Alister v R

Background

1. Force Corp and its liquidators commenced this proceeding against the defendants (Mr Ian Johnson, Mr Gary Ash, Mr Drew Semken and Mr Carmelo Caltabiano) by statement of claim filed on 11 April 2017 alleging that, as directors of Force Corp, they engaged in insolvent trading in contravention of s 588G of the Corporations Act 2001 (Cth) in the period from 1 July 2014 to the date of the appointment of voluntary administrators to Force Corp on 13 July 2015.
2. Corporations Act 2001 (Cth), s 588M relevantly provides: Recovery of compensation for loss resulting from insolvent trading (1) This section applies where: (a) a person (in this section called the director) has contravened subsection 588G(2) or (3) in relation to the incurring of a debt by a company; and (b) the person (in this section called the creditor) to whom the debt is owed has suffered loss or damage in relation to the debt because of the company's insolvency; and (c) the debt was wholly or partly unsecured when the loss or damage was suffered; and (d) the company is being wound up; whether or not: (e) the director has been convicted of an offence in relation to the contravention; or (f) a civil penalty order has been made against the director in relation to the contravention. (2) The company's liquidator may recover from the director, as a debt due to the company, an amount equal to the amount of the loss or damage. (Emphasis added) …
3. In their statement of claim, Force Corp and the liquidators plead that there is likely to be no dividend paid to the creditors of Force Corp (par 32) and that in the circumstances, the amount of the loss or damage claimed against the defendants is the total of the amount of the Debts set out in Sch 1, being the sum of $17,305,695.43 (par 33).
4. The defences filed on behalf of the defendants on 12 May 2017 are relevantly in the same terms. The defendants do not admit par 32 of the statement of claim; they deny par 33 of the statement of claim; and plead in par 8 of their defences that the liquidators of Force Corp have an available recovery to the plaintiffs being the claims pleaded relevantly against the receivers in the (proposed) cross-claim which amount is to be taken into account in determining the amount of compensation which may be awarded against each defendant. The reference to the (proposed) cross-claim includes the allegations in pars 48 and 49 thereof against that the receivers failed to take all reasonable care to sell the assets of Force Corp for not less than their market value, or for failing to take all reasonable care to sell the assets for the best price that was reasonably obtainable having regard to the circumstances existing when they were sold.
5. The following particulars are given under pars 48 and 49 of the proposed cross-claim: Particulars The Force Corp Assets were sold for approximately $37.5 million, substantially less than their market value. In respect of the Force Corp Assets, the whole sale process, including advertising and marketing, took place within a period of about 6 weeks (ie 16 July to 1 September 2015), rather than the period up to or exceeding 12 months contemplated by the Pickles Valuation and the AAM Report. Rather than engage in the regional sale process to a number of buyers over a lengthy period contemplated by the AAM Report, the Receivers sold the whole of the Force Corp Assets to a single buyer, Coates Hire Access SPV, at a significant discount to market value. Further particulars may be provided following evidence and discovery. The Tower Assets were sold in October or November 2015 for about $7 million. The sale process was concluded within at most about 4 months, substantially less than the 12 month or greater process envisaged by the AAM Report. The cross claimants do not currently have particulars of the details of the sales process. Particulars will be provided following evidence and discovery.
6. In May 2017, the defendants purported to file a cross-claim in the name of Force Corp against various parties, including the receivers. As against the receivers, the defendants alleged in the proposed cross-claim that the receivers did not comply with their general law and statutory duties pursuant to s 420A of the Corporations Act when undertaking the sale process in relation to Force Corp's assets.
7. On 10 July 2017 the defendants filed an interlocutory application seeking, relevantly, leave to bring the claims against the receivers the subject of the proposed cross-claim in the name of Force Corp. That application was heard by Brereton J on 15 September 2017 and judgment is presently reserved.

