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Rattenbury v Elstak[2022] QDC 99

DISTRICT COURT OF QUEENSLAND

CITATION:

Rattenbury and Anor v Elstak and Ors [2022] QDC 99

PARTIES:

NIGEL RATTENBURY

(first plaintiff)

MELINDA RATTENBURY

(second plaintiff)

v

JESSE OSCAR MARTIN ELSTAK

(first defendant)

JANE ELSTAK

(second defendant)

AQUAHOLICS ONLINE PTY LTD

(third defendant)

J ELSTAK PTY LTD

(fourth defendant)

FILE NO/S:

D138/2018

DIVISION:

Civil

PROCEEDING:

Application

DELIVERED ON:

13 May 2022

DELIVERED AT:

Maroochydore

HEARING DATE:

25 February 2022

JUDGE:

Cash QC DCJ

ORDERS:

The first plaintiff is to bring in a draft order consistent with these reasons.

CATCHWORDS:

PROCEDURE – CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS – DISCLOSURE – where the plaintiffs seek further disclosure of financial records – whether the plaintiffs satisfy the precondition of subrule 4(b)(i) of rule 223 of the Uniform Civil Procedure Rules 1999 (Qld) – where the defendants submitted that the documents are not directly relevant to an issue in dispute

PROCEDURE – CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS – PLEADINGS – STRIKING OUT – where an application was brought for strikeout of some paragraphs of the plaintiff’s statement of claim – whether order should be made – whether the pleading discloses no reasonable cause of action

PROCEDURE – CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS – where the first plaintiff seeks leave to file a third amended claim and fourth amended statement of claim – where the defendants consent to leave being granted to the plaintiffs to discontinue

CASES:

General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125, 129-130

Mercantile Mutual Custodians Pty Ltd v Village/Nine Network Restaurants and Bars Pty Ltd [2001] 1 Qd R 276

Robson v REB Engineering Pty Ltd [1997] 2 Qd R 102

St Clair v Timtalla Pty Ltd & Anor (No 2) [2010] QSC 480, [11], [14]

TradeCoast Land Pty Ltd v TradeCoast Central Pty Ltd & Ors [2021] QSC 25

COUNSEL:

R W Tooth for the plaintiffs

M D White for the defendants

SOLICITORS:

