FEDERAL COURT OF AUSTRALIA

Ilumba Pty Ltd v Malouf [2019] FCA 2095

ORDERS

THE COURT ORDERS THAT:

1.    The interlocutory application filed by the second and fourth respondents on 27 November 2019 be dismissed.

2.    The second and fourth respondents pay the applicant’s costs of the interlocutory application, to be agreed or taxed.

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

REASONS FOR JUDGMENT

DERRINGTON J:

1    The application before the Court today is for the production of documents which the second and fourth respondents submit are referred to in the statement of claim. The application is made under r 20.31 of the Federal Court Rules 2011 (Cth) or, alternatively, pursuant to s 23 of the Federal Court of Australia Act 1976 (Cth).

2    The proceedings were commenced on 5 July 2019. An amended statement of claim was filed on 14 August 2019. The action is against four respondents. They are two individuals and two companies. For convenience, I will refer to the first and third respondents as the “Malouf interests” and to the second and fourth respondents as the “Cartwright interests”.

3    The applicant, Ilumba Pty Ltd (Ilumba), purchased a pharmacy in Rockhampton from a partnership consisting of the first respondent and the second respondent. Both the Malouf interests and the Cartwright interests had some participating involvement in it. The purchase price was around $14.7 million, and together with stock of about $738,000, the total purchase price was in the vicinity of $15.2 million. The sale and purchase agreement contained certain warranties, including some reflecting the financial statements of the pharmacy. The sale was completed on 7 December 2017. In its claim Ilumba alleges that the financial statements of the pharmacy on which it calculated the purchase price it was willing to pay were inflated as a result of certain alleged overstatements on the revenue account. It is alleged, apparently, that the misstatements in the financial accounts were produced or caused by the Cartwright interests.

4    I emphasise that at this point, in the dispute between Ilumba and the Cartwright interests, all that exists are allegations in the statement of claim and nothing more. At present, the second and fourth respondents have not filed a defence. There is no need for me to detail the nature of the allegations underpinning the alleged overstatements. It suffices to say that, in broad terms, Ilumba alleges that the financial statements produced inflated the revenues of the pharmacy prior to the sale. The consequence of that was that the applicant purchased the pharmacy at a price greater than that which it says it would otherwise have done had the true position been known. In that respect, the action proceeds upon the basis that certain contractual warranties as to the accuracy of the financial statements received have not been complied with, and damages are sought on that basis.

5    Secondly, it is said that the vendor engaged in misleading or deceptive conduct, and damages are sought on that basis pursuant to the Australian Consumer Law. That is only a broad overview of the proceedings, and it is not intended to be a full recitation of the issues raised.

6    The application today is, as I have mentioned, for the production of certain documents. Initially, Ilumba relies on r 20.31, which states:

20.31    Notice to produce document in pleading or affidavit

(1)    A party (the first party) may serve on another party (the second party) a notice to produce, in accordance with Form 39, for the inspection of any document mentioned in a pleading or affidavit filed by the second party.

(2)    The second party must, within 4 days after being served with the notice to produce, serve the first party with a notice:

(a)    stating:

   (i)    a time, within 7 days after service of the notice, when the document may be inspected; and

         (ii)    a place where the document may be inspected; or

(b)    stating:

   (i)    that the document is not in the second party’s control; and

   (ii)    to the best of the second party’s knowledge—where the document is and in whose control it is; or

(c)    claiming that the document is privileged and stating the grounds of the privilege.

(3)    If the second party does not comply with paragraph (2)(a) or (b) or claims that the document is privileged, the first party may apply to the Court for an order for production for inspection of the document.

Note: Control is defined in the Dictionary

7    Focus is given to paragraphs 8 and 9 of the statement of claim. In those paragraphs, reference is made to a proposed franchise agreement which the purchaser, Ilumba, would enter into with Ramsay Pharmacy Retail Services Pty Ltd (Ramsay). The paragraphs read as follows:

8.    The Proposed Acquisition was one of 18 proposed transactions whereby it was proposed that:

(a)    a purchaser would acquire from a vendor a pharmacy in Queensland operating under the “Malouf Pharmacies” brand (including the Queen Street Mall Pharmacy which was part of the “Malouf Group” but was not trading under the “Malouf Pharmacies” brand);

(b)    the purchaser would enter into a franchise agreement with RPRS; and

(c)    RPRS would acquire from the third Respondent the “Malouf Pharmacies” brand and intellectual property which would be licensed to the purchaser under the franchise agreement.

9.    In the negotiations between the Applicant and RPRS in about early 2017, it was proposed that the applicant would be the purchaser for the purposes of the Proposed Acquisition and would enter into, among other agreements, franchise agreements.

8     The application before the Court seeks production of the “proposed franchise agreement” and, specifically, there is some difficulty with that, because r 20.31 requires that the document of which production might be ordered must be “mentioned” in the pleading. In this case, what is referred to in paragraphs 8 and 9 is the agreement, or an agreement between the parties, rather than a document. The rule itself concerns documents which, are, in effect, tangible. It does not refer to the legal concept of contracts or agreements or understandings, but the manner in which they are replicated in writing.

9    So in this case, the reference is only to the agreement, not to the document and no order can be made under the rule.

