Guildford Montessori Kindergarten Pty Ltd v Wehbe

HIS HONOUR: It is now almost a quarter of a century since statutory reforms in New South Wales commencing on 1 March 2000 provided an overriding purpose into rules of Court to facilitate the just, quick and cheap resolution of the real issues in proceedings, which were the precursor to further reforms introduced in 2005 with the Civil Procedure Act 2005 (NSW) (CPA). [1]

The applications described below listed before the Court last week show that there are still instances where those purposes are not being achieved, at least in any meaningful way.

This proceeding involves strongly contested litigation regarding what is known as the Wehbe Group companies operated by the plaintiffs.

The pleadings are now complete and the plaintiffs’ evidence in chief has been served. However, the proceedings are still very far from completion of interlocutory procedures and nowhere near a point at which they are be able to be fixed for hearing.

Five notices of motion, two by the plaintiffs and three by the defendants, containing six applications were originally listed before me.

Two days of court time were allotted to deal with the applications. Concerned as I was at pre-trial directions on 11 December 2024 about the costs and that amount of court time being spent on what are essentially procedural matters, and in light of the provisions of s 56 of the CPA, I directed that the parties engage in an informal settlement conference on or before 30 January 2025 to attempt to resolve or otherwise refine the disputes between them in relation to the five notices of motion. I was informed that a select bundle of material would be produced for the application [2] and I made directions for a Court Book (CB) to facilitate the hearing of the applications and I expressly indicated I expected the Court Book to be no more than one folder or, if more than one folder, the materials should be ordered in a way conducive to everyone being able to sensibly navigate the materials. [3]

Unhappily, the Court Book produced was 4 volumes of double-sided materials extending to over 2,500 pages. It contains 21 affidavits. It was unnecessarily voluminous. The parties’ written submissions whilst helpful are nonetheless lengthy. On the hearing itself, not only that material was relied upon but additional material, being a further affidavit and two exhibits, were tendered on behalf of the plaintiffs comprising in excess of 220 pages.

Were those figures not enough to give rise to concern regarding just, quick and cheap resolution of the applications in the proceedings, the extent of costs raises alarm bells.

The costs generated by the defendants in their applications is the subject of some evidence in the proceedings. Their costs alone for the applications including this hearing (which has extended over the two days) total approximately $472,000. [4] The plaintiffs’ costs in respect of the applications were indicated as being in the ballpark of $400,000. Thus, collectively, the overall costs for motions dealing with disclosure, production of documents, security for costs and preservation of documents approach close to $872,000.

Presently, I have insufficient basis to make any finding that any party has breached its duty to assist the Court to further the overriding purpose or that any legal practitioner has caused a party to be in breach of that duty, as provided for in ss 56(3) and (4) of the CPA.

Expressly, I do not make any finding regarding any such breach. However, no one should think that that extent of volume of material, most of which was not expressly referred to on the hearing of the application, and that that extent of costs is admirable or a testament to concision and economical litigation.

No attempt was made by the parties or the legal practitioners to justify the reason for the staggering amount of material in the Court Book. Options open to the parties included consolidating material and in particular discussing with one another the relevance of and necessity for much of the material.

The above matters ought to lead to very deep reflection on the part of the parties and the legal practitioners as to whether their s 56 obligations have been met, particularly having regard to the principle of proportionality in s 60 of the CPA.

Generally speaking, the experience and capability of legal representatives eminently suits them to be able to deploy discipline, refinement and ingenuity in ensuring that the central issues in respect of interlocutory applications are identified, marginal issues and arguments discarded and only the key materials that are required for determination of such applications are included in the Court Book. Ideally, the senior practitioners on each side ought, in preparing the applications, to speak with one another at an appropriately early stage when an index to a Court Book is being prepared with a view to distilling the materially relevant material and discarding the balance.

Unless parties and their legal practitioners can sensibly reduce the volume of materials to be provided to the Court and conduct interlocutory applications with appropriately proportionate costs, the time may come, if it has not already arrived, when the Court will have to take further decisive action to ensure the overriding purposes of civil litigation are met. This potentially includes limiting the volume of materials that are placed in the Court Book and capping the costs recoverable in respect of interlocutory applications. Of course, any such action would need to be done in a considered and informed way.

It was acknowledged during the hearing that there has been a breakdown of trust between the parties in the litigation. [5] There was an intimation that such distrust influenced concerns regarding production of documentation. [6] If that is the case, the Court expects the legal representatives for the parties to act in a way which transcends any inter partes distrust or enmity and to find ways of allaying concerns and facilitating expeditious and cost-effective resolution of chronic and costly interlocutory disputes.

The applications were listed and heard before me on 24 and 25 February 2025.

Mr Ivantsoff, a special counsel with the plaintiffs’ solicitors, appeared on behalf of the plaintiffs and Mr Ratnam of counsel with Mr Courtenay appeared on behalf of the defendants.

For convenience I will refer to the parties as follows (including, as the parties have done in the submissions, to the individuals by their first as a number of them share the same surname):

Advanced Training Services Pty Ltd, previously the sixth defendant, is no longer a defendant in the proceedings, having been removed from the proceedings consequent upon the filing of the Second Further Amended Statement of Claim (2FASOC). For completeness, I note that consequent upon the filing of the Further Amended Statement of Claim on 14 July 2023, [7] the seventh defendant “The Trustee of the Remy Wehbe Family Trust” was removed as a defendant, and Taghrid and PTG were added as (respectively eighth and ninth) defendants.

The evidence relied upon in support of and resistance of the applications are set out in the index to the Court Book. [8] The Court Book was tendered and notwithstanding that it contained pleadings and motions was marked without objection JP-1.

Overall, 22 affidavits were read and relied upon. Ultimately there was no objection to any of the affidavits or evidentiary materials.

On the plaintiffs’ side, 9 affidavits were relied upon, being:

Mr Ivantsoff tendered a bundle of documents bearing upon the question of security for costs (in response to paragraphs 50-52 and 57 of the defendants’ submissions) marked as exhibit P-1.

The affidavit of Ms Ramsey and exhibits AR-1 and P-11 were initially provisionally admitted and then subsequently admitted without any objection. [9]

On the defendants’ side, 13 affidavits were relied upon, being:

Despite certain disputes in respect of the evidence, none of the deponents of affidavits were cross-examined.

It is appropriate to give a brief outline of the nature of the plaintiffs’ businesses, the key individuals in respect of the defendants, the claims in the proceedings, and the nature of the defences.

The following summary is drawn substantially from the outline of submissions of Mr Ivantsoff (PS), which Mr Ratnam accepted was, broadly speaking, an accurate overview, with the qualification that the plaintiffs’ claims in respect of the defendants are understood to be allegations. [10]

The Wehbe Group is divided into the following groups of businesses: the Childcare Centre Group (GMC and RMK); the Media Group (EN, AN and AM); the NDIS business (ATC); and the training business (FA). WI is the trustee of the Wehbe Family Trust. Walhan Wehbe aka Wally Wehbe (Wally) is the founder and chairman of the Wehbe Group companies.

With respect to the defendants, the main “antagonists” [11] are Remy (Wally’s second cousin), Linda (Remy’s wife) and RWI. RWI is the trustee of the Remy Wehbe Family Trust, and Remy is the sole director and shareholder of RWI.

Kevin and Karl are Remy’s and Linda’s adult children. Taghrid is the sole director and shareholder of the PTG (together the Prestige Defendants).

During the period from about 15 July 2008 to 12 July 2021, Remy was a director, Chief Executive Officer or Financial Controller of each of the Wehbe Group companies. Remy also held (and continues to hold), through RWI, equity interests in all Wehbe Group companies, other than the Wehbe Family Trust. At various times, Linda was employed by the Childcare Centre Group.

The plaintiffs’ claims against the defendants amount to approximately $7.1 million in aggregate. The claims overlap and are quantified as against each defendant as follows.

During the period in which Remy was a director and employee of the Wehbe Group companies, the plaintiffs allege that he embezzled approximately $7.1 million from the Wehbe Group companies.

Seemingly, approximately 4,000 transactions are impugned in relation to a 13-year period, namely 2008-2021. [12]

The plaintiffs further allege that:

Broadly speaking, in their defences, the defendants deny the allegations of fraud. In substance, they admit that the payments were made but say that the payments were made with Wally’s knowledge and authorisation or otherwise in the ordinary course of providing services to the Wehbe Group companies.