Simpson Quinn for the plaintiffs

Stonegate Legal for the defendants

  1. [1]
    On 26 September 2018 Nigel Rattenbury (the first plaintiff) and Melinda Rattenbury (the second plaintiff) filed a claim against Jesse Elstak (the first defendant), Jane Elstak (the second defendant) and Aquaholics Online Pty Ltd (the third defendant).[1] The claim, and the associated first statement of claim,[2] alleged there had been a partnership agreement involving the first and second plaintiffs and the first and second defendants. The purpose of the agreement was to conduct a business selling aquariums and associated equipment using online services such as eBay. In the original claim the plaintiffs sought a declaration that the partnership be terminated and the taking of accounts. There was also a claim for a declaration about the ownership of some fish tanks and equipment which the plaintiffs suspected had been transferred by the first defendant to the third defendant.[3]
  1. [2]
    A defence was filed on 2 November 2018.[4] Since then the pleadings have been refined. There is presently a second amended claim (2AC),[5] third amended statement of claim (3ASOC),[6] second amended defence (2AD),[7] and second amended reply (2AR).[8] The 2AC added the fourth defendant, J Elstak Pty Ptd, an entity said to be directed by the first defendant and held in equal shares between the first and second defendants. The 2AC sought, among other things, a declaration that there had been a partnership, orders to dissolve the partnership, wind it up and account for its profits, damages for either breach of contract or breach of fiduciary duty, and findings that the third and fourth defendant held property that properly belonged to the partnership and consequential orders to remedy this situation.
  1. [3]
    Things have moved on since the 2AC. The plaintiffs no longer press the claim that there was a partnership. The matters advanced by the plaintiffs in the 3ASOC can be distilled to the following. The first plaintiff sold aquarium goods on eBay under the name “Aquaholics”. This is described in the pleadings as “the Business”. In March or April 2010, the first plaintiff and the first defendant orally agreed to carry on the business together. The alleged terms of the agreement were that the first plaintiff was to run marketing and the eBay side of the business while the first defendant maintained a warehouse for stock, dispatched orders and managed the venture’s finances, including bookkeeping. There was to be a split of the net profits, with 40% going to the first plaintiff and 60% to the first defendant. The 3ASOC further alleges that a method of calculating the net profit was implied as a term of the oral agreement. Under this method wages and drawings taken by any party were excluded from the calculation of net profit but accounted for when distributing the profit. These calculations were to be done by the first defendant and occurred monthly from April 2012 to June 2014 when, it is alleged, the first defendant refused to participate. The first plaintiff says that from this time he has not had access to the business’s books and accounts. In December 2017 the first defendant terminated the agreement and locked the first plaintiff out of the business.
  1. [4]
    Relying on these allegations the first plaintiff claims he has not been paid his 40% of the net profit. In the 3ASOC, and proposed 4ASOC, the first plaintiff also claims the first or third defendant has converted aquarium equipment and seeks compensation in this regard. The relief that had been claimed by the second plaintiff is to be abandoned. The pleadings reveal that the defendants accept there was an agreement, including a profit-sharing arrangement, but they contend it involved a different method of calculating the profit and say that all amounts owing have been paid to the first plaintiff.
  1. [5]
    Some disclosure has occurred, but the first plaintiff says that the defendants must make further disclosure of financial records so the first plaintiff can calculate the amount owing under the profit-share arrangement. The first plaintiff also seeks leave to file a third amended claim and fourth amended statement of claim (4ASOC) to clarify the claims made and relief sought, and to align the claim with the state of the pleadings.[9] The effect of the new pleadings would be to formally abandon (whether by withdrawal, dismissal, or some other means) the parts of the claim no longer pressed by the first plaintiff. This would include the removal of the second plaintiff, second defendant and fourth defendant as parties. The plaintiffs applied for these orders in an amended application filed 14 February 2022.[10]
  1. [6]
    The defendants oppose further disclosure, but they do not resist the plaintiffs reducing and refining their claims. However, there is some dispute about how this might be achieved and, more importantly, who is to the bear the costs of the exercise. The defendants were keen to ensure they have their costs of those parts of the proceeding that the plaintiffs no longer press. To this end the defendants applied for summary judgment on those parts of the 2AC the plaintiffs want to abandon and consequential orders about costs. The defendants do not oppose the first plaintiff having leave to file the 4ASOC, but they object to the part of the statement of claim that asserts either the first or third defendants may be liable for conversion.[11] This relates to fish tanks and equipment the first plaintiff says he owns, but which are in the possession of either, or both, of the first and third defendants. It is said by the defendants that the pleading is inadequate in failing to identify how the third defendant could be liable when it was not incorporated until months after the delivery and installation of the fish tank.
  1. [7]
    The trial has been set down for three days in early October 2022. The matters for determination now are whether the defendants should be required to make further disclosure, whether the pleading about the conversion claim should be struck out and how the pleadings might be made to conform to the claims now advanced by the first plaintiff.

Disclosure

  1. [8]
    The first plaintiff seeks the disclosure of categories of documents. Each are said to be necessary to permit the first plaintiff to calculate his share of the profit of the business. The disclosure that has been made by the defendants so far extends to some 1,400 pages and includes what might be called “top-level” documents, such as profit and loss statements and tax returns. The material sought by the first plaintiff is, essentially, the source data that informed the top-level documents that have already been disclosed. The first plaintiff relies upon rule 223 of the Uniform Civil Procedure Rules 1999 (Qld) (“UCPR”), which relevantly provides:

223 Court orders relating to disclosure

  1. (1)
    The court may order a party to a proceeding to disclose to another party a document or class of documents by—
  1. (a)
    delivering to the other party in accordance with this division a copy of the document, or of each document in the class; or
  1. (b)
    producing for the inspection of the other party in accordance with this division the document, or each document in the class.

