FEDERAL COURT OF AUSTRALIA

Adelaide Brighton Cement Limited, in the matter of Concrete Supply Pty Ltd v Concrete Supply Pty Ltd (Subject to Deed of Company Arrangement) (No 3) [2018] FCA 1058

ORDERS

THE COURT ORDERS THAT:

1.    The applicant to each application bring in minutes of order reflecting the conclusions in these reasons.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

BESANKO J:

Introduction

1    There are two applications for discovery before the Court. The first application is an application by the plaintiff against the first and fourth to sixth defendants, and the second application is an application by the fourth to sixth defendants against the plaintiff. I have previously described the nature of the proceeding and the relief sought in reasons I delivered in relation to an earlier application by the plaintiff to this proceeding (Adelaide Brighton Cement Limited, in the matter of Concrete Supply Pty Ltd v Concrete Supply Pty Ltd (Subject to Deed of Company Arrangement) [2018] FCA 315). I have also delivered reasons relating to two applications, one by the second and third defendants, and the other by the first and fourth to sixth defendants in this proceeding (Adelaide Brighton Cement Limited, in the matter of Concrete Supply Pty Ltd v Concrete Supply Pty Ltd (Subject to Deed of Company Arrangement) (No 2) [2018] FCA 1003). I will describe the parties in the same way I have in my earlier reasons. The earlier reasons should be read with these reasons.

2    This proceeding is set down for trial on 3 December 2018 with 12 days set aside. On 14 March 2018, I made an order that each party make standard discovery on or before 18 April 2018. On 2 May 2018, ABCL made an oral application for an order for discovery by Concrete Supply and the directors. That application was supported by an affidavit of ABCL’s solicitor, sworn on 4 May 2018, in which the categories of documents, which are the subject of the application, are identified. On 2 May 2018, the directors filed and served an interlocutory application in which they sought, among other orders, an order for discovery by ABCL in terms of an annexure to the application. The annexure, being Annexure A, identifies 10 categories of documents. The directors’ interlocutory application was supported by an affidavit of their solicitor, sworn on 2 May 2018. On 11 May 2018, I heard the directors’ interlocutory application and, during the hearing, I granted leave for the directors to amend their application and for the relevant parties to file and serve written submissions with respect to ABCL’s application.

Standard Discovery under r 20.14 of the Federal Court Rules 2011 (Cth)

3    Both applications are based on the contention that the respondent(s) to the application has not made standard discovery in accordance with r 20.14 of the Rules with respect to particular categories of documents.

4    Rule 20.14(1), which deals with the scope of standard discovery, provides that a party, in giving discovery, must give discovery of the documents that are directly relevant to the issues raised by the pleadings or in the affidavits: r 20.14(1)(a).

5    Rule 20.14(2) provides:

(2)    For paragraph (1)(a) the documents must meet at least one of the following criteria:

(a)    the documents are those on which the party intends to rely;

(b)    the documents adversely affect the party’s own case;

(c)    the documents support another party’s case;

(d)    the documents adversely affect another party’s case.

The documents which are directly relevant are those identified in r 20.14(2). “[N]o other documents, other than those contained in r 20.14(2), can be said to be directly relevant to the issues raised by the pleadings or in the affidavit material”: United Voice v Accolade Wines Australia Limited [2013] FCA 285 (United Voice) at [21] per Lander J. Therefore, for documents to be “directly relevant”, the Rules require that they must meet one or more of the four criteria set out in r 20.14(2).

6    In my opinion, the requirements of r 20.14(2) are satisfied if the Court reaches the conclusion that the documents are directly relevant to one or other of the criterion. To take an example, although the Court may not be satisfied that a category of documents is within r 20.14(2)(c), an order will be made if the Court is satisfied that the category will be within either r 20.14(2)(c) or r 20.14(2)(d).

7    The criterion in r 20.14(2)(c) that “the documents support another party’s case” has been separately considered and interpreted as meaning the strengthening of a position, contributing to success, preventing failure or corroborating or substantiating a claim: Dennis v Chambers Investment Planners Pty Ltd [2012] FCA 63; (2012) 201 FCR 321 (Dennis) at [34]-[39] per Barker J.

