Supreme Court New South Wales Medium Neutral Citation: Graphite Energy Pty Ltd & anor v Lloyd Energy Systems Pty Ltd & ors [2014] NSWSC 1326 Hearing dates: Thursday 25 September 2014 Decision date: 26 September 2014 Jurisdiction: Equity Division - Corporations List Before: Brereton J Decision: 1. Order for discovery of classes of document subject to additional condition that they are relevant to a fact in issue namely whether the first defendant had the ability to pay all or part of the moneys due to the first plaintiff and/or the second plaintiff under the loan agreement, but not of certain classes not shown to be relevant. 2. Order for production of documents specified in notice to produce, but not of classes of unspecified documents. 3. Paragraphs of statement of claim struck out with leave to replead. Catchwords: PROCEDURE - discovery and interrogatories - discovery and inspection of documents - Practice Note Supreme Court Equity 11 - status of practice note - practice note guides but does not govern - where both parties have served evidence but some is otustanding - exceptional ciurcumstances not required but if required established - necessity - requirement to frame classes by reference to a fact in issue PROCEDURE - discovery and interrogatories - notice to produce documents - whether constrained by Practice Note SC Eq 11 - requirement of specificity - enforcemenr PROCEDURE - pleadings - documents - requirement to plead effect of terms and not merely incorporate same by reference Legislation Cited: (NSW) Civil Procedure Act 2005, s 61, 68 Uniform Civil Procedure Rules 2005, r 14.9, 21.2, r 21.10, r 21.11, 22.1(4), 24.10, 33.4, 34.1 Cases Cited: Armstrong Strategic Management and Marketing Pty Ltd & Ors v Expense Reduction Analysts Group Pty Ltd & Ors [2012] NSWSC 393 Associated Dominion Assurance Society Pty Ltd v Sir John Fairfax & Sons Ltd (1952) 72 WN(NSW) 250 Bauen Constructions Pty Ltd v NSW Land and Housing Corporation [2014] NSWSC 683 Boyle v Downs [1979] 1 NSWLR 192 Douglas Corporation Pty Ltd v Currico Nominees Pty Ltd [2007] NSWSC 113 Gale v Denman Picture Houses Ltd [1930] 1 KB 588 In the matter of Gerard Cassegrain & Co Pty Ltd [2011] NSWSC 241 Hennessy v Wright (1888) 4 QBD 445 James v Royal Bank of Scotland Group plc [2013] NSWSC 402 Kursell v Timber Operators & Contractors Ltd [1927] 1KB 298 Leda Manorstead Pty Ltd v Chief Commissioner of State Revenue [2012] NSWSC 913 Leighton International v Hodges; Thiess v Reinforced Earth [2012] NSWSC 458 Leitch v Abbott (1886) 31 Ch D 274 Lyons v Kern Constructions (Townsville) Pty Ltd (FCA, 22 February 1983, unreported) In the matter of Mempoll Pty Ltd, Anakin Pty Ltd and Gold Kings (Australia) Pty Ltd [2012] NSWSC 1057 Metgasco Ltd v Minister for Resources and Energy [2014] NSWSC 908 Norris v Kandiah [2007] NSWSC 1296 The Owners Strata Plan SP 69567 v Baseline Constructions Pty Ltd [2012] NSWSC 502 Pelechowski v Registrar, Court of Appeal (1999) 198 CLR 435 Penrith Rugby League Club Ltd v Brown [2004] NSWSC 1182 Percy v General Motors-Holden Pty Ltd [1975] 1 NSWLR 289 Procter v Kalivis [2009] FCA 795 Quilter v Heatly (1883) 23 Ch D 42 RSA (Moorevale Station) Pty Ltd v VDM CCE Pty Ltd [2013] NSWSC 534 Russell v Stubbs [1913] 2 KB 200 Schutt v Queenan & Anor [2000] NSWCA 341 Trade Practices Commission v CC(NSW) Pty Ltd (1995) 58 FCR 426 Waynes Merthyr Co v D Radford & Co [1896] 1 Ch 29 Weir v Greening [1957] VR 296 Wiedeman v Walpole (1890) 24 QBD 537 Yamazaki v Mustaca [1999] NSWSC 1083 Texts Cited: Practice Note Supreme Court Equity 11 Category: Procedural and other rulings Parties: Graphite Energy Pty Ltd (first plaintiff) Capri Trading Nominees Pty Ltd (second plaintiff) Lloyd Energy Systems Pty Ltd (first defendant) Lewis Family Investments Pty Ltd (second defendant) Grandsky Pty Limited (third defendant) Representation: Counsel: M K Condon SC w J A English (plaintiffs) D G Healey (first and third defendants) Solicitors: Russells (plaintiffs) Bridges Lawyers (first and third defendants) File Number(s): 2013/371285 Judgment 1HIS HONOUR: On 25 September 2014 I heard the plaintiffs' motion filed on 9 September 2014 for discovery and production of documents. As the case has an expedited final hearing which is fast approaching, on 26 September I gave a skeleton of my reasons for the guidance of the parties and subsequently made orders disposing of the motion, but indicated that I would publish a more elaborate version at a later date. These are those fuller reasons. The proceedings and the issues 2The plaintiffs claim that the first plaintiff Graphite Energy Pty Ltd lent $3.6 million to the first defendant Lloyd Energy Systems Pty Ltd pursuant to a written loan agreement between, inter alia, Graphite and Lloyd ("the loan agreement"). By clause 4.6(a) of the loan agreement, the total amount of the loan outstanding, to the extent that it has not been converted to shares in Lloyd by exercise of an option to convert it into shares in Lloyd, is repayable only from any excess revenue (as defined) from time to time. By clause 4.6(b), if Lloyd has not repaid the total loan amount outstanding by 31 December 2014, other than by reason of the default of Lloyd under the loan agreement, then on that day Graphite shall be deemed to have exercised the option to convert the total loan amount outstanding to shares in Lloyd, and Graphite shall have no other recourse against Lloyd or its assets and undertakings. 3By clause 6, Lloyd agreed and undertook that it would not, without the prior written consent of Graphite (a) grant any encumbrances over its assets or undertakings to secure any obligation that may rank ahead of Graphite's rights of recovery under the Loan Agreement, or (b) borrow any moneys or incur any debt akin to borrowing or otherwise obtain any financial accommodation (other than trade credit obtained in the ordinary course of business), or (c) pay any dividends or make any other form of distribution or payment to any of Lloyd' shareholders. By clause 7, Lloyd acknowledged that the undertakings in clause 6 were fundamental to Graphite agreeing to advance the loan on a limited recourse basis. 4Clause 9 provides, inter alia, that if Lloyd fails or defaults in duly performing or observing any of the material undertakings or agreements on its part contained in the loan agreement (and such failure remains unremedied for a period of 30 days after notice is given), or if a resolution is passed for the placing of Lloyd into administration, then Graphite may declare all moneys owing under the Loan Agreement due and payable. 