A J Lucas Operations Pty Ltd v CPW Trailer Sales & Repairs Pty Ltd [2012] NSWSC 1052 (10 September 2012)

Last Updated: 13 September 2012

Supreme Court New South Wales

Case Title:	A J Lucas Operations Pty Ltd v CPW Trailer Sales & Repairs Pty Ltd
Medium Neutral Citation:	[2012] NSWSC 1052
Hearing Date(s):	1/08/2012
Decision Date:	10 September 2012
Jurisdiction:	Common Law
Before:	Harrison AsJ
Decision:	The Court orders that: (1) The third defendant, Stephen Coe, is to attend Court on a date to be fixed, for cross examination upon his affidavits verifying the List of Documents of the first, second and third defendants, sworn 14 November 2011, 24 April 2012 and 10 May 2012; (2) The plaintiff is to provide copies to the defendants of the following documents: (a) the documents contained in category 1 of the defendants' List of Categories of Documents for Disclosure; (b) signed statement of Stephen James Edward Coe dated 1 December 2009; and (c) The AJ Lucas Group Limited "Drill Pipe Theft Investigation" carried out by Barrington Group Australia dated 16 December 2009; (3) The plaintiff is to provide copies to the defendants of the following documents only to the extent that they relate to the plaintiff's knowledge of the purported sale and the third defendant's knowledge of what the plaintiff knew of the purported sale: (a) signed statement of Stephen Loneragan dated 16 December 2009; (b) draft unsigned Affidavit of Stephen Loneragan dated 25 August 2010; (c) first draft unsigned statement of Stephen Loneragan dated October 2010; and (d) second draft unsigned statement of Stephen Loneragan dated October 2010. (4) Leave is granted to the defendants to file a cross claim. Such cross claim is to be filed and served within 14 days. (5) Each party is to pay his/its own costs. (6) The proceedings are stood over for directions before the Registrar on Monday, 24 September 2012 at 9.00 am.
Catchwords:	PROCEDURE - claim of conversion and detinue - discovery - application by plaintiff to cross-examine third defendant in relation to alleged insufficient discovery - application by defendants for discovery of documents - claim of legal professional privilege by plaintiff - application to file cross-claim - HELD - grant plaintiff's application to cross-examine third defendant - grant defendants' application for discovery - grant application to file cross-claim
Legislation Cited:	Civil Procedure Act 2005 Evidence Act 1995 Factors (Mercantile Agents) Act 1923 Law Reform (Miscellaneous Provisions) Act 1946 Sales of Goods Act 1923 Uniform Civil Procedure Rules 2005
Cases Cited:	Ampolex v Perpetual Trustee Company (Canberra) Ltd [1996] NSWSC 7; (1996) 40 NSWLR 12 ASIC v Rich [2004] NSWSC 1089 Ange v Fairfax Media Publications Pty Ltd [2010] NSWSC 1200 Hans Pet Constructions Pty Ltd v Cassar [2009] NSWCA 230 CSI International Co Ltd v Archway Personnel (Middle East) [1980] 3 All ER 215 Economos v Bowlers Club of NSW Ltd [2000] NSWSC 1065 Esso Australia Resources Ltd v Commission of Taxation [1999] HCA 67; (1999) 201 CLR 49 Lakatoi Universal Ltd v Walker [1998] NSWSC 470 Marshall and Marshall v Prescott (No 2) [2012] NSWSC 619 Mann v Carnell [1999] HCA 66; (1999) 201 CLR 1 Nair-Smith v Perisher Blue Pty Ltd [2011] NSWSC 878 NRMA Ltd v Morgan [1999] NSWSC 694 Preston v Star City Pty Ltd [2007] NSWSC 293 Southland Coal Pty Ltd (Rec and Mgrs Apptd) (In Liq), in the matter of [2006] NSWSC 899 Tolcher v Gordon [2005] NSWCA 135
Texts Cited:
Category:	Procedural and other rulings
Parties:	A J Lucas Operations Pty Ltd (Plaintiff) CPW Trailer Sales & Repairs Pty Ltd (First Defendant) Coe Drilling Pty Ltd (Second Defendant) Stephen James Edward Coe (Third Defendant)
Representation
- Counsel:	M Luitingh (Plaintiff) A James (Defendants)
- Solicitors:	Truman Hoyle (Plaintiff) Buchanan Legal (Defendants)
File number(s):	2011/142924
Publication Restriction:

JUDGMENT

1. HER HONOUR: There are two motions before the Court. By notice of motion filed 18 May 2012, the plaintiff seeks an order pursuant to Uniform Civil Procedure Rules 2005 (UCPR) rule 21.2 that the third defendant, Stephen James Edward Coe, attend court, on a date to be fixed, for cross examination upon his affidavits verifying the List of Documents of the first, second and third defendants, sworn 14 November 2011, 24 April 2012 and 10 May 2012, respectively.

2. The plaintiff is A J Lucas Operations Pty Ltd ABN 26 087 777 663 (A J Lucas). The first defendant is CPW Trailer Sales & Repairs Pty Ltd ACN 006 624 291 (CPW Trailer). The second defendant is Coe Drilling Pty Ltd ABN 96 007 015 563 (Coe Drilling). The third defendant is Stephen James Edward Coe (Stephen Coe). Stephen Coe is the director and controlling mind of the first and second defendants.

3. By notice of motion filed 4 April 2012, the defendants seek orders, firstly, that leave be given for the defendants to file a cross claim in these proceedings against Global Drilling Services Pty Ltd ACN 006 624 291 (first cross defendant) and Stephen Loneragan (second cross defendant); secondly, that the plaintiff provide discovery in response to category 1 of the defendants' categories of discovery and the documents numbered 5, 6, 7, 8, 9 and 10 in the affidavit of Peter Cameron Thomas dated 14 October 2011, as detailed in the filed List of Documents on behalf of the plaintiff dated 14 October 2011.

The pleading framework

4. On 2 May 2011 the plaintiff filed a statement of claim. The plaintiff carried on the business of providing horizontal directional drilling services. The plaintiff pleads as follows:

5. It is the owner of and was at all material times entitled to the immediate possession of 203 drill pipes of 6' 5/8" diameter (HDD pipes), used for the purpose of providing horizontal directional drilling services.