8    The notion of direct relevance in rr 20.14(1)(a) and 20.14(2) is aimed at narrowing the scope of discovery: Dennis at [23] per Barker J. In essence, it requires that the documents in question be directly on point, in that they tend to prove or disprove the allegation in issue: Construction, Forestry, Mining and Energy Union v BHP Coal Pty Ltd (No 2) [2011] FCA 1396; (2011) 212 IR 313 at [34] and [38] per Collier J. See also Redline Contracting Pty Ltd v MCC Mining (Western Australia) Pty Ltd [2012] FCA 1157 (Redline) at [20], where Siopis J similarly held that “[t]he scope of discovery is dependent on what is in issue between the parties, which in turn, is dependent upon what is pleaded”.

9    The “Peruvian Guano train of inquiry test” is no longer applied in determining whether the documents in question should be discovered: Compagnie Financiere et Commerciale du Pacifique v Peruvian Guano Co (1882) 48 LT 22; (1882) 11 QBD 55; United Voice at [17] per Lander J; Redline at [18] per Siopis J; Martino v Mac Services Group Ltd [2009] FCA 546 at [16] per Besanko J; Balaev v University of Adelaide [2016] FCA 278 at [23] per Besanko J.

10    The Central Practice Note: National Court Framework and Case Management (CPN-1) (along with past case law) also shows a commitment to limiting discovery to the circumstances of the case: Central Practice Note: National Court Framework and Case Management (CPN-1), 25 October 2016 at [10]; Reading Entertainment Australia Pty Ltd v Birch Carroll & Coyle Ltd [2002] FCAFC 109; (2002) ATPR (Digest) 46-220; Kyocera Mita Australia Pty Ltd v Mitronics Corporation Pty Ltd [2005] FCA 242; Alanco Australia Pty Ltd v Higgins (No 2) [2011] FCA 1063 at [7] per McKerracher J. I also refer to the discussion as to the need to narrow the scope of discovery in the Australian Law Reform Commission’s Report, Managing Discovery: Discovery of Documents in Federal Courts (ALRC 115, 2011) at [5.73]-[5.114].

11    The proper scope of standard discovery is also a matter to be decided consistently with the overarching purpose and objectives set out in s 37M of the Federal Court of Australia Act 1976 (Cth): Caason Investments Pty Limited v Cao [2015] FCA 1435; (2015) 237 FCR 351 at [34] per Murphy J.

12    If a party seeks an order for other than standard discovery under r 20.14, then the party must, in accordance with r 20.15, identify the criteria that applies in standard discovery that should not apply on the application before the Court: r 20.15(1)(a). The party must also identify the criteria that should apply in lieu of the criteria identified in 20.14(1) and (2): r 20.15(1)(b). Neither party makes such an application in this case.

ABCL’s Application

13    The affidavit of the plaintiff’s solicitor, Mr Patrick Thomas Leader-Elliott, sworn on 4 May 2018, identifies the six categories of documents which were initially the subject of ABCL’s application. They are as follows:

4.1    Business Activity Statements of the First Defendant for the period January 2009 until the present;

4.2    Income tax statements and working papers of the First Defendant for the period January 2009 until the present;

4.3    Journal entries of the First Defendant recording the entry of credits for the period January 2009 until the present;

4.4    Management accounts of the First Defendant for the period January 2009 until the present;

4.5    Correspondence with Ideal Mix concrete regarding supply of cement in November 2017; and

4.6    Documentation regarding volume and pricing of cement since November 2017.

14    ABCL no longer pursues an order with respect to categories 4.5 and 4.6.

15    The ABCL contends that Concrete Supply has management accounts, Business Activity Statements, income tax statements and working papers and journal entries recording the entry of credits for the period from January 2009 to the present and that these documents should be discovered. It is not suggested that documents of this nature do not exist.