Thus, there is said to be a contest between alleged embezzlement and misappropriation of funds on one hand and alleged authorisation, knowledge and consent regarding such payments on the other hand. [13]

During the course of the hearing, an issue arose regarding the nature of the defendants’ defence in respect of Wally’s knowledge and authorisation. I was surprised to be told that the plaintiffs haD not requested any particulars of that defence. [14] Below, I will return to the significance of the lack of particulars.

The plaintiffs have served 25 lay affidavits and one expert’s report. There are various exhibits to the plaintiffs’ affidavits, comprising in excess of 15,000 pages of documentary evidence. [15] This evidence is said to complete the plaintiffs’ evidence in chief for the final hearing. [16] Whilst there was some contention as to precisely when the defendants had received that evidence, Mr Ratnam accepted that the defendants had received it no later than 11 September 2024. [17]

The defendants have not served any affidavits in chief in response to the plaintiffs’ evidence for the final hearing. [18]

The valuation report at some points suggests that RMK is a corporate trustee. However, on the hearing, when I asked about this, Mr Ivantsoff said it was a typographical error. [19] Whether it is a typographical error or otherwise, I accept that prima facie there is no other material indicative of RMK being a trustee of a trust. During the hearing, Mr Ratnam accepted that it had not been valued as the trustee of a trust. [20] In those circumstances I propose to proceed on the basis that RMK’s involvement in the proceedings is not in a capacity as trustee of a trust.

The following summary of procedural history is also drawn substantially from the outline of submissions of Mr Ivantsoff, which Mr Ratnam for his part accepted was broadly accurate with the same qualification as noted above. [21] It suffices for the purposes of understanding the nature of the applications but does not purport to be a complete outline of the procedural history.

On 30 August 2022, the plaintiffs commenced the proceedings by way of a Statement of Claim. On 27 September 2022, they filed an Amended Statement of Claim.

On 7 November 2022, the defendants filed a notice of motion seeking an order that the Amended Statement of Claim be struck out or otherwise that the proceedings be dismissed.

On 10 November 2022, the Court made freezing orders against Remy, Linda and RWI. In addition, the Court made orders for: (a) the return of subpoenas and notices to produce; (b) the parties to exchange categories of documents sought for disclosure; and (c) verified disclosure to be provided to the extent that categories of documents were agreed. The plaintiffs required documents subject to the various production orders to better plead and particularise their statement of claim, in response to the defendants’ strike-out application. In the events that occurred, some categories of documents for disclosure were agreed between the parties, but no disclosure (either formal or informal) took place.

On 14 [22] July 2023, the plaintiffs filed a Further Amended Statement of Claim, (they say) to satisfy the defendants’ concerns in relation to the alleged deficiencies in the pleadings.

On 15 November 2023, the defendants filed defences to the Further Amended Statement of Claim.

On 5 December 2023, the Court made orders requiring the plaintiffs to serve their evidence by 29 January 2024, the defendants to serve their evidence by 1 March 2024 and the plaintiffs to serve their evidence in reply by 1 May 2024. The time for the plaintiffs to serve their evidence was extended, by further order of the Court, to 17 May 2024.

During the period 14 February 2024 to 17 May 2024, the plaintiffs served 22 affidavits by way of their lay evidence.

On 29 May 2024, the plaintiffs served their expert evidence, comprising the report of Forde Nicolaides (Deloitte Report). During the hearing, Mr Ivantsoff made reference to the Deloitte Report on a number of occasions. No such report is in evidence before me. I located a reference to the report in a piece of correspondence at CB 2521, which describes the report in the following terms:

On 15 August 2024, the plaintiffs filed and served the 2FASOC.

On 30 August 2024, the plaintiffs served three further lay affidavits. As at 30 August 2024 (according to the plaintiffs) and by 11 September 2024 (according to the defendants), the plaintiffs had served all their evidence in their proceedings.

On 11 September 2024, the defendants filed and served their defences to the 2FASOC.

Chronologically, in summary, the applications listed for hearing are:

The parties are now agreed that:

The defendants’ amended notice of motion filed on 3 December 2024 also initially sought orders for summary dismissal strike out or dismissal for want of prosecution. However, seemingly that relief has not been pressed.

The preservation application was in contest at the commencement of the hearing. However, following consideration overnight in relation to issues bearing upon the disclosure application, the defendants did not press for a determination in respect of that application. [25]

The plaintiffs’ disclosure application was initially the subject of dispute between the parties. Mr Ivantsoff foreshadowed in the prehearing submissions that if the defendants’ disclosure application was not permitted, the plaintiffs’ disclosure application would not be pressed. Further, the plaintiffs accepted that if the defendants’ disclosure motion is dismissed, the plaintiffs’ disclosure motion should also be dismissed. [26]

However, on the hearing of the matter, Mr Ratnam acknowledged that irrespective of the outcome of the defendants’ disclosure application, the defendants consented to the plaintiffs’ disclosure application. [27]

Mr Ivantsoff properly acknowledged that mere consent of the defendants to the plaintiffs’ disclosure application of itself did not compel the Court to make orders for discovery. He emphasised the role of the Court in satisfying itself that disclosure is necessary, in particular where an order is sought by one or other of the parties. [28] In this regard he made reference to the decision of McDougall J in Leighton International v Hodges; Thiess v Reinforced Earth [2012] NSWSC 458 (Leighton) (see e.g. at [11]). Mr Ivantsoff also emphasised that there is no right to discovery citing Leighton. [29]

Nonetheless, there was no suggestion from the defendants or otherwise that it was inappropriate to make orders for the plaintiffs’ disclosure application on the basis, for example, that it was onerous or that there was a lack of relevance. [30]

In the above circumstances, I propose to make orders for the plaintiffs’ requested disclosure.

The defendants’ security for costs application is pursuant to r 42.21(1)(d) of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) and/or s 1335 of the Corporations Act 2001 (Cth) (Corporations Act). [31] They also seek consequential orders including a stay of the proceedings if security is ordered and not provided. [32]

In Estate of Guamani; Guamani v De Cruzado [2023] NSWSC 502 at [118]-[122], I addressed the purpose and rationale of an order for security for costs as follows:

Section 1335(1) of the Corporations Act provides as follows:

Rule 42.21(1)(d) of the UCPR relevantly provides:

Under r 42.21 of the UCPR, if that first finding is made, in determining whether it is appropriate to make such an order for security for costs, the Court may have regard to 14 enumerated matters and such other matters as it considers relevant: r 42.21(1A) UCPR.

On the hearing of the application, the parties did not expressly distinguish between principles applicable to s 1335 of the Corporations Act on the one hand and r 42.21 of the UCPR on the other hand.

On particular occasions it may be necessary to distinguish between those provisions. However, for the purposes of this application, it is not suggested that there is a material difference in the principles applicable to those different sources of power. [33] I will proceed accordingly.

The threshold question for security, at least in respect of an application under s 1335, is described by Dal Pont [34] as follows (omitting footnotes):

In assessing that future financial position immediately after judgment, Dal Pont indicates (omitting footnotes): [39]

In relation to financial materials that may bear upon that, Dal Pont states (omitting footnotes): [40]

In respect of situations where the plaintiff is a corporate trustee, Dal Pont notes (omitting footnotes): [41]

In deciding whether “…the corporation will be unable to pay the costs of the defendant if successful in his, her or its defence…” (s 1335) or “..a plaintiff, being a corporation, will be unable to pay the costs of the defendant if ordered to do so” (r 42.21(1)(d)), the focus is on the ability of the corporation to make a payment at a later point in time.

Thus, generally, in security for costs applications, the question regarding payment of security is not a current solvency test requiring that the corporation have liquid funds available as at the time of the hearing of the application for security. Rather, the jurisdictional threshold question requires making an assessment of the ability of the corporation to pay an (assessed or otherwise quantified) amount of costs at a later point of time, usually after the Court has had a final hearing of the matter and makes a determination in respect of costs. Part of that consideration may involve an assessment of whether a corporation which currently has no sufficient liquid assets will be able by that future time to liquidate its assets to pay costs.

This distinction was explained by Forster J in Putney Group Pty Limited v The Royal Rehabilitation Centre Sydney [2009] NSWSC 424 who, without deciding the point, made the following observations at [94]:

Earlier, in Street v Luna Park Sydney Pty Ltd [2006] NSWSC 1317, Brereton J had observed at [16]:

This contrast between a current solvency test and requirement for payment if necessary by liquidation of assets at a future time was emphasised by the Victorian Court of Appeal in Yara Australia Pty Ltd v Oswal (2013) 41 VR 245. Redlich JA stated at [11]-[13] (Macaulay AJA at [136] agreeing) (footnotes omitted):

Particular questions arise in relation to assets that are intangible or in the nature of goodwill.

