FEDERAL COURT OF AUSTRALIA

Khoury v Sidhu (No. 2) [2010] FCA 1320

THE COURT ORDERS THAT:

1.    The respondents are given leave to amend their Defence in terms of the proposed Amended Defence described as version 2 other than by paras 73 to 81 of the proposed Amended Defence.

2.    The respondents have leave to file the affidavit of Denis Bryant Stephenson sworn 28 May 2010 and rely upon the affidavit as evidenceinchief of that witness in the respondents’ case.

3.    The respondents have leave to file the affidavit of Baldev Singh Sidhu sworn 31 May 2010 and rely upon the affidavit as evidenceinchief of that witness in the respondents’ case.

4.    The respondents shall file and serve an Amended Defence by Monday, 6 December 2010.

5.    The applicants have leave to amend their Reply by filing and serving an Amended Reply by Monday, 20 December 2010.

6.    The applicants have leave to issue a subpoena directed to Mr Denis Bryant Stephenson in the form annexed marked “A” to the notice of motion dated 12 July 2010 subject to the following amendments to the schedule to the subpoena: (a) at para 1.1 the reference to “in relation to the respondent’s advances to Monty Khoury” shall be deleted and replaced with the words “in relation to the contended advances by the second and third respondents”; (b) at para 1.2 the reference to “the deed between the respondents and Monty Khoury” shall be deleted and replaced with the words “the deed between the second and third respondents and Monty Khoury”; (c) at para 1.3 the reference to “the telephone conversation with the first application [applicant] referred to at paras 16 to 21” shall be deleted and replaced with the words “the telephone conversation between Manuel Khoury and Mr Denis Bryant Stephenson on 7 November 2008”; (d) at para 2 of the schedule the word “made” be inserted after the word “communications”; and (e) at the third paragraph of the schedule marked as para 2 but which ought to be marked para 3, the word “made” be inserted after the word “communications”.

7.    The applicants shall provide further discovery in accordance with the Federal Court Rules of all documents within their possession, custody and power relating to: (a) dealings between the applicants and Mr Monty Khoury relating to a deed of loan between them and Monty Khoury dated 9 September 2008, caveat 711914004 dated 10 September 2008 and the realisation, sale and transfer of the land over which the above caveat was lodged; (b) the right of indemnity of the applicants against Monty Khoury or the land the subject of caveat 711914004 dated 10 September 2008 in relation to monies paid or payable by the applicants to the second and third respondents; and (c) the documents contained on the files of “River Legal” and Helen Boyd, Solicitor, relevant to the issues between the parties in these proceedings including documents relevant to the matters described in paras (a) and (b) above.

8.    The parties will be invited to submit a schedule of proposed orders for the conduct of the matter to trial which will address the filing and serving of any further affidavits to be relied upon by the applicants, any further affidavits in response by the respondents and any further affidavits in reply by the applicants.

9.    Counsel for the parties are to provide the Court with an indication of their availability generally so that trial dates might be allocated for the hearing of the matter as soon as possible and with a view to crafting any further directions orders having regard to allocated trial dates.

10.    The costs of and incidental to the notice of motion of the respondents and the costs of and incidental to the applicants’ notice of motion are reserved for further determination upon submissions being made by the parties.

11.    The parties shall lodge submissions (if any) in relation to costs and the question of costs will be decided on the papers unless a party wishes to be heard orally on that issue in which event arrangements will be made for the hearing of oral submissions at a directions hearing.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court’s website.

REASONS FOR JUDGMENT

Background

1    In the principal proceeding, the applicants Manuel Khoury and Samira Khoury (“Mr and Mrs Khoury”) seek orders for the payment of compensation by the respondents of amounts of principal and interest they paid to the second and third respondents, Alliance Capital Corporation Pty Ltd (“ACC”) and Queensland Direct Finance Pty Ltd (“QDF”) to secure the release of a mortgage they gave to those companies on the basis, they contend, of reliance upon representations as to future matters made by the first respondent, Mr Sidhu, as director of ACC and agent of QDF.

2    The applicants contend that those representations are misleading or deceptive or likely to mislead or deceive in contravention of s 52(1) of the Trade Practices Act 1974 (Cth) (TP Act”) and s 12DA(1) of the Australian Securities and Investments Commission Act 2001 (Cth) (the “ASIC Act”). The applicants rely upon the presumption contained in s 51A of the TP Act and s 12BB of the ASIC Act as neither corporation, it is said, had reasonable grounds for making the pleaded representations. Those representations concern the indebtedness of Mr and Mrs Khoury’s son, Mr Monty Khoury, to QDF and ACC at 8 September 2008 (the date of the contended representations); a contemplated arrangement between the companies and Monty Khoury to discharge the debt within a short time of that date; and the provision by Mr and Mrs Khoury of a short term mortgage of their property as interim security pending Mr Sidhu completing arrangements for a new loan to Monty Khoury from another company so as to discharge the debt to ACC and QDF.

3    The orders for compensation are sought “pursuant to section 87” which presumably means s 87(1), s 87(1A) and s 87(2)(d) of that Act, and s 12GM of the ASIC Act in reliance upon s 12GM(1), s 12GM(2) and s 12GM(7)(e). No claim is made under s 82 of the TP Act for recovery of the amount of the contended loss suffered in contravention of s 52 of the TP Act. Nor is any claim made under s 12GF (the equivalent of s 82) of the ASIC Act. The relief is framed solely in terms of compensatory orders under s 87 of the TP Act and s 12GM of the ASIC Act. It follows, so the applicants contend, that leave ought not to be granted to the respondents to amend their defence to plead facts directed to contributory negligence on the part of Mr and Mrs Khoury as s 82(1B) has no field of operation beyond a claim made under s 82 of the TP Act (with parallel limitations under the ASIC Act provisions: s 12GF and s 12GF(1B)). Nor should the respondents be granted leave, it is said, to plead matters of proportionate liability on the part of others (non-parties) as Mr and Mrs Khoury’s claim is not an “apportionable claim” for the purposes of Pt VIA of the TP Act because their claim is not “a claim for damages made under s 82” of the TP Act for the relevant loss nor an apportionable claim under s 12GP of the ASIC Act.

4    The central contentions of the applicants are denied by the respondents. It will be necessary to further consider the scope of the controversy to determine aspects of the interlocutory applications now before the Court.

5    The proceeding was set down for trial for three days in June this year. In May, the respondents appointed Plastiras Lawyers to represent them in the litigation in place of Anderssen Lawyers. In late April 2010, Mr Andrew Lyons of counsel was appointed to represent the respondents as their former counsel had been appointed to the Land Court of Queensland. Mr Lyons advised the respondents that the defence ought to be amended in the manner suggested by a proposed “amended defence”. Particulars of the amended defence were formulated and served. These documents were provided to the lawyers for the applicants a few days before the trial was due to commence. In addition, the respondents served the applicants with an affidavit of Mr Denis Bryant Stephenson and a further affidavit by Mr Sidhu, a few days prior to the trial.

6    The trial of the action was listed before Justice Logan. Mr Denis Stephenson is a partner of Anderssen Lawyers. He acted for the respondents in their dealings with Mr Monty Khoury and Mr and Mrs Khoury the subject of these proceedings.

7    A conversation Mr Stephenson is said to have had with Mr Monty Khoury is pleaded at para 19 of the statement of claim. Mr Stephenson denies the conversation. His affidavit swears to the denial. A credit question thus arose. Justice Logan disqualified himself from hearing the trial having regard to his Honour’s association over a lengthy time with Mr Stephenson and his family. The trial dates were vacated.