16    A Mr Albert D’Alessandro swore an affidavit on 4 April 2018 and that affidavit has been filed and served in this proceeding by Concrete Supply and the directors. The affidavit is part of the affidavit material Concrete Supply and the directors propose to rely on at trial. Mr D’Alessandro provides evidence about how Concrete Supply accounted for the alleged “rebate” in its accounts and management reports and evidence that Concrete Supply paid Goods and Services Tax (GST) and income tax on the basis of that rebate. He provides evidence that Concrete Supply was still gradually writing back the amount of approximately $600,000 it “received” in March 2012 and that it was doing this gradually in order to avoid a “spike in profit”. He provides evidence that rebates were written back on a monthly basis and that when that was done, an adjustment was made to the overdraft balance in an accounting system used by Concrete Supply (Attache) by way of a manual journal entry. He provides evidence that the monthly management reports also “track” the rebate. Mr D’Alessandro also provides evidence about Concrete Supply accounting for the rebate for the purpose of GST. As I understand it, Concrete Supply claims input tax credits for amounts not written back, but when an amount is written back by Concrete Supply, it repays to the Australian Taxation Office input tax credits previously claimed.

17    ABCL contends that the documents it seeks are directly relevant to two issues in the proceeding.

18    First, the documents are directly relevant to its claim that Concrete Supply did not maintain adequate books. ABCL claims a declaration to that effect. ABCL contends that between March 2012 and November 2017, Concrete Supply generated tax invoices for purchased product and credit notes for between 30% and 50% of the purchased product and that the credit notes had been issued without the permission or authority of ABCL and did not reflect any agreement between ABCL and Concrete Supply. The unrecorded shortfall in Concrete Supply’s liability to ABCL meant (so ABCL contends) that Concrete Supply’s records were and are not accurate and, in particular, its records as to its profits, operating expenses and liabilities and net assets. Those allegations are denied by Concrete Supply and the Deed Administrators (Points of Defence of the Deed Administrators at paragraph 58.5; Points of Defence of Concrete Supply at paragraph 7).

19    Secondly, ABCL contends that the documents are directly relevant to its claim that the directors did not genuinely believe that Concrete Supply was entitled to the rebate. In support of this aspect of its case, ABCL pleads as follows:

71.    The Fifth Defendant knew that the balance stated in the audit confirmation letter was incorrect.

77.    The First Defendant engaged in misleading or deceptive conduct between March 2012 and November 2017 by:

77.1.    failing to inform the Plaintiff that the statement that it received from the Plaintiff in April 2012 in connection with the period ending 31 March 2012 understated the amount that the First Defendant owed to the Plaintiff by $616,788.95;

77.2.    underpaying for Purchased Product by between 28% and 52% between March 2012 and November 2017;

77.3.    generating credit notes for between 28% and 52% of Purchased Product between March 2012 and November 2017 and not providing those credit notes to the Plaintiff;

77.4.    failing to inform the Plaintiff that it was not paying for between 28% and 52% of Purchased Product between March 2012 and November 2017.

81.    The Fourth to Sixth Defendants acted dishonestly in that they:

81.1.    were aware of the First Defendant’s trading terms and indebtedness to the Plaintiff consistent with their obligations to the First Defendant as pleaded at paragraphs 3 and 6 above;

81.2.    knew (based on the matters referred to in paragraphs 7 to 25) that the First Defendant was not entitled to receive Purchased Product without paying for it in accordance with the terms of the Bulk Supply Agreement and the Price Increase Letters;

81.3.    caused the First Defendant to generate Credit Notes and withhold payment for $12,457,472 of Purchased Product between March 2012 and November 2017; and

81.4.    failed to disclose to the Plaintiff that the First Defendant was generating Credit Notes and withholding payment totaling [sic] $12,457,472 between March 2012 and November 2017.

20    In its Points of Defence, Concrete Supply pleads that certain deductions were made by ABCL of Concrete Supply’s indebtedness to it and, thereafter, Concrete Supply made similar deductions from time to time with ABCL’s knowledge and approval, giving rise to an agreement between ABCL and Concrete Supply as to the deductions or an estoppel in favour of Concrete Supply against any claim for repayment by ABCL.