In Narradine Pty Ltd v Mascot Steel and Tools Pty Ltd [2012] NSWSC 385, Black J stated at [7] in part:

As to the form of security, Nicholas J in Ashington Capital Pty Ltd v Parissen Capital (Project X) Pty Ltd [2012] NSWSC 410 at [41] stated:

Most of the defendants’ written submissions were devoted to contentions as to why there should be an order for security for costs. Very few submissions were made regarding the quantum of such an order.

In summary, the defendants submitted [42] (adopting Mr Ratnam’s wording):

Further, and without intending to minimise the significance of nuances of expression, in summary, the defendants’ submissions [44] emphasise:

In relation to the alleged inadequate asset position, the defendants’ submissions focused upon various loans by reference to the balance sheets of RMK, ATC, AN, AM, EN and FA.

In respect of the alleged unreliability of Mr Garufi’s report, the submissions assert that there is no evidence or explanation existing to support statements regarding the companies and businesses consisting of “an established and experienced management team”, with an “established community base with strong support” and “strong understanding of the industry”.

On the hearing, Mr Ratnam acknowledged that he had not cross-examined Mr Garufi but observed that his statements in the report are assertions that have very little weight and there was no need to cross examine in circumstances where the supporting underlying reasons for his conclusions were not stated. [45]

On the hearing, Mr Ratnam:

Mr Ratnam, in anticipating a submission made on behalf of the plaintiffs, disputed any contention that the defendants have caused the plaintiffs’ impecuniosity, submitting that there would need to be direct evidence of that and there was none on the application. [49]

Mr Ivantsoff submitted that the plaintiffs conduct substantial businesses, in particular what he describes as the Childcare Centre Group and the NDIS business, which have value and are capable of being sold for significant sums of money and that the proceeds of sale could be used to satisfy adverse costs orders. [50]

Mr Ivantsoff further submitted that the evidence in the valuation report, “unchallenged on the security application”, is to the effect that the aggregate fair market value of the plaintiffs’ business is $2,823,688 and that RMK’s business alone has a fair market value of $1,837,879 (CB 1413). Accordingly, he says that the value of the plaintiffs’ assets is therefore more than sufficient to satisfy Ms Morson’s estimated costs and even Mr Diab’s estimate. [51]

To underpin that, Mr Ivantsoff submitted that Mr Garufi adopts an entirely orthodox valuation methodology to arrive at his conclusions, being capitalisation of adjusted future maintainable earnings, applying a multiple for comparable businesses, and making adjustments for surplus assets and financial liabilities. [52]

Mr Ivantsoff submitted that Mr Garufi’s report and the calculations regarding the capitalised maintainable future earnings were based on “earnings over the previous three years, [53] adjusted to strip out abnormals, effectively, and then multiplied by a factor, and the factors vary based on Mr Garuffi’s professional judgement as to what is a comparable business”. [54]

In terms of discretionary factors, Mr Ivantsoff in his PS submitted that: [55]

During the hearing, Mr Ivantsoff emphasised the methodology adopted by Mr Garufi in preparing the valuation report, stating “The methodology is purely an analysis of the accounts, an analysis of the performance over the past number of years, applying a comparable multiple, and deriving a result.” [56]

Mr Ivantsoff eschewed the characterisation that Mr Garufi’s assessment of the fair market value of the equity contained a component of goodwill. [57] One difficulty with that is that “goodwill” is Mr Garufi’s word. Rather, he submitted that essentially what Mr Garufi had assessed is “an income stream based on previous years’ earnings adjusted”. [58] Mr Ivantsoff rejected the notion that the income stream was dependent on factors such as who is operating the business and the clientele of the business. [59] He submitted that in terms of any hypothetical purchaser, “it is obvious that it would be someone who wishes to buy a kindergarten or an in-home care centre”. [60]

As to timing for realisation, Mr Ivantsoff submitted that for a case like this, the cost assessment process may take 6 to 12 months and that there would be plenty of time for the plaintiffs to make arrangements to meet any costs orders. He emphasised that the defendants had not adduced evidence to the effect that the businesses would take 4-6 years to sell or any similar duration. [61]

Mr Ivantsoff acknowledged that the evidence does not take account of when the business might be sold and that Mr Garufi would not be qualified to give that evidence as he is not a business broker. [62]

To the extent that Mr Ratnam criticised the valuation report, Mr Ivantsoff submitted that there was no expert evidence adduced by the defendants. [63]

In relation to delay, Mr Ivantsoff, whilst acknowledging that there had been delay, disputed that the delay could be laid at the feet of the plaintiffs. He contended that it was open to the defendants to bring on the application expeditiously. [64]

The material in exhibit P-1 contained the unit trust deed for the Bankstown Community and Home Care Trust (BCHC Trust) (P-1 51-100) and the deed for the Guildford Montessori Kindergarten Trust (GMC Trust) (P-1 101-131).

Mr Ivantsoff submitted [65] that the trustee of the BCHC Trust had power to deal with the assets of the trust as if it was the beneficial owner of the trust fund: clause 6.1(b).

The trustee may be indemnified out of the trust fund except in respect of the case of fraudulent or wilful default or breach of trust: clause 6.2(a)(1).

One of the provisions regarding indemnity is to the following effect: clause 6.2(d)

In relation to the GMC Trust, Mr Ivantsoff submitted that the trustee had powers of management citing clause 7.1. [66]

The rights of indemnity of the trustee are addressed in clauses 7.5 and 7.6 as follows:

Contrary to the submission of Mr Ratnam, [68] I accept Mr Ivantsoff’s submission [69] that the consent of beneficiaries is not required for the trustee to have a right of indemnity to the trust assets or to sell an asset.

Mr Garufi in his valuation report: [70]

In relation to GMC, RMK and ATC, Mr Garufi adopted an approach of capitalisation of future maintainable earnings.

Mr Garufi’s conclusions regarding the fair market value of the businesses, goodwill, fair market value of 100% of the equity, and business quality are set out in the table at CB 1416.

The fair market value of the businesses/potential sale price for the 5 entities (3 of which are trustees of trusts) is said to be $3,022,053. The fair market value of 100% of their equity said to be $2,823,688: CB 1416.

It is evident that only 3 of the 8 plaintiffs have any significant value when regard is had to equity, namely GMC, RMK and ATC. GMC and ATC are trustees of trusts. The trust deeds for those trusts were, as I have noted, adduced on the first morning of the hearing in the body of the materials marked as exhibit P-1.

In relation to GMC, it is noteworthy that its operating profit has decreased over the period 2021-2024. In the 2023 financial year, it had operating profit before tax of $55,938 and, in the 2024 financial year, it had a loss of $74,098: CB 1412. In the 2024 financial year it had net business assets of only $44,778. He has added in a figure of $298,272 for “goodwill” including on property value: CB 1412.

RMK’s operating profit before tax has dropped very considerably since the 2021 and 2022 financial years. In 2022, the operating profit before tax was $348,673. However, in 2023 it was $69,927 and, in 2024, $89,039: CB 1413. As at 2024, it had net business assets of $79,455. He has added in a figure of $1,470,722 for goodwill including on property value: CB 1413.

Similarly to RMK, ATC’s operating profit before tax has dropped very considerably since the 2021 and 2022 financial years. In 2022 the operating profit before tax was $266,140. However, in 2023 it was $148,948 and 2024 $67,846: CB 1413. As at 2024, it had net business assets of $182,435. He has added in a figure of $757,434 for goodwill including on property value: CB 1413.

It is evident from Mr Garufi’s analysis that a significant part of the value of the businesses is embedded in the figures that he has attributed to them for goodwill (his word).

There is a clear difference between what the plaintiffs’ financial accounts describe as goodwill and Mr Garufi’s notion of “goodwill”. Mr Garufi has attributed no goodwill value to EN (CB 1414) yet in the balance sheet of EN as at 30 June 2024, it has a recorded value of “goodwill” of $754,250 (CB 1991).

“Goodwill” is described in Mr Garufi’s glossary in appendix 8 of the report as being “That intangible asset arising as a result of name, reputation, customer loyalty, location, products, and similar factors not separately identified”: CB 1443.

Exactly how the goodwill is derived is not clear from the body of the report. However, when one turns to appendix 6 of the report and the adjusted balance sheets, it is clear that for the above three entities, GMC, RMK and ATC, “goodwill” has been calculated as the excess of the assessed fair market value of the business under a capitalisation of future maintainable earnings methodology and the net business assets of the entity: CB 1435-1437.