5Subsequently, an administrator was appointed to Lloyd, and Graphite declared the moneys owing under the loan agreement due and payable. Lloyd executed a deed of company arrangement, which acknowledged Graphite's claim to at least some of the moneys it asserts remain due, and expressly preserved Graphite's claims for the repayment of the moneys. Also, on 1 November 2011, Lloyd entered into a deed of deferral with certain creditors, including Graphite, clause 3.3 of which provides that Graphite will forbear from seeking repayment of the deferred claims (which include the Graphite loan) for a period of one year and that thereafter Graphite will only be entitled to payment to the extent that Lloyd is able to pay its claim or any part of it. 6Graphite alleges that, contrary to the terms of the Loan Agreement, Lloyd borrowed substantial funds from each of Kerama Energy Pty Ltd, Lyton Holdings Pty Ltd, and Grandsky Pty Ltd and granted security to each of those entities. Lloyd admits that it borrowed funds and encumbered its assets as alleged, but says that, to the extent that such borrowings were not in the nature of trade credit obtained in the ordinary course of business, the plaintiffs consented to that course, or are estopped from objecting to it. 7The plaintiffs also allege that, by borrowing those funds, Lloyd became enabled to pay all or part of the moneys due to the plaintiffs and failed to do so [Statement of Claim, par 53]. Lloyd denies this and says that "the funds advanced were required for operational purposes and to meet specific liabilities and were not in any sense surplus to requirements nor where they from operating revenue" [Defence, par 53]. 8The plaintiffs further allege that, by so borrowing funds and encumbering its assets, Lloyd has acted in breach of implied terms of the loan agreement and deed of deferral (including that it would not act in the manner proscribed by clause 6 or in a manner that might prejudice its ability to pay claims or generate excess revenue), in that it has acted to destroy or diminish a state of affairs which formed the basis of the loan agreement and the deed of deferral and has not acted in good faith [Statement of Claim, pars 7, 16, 29, 51]. 9The plaintiffs' affidavit evidence in chief was served several months ago. The defendant's affidavit evidence in chief was served by about 15 August 2014, with the exception of an affidavit of Mr Vince, referred to below. The plaintiffs served their evidence in reply by 12 September, subject to any reply to Mr Vince's affidavit. On 15 September, mainly because the plaintiffs wish to avoid the risk of their loans becoming converted into equity with effect from 31 December 2014, the proceedings were set down for an expedited final hearing for three days commencing on 18 November 2014. The defendants were given leave to serve an affidavit of Mr Vince by 1 October, and an expert report by 31 October, on the basis that whether the issue to which it relates will be dealt with at the substantive hearing or as a separate subsequent question will be determined at a pre-trial directions hearing on 3 November. The plaintiffs were given leave to serve any evidence in reply to Mr Vince's affidavit by 15 October. 10By letter dated 29 August 2014 ("the 29 August letter"), the plaintiffs requested discovery of documents in 15 categories (enumerated 1(a)-(m), 2 and 3). On the same day, the plaintiffs served on the first defendant a notice to produce under Uniform Civil Procedure Rules r 24.10 ("the notice"), requiring production of a further ten documents or categories of document. By notice of motion filed on 9 September 2014, the plaintiffs seek an order pursuant to UCPR r 21.2 that Lloyd provide discovery as sought in the 29 August letter, and an order (said to be pursuant to UCPR 21.11) that Lloyd produce for inspection the documents referred to in the notice. The defendants' solicitors, by letter of 18 September 2014, responded, taking objection to discovery generally on the ground that it was premature, and to various categories on grounds of the width of their description and relevance, and to some paragraphs of the notice. Discovery 11UCPR r 21.2 provides that the Court may order that Party B give discovery to Party A of documents within a class or classes specified in the order, which classes may be specified by relevance to one or more facts in issue, by description of the nature of the documents and the period within which they were brought into existence or in such other manner as the Court considers appropriate in the circumstances. In respect of proceedings in the Equity Division, Practice Note SC Eq 11 ("the Practice Note") states that the Court will not make an order for disclosure of documents until the parties to the proceedings have served their evidence, unless there are exceptional circumstances necessitating disclosure [par 4]; and unless it is necessary for the resolution of the real issues in dispute in the proceedings" [par 5]. 12The defendants submitted that the evidence was not yet complete, and that there would likely be further requests for disclosure after it was complete, so that, absent exceptional circumstances, no order should be made, and there were not exceptional circumstances. 13The intent of the Practice Note was that, ordinarily, formal discovery should be deferred until the parties had served their affidavits. This was intended to serve two main purposes: first, to reduce the burden of discovery by ordering it only after the issues had not only been defined by the pleadings (where relevant), but had also been refined by the affidavit evidence, and thus limiting its scope; and secondly, to avoid the mischief of parties constructing their affidavit evidence around the discovered documents, by requiring them first to commit their case to affidavits [cf Armstrong Strategic Management and Marketing Pty Ltd & Ors v Expense Reduction Analysts Group Pty Ltd & Ors [2012] NSWSC 393, [65]-[66] (Bergin CJ in Eq); Leighton International v Hodges; Thiess v Reinforced Earth [2012] NSWSC 458, [15]-[16] (McDougall J); In the matter of Mempoll Pty Ltd, Anakin Pty Ltd and Gold Kings (Australia) Pty Ltd [2012] NSWSC 1057, [14] (Black J); Leda Manorstead Pty Ltd v Chief Commissioner of State Revenue [2012] NSWSC 913, [3] (Gzell J); Bauen Constructions Pty Ltd v NSW Land and Housing Corporation [2014] NSWSC 683, [26] (Ball J)]. The Practice Note is an important initiative in endeavouring to reduce the cost of discovery, the burden of which was perceived to increasing. For that reason, the court has stated, more than once, that it will not countenance attempts to circumvent the Practice Note. 14That said, the Practice Note provides guidance as to the practice of the Court in respect of disclosure. It is not a statute, nor is it a rule of the Court. It guides, but does not govern, the disclosure process. It must yield to the requirements of the individual case, although the importance of its purpose means that it will be in a rare case that the Court will depart from its guidance. 