GHS 43No allegation is made in the Cross-Claim about other applications for finance made by the Smith Group nor about any commercial disputes arising from such applications. The documents sought in this category do not relate to any fact in issue. Discovery in relation to this category should be refused. Conclusion 44The First and Second Defendants also seek an order that the Bank through an authorised officer swear an affidavit concerning lost documents and procedures concerning the storage of documents. At the present time this seems unnecessary as a separate exercise. Discovery has been ordered of some but not all of the categories sought, and the categories are limited in the way I have stated. If there are documents which once existed, but no longer exist, the Bank's deponent will have the usual responsibility in relation to that person's affidavit. When Discovery has been given there may be no further issue regarding alleged lost documents. Although some complaint was made during the hearing of the Motion about documents which the First Defendants would have expected to find, that must be seen in the context of the provision of documents required to be discovered to the Third and Fourth Defendants on much more limited issues than exist between the Bank and the First and Second Defendants. 45Discovery is to be provided by the First and Second Cross-Defendants as indicated in paragraphs 32 to 43 of this judgment. The Motion is otherwise dismissed. 46I will hear the parties on costs. ********** 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. Decision last updated: 16 October 2012