Thus, it is clear that the calculation of “goodwill” in the case of each of the businesses of GMC, RMK and ATC (CB 1412-1413) is simply the difference between the capitalised fair market value of the business and the net business assets.

For my part, I am prepared to proceed on the basis of Mr Ivantsoff’s submission that essentially what Mr Garufi had assessed is “an income stream based on previous years’ earnings adjusted”. [71] Mr Ivantsoff accepted that the valuation was a valuation as at 30 June 2024. [72]

The entities have limited net assets and the submissions as to the value of the companies is considerably reliant upon the value attributed to the calculated value for the income stream.

There are some cases in which an income stream is regarded as a reliable source for future payment of costs and a judicial officer may be satisfied that the income stream is likely to continue into the future: see e.g. Taurus Mining Finance Fund Aiv LP v Sandfire Resources Ltd [2021] WASC 52, where Registrar Whitby was satisfied that an entitlement to future royalty payments was a valuable asset of the plaintiffs and was sufficient to ensure that the defendant, if successful, would have a fund available and the jurisdiction against to enforce a judgment for costs. [73] The Registrar was satisfied that that the defendants would continue to pay royalties to the plaintiffs for a period into the future and considered that she was not required to be satisfied, at that stage of hearing the application for security, as to when those royalties are most likely to cease. [74]

In other cases, having regard to the facts, the outcome may be different. Thus, for example in ILC Group v Sydney Water Corporation [2014] NSWSC 1407, McDougall J did not think that an income stream from a joint venture project possessed any real quality of certainty. [75] Nonetheless, based on other considerations including an offer of a guarantee and an undertaking to the Court, his Honour dismissed the defendant’s application for security for costs. [76]

I consider that the threshold for s 1335 of the Corporations Act and r 42.21 of the UCPR is engaged. I note the following.

First, the evidence valuing the plaintiffs’ income steam is now 8 months dated (30 June 2024).

Secondly, whilst the valuation has been based upon financial statements that cover a period over which this litigation has been on foot, the general trend of the profit of GMC, RMK and ATC has been decreasing rather than increasing over the four-year period of accounts (2021-2024).

Thirdly, I consider that there may be risks with realising the income stream. No evidence was adduced as to how realisable the income stream is and when the income stream may be generated into readily available assets to meet any costs order.

Proof of a calculated value of future income stream per se neither gives rise to any clear inference that the entirety or a substantial part of such value will be able to be realised promptly following a final judgment nor demonstrates the ability of the plaintiff companies to realise a large lump sum from the income stream in a timely way to pay any significant adverse costs order.

Fourthly, it is not obvious to me to what extent the value assessed or any ability to realise the value assessed takes account of the fact that the plaintiffs are still embroiled in what, at the moment, is significant and extremely costly litigation that is still nowhere near the allocation of hearing dates or conclusion.

Fifthly, whilst I acknowledge the submission of Mr Ivantsoff that an assessment process may take a lengthy period of time, it may well be that there is no lengthy assessment process. The Court, if requested, may accede to making a gross sum costs order with no lengthy assessment period involved.

Overall, I consider that there is sufficient credible evidence that the plaintiffs “will be unable to pay the costs of the defendants if successful in his, her or its defence…” (s 1335) or “..will be unable to pay the costs of the defendant if ordered to do so” after judgment. [77]

I have considered each party’s submissions regarding discretionary factors.

The defendants did not assert or at least expressly assert that the plaintiffs’ claim was not bona fide within the meaning of the authorities. The genuineness of the proceedings per se was not disputed.

In relation to any claim regarding the delay in bringing the application, the defendants assert that they first raised their concern regarding security 3 months after the proceedings commenced and filed an application for security for costs on 7 November 2022 [78] albeit that the motion was amended on 3 December 2024.

I consider that it is regrettable that the security for costs notice of motion was not dealt with relatively soon after it was initially filed before further steps were taken in the proceedings, including costs being incurred and other applications having been made.

For his part, Mr Ivantsoff submitted that a degree of the time that has elapsed has been taken up by responding to the defendants’ proper requests for further particulars which, in turn, necessitated production of documents, and thus the process of particularising the claims involved an immense amount of work. [79] Mr Ivantsoff took some time to outline the chronology of what occurred in this regard. [80]

Mr Ivantsoff submitted that if security were to be ordered now, it would “result in immense prejudice to the plaintiffs by having to meet a security order for the work being wasted if they can’t. I say that they can.” [81]

It seems to me that it was open to both parties to request for the security for costs application to be brought on sooner than it has been. The fact that they were seeking to work out issues in relation to pleadings and particulars of the plaintiffs’ claim [82] might explain the delay but does not to my mind, in the particular circumstances of this case, give rise to a compelling discretionary reason to preclude an order for security.

Whether the cause of the delay in the sense of the lapse of time since the notice of motion for security was first filed is properly described as being attributable to a “series of unfortunate events” [83] need not be decisively determined. It suffices to say that I am satisfied that since the initial filing of the security for costs application, a large amount of the time that has elapsed is explicable by reference to the defendants raising concerns regarding the pleaded claims against them, and the plaintiffs providing clarification regarding those claims. [84]

Notwithstanding my concern above, I do not consider that, on the materials produced before me, I can make any provisional, let alone definitive, finding that one side or the other has inappropriately delayed the security application being brought on.

With respect to the submission that any issue of impecuniosity could only have been caused by the defendants’ conduct, in particular, the conduct of Remy and Linda, I cannot on the basis of the materials produced before me, make any finding to that effect. Despite the volume of materials in the Court Book, none of the plaintiffs’ evidence in chief has been adduced before me.

Overall, I am not persuaded that there are any compelling discretionary factors which count decisively against the making of an order for security for costs.

Mr Diab has marshalled the defendants’ claim for security for costs by reference to 3 categories being: (a) costs incurred by the defendants to 10 December 2024 (past costs or incurred costs); (b) costs of outstanding notices of motion (future notice of motion costs); and (c) future costs to the completion of the proceedings (other future costs). [85] Ms Morson has addressed costs on that basis: CB 2222.

Mr Ratnam made specific reference to the cost schedules attached to Mr Diab’s affidavits being schedules 4-6. [86] I have had regard to that. However, the total costs claimed for each particular item in those schedules have been extracted into the summary schedules which Ms Morson sets out at CB 2246-2251.

In relation to the quantum of security, Mr Ratnam, [87] whilst rejecting the reasoning of Ms Morson for the purposes of the application, was content to agree to the amount of total incurred costs and future costs awarded if assessed by an NSW court appointed costs assessor on a “party-party” basis as $982,958.96 inclusive of GST. [88]

I pause to observe that the reference to costs awarded on a “party-party” basis is a somewhat outdated notion. Costs are usually being awarded either on the “ordinary basis” or on an “indemnity basis”. [89] The “ordinary basis” is defined to be the basis of assessing costs in accordance with Division 3 of Part 7 of the Legal Profession Uniform Law Application Act 2014 (NSW). [90]

Ms Morson is of the opinion that the hourly rates billed to the defendants are reasonable, although observes that is not to say that every piece of work billed would be allowed at those hourly rates. [91]

Ms Morson observes that, whilst the claim for security for costs is made by all the defendants, only the ninth defendant appears registered for GST. She states that when a party is registered for GST, costs are awarded on a GST exclusive basis because the party is entitled to an input tax credit for GST paid on expenses and ultimately the liability for GST is an offset. Thus, she observes an adjustment should be made to the final figures to account for a reduction to GST payable on the ninth defendant’s share of costs. [92]

In the event that security was to be ordered, there is a significant difference between the positions of Ms Morson and Mr Diab in relation to the appropriate figure for quantum of costs already incurred. Mr Diab has claimed amounts under 15 different categories, all totalling $1,095,105.84. Ms Morson’s figure is $631,105.43: CB 2249.

Ms Morson’s reasons regarding reductions for costs in respect of a number of categories principally relates to the time spent on the matter by the principal solicitor. The reasons of Ms Morson extend to categories (b), (c), (f) and (h)-(l) with respect to: attendances regarding access to the NAB and CBA accounts and variation of freezing orders (CB 2227); discovery attendances following the orders of Ball J (CB 2228-2229); security for costs (CB 2231-2232); and notices to produce issued by the defendants (CB 2235-2237). I accept her evidence.

As to categories (a) and (b), I am not persuaded that the claim for costs regarding the application by the plaintiffs for freezing orders should be included. The plaintiffs were successful in obtaining some freezing orders. The costs of the application for freezing orders and to vary the freezing orders are reserved, [93] and will, it seems, abide the final hearing and in my opinion should not be included.