6. On about 18 July 2008, a then employee of the plaintiff, Stephen Loneragan (Loneragan), acting on behalf of Global Drilling Services Pty Ltd (Global), entered into an agreement with Stephen Coe, acting on behalf of CPW Trailer, pursuant to which Global purported to sell the HDD pipes to CPW Trailer (the purported sale). It is also alleged that at the time of entering into the agreement, CPW Trailer and Coe Drilling were aware or ought to have been aware that the 203 HDD drill pipes were the property of A J Lucas and not of Global and that neither Loneragan nor Global had the authority or consent of A J Lucas to enter into the agreement or effect the purported sale (S/C [7]).

7. It is not disputed that on about 18 July 2008, the HDD pipes were delivered into the possession of CPW Trailer and/or Coe Drilling and/or Stephen Coe and that the defendants paid the sum of $300,800. However, it is alleged that the purported sale occurred without the knowledge, authority or consent of the plaintiff.

8. The plaintiff alleges that CPW Trailer, Coe Drilling and Stephen Coe have wrongfully refused to deliver up possession of the HDD pipes after demands made on 8 February 2011 and 8 March 2011.

9. The plaintiff pleads that as an employee of the plaintiff, Loneragan owed the plaintiff a fiduciary duty to act honestly in his employment and not to benefit himself to the detriment of the plaintiff and that he has breached that duty by entering into the purported sale and arranging for delivery of the HDD pipes to CPW Trailer and/or Coe Drilling and/or Stephen Coe.

10. The plaintiff outlines the alleged delivery of the pipes, on two occasions, into the possession of CPW and/or Coe Drilling and/or Stephen Coe at [8] and [9] of the statement of claim. The plaintiff pleads causes of action in conversion and detinue. It seeks damages including special damages.

11. The amended defence (filed 23 August 2011) admits that on or before 18 July 2008, Loneragan entered into an agreement with Stephen Coe, acting on behalf of CPW Trailer, to sell CPW Trailer the HDD pipes. The defendants say that Loneragan, as an employee of the plaintiff, was entrusted by the plaintiff with the possession and/or control of the HDD pipes purchased by CPW Trailer and with the selling of HDD pipes to purchasers. Further, the defendants plead that they relied upon the ostensible authority of Loneragan to sell the pipes. Stephen Coe says that he acted in good faith and was not aware, nor ought to have been aware, that Loneragan did not have the authority to sell the HDD pipes to CPW Trailer, if such was the case (AD [6]). They plead that the sale by Loneragan to CPW Trailer is valid, as if Loneragan were expressly authorised by the plaintiff to make the sale, and that the plaintiff had represented to Stephen Coe that Loneragan had the authority to sell the HDD pipes. The defendants relied upon the Sale of Goods Act 1923, the Factors (Mercantile Agents) Act 1923 and estoppel.

12. The defendants, in their amended defence, also refer to a meeting held on 1 December 2009 between representatives of the plaintiff and Stephen Coe of Coe Drilling, where it is alleged that the plaintiff by its conduct ratified the sale of the HDD pipes to CPW Trailer.

13. The role Loneragan played, and for whom he was acting, is a critical issue in these proceedings. Each party alleges that Loneragan had actual or ostensible authority to act for the other party.

14. There are three main issues to be determined: first, whether Mr Coe should be cross-examined; secondly, whether discovery and inspection of certain documents should be ordered; and finally, whether the defendants should be granted leave to file and serve a cross-claim.

Discovery generally

15. Under UCPR 21, the Court has power to order a party to give discovery.

16. UCPR 21.2 reads:

"(1) The court may order that party B must give discovery to party A of:

(a) documents within a class or classes specified in the order, or

(b) one or more samples (selected in such manner as the court may specify) of documents within such a class.

(2) A class of documents must not be specified in more general terms than the court considers to be justified in the circumstances.

(3) Subject to subrule (2), a class of documents may be specified:

a) by relevance to one or more facts in issue, or

(b) by description of the nature of the documents and the period within which they were brought into existence, or

(c) in such other manner as the court considers appropriate in the circumstances.

(4) An order for discovery may not be made in respect of a document unless the document is relevant to a fact in issue."

17. Hence, UCPR 21.2(4) limits an order for discovery to those documents that are "relevant to a fact in issue".

18. Rule 21.1 defines "relevant to a fact in issue" as follows:

"(2) For the purposes of this Division, a document or matter is to be taken to be relevant to a fact in issue if it could, or contains material that could, rationally affect the assessment of the probability of the existence of that fact (otherwise than by relating solely to the credibility of a witness), regardless of whether the document or matter would be admissible in evidence."

Documents to be discovered by the defendants

19. The plaintiff has sought the following categories of documents for discovery by the defendants (Maher affidavit 18/5/2012 at 51):

(1) From 1 May 2008 to 31 August 2008, all documents recording, describing or referring to any communications between Loneragan and/or Global and Coe or any other person acting on behalf of CPW Trailer and/or Coe Drilling, in connection with or relating to the sale of a quantity of 6 5/8 HDD Pipes.

(2) From 1 May 2008 to 31 August 2008, all documents recording evidencing, describing or referring to any telephone conversation between Coe and Loneragan, or anyone on behalf of Loneragan, including Loneragan's wife, and including without limitation, statements and invoices relating to any mobile telephone service in the name of Coe and any business telephone service in the name of CPW Trailer or Coe Drilling.

[category 3 not relied upon]

(4) From 1 June 2008 to date, all documents recording, evidencing, describing or referring to the transport and/or storage of the HDD Pipes, the subject of the sale by AJ Lucas to CPW Trailer alleged in the Defence, the location or locations at which the HDD Pipes have been stored and the current location of the HDD Pipes.

(5) From 1 July 2008 to date, all documents recording, describing or referring to the commercial uses to which the HDD Pipes have been put by CPW Trailer and/or Coe Drilling and any remuneration CPW Trailer and/or Coe Drilling has received as a consequence of any such uses.

(6) From 1 July 2008 to date, all company records of CPW Trailer and/or Coe Drilling, including without limitation any asset register, recording or describing the HDD Pipes as being the property of, or an asset of, CPW Trailer and/or Coe Drilling.