21    In their Points of Defence, the directors rely on Concrete Supply’s pleading. In addition, they plead as follows:

7A.    In further answer to paragraph 81, the Fourth to Sixth Defendants state that, on the assumption that the Shortfall is accurate (which is denied) and that the Bulk Supply Agreement applied (which is denied) the Fourth to Sixth Defendants’ conduct was not dishonest as:

7A.1    the Sixth Defendant does not take any part in the day to day management of the First Defendant;

7A.2    the Fourth and Fifth Defendants understood that the Plaintiff had provided it with the 2012 Discount by reason of the Plaintiff’s conduct in issuing the March 2012 statement;

7A.3    the Plaintiff’s conduct of ceasing to issue invoices and statements was in breach of the Bulk Supply Agreement and, in any event, placed the Fourth and Fifth Defendants in an unusual position in that they were provided with the responsibility of creating invoices;

7A.4    the Fourth and Fifth Defendants’ conduct in claiming the RCTI Discount at no stage sought to deceive the Plaintiff and they thought that if the Plaintiff had objected to the RCTI Discount that it would have rejected the claim and notified Concrete Supply; and

7A.5    the Fourth and Fifth Defendants did not suspect anything untoward was happening internally within the Plaintiff.

22    The documents sought by ABCL are directly relevant to the plea of dishonesty by ABCL and the directors’ denial of that allegation. They are also directly relevant to the directors’ knowledge and belief with respect to the alleged rebate.

23    I will make an order for discovery with respect to categories 4.1 – 4.4 inclusive of ABCL’s application.

The Directors’ Application

24    Annexure A to the directors’ application identifies 10 categories of documents, being:

1.    The KPMG report or reports prepared in 2017/2018 in response to the Plaintiff’s request to investigate the alleged accounting irregularities, including the alleged accounting irregularities the subject of these proceedings (the ‘KPMG Report’) together with documents provided to KPMG to assist it in preparing the KPMG Report(s).

2.    Any internal report prepared or provided to Mssrs [sic] Hughes or Tresider of the Plaintiff in respect of the alleged accounting irregularities together with documents referred to or relied upon by Mssrs [sic] Hughes or Tresider in respect of those internal reports.

3.    Documents identifying the Plaintiff’s employees who had authority to access or did in fact access the First Defendant’s records in SAP, including the customer account, the creditor ageing report and credit limit changes recorded within SAP.

4.    For the period 1 January 2009 to 1 November 2017 (the ‘Relevant Period’), documents relating to the ability of the Plaintiff or its employees to interrogate the Plaintiff’s SAP accounting system in respect of the First Defendant.

5.    For the Relevant Period, job descriptions for employees within the Plaintiff’s accounts receivables and the Birkenhead sales and marketing department, including David Patterson, Darryl Hughes, Bruce Shaddock, Brad Lemmon and Claude Teager.

6.    For the Relevant Period, the Plaintiff’s internal documents prepared for accounting purposes which report on the indebtedness of the First Defendant, including:

6.1    debtor summaries similar to that annexed to the affidavit of Mr Hughes at DH19;

6.2    any correspondence in respect of debtor summaries or customer account balances, either internal or with the First Defendant.

7.    In respect of the transactions and customers identified at paragraph 85 of Mr Hughes's affidavit sworn 16 January 2018:

7.1    documents relating to the financial effect, if any, which the transactions had on those customers;

7.2    the customer accounts and periodic statements of those customers following the transactions alleged at paragraph 85;

7.3    the documents recording any reversal of the alleged transactions;

7.4    any discount or rebate given to those customers following the alleged transactions;

7.5    communications between the Plaintiff and those customers relating to those transactions.

7.6    documents relevant to the manner in which the alleged internal fraud was perpetrated in relation to those other customers.