For reasons stated at the end of these reasons, I provisionally consider that there be no order as to costs to the intent that each party shall bear their own costs of applications applicable to the following categories listed for hearing before me, being:

Category (g) is costs in respect of the notices to produce issued by the plaintiffs which is in the sum of $97,834. However, those costs are now, by the agreement of the parties, reserved to abide the final hearing and in my opinion should not be included.

Category (o) is a claim for costs for work on preparation of evidence on behalf of the defendants, being a claim of $155,000 for professional fees. These are solely fees in relation to the solicitors and no counsel fees are claimed. I find it surprising that there could be such a claim in a context in which the defendants have not yet filed a single affidavit in chief. Ms Morson would only allow a figure of $31,000 in respect of those costs. As matters presently stand, I would only allow that figure in relation to that claim.

Having regard to the findings that I make in respect of the applications, I do not consider that there should be security provided in respect of the matters that are the subject of the hearing before me. In respect of costs already incurred, I would be prepared to allow an amount in respect of categories (c), (h), (i), (j), (k), (l) and (o) which, on Ms Morson’s figures, I round to approximately $218,000.

It will be evident from what I have found below that I provisionally (subject to submissions or otherwise) consider that the costs orders in the two applications that have been the subject of proposed consent orders should be as proposed and that for the other four applications, there should be no order as to costs to the intent that each party bears its own costs. On that basis, certain of the “past costs” incurred (CB 2246-2249) and the “future notice of motion costs” (CB 2250) should not be the subject of provision for security.

In contrast with her views in respect of past incurred costs, Ms Morson indicates she generally agrees with the estimates of the time and costs provided by Mr Diab for future notice of motion costs and other future costs, at least on what she describes as a solicitor-client basis. She indicates that she would expect a reduction to those costs if they were assessed on a party-party basis (i.e. ordinary basis). In her opinion the remainder of the future costs would be reduced by what, in her experience, is a typical reduction of 30% to both professional costs and counsel’s fees: CB 2246.

In relation to the future costs (see table at CB 2251), I note that the costs claimed by the defendants include inspecting discovered material. However, there is, in the scheme of things, only a relatively minor adjustment as between Ms Morson.

The future costs assume a mediation in a trial lasting 15 days. If the proceedings are conducted with anywhere near the same sort of entrenched conflict as has occurred to date, I have serious doubts whether the trial would be completed within a three-week period. However, as the evidence before me has jointly proceeded upon the above assumption, I propose, for the purposes of determining the application, to proceed on that basis. Overall, the only substantive difference between Mr Diab and Ms Morson is the above-referenced adjustment of 30%. Ms Morson has adopted an adjustment in respect of 8 of the 9 categories of future costs: CB 2251. She has disallowed, in its entirety, fees for a counsel conference at $7,560. The reason for that disallowance is not clear. I propose to add back an amount of $5,292 so that figure is only discounted by 30% not 100%. Making that adjustment, I consider that the amount for future costs is a figure of $507,076.50 [94] which I round to be $507,000.

Overall, I consider that the total amount of security should be $725,000 ($218,000 plus $507,000).

The defendants initially sought either for the security to be paid into court or the plaintiffs’ solicitors’ trust account on agreeable terms or otherwise in a form of an appropriate bank guarantee. [95] On the hearing, Mr Ratnam submitted that, in terms of the form of the security, the defendants were in the hands of the Court. [96]

No particular submission regarding form of security was made by or on behalf of the plaintiffs.

Provisionally, I consider that the security for costs should be provided in the form of the bank guarantee. Unless the parties can agree otherwise in bringing in short minutes of order, I propose to order security in the form of a bank guarantee.

The disclosure sought by the defendants is pursuant to r 21.2 of the UCPR in respect of categories of documents appearing at pages 30-79 and 92-96 of exhibit SD-2 to Mr Diab’s affidavit affirmed on 10 May 2023 “or in some amended form that may be served prior to the hearing of this motion”: CB 455.

The defendants request for the discovery to be verified by a list of documents pursuant to rr 21.3 and 21.4 of the UCPR: CB 455.

Based on the notice of motion, the first requested discovery sought 67 categories of documents from GMC [97] and the second requested discovery was in respect of 30 categories from various plaintiffs. [98]

Having regard to the prehearing outline of submissions, the defendants’ claim for discovery was modified to be made by reference to a schedule forming part of exhibit SD-7 at CB 2293-2312. Remarkably, there are 139 categories. It is said that categories 1-30 were sought up to May 2023; categories 31-58 were sought following pleadings; categories 59-103 comprise additional categories sought by the defendants after the plaintiffs completed their evidence; and categories 104-139 were categories which the plaintiffs previously consented to giving discovery over. [99] Categories 1-58 were said to be distilled from a previous set of categories, a number of which were the subject of challenge by the plaintiffs.

The defendants submit that they have attempted to engage the plaintiffs in respect of discovery. No agreement has been reached. The defendants’ written submissions stated that the issues on the application can be limited to “those set out above”. [100] It is not clear what those “issues” are. In any event, it is said that the Court should not have to embark on an exercise of considering each of the categories sought by the defendants where the plaintiffs have declined to do so. [101]

On the hearing of the application, I sought to understand to what extent the documents within the categories of documents sought had already been produced. Surprisingly, there was initially some lack of clarity about that. Thus, for example, when I made enquiries relating to category 111 “Bank statements for the period 1 July 2008 to 30 June 2021”, Mr Ivantsoff indicated that all those documents had been provided but Mr Ratnam was unable to verify that. He asserted that they had no verification that there were no further documents. [102]

In light of the volume of material that had been served and the extent of costs that had been incurred thus far, I provisionally indicated that no one should think that I would order production of documents that had already been produced. [103]

I requested the parties’ legal representatives to confer and to provide clarity on what extent documents sought within the 139 categories had already been produced. I adjourned the matter overnight to allow the representatives to confer and produce an agreed listing. [104]

That occurred and the following morning, two schedules were produced by Mr Ratnam.

The first schedule was marked MFI-1. It is a colour-coded listing of the 139 categories of documents sought. In summary, in respect of the 139 categories, the colour shading indicated as follows:

One category of documents (3) was no longer pressed in light of a proposed amendment to another category.

The second schedule was marked MFI-2. It was the refined claim in respect of the disclosure sought by the defendants.

In the refined claim, there are now 14 categories of documents sought - although within the new category “1” has been included 44 of the 139 categories being (1, 2, 4-13, 15-24, 26-27, 30, 45, 48, 52, 57, 61, 69, 74, 82, 96, 109, 123, 125-126, 128, 130, 132, 134 ,136-137).

Other than new category “3” which contains two of the old categories (35, 102), the remaining 12 categories contain only 12 of the prior categories (2 is prior category 29; 4 is prior category 38; 5 is prior category 40; 6 is prior category 62; 7 is prior category 75; 8 is prior category 76 but refined; 94 is prior category 77; 10 is prior category 91; 11 is prior category 93; 12 is prior category 105; 13 is prior category 108 but refined and 14 is prior category 111). Leaving aside the fact that two of the 14 categories have been refined, I will simply describe the 14 categories as being the “revised categories” so as to clarify that what is being claimed is by reference to the 14 categories set out in MFI-2.

The argument regarding the schedules proceeded to focus on the 14 revised categories set out in MFI-2.

The purpose of Practice Note SC Eq 11 (Practice Note) is to provide guidance for practitioners in preparing cases for hearing with the aim of achieving the just, quick and cheap resolution of the real issues in dispute in the proceedings: Practice Note [3].

The general position is that the Court will not make an order for disclosure of documents until the parties to the proceedings have served their evidence, unless there are exceptional circumstances necessitating disclosure: Practice Note [4].

The intent of the Practice Note was commented upon by Brereton J in Graphite Energy Pty Ltd v Lloyd Energy Systems Pty Ltd [2014] NSWSC 1326 (Graphite v Lloyd) at [13]:

In respect of the UCPR rules regarding discovery:

The defendants’ submissions address various reasons as to why there are said to be exceptional circumstances and the claimed disclosure should be made. [105]

I have considered the submissions in detail. In summary, the defendants’ submissions are as follows.

First, it is said that most of the evidence relevant to the proceedings is in the power, custody and control of the plaintiffs and that Remy no longer has access to the plaintiffs’ premises or files that he had prior to 2021.