(7) From 1 January 2005 to 1 August 2008, all documents recording, describing or referring to the duties, responsibilities and/or authority of Loneragan as an employee of A J Lucas and, in particular, but without limitation, all documents relied upon by the Defendants to establish the allegations in the Defence that Loneragan was entrusted with the possession of, and authorised to sell, the HDD Pipes by A J Lucas.

(8) From 1 January 2005 to 1 August 2008, all documents recording, describing or referring to the duties, responsibilities and/or authority of a person employed as a Drilling Manager within the horizontal directional drilling industry in Australia.

(9) From 1 January 2005 to 1 August 2008, all documents alleged by the Defendants to contain or imply a representation by A J Lucas that Loneragan was authorised to sell the HDD Pipes on A J Lucas' behalf to CPW Trailer.

(10) From 1 January 2005 to 1 August 2008, all documents describing or evidencing the fact alleged by the Defendants that the sale of the HDD Pipes occurred in the ordinary course of A J Lucas' business.

(11) From 1 January 2005 to 1 August 2008, all documents recording, describing or referring to any communication between Loneragan and Coe in the course of A J Lucas' everyday horizontal direction drilling operations/business.

(12) From 1 January 2005 to 1 August 2008, all documents recording, describing or referring to any relationship between Global and A J Lucas.

(13) From 1 July 2008 to date, All documents recording, describing or referring to any sale, or proposed sale, by CPW Trailer or Coe Drilling of the HDD Pipes either alone or as part of a sale, or proposed sale, of the assets of, or shares in, CPW Trailer or Coe Drilling.

20. Initially, only four documents were produced. They are:

(1) a copy of Global invoice 002 for 9 July 2008;

(2) a copy of bank payment confirmation made by electronic funds transfer for 18 July 2008,

(3) a copy of an ANZ Bank statement confirming withdrawal from CPW Trailer's bank account for the period 11 July 2008 to 24 July 2008, and

(4) a Quick Books systems confirmation of the bill and payment transaction for CPW Trailer ATF Coe Family Trust for 17 October 2011.

21. At a later date some telephone records were produced by the defendants.

22. On 9 January 2012, the defendants' solicitor confirmed that those four documents (referred to earlier in this judgment) represented the entirety of the documents his clients held.

23. On 6 March 2012, the defendants' solicitor further advised:

"Our client instructs there are no records of drill pipes actually being received other than the material we have previously provided to you."

24. According to the defendants' solicitor there is no document evidencing the arrival of the drill pipes on site when originally purchased by the defendants. Nor is there any record held by them evidencing the serial numbers of any of the drill pipes received. The defendants did not and do not have a drill pipe inventory recording every pipe ever received by way of serial number, either in paper form or electronically, because it was not the defendants' procedure to record such things.

(1) Whether Mr Coe should be cross-examined

25. The plaintiff seeks to cross-examine the third defendant, Mr Coe, in relation to his affidavits verifying the List of Documents of the first, second and third defendants sworn 14 November 2011, 24 April 2012 and 10 May 2012 respectively.

26. In Ange v Fairfax Media Publications Pty Ltd [2010] NSWSC 1200, Garling J stated:

"[34] There are no specific rules in the UCPR dealing with situations which may arise where one party asserts that the discovery provided by the other party is inadequate. The two remedies commonly encountered for such circumstances are:

(a) an order for the filing of another verified list by way of further and better discovery; and

(b) an order granting leave to cross-examine the deponent on the affidavit that verifies the original list of documents which is said to be inadequate or defective."

27. Garling J explained that this Court has the jurisdiction to make the order of the type sought by the plaintiff (at [35]). His Honour also helpfully set out the principles governing whether the Court should allow cross-examination of a deponent in relation to an affidavit on discovery (at [36] to [42]). They are:

"The Applicable Authorities

36 ... As to whether the Court should allow cross-examination of the deponent as part of its determination on the adequacy of discovery, Giles J said in Fruehauf Finance Corporation Pty Ltd v Zurich Australian Insurance Ltd (1990) 20 NSWLR 359 at 363F (after discussing the applicable principles for allowing further discovery):

"Consistently with this approach, cross-examination of the maker of the affidavit of discovery has not been permitted. To permit cross-examination would be to open up the prohibited areas of investigation, and nullify the restrictions upon contesting both the amplitude of discovery and any claim for protection from inspection..."

37 It should be noted that the issue in that case was whether a claim for legal professional privilege in the affidavit of discovery could be sustained, although Giles J treated that issue as the same in substance as an application to cross-examine the deponent of an affidavit of discovery about the adequacy of discovery.

38 In Proctor & Gamble Australia Pty Ltd v Medical Research Pty Ltd [2001] NSWSC 183 at [64], Hunter J summarised the principles for granting an order for further discovery as follows:

"The affidavit verifying discovery is conclusive of the question unless it can be shown (i) by recourse to the documents discovered; (ii) from the content of the affidavit verifying discovery; (iii) from the pleadings, or "from any other source that constituted an admission of the existence of a discoverable document" that the discovery has been insufficient. Further, where the discovering party has misconceived the nature of the obligation of discovery it is not necessary to infer the existence of relevant documents other than those discovered..."

39 The principles were further discussed by Hoeben J in Preston v Star City Pty Limited [2007] NSWSC 293 at [21]:

"Although the basic rule remains that an affidavit of discovery is conclusive, some exceptions to that rule have been recognised by the common law and by the rules of court (Mulley v Manifold (1959) 103 CLR 341, Fruehouf Corporation Pty Limited v Zurich Australian Insurance Ltd (1990) 20 NSWLR 359). Those exceptions are narrow and require that the insufficiency of the affidavit of discovery appear either from the documents themselves or from any other source that constitutes an admission of the existence of a discoverable document. In applying one of those exceptions the court has to "on the face of it or from admissions in other documents ... have reasonable grounds for being fairly certain that there were other relevant documents which ought to have been disclosed ..." (British Association of Glass Bottle Manufacturers Limited v Nettlefold (1912) AC 709 at 714, Beecham Group Ltd v Bristol Myers Co [1979] VicRp 27; (1979) VR 273 at 276)."

