Re WR Pateman Pty Limited v Walker Corporation Pty Limited [1990] FCA 26 (8 February 1990)

FEDERAL COURT OF AUSTRALIA

Re: W.R. PATEMAN PTY LIMITED
And: WALKER CORPORATION PTY LIMITED
No. N G834 of 1989
FED No. 92
Practice and Procedure

COURT

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Wilcox J.(1)

CATCHWORDS

Practice and Procedure - Pre-trial discovery of documents - Applicant lessee of real estate with right of first refusal on sale of freehold - Terms of alleged agreement with another purchaser notified to applicant by respondent's representatives - Opportunity to purchase on those terms declined - Subsequent information leading applicant to question whether terms as stated to it were the terms agreed with the other purchaser - Request to discover contract refused - Subsequent offer to discover document subject to obtaining client's instructions but this offer never made unconditional or document discovered - Whether reasonable cause to believe that applicant may have a right to relief under s.52 of the Trade Practices Act 1974 - Whether, despite reasonable inquiries, applicant has insufficient information to decide whether to commence proceedings - Whether there is reasonable cause to believe that respondent has document whose inspection would assist decisions.

Federal Court Rules, O.15A r.(6)

HEARING

SYDNEY
8:2:1990

Counsel for the Applicant: Mr D H Murr

Solicitors for the Applicant: Freehill, Hollingdale & Page

Appearance for the Respondent: Mr J Neil (Solicitor)

Solicitors for the Respondent: Gye & Perkes

ORDER

1. Pursuant to Order 15A rule (6) the respondent make

discovery to the applicant of any documents which are
or have been in its possession, custody or power
relating to the terms and conditions of the proposed
sale of premises, being Unit 1, 1 Endeavour Road,
Caringbah, New South Wales owned by the respondent
and leased to the applicant, referred to in the
letter dated 17 February 1989 from Harding, Rogers
and Associates Pty Limited to W R Pateman Pty Limited.

2. The production required by order 1 be made within
fourteen (14) days.

3. The applicant pay to the respondent its reasonable
costs of furnishing discovery pursuant to order 1,
such costs to be assessed or taxed on a solicitor/own
client basis.

4. The respondent pay to the applicant its costs of this
proceeding.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

DECISION

This is an application under O.15A r.(6) of the Federal Court Rules for an order by way of pre-trial discovery. The particular order sought in the application is couched in the following terms:

"An order pursuant to Order 15A rule 6 that the
Respondent make discovery to the Applicant of
any documents which are or have been in its
possession, custody or power relating to the
terms and conditions of the proposed sale of
premises, being Unit 1, 1 Endeavour Road
Caringbah New South Wales owned by the
Respondent and leased to the Applicant,
referred to in the letter dated 17 February
1989 from Harding Rogers & Associates Pty
Limited to W R Pateman Pty Limited."

2. As the application suggests, the subject premises, which apparently are used for commercial or industrial purposes, were leased by the respondent, Walker Corporation Pty Limited, to the applicant, W R Pateman Pty Limited, pursuant to a lease which was made in 1988 and which demised the premises to the lessee for a term of four and a half years from 1 November 1988. The lease contains an option for renewal. The lease also contains a clause which is clause 22A.01 and which reads:

"22A.01 If at any time during the term of this
lease the Landlord shall desire to sell
the premises he shall not enter into any
Contract of Agreement for such sale
unless prior thereto he shall:-
(a) Give to the tenant notice of his
intention so to sell and shall offer
the demised premises to the tenant
on the same terms and conditions and
at the same price as he is willing
to offer the demised premises to a
third party;
(b) The Agreement for Sale to be entered
into by the landlord as vendor and
the tenant as purchaser for the said
sale shall be the same, mutatis
mutandis, as that prepared by the
landlord for sale of the demised
premises to such third party;
(c) In all respects as to the matters
raised in sub-paragraphs (a) and (b)
of this clause, the Certificate of
the landlord's solicitor in that
behalf shall be conclusive evidence
and shall be binding upon the
parties hereto;
(d) The tenant shall have fourteen (14)
days (in which respect time shall be
the essence) to accept the
landlord's offer of sale, such
acceptance to be made without
conditions, and to be notified to
the landlord by notice in writing to
the solicitor named as the vendor's
solicitor in the said Agreement for Sale;
(e) Should the landlord decide to sell
the demised premises by public
auction the provisions of
sub-paragraphs (a)-(d) of this
clause shall not apply but the
landlord shall advise the tenant of
his said intention and the tenant
within seven (7) days (in which
respect time shall be of the
essence) of notification in that
behalf shall notify the landlord of
the price at which the tenant is
prepared to purchase the demised
premises. The landlord shall upon
receipt of such notification place a
reserve price for such auction sale
upon the demised premises at least
equal to any amount which the tenant
has so notified as the price at
which it is prepared to purchase the
demised premises.
(f) The landlord shall not be bound to
comply with the provisions of this
clause if at any time when this
clause would operate:-
(i) the tenant shall be in breach
of its obligations contained in
this lease or,
(ii) there shall have occurred any
act, matter or thing
attributable to the
responsibility of the tenant
pursuant to the provisions of
this lease which would entitle
the landlord to terminate any
tenancy created by this lease,
or the landlord shall otherwise
be entitled to determine the
within lease and shall have
exercised his right so to do."

3. According to the uncontested evidence of Mr Wayne Pateman, one of the directors of the applicant company, on or about 20 February 1989 he received a letter from Harding, Rogers & Associates Pty Limited, who describe themselves on their letterhead as property managers. The letter stated as follows:

"We currently have a purchaser for your factory unit.
The Vendor has accepted $800,000.00 as the
Sale Price with an immediate exchange of
contracts and a speedy settlement.
Should you wish to purchase the unit yourself
the Vendor is happy to sell to you on the same
Terms, Conditions and Sale Price as has been
offered and will be accepted if you choose not
to purchase.
Your speedy reply by return is greatly appreciated."

4. Mr Pateman telephoned Mr Rogers of Harding, Rogers & Associates and had a conversation with him. He sought further information. Mr Rogers told Mr Pateman that his firm had purchasers interested in buying the factory for $800,000 and he named the purchasers as Dennis and Arthur Shelley. According to Mr Pateman's evidence, Mr Rogers then said: "You have got to come up with the money in fourteen days". There was a conversation about the reason for the sale and Mr Pateman ended by saying that he would look at the situation and get back to Mr Rogers.

5. Following that conversation, Mrs Sandra Pateman, another director of the applicant, telephoned the company's bank manager, Mr Graham Milne of the ANZ Bank, Ramsgate. She had a conversation with Mr Milne inquiring about the possibility of the bank lending the company $800,000 in order to purchase the premises. Mr Milne informed Mrs Pateman of the bank's requirements as to information and he gave an estimation of the level of repayments. He asked Mrs Pateman whether she thought the company could afford those repayments. She replied: "Yes, but I need an answer straight away because we have to have the money within fourteen days". Mr Milne then explained to Mrs Patemen that it would not be possible for the bank to provide the money within fourteen days. He referred to the bank's procedures and the necessity for a valuation and approval by head office. Mr Milne said that there was a backlog of properties awaiting valuation.

6. Mrs Pateman, in her affidavit, said that, as at mid-February 1989, the company was ready, willing and able to purchase the premises on terms and conditions acceptable to it, but that it could not raise $800,000 if the funds were required within a very short space of time. She said that, had the company received an offer upon terms permitting the purchase of the premises for $800,000 or less, and with a standard six weeks' period between exchange and settlement, it would have accepted the offer. In the event the offer was not accepted.

7. On 7 March 1989 Mr Pateman received a further letter from Harding, Rogers & Associates in which that firm confirmed that the vendor "now has an acceptable purchaser for your premises". The letter went on to say that the lessor had complied with clause 22A.01 of the lease by offering the premises "on the same terms and conditions as would be acceptable by the Vendor from a third party" and that the time limit allowed for acceptance had now elapsed. The letter concluded by saying: "Since we to date have not received any written reply we take it that you do not wish to purchase the premises".