Secondly, the defendants require visibility of all available documents over all claims before they elect to serve evidence on transactions, particularly where fraud is asserted. Remy says that Wally knew of and approved the transactions. [106] The defendants emphasise the gravity of the allegations, [107] the fact that the plaintiffs’ claims involve numerous impugned transactions over a 13-year period, [108] and the magnitude of the categories of discovery. [109]

Thirdly, the defendants assert that the plaintiffs have in large part obtained discovery ahead of the defendants by “stealth” and that this gives rise to a “substantial inequality of information between the parties”. [110]

Fourthly, the defendants claim that it is not in the interests of the parties to have a staged process of evidence then discovery and then further evidence as that will involve a double up of work. [111]

In relation to the so-called visibility of all available documents, Mr Ratnam described this on the hearing in terms of verification by testing all the evidence that exists on a particular transaction. [112] Throughout the hearing, Mr Ratnam emphasised verification as an important part of the basis for the claim for discovery. [113]

Like the defendants, the plaintiffs set out detailed submissions in relation to the defendants’ disclosure application. I have considered the submissions in detail. In summary, the submissions are as follows.

First, the plaintiffs say that there are no exceptional circumstances. In elaborating on this, they note that the defences are all substantially in the same terms in that they deny the allegations although admit various payments were made with Wally’s knowledge and authorisation or in the ordinary course of business. To the extent that Remy seeks production of documents to make good defences concerning the knowledge and authorisation of Wally, they say that the difficulty with that is that Remy does not plead or particularise any documents that would make good the positive defences.

Secondly, they say that disclosure is not necessary for the resolution of the real issues in dispute in the proceedings, at least not at this stage of the proceedings.

Thirdly, they say that the categories of discovery offend the provisions of rr 21.2(2) and (3) of the UCPR in that they are in more general terms than is justified in the circumstances and that it has not been demonstrated that the categories are relevant to facts in issue.

Fourthly, they say that the motion is inconsistent with the overriding purpose of the rules in that the costs of the discovery process and the likely result in further delay will not facilitate the just, quick and cheap resolution of the real issues in the proceedings.

Mr Ratnam, as noted above, at the commencement of the second day, articulated a revised claim for discovery on a very limited basis. He proposed that the defendants have a limited scope of discovery, then put on their evidence and, to the extent that it is necessary, thereafter to access additional discovery. He submitted that could be done by way of notices to produce. [114]

That proposal, he indicated, would have a consequential effect in that if discovery was given in respect of new category 1, that would address or at least obviate the need for seeking the preservation orders. [115]

Seemingly, part of the reason why the defendants seek verification is their concern about the circumstances in which Remy’s employment was terminated, particularly, him being disallowed access to the premises and the documents he left on the premises. [116]

Mr Ivantsoff emphasised that discovery must be referable to the facts in issue, citing Graphite v Lloyd per Brereton J at [21]-[23].

The precise basis for the defendants seeking disclosure in respect of the revised 14 categories is set out in the last column of MFI-2 which I have considered.

To the extent that there is a need to establish exceptional circumstances, Mr Ratnam [117] made reference to the decision of Black J in In the matter of Mempoll Pty Limited, Anakin Pty Limited and Gold Kings (Australia) Pty Limited [2012] NSWSC 1057 (Mempoll) at [21] that the fact that highly relevant information is solely or largely in possession of one party may well give rise to exceptional circumstances. Mr Ivantsoff [118] sought to distinguish the decision in Mempoll.

Mr Ivantsoff stated that certain limited informal discovery had previously been offered by the plaintiffs and submitted that there are instances in which formal discovery has not been ordered where informal discovery has been offered, citing Commonwealth Bank of Australia v Goater [2016] NSWSC 710 per Adamson JA at [39]. However, he acknowledged that there is no absolute rule to that effect. [119] He submitted that a more appropriate, efficient and cost-effective means of proceeding in the existing circumstances was to permit specific documents to be sought by means of a notice to produce. [120]

Particular aspects of this matter to my mind call for a purposive and flexible approach to the Court’s powers to regulate production of documents to ensure the overriding purposes of the CPA and UCPR to facilitate the just, quick and cheap resolution of the real issues in the proceedings.

First, the level of documentation which has been produced in the proceedings so far, and the costs and expenses accompanying that, calls for a just but nonetheless cost-effective approach to further disclosure requests.

Secondly, the plaintiffs complain that a number of the documents sought by the defendants have not been shown to be sufficiently relevant to the issues in the proceedings. However, the plaintiffs chose not to seek particulars of the defendants’ defences, especially the defences relating to Wally’s alleged knowledge and alleged authorisation. I will say more about this below.

Having regard to the proceedings as they have evolved and currently stand, it is obvious that the Court needs to take a specific role in managing issues regarding discovery. In this regard, as I have observed in another case, the issue of what may be permissible is not restrained by the parties’ contentions but, in a sense, becomes ”at large” in that it is subject to the Court’s power to actively manage cases to achieve the overriding purpose of the CPA and the UCPR in their application to civil proceedings: see Health Administration Corporation v Toll Global Forwarding Pty Ltd [2024] NSWSC 285 at [108]-[120].

Similar sentiments have been expressed by Kunc J in his Honour’s very recent decision in Lee v Belmore 88 Pty Limited [2025] NSWSC 96. In that case his Honour made an order for what is described as general discovery. His Honour referred to (a) the form of discovery based on Compagnie Financière et Commerciale du Pacifique v Peruvian Guano Co (1882) 11 QBD 55, which included what was often described as the “chain of inquiry” test and (b) the origins of Practice Note SC Eq 11 at [10]-[12]. In the context of what his Honour described as the “Treaty of Versailles problem” (“where parties approach the task of negotiating the categories as though they were drafting an agreement upon which the fate of nations depended, and where every word was existentially consequential”), [121] his Honour stated at [16]-[18] (omitting footnotes):

In light of the above, I propose to address each of the revised categories in the submissions and make a determination in respect of them. I address this below.

Before doing so, I will address one matter that pervaded arguments about the determination of relevance on the disclosure application, being the knowledge, authorisation and approval of transactions.

It became evident that, from the plaintiffs’ perspective, there was a lack of clarity regarding how the defendants’ knowledge, authorisation and approval case was put.

Mr Ivantsoff submitted that there is no evidence from Remy or his solicitor addressing what meetings took place, how frequently they occurred, the outcome of such meetings, or that minutes were kept. Further, he says that there is no evidence that any such minutes, if they exist, are needed to be able to show that a particular transaction or series of transactions were authorised. [123]

Mr Ivantsoff further submitted that there is no pleading or evidence alleging how matters were authorised, whether it be in writing or otherwise, no indication of whether authorisation was done globally or by each transaction, and no pleading that there was any practice within the business whereby Wally and Remy had discussions or that Wally sent Remy an email or a text message and that authorisation was worked out on that basis. [124]

Leaving aside the exact connection between the categories, Mr Ivantsoff made reference to the evidence of Mr Diab in respect of “categories 6-8”.

Mr Ivantsoff observed in relation to “categories 6 and 7” that from Mr Diab’s affidavit there is simply a contention that Remy and Wally had dealings that are critical to establishing certain matters. However, he contends that the reason why those matters are critical and how they impact on the question of why disclosure is necessary now as opposed to some other time has not been explained: T 59.

Generally, a pleading must give such particulars of any claim, defence or other matter pleaded by the party as are necessary to enable the opposite party to identify the case that the pleading requires him or her to meet: r 15.1(1) UCPR.

Conventionally, clarity regarding knowledge or authorisation is obtained by first asking for particulars regarding whether knowledge is actual or constructive, whether authorisation was express or implied and whether it was in writing or orally given, and other aspects of authorisation.

Ironically, by not seeking particulars of the defences, the plaintiffs have not availed themselves of the conventional means by which they could have clarified relevance. The purpose of particulars includes controlling the generality of the pleadings, defining the issues of fact to be tried and avoiding surprise at the trial. [125]

On one view, it becomes difficult to deny a party disclosure of documents that are said to bear upon authorisation on the basis of lack of clarity as to how the authorisation is said to be put, in circumstances where the other party has not sought any particulars.

To the extent there is no clarity particularising the defendants’ case of knowledge or authorisation, that is certainly a matter which was within the plaintiffs’ hands to address by seeking particulars. They had an opportunity to seek particulars but did not do so. Even if the plaintiffs expected that some form of clarity regarding authorisation would appear in the defendants’ evidence, [126] significant time has now passed. In light of the matter as it presently stands, the way the proceedings have been conducted, and the costs that have been incurred, I do not regard any lack of clarity of the defence (as alleged) as being a sufficient reason to refuse disclosure.

Verification is a well-known process whereby a list of documents must be accompanied by a supporting affidavit and (if the disclosing party has a solicitor) by a solicitor’s certificate of advice: r 21.4(1) UCPR.