8    The respondents by notice of motion seek leave to amend their defence in accordance with “version 2” of the proposed amended defence. They seek leave to file and rely upon the affidavits of Mr Stephenson and Mr Sidhu sworn 28 May 2010 and 31 May 2010 respectively. They seek an order that the applicants provide further discovery directed to three topics. The applicants resist all orders sought by the respondents on the motion. The applicants seek leave to issue a subpoena to Mr Stephenson to produce his file (not just the particular documents produced by Mr Stephenson) on the footing that the respondents have waived their privilege, as clients, in the file documents by seeking to rely upon Mr Stephenson’s affidavit. Although sometimes misunderstood, it should be remembered that legal professional privilege is, of course, the client’s privilege and not that of the lawyer. The applicants also seek directions as to aspects of pleadings and seek leave to file further evidence on their part.

The statement of claim

9    The contentions of the applicants are these.

10    Mr and Mrs Khoury plead, and the respondents, admit that by August 2008 Monty Khoury was indebted to QDF for $300,000.00 and ACC for $200,000.00 arising out of unpaid commercial loans made in November 2007 and February 2008. Those loans were secured, by August 2008, by a deed of guarantee and indemnity, four registered mortgages and a caveat given or granted by Monty Khoury either in his own right or in his capacity as trustee of particular trusts.

11    The central representations are these.

12    On 8 September 2008 Manuel Khoury, Monty Khoury and Jack Sidhu met and at that meeting Mr Sidhu represented to Manuel Khoury that Monty Khoury had to pay QDF and ACC only $230,000.00 in order to discharge his obligations under a previous loan [the advances]; $40,000.00 [of that] would be paid out of the sale of a property at Victoria Point; if the Khourys provided a mortgage [of their property at 4 Karen Street, Cleveland] for the remaining $190,000.00, Monty Khoury would pay [the respondents] within a few weeks [the balance $190,000.00] from an advance to be arranged by Mr Sidhu from another company; once paid, Monty Khoury’s debt would be discharged, the mortgages released and the caveat removed; and, if the Khourys provided a mortgage, they would not be required to pay interest for several weeks: para 10.

13    On 10 September 2008, the Khourys executed a mortgage in reliance on the representations over their property in favour of QDF (three-fifths interest as mortgagee) and ACC (two-fifths interest): paras 11 and 12.

14    The respondents had no reasonable grounds to make the representations: para 17.

15    The second pleaded group of statements are these.

16    In July 2008, Mr Sidhu told Mr Monty Khoury that if additional security was given in relation to the QDF and ACC loans, Mr Sidhu would arrange a further advance of $500,000.00 and in July 2008 Mr Stephenson told Mr Monty Khoury by telephone that $500,000.00 would be transferred to Monty Khoury’s account within forty-eight hours of mortgage security documents being signed: paras 18 and 19.

17    Monty Khoury executed the four mortgages (pleaded earlier) as requested by Mr Sidhu and Mr Stephenson: para 20.

18    After the execution of the mortgages by Monty Khoury, Mr Sidhu failed to arrange and advance of $500,000.00; no monies were transferred; and Mr Sidhu departed to Malaysia and was uncontactable thereafter: para 21.

19    On 10 September (the same date on which the Khourys executed the mortgage), Monty Khoury, QDF and ACC entered into a deed: para 13.

20    That deed recites that Monty Khoury had requested QDF and ACC to accept the proceeds of sale of a property at 35 Waterville Drive Thornlands in full settlement of all monies owed to QDF and ACC subject to the total debt to the first mortgagee of that property not exceeding $380,000.00 and Monty Khoury paying by 25 October 2008 $230,000.00 to Anderssen Lawyers on behalf of the respondents. Recital A recites that Monty Khoury had represented the value of the property to be $750,000.00. On the face of the Recitals only, the net value of the property after the first mortgage’s interest was $370,000.00 and the contemplated payments constituted $600,000.00 ($370,000.00 plus $230,000.00).

21    The applicants plead that by cls 1.1, 1.2 and 4.5 of the deed Monty Khoury was required by 25 October 2008 to pay Anderssen Lawyers $230,000.00; provide QDF and ACC with a letter acceptable to them from the first mortgagee that its secured interest did not exceed $380,000.00 and deliver up the Thornlands property to QDF and ACC, in order to obtain a release and discharge of all obligations and the discharge of all securities: para 24.

22    After the execution of the deed and the Khourys’ mortgage, no steps were taken to arrange a further advance of $500,000.00 and the respondents had no intention of arranging such an advance: paras 22 and 23.

23    The representations pleaded at para 10 were misleading because the conditions of the Deed at cls 1.1, 1.2 and 4.5 applied [before a release and discharge arose]; the conditions had to be satisfied by 25 October 2008 failing which no release and discharge arose; Mr Sidhu knew the release and discharge was conditional on those matters; the respondents knew that in the absence of the further advance the conditions could not be met; the respondents had no intention of making a further advance; and the likely and intended effect of the deed and the Khourys’ mortgage was to give QDF and ACC further security of $190,000.00 in circumstances where the obligations under the deed were never likely to be met: para 25.

24    Had the Khourys known the true position, that is, that no further loan was intended to be made and conditions applied (to be satisfied by 25 October 2008) to a discharge and release of Monty Khoury’s obligations (and the securities), the Khourys would not have executed the mortgage [that is a “no transaction” contention] or they would have borrowed funds and taken steps to ensure that the conditions governing release and discharge of Monty Khoury’s obligations were met thus ensuring all securities were discharged: para 29.

25    The conditions were not met by 25 October 2008. The Khourys paid interest of $11,500.00 to QDF and ACC and borrowed $190,000.00 from the Commonwealth Bank to pay to QDF and ACC to discharge the mortgage over their property: paras 31 and 33.

The existing defence

26    The respondents deny making the 8 September 2008 representations.

27    They say Monty Khoury sought by letter dated 22 August 2008 a compromise of his debts; QDF and ACC were prepared to consider a compromise if properly documented and supported by securities; enquiries were made of Monty Khoury of the security he could provide if QDF and ACC released a mortgage they held over a property at 161 Coleburn Avenue, Victoria Point; Monty Khoury told Mr Sidhu that his parents would provide a mortgage over their Cleveland home to secure Monty Khoury’s debts; and, on 10 September 2008 the Khourys executed and delivered the mortgage to Anderssen Lawyers and Monty Khoury signed and delivered to Anderssen Lawyers the deed of compromise: para 10.

28    The respondents did not plead to reliance on the footing that reliance concerns a state of mind of the applicants.

29    As to the July 2008 statements, the respondents deny telling Monty Khoury that if additional security was given for the loans made by QDF and ACC, Mr Sidhu would arrange a further advance of $500,000.00 and say that they were seeking, prior to the compromise request of 22 August 2008, additional security for the existing advances: para 18.

30    The respondents deny the allegation concerning Mr Stephenson: para 19.

31    The respondents deny that Monty Khoury executed the four mortgages “as requested by Mr Sidhu and Mr Stephenson” as the first mortgage was executed in November 2007 at the time of the QDF advances (Mortgage No. 711483289) and the second mortgage was executed in February 2008 at the time of the ACC advance (Mortgage No. 711498256). The third and fourth mortgages (Nos. 711782641 and 711782644) were executed by Mr Chen under a power of attorney given by Monty Khoury and those securities were given over two properties (35 Waterville Road, Thornlands, and 161 Coleburn Avenue, Victoria Point), as additional security for the QDF and ACC loans: para 20.

32    As to the refusal to make further advances after the execution of the pleaded mortgages the respondents say that the first two securities provided the basis for the two advances giving rise to the unpaid commercial loans; no further advances were made after execution of the third and fourth mortgages; no obligation arose to arrange any further advances; and although Mr Sidhu departed overseas, he remained contactable: para 21.