8.    For the Relevant Period, documents relating to the Plaintiff’s internal audit processes (whether conducted by employees of the Plaintiff or employees of a Related Body Corporate of the Plaintiff) in respect of amounts recorded as owing by the Plaintiff's customers, including:

8.1    internal audit investigations or creditor balances owing by the First Defendant or other customers of the Plaintiff associated with the alleged fraud;

8.2    internal audit investigations of manual journal entries within the Plaintiff’s financial books and records;

8.3    reports to the directors or management of the Plaintiff or its Related Bodies Corporate relating to weaknesses or failings in the Plaintiff’s internal audit and risk management function that allowed the alleged internal fraud to be undetected;

8.4    procedures, process or protocols relating to internal audit investigations of creditor balances, including the investigation of manual journal entries into the SAP accounting system; and

8.5    instances of unauthorised transactions being detected in respect of other customers of the Plaintiff for the period 2009 to October 2017.

9.    For the period 1 January 2008 to 1 November 2017, documents relating to rebates, incentives, discounts, write-offs or cash payments offered or made to customers of the Plaintiff, other than the First Defendant.

10.    Documents relating to external audit investigations of PricewaterhouseCoopers in respect of the financial years ending 31 December 2009 to 31 December 2017 in respect of:

10.1    the First Defendant;

10.2    other customers of the Plaintiff associated with the alleged internal fraud;

10.3    reviews of manual journal entries, including any audit processes or policies relating to the review of manual journal entries; and

10.4    reviews of creditor balances, including any audit processes or policies relating to the review of manual journal entries.

25    ABCL’s claims against the directors may be summarised as follows: misleading or deceptive conduct in relation to an audit confirmation letter dated 2 December 2009 and sent by ABCL to Concrete Supply consisting of at least, in the case of the fifth defendant, conduct of knowingly making a false representation; dishonestly participating in misleading or deceptive conduct and unconscionable conduct by Concrete Supply (Australian Consumer Law ss 18, 20, 236 and 237); and knowing assistance or knowing receipt or both in relation to cement received, but not paid for, by Concrete Supply. A serious allegation made against the directors is that made in paragraph 81 of the Points of Claim and set out above at [19].

26    In response, the directors plead that ABCL had knowledge of the “rebate” (paragraph 6A.1, adopting paragraphs 3A.5 and 3.A11 of ABCL’s Points of Claim). The directors also plead contributory negligence on the part of ABCL and its external auditors. The relevant pleas are as follows:

14.    The Plaintiff failed to:

14.1    issue its own invoices, which was a breach of the Bulk Services Agreement;

14.2    send regular statements to the First Defendant;

14.3    monitor its own accounts;

14.4    inform the First Defendant that its credit limit had been exceeded;

14.5    give proper and adequate consideration to its own financial affairs and books and records;

14.6    prevent the reporting of creditor balances by way of manually-generated Excel spreadsheets, and the Fourth to Sixth Defendants refer to annexure DH9 to the affidavit of Darryl Hughes, sworn 16 January 2018;

14.7    ensure that proper internal auditing of the Plaintiff’s books and records was undertaken and, without limiting that plea, failed to ensure that an audit was undertaken of manual journal entries recorded in its SAP accounting system; and

14.8    the Fourth to Sixth Defendants repeat the matters pleaded in paragraph 6A herein.

15.    The Plaintiff’s external auditors failed to:

15.1    give proper and adequate consideration to the Plaintiff’s financial affairs and books and records; and

15.2    undertake an audit, or in the alternative, undertake a proper and diligent audit, of manual journal entries recorded in the Plaintiff’s SAP accounting system, including by causing the Plaintiff to generate a manual entry report of the kind set out at annexure DH9 to the affidavit of Darryl Hughes, sworn 16 January 2018, which, had they done so, would have alerted the external auditors to the alleged false entries described in paragraph 74 of Mr Hughes’ affidavit.

16.    Had the Fourth to Sixth Defendants been informed by the Plaintiff that the credit limit of the First Defendant had been exceeded, they would have caused the First Defendant not to have incurred the alleged debt either by not purchasing the cement or by renegotiating the terms, including the price or by shipping in their own cement at a lower price or by going to another supplier.