The requirements in respect of the affidavit include statements to the effect that the deponent has made reasonable enquiries as to the documents referred to in the order and inter alia believes that there are no documents (other than listed excluded or privileged documents) falling within any of the classes specified in the order that are, or that within the last six months before the commencement of the proceedings, have been, in the possession of the producing party: r 21.4(2) UCPR.

The solicitor’s certificate is a solemn document which addresses not merely the advice given but also the extent of a solicitor’s knowledge. Thus, the certificate must state that the solicitor has not only advised the client party as to the obligations arising under an order for discovery but also that the solicitor is not personally aware of any documents within any of the classes specified that, within the relevant time period, have been in possession of the party (leaving aside those documents within the list of excluded documents): r 21.4(3) UCPR.

Mr Ratnam, at least in relation to revised category 1, did not necessarily seek verified discovery. He proposed that the defendants be given access to the relevant email inboxes and outboxes and that his client would undertake the process of investigating and interrogating those documents. [127]

However, more generally regarding the categories of disclosure sought, Mr Ratnam submitted that verification was appropriate in circumstances where documents had previously been sought but only partially produced and where the plaintiffs have been (he asserts) selective with what they considered relevant as opposed to providing all documents within the category. [128] Beyond the assertion of partial production and selectiveness, Mr Ratnam was unable to specify any other concerns that required verification. [129]

Verification in cases involving potentially many documents is a notoriously detailed, expensive and time-consuming process.

Having regard to the further time, expense and effort required or involved in verified discovery, I am not satisfied that verified discovery is appropriate. That is not merely in relation to revised category 1 but all the categories.

It will be evident from my determination below that I consider that some disclosure should be given to the defendants. To the extent that that is contrary to the provisions of the Practice Note, my determination is a case management decision having regard, in particular, to the overriding purposes of the rules as applied to the unique circumstances of this case.

To be clear, I do not require any painstaking listing of individual documents that are to be produced. With one qualification, I consider that that the production can proceed in a similar way to which documents are produced pursuant to a subpoena or notice to produce. The qualification is that there should be some correspondence from the plaintiffs’ solicitors to the defendants’ solicitors identifying in a general but clear way what is being produced so that it is evident to those within the defendants’ solicitors’ office what documents are referable to each category in respect of which production has been permitted.

Revised category 1 is as follows:

The email boxes referred to are set out at CB 1157-1158 and in summary are as follows:

It is sought on the basis that it is relevant to establishing that the impugned transactions were legitimate and authorised. [130] Mr Ratnam proposed that they could be provided, for example, on a USB stick. [131] Potentially another way that could be done is described as “a data dump”, or for the plaintiffs to give the defendants access for a limited period, with protocols put in place to permit that. [132]

Mr Ivantsoff submitted that the inboxes will pick up materials that are irrelevant to the proceedings and other information that is confidential to the business and has no bearing on “the essential fact in issue, which is authorisation and approval for the transactions” and accordingly has the effect of casting a net over the entire history of correspondence of a 13-year period. [133]

If disclosure is to be ordered by means of a dump onto a USB stick, Mr Ivantsoff accepted that the process would take no longer than an hour or two. [134]

For reasons that I have addressed above, it is regrettable that the matter has progressed through to a contested hearing regarding disclosure of documents without clarity as to how the defendants’ knowledge, authorisation and approval case in respect of transactions is particularised.

Nonetheless, as matters currently stand, I consider that discovery should be given in respect of the email boxes, at least to address the claim in the defence in respect of knowledge, authorisation and approval for transactions.

I invite the parties to use their ingenuity as to how that may be appropriately and cost effectively done, so as to preserve any confidential materials.

If they are unable to agree on a process within a relatively short space of time, I will appoint, initially at the parties’ own cost, an expert pursuant to Pt 31 subdivision 5 of the UCPR (including for example rr 31.46, 31.54) to receive and review the email boxes and prepare a report identifying the email material to be disclosed in respect of knowledge, authorisation and approval for the claimed (approximately 4,000) transactions and determine how that can best be provided without inappropriate disclosure of any confidential material.

Revised category 2 is as follows:

There are two categories of folders. One category is Remy’s personal folders. The second category are the “Wehbe Group” company folders. [135] There is no objection to the personal folders being provided, though apparently they are not sought with only the company folders being sought. [136] There are company folders for each plaintiff with multiple folders for each financial year. [137]

Mr Ratnam submitted that materials in the company folders relate to the factual issues and matrix in the case. Specifically, he says that there is financial information that would assist the defendants with reconciliation of the amounts claimed against them and contextual documents that would assist with proving their defences that the payments were authorised. [138]

Mr Ivantsoff opposed discovery of the company folders on the basis that it is irrelevant and too wide. [139]

I consider that there is plausible relevance as described by Mr Ratnam and that discovery should be given in respect of orders, but limited to only those matters in respect of reconciliation of the impugned transactions and in respect of knowledge, authorisation and approval for the impugned transactions.

Revised category 3 is as follows:

Revised category 5 is as follows:

The defendants’ reason for seeking this material is that the plaintiffs’ claims relate to numerous alleged fraudulent transactions in respect of cash and bank transfers said to have been perpetrated by Remy. The defendants submit that production of these primary records will enable the defendants to reconcile a number of the impugned transactions and demonstrate the legitimacy of the payments as they allege. [140] Mr Ratnam emphasised in his oral submissions that the business operated as a cash business. He submitted that, even though that was the case, there were adjustments made to which primary cheque-books and deposit books would be relevant. [141]

Mr Ivantsoff submitted that production of every cheque and deposit entry was too broad and would capture irrelevant documents. [142]

Specifically, Mr Ivantsoff asserted that in terms of cash books, only three plaintiffs, namely FA, GMC and RMK, make cash claims. He submitted that he has provided the cash books for FA and GMC and that they do not have the cashbook for RMK. [143]

Hopes for attempting to limit what might be appropriate disclosure have been stymied in part by the parties’ inability to agree on production and in part by the plaintiffs’ failure to seek particulars on material allegations of the defences. I consider that it is not unreasonable for the defendants to have access to the cheque-books and deposit books for the period. The volume of material that may need to be produced may be large. However, to some extent, that is a consequence of the extent of the plaintiffs’ claims in respect of impugned transactions over a 13-year period. I do not think it would be reasonable to deny the defendants an opportunity to review the cheque-books and deposit books to seek to reconcile payments or demonstrate the legitimacy of other impugned transactions.

In relation to cash books recording income and expenses, according to Mr Ivantsoff, seemingly every relevant cash book for FA and GMC recording income and expenses has been provided. If that is the case, then I do not require further production of what has already been produced. However, if any of the plaintiffs other than FA, GMC or RMK have any cash books recording income and expenses, I require production of those materials.

Revised category 4 is as follows:

Fifteen persons are nominated including four of the defendants being Remy, Linda, Kevin and Karl.

The relevance of this material according to Mr Ratnam is that it can assist in demonstrating that the impugned transactions were legitimate and authorised. The defendants contend that there are impugned transactions that are answered by dividend distributions paid to shareholders, which were then applied as payments relating to properties in the Philippines. They say that certain third parties associated with various shareholders, by agreement with Wally and Remy, made payments to various entities comprising the Wehbe Group to acquire interest in the properties in the Philippines. [144]

Mr Ivantsoff submitted that putting aside the question of authorisation, whatever monies were deposited into a Wehbe Group account and paid to the ultimate recipient will be reflected in the bank statements, and thus only the bank statements are required. In any event, he submits that the category is too wide. [145]

I do not think that it is a sufficient answer to the claim for disclosure to say that whatever payments are made are recorded in bank statements. I consider that disclosure should be given. There may be relevant recordings in documents other than the bank statements. However, I consider that there is some force in Mr Ivantsoff’s submission that the category is too wide. I consider that there should be production of material in the folders relating to whether any of the impugned transactions were legitimate or made with knowledge and authorised.