33    Similarly, the respondents contend that after the execution of the Deed by Monty Khoury and the mortgage by Mr and Mrs Khoury on 10 September 2008, no further advances were made to Monty Khoury or arranged, as the respondents were under no obligation to do so: para 22.

34    The respondents deny the representations and the contentions of misleading conduct based on the conditions of the Deed and an active intention not to make a further advance: para 25.

35    As to the position Mr and Mrs Khoury would have taken of not executing the mortgage or, alternatively, of borrowing funds or taking steps to ensure compliance by Monty Khoury with the conditions of the Deed, had they known the “true position” that no further loan was intended to be made and that conditions applied to Monty Khoury securing a discharge of his obligations and a release of securities, the respondents elected not to plead to the state of mind of the applicants: para 29.

36    The respondents admit that Mr and Mrs Khoury paid interest of $11,500 to QDF and ACC and $190,000 on 10 February 2010 to those companies.

The Reply

37    By the Reply, the applicants contend that no request was made by Monty Khoury on 22 August 2008 as alleged or at all. The applicants do not admit that any letter was sent to River Legal Lawyers on or about 29 August 2009 or otherwise. The applicants deny that Monty Khoury told Baldev Sidhu that his parents were willing to provide a mortgage over their home. Otherwise, the applicants do not admit particular matters, deny others and generally join issue with the Defence.

The amendments to the Defence

Proposed paragraphs 10A and 10B

38    Mr and Mrs Khoury say they were misled by the pleaded representations by reason of the conditions of the Deed constraining a release and discharge of the debt and securities. The proposed paras 10A and 10B plead the submission of drafts of the Deed containing the relevant clauses to the applicants and their lawyers. The amendments are directed to the applicants’ knowledge of the conditions in the Deed and reliance. Leave will be given to plead paras 10A and 10 B.

39    Consistent with the denial of the representations at para 10, the respondents seek leave to affirmatively plead a denial of reliance rather than plead to reliance as simply a state of mind of the applicants. An affirmative denial is consistent with a denial of the representations. Leave is given to plead affirmatively to that matter.

Proposed paragraphs 12A, 12B and 12C

40    By paras 12A, 12B and 12C, the respondents seek to plead that prior to Mr and Mrs Khoury executing the mortgage on 10 September 2008, the applicants received legal advice in relation to the Deed and the mortgage to be given by them. The respondents plead the source of the legal advice; the provision to the respondents by the applicants of an Independent Solicitor’s Certificate signed by them and Ms Helen Boyd, solicitor, of 10 September 2008 concerning the proposed deed that became the executed Deed and the Khoury mortgage; the content of the Certificate; and the advice given to Mr and Mrs Khoury. These paragraphs are also directed to the state of knowledge of Mr and Mrs Khoury of the conditions of the Deed and the obligations contained in the mortgage to be signed by them, as explained to them, and whether they elected to enter into the mortgage with eyes wide open rather than in reliance on contended conduct on the part of the respondents. The making of the representations is denied and reliance is in issue. These paragraphs plead affirmative facts going to those issues. Leave will be given to amend the defence to plead paras 12A, 12B and 12C.

Proposed paragraph 14

41    The proposed amendment to para 14 introduces an admission that if the representations were made (which is denied), they were made in trade or commerce. Leave to so amend is given.

Proposed paragraph 23

42    By para 23, the respondents seek to plead affirmatively to the allegation that they had no intention of arranging a further advance to Monty Khoury as represented by Mr Sidhu to Manuel Khoury on 8 September 2008 (denied by the respondents) rather than simply plead that they “deny the allegations and the inferences relied upon”.

43    The respondents admit that at the time of the meeting on 8 September 2008 and the execution of the Deed [on 10 September 2008], Mr Sidhu did not intend to arrange an advance within a few weeks to Monty Khoury from another company; deny that at the time of the meeting on 8 September 2008 and the execution of the Deed they had no intention of removing the caveat [Caveat No. 711827106 lodged over Lot 1 RP 176650 – a Mt Cotton property registered in the name of Monty Khoury as trustee for the AJMK Trust]; and, assert that the respondents intended on 8 September 2008 and 10 September 2008 to deliver a withdrawal of caveat to Monty Khoury if the conditions of the Deed were satisfied by him.

44    These matters are already in issue. The proposed amended pleading simply affirmatively pleads facts within the scope of the controversy but pleaded more precisely.

Proposed paragraph 25

45    By para 25, the respondents seek leave to amend the defence to admit the allegations of fact contained within four subparagraphs of para 25 and expand the existing denial by making plain that the allegations contained in para 25 are denied on the footing that the representations pleaded in the statement of claim were not made. Leave will be given to make the proposed amendments.

Proposed paragraph 29

46    As to the pleading of what Mr and Mrs Khoury would have done had they known the “true position” under the Deed and mortgage, the respondents seek leave to depart from their pleading that these matters simply go to the state of mind of the applicants and seek to affirmatively plead these matters: a denial that the applicants would have taken either course; an assertion that Mr and Mrs Khoury would have granted the mortgage even if they had known the truth of the matters they plead as the foundation of their misled belief or no representations had been made; and an assertion that, if the allegations that the respondents knew Monty Khoury could not meet the conditions of the Deed without another loan and the effect of the Deed would be to give access to the security of the applicants, are true (although denied), and, assuming the applicants had borrowed funds (as they contend), then they would, in any event, have suffered the loss they now claim because Monty Khoury would not have been able to repay to his parents the monies they might have borrowed or the interest on or the borrowing costs of those funds.

47    In other words, the respondents contend that Mr and Mrs Khoury would have provided assistance to their son by granting the mortgage in any event and would have suffered the loss they now seek to recover as Monty Khoury would not have been able to make good any repayment to them.

48    These matters, ultimately, are simply an expansion of the contention that the applicants did not rely upon any contended conduct of the respondents and that the conduct of the respondents is not a cause of the loss now claimed.

49    Leave will be given to amend para 29 in the terms formulated in the proposed amended defence.

Proposed paragraphs 34 to 42

50    By paras 34 to 42, the respondents seek leave to plead facts directed to the question of whether the applicants suffered the loss they now claim as the subject of a compensation order. The facts are these.

51    The respondents contend that on 9 September 2008 the applicants entered into a Deed of Loan with their son by which Monty Khoury granted a charge in their favour over Lot 5 on SP192379 and agreed to pay them any monies that were paid or became payable by Mr and Mrs Khoury to QDF or ACC, from time to time. On 10 September 2008, the applicants lodged a caveat over the title claiming a caveatable interest as mortgagee based on the Deed of Loan. On 4 November 2008, Monty Khoury settled the sale of Lot 5 to Ms Lim. The applicants’ caveat was withdrawn on 4 November 2008. The applicants received part of the proceeds of sale. Copies of the caveat reciting the Deed of Loan, an historical title search of Lot 5 and the transfer to Ms Lim recording the consideration for the sale are exhibited to the affidavit of Ms Lucinda Kasmer, the solicitor for the respondents, filed 24 June 2010.

52    The respondents say that if the pleaded representations are true (although denied) then Mr and Mrs Khoury were induced to enter into the Deed of Loan with Monty Khoury and lodge the protective caveat, by the pleaded representations. The respondents say that if the applicants have suffered the loss they claim, they failed to mitigate the loss by failing to exercise their entire rights against Monty Khoury out of the proceeds of sale of Lot 5 (and otherwise).

53    These paragraphs affirmatively plead matters going to the amount of the loss said to have been suffered by reason of the contravening conduct. Leave will be given to plead paras 34 to 42.

54    The proposed para 43 contains a denial of allegations not otherwise admitted.

55    Paragraph 44 introduces into the pleading further facts in answer to the applicants’ allegations if found to be true. The first group of proposed paragraphs (45 to 47) concern the extent to which the applicants by their conduct contributed to the loss they now claim.