8. Shortly after receiving that letter, Mr Pateman telephoned Mr Rogers and had a discussion in which he referred to conversations he had been having with Mr Brian Wainert, who is apparently a person connected with the respondent company. Mr Rogers told him that his fourteen days were up and that he needed a letter declining the option for his records. Mr Pateman said that he would organise such a letter and, on 9 March 1989, he did in fact send a letter on behalf of the company confirming its decision to decline the option of first right of refusal in the sum of $800,000.

9. It appears that, at some stage, a contract to sell the property was exchanged as between the respondent company and one or more persons; the purchasers either including the Messrs Shelley or being a company in which they had an interest. It appears that both Mr Harding and Mr Rogers also had an interest in the purchase.

10. The date of the contract is not known. Nor are its terms. However, during the course of a telephone conversation of 25 October 1979 between herself and Mr Harding, Mrs Pateman was informed that this contract was not to proceed. She inquired what had happened about the deposit and Mr Harding said that it would be repaid. During the course of the conversation Mr Harding indicated that the Shelleys had put up $40,000 by way of contribution towards the deposit and that he and Mr Rogers each had put up $10,000. This of course makes a total of $60,000. This information caused Mrs Pateman to wonder whether the price provided by the contract was $600,000 rather than $800,000. She had in mind that it is common for a deposit to represent 10 per cent of the purchase price.

11. Further, at some stage the directors of the applicant learned that, at the time of the negotiations in February and March 1989, the strata plan which created the subject unit had not been registered, so that it would not have been possible for settlement to take place within fourteen days of the contract as, at least according to one understanding of the conversation, Mr Rogers had required.

12. As a result of these matters, the directors of the applicant formed doubts about the accuracy of Mr Rogers' representation of the terms which had been agreed between the respondent and the purchasers. They had in mind that, if the actual terms were different from those which were represented, the applicant may have been able to purchase and that, having been deprived of that opportunity, it may have an available action for damages pursuant to s.52 of the Trade Practices Act 1974.

13. Consequently, a request was made for discovery of the contract. This was not complied with. The answer that was given on 31 October 1989 was that there was then no contract in existence. That statement appears to be factually correct, but it misses the point. There were subsequent requests made by the applicant's solicitors for discovery. On 1 December 1989 the solicitors for the respondent indicated, subject to the confirmation of their client, that it would be prepared to discover the contract, providing that their client's costs were paid on a solicitor/client basis.

14. There was never any subsequent confirmation of this offer after taking the client's instructions. As it happened, on the afternoon of the same day, 1 December, and before the facsimile copy of the letter conveying the conditional offer was received by the solicitor handling the matter on behalf of the applicant, the current application was filed. It was not formally issued until the following Monday, 4 December, following completion of Registry formalities on that day.

15. There was then some question between the parties as to what was to happen. On 15 December 1989 the solicitor for the applicant suggested that the matter should be disposed of by the respondent consenting to orders for discovery and for payment of the costs incurred in the application to the Court (which at that stage would have been quite small) but also on the basis that the applicant would pay the costs of the respondent in effecting discovery on a solicitor/client basis. This offer was not accepted and the matter was set down for hearing today.

16. Rule 6 of Order 15A provides as follows:

"(6) Where--
(a) there is reasonable cause to believe that
the applicant has or may have the right
to obtain relief in the Court from a
person whose description has been ascertained;
(b) after making all reasonable inquiries,
the applicant has not sufficient
information to enable a decision to be
made whether to commence a proceeding in
the Court to obtain that relief; and
(c) there is reasonable cause to believe that
that person has or is likely to have or
has had or is likely to have had
possession of any document relating to
the question whether the applicant has
the right to obtain the relief and that
inspection of the document by the
applicant would assist in making the decision--
the Court may order that that person shall make
discovery to the applicant of any document of the
kind described in paragraph (c).