The subpoena

1. Counsel for the defendants did not seek to justify the call for the documents sought in the Schedule to the subpoena dated 30 April 2018. Rather, the defendants sought to uphold the subpoena by reference to revised categories dated 30 May 2018. The revised categories have been drafted, in part, by reference to the description of the receiver's sale process set out in an affidavit by Mr Christopher Prestwich dated 11 August 2017 served in relation to the earlier interlocutory application concerning the proposed cross-claim. Mr Prestwich deposed in par 6, on information and belief from Mr Hill, that: (a) the receivers commenced a sales process on and from the date of their appointment to Force Corp, being 13 July 2015; (b) the receivers advertised the sale of the assets in newspapers and trade journals and progressed their own programs to identify potential interested parties; (c) the receivers contacted the key parties involved in the pre-receivership process, being Platinum Equity and Addexum Capital. (d) potentially interested parties were also contacted through the receivers existing relationships and from a database agreed between the receivers and Force Corp's management. This included in excess of 100 parties (which were both domestic and international parties); (e) initial offers were received on or around 4 August 2015 for both a 'whole of business' transaction or for plant and equipment sales; (f) six parties were invited to submit a further and final offer by 24 August 2015. These parties included: Coates Group Holdings Pty Ltd (Coates) and Helmsman Funds Management Ltd (Helmsman); (g) after due consideration of the offers submitted during the sales process, the offer by Coates was identified by the receivers as being the preferred offer (and was substantially better than the offer from Helmsman).
2. Mr Prestwich further deposed in par 7, on information and belief from Mr Hill, that the receivers accepted the Coates offer which resulted in the sale of all of Force Corp's assets, excluding the fleet of travel towers (Towers), Force Corp's receivables and various miscellaneous assets, for the amount of $37.55 million. The receiver sold the Towers from approximately $7.05 million and after a number of further asset sales, net distributions of $44.6 million were made to the secured creditor.
3. The defendant's solicitor, Mr Gerard Breen, deposed in par 17 of his affidavit dated 30 May 2018 that many aspects of the receiver's sale process are not known to the defendants and for that reason the defendants require documents relating to: the sale process engaged by the receiver; communications between the receiver and offerors and/or potential offerors, in relation to Force Corp's assets; advice received by the receiver in relation to the sale of Force Corp's assets; valuations and/or the basis of valuation of Force Corp's assets for the purpose of sale; and the consideration by the receiver of any and all interest (whether by offer or otherwise) expressed in the purchase of the Force Corp assets. Mr Breen further deposed in par 18 that the subpoena is directed to those matters.
4. The revised categories of the documents sought by the defendants are as follows: REVISED CATEGORIES IN UNFILED SUBPOENA ATTACHED TO CORRESPONDENCE DATED 30 MAY 2018

• references to Prestwich Affidavit are to the affidavit of Christopher Michael Prestwich sworn 11 August 2017 Copies of the following documents together with their enclosures/attachments sent and/or received and/or authored by the [Receivers] from the date of their appointment to Force Corp, being 13 July 2015 to 31 December 2015: (a) Documents recording the advertising or marketing campaigns conducted in respect of the sale of Force Corp or its assets (including copies of the advertisements referred to in paragraph 6(b) of the [Prestwich Affidavit] and documents recording the programs progressed by the [Receivers] referred to in paragraph 6(b) of the [Prestwich Affidavit]). (b) Documents recording advice received by the [Receivers] in respect of the advertising or marketing campaign or process to sell or otherwise realise assets of Force Corp. (c) Any valuations of Force Corp or any of its assets prepared by the [Receivers], Force Corp or any other person. (d) Any communications with the following persons (including their agents or related companies) in respect of the sale of Force Corp or its assets: a. Platinum Equity Advisors LLC referred to in paragraph 6(c) of the [Prestwich Affidavit]. b. Addexum Capital referred to in paragraph 6(c) of the [Prestwich Affidavit]. c. the "potentially interested parties" referred to in paragraph 6(d) of the [Prestwich Affidavit]. d. the persons who provided the initial offers referred to in paragraph 6(e) of the [Prestwich Affidavit]. e. the six parties referred to in paragraph 6(f) of the [Prestwich Affidavit]. f. any other person who made enquiries of the [Receivers] about the sale of Force Corp or its assets. (e) All communications with their appointors, Recfin Nominees Pty Ltd, relating to the sale of Force Corp or its assets. (f) Documents recording: a. The [Receivers'] analysis and evaluation of the initial offers (referred to in paragraph 6(e) of the [Prestwich Affidavit]). b. The [Receivers'] analysis and evaluation of the further and final offers (referred to in paragraph 6(f) of the [Prestwich Affidavit]). c. The [Receivers'] reasons for the eventual sale in whole or in part/residue to Coates Hire Access SPV Limited itself on 1 September 2015.

1. Counsel for Mr Hill seemed content to argue the matter by reference to the revised categories.
2. Given the overriding purpose of the Civil Procedure Act 2005 (NSW) to facilitate the just, quick and cheap resolution of the real issues in the proceeding (s 56(1)) and the objects of case management stated in s 57(1), including - the efficient disposal of the business of the Court, the efficient use of available judicial resources and the timely disposal of the proceeding at a cost affordable by the respective parties - it is appropriate that the Court deal with Mr Hill's application by reference to the revised categories.

The parties' submissions

1. Mr Hill submitted that the subpoena lacks a legitimate forensic purpose given that the defendants do not presently have leave to bring the proposed cross-claim against the receivers, and insofar as the defendants point to the issues raised by pars 7 and 8 of their defences, the pleading in par 8 does not provide a sufficient basis for the subpoena.
2. Mr Hill contended that the liquidator should first adduce evidence of their estimated recoveries, which the defendants would then have an opportunity to respond to. According to the submission, the defendants should not be permitted to conduct their own investigations through issue of subpoenas to third parties to asses possible claims which they consider the liquidators ought to bring.
3. Mr Hill further submitted that pars 7 and 8 of the defence are pleaded at such a high level of generality that they do not in themselves found a legitimate forensic purpose for the issue of the subpoena.
4. The defendants submitted that the subpoena seeks documents relating to the process for the sale of the assets of Force Corp, being a matter which is relevant to both (a) the proposed cross-claim and (b) the quantum of the damages claim, in particular, the question of whether the loss and damage claimed by the liquidators was caused by the insolvency of the company, being a reference to s 588M(1)(b) of the Corporations Act, the terms of which are set out above.
5. The defendants submitted that s 588M(1)(b) contains a causal element relevantly, proof by the liquidator that a creditor has suffered loss or damage in relation to the debt incurred by the company "because of the company's insolvency". Reference was made to authorities for the proposition that the expression "loss or damage" for the purposes of s 588M is measured by the debts of the relevant unsecured creditors less those creditors' likely recovery in the winding-up: Re Salfa Pty Ltd (in liq) [2014] NSWSC 1493 at [24] (Brereton J); Mitchell Warren Ball (in his capacity as official liquidator of Wealthfarm Group Services) v Nicholas Quinn Sinclair [2015] NSWSC 2103 at [15] (Brereton J); Re Swan Services Pty Ltd (in liq) [2016] NSWSC 1724 at [216] (Black J).
6. The defendants submitted that if dividends received (or likely to be received) by unsecured creditors are not taken into account, the full amount of the creditors' debt is an overstatement of the loss and damage arising "because of the company's insolvency": Perrine v Carrello [2017] WASCA 151 at [40].