40 The same principles were applied by James J in Economos & Co Pty Ltd v Bowlers Club of NSW Ltd [2000] NSWSC 1065 at [45]- [67], by Harrison J in NM Rural Enterprises Pty Ltd v Rimanui Farms Limited [2008] NSWSC 472 at [11], by R.A. Hulme J in Adelaide Bank Ltd v Property Builders Pty Ltd [2009] NSWSC 1147 at [20]- [38], and by Einstein J in Ace Hire Aust Pty Limited v ADI Limited [2006] NSWSC 969, in circumstances which may have some similarity with the current proceedings.

41 I note that Giles J in Fruehauf (at 366F) expressed his disquiet as to whether the old Chancery aversion to a "conflict of affidavits" was a proper justification for limiting the investigation with which the matter before him was concerned.

42 For my part, particularly in light of the provisions of s 56 of the Civil Procedure Act 2005 and the extensive use of the modern tools of case management to ensure that the real issues in dispute are addressed in a cost effective manner, I share in the disquiet of Giles J. I see no compelling reason to accord to an affidavit verifying a list of documents by way of discovery any special status. Proper compliance with a party's obligations of discovery under the overall supervision of the Court is an important and necessary part of modern litigation. The Court has the capacity to limit discovery, or control the process of giving discovery, so that it does not become unduly onerous."

28. The plaintiff argues that the discovery has been insufficient, as demonstrated by the pleadings and the discovered documents, and that discovery was particularly insufficient in relation to categories 4, 5, 6 and 8 (referred to above).

Categories 4 (location or storage location of HDD pipes) and 8 (documents in relation to Drilling Manager position in HDD industry)

29. I shall deal with these categories jointly since I have come to same conclusion in each relation to each.

30. In relation to category 4, in summary, the plaintiff argued that insufficient discovery of documents can be inferred from the facts that the HDD pipes are "wide, lengthy and heavy" and that the defendants have admitted acquiring the HDD pipes and using them on projects in Sydney and Northern NSW, where the pipes were jammed and remain in the drilling hole. It was said that the Court could be fairly certain that, first, the first and second defendants would have documents relevant to transporting and storing the drill pipes and, secondly, the first and second defendants would have documents relating to the loss of the pipes when they became jammed. The plaintiff also pointed to an invoice issued by the second defendant containing a "settlement amount as per deed of release".

31. The defendants submit that they have given instructions that there are no records of the drill pipes actually being received that have not been disclosed, and that it was not the defendants' procedure to record such things. In the absence of such records evidencing receipt, and having regard to the fact that the defendants have been legally represented throughout the proceedings, it was submitted that the court could not be fairly satisfied of the existence of documents in relation to the transportation or location of the HDD pipes.

32. In relation to category 8, in summary, the plaintiff highlighted that the defendants have admitted that the second defendant carried on the business of providing HDD services and that, in the circumstances, it is reasonable to infer that the second defendant would employ a drilling manager and a further inference could be drawn that the second defendant would possess documents which described, evidenced or referred to the duties or responsibilities of a drilling manager.

33. The defendants submit that, irrespective of whether the second defendant employed a drilling manager or not, there is no basis provided by the plaintiff as to why an inference should be drawn that the second defendant would possess documents relating to the duties and responsibilities of such a person.

34. In relation to these categories of documents, there is nothing more than a "conflict of affidavits" (or, more generally, evidence), as discussed by Hoeben J in Preston v Star City Pty Ltd [2007] NSWSC 293. In that case, his Honour said at [22]:

"Nowhere in the authorities can I find support for the proposition that 'a conflict of affidavits' of itself with nothing more is sufficient to justify an order for further discovery."

35. His Honour's comments are apposite to this case. In this application in relation to categories 4 and 8, there is nothing before me which would lead me to prefer the assertions of the plaintiff over those of the defendants. I cannot resolve the issue of sufficiency of discovery simply by reference to the belief of the plaintiff (albeit one bolstered to some extent by the evidence set out above) that the defendants have been untruthful: Nair-Smith v Perisher Blue Pty Ltd [2011] NSWSC 878 at [34].

36. Therefore, I am not satisfied that there are reasonable grounds for the Court to be fairly certain that there were other relevant documents which ought to have been discovered in these categories.

Category 5 (defendants' commercial use of HDD pipes and consequential remuneration)

37. The plaintiff drew this Court's attention to the copy of the invoice from Global that has been discovered. On the copy of the invoice, the following words appear in handwriting: "to be hired to CDO for 1st Job (Pipe International Collaroy NSW)" (Maher aff 18/5/2012 at 76). The plaintiff has subpoenaed documents from Pipe International and Essential Energy (a NSW statutory corporation). They have produced lengthy documents that originated in the office of Coe Drilling.

38. The documents produced by Pipe International include:

(1) a detailed tender proposal dated August 2008 from the Second Defendant to Pipe International for the carrying out of horizontal directional drilling works at Collaroy. The document states that the works would include the use of 6 5/8 Drill Pipes; and

(2) a fee proposal from the Second Defendant in respect of the carrying out of the works described in the tender proposal;

(3) a purchase order issued by Pipe International to the Second Defendant, various invoices from the Second Defendant to Pipe International and remittance records and banks statements evidencing payments by Pipe International to the Second Defendant in respect of the works described in the tender proposal; and

(4) emails and other correspondence between Pipe International and the Second Defendant relating to the works described in the tender proposal.

39. The documents produced by Essential Energy include:

(1) a document described as a contract for the "installation of electrical conduits Clarence River by horizontal directional drilling - Yamba to Iluka", which contains conditions of tender issued by Country Energy in respect of the installation of electrical conduits between Yamba and Iluka beneath the Clarence river and a proposal from the second defendant to Country Energy for the carrying out of those works and an Instrument of Agreement, signed by the third defendant on behalf of the second defendant, dated 19 March 2009; and

(2) Tax invoices issued by the second defendant to Country Energy, relating to the installation of electrical conduits beneath Clarence River, with records of payments made by Country Energy.

40. The plaintiff also drew the Court's attention to a letter from the defendants' solicitor dated 6 March 2012, in evidence that states:

"Our client advises the pipes were used in one project in the Sydney area and we are awaiting any material he may have... After that they were used in a project in northern NSW around the Iluka area..."