  1. (4)
    An order mentioned in subrule (1) or (2) may be made only if—
  1. (a)
    there are special circumstances and the interests of justice require it; or
  1. (b)
    it appears there is an objective likelihood—
  1. (i)
    the duty to disclose has not been complied with; or
  1. (ii)
    a specified document or class of documents exists or existed and has passed out of the possession or control of a party.

  1. [9]
    As may be seen, the court may only order further disclosure if one of the preconditions of subrule (4) have been satisfied. Here the first plaintiff relies upon 4(b)(i), submitting there is an objective likelihood that the defendants have not complied with the duty to disclose. In turn, this calls for a consideration of the general obligation of disclosure, which of course is limited to the disclosure of documents that are “directly relevant to an allegation in issue in the pleadings”.[12] The notion of direct relevance contemplates material of a kind that would tend to prove or disprove an allegation.[13] It is not enough that the documents sought might be supposed to advance the case for one side or damage the case for the other.[14] Mere suspicion that there has been a failure to disclose documents that are directly relevant is not sufficient, it must be objectively likely that there has been a failure to disclose.[15] Of course, the guiding principles in rule 5 of the UCPR always remain relevant.
  1. [10]
    The application is resisted solely on the basis that the documents are not directly relevant to an issue in dispute in the pleadings.
  1. [11]
    With one exception, each of the categories of documents sought by the first plaintiff may be described as “source” documents. The exception is the request for any hard copy ledgers that may exist in the event that they were used instead of computer records. The plaintiff’s argument is that the source documents are necessary to permit calculations of the profit because the pleaded implied term required allowance for wages, consultancy fees, other drawings, and income tax. The detail expected to be contained in the source documents may be supposed to be relevant to these calculations. In support of this argument the first plaintiff relies upon correspondence from the accountant he intends to retain. The accountant has written that the material is necessary to “reconstruct the net profit” of the business. Of course, it is for the court and not the accountant to decide what documents might be directly relevant. But the explanation of the use of the source data is of some assistance in coming to a decision.
  1. [12]
    In my view the source material is directly relevant as it is likely to assist to establish the true value of the net profit of the business, a matter which is very much in dispute in the proceeding. If disclosed, it will provide the first plaintiff’s accountant the data necessary to calculate what the first plaintiff asserts is the true profit to which he is entitled. To put it another way, and adopting the language of Dalton J in TradeCoast Land Pty Ltd v TradeCoast Central Pty Ltd & Ors [2021] QSC 25 at [47]

The pleaded allegations in this matter are as to the way the first defendant has dealt with money, and accounted for those dealings, throughout the entire course of the [agreement]. The plaintiff is entitled to disclosure of sufficient of the accounting records kept by the first defendant in order to have its experts examine them, understand them, and draw their own conclusions about the matters in issue.

  1. [13]
    The only argument to the contrary raised by the defendants was that there has been no real dispute raised about the accuracy of the top-level documents (apart from the suggestion that some figures for stock-in-trade are wrong). That may be so, but it is to be remembered that the first plaintiff alleges it was the responsibility of the first defendant to maintain business records and calculate the profit split. It is also alleged that the first plaintiff has not had access to the books since 2014. If those allegations are true, the first plaintiff has no way to check if the information in the top-level documents is accurate. In my view the plaintiff should not be denied the opportunity to check the accuracy of the documents that have been disclosed by having access to the source material.
  1. [14]
    There has been no suggestion by the defendants that the material does not exist or that it would be unduly onerous for it to be disclosed. As such, I intend to make orders for the disclosure of items 1, 3, 4, 5, 6 and 7 in annexure “A” to the plaintiffs’ amended application of 14 February 2022.
  1. [15]
    That leaves the question of hard-copy ledgers. The first plaintiff expresses this as a “catch-all”. That is, the first plaintiff does not know if hard-copy ledgers were used or if the financial records were entirely electronic. In my view it would not be appropriate to order, at least at this time, the disclosure of this category. I would, however, observe that in accordance with my reasoning above, if there is “source material” that exists only in hard-copy form, it would be directly relevant and should be disclosed under the general obligation in rule 211.