15In my view, the proper interpretation and application of the Practice Note does not require that exceptional circumstances be established on this motion to warrant an order for discovery at this stage. Both parties have in substance served their evidence. The chief protagonists on each side (Mr Kinghorn and Mr McLachlan respectively) have served their evidence in chief, and Mr Kinghorn has also served an affidavit in reply; all that remains outstanding is, on the part of the defendants, an affidavit from Mr Geoff Vince and an expert report from Mr Alan Farrer of PKF Lawler (or his nominee), leave to serve which by 15 October and 31 October 2014 respectively was granted on 15 September; and on the part of the plaintiffs any additional lay evidence in reply (to Mr Vince's affidavit) which is to be served by 15 October 2014. Two previous directions had been made for service of the defendants' evidence, and Mr Vince's affidavit was overdue. 16The Practice Note does not require that all the evidence has been served; nor could it sensibly do so, as a key purpose of disclosure is for a party to obtain documents which it can tender, and discovery might well create a requirement to serve additional evidence. The purpose of the Practice Note, as explained above, has been achieved, in that each party has committed its case to affidavit by serving its evidence-in-chief. The issues are identifiable from the affidavits. The circumstance that an affidavit in reply and an expert report is yet to be finalised does not mean that in substance the purpose of the note has not been achieved. 17Alternatively, if I be wrong in that conclusion, I would be satisfied that in this case there are exceptional circumstances warranting the ordering of discovery at this stage. McDougall J has characterised the requirement for exceptional circumstances as "not normal, or usual; ... something out of the ordinary; they need not be unique; ... not "exceptional" at large, but "exceptional" because they necessitate disclosure" [Leighton, [20]; see also The Owners Strata Plan SP 69567 v Baseline Constructions Pty Ltd [2012] NSWSC 502, [30]-[31] (Stevenson J)]. I respectfully agree with the following observations of Gzell J in Leda Manorstead v Chief Commissioner (at [17]): I do not dissent from any of these observations but caution against setting the bar too high. As was said in Kelly (Edward), to be exceptional the circumstance need not be unique or unprecedented or very rare. What is needed is an appraisal of all the circumstances and the context in which the expression must be satisfied. Are there circumstances necessitating disclosure before evidence in the sense that the party's case cannot be put without disclosure? Are those circumstances exceptional? [See also Metgasco Ltd v Minister for Resources and Energy [2014] NSWSC 908, [22] (Davies J); In the Matter of Mempoll, [17] (Black J); RSA (Moorevale Station) Pty Ltd v VDM CCE Pty Ltd [2013] NSWSC 534, [34] (Stevenson J)]. 18In my view, sufficiently exceptional circumstances to warrant ordering discovery at this stage in this case are amply established by a combination of the advanced if incomplete state that the evidence has reached, the circumstances that the evidence is not complete being attributable to the default of the defendants, and the proximity of the expedited final hearing. 19Insofar as par 5 of the Practice Note provides that discovery will be ordered only where necessary, that reflects a longstanding requirement, formerly contained in the rules (and still provided, in respect of interrogatories, by UCPR r 22.1(4)), that discovery would be ordered only where it was necessary. This provision was consistently interpreted to mean, not essential, but reasonably required for the fair disposition of the matter [Schutt v Queenan & Anor [2000] NSWCA 341, [12] (Mason P); In the matter of Gerard Cassegrain & Co Pty Ltd [2011] NSWSC 241, [20]-[23]]. This has been variously described as "what is reasonably necessary for the disposing fairly of the cause or matter" [Boyle v Downs [1979] 1 NSWLR 192, 205 (Cross J); Yamazaki v Mustaca [1999] NSWSC 1083], or "necessary in the interests of a fair trial" [Percy v General Motors-Holden Pty Ltd [1975] 1 NSWLR 289, 292 (Rath J)]; or "reasonably required or legally ancillary" to the achievement of a fair trial, not "essential" but to be "subjected to the touchstone of reasonableness" [Pelechowski v Registrar, Court of Appeal (1999) 198 CLR 435 (Gaudron, Gummow and Callinan JJ)]. That approach applies to the similar phrase in the Practice Note: in Leighton, McDougall J said (at [22]): In the context of the practice note, the disclosure (either pre-evidence or at all) must be shown to be reasonably necessary for disposing of the matter fairly or in the interests of a fair trial. [See also In the matter of Mempoll, [18]; and James v Royal Bank of Scotland Group plc [2013] NSWSC 402, [16] (Stevenson J)]. 20The affidavit of the plaintiffs' solicitor Mr Mattiussi addresses the requirements of the Practice Note as to the reasons why disclosure is necessary for the resolution of the real issues in dispute, the classes of documents in respect of which disclosure is sought, and the likely cost of such disclosure. It identifies the issue in respect of which discovery is said to be required as the ability of the first defendant to repay the loan, which is plainly an issue in the proceedings. Evaluation of the ability of Lloyd to repay will necessarily involve review and analysis of its financial position, which will primarily be established by its own financial records, and that it discovery in respect of that issue is necessary in the relevant sense. 