41. In relation to the pleadings, the plaintiff refers to the amended defence in which the defendants admit:

(1) that the First Defendant owned and, or alternatively, possessed equipment for use in the provision of horizontal directional drilling services, including HDD pipes, and carried on the business, among other things, of entering into commercial relationships with the second defendant, and other companies controlled by the third defendant, whereby the first defendant granted the right to use such equipment (Defence to SOC at [1] and [3]); and

(2) that the second Defendant carried on the business, among other things, of providing HDD drilling services in competition with the plaintiff and entered into commercial relationships with the first defendant to acquire possession and use of equipment for the purpose of providing HDD services (Defence to SOC at [1]).

42. The defendants submitted that this Court would not be satisfied that they have possession of any further documents because the third defendant has deposed to making reasonable enquiries as to the existence and location of documents that the defendants are obliged to disclose, and said that there are no such documents other than those referred to in the List of Documents. Further, the defendants submitted that their solicitor has taken steps to examine the defendants' electronic records to assist the defendants in meeting their disclosure obligations.

43. The defendants' submissions only repeat the substance of the third defendant's affidavits verifying discovery, which state that the third defendant believes that there are no further documents which need to be discovered, and to which is attached a solicitor's certificate, which certifies that the defendants' legal representative is "not aware" of any further documents which need to be discovered.

44. I am satisfied that the amended defence and the discovered invoice demonstrate that there are reasonable grounds for the Court to be fairly certain that there were other relevant documents which ought to have been discovered in this category.

Category 6 (defendants' asset register or equivalent)

45. On the copy of the Global invoice, the following words also appear in handwriting: "add to Equipment List" (Maher aff 18/5/2012 at 76). The plaintiff relies on this document to invite the Court to infer that the defendants maintain an asset register, or something similar, in which ownership of the HDD pipes would be recorded.

46. The defendants relevantly submitted that correspondence between the parties indicates that it was not the procedure of the defendants to maintain a drill pipe inventory recording every pipe received. It further submitted that the third defendant has deposed to the absence of any further documents that should be disclosed.

47. However, this is not an instance of "conflict of affidavits" alone. The plaintiff has pointed to a discovered document which, in my view, demonstrates that there has been insufficient discovery.

48. I am satisfied that the disclosed documents and the pleadings demonstrate that the discovery has been insufficient in respect of categories 5 and 6, in that there are reasonable grounds for the Court to be fairly certain that there were other relevant documents which ought to have been discovered. Therefore the third defendant is ordered to attend Court for cross-examination, by the plaintiff, on his affidavits relating to discovery.

(2) Discovery and inspection of documents

49. The defendants seek discovery of documents within Category 1 of their List of Categories of Documents for Disclosure, namely:

"Any documents relating to the plaintiff's employment of Stephen Loneragan (Loneragan), and the circumstances of his termination."

50. The plaintiff objects to proving discovery for this category because, it says, such documents are irrelevant to any issue in these proceedings. It submits that nowhere in the pleadings is the termination of Loneragan's employment with the plaintiff referred to or put in issue. According to the plaintiffs, the defendants' submissions are only based on an assumption that Loneragan's employment was terminated and that the termination was directly related to his breach of fiduciary duty. Finally, the plaintiff says that the request for discovery of the category 1 documents is nothing more than a "fishing expedition", such that the Court should not order discovery. On this last point the plaintiff relied upon Economos v Bowlers Club of NSW Ltd [2000] NSWSC 1065, in which James J said at [54]:

"[In the Supreme Court] it is now insufficient, in order for a document to be discoverable, that, the document, if discovered, might lead to a chain of inquiry which might advance the case of the opposing party. Discovery should not be ordered, if an application for discovery amounts to a fishing expedition."

51. The defendants say that central to the plaintiff's claim against them is the assertion that Loneragan breached the fiduciary duty he owed to the plaintiff as his employer and that the defendants were aware of that breach. They say that the circumstances of Loneragan's termination go to establishing whether he was forced to leave or whether he was given an opportunity to leave the plaintiff's employment on his own terms. It was submitted that evidence of Loneragan being allowed to leave on his own terms would be inconsistent with the plaintiff's assertion that he breached his fiduciary duty, or alternatively would support a finding that the plaintiff had, by its conduct, authorised Loneragan's sale of the HDD pipes to the defendants.

52. In determining relevance, the terms of UCPR 21.1(2) apply. The Court must bear in mind that the parties are entitled to build up an "evidentiary mosaic" which cannot generally be done, particularly in complicated commercial litigation, by the tender of one piece of evidence: Lakatoi Universal Ltd v Walker [1998] NSWSC 470; see also Marshall and Marshall v Prescott (No2) [2012] NSWSC 619 at [61] (Bellew J). In Lakatoi Universal Ltd, Rolfe J also said that, "the court should not be astute to find irrelevance at any early stage of the proceedings".

53. It is my view that the circumstances of the plaintiff's termination of Loneragan's employment is rationally capable of affecting the assessment of the probability of the existence of the alleged breach of Loneragan's breach of fiduciary duty (and the defendants' awareness of the breach). Therefore, the plaintiff must discover the documents belonging to category 1 of the defendants' List of Categories of Documents for Disclosure.

Documents 6 - 10 in the plaintiff's List of Documents (claim for privilege)

54. The defendants seek an order that the plaintiff provide discovery of the following documents that the plaintiff claims are privileged and need not be disclosed:

(1) signed statement of Mr Stephen James Edward Coe dated 1 December 2009;

(2) signed statement of Stephen Heaton Loneragan dated 16 December 2009;

(3) AJ Lucas Group Limited - Drill Pipe Theft Investigation carried out by Barrington Group Australia dated 16 December 2009;

(4) draft unsigned Affidavit of Stephen Heaton Loneragan dated 25 August 2010;

(5) first draft unsigned statement of Mr Stephen Heaton Loneragan dated October 2010; and

(6) second draft unsigned statement of Mr Stephen Heaton Loneragan dated October 2010.

55. The plaintiff submits that these are privileged documents because they are confidential documents that were prepared by a lawyer for the dominant purpose of providing legal advice to the plaintiff.