The fish tanks, the claim for conversion and the strikeout application

  1. [16]
    This relates to the defendants’ application to strikeout some paragraphs of the statement of claim. In the proposed 4ASOC the first plaintiff alleges that he owns 24 custom built fish tanks and associated equipment that are in the possession of either, or both, of the first or third defendants. He says that one, or both, of the first and third defendants have converted the fish tanks and equipment to their own use and claims damages. The 4ASOC differs from the 3ASOC which alleged all four defendants were liable for conversion. The defendants current defence, the 2AD, is a response to the 3ASOC which alleged all four defendants were liable for conversion. The defendants accept they have possession of most of the fish tanks and equipment but plead that because of an agreement with the first plaintiff title in these items has vested in “the defendants”.[16] The defendants allege that around August 2015 the first plaintiff said he knew of some pet stores that were upgrading their displays and would have old tanks they needed to get rid of. The first plaintiff went on to say he could obtain and deliver some of these fish tanks for use in the business. He did so, and the defendants plead that in the circumstances title to the fish tanks and equipment has passed to them. The first plaintiff in reply (2AR) denies the conversation or agreement but admits the fish tanks and equipment were delivered in about August 2015.
  1. [17]
    The defendants identify two concerns with the proposed pleading in the 4ASOC. The first is the use of the grammatical conjunction “and/or”.[17] This is evidently intended to convey that three possibilities exist: either the first defendant possesses and is liable for the conversion of the fish tanks and equipment, or the third defendant is in possession and liable, or both are. The defendants’ criticism of the conjunction goes beyond the aesthetic. It is said to create ambiguity of a kind that led Martin J in St Clair v Timtalla Pty Ltd & Anor (No 2) to remark the conjunction should not be used in pleadings.[18] While that may be so in many cases, the ambiguity is less acute where there are fewer possible permutations. Here there are three and it is unlikely that there could be serious confusion about what the first plaintiff is alleging. Having said that, during oral submissions Mr Tooth acknowledged the difficulties that might arise from the use of this conjunction and suggested it might be reformulated as “either or both”.[19] I agree with this suggestion and would permit the necessary changes to the 4ASOC before it is filed to remove “and/or” from the document.
  1. [18]
    The defendants’ second complaint is that it remains unclear how the third defendant could be liable for conversion. The defendants point to the fact that the third defendant was apparently not incorporated until late May 2016, months after the delivery of the fish tanks and equipment in August 2015. The defendants submit that it has not been made clear how the third defendant might be liable for conversion.
  1. [19]
    Rule 171 of the UCPR allows the court to strike out a pleading, or part of it, if it
  1. (a)
    discloses no reasonable cause of action or defence; or
  1. (b)
    has a tendency to prejudice or delay the fair trial of the proceeding; or
  1. (c)
    is unnecessary or scandalous; or
  1. (d)
    is frivolous or vexatious; or
  1. (e)
    otherwise an abuse of the process of the court.
  1. [20]
    The defendants rely upon (a), submitting the lack of clarity in the pleading has the result that no reasonable cause of action against the third defendant is made out. The defendants frankly acknowledged that the proposed 4ASOC goes some way to address this concern by reducing to two the number of defendants against whom the claim is advanced.[20] If permitted, the 4ASOC would plead
  1. The first and/or third defendants are in possession of the Fish Tanks and the Fish Tank Equipment.
  1. By a letter dated 14 May 2022 to the defendants’ solicitors, the plaintiffs solicitors, on behalf of the first plaintiff, demanded that the defendants deliver up possession of the Fish tanks and the Fish Tank Equipment.
  1. The defendants refused and/or failed to deliver up possession of the Fish Tanks and the Fish Tank Equipment to the plaintiffs within a reasonable time after the demand pleaded at paragraph 43 above.
  1. In the premises of the allegations in paragraphs 41, 42, 43 and 44 herein, the first and/or third defendants have converted the Fish Tanks and the Fish Tank Equipment to their own use.
  1. Further and in consequence of either or both of the defendants’ conversion of the Fish Tanks and the Fish Tank Equipment, the first plaintiff has suffered a loss or damage in the amount equal to the value of the fish tanks as at the date of the conversion, that value being about $67,705.00 (incl GST), the further particulars whereof are alleged in paragraph 47 herein.
  1. [21]
    Where the court is asked to strike out a pleading as not disclosing a reasonable cause of action, considerable caution is to be exercised. The approach to be taken is that identified by Barwick CJ in General Steel Industries Inc v Commissioner for Railways (NSW)[21]