21Aside from necessity, the touchstone for discovery is relevance to a fact in issue in the proceedings. UCPR r 21.2(2) provides that a class of documents must not be specified in more general terms than the Court considers to be justified in the circumstances, and UCPR r 21.2(4) provides that an order for discovery may not be made in respect of a document unless the document is relevant to a fact in issue. UCPR r 21.1(2) provides: a document or matter is taken to be relevant to a fact in issue if it could, or contains material that could, rationally affect the assessment of the probability of the existence of that fact (otherwise than by relating solely to the credibility of a witness), regardless of whether the document or matter would be admissible in evidence. 22Thus, while r 21.2(1) permits classes of documents to be specified, not only by relevance to one or more facts in issue, but alternatively by description of the nature of the documents and the period within which they were brought into existence or in such other manner as the Court considers appropriate in the circumstances, nonetheless discovery cannot be ordered except in respect of documents that are relevant to a fact in issue. This means that it must always be possible to show a connection between the class and a fact in issue, and where a class is specified in some other manner than by relevance to a fact in issue, it must be apparent that the class so described will capture only documents that are relevant to a fact in issue. For this reason, it is highly preferable that classes be specified by relevance to a fact in issue - unless it is self-evident that the class is a sub-class of documents that relate to a fact in issue. 23Discovery category 1 in the 29 August letter suffers from the vice that it and the subcategories in it are not described by a reference to a fact in issue in the proceedings. It was introduced by the chapeau "All documents (including but not limited to correspondence, memoranda, working papers and noted of meetings or discussions) evidencing, recording or concerning" and then listed 13 sub-classes, usually by relation to a document or transaction, and not by reference to facts in issue. This meant that most of the sub-classes would necessarily capture documents which are not relevant to a fact in issue, although in most cases they would also capture documents which are relevant to a fact in issue. As examples only, some of the documents referred to in categories (d) and (e) - which pertain to the China project and the Cyprus project - and in particular the terms on which Lloyd agreed to procure the termination of the Remote Area Power Systems Pty Ltd ("RAPS") licence and grant a licence to Jiangyin Chang Jiang Investment Group Co Ltd - are likely to relate to a fact in issue in the proceedings, namely the ability of Lloyd to repay the loan. However, many documents concerning those projects are likely to be entirely irrelevant. This vice can be remedied by the imposition of an additional condition on discovery, namely, that the documents relate to the issue of ability to pay as raised on the pleadings. The imposition of an additional condition to that effect will exclude from the scope of discovery those documents that are not relevant to a fact in issue. 24Sub-classes (k) and (l), however, do not describe classes relevant to any fact in issue. They call for, respectively, documents concerning credit or funding obtained by Lloyd otherwise than from Kerama, Grandsky, Lyton and Rudana during the period 1 November 2011 to date; and documents concerning the granting of any security or encumbrance whatsoever over the assets and undertaking of Lloyd during the period 1 November 2011 to date to secure any obligation whatsoever. The plaintiffs sought to support these categories as relevant to, inter alia, the issue of Lloyd' ability to repay the loan; but as pleaded that ability is said to arise exclusively from the borrowings from Kerama, Grandsky and Lyton [Statement of Claim, par 53]. They were primarily said to be relevant to the question of whether there has been any further breaches of the obligations under the loan agreement and deed of deferral, but these would be additional breaches not arising out of the transactions with Kerama, Grandsky and Lyton, and in no way raised by the existing pleading. 25The plaintiffs argued that such discovery might reveal additional breaches and inform an amendment of the pleading to raise them. I accept that there are cases in which discovery will be ordered before particulars, in order to enable a plaintiff better to particularise the general allegations it pleads. Thus in Waynes Merthyr Co v D Radford & Co [1896] 1 Ch 29, the plaintiff gave one specific instance of the defendant's alleged fraudulent supply of coal but alleged that the defendant had fraudulently supplied coal to divers other persons on divers other occasions; Chitty J held that the plaintiff's case had a substantial foundation and was not fishing, and ordered discovery before particulars. In Leitch v Abbott (1886) 31 Ch D 274, the plaintiff alleged fraud but did not supply particulars; the Court of Appeal held that the plaintiff, having pleaded a statement of the nature of the fraud alleged but being unable to supply further particulars, was entitled to interrogatories. In Russell v Stubbs [1913] 2 KB 200, discovery was ordered where the plaintiff could particularise one person to whom an alleged libel had been published, before particularising the others. 26These and other cases were considered by Fitzgerald J (as he then was) in Lyons v Kern Constructions (Townsville) Pty Ltd (FCA, 22 February 1983, unreported) who said that the ultimate object was to mould the court's procedure to do justice between the parties and continued: However, throughout all the cases, there is an insistence that discovery not be made available to a party before pleading or particulars for the purpose of "fishing". 