Proposed paragraphs 44 and 45 to 47

56    By those paragraphs, the respondents say that Mr and Mrs Khoury would have suffered the claimed loss because they would have granted the mortgage in any event and would have done so whether or not they knew the truth of the relevant matters, and the applicants suffered the claimed loss partly as a result of their failure to take reasonable care to protect their economic interests because: they failed to read the draft Deed and cl 1.1 of the mortgage enclosed with the letter to them of 8 September 2008 and letters to their lawyers of 8 September 2008 and 9 September 2008, and cl 1.1 of the mortgage; they failed to heed the advice of Ms Boyd that if $190,000 was not repaid by 24 October 2008, Mr and Mrs Khoury would be responsible for that sum plus interest at the rate of 1% per month plus costs and expenses; they failed to heed the advice of Ms Boyd and another solicitor as to the effect of the draft Deeds enclosed in the relevant letters; they failed to ensure that the making of the contended further advance (para 10.3 of the representations) was reduced to a binding written commitment in the applicants’ mortgage or the Deed or otherwise; they failed to satisfy themselves that Monty Khoury could fulfil the conditions of the Deed; and they failed to take sufficient security from Monty Khoury to cover any monies they might pay, or be required to pay, to the respondents under their mortgage.

57    It follows, the respondents say, that the loss and damage recoverable by the applicants against them ought to be reduced to the extent to which the Court thinks appropriate.

58    The applicants contend that leave ought not to be given to plead these matters as these facts do not give rise, as a matter of law, to a ground (or even an arguable ground) on which the amount of the loss suffered by the applicants might be reduced especially having regard to the decisions of the High Court in Henville v Walker (2001) 206 CLR 459 and I & L Securities v HTW Valuers (2002) 210 CLR 109. That result follows, it is said, because the claim is one for compensation under s 87 of the TP Act and s 12GM of the ASIC Act and the considerations arising under s 82(1B) of the TP Act concerning a claim made under s 82 of that Act, and s 12GF(1B) concerning a claim under s 12GF of that Act, have no application in the exercise of the discretion conferred under s 87(1), s 87(1A) or s 87(2)(d) of the TP Act or ss 12GM(1), 12GM(2) or 12GM(7)(e) of the ASIC Act.

59    That question will be examined by reference to the TP Act provisions. The same considerations govern the parallel provisions of the ASIC Act.

60    The TP Act was amended in 2004 after the decisions of the High Court in Henville v Walker and I & L Securities v HTW Valuers so as to introduce a scheme of proportionate liability concerning claims made under s 82 in relation to economic loss or damage to property caused by conduct of another person in contravention of s 52: Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004 (Cth). By that Act, s 82(1B) was inserted into the TP Act. Section 82, of course, provides for a particular formulation of the right of action. By s 82(1) “a person who suffers loss or damage by conduct of another person that was done in contravention of a provision of Part IV, IVA, IVB or V or section 51AC may recover the amount of the loss or damage” by action against that person or those involved in the contravention. Section 82 is cast in broad terms, is unconfined by analogues drawn from the common law and is capable, by its terms, of being adapted to accommodate approaches to the assessment of damages that provide proper compensation in all circumstances provided the particular approach serves the purpose of doing justice and equity in the circumstances of the case: North East Equity v Proud Nominees [2010] FCAFC 60; (2010) 269 ALR 262 at [124] (and the authorities noted at that paragraph).

61    Section 82(1B) provides that despite subsection (1), if a person makes a claim in relation to economic loss or damage to property caused by conduct of another person that was done in contravention of s 52 (that is, one specific provision of one Part) and the claimant suffered the loss or damage as a result partly of the claimant’s failure to take reasonable care and partly of the conduct of that other person, the damages the claimant may recover in relation to that loss are to be reduced to the extent to which the Court thinks “just and equitable having regard to the claimant’s share in the responsibility for the loss or damage”, provided the defendant did not intend to cause the loss or damage and did not fraudulently cause the loss or damage.

62    No claim is made in these proceedings under s 82.

63    In these proceedings, the applicants contend that they suffered loss measured by the payment of interest to QDF and ACC, the loss of $190,000 and the payment of further interest and costs (paid or payable) to the Commonwealth Bank, by conduct of the respondents in contravention of s 52 of the TP Act and they seek to recover the amount of that loss (which might otherwise be characterised as “economic loss”) by action against the respondents for orders under s 87 of the TP Act.

64    By s 87(1), where the Court finds that a person who is a party to a proceeding instituted under Part VI has suffered, or is likely to suffer, loss or damage by conduct of another person engaged in, in contravention of a provision of Part IV, IVA, IVB, V or VC, the Court may, whether or not it grants an injunction under s 80 or makes an order under s 82 (or ss 86C, 86D or 86E), make such order or orders “as it thinks appropriate” against the person who engaged in the conduct (or those involved in the contravention) if the Court considers that the order will compensate the claimant in whole or in part for the loss or damage or will prevent or reduce the loss or damage.

65    Section 87(1A)(a) confers power on the Court upon the application of a person who has suffered or is likely to suffer loss or damage by conduct of another person engaged in, in contravention of Parts IVA, IVB, V or VC, to make such order as the Court thinks appropriate against the relevant person if the Court considers that the order will compensate the applicant, or any persons on whose behalf the application was made, in whole or in part for the loss or damage or prevent or reduce the loss or damage suffered or likely to be suffered by the relevant person or persons.

66    Section 87(2) provides that the orders referred to in subsections (1) and (1A) are those contemplated by paras (a) to (g). The orders that may be made include but are not limited to s 87(2) orders: I & L Securities v HTW Valuers per Gaudron, Gummow and Hayne JJ at [52]. The Court may make such orders as it thinks appropriate upon being satisfied of the compensatory effect required by s 87(1) and s 87(1A) as framed by those sections. Section 87(2)(d) provides for:

(d)    an order directing the person who engaged in the conduct or a person who was involved in the contravention constituted by the conduct to pay to the person who suffered the loss or damage the amount of the loss or damage.

67    Section 87 confers a “very wide” discretion (I & L Securities v HTW Valuers per McHugh J at [106]) to make an extensive range of orders (described by McHugh J in I & L Securities at [117] as a “smorgasbord” of remedies) that serve the statutory purpose of compensating the claimant in whole or in part for the loss or damage suffered by conduct in contravention of the relevant provision of the identified Parts, or orders that will prevent or reduce the loss or damage: I & L Securities per Gaudron, Gummow and Hayne JJ at [52] and [53]. The phrase “in whole or in part” does not suggest that the combination of orders that a court makes under s 87 should do less than “provide for the full compensation for all the loss and damage that is not prevented by the making of the court’s orders”: I & L Securities per Gaudron, Gummow and Hayne JJ at [53]; McHugh J at [120]. Nor is there any warrant for construing s 87 as “conferring upon a Court a discretionary power to take away, or modify, the right conferred by s 82” per Gleeson CJ, I & L Securities at [20]. The Chief Justice also observed at [20] that “when regard is had to the wide range of circumstances to which s 87 might apply, it is not necessary to treat the power in s 87 to make an order for part compensation as qualifying s 82 in order to give that power ample scope for practical application”.