The test to be applied has been variously expressed; "so obviously untenable that it cannot possibly succeed"; "manifestly groundless"; "so manifestly faulty that it does not admit of argument"; "discloses a case which the Court is satisfied cannot succeed"; "under no possibility can there be a good cause of action"; "be manifest that to allow them" (the pleadings) "to stand would involve useless expense".

At times the test has been put as high as saying that the case must be so plain and obvious that the court can say at once that the statement of claim, even if proved, cannot succeed; or "so manifest on the view of the pleadings, merely reading through them, that it is a case that does not admit of reasonable argument"; "so to speak apparent at a glance".

… great care must be exercised to ensure that under the guise of achieving expeditious finality a plaintiff is not improperly deprived of his opportunity for the trial of his case by the appointed tribunal. On the other hand, I do not think that the exercise of the jurisdiction should be reserved for those cases where argument is unnecessary to evoke the futility of the plaintiff's claim. Argument, perhaps even of an extensive kind, may be necessary to demonstrate that the case of the plaintiff is so clearly untenable that it cannot possibly succeed.

  1. [22]
    The pleading challenged by the defendants makes allegations that, if proven, could result in either the first or third defendants, or both, being liable for conversion. It is sufficient to disclose a cause of action. The fact that the third defendant was incorporated after the fish tanks and equipment were delivered does not mean the third defendant cannot be liable for conversion. A transfer of ownership may have occurred at some later time. As already noted, the scope for ambiguity or confusion is limited where the case is to be made against only two defendants. In this regard it is also to be remembered that the third defendant is said to be a company controlled by the first defendant (and whose shares are owned by another company directed and partly owned by the first defendant).[22] It follows that no real issue of prejudice or delay, as may be relevant under rule 171(1)(b), could be said to arise.
  1. [23]
    Subject to my observations about the use of “and/or”, including in paragraph 44 of the 4ASOC, the pleading should be allowed to stand.

The pleadings generally

  1. [24]
    While the parties proposed different methods that might bring the pleadings into alignment with the claims now advanced by the first plaintiff, they agreed as to the result. That is, to remove the second plaintiff, second defendant and fourth defendant and to end the parts of the claims against the remaining defendants the first plaintiff no longer pursues. In the end, Mr White on behalf of the defendants did not resist orders giving leave to the plaintiffs to discontinue the second plaintiff’s claim against all defendants, the first plaintiff’s claim against the second and fourth defendants, and removing the second plaintiff, second defendant and fourth defendant as parties to the proceeding.[23] In the present circumstances, rule 304(2) of the UCPR requires the court to give leave before the plaintiff could discontinue parts of the claims. It is appropriate that leave be given. Because of the discontinuance, the second plaintiff, second defendant and fourth defendant are no longer appropriate or necessary parties to the proceeding. Pursuant to rule 69 of the UCPR they should be removed. The balance of the proposed changes to the first plaintiff’s claim will be effected by the third amended claim and the 4ASOC, which the first plaintiff will have leave to file.