27His Honour then referred to cases which illustrated the meaning of "fishing" in this context [Hennessy v Wright (1888) 4 QBD 445; Gale v Denman Picture Houses Ltd [1930] 1 KB 588; Associated Dominion Assurance Society Pty Ltd v Sir John Fairfax & Sons Ltd (1952) 72 WN(NSW) 250], as an endeavour to see whether or not the party has a case, as distinct from obtaining material to support the case that the party has. See also Procter v Kalivis [2009] FCA 795, [68]-[83], in which Besanko J cited with approval the following dictum of Lindgren J in Trade Practices Commission v CC(NSW) Pty Ltd (1995) 58 FCR 426 (at 438): What does the reference to a 'fishing expedition' mean? After all, ex hypothesi, the giving of discovery will often, if not always, reveal documents of which the other party was not previously aware (similarly, the administering of interrogatories will often, if not always, reveal information of which the other party was not previously aware). What is meant is that discovery must not be used for the purpose of ascertaining whether a case exists, as distinct from the purpose of compelling the production of documents where there is already some evidence that a case exists: see, for example, Commissioner for Railways v Small (1938) 38 SR (NSW) 564 at 575; Associated Dominions Assurance Society Pty Ltd v John Fairfax & Sons Pty Ltd; WA Pines Pty Ltd v Bannerman; Barbarian Motor Cycle Club Inc v Koithan (1984) at 486; Nestle Australia Ltd v Commissioner of Taxation (1986) at 82-83; Mobex Pty Ltd v Comptroller-General of Customs (unreported, Federal Court, Foster J, 18 May 1994), at p 18. In WA Pines Pty Ltd v Bannerman at 181, Brennan J said that what is required is that 'sufficient is shown to ground a suspicion that the party applying for discovery has a good case proof of which is likely to be aided by discovery'. On the facts of particular cases, the application of the distinction between 'fishing' and 'non-fishing' may well be difficult. 28The present is not a case in which the plaintiff has pleaded general allegations of divers breaches which it is unable to particularise or only some of which it is able to particularise. It has pleaded only specific identified breaches which, with one exception, have been fully particularised. The exception is to be found in paragraph 32 of the statement of claim, which contains a specific allegation of breach and particulars of it, subject to the potential of adding further particulars after discovery; discovery in respect of that allegation is in any event covered by subparagraph (i) of category 1. 29The classes of documents described in subparagraphs (k) and (l) do not relate to any issue that arises on the current pleadings. In my view, those subparagraphs amount to impermissible fishing to see if the plaintiff can find additional breaches, not covered even generically by the present pleading, in order to inform a potential application for leave to amend the pleading. Accordingly, subparagraphs (k) and (l) should be excluded from the scope of the discovery to be ordered. 30Discovery category 2 is as follows: All documents (including but not limited to correspondence, memoranda, working papers and noted of meetings or discussions) evidencing, recoding or concerning any purchase during the period 1 November 2011 to date of shares in the first defendant held by Mr Gerry McGowan and/or Mr Neil Lewis (or third parties associated with, or related to, either of them) by the first defendant or Mr Lyall McLachlan (or a third party associated with, or related to, Mr McLachlan) including in relation to how the purchase was funded. 31This class of documents described is said to be relevant to Lloyd's ability to repay the loan, and also relevant to the question of whether there have been any further breaches of its obligations under the loan agreement and deed of deferral. However, it may again be observed that the convoluted drafting does not demonstrate any relationship to a fact in issue in the proceedings, confirming the undesirability of framing discovery categories as if they were paragraphs in a subpoena. It may well be that the terms of the transaction referred to in paragraphs 62 to 64 of Mr McLachlan's affidavit are relevant to the issue whether the moneys borrowed by Lloyd from Grandsky were required for operational purposes to meet specific liabilities and not in any sense surplus, as the defendants allege, but category 2 is framed much more widely than that, so as to capture any purchase of shares in the first defendant held by Mr McGowan or Mr Lewis or their associates during a period of three years. In my opinion, other than as an attempt at fishing to find an additional cause of action, the relationship of so broad a category to a fact in issue in the proceedings is not established. Alternatively put, the class is framed far more widely than necessary for the proper purposes of eliciting documents that relate to the issue to which I have just referred. I will not order discovery in respect of category 2. 32Discovery category 3 seeks: All documents (including but not limited to correspondence, memoranda, working papers and noted of meetings or discussions) evidencing, recoding or concerning the conversations and meeting deposed to or referred to in paragraphs ... of the affidavit [of Mr McLachlan]. 33Only the reference to paragraph 62 was in issue, it not being disputed that in its reference to the other nominated paragraphs the class was relevant. Paragraph 62 of Mr McLachlan's affidavit refers to the beginning of the evolution of the transaction by which Lloyd borrowed moneys from Grandsky. The defendants have raised it and put it in issue and can hardly be heard to say that documents pertaining to a conversation that they wish to prove are not relevant to a fact in issue. Subcategory 3 was otherwise not controversial and, accordingly, the order for discovery will include category 3 and within it, in particular, the reference to paragraph 62 of Mr McLachlan's affidavit. The notice to produce 34Before the amendments to the (NSW) Supreme Court Rules 1970 that took effect from 1 October 1996, SCR Part 23 made provision for several modes of discovery: (1) general discovery, by notice, which was available as of right in proceedings on pleadings (except common law claims for damages for death or bodily injury) [SCR Pt 23 rr 1, 2]; (2) general discovery, by order, which was available in other proceedings [Pt 23 r 5]; (3) particular discovery, by order, of particular documents or classes of documents [Pt 23 r 7]; (4) production for inspection, by notice, of documents referred to in a pleading or affidavit [Pt 23 r 9]; (5) production for inspection, by order, of documents referred to in a pleading or affidavit or list of documents (which was the remedy for failure to comply with a notice under r 9), and also where it appeared from evidence or the circumstances that there were grounds for belief that a relevant document was in a party's possession [Pt 23 r 10]; and (5) production to the Court, by order [Pt 23 r 12]. The power to order production for inspection under Pt 23 r 9(c) where it appeared from evidence that a relevant document was in the possession of a party was not constrained by the conclusiveness of an affidavit of discovery [Wiedeman v Walpole (1890) 24 QBD 537; Weir v Greening [1957] VR 296, 298]. 