68    These proceedings do not involve any question of a discretionary modification of the right conferred upon Mr and Mrs Khoury by s 82. They have chosen not to exercise a remedial right under s 82 and had they done so, s 82(1B) would be expressly in issue. The question to be determined in the case on the footing of the proposed amendments to the defence at least as to this issue, is what order under the power conferred by s 87 will properly compensate Mr and Mrs Khoury for the economic loss suffered by them by conduct in contravention of s 52, or prevent or reduce the economic loss they say they are continuing to suffer (assuming a contravention is made out). An order under s 87 for compensation less than the full amount of that economic loss may, upon the trial of the action, be thought appropriate by the Court having regard to the statutory purpose, as the full measure of a compensatory order. The statutory purpose may be served by recognising that the amount of compensation a court might direct the respondents to pay ought not exceed the amount of the loss or damage Mr and Mrs Khoury may recover had they sought recovery by way of “damages” under s 82 in the light of the considerations required by s 82(1B), provided those matters are made out by the respondents.

69    If the recoverable amount of loss and damage under s 82 is to be reduced by what is demonstrated to be just and equitable having regard to the share of the claimants in the responsibility for their loss, is it appropriate in all the circumstances that the applicants recover a greater amount by order under s 87?

70    In exercising the broad discretion conferred by s 87(1) or s 87(1A) to make an order contemplated by s 87(2)(d) directing the respondents to pay the applicants the amount of the economic loss suffered by reason of conduct in contravention of s 52 “as [the Court] thinks appropriate”, it is arguably relevant, it seems to me, to have regard to the consideration that had the applicants’ claim for recovery of the full amount of the economic loss they suffered by conduct of the respondents in contravention of s 52 been made under s 82, the amount they may recover would be reduced to the extent the Court thinks just and equitable having regard to their share in the responsibility for that economic loss (provided the statutory integers at s 82(1B)(b) and (c) are satisfied). In determining what order might be appropriate under s 87 to compensate the applicants for the amount of the economic loss they suffered (and might further suffer), it is relevant to consider whether the same claim (that is, the substantive elements of the claim notwithstanding that the claim is not made under s 82) if framed under s 82 would be susceptible of just and equitable reduction having regard to Mr and Mrs Khoury’s share in the responsibility for the loss.

71    That consideration arises not because s 87 expressly provides for a reduction of compensation in like terms to that of s 82(1B) adapted to s 87, but rather, the discretion under s 87 is a broad discretion to frame and make orders which provide compensation for the amount of the loss suffered as the Court considers appropriate, in all the circumstances, that is, as justice requires. If recovery of the entire amount of the loss, if made the subject of a claim under s 82, is constrained by the factors discussed, the exercise of the discretion as to whether and if so in what amount, compensation might be payable to the applicants under s 87, for the amount of the same economic loss, ought to take into account as a factor, the extent to which Mr and Mrs Khoury share in the responsibility for that loss.

72    For present purposes, on an application for leave to amend the defence, the question is simply whether the contention that the exercise of the discretion under s 87 is to be informed by the factors discussed, is an arguable contention. I am satisfied that the matter is arguable and that leave ought to be given to plead the facts relevant to that matter. As to these matters generally see Woods v De Gabriele & Ors [2007] VSC 177 per Hollingworth J; cf BHPB Freight Pty Ltd v Cosco Oceania Chartering Pty Ltd (No. 2) [2008] FCA 1656 per Finkelstein J.

73    Accordingly, leave will be given to amend the defence to plead paras 45 to 47 of the proposed amended defence.

Proposed paragraphs 48 to 72

74    By paras 48 to 72 of the proposed amendments, the respondents seek leave to plead facts which are directed to establishing that Monty Khoury is a concurrent wrongdoer in relation to the claim made by his parents and that any liability of the respondents to the applicants ought to be limited to an amount reflecting that proportion of the economic loss for which the respondents are responsible as the Court determines just: s 87CD(1).

75    Part VIA provides for proportionate liability.

76    Part VIA applies to a claim for damages made under s 82 for economic loss or damage to property caused by conduct that was done in contravention of s 52 (an “apportionable claim”). Part VIA limits the liability of a concurrent wrongdoer to an amount reflecting the concurrent wrongdoer’s contribution to the responsibility for the loss or damage as the Court determines just. A concurrent wrongdoer in relation to a claim is a person who is one of two or more persons whose conduct caused, independently of each other or jointly, the loss or damage the subject of the claim. Section 87CD brings about proportionate liability in any proceedings involving an apportionable claim by limiting the liability of that defendant to the proportionate amount the Court considers just having regard to the extent of the defendant’s responsibility for that loss. By s 87CD(1)(b), the Court may give judgment for not more than that amount.

77    There is no claim in these proceedings made under s 82 for damages.

78    Prima facie, Part VIA has no application because s 87CB(1) says that Part VIA “applies to a claim (an apportionable claim) if the claim is a claim for damages made under s 82 for (a) economic loss; or (b) damage to property; caused by conduct that was done in a contravention of section 52” [emphasis added]. The applicants say that since there is no claim for damages made under s 82 of the TP Act, a proportionate limitation upon the liability of the respondents simply has no application.

79    Section 87 is concerned with the conferral of a broad discretion to make orders the Court thinks appropriate (once properly engaged as earlier discussed) if the Court considers that the orders will compensate the claimant in whole or in part for the loss or will prevent the loss or reduce it. The orders that might be made (or the combination of them) direct attention to the loss suffered by the claimant. As already noted, the exercise of a discretion directed to those matters arguably engages contributory conduct of the applicants in isolating the full measure of appropriate compensation to be made to them.

80    However, the following question might well arise. Does the exercise of a discretion directed to orders for claimant compensation also take account of proportionate limitations on liability of those engaged in the contravention (had the claim been made under s 82)?

81    The applicants claim that they suffered economic loss by conduct of the respondents “done in contravention” of s 52. Had that claim for recovery of the amount of the loss or damage so suffered been made under s 82 rather than as a claim for compensation made under s 87, the Court could not give judgment for them against a particular respondent for more than the proportionate amount regarded as a just apportionment to a concurrent wrongdoer having regard to that wrongdoer’s proportionate responsibility for the loss. That limitation under s 87CD applies in proceedings involving an apportionable claim whether or not all concurrent wrongdoers are parties to the proceeding: s 87CD(4).

82    If the amount of the loss or damage recoverable under s 82 (concerning the relevant class of claim) cannot exceed a proportionate determination of what is just having regard to the respondent’s proportionate responsibility for the loss, is it appropriate, in all the circumstances, in the exercise of the discretion in making compensatory orders under s 87, that the applicants recover a greater amount from the relevant respondent than the proportionate limitation had the same claim been made under s 82?

83    A consideration of all the factors going to the exercise of the discretion may result in such an order. However, the limitations upon the power of the Court to give judgment for an amount greater than the just proportion attributable to a relevant defendant in a claim constituting an apportionable claim is, it seems to me, a relevant consideration in exercising the discretion under s 87 in making compensatory orders in respect of the same claim, in substance, although the applicants have chosen to frame that claim other than under s 82 of the TP Act.

84    By paras 48 to 72, the respondents plead facts directed to demonstrating that Monty Khoury is a concurrent wrongdoer. In particular, the respondents plead representations made by Monty Khoury concerning reduction of the debt and the amount secured by the mortgage over the Thornlands property. They plead the meeting of 8 September 2008 relied upon by the applicants; Monty Khoury’s request for the meeting; Monty Khoury’s request of his father to provide a mortgage to QDF and ACC; and Monty Khoury’s knowledge of the effect of the Deed.

85    The respondents plead Monty Khoury’s presence at the meeting when the alleged misrepresentations were made. By particulars to para 10 of the Statement of Claim, the applicants plead that Mr Sidhu made the representations, in part, by adopting words said by Monty Khoury to his father to the same effect as the representations at para 10 by “indicating agreement with Monty Khoury by words and gestures including nods and smiles”. The respondents plead that at no time prior to Mr and Mrs Khoury giving the mortgage did Monty Khoury correct the contended misrepresentations as pleaded at para 10 of the Statement of Claim; nor state the effect of the Deed; nor inform the applicants that no advance was to be made; or tell them that there was a risk that no advance would be arranged by Mr Sidhu within a few weeks.