Whether the plaintiff's claim for legal professional privilege should be upheld

56. On 2 May 2011 the plaintiff filed its statement of claim. Hence these documents were obtained prior to legal proceedings being commenced. However, that is not determinative of whether or not these documents were obtained for the dominant purpose of providing legal advice to the client. It is necessary to examine how these documents came into existence and for what purpose or purposes.

57. Section 118 of the Evidence Act 1995 provides in relation to legal professional privilege associated with the provision of legal advice that:

"Evidence is not to be adduced if, on objection by a client, the court finds that adducing the evidence would result in disclosure of:

(a) a confidential communication made between the client and a lawyer, or

(b) a confidential communication made between 2 or more lawyers acting for the client, or

(c) the contents of a confidential document (whether delivered or not) prepared by the client, lawyer or another person,

for the dominant purpose of the lawyer, or one or more of the lawyers, providing legal advice to the client."

58. As can be seen from s 118, in order for evidence to be protected by legal professional privilege, the plaintiff must demonstrate that the communication or the contents of the document was confidential.

59. The purpose for which a communication is made or a document is created is a question of fact which must be determined objectively, having regard to all of the evidence: Esso Australia Resources Ltd v Commission of Taxation [1999] HCA 67; (1999) 201 CLR 49; In the Matter of Southland Coal Pty Ltd (Rec and Mgrs Apptd) (In Liq) [2006] NSWSC 899.

60. The plaintiff, as the party claiming privilege, bears the onus of establishing the basis of the claim and the party seeking production does not bear the onus of excluding privilege: ASIC v Rich [2004] NSWSC 1089.

61. In relation to its claim of legal professional privilege, the plaintiff relied upon an affidavit of Terence Brian Grace sworn 18 May 2012. Mr Grace is the General Counsel for A J Lucas Group, the holding company of the plaintiff. In the affidavit, he sets out the background to the plaintiff's claim for legal professional privilege.

62. Mr Grace deposes that at a meeting, which occurred on, or about 18 October 2009 with Mr Paul Shields, a project manager employed by the plaintiff, and Mr Ross Lane, the commercial manager employed by the plaintiff in relation to pipeline and horizontal drilling projects, Mr Shields said words to the following effect (at [4]):

"I have found details of some project-cost transactions which show that AJ Lucas has paid for the movement of drill pipes to locations where there were no jobs going on and where we did not have a storage yard or facility. I am concerned that these purchase orders might be incorrect and have been signed off by senior personnel."

63. Mr Grace details that he subsequently reviewed the A J Lucas Group corporate governance and risk management policies. On 15 October 2009, he issued a memorandum entitled "Governance Guidelines - Dishonesty & Fraud" to the Chairman and Chief Executive. The Guidelines provided that any unauthorised financial transactions were required to be investigated and to be made the subject of a report before any person may be identified or implicated as a target of any investigation. The Guidelines also required that a considered investigation be undertaken and external legal advice should be obtained to confirm what step should be taken and how any recovery could take place.

64. An external investigator, Barrington Group Ltd (Barrington), was appointed to conduct the investigation. Of particular importance is what Mr Grace says was the reason for engaging Barrington:

"Because Paul Shields had told me that senior AJ Lucas Group personnel were involved in potentially unauthorised transactions, and because I was then relatively new to the organisation, I was concerned that it would be very difficult to conduct an impartial and confidential internal investigation."

65. Mr Grace further deposes that he said to Mr Shields and Mr Lane at their meeting on 12 October 2009:

"Given what you've said about who may be involved, this is not something we can investigate internally. Do either of you know an external investigator we can use?"

66. Barrington was engaged by the plaintiff and Mr Grace instructed Mr Lane to "help with their investigation". A preliminary presentation was provided by Barrington in October 2009 in relation to the results of their enquiries, after which Mr Grace instructed Barrington to prepare a final written report.

The Report by Barrington Group Ltd

67. In order for the written report to be subject of the legal advice privilege provided by s 118 of the Evidence Act, it must be demonstrated by the plaintiff that the document was prepared for the dominant purpose of providing legal advice to the client.

68. The plaintiff submits that the purpose of Mr Grace instructing Barrington to carry out and report on its investigations was to obtain external legal advice.

69. The defendants submit that it is apparent from the affidavit of Mr Grace that the dominant purpose of the commissioning of the report was to facilitate an "impartial and confidential investigation" into concerns that senior personnel were involved in a "potential breach of fidelity". The defendants argue that the fact that the legal advice was later sought in relation to the report does not bring the report within the protection afforded by s 118. The defendants therefore submit that in the circumstances, the Barrington report should be disclosed.

70. In relation to the "dominant purpose" requirement, Austin J in Southland Coal said:

"If the document would have been prepared irrespective of the intention to obtain professional legal services, it will not satisfy the test (Grant v Downs, at 688, per Stephen, Mason and Murphy JJ). The existence of an ancillary purpose is not fatal to a claim for privilege, but if there are two purposes of equal weight, it is unlikely that one would dominate the other - Stephen Odgers, Uniform Evidence Law, 6th ed at [1.3.10500] to [1.3.10520]."

71. In my view, the Barrington report was created for several purposes, namely obtaining legal advice and to ensure the conduct of an impartial investigation of the plaintiff. Neither purpose can be said to be dominant and, therefore, the report does not attract client legal privilege and should be made available for inspection by the defendants.

Mr Coe's statement

72. The plaintiff submits that Mr Coe's statement dated 1 December 2009 was created for the purpose of obtaining external legal advice and that, therefore, it was created for the dominant purpose of the plaintiff being provided with legal advice and attracted client legal privilege.

73. It was submitted by the defendants that the plaintiff could not have had any expectation of confidentiality in relation to the statement provided by Mr Coe. It is submitted that, in the circumstances, the plaintiff is unable to maintain a claim for privilege in relation to Mr Coe's statement.

74. In response the plaintiff says that as a matter of basic principle, a statement obtained from anyone for the purpose of obtaining legal advice is privileged and that there was no suggestion that Mr Coe's statement was obtained for the purpose of production to a third party.

75. It is my view that, Mr Coe's statement does not attract client legal privilege because it was prepared in connection with the Barrington report and was therefore not prepared for the dominant purpose of obtaining legal advice. The plaintiff must disclose the statement of Mr Coe to the defendants.

