Bichler v Ipex ITG Pty Ltd [2007] VSC 241 (6 July 2007)

Last Updated: 6 July 2007

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL 7 EQUITY DIVISION

No. 6316 of 2006

GADI BICHLER	Plaintiff
V
IPEX ITG PTY LTD	Defendant

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JUDGE:	SMITH J
WHERE HELD:	Melbourne
DATE OF HEARING:	5 JULY 2007
DATE OF JUDGMENT:	6 JULY 2007
CASE MAY BE CITED AS:	Bichler v Ipex Itg Pty Ltd
MEDIUM NEUTRAL CITATION:	[2007] VSC 241

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Practice and Procedure – Discovery – claim for taking of accounts

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr P Cawthorn	Vardalis & Associates
For the Defendant	Mr R Berglund QC	AJH Lawers

HIS HONOUR:

1 This is an appeal from the whole of the order of the Master made 22 June 2007 directing the defendant to make discovery of the following documents:

1. the source documentation for the Gaddie Metz and Kahan H. I. G. Report discovered by the defendant;
2. any other documents evidencing or at all supporting any calculation of the

EBITDA of the Defendant's HIG Division during the period of the plaintiff's employment by the defendant;

100. copies of correspondence between the defendant and Gaddie Metz and Khan or any other party relating to the calculation of the EBIDTA for the defendant's HIG division for the period of the plaintiff's employment;

4. any documents evidencing or referring to the calculation or payment to the Plaintiff or any other party of the amount referred to in paragraph 5 and 8A of the second further amended statement of claim.

The defendant was ordered to pay the plaintiff's costs of and incidental to the summons dated 24 May 2007, as amended 20 June 2007.

2 The action has been brought by the plaintiff to recover a performance-based bonus to which he claims to be entitled pursuant to an employment agreement between him and the defendant entered into on 30 June 2003. He seeks the taking of accounts and payment of the balance found due.

3 It is common ground that the agreement expressed the bonus entitlements, to operate over the first 12 months of employment, in the following terms

"If EBITDA [Earnings before Interest Tax Depreciation and Amortization] per the Business Plan attached as Annexure B is $500,000 or greater at the end of 12 months , then you [the plaintiff] would receive a $100,000 bonus payment and 50% of all EBITDA greater than $500,000."

4 The plaintiff has pleaded that in December 2003 he received on account of the bonus entitlement $100,000 together with $40,000 on account of his eventual bonus entitlements to 50% of the EBITDA greater than $500,000 (para 5).

5 There are issues, however, as to the precise interpretation of the bonus provision. The plaintiff argues that the EBITDA referred to is that of the defendant. The defendant, however, argues that, at best from the plaintiff’s point of view, the words "per the Business Plan" require the determination of the EBITDA of the various activities set out in the Business plan rather than that of the business conducted throughout Australia by the defendant. The defendant also argues that the reference to the Business Plan also has the effect that the bonus is to be calculated on the projected EBITDA figure contained in it of $560,000 (Appendix B).

6 This being an appeal from a Master, it is to be conducted as a rehearing and I proceed on that basis. The defendant sought leave to rely on additional affidavit material. That material was directed primarily to the issue of whether there was an HIG Division. It seems to me that this issue is relevant to the question of whether the discovery order made can be complied with to the extent that it relates to an HIG Division. It is arguable that it should have been apparent to the defendant at the time of the original hearing that it would be relevant to advert to these issues. I propose, however, without deciding that question, to permit the defendant to rely upon the affidavit because reference to it has highlighted the reality of identifying such a Division and discussion of it provided the context in which it became clear that in fact neither party is taking the position that any bonus is to be calculated by reference to the EBITDA of the HIG Division, as such.

7 The amended summons of the plaintiff seeks discovery of the following documents:

1. All documents relating to the defendant's calculation of its EBIDTA for the financial year 1 July 2003 to 30 June 2004 ("period");
2. All documents that relate to the statement in the Gaddie Metz and Khan HIG Report that is described as:

ALL BASED ON INFORMATION RECEIVED FROM HARMONY.