35The 1996 amendments to SCR - which, with one modification to which I shall come, are reflected in the current UCPR - were intended to remedy to malady of excessively burdensome discovery. General discovery was wholly abolished; all discovery, strictly so-called, required an order of the Court, and was in the nature of particular discovery, being limited to particular documents or classes of documents [SCR Pt 23 r 3; UCPR r 21.2]. The provision for production for inspection, by notice, of documents referred to in a pleading or affidavit, was retained [SCR Pt 23 r 2(1)(a); UCPR r 21.10(1)(a)]. A provision for production for inspection of specific documents, not more than fifty, clearly identified in the notice and relevant to a fact in issue, was inserted [SCR Pt 23 r 2(1)(b)]; the limitation to fifty was omitted when UCPR were introduced [UCPR r 21.10(1)(b)]. The former provisions for orders for production were omitted; presumably because a party can now require production of specific documents not referred to in a pleading etc by notice without requiring an order (as would previously have been required under SCR Pt 23 r 9(c)), and the residual power to make an order for production to the Court is now to be found in (NSW) Civil Procedure Act 2004, s 68. Where a party fails to comply with a r 21.10 notice, the remedy now would seem to be a direction under Civil Procedure Act, s 61, or an order for production under Civil Procedure Act, s 68. 36This reveals that despite their colocation in UCPR r 21.10(1), its two limbs have quite different origins. Moreover, it indicates that the facility for requiring production of "any other specific document" should not be constrained by the conclusiveness of an affidavit of discovery. 37Unlike a notice to produce at hearing under UCPR r 34.1, which is analogous to a subpoena, a notice to produce under UCPR r 21.10 is a form of discovery. However, the Practice Note does not apply in terms to a notice under r 21.10, because it does not require an order of the Court. There is good reason for this, in particular in respect of subrule(1)(a) which enables a party to give notice to produce a document referred to in another party's pleading or affidavit. As is illustrated by Quilter v Heatly (1883) 23 Ch D 42, it is entirely permissible and appropriate that such notice be given immediately after the service of the relevant pleading or affidavit, so that the recipient can form a full appreciation of the pleading or affidavit in question. While the origins, function and purpose of subrule (1)(b) are quite different, its colocation with subrule (a) is a good indication that it is intended to be available at the same time, as indeed a single notice can cover both subrules simultaneously. Thus, the practice note does not directly constrain the use of a notice under r 21.10. However, such a notice should not be used to circumvent the constraints that apply to discovery under UCPR r 21.2 by requiring production of classes of documents in respect of which an order for discovery has been declined or would not (yet) be made; and the Court will be astute to prevent evasion of the purpose and intent of the Practice Note by recourse to r 21.10 to obtain, in effect, discovery of classes of documents, rather than what such a notice is intended to cover, namely the production of specific, clearly identified documents. 38Consistent with this, UCPR r 21.10(1)(b) requires that the notice clearly identify the specific documents of which production is required. The requirement of specificity is fundamental to a u 21.10(1)(b) notice. The contrast with discovery under UCPR r 21.2 is particularly highlighted by the reference in r 21.2 to "any ... specific document", and the absence of reference to "class" or "classes" of documents such as appears in r 21.2. In Kursell v Timber Operators & Contractors Ltd [1927] 1 KB 298, Sargant LJ said (at 313-14) that the word "specific" conjures up the idea of something that is identified and not merely identifiable. In Penrith Rugby League Club Ltd v Brown [2004] NSWSC 1182, Young CJ in Eq said that there must be an indication in a distinct manner free from confusion of the documents required. In Douglas Corporation Pty Ltd v Currico Nominees Pty Ltd [2007] NSWSC 113, Harrison AsJ said (at [29]) that reference to documents required "strict specificity in order to identify the individual document sought". In Norris v Kandiah [2007] NSWSC 1296, I said that, as a general rule, a notice to produce would not clearly identify documents, nor bring satisfaction that they are relevant to a fact in issue, if it merely identified subject matters by relation, particularly if the subject matter is stated broadly and without temporal restriction. Although the limitation to fifty documents was omitted from UCPR, it provided a further indication that the concept of specificity was intended to require identification of the particular documents sought. 39The notice was served on 29 August 2014. By letter of 15 September, which was in fact sent on 18 September, the defendants' solicitors objected that paragraph 10 did not comply with UCPR r 21.10 and was in the nature of discovery, and that it was an abuse of process. It was not suggested that the documents sought were not relevant. No application was made by the defendants to set aside the notice, or for an "otherwise order" under UCPR r 21.11. 