27    Mr Darryl Hughes is the General Manager – Finance for Adelaide Brighton Limited which is the parent company of ABCL. He swore a lengthy affidavit of 94 paragraphs on 16 January 2018 and his affidavit and the annexures to it comprise 1,044 pages. ABCL proposes to rely on Mr Hughes’ affidavit at trial. In November 2017, he carried out a detailed investigation of ABCL’s records concerning its account and ongoing commercial relationship with Concrete Supply. The investigation related to the supply of cement by ABCL to Concrete Supply from April 2009 to November 2017. His investigation revealed a total liability of $33,385,710.17 with payments made by Concrete Supply to ABCL totalling $20,938,867.69. The difference is $12,447,842.48. Mr Hughes concluded from his investigations that a number of false entries had been made in ABCL’s accounts. He classified these illegitimate entries in the following way. First, there were illegitimate entries whereby payments made by ABCL’s customers were allocated to the accounts of other customers. Secondly, there were illegitimate entries by way of journal entries made transferring indebtedness between customers. Thirdly, there were illegitimate entries by way of journal entries made in ABCL’s accounts transferring indebtedness to its cash account at the end of certain months, which had the effect of disguising a customer’s accounts receivable balances. The balance was then transferred back to a customer a short time later. Finally, there were illegitimate entries by way of journal entries created which purported to be payments of invoices, but which were not supported by any evidence of payment. Instead, the affected customer was extended new credit. Mr Hughes concluded that the false entries in relation to Concrete Supply’s debtor account had a net effect of reducing the balance owing on the account by $8,355,817.97 and he identified, in particular, 10 transactions comprising transfers from other customers’ accounts and misallocation of other customers’ payments. There is no need for me to set out the details.

28    It appears from annexures to Mr Hughes’ affidavit that KPMG was engaged shortly after the discrepancies were discovered to assist the Adelaide Brighton Group (the Group) to analyse the transactions of concern. In addition, the Group engaged one of “our own investigators”, Mr Bruce Tresider. Mr Hughes met with the employee who had allegedly made the false entries on 25 October 2017 and it is clear from the notes of the meeting that KPMG had done work by that time.

29    The directors tendered a portion of the 2017 Directors’ Report and Financial Statements for Adelaide Brighton Limited and its consolidated entities. The financial statements relate to the 2017 calendar year and are signed by independent auditors on 18 March 2018. The independent auditors are PricewaterhouseCoopers.

30    The Group advised its shareholders that in late 2017, the Group had become aware of certain “financial discrepancies” relating to underpayment of products supplied. The Group had completed its analysis with the assistance of forensic accountants, KPMG. As a result of its analysis, a provision of $17.1 million had been made, together for a provision of legal, accounting costs and other investigation costs.

31    The shareholders were advised that investigations were continuing as were its efforts to recover the amounts due. PricewaterhouseCoopers said that it was satisfied that it could use the work of the Group’s expert for the purpose of its audit.

32    The directors also tendered a letter from the Group to the Australian Securities Exchange Limited, dated 13 November 2017, whereby the Group advised the Exchange of the discovery of certain “financial discrepancies” involving “a small number of customers”. The Exchange was advised that the Group was investigating the matter fully with the assistance of forensic accountants, KPMG. At that point, the Group estimated the amount of what it referred to as “deliberately hidden underpayments” at up to $14 million.

33    Before addressing the 10 categories, I note that some of the documents may be confidential to particular parties. If that is so, then an appropriate order can be made to protect the confidentiality of the documents. The other general point is that it is apparent that the categories of documents sought could involve a considerable volume of documents. That, it seems to me, is unavoidable having regard to the lengthy period over which the relevant events occurred.

Categories 1 and 2

34    Counsel for ABCL indicated in the course of submissions that ABCL would be claiming legal professional privilege with respect to the KPMG report or reports and, I think, one or more of the documents which fall within this category. That may be acknowledged, but it bears on the issue of production, not discovery, which is the issue presently before me.