17. In my opinion the requirements of para.(a) of the rule have been satisfied in the present case. I think that there is a reasonable cause to believe that the applicant may have a right to obtain relief under s.52 of the Trade Practices Act.

18. There is reason to believe that the terms upon which the vendor, the respondent, was contracting to sell to the Shelley consortium were different from those which were made known to the applicant by Harding, Rogers & Associates, both in respect of the purchase price and also the time for settlement. I emphasise that I make no finding to that effect. The evidence is far from complete. It is sufficient to say that I think that there is reasonable cause to believe that this is so. In that regard, there is no dispute, for present purposes, about the terms of the telephone conversations between Mr Pateman and Mr Rogers. Mr Pateman was not challenged on his account of these conversations in cross-examination. Although an affidavit from Mr Rogers was filed, he did not deny what Mr Pateman had said in his own earlier affidavits. Indeed, I should record in relation to the whole of the evidence that both Mr and Mrs Pateman have been cross-examined by the solicitor for the respondent, but nothing that has been put to them has shaken their evidence in the slightest degree.

19. The submission has been put on behalf of the respondent that, in any event, the applicant sustained no damage. This is a matter of some difficulty which will no doubt be considered by the applicant before embarking upon any proceeding. I express no view about the matter at all. I think that, to a large extent, that question turns on the proper construction of the relevant clause in the lease. It is a matter which ought to be decided only in the light of a full elucidation of the facts at a trial.

20. As I understand para.(a) of r.6, it is not necessary for the Court to come to an affirmative conclusion that an applicant is likely to succeed in order that the Court may make an order under the rule. It is sufficient to say that there is reasonable cause for the belief that the applicant may have a right to obtain relief. That standard is met.

21. The second requirement of the rule is that the applicant has insufficient information to enable a decision to be made whether to commence a proceeding in the Court after making all reasonable inquiries. It is clear that the applicant does not have sufficient information to enable a decision to be made whether to commence a proceeding.

22. I think that the applicant has made all the inquiries which it is reasonable to expect could have been made. There is evidence that Mr Pateman contacted Mr Arthur Shelley and asked him if he had a copy of the contract. Mr Shelley said that he did not. This was an inquiry made immediately before the commencement of the proceeding. Whether Mr Shelley was telling the truth in his response, I do not know. It is suggested that Mr Pateman should have asked Mr Shelley what was the purchase price and, in effect, accepted his word on that matter. I do not think that the applicant was bound to take that course. I think that it did have an obligation to find out whether the contract was available from some source other than the respondent. The inquiry was made of the only other potential source identified in the evidence; and the inquiry achieved no result.

23. The third requirement of the rule is that there is reasonable cause to believe that the person against whom the application is made has, or is likely to have, or has had or is likely to have had, possession of a document related to the question whether the applicant has a right to obtain the relief and that an inspection of the document by the applicant will assist in making that decision. This requirement is obviously satisfied in the present case.

24. It is unfortunate that the matter has had to come to Court. With a little commonsense it should have been possible to avoid that course. It is difficult to understand why the respondent did not produce the contract when the first request was made, particularly if the terms of the contract were consistent with the offer that had been made on behalf of the respondent to the applicant.

25. I do not think that the applicant acted prematurely in bringing the matter to the Court. It had made a number of requests for the document. It is unfortunate that the facsimile letter of 1 December did not come to the attention of the solicitor handling the matter on behalf of the applicant until after the application had been filed in Court. I do not know what happened in that regard, but there was not a lot of time for the facsimile to reach her attention before the application was filed. In any event that letter was not unconditional, so that it would not have been unreasonable for the applicant to decide nonetheless to go ahead with the application. If the respondent was willing to produce the document, I do not understand why the offer of 15 December was not accepted.

26. In the circumstances, I think that the Court should accede to the application. I make an order in terms of para.1 of the application. The production required by that order is to take place within fourteen days. I order that the applicant pay to the respondent its reasonable costs of furnishing discovery pursuant to order 1, such costs to be assessed or taxed on a solicitor and own client basis. I order the respondent to pay to the applicant its costs of this proceeding.