Statements and affidavit of Mr Loneragan

76. According to counsel for the defendants, counsel for the plaintiff sought to gain a forensic advantage at the hearing of the notice of motion on 27 January 2012 by relying upon the content of an affidavit provided by Loneragan. Therefore, the defendants say, the plaintiff has disclosed the substance of Loneragan's affidavit and as such has lost any client legal privilege that may otherwise have attached to it.

77. Section 122 of the Evidence Act relevantly reads:

"...

(2) Subject to subsection (5), this Division does not prevent the adducing of evidence if the client or party concerned has acted in a way that is inconsistent with the client or party objecting to the adducing of the evidence because it would result in a disclosure of a kind referred to in section 118, 119 or 120.

(3) Without limiting subsection (2), a client or party is taken to have so acted if:

(i) the client or party knowingly and voluntarily disclosed the substance of the evidence to another person, or

(ii) the substance of the evidence has been disclosed with the express or implied consent of the client or party..."

78. The defendants point to what Mr Luitingh of counsel said at page 5 of the transcript for 27 January 2012:

"... Now, your Honour, in broad context we say there are two principles which a court would take into account in this case and that is firstly that we are dealing with two people who surreptitiously, certainly on the evidence of Mr. Loneragan that is given us in affidavit, and behind the plaintiff's back to the exclusion of the plaintiff, who actually does not know what the negotiations were, sold and purchased pipes which had been stolen from the plaintiff." (emphasis added)

79. The defendants submitted that having regard to the above, the plaintiff has disclosed the substance of the affidavit provided by Loneragan, and as such has lost any client legal privilege that may otherwise have attached to it and therefore the plaintiff should be required to produce that document. As detailed in the plaintiff's List of Documents, there are a number of written documents that relate to information provided by Loneragan. The defendants further submitted that all copies of those statements should be disclosed in order to put the submissions of Mr Luitingh in relation to that evidence of Loneragan.

80. The plaintiff submitted that the statements attributed to Mr Luitingh are narrow in compass and the evidence of Loneragan is said to go only to the question of whether he and Mr Coe acted without the knowledge of the plaintiff in the sale of the HDD pipes. Hence, the plaintiff says that the statements do not disclose the substance of Loneragan's affidavit.

81. The substance of a privileged document can be disclosed even if only the ultimate conclusion therein is disclosed, without revealing the reasoning process: Ampolex v Perpetual Trustee Company (Canberra) Ltd [1996] NSWSC 7; (1996) 40 NSWLR 12.

82. In Mann v Carnell [1999] HCA 66; (1999) 201 CLR 1, Gleeson CJ, Gaudron, Gummow and Callinan JJ said at [29]:

"Disputes as to implied waiver usually arise from the need to decide whether particular conduct is inconsistent with the maintenance of the confidentiality which the privilege is intended to protect. When an affirmative answer is given to such a question, it is sometimes said that waiver is "imputed by operation of law". This means that the law recognises the inconsistency and determines its consequences, even though such consequences may not reflect the subjective intention of the party who has lost the privilege. Thus, in Benecke v National Australia Bank, the client was held to have waived privilege by giving evidence, in legal proceedings, concerning her instructions to a barrister in related proceedings, even though she apparently believed she could prevent the barrister from giving the barrister's version of those instructions. She did not subjectively intend to abandon the privilege. She may not even have turned her mind to the question. However, her intentional act was inconsistent with the maintenance of the confidentiality of the communication. What brings about the waiver is the inconsistency, which the courts, where necessary informed by considerations of fairness, perceive, between the conduct of the client and maintenance of the confidentiality; not some overriding principle of fairness operating at large."

83. In my view, without having had the opportunity to view the documents that are the subject of the claim of privilege, Mr Luitingh has disclosed the substance of Loneragan's evidence to the extent that it relates to the plaintiff's knowledge of the purported sale and the third defendant's knowledge of what the plaintiff knew about the purported sale: see NRMA Ltd v Morgan [1999] NSWSC 694 at [17]. The plaintiff is to grant access to the defendants to such parts of Loneragan's statement, draft affidavit and draft statements that address these issues.

(3) The cross claim

84. The final issue to be determined is whether the defendants should be permitted to file a cross claim out of time. Section 22 of the Civil Procedure Act 2005 reads:

"22 Defendant's right to cross-claim

(1) Subject to subsection (2), the court may grant to the defendant in any proceedings ("the first proceedings") such relief against any person (whether or not a plaintiff in the proceedings) as the court might grant against that person in separate proceedings commenced by the defendant for that purpose.

(2) Relief may not be granted under this section against a person who is not a plaintiff in the first proceedings unless the relief relates to, or is connected with, the subject of the first proceedings.

(3) A person against whom a defendant makes a claim for relief under this section:

(a) has the same rights in respect of his or her defence against the claim as he or she would have in separate proceedings commenced against the person by the defendant, and

(b) if not already a party to the first proceedings:

(i) becomes a party to the first proceedings, and

(ii) unless the court otherwise orders, is bound by any judgment (including a judgment by consent or by default) or decision (including a decision by consent) on any claim for relief in the proceedings (including a claim for relief in any cross-claim in the proceedings)."

85. UCPR 9.1 relevantly reads:

"9.1 Making of cross-claim

(1) A party ("the cross-claimant") may make a cross-claim:

(a) in proceedings commenced by statement of claim, within the time limited for the party to file a defence,

...

or within such further time as the court may allow."

86. The defendants seek to file a cross claim against Global as first cross defendant, with Loneragan as second cross defendant. Loneragan is the controlling mind of Global. The cross claim seeks from the cross defendants a contribution or indemnity pursuant to s 5(1)(c) of the Law Reform (Miscellaneous Provisions) Act 1946.

87. The power to entertain cross claims, conferred by s 22, has been held sufficient to permit a cross claim to be filed at any time before satisfaction of the principal judgment: CSI International Co Ltd v Archway Personnel (Middle East) [1980] 3 All ER 215 at 220. Furthermore, UCPR 9.1(1) gives a Court power to allow for a cross claim to be filed at any time.