35    The fact that the documents were created after the events which led to the “shortfall” or “rebate” is relevant to whether the documents are “directly relevant”, but it is not a decisive factor. A document created after the events giving rise to the cause of action may well be directly relevant.

36    The KPMG report or reports were, it may reasonably be assumed, directed to how the “shortfall” was incurred or the “rebate” was granted. Such an examination is, in all likelihood, relevant to ABCL’s systems and/or the knowledge of ABCL’s employees of the “shortfall” or “rebate”. Those matters are major issues in this case.

37    I would not order discovery of the documents provided to KPMG. The directly relevant documents have been or should have been discovered, irrespective of whether they were provided to KPMG, and the issue is not the nature or quality of the task carried out by KPMG.

38    The same approach applies to Category 2.

Categories 3 and 4

39    Documents recording details of the employees of ABCL who did access the SAP accounting system in respect of Concrete Supply are directly relevant and should be discovered.

40    I do not consider that documents relating to “authority to access” or “ability to interrogate” to be directly relevant. They seem to me to be, at best, train of inquiry documents, and I will not make an order with respect to them.

Category 5

41    I would not make an order with respect to this category. Documents relating to the job descriptions of various persons (except for the job description of one person which has already been disclosed) are not directly relevant.

Category 6

42    ABCL’s response to this category is that it has made discovery of the documents within the category. The directors do not press their application with respect to Category 6.

Category 7

43    As I understand it, the transactions identified in paragraph 85 of Mr Hughes’ affidavit are a key part of how the alleged “underpayment” or “shortfall” remained undetected. The documents identified in paragraphs 7.1, 7.2, 7.3 and 7.6 are directly relevant to issues of contributory negligence and knowledge and should be discovered.

44    Documents relating to how ABCL resolved matters with those clients after the transactions are not directly relevant and do not need to be discovered. I will not make an order with respect to categories 7.4 and 7.5.

Category 8

45    Paragraph 8 is widely drafted and I will not make an order that extends to ABCL’s customers without limitation. However, I consider that an order should be made with respect to Concrete Supply and the other customers affected by the alleged fraud or “deliberately hidden underpayments”, to quote from ABCL’s announcement to the Stock Exchange. I consider these documents to be directly relevant to issues relating to contributory negligence and knowledge.

Category 9

46    As I understand it, ABCL will adduce evidence that the “rebate” claimed by Concrete Supply is unprecedented in the industry and, therefore, it is unlikely that it was agreed. Mr Lemmon, Executive General Manager of Adelaide Brighton Limited, has sworn an affidavit in which he deposes to the following:

73.    Finally, I note that the rebate asserted by Concrete Supply would be unprecedented in this market segment.

…

75.     In my experience, based on more than 20 years in the cement industry, discounts or rebates in the order of 40% have never been given to independent customers in the pre-mixed concrete sector.

47    If this evidence is admissible in this form, the directors must have the opportunity to challenge it. The matter is squarely in issue and the documents are directly relevant to the matter.

48    I am concerned about the potential quantity of documents. I will give ABCL the opportunity to proffer an alternative formulation.

Category 10

49    Documents relating to external audit investigations of PricewaterhouseCoopers in respect of the financial years ending 31 December 2009 to 31 December 2017 in respect of Concrete Supply, other customers associated with the alleged internal fraud, reviews of manual journal entries, including any audit processes or policies relating to the review of manual journal entries and reviews of creditor balances are directly relevant and should be discovered. The reason for this is that Concrete Supply and its directors have pleaded contributory negligence in respect of the external auditors.

50    For completeness, I note that the documents in PricewaterhouseCoopers’ possession are not documents within the control of ABCL and are therefore not discoverable. However, those documents which are in ABCL’s possession that relate to the external audit investigations performed by PricewaterhouseCoopers, as described in category 10, are discoverable.

Conclusion

51    The applicant to each application bring in minutes of order reflecting the conclusions in these reasons.

Associate:

Dated:    17 July 2018

SCHEDULE OF PARTIES