10    I should add that one might not avoid the operation of r 20.31 merely by pleading an agreement without particularising it as being written. That is not the case here.

11    A second difficulty for the Cartwright interests is that in paragraphs 8 and 9, reference is made to a “prospective” agreement which the applicant intended to enter into with Ramsay, and not an actual agreement. In that respect the agreement did not relevantly exist.

12    Reference was made to the recent decision of O’Callaghan J in Construction Forestry Maritime Mining and Energy Union v McConnell Dowell Constructors (Aust) Pty Ltd [2019] FCA 1376, where his Honour assayed the nature of r 20.31. In particular, at [17], he indicated that the Australian cases have reiterated on a number of recent occasions, since the judgment of Moore J in King v GIO Holdings [2001] FCA 1487, that r 20.31 requires a direct allusion to a document or documents and that it is insufficient if there is only a reference to a transaction or information, even though it appears almost certain that the transaction must have been effected by or the information contained in a document. His Honour referred to a number of authorities which need not be considered. In my opinion, the observations of O’Callaghan J accurately identify the law as it presently exists under the rule.

13    In this case, the rule cannot apply because there is no direct allusion to a document. It is a reference to a transaction or an intended transaction. Whilst, in this case, it appears that a franchise agreement was subsequently entered into, for present purposes, r 20.31 does not respond to allow the court to grant the relief sought. Reliance is also made on to 23 of the Federal Court of Australia Act, conferring broad authority on this Court. Section 23 states as follows:

23    Making of orders and issue of writs

The Court has power, in relation to matters in which it has jurisdiction, to make orders of such kinds, including interlocutory orders, and to issue, or direct the issue of, writs of such kinds, as the Court thinks appropriate.

14    I accept the proposition that the rules do not confine the power of the Court under this section, and that its use is for the purposes of doing justice between the parties. Where injustice or unfairness might arise, a departure from the rules is easily undertaken. I particularly refer to r 1.32, which says:

The Court may make any order that the Court considers appropriate in the interests of justice.

And r 1.34, that:

The Court may dispense with compliance with any of these Rules, either before or after the occasion for compliance arises.

15    Those rules, like s 23, give the Court a very broad power to make any orders which are efficient and just in the administration of justice. Initially, after some careful explanation from Mr Flaherty, who appeared for the Cartwright interests, there was some attraction to exercising that power for the purposes of requiring the franchise agreement to be produced. Without in any way understating the force of Mr Flaherty’s submission, as I understand it, the Cartwright interests hold a concern or, if you like a suspicion, that Ilumba was, in effect, a company which would not have been damaged by any non-fulfilment of the contractual warranties, or as a result of any misleading or deceptive conduct. The reason, so I understand, is that the franchise agreement would, in effect, insulate Ilumba from any such loss. Given the terms of the franchise agreement are not known, this arises really by way of inference from other documents which have been produced and, in particular, a loan agreement between Ilumba and Ramsay. It suffices to say that the Cartwright interests have raised a matter of concern, and one which may in the future be fully investigated. However, on the present material, there is an insufficient basis to reach the conclusion that the documents sought are required for the purposes of allowing the Cartwright interests to respond to the statement of claim. In that sense no injustice arises merely because the document is not available at this point in time.

16    I do not doubt that if the scenarios Mr Flaherty has raised crystallise into actualities, it may be that a different defence can be mounted and some form of counter-claim raised. For present purposes, the nature of the arguments advanced were merely one of hopefulness or, if you like, fishing. I do not use that latter expression in any pejorative way.

17    I was also attracted to the proposition in the first instance that the document will become available on discovery and for that reason, I should order production of the document now. Certainly, there is force in that submission and there is a degree of likelihood that the document may become available on discovery. However, I do not think it is necessary at this stage to reach that conclusion. That may be agitated in the fullness of time and the Cartwright interests might need to amend its defence. As Mr Stoljar, who appeared for the applicant, submitted, an application may be made for discovery under r 20.13 and that may indeed be made even if the grounds on which discovery is sought are not fully crystallised at that time. This Court has developed a process of preliminary discovery before trial. An application of that nature was not commenced, but, of course, the respondents are defendants to the proceeding. They did not bring the action themselves, but they may rely on the provision for the purposes of discovery prior to filing a cross-claim.

18    The application was made under r 20.31 and s 23 of the Federal Court of Australia Act but the applicants have not established they are entitled to relief pursuant to either of these sources of power. Today, the applicant for that relief has not succeeded. They have not shown sufficient grounds to warrant the production of the documents. The application must be dismissed.

19    In this matter, the applicant asked for the costs of the application. The basis of the application is that costs should follow the event and that at no time in the future will the issues that were agitated today be raised for further consideration. That submission is accurate in a technical sense, although I have little doubt that the issue of the relevance of the franchise agreement will be considered in the future conduct of this matter. Nevertheless, the application was brought on a somewhat narrow basis, that is, reliance was made on r 20.31 and s 23 of the Federal Court of Australia Act and it was not successful. If there is further agitation around this issue, it will be on the basis of the document being discoverable or that it ought to be discovered for the purpose of the hearing. That being so, the proper order is that the second and fourth respondents pay the applicant’s costs of the application, to be agreed or taxed.

Associate:    

Dated:    9 December 2019