86    The role of Monty Khoury in the transactions and the events giving rise to the claim lies at the centre of the proceedings on the face of the current pleading. The proposed amendments frame the contention that Monty Khoury was engaged in the contraventions of the TP Act (although the primary allegations made against the respondents are denied) and assert that his role results in a proportionate limitation of the liability of the respondents.

87    Leave will be given to amend the pleading in terms of the proposed paras 48 to 72 in order that all issues raised by the controversy might properly be resolved.

88    In considering the matters raised by the proposed paras 48 to 72 and paras 73 to 81, it will be necessary in final submissions to have regard to questions of construction which take account of the Explanatory Memorandum for the Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Bill 2003 and, for completeness, the Supplementary Explanatory Memorandum in relation to that Bill. The question to be determined at this stage is whether there is an arguable basis for the proposed amendments and I am satisfied that the proposed amendments give rise to an arguable basis upon which the discretion under s 87 might take account of the matters pleaded. In forming that view, I have taken into account the Explanatory Memorandum and the Supplementary Explanatory Memorandum.

Proposed paragraphs 73 to 81

89    By paras 73 to 81 of the proposed Amended Defence, the respondents contend that if Mr and Mrs Khoury suffered economic loss in reliance upon the pleaded representations (para 10) and those representations prove to be misleading because, in part, the applicants did not know the true position concerning the conditional elements of the Deed and the relationship between the Deed and the mortgage, Ms Boyd must have failed to advise them of those matters in breach of her duty of care to do so consistent with the retainer. The respondents say that those breaches caused or contributed to the applicants’ loss. The respondents plead that the loss claimed by the Statement of Claim was a reasonably foreseeable consequence of the breaches and thus it follows that Ms Boyd is a concurrent wrongdoer in relation to the applicants’ claim with the result that the liability of the respondents should be limited to their proportionate responsibility for the loss as determined by the Court to be just taking account of the contribution to the loss caused by Ms Boyd.

90    Section 87CB(3) says that a concurrent wrongdoer in relation to a claim is a person who is one of two or more persons whose acts or omissions caused, independently of each other or jointly, the damage or loss the subject of the claim. A reference to “caused independently of each other or jointly, the damage” is a reference to “a cause” of that damage as s 87CB(3) is concerned with a claim contemplated by s 87CB(1), that is, a claim for economic loss or damage to property caused by conduct that was done in contravention of s 52. The respondents say, in effect, that the exercise of the discretion conferred under s 87 ought to take account of the proportionate limitation on their liability that would have applied had the device of framing the claim under s 87 rather than s 82 not been invoked.

91    Section 87CB(3) contemplates that a concurrent wrongdoer is one of two or more persons whose acts or omissions caused the loss the subject of a claim (made under s 82) for loss caused by conduct in contravention of s 52. Those acts or omissions causing the loss might include acts or omissions giving rise to a breach of duty (as framed in terms of the breach by Ms Boyd). It seems to me, however, that the acts or omissions must be acts or omissions done in contravention of s 52 in order to characterise a person as a concurrent wrongdoer. If the conduct of another is not of that character, the proportionate liability would not arise. If the contention is that the exercise of the broadly conferred discretion under s 87 ought to take account of a proportionate limitation on liability that would have arisen but for the device of framing the claim under s 87, it seems to me that the pleading needs to assert that the “acts or omissions” of Ms Boyd causing the loss involve contraventions of s 52.

92    Since the pleading does not assert that matter, leave is refused to amend the defence in terms of paras 73 to 81 of the proposed Amended Defence.

93    Leave is given to amend the Defence as indicated in these reasons having regard to the matters already discussed but also taking account of these considerations. The trial dates were vacated, in any event, having regard to the credit question which caused Justice Logan to disqualify himself from conducting the trial. The amendments can be made in a way that enables the applicants to take instructions in an orderly way and plead to the Amended Defence. The interests of justice are served by ensuring that all issues a party or parties wish to properly put in controversy are dispositively resolved in the proceeding: s 37M and s 37N, Federal Court of Australia Act 1976; order 13, Federal Court Rules. The proposed amendments are not obviously futile. I am not satisfied that giving leave to amend as foreshadowed would cause substantial prejudice or injustice to the applicants. Consequential directions orders will be made to enable the proceeding to be made ready for the trial of all issues now raised.

The remaining matters the subject of the notice of motion by the respondents

94    By the notice of motion the respondents seek orders for further discovery from the applicants of all documents within their possession, custody or power relating to:

(a)    dealings between them [the applicants] and Mr Monty Khoury relating to the deed of loan between them and Mr Monty Khoury dated 9 September 2008, caveat 711914004 dated [10 September 2008] or the realisation of the land over which that caveat was lodged;

(b)    the value of their right of indemnity against Mr Monty Khoury with respect to monies paid by the applicants to the second and third respondents; and

(c)    the files of River Legal and Helen Boyd Solicitor that are relevant to the issues between the parties, including the dealings related to the matters in (a) and (b).

95    Having regard to these reasons and the grant of leave to amend to raise the matters relating to the deed of loan between Monty Khoury and Mr and Mrs Khoury, documents relating to those matters are relevant to the issues in the proceeding. The applicants ought to provide discovery of those documents in accordance with the directions orders to be made. The applicants ought to give discovery of the documents relevant to the discharge of their interest under the terms of the deed of loan or the release of the caveat in their favour upon sale and transfer of the relevant land.

96    The documents falling with category (c) concern documents relevant to the question of whether the applicants relied upon the pleaded representations or whether they entered into the mortgage with eyes wide open having regard to the advice they were given about the terms and content of the documents either by River Legal or Helen Boyd, Solicitor. Directions orders will be made for further discovery by the applicants, subject to any claim of reliance upon legal professional privilege of the documents held by River Legal and Helen Boyd, Solicitor provided, as sought by the motion, those documents properly fall within the description of documents “within the possession, custody or power” of the applicants.

97    I am not satisfied that there is any prejudice to the applicants by giving leave to the respondents to file and rely upon as evidence in the case the affidavit of Denis Bryant Stephenson sworn 28 May 2010 or Baldev Singh Sidhu sworn 31 May 2010. Both in relation to the amendments and the question of leave to rely upon these further affidavits, the applicants say that they are prejudiced. They say that the original hearing dates and the directions for filing of pleadings and evidence are of longstanding and there is no explanation provided for the late pleading of the new matters or the provision of further affidavits. They say that the respondents engaged Plastiras Lawyers well before the trial and there is no explanation for failing to make the proposed changes until a few days before the original hearing. The applicants say they are prejudiced by the new allegations and, in particular, by the allegations of Mr Sidhu at para 7 of his affidavit of 31 May 2010 that Monty Khoury told him in the context of a discussion about how the final $190,000 was to be paid that he had property in China and Israel.

98    It seems to me that it ought not to be particularly difficult for the parents of Monty Khoury to explore that factual contention with Monty Khoury prior to trial next year. I accept that the vacating of the trial dates has caused the applicants some stress and delay. However, those matters arise out of the unfortunate circumstance that the trial judge, quite properly, elected to disqualify himself from the conduct of the trial. The applicants say that the prejudice they have suffered is no less relevant to the new arrangements than it was to the earlier hearing. The correct position, however, is that the parties have reasonable time available to them to deal with the amendments, undertake further discovery and formulate further affidavits as may be necessary to deal with the factual contentions addressing the merits.