40The plaintiff argued that the defendant, not having applied under UCPR r 21.11 for an "otherwise order", should simply be ordered to comply. I have come to the conclusion that that is not the position. If a notice prima facie validly invokes UCPR r 21.10 and a defendant wishes to contend that the documents sought do not in fact relate to any matter in issue in the proceedings, or that the defendant should for some other reason such as oppression be relieved from compliance with it, then the defendant must apply under r 21.11. But as the remedy for production for failure to comply with a notice is an order for production under Civil Procedure Act, s 68 - the provisions of the former rules providing for such an order on default of a notice having been superseded by that section - and as on an application under Civil Procedure Act, s 68 the Court has a discretion as to whether or not to make an order for production, the Court would not likely make an order for production to enforce a notice if it appeared on argument that the notice did not validly invoke UCPR r 21.10 or was otherwise an abuse of process. 41Ultimately, only two paragraphs of the notice remained in contention. Paragraph 6 sought production of the following: Copies of the "records of LES" and "LES' accounts" referred to at paragraph 97(b) of the Affidavit. 42The affidavit referred to was that of Lyall Maxwell McLachlan sworn 15 August 2014, paragraph 97(b) of which was as follows:- From my own review of the records of LES, I too can find no proper documentation to support the claim. Since LES has no documentation in relation to the alleged advances by GEPL to LES in the amount of $853,864.40 these amounts have been removed from LES' accounts. 43Paragraph 6 of the relies on UCPR r 21.10(1)(a). The defendants submitted that the first sentence did not refer to a document, but the absence of a document, and as the plaintiffs did not press for production of the "records of LES" referred to in the first sentence, I need not resolve that issue. 44As to the reference to "LES' accounts", guidance is to be gained from the decision of the Court of Appeal in Quilter v Heatly, in which the pleading contained the following: 13. On or about the 30th of April, 1881, the Plaintiff carried over the said 8,924 shares in his books to the account of the said John Morris, the Defendant, and himself. 45The defendant served a notice to produce for inspection, inter alia: 3. Books of Plaintiff mentioned in par. 13. 46Although the main issue was whether such a notice could be given by the defendant before filing a defence (it being held that it could be so given), Jessel MR in the Court of Appeal said (at 49): There must be an order for production of items 2, 3 and 5, with the usual liberty to seal up such parts of the books as do not contain the entries referred to by the Plaintiff in his statement of claim. 47Thus the reference in the pleading was taken to be a reference to the relevant entries in the books. Similarly, the reference in paragraph 97(b) of Mr McLachlan's affidavit is a reference to the entries in the accounts which effected the removal of the sum mentioned, and the plaintiffs are entitled to have the accounts, to the extent of those entries, produced. 48The order for production in respect of the notice will thus require production (only) of those entries. That will presumably be effected in due course by the production, to the extent necessary, of extracts from the accounts, if necessary, with irrelevant material masked. 49Paragraph 10 of the notice sought production of the following: Copies of the following documents in respect of the first defendant: a. Taxation returns for the financial years ending 30 June 2011 to 30 June 2014; b. Business Activity Statements for the period 1 July 2011 to 30 June 2014; c. In relation to the period 1 January 2011 to date: i. All financial statements or accounts; ii. All profit and loss statements or accounts; iii. All balance sheets; iv. All statements of assets and liabilities; v. All ledgers (including any general ledger, creditors ledger and debtors ledger); vi. All bank reconciliations; vii. All MYOB records; viii. All budgets; ix. All minutes of board meetings; x. All resolutions of directors. 50On 8 May 2014, the plaintiffs caused to be issued a subpoena for production addressed to the Commonwealth Bank of Australia which required production of, inter alia, the following: Copies of the following financial records of Lloyd including but not limited to: Taxation returns for the financial years ending 30 June, 2011 to 30 June, 2013 inclusive; Business Activity Statements for the period 1 July, 2011 to 1 January, 2014 inclusive; In relation to the period 1 January 2011 to 31 March, 2014 or any period within: Any statements of profit and loss; Any statement of assets and liabilities; and Any ledgers; 51By notice of motion filed on 15 May 2014, the first defendant applied pursuant to UCPR r 33.4 to have that subpoena set aside. The first defendant argued that par 2 of the subpoena was an abuse of process because it sought to circumvent the Practice Note, by seeking from a third party documents which were ordinarily in the possession or power of the first defendant before the conditions of the Practice Note were satisfied. On 11 July 2014, Registrar Musgrave ordered that par 2 of the subpoena be set aside. The Registrar's reasons were: 22. Category 2 seeks copies of tax returns, business activity statements, profit and loss accounts, statement of assets and liabilities and ledgers of any kind of Lloyd. That material seems to me to be a substitute for discovery in the sense discussed above. The documents sought have been created solely at the instance of Lloyd for its purposes. As such, this category should be set aside. 52As I understand the Registrar's reasons, read in the context of the defendants' submission and an earlier reference in the reasons to the Practice Note, they were in substance that par 2 of the subpoena was an attempt to outflank the Practice Note by seeking from a third party documents which would ordinarily be sought by way of discovery from a party, before the parties had served their evidence. 