100. The GP as per Harmony Pivot Report document;

4. The GP as per Baan document;
5. Its income Tax returns for the period;
20. Its internal costings/pricing sheets/calculation of costs of its products and services documents for the period;
21. Its banking records and related banking documents for the period;

5. Copies of all correspondence between the defendant and/or its officers/employees and Geddie Metz and Khan relating to the calculation of the defendant's EBITDA for the period;

23. All accounts to the defendant for services rendered by Geddie Metz and Khan and relating to the preparation of the Geddie Metz and Khan HIG report and also relating to the calculation of the defendant's EBITDA for the period

10. Its documents relating to the calculation or payment to the plaintiff by the defendant referred to in paragraph 5 of the Second Further Amended Statement of Claim;

25. Its documents relating to the calculation or payment to the plaintiff referred to in paragraph 8 A of the Second Further Amended Statement of Claim.

8 The Plaintiff seeks the discovery of the above documents. Counsel for the defendant submits that discovery of those documents should not be sought or required until the questions of interpretation of the agreement were resolved and accounts had been ordered.

9 On this issue, Counsel for the plaintiff referred to a decision of the Court of Appeal of Western Australia in Technomin Australia N. L. v Geometals N. L. (1991) 5 WAR 346 where it was stated that the authorities suggested that the appropriate approach to take is that

"if there is a probability that the plaintiff in an action can obtain complete relief, including an account of monies due to him, at the trial of an action, that [not deferring discovery] is a desirable course to take and discovery will be ordered of documents relevant to the taking of the accounts or interrogatories will be ordered to be answered relevant to those matters, with a view to a saving of delay and costs."

10 In the present case, the indications are that should the defendant's interpretation be successful, there will still be a need to have an order for the taking of accounts. If the plaintiff succeeds in the construction argument, the indications are, again, that a taking of accounts will be necessary. Thus it seems to me highly probable that one way or another there will be a taking of accounts. Further, whichever way the construction argument is decided, the starting point for the taking of accounts will be the financial records of the defendant for the relevant period.

11 Counsel for the defendant drew my attention to the decision of Lightman J. in Baldock v. Addison, [1995] 3 All ER 437, a case concerned with the ordering of discovery where orders have been made splitting the determination of liability and quantum. Counsel relied in particular on the passage (at 442) where it was said that an order for discovery of documents relevant to quantum would only be justified in very special circumstances in such cases. Counsel has argued that in reality such a split exists in this case between the decision as to the construction of the bonus clause and the actual taking of accounts. But it cannot be assumed at this stage that there will be a clean and clear division between the two exercises, particularly when it is borne in mind that after a decision is reached as to the construction of the bonus clause there is likely to be an issue as to the scope of the accounts to be ordered. From a discovery point of view, financial records of the defendant and its activities should be made available for preparation for that debate. In addition, as Lightman J. said, in relation to the discretion to be exercised, "all litigants have a legitimate interest in learning (so far as there is an available source of information) the amount in issue in the litigation. Such information assists decision-making whether or not to proceed with an action or defence."

12 From a practical point of view, the starting point for any determination of the EBITDA, whether of the defendant or of the activities identified in the Business Plan, will be the financial information and records of the defendant. Accordingly, and in light of further submissions, the defendant should be required to make further discovery of the following documents:

A. Profit and Loss Account and Balance Sheet of the defendant for the period 31 July 2003 to 30 June 2004 (“the period”) together with any working papers used in their preparation.

B. The defendant’s Income Tax return for the period.

C. The defendant’s internal costings, pricing sheets, calculations of costs of its Products and Services for the period.

D. The defendant’s banking records and related banking documents for the period.

E. Copies of all correspondence between the defendant and/or its officers/employees and Geddie Metz and Khan relating to the calculation of the defendant’s EBIDTA for the period.

13 As to the other documents sought by the summons, the documents referred to in paragraphs B,C,D and W are not on the material presently before me discoverable because they relate to the alleged HIG Report and it became clear before me that neither party is suggesting that the EBITDA of the HIG Division, if such existed, is relevant. That does not mean that such documents may not be discoverable later .

14 The defendant should also be required to give discovery of any documents in its possession or power relating to the calculation or payment to the plaintiff of the monies referred to in paragraphs 5 and 8A of the Second Further Amended Statement of Claim (X and Y). There appears to be an issue as to whether the defendant made such payments. That being the case, the documents referred to are discoverable.

15 As to costs, the defendant should pay the costs of this appeal notwithstanding that the Master’s discovery order should be set aside; for it opposed the making of any order and thus may be said to have failed.

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