99    The applicants say that there is no explanation for the change of position in relation to the filing of further affidavits from Mr Stephenson and Mr Sidhu. The applicants say that the respondents had elected not to call Mr Stephenson and then elected to put on an affidavit from him. The applicants say that they were prejudiced because they were unable to investigate the matters in Mr Stephenson’s affidavit or issue subpoenas prior to the trial. However, the respondents denied, by their defence, the allegation against Mr Stephenson in the Statement of Claim. The history of the advice to Mr Stephenson from Mr W L Cochrane (then of counsel) to Anderssen Lawyers that Mr Stephenson would not be required to give evidence in the case on behalf of the respondents is set out in Mr Stephenson’s affidavit sworn 16 July 2010. The question of whether there may have been prejudice in the context of the trial is now not relevant to the question of whether there is prejudice in giving leave to rely upon the affidavits as evidence in the proceeding on the new trial of the action.

100    Accordingly, leave will be given to rely upon the affidavits of Mr Stephenson and Mr Sidhu with consequential orders for directions.

The notice of motion of the applicants for leave to issue a subpoena directed to Mr Denis Bryant Stephenson

101    By para 1 of their notice of motion, the applicants seek leave to issue a subpoena to Mr Stephenson. The documents sought by the subpoena are these:

1.    The original documents comprising each of the complete files (including any enclosing folders) maintained by Anderssen Lawyers:

    1.1    in relation to the respondents’ advances to Monty Khoury, referred to in paragraphs 9 and 10 of the affidavit of Denis Bryant Stephenson sworn 28 May 2010;

    1.2    in relation to the entry into the deed between the respondents and Monty Khoury referred to at paragraph 12 of the affidavit of Denis Bryant Stephenson sworn 28 May 2010;

    1.3    in relation to Monty Khoury’s alleged noncompliance with such deed and the telephone conversation with the first application [applicant] referred to at paragraphs 16 to 21 of the affidavit of Denis Bryant Stephenson sworn 28 May 2010;

    1.4    any other files maintained from Anderssen Lawyers from which any of the documents listed at DBS2 of the affidavit of Denis Bryant Stephenson sworn 28 May 2010 have been produced.

2.    Without limiting the scope of 1, documents referring to or recording communications between Anderssen Lawyers and Baldev Singh Sidhu, [ACC] or [QDF] (“the respondents”) in relation to Monty Khoury or Manuel Khoury in the period July to December 2008, including telephone contacts, file notes, letters and emails.

2.[3.]    Without limiting the scope of 1, documents referring to or recording communications between Anderssen Lawyers and Monty Khoury or Manuel Khoury in the period July to December 2008, including telephone contacts, file notes, letters and emails.

102    The background to the applicants’ notice of motion is this.

103    On 6 April 2010, a subpoena issued with leave directed to Mr Stephenson to produce a range of documents. Prior to the issue of the subpoena, correspondence had been exchanged between the applicants’ solicitors and Anderssen Lawyers as to whether the respondents would be willing to produce the documents that might otherwise be sought by a subpoena (assuming leave). The parties were not able to reach agreement about those matters and an application was made for leave to issue a subpoena supported by the affidavit of Mr Marshall Deed, the applicants’ solicitor. Leave was obtained to issue the subpoena (of 6 April 2010) which sought these documents:

1.    Documents referring to or recording communications between Anderssen Lawyers and Baldev Singh Sidhu, [ACC] or [QDF] (“the Respondents”) in relation to Monty Khoury or Manuel Khoury in the period July, August and September 2008, including telephone contacts, file notes, letters and emails, save for communications for the dominant purpose of obtaining legal advice.

2.    Documents referring to or recording communications between Anderssen Lawyers and Monty Khoury or Manuel Khoury in the period July, August and September 2008, including telephone contacts, file notes, letters and emails.

3.    Drafts of loan or mortgage documents for any of the Respondents in relation to Monty Khoury or Manuel Khoury in the period May to September 2008.

4.    Documents referring to or recording negotiations between Monty Khoury and any of the Respondents in relation to any deeds proposed between those parties.

5.    Any deeds or draft deeds between Monty Khoury and one or more of the Respondents in or about September 2008 whether executed or not.

104    Mr Stephenson responded to the affidavit of 6 April 2010 by producing 29 documents falling within the scope of the subpoena.

105    On 28 May 2010, leading up to the anticipated trial before Justice Logan, Mr Stephenson filed an affidavit. As indicated earlier, the history of the advice given to Mr Stephenson by Mr Cochrane as to whether an affidavit would be required from him; whether Mr Stephenson would be required to give evidence at all; and whether in all the circumstances of the case it was appropriate for Anderssen Lawyers to act on behalf of the respondents, is addressed in Mr Stephenson’s affidavit of 16 July 2010.

106    In the affidavit of 28 May 2010 Mr Stephenson, in the context of the contest between the parties concerning the contended conversation with Mr Monty Khoury in July 2008 and the conversation between Mr Sidhu and Mr Monty Khoury in July 2008, Mr Stephenson said these things. During the period of his practice as a solicitor he has had no misconduct proceedings taken against him. He explains the early history of acting for QDF and ACC in the advances to Mr Monty Khoury and the preparation of further mortgages in June 2008. As to the conversation with Monty Khoury, Mr Stephenson denies saying the words alleged or words to that effect whether in relation to the pleaded amount of $500,000 or any other amount. Mr Stephenson says that he is fortified in his recollection on this matter because he has no file notes of such a conversation and says that if he had engaged in such a conversation then he would have made a file note of it consistent with his normal practice of maintaining a written record of “significant conversations undertaken in the course of my professional duties”. Mr Stephenson says that it was his practice throughout many years of legal practice to make notes of significant conversations. Mr Stephenson infers from the lack of the file note that the conversation did not take place. Mr Stephenson says that the second matter of significance on that issue is that in June and July 2008 (and all times thereafter) Mr Stephenson had no instructions from the respondents for the making of further advances to Mr Monty Khoury of any sum. Mr Stephenson says that it is unthinkable that he would give the assurance alleged against him in the absence of clear instructions. Again, Mr Stephenson says that he is fortified in his recollection on these matters because he has no file note or other document evidencing the receipt or conveying of such instructions. Mr Stephenson says that if such instructions had been given to him then he would, in accordance with his normal practice, have ensured that those instructions were documented in some way.

107    Mr Stephenson also says that in late August Mr Sidhu showed him a letter Mr Sidhu had received from Mr Monty Khoury dated 22 August 2008. Mr Stephenson says that his file notes and communications between Anderssen Lawyers and River Legal set out the progress of negotiations (and relevant amendments) towards the deed between Monty Khoury and QDF and ACC signed on 10 September 2008. The file notes, and correspondence between Anderssen Lawyers and River Legal and Helen Boyd, also set out the progress of the negotiations leading to the Deed and the execution of the mortgage by Mr and Mrs Khoury.

108    Mr Stephenson also describes in his affidavit facts concerning the events consequent upon Mr Monty Khoury’s contended “failure” to pay the balance monies due under the Deed within the 45 day period provided for by the Deed. Mr Stephenson describes aspects of his conversation on 7 November 2008 with Mr Manuel Khoury and at DSB1 Mr Stephenson exhibits a copy of his handwritten file note of that conversation.

109    At para 23 of his affidavit, Mr Stephenson says that the transactions referred to in his affidavit have been progressed by correspondence, documents and conversations recorded in file notes listed in the respondents’ draft index to bundle of documents (which ultimately became Exhibit Number 2 on 1 June 2010). The draft index is annexed to Mr Stephenson’s affidavit as DBS2. Mr Stephenson says that the contents of his file notes are true and correct and that statements made in correspondence are true. Mr Stephenson says that all of the items in DBS2 have been either disclosed by the applicants or the respondents or produced pursuant to the subpoena [of 6 April 2010] except for Mr Stephenson’s file notes of the conversation with Mr Manuel Khoury on 7 November 2008 and that notice is exhibited to his affidavit as DBS1.