53The plaintiffs filed a notice of motion for review of the registrar's decision, but at least so far have not prosecuted it. Before me, the defendants' argument was that the notice was, in this respect, but another attempt to evade the Practice Note. In essence, the defendants' objections to par 10 were that (1) it did not seek production of a "specific document ... clearly identified", but a generic class of documents; and (2) it amounted to an attempt to circumvent the requirements of the Practice Note. 54Paragraph 10 of the notice relies on subrule (b). In my view, it seeks discovery of classes of documents, not specific documents. Although subparagraphs (a) and (b) are perhaps less clearly offensive in this respect, subpar (a) requires "taxation returns for the financial years ending 30 June 2011 to 30 June 2014". If it were desired to require production of specific documents, the notice should have referred to "the first defendant's taxation return for the financial year ending 30 June 2011" and "the first defendant's taxation return for the financial year ending 30 June 2012" and so on. That would then have identified specific documents. Subpar (a) as framed does not do so. Similarly, subpar (b) refers to "Business activity statements for the period 1 July 2011 to 30 June 2014". That fails to identify a specific document. 55Subpar (c) is significantly more defective, in calling for "In relation to the period 1 January 2011 to date all financial statements or accounts, all profit and loss statements or accounts, all balance sheets, all statements of assets and liabilities, all ledgers including any general ledger, creditors' ledger and debtors' ledger", and so on. Use of words such as "all" or "any" in a description of documents in a UCPR r 21.10(1)(b) notice is dangerous, because it tells against identification of a specific document as the rule requires. 56Accordingly, in my view, UCPR r 21.10 was not validly invoked in respect of paragraph 10, and the order for production to be made in respect of the notice will not include paragraph 10. 57However, the argument about that paragraph was essentially one of timing and methodology, and not of relevance. It was a complaint that the subject documents should have been sought by inclusion in the categories of documents for discovery, rather than pursuant to a UCPR r 21.10 notice. The relevance of the documents in question has never been in issue, not even when similar documents were sought by subpoena from the Commonwealth Bank. As the relevance for the documents in question appears, at least for the most part clear, it seems to me that in the interests of the just, expeditious and economical resolution of the proceedings, the documents which were sought in paragraph 10 should be covered by the order for discovery as additional subcategories of paragraph 1, conditioned by the same additional condition to which I have referred to limit them by relevance to a fact in issue. The statement of claim 58Although no application has been made concerning the statement of claim, it was necessary for the court to review it in order to appreciate what were the real issues in the proceedings. It became clear that the statement of claim signally fails to comply with UCPR r 14.9, by not setting out the effect of the terms of the documents to which it refers, but merely purporting to incorporate them by reference. UCPR r 14.9 requires that if any documents are referred to in the pleading, the effect of the document must, so far as material, be stated. It is not permissible simply to refer to a document and "rely upon the terms ... for their full force and effect but incorporate, as if fully set out herein, the following clauses". 59While the defendants have taken no objection to the pleading in this respect, pleadings are also for the use of the Court. On reading this statement of claim, the Court is quite unable, without referring to the documents in question, to understand what is being alleged. For that reason, I will strike out the offending paragraphs of the statement of claim with leave to re-plead. Costs 60On the motion both parties have had a measure of success. Most of the categories of discovery sought by the plaintiff were allowed, but at least three on which significant time was spent - being paragraphs 1(k), 1(l) and paragraph 2 - were not. Moreover, the scope of virtually the whole of paragraph 1 was limited by the imposition of the additional condition about relevance to the issue of ability to pay. While it is correct that some time was spent on subcategories 1(d) (the China project) and 1(e) (the Cyprus project), acceptance that some documents in those categories would be relevant was very substantially moderated by the imposition of the additional condition which would exclude many others. 61In my view a very substantial contributing factor to the necessity for the motion was the failure of the drafter of the categories of discovery to describe documents in a way that related them to a fact in issue in the proceedings, a matter which has now so often been the subject of comment by the court that it should be notorious. 62There will be no order as to costs of the motion, to the intent that each party bear their own costs. Orders 63It was for the foregoing reasons that, on 26 September 2014, the Court ordered that: (1)The first defendant give discovery to the plaintiff of: (a)the documents described in paragraphs 1(a) and (b) of the letter dated 29 August 2014 from Russells to Bridges ("the letter"); (b)the documents described in paragraphs 1(c) to 1(j) and 1(m) of the letter and paragraph 10 of the plaintiff's notice to produce for inspection dated 29 August 2014 ("the notice") insofar as they are relevant to the issue whether the first defendant had the ability to pay all or part of the moneys due to the first plaintiff or the second plaintiff under the loan agreement pleaded at paragraph 5 of the statement of claim filed 24 February 2014 and/or the deed of deferral pleaded at paragraph 14 of the statement of claim; (c)the documents described in paragraph 3 of the letter. (2)For the purposes of UCPR r 21.3(3)(b), the period within which the first defendant must comply with UCPR r 21.3(1) in respect of order 1 is 10 October 2014. (3)For the purposes of UCPR r 21.5(2), the period within which the defendant must produce for inspection the documents discovered is 10 October 2014. (4)The first defendant produce to the Court by 3 October 2014: (a)the documents described in paragraphs 1 to 5 and 7 to 9 of the notice; (b)the entries in the first defendant's accounts referred to in paragraph 97(b) of the affidavit of Lyall Maxwell McLachlan sworn 15 August 2014. (5)The parties have access to the documents produced pursuant to order 4. (6)The plaintiff's motion filed 9 September 2014 be otherwise dismissed. (7)Paragraphs 6, 12, 15, 23, 25, 45 and 47 of the statement of claim be struck out with leave to re-plead. ********** 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: 17 October 2014