Revised category 6 is as follows:

Revised category 7 is as follows:

Revised category 8 is as follows:

Revised category 9 is as follows:

Essentially as I understand it, Mr Ratnam submitted that authorisation of payments may have taken place in the context of informal meetings which might have been as casual as simple discussions. He posits that there might be recordings such as a diary entry which would identify when the meetings took place. [146]

Mr Ivantsoff made his submissions in respect of the lack of clarity regarding the authorisation approval case which I have noted above. In addressing the specific categories, he reiterated those points. [147]

Further, Mr Ivantsoff noted Mr Diab’s assertion that the main protagonist for the Plaintiffs will be Wally and that Remy’s principal dealings were with Wally and his assertions that (a) Joseph Bouchaaya was the director of FA, at all relevant times; (b) Remy denies being a director, CEO and/or Financial Controller of FA and says that he had no independent control or access to the accounts of FA and therefore had no ability to independently deal with FA’s accounts; and (c) Remy says that any access to FA’s accounts was within the knowledge and direction of Joseph Bouchaaya. [148]

Mr Ivantsoff submitted that if Remy had no ability to deal with the accounts, then he can say that, implicitly submitting that he had no need for any documents. [149]

In relation to “category 8”, Mr Ivantsoff submitted that there is an issue about the identity of certain employees, being whether they were fake or legitimate. He submitted that no documents would assist the defendants because the plaintiffs’ case in respect of that is that the documents, whether they be payslips or other employment related records, are false. He submitted that the only way the defendants are going to be able to defend the allegations are to depose to seeing people attend at work setting up what they were doing and how long they were employed. [150]

Mr Ratnam did not make any specific submission in relation to category 9 other than noting that the reason for it being sought was covered by what had been said in relation to categories 3, 5 and 6. [151]

Mr Ivantsoff submitted that category 9 appeared to overlap to a significant degree with other categories and ought to be limited to what is pleaded in the 2FASOC, the particulars to it and the Deloitte Report. [152]

I consider that production should be given in respect of these categories. As I have observed above, any lack of clarity regarding particularisation was within the plaintiffs’ hands to address and they have not done so.

To the extent that Mr Ivantsoff submits that certain documents are false and the only way the defendants can prove their case is to depose to matters observed, I am not satisfied that that is an answer to production. If there are documents that bear upon the allegations of knowledge or authorisation matter, it may be that the defendants contend that the documents are not false or that, even if they are false, they provide some context for defending the allegations.

Revised category 10 is as follows:

This is not some general request but rather, according to MFI-2, the defendants seek this as being the repository of the plaintiffs’ financial data referred to in the Deloitte report. That is certainly the way that Mr Ivantsoff appeared to understand the request. He indicated that he would seek some instructions in respect of it. [153]

If Mr Ivantsoff’s understanding is right, it seems to me that it should be produced. Even if this specific request has not been made pursuant to r 21.10 of the UCPR, it is clear that a party may request for inspection any document or thing that is referred to in an affidavit or witness statement filed or served by a party: r 21.10(1)(b) UCPR.

Revised category 11 is as follows:

Revised category 13 is as follows:

The defendants seek documents under revised category 11 at least because they say they are relevant to addressing the claim of misappropriation of monies and the so-called adjustments made by Mr Garufi within his appendices to a number of the plaintiffs’ accounts. They also claimed that “underlying documents to prepare the tax returns are necessary”. [154]

Mr Ivantsoff says that all tax returns in relation to GMC and FA have been produced and they are content to provide tax returns for RMK to the extent that they are still in the possession of the plaintiffs.

The fact that Mr Garufi has made some adjustments for the purposes of preparing a valuation report does not seem to me to be a particular reason as to why the documents should be produced per se. However, I consider that the documents should be produced, to the extent that they have not already been produced, at least for the purposes of the defendants having available the tax returns that might bear upon the claims in respect of the impugned transactions.

Revised category 11 as sought does not extend to “underlying documents”. At this stage, I require the tax returns for the plaintiff companies for the specified period to be produced, essentially for the same reason that I have given in relation to categories 3 and 5.

As to revised category 13, the defendants say they are relevant to addressing the claim of misappropriation of monies. [155] Mr Ivantsoff stated that GMC and FA have been produced while RMK has not, and his instructions are that RMK is content to produce such documents, pursuant to a notice to produce. [156]

It seems to me that, for the defendants to relevantly address the totality of the claims against them, it is appropriate for them to be able to view financial statements that have been prepared including draft, executed or varied statements which set out information regarding expenses of the various plaintiff companies. I consider that documents requested in revised category 13 should be produced for the period 1 July 2008 to 30 June 2021 except to the extent that they have already been produced.

Revised category 12 is as follows:

The defendants contend that the plaintiffs allege that Remy was the CEO or financial controller of the plaintiffs, [157] entered into agreements with the plaintiffs, [158] held a position of trust for the plaintiffs, was an officer of the plaintiffs, and had duties to the plaintiffs under the Corporations Act. [159] They contend that the terms of the agreements are relevant to these claims. [160]

Mr Ivantsoff submits that his instructions are that, on the plaintiffs’ evidence, there are no written agreements and so there is nothing to produce.

Having looked at the current pleading 2FASOC, it appears by reference to the particulars to [25] [161] that the plaintiffs contend that the employment agreements were partly oral and partly implied and that it was an implied term of the employment agreements that Remy would act with loyalty and honesty.

In light of that, it would appear that there is nothing to produce. It is not clear to me whether there is any allegation that there any other agreements to which Remy was a party with the plaintiff companies. If there are, any such agreement should be brought to my attention. However, in respect of the defined “Employment Agreements”, [162] and because of the way they have been particularised by the plaintiffs, I accept the submission that there is nothing to produce. There is no suggestion that there is any writing which records any terms of any such agreements.

Revised category 14 is as follows:

The defendants contend that the bank statements will record relevant transactions carried out by the defendants and that, in any event, they wish to cross-reference details of impugned transactions in the schedule to the 2FASOC against any such bank statements for the purposes of reconciling the impugned transactions. [163]

This aspect did not appear to be specifically contentious. Mr Ivantsoff appears to accept that the bank statements can be produced pursuant to a notice to produce. [164]

The offer to produce by Mr Ivantsoff should be acted upon. Even if there were no offer, I consider that there is sufficient relevance to require production. The orders that I require the parties to prepare to give effect to these reasons should include production of these bank statements.

As I have indicated above, the parties are agreed on orders in relation to the plaintiffs’ production application and the distribution application. Further, the plaintiffs’ disclosure application is consented to and the preservation application is not pressed and, in any event, is now effectively superseded in light of what I have indicated regarding revised category “1”.

Mr Ratnam submitted that costs of all applications should be reserved to abide what happens ultimately at the trial. He accepted that an exception to that is the orders in relation to the distribution motion in which it was agreed that there be no order as to costs. [165]

He submitted that if I was not inclined to reserve costs, he would wish to have an opportunity to consider the reasons for judgment before making any specific submission in relation to costs. [166]

For his part, Mr Ivantsoff simply wished to reserve his position on costs and to make specific submissions after considering the reasons for judgment. [167]

Ultimately, out of the 6 applications, 2 applications were resolved, 2 applications were contested, one application was ultimately not opposed, and the other application was, in the midst of the hearing, ultimately not pressed.

In respect of the 2 resolved applications, the parties are agreed to their costs orders. Namely, in respect of the plaintiffs’ production application, costs will be reserved, and in respect of the distribution application, there will be no order as to costs.

In relation to the applications that were contested, each side has had a measure of success and failure. The defendants have succeeded in persuading the Court to make an order for security. However, the amount of security that I am minded to award is significantly less than initially sought by the defendants. In relation to the defendants’ discovery application, ultimately, a significantly revised version of that application was pressed with many categories not ultimately sought. Nonetheless, the defendants have had some success in that I have found that disclosure should be given in respect of most of the revised categories.

The plaintiffs’ application for discovery was from the outset said to be contingent upon the outcome of the defendants’ application for discovery. However, ultimately it was not opposed. The defendants’ preservation was not pressed but that was in a context in which it was effectively subsumed in the defendants’ request for discovery under revised category “1”.

One potential outcome as mentioned by Mr Ratnam is that costs be reserved. However, that would leave the question to be dealt with by the judge finally hearing the proceedings at a point of time potentially significantly distant from the current time and in circumstances where the context of how the applications were dealt with and ultimately argued may be a little challenging for the trial judge to assess.

My provisional view is that, in all the above circumstances, rather than reserve the question of costs, the appropriate order is that the costs orders agreed in respect of the two applications that have been the subject of proposed consent orders should be as proposed and that, in respect of the balance of the four applications, there should be no order as to costs to the intent that each of the parties should bear their its costs.

If the parties wish to contend for a different position, I will make orders permitting that to occur. However, if that is to occur, it should be done in a cost-effective manner.

I direct the parties to bring in short minutes of orders to give effect to the findings that I have made in respect of each of the applications, which will necessarily include the proposed orders in respect of the two applications in which orders have been agreed as between the parties. The costs orders in respect of the remaining four applications should be as I have indicated unless the parties wish to contend otherwise.