110    By the present application, the applicants seek by subpoena the production of all the original documents comprising the complete file (or files) in the possession or control of Mr Stephenson in relation to the advances to Monty Khoury referred to at paras 9 and 10 of Mr Stephenson’s affidavit. Those paragraphs deny the contended conversation and assert that Mr Stephenson had no instructions for a further advance. The respondents say that in any event, para 1.1 of the subpoena speaks of the “respondents’ advances” whereas the only advances made to Monty Khoury were made by QDF and ACC. The applicants seek the complete files in relation to the Deed dated 10 September 2008; the complete file concerning Monty Khoury’s contended noncompliance with the Deed; and, the complete file in relation to the conversation between Mr Stephenson and Manuel Khoury of 7 November 2008. In addition, the applications seek the complete files maintained by Anderssen Lawyers from which any of the documents at DBS2 have been assembled.

111    As to those specific matters, the applicants say that the affidavit of Mr Stephenson of 28 May 2010 relies upon additional documents to those produced under the subpoena of 6 April 2010 and exhibits some documents which would be subject to legal professional privilege such as Mr Stephenson’s file note of the conversation with Manuel Khoury. The applicants say that in giving evidence on behalf of the respondents Mr Stephenson relies upon (and thus the applicants in the conduct of their case rely upon) the content of the files and inferences to be drawn from the absence of file notes, as evidence supporting the resolution of the contest as to the conversation between Mr Stephenson and Mr Monty Khoury and thus the resolution of the credit question which caused Justice Logan to disqualify himself from the conduct of the case. The applicants say that they ought to be entitled, fairly, to test the case put against them on the pleaded matters and test the witness’s credit by reference to the files upon which reliance is placed in support of the version of events sworn to by Mr Stephenson.

112    The respondents say that para 1.1 is too wide because it seeks documents concerning advances that are admitted on the pleading. However, para 1.1 is directed to the contention that there were to be further advances and those matters are not admitted in the pleading. The respondents say that the subpoena is too wide because it makes a reference to “the respondent’s advances” and there is no advance by Mr Sidhu.

113    They say that para 1.2 is too wide because it makes reference to the first respondent in the context of the Deed of 10 September 2008 whereas the Deed was not signed by Mr Sidhu.

114    They say that para 1.3 is too wide because it seeks documents concerning a telephone conversation referred to at paras 16 to 21 of Mr Stephenson’s affidavit whereas there is only one conversation in issue at those paragraphs being the conversation of 7 November 2008 between Mr Stephenson and Mr Manuel Khoury and therefore para 1.3 should be confined to that conversation on that date.

115    The respondents say that para 1.4 is too wide because the obligation to produce documents is confined to the matters in issue in the proceeding and the presence of relevant documents on a file does not make production of irrelevant documents, relevant.

116    Having regard to the evidence of Mr Stephenson and the emphasis which is placed upon his professional practice over a long period of making file notes of relevant matters and in particular “significant conversations undertaken in the course of [his] professional duties” and the inferences which Mr Stephenson seeks to draw from the absence of file notes on the contentious matters, it seems to me that the documents comprising the files are relevant to the matters in controversy and the absence of file notes within those files of the critical matters are facts from which inferences might be drawn on the resolution of the contest as to the conversation in July 2008 and potentially any contest as to the content of the conversation on 7 November 2008. The point on the continuum at which these matters become relevant can only be the contended date of the conversation with Mr Stephenson in July 2008.

117    The documents thus relevant ought to be produced in order to enable the applicants to test the case made against them on that part of their case subject, of course, to the question of whether the documents attract legal professional privilege and whether the privilege has been waived by the election by the respondents to put on the affidavit of Mr Stephenson and thus waive legal professional privilege otherwise attaching to documents evidencing the relevant communications.

118    Since the applicants seek to secure a disposition of the matters in controversy in part on the footing of Mr Stephenson’s evidence in the way in which Mr Stephenson has framed his evidence, the applicants have waived reliance upon legal professional privilege other than in relation to communications between Anderssen Lawyers and the respondents for the dominant purpose of the preparation of the present proceeding.

119    By paras 2 and 3 the applicants seek, apart from the specific matters in para 1, documents referring to or recording communications between Anderssen Lawyers and Mr Sidhu, QDF and ACC in relation to Monty Khoury or Manuel Khoury in the period July to December 2008; and documents referring to or recording communications between Anderssen Lawyers and Monty Khoury or Manuel Khoury in the period July to December 2008. The respondents say that both these paragraphs are too wide as the description fails to refer to communications relevant to the matters in issue and the present formulation would catch documents which were created outside the time frame of July to December 2008.

120    Apart from these matters, the respondents say that the Federal Court Rules by order 27, r 9(4) – (8) provide that any order for leave to issue a subpoena should not abridge the right of a party to claim legal professional privilege. An order for leave to issue a subpoena does not have the effect of abridging or removing a party’s entitlement to answer the subpoena by asserting that documents which would otherwise fall within the scope of the subpoena ought not to be produced on the ground that the documents are privileged from production on the ground of legal professional privilege. The issue however on this application is whether having regard to the affidavit of Mr Stephenson and the matters already discussed, the applicants have elected to waive reliance upon legal professional privilege in relation to documents which are probative of their case or are relevant to the advancement of the applicants’ case.

121    As to para 2 of the subpoena, the subpoena calls for the production of documents “referring to or recording” communications between Anderssen Lawyers and Mr Sidhu, QDF and ACC “in relation to” Monty Khoury or Manuel Khoury in a defined period, namely July 2008 to December 2008. The time period begins in July which is the month of the conversation alleged against Mr Stephenson and ends in December 2008. I do not accept that the framing of para 2 is too wide. It seeks documents which may or may not refer to conversations in issue. Paragraph 2 ought to incorporate the word “made” after the word “communications”.

122    As to para 3 of the subpoena, documents are sought referring to or recording communications between Anderssen Lawyers and Monty Khoury or Manuel Khoury in the same period. Similarly, I do not regard para 3 as too wide although it ought to call for production of documents referring to or recording communications made in the relevant period.

123    The general principles governing when leave ought to be granted to issue a subpoena are comprehensively set out in McIlwain v Ramsey Food Packaging Pty Ltd (2006) 221 ALR 785 at [35] – [37] and I will not repeat those principles here.

124    A question ordinarily might arise as to whether an application for leave to issue a subpoena is premature or inappropriate in circumstances where the pleadings are not finalised or subject to substantial amendment. Further discovery might arise consequent upon amendments to pleadings and, in the course of providing further and continuing discovery of documents relevant to those issues, parties such as QDF and ACC might file a further list of documents which either produces documents otherwise privileged or asserts privilege from production on the ground of legal professional privilege. That assertion might, if made, then be tested and the question would be alive at that moment in the proper sequence of procedural preparation for trial.

125    In this case, the applicants have already issued a subpoena which has been answered by the respondents. The matter had progressed towards a trial. It seems to me that the most efficacious way of dealing with the question of further production of documents having regard to the history of the matter and arguments already made in relation to the subpoena is to reject the submission of the respondents that leave ought not to be given now as it is premature. Instead, the question should be dealt with now by granting leave to issue a subpoena directed to documents in the amended form reflected in the orders made by the Court.

126    Accordingly, orders will be made giving leave to issue a subpoena to Mr Stephenson which takes account of the changes made to the schedule reflected in the orders of the Court.

127    Directions orders will also be made for the future conduct of the matter. The parties will be asked to provide an indication of counsel’s general availability next year for the trial of the action.

128    The costs of and incidental to the notice of motion of the respondents and that of the applicants will be reserved for later determination upon the making of short submissions.

Associate:

Dated:    30 November 2010