88. The plaintiff opposes the filing of this cross claim for three reasons. First, it says that the cross claim pleads a case against Loneragan that is contrary to that pleaded in its amended defence; secondly, delay on the part of the defendants in bringing the cross claim causes prejudice; and finally, it is not convenient to do so.

Delay, prejudice and convenience

89. The plaintiff submitted that the defendants have provided no satisfactory explanation for the delay in seeking to file a cross claim. It further submitted that the proposed joinder will prejudice the plaintiff's entitlement to the just, quick and cheap resolution of its claim.

90. The defendants submitted that the delay in seeking to file the cross claim must be assessed in the context of the plaintiff's delay in the filing of the statement of claim in 2011, when the purported sale occurred in 2008. While it is not clear whether the plaintiff's actions in this regard are relevant (see generally Tolcher v Gordon [2005] NSWCA 135 at [87] - [96]), I do not accept the plaintiff's argument based on delay. This argument cannot be divorced from the overriding purposes of case management that were relied upon by the plaintiff.

91. In relation to delay and prejudice, the plaintiff relied upon ss 56 - 58 of the Civil Procedure Act. Section 56 states that the overriding purpose of that Act is to "facilitate the just, quick and cheap resolution of the real issues in the dispute or proceedings". In Hans Pet Constructions Pty Ltd v Cassar [2009] NSWCA 230, Allsop ACJ said at [36]:

"Delay and case backlog are not merely factors affecting the public cost of delivering justice, they corrode the ability of the courts to provide individual justice."

92. The defendants submitted that there is a strong connection between the subject matter of the current proceedings and the subject matter that forms the basis of the cross claim against Loneragan and Global. I agree. In Kandt Stening Group Pty Ltd v Stening [2006] NSWSC 307, Campbell J said at [22] - [24]:

"The question for present purposes, given that the present cross-claim is sought to be filed outside the time for filing a defence, is whether the Court ought allow the further time.

When exercising a discretion whether to allow that time, the Court will take into account whether issues raised by a cross-claim can conveniently be tried, or indeed need be tried, along with those raised by the principal claim.

In the present case, in my view, the relief which is sought in the cross-claim is all related to, or connected with the subject matter of the first proceedings..."

93. If leave is not granted to the defendants to file the cross claim, the defendants will have to commence separate proceedings against Loneragan and Global. Subject to the discussion below in relation to alleged inconsistency with the amended defence, I find that it is convenient for the cross claim to be filed and that this course alone would satisfy the overriding purpose of the Civil Procedure Act. The cross claim would enable the just, quick and cheap resolution of the plaintiff's and the defendants' claims in relation to the purported sale.

Whether the cross claim is inconsistent with the amended defence

94. The plaintiff submitted that the pleas set out in the defendants' Amended defence and proposed cross claim are inconsistent, as follows:

(1) In the amended defence, the defendants state that the plaintiff held Loneragan out as being authorised by the plaintiff to sell the HDD pipes to the first defendant and that the third defendant, acting on behalf of the first defendant, relied upon this representation and believed the pipes were being purchased from the plaintiff or a company related to the plaintiff; and

(2) in the proposed cross claim, in particular at [7] and [8], the defendants seek to plead an agreement between the third defendant, acting on behalf of the first defendant, and Loneragan as seller.

95. The plaintiff submitted that the defendants could not both approbate and reprobate the contract of sale.

96. In the amended defence, the defendants plead at [4]:

"4 The defendants...

a. Admit that...Loneragan, was an employee of the plaintiff

b. Say that as an employee of the plaintiff, Loneragan was entrusted by the plaintiff with the possession and/or control of the HDD Pipes purchased by CPW, and with selling of the HDD pipes to purchasers;

...

d. Admit that Loneragan entered into an agreement with Coe, acting on behalf of CPW, to sell the CPW a quantity of HDD pipes..."

97. In the proposed cross claim the defendants plead at [6] - [7]:

"6 At all material times, Loneragan was employed as its drilling manager by the plaintiff A J Lucas Operations Pty Ltd (AJ Lucas), a company that provided horizontal drilling services

7 In or about late June or early July 2008, Coe, for and on behalf of CPW, entered into an agreement with Loneragan purporting to act for AJ Lucas to purchase a quantity of HDD Pipes (the Agreement)."

98. Unfortunately the defendants did not specifically address the alleged inconsistency in their written submissions. However, I have considered the proposed cross claim carefully and have come to the view that it is not inconsistent with the amended defence. These pleadings do not constitute approbation and reprobation of the contract of sale.

99. Hence, leave is granted to the defendants to file the proposed cross claim. Such cross claim is to be filed and served within 14 days.

Costs

100. Costs are discretionary. Both parties were largely successful in obtaining the orders they sought in their notices of motion. In the exercise of my discretion, the appropriate order for costs is that each party pay his/its own costs.

The Court orders that:

(1) The third defendant, Stephen Coe, is to attend Court on a date to be fixed, for cross examination upon his affidavits verifying the List of Documents of the first, second and third defendants, sworn 14 November 2011, 24 April 2012 and 10 May 2012;

(2) The plaintiff is to provide copies to the defendants of the following documents:

(a) the documents contained in category 1 of the defendants' List of Categories of Documents for Disclosure;

(b) signed statement of Stephen James Edward Coe dated 1 December 2009; and

(c) The AJ Lucas Group Limited "Drill Pipe Theft Investigation" carried out by Barrington Group Australia dated 16 December 2009;

(3) The plaintiff is to provide copies to the defendants of the following documents only to the extent that they relate to the plaintiff's knowledge of the purported sale and the third defendant's knowledge of what the plaintiff knew of the purported sale:

(a) signed statement of Stephen Loneragan dated 16 December 2009;

(b) draft unsigned Affidavit of Stephen Loneragan dated 25 August 2010;

(c) first draft unsigned statement of Stephen Loneragan dated October 2010; and

(d) second draft unsigned statement of Stephen Loneragan dated October 2010.

(4) Leave is granted to the defendants to file a cross claim. Such cross claim is to be filed and served within 14 days.

(5) Each party is to pay his/its own costs.

(6) The proceedings are stood over for directions before the Registrar on Monday, 24 September 2012 at 9.00 am.

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