Costs

  1. [25]
    This leaves the question of what costs order should be made in relation to the changes to the pleadings. Broadly speaking, the plaintiffs accept they should bear the costs thrown away because of the amendments and discontinuance. There is a dispute about whether they should be calculated on the standard or indemnity basis. The parties agreed it would be appropriate to return to the issue of costs once they had my decision on the matters argued on 25 February 2022. I will give the parties the opportunity to make submissions about the costs thrown away, as well as the costs of these applications. In relation to the latter, I observe that the first plaintiff succeeded on his application for disclosure and in resisting the defendants’ application to strikeout part of the statement of claim. The result may be that the defendants should get the costs thrown away by the changes to the pleadings and the first plaintiff the costs of the rest of the applications. It may be that upon reflection the parties are content for the issue of costs to be reserved pending the final disposition of the proceeding.

Conclusion

  1. [26]
    For these reasons the defendants should be required to make further disclosure as discussed above, the defendants’ strikeout application should be dismissed, the plaintiffs should have leave to discontinue and replead in accordance with my reasons, and there should be an order removing the second plaintiff and second and fourth defendants as parties. The remaining defendants should be permitted to file an amended defence within a reasonable time of the filing of the 4ASOC, and the plaintiff should be permitted to file an amended reply in response to the defence. There should also be liberty to apply so that any leftover matters, including directions for the preparation and conduct of the trial, and (if necessary) the costs so far, can be dealt with at an appropriate time.
  1. [27]
    Accordingly, I will direct the plaintiff to bring in a draft order consistent with these reasons.

Footnotes

[1]  Court document 1.

[2]  Court document 2.

[3]  There was also an alternative quantum meruit claim, but that is not presently relevant.

[4]  Court document 4.

[5]  Court document 27.

[6]  Court document 34.

[7]  Court document 29.

[8]  Court document 30.

[9]  These may be found as exhibits to the affidavit of Michael John Turner, filed 28 January 2022 (court document 42).

[10]  Court document 43.

[11]  The defendants’ application is to strike out paragraphs 41 to 47 of the 3ASOC, which would be replicated in the same paragraphs of the proposed 4ASOC: see application filed 28 January 2022 (court document 41).

[12]  UCPR, rule 211.

[13] Robson v REB Engineering Pty Ltd [1997] 2 Qd R 102.

[14] Mercantile Mutual Custodians Pty Ltd v Village/Nine Network Restaurants and Bars Pty Ltd [2001] 1 Qd R 276.

[15]  Ibid.

[16]  Paragraph 35 of the 2AD (court document 29).

[17]  A device that has been called many things, most much less flattering than ‘grammatical conjunction’: see St Clair v Timtalla Pty Ltd & Anor (No 2) [2010] QSC 480, [11], [14].

[18] St Clair v Timtalla Pty Ltd & Anor (No 2) [2010] QSC 480, [11], [14].

[19]  T.1-38.36.

[20]  T.1-37.5-15.

[21]  (1964) 112 CLR 125, 129-130.

[22]  3ASOC (court document 34), paragraphs 1(c) and 2.

[23]  T.1-33.24-31.

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Editorial Notes

  • Published Case Name:

    Rattenbury and Anor v Elstak and Ors

  • Shortened Case Name:

    Rattenbury v Elstak

  • MNC:

    [2022] QDC 99

  • Court:

    QDC

  • Judge(s):

    Cash QC DCJ

  • Date:

    13 May 2022

Appeal Status

Please note, appeal data is presently unavailable for this judgment. This judgment may have been the subject of an appeal.

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