Consideration

1. The relevant principles are uncontroversial. The permissible scope of a subpoena for production of documents directs attention to the apparent relevance of the documents sought.
2. It has been said that it is sufficient that the documents could "possibly throw light" on the issues in the substantive proceedings (Trade Practices Commission v Arnotts Ltd (No 2) (1989) 88 ALR 90 at 103), or that it appears to be "on the cards" that they will materially assist a party's case: Alister v R (1984) 154 CLR 404 at 414; [1983] HCA 45; R v Saleam [1999] NSWCCA 86 at [11]; Attorney-General for New South Wales v Dylan Chidgey [2008] NSWCCA 65 at [64], [70], [80].
3. The use by Beaumont J of the word "possibly" in TPC v Arnotts is not used in any speculative sense. It is to be understood as conveying the notion that the documents sought could reasonably be expected to throw light on some of the issues in the proceedings: Cosco Holdings Pty Ltd v Federal Commissioner of Taxation (1997) 37 ATR 432 at 439-440 (Spender J).
4. What are the issues in the proceedings will appear from the pleadings (where there are pleadings), the affidavits, and the legal principles which govern the claims for relief in the substantive proceedings: Portal Software International Pty Ltd v Bodsworth [2005] NSWSC 1115 at [25] (Brereton J). As Nicholas J remarked in ICAP Pty Ltd v Moebes [2009] NSWSC 306 at [33], the legitimate forensic purpose of a subpoena necessarily depends upon identification of the case which is likely the documentation will assist, and that the task in meeting the test of apparent relevance will become difficult where the issue relied upon cannot be identified because either it has not been included in the pleadings or particulars, or the terms in which it has been expressed are obscure and imprecise.
5. As to identification of the issues in the proceedings, Mr Hill was content to argue the question of apparent relevance on the basis that a liquidator must, in proving loss or damage for the purpose of s 588M, bring to account any anticipated or estimated return to creditors in the relevant liquidation. In this regard, both Mr Hill and the defendants referred to the remarks of Black J in Re Swan Services Pty Ltd (in liq) at [216]: I consider that I should follow the decisions in Smith v Offermans above, Re Salfa Pty Ltd (in liq) above and Ball (in his capacity as official liquidator of Wealthfarm Group Services) v Sinclair above, in preference to the approach in Powell v Fryer above, because I consider that the former approach is preferable to the latter in principle. The concept of "loss and damage" adopted in the section seems to require that account be taken of matters that will reduce the amount of that loss or damage, including recoveries by the liquidator that will allow a distribution to creditors, and that result is consistent with fairness so far as it does not result in the defendant, in a claim under s 588M of the Corporations Act, being required to compensate for loss and damage which will not be suffered once other recoveries are made. While the process of establishing loss or damage taking into account future recoveries may be challenging in a particular case, it is by no means impossible. That approach seems to me necessary to establish the amount of "loss or damage" that a creditor will in fact incur and should avoid or limit the risk that judgments are given under s 588M of the Corporations Act for more than the amount of that loss or damage.
6. The issue in Re Swan Services was whether in proving the loss and damage caused by the company's insolvency, the liquidator needed to put forward evidence of the ultimate dividend the creditors whose debts were the subject of his claim would receive in the liquidation. In that case there was evidence of a recovery of $2.5 million as a preference from the ATO. The liquidator argued unsuccessfully that this recovery could be ignored.
7. However, Re Swan Services did not involve the question of whether s 588M requires that the creditor's loss and damage take into account an estimate of hypothetical recoveries by a liquidator, where the liquidator has no intention of making or pursuing a claim that might be made (for example, because of lack of funds, or the liquidator's view as to lack of reasonable prospects of such a claim).
8. The notion of causation embodied in the word "because" in s 588M (1)(b) does not necessarily mean the "sole" cause of the creditor's loss and damage. That would involve reading additional words into the statutory language which do not appear in the text. If that was intended, the provision does not say so. That there may be multiple causes of the creditor's loss and damage does not exclude causation being established under s 588M. Accordingly, it seems to me that the causation requirement in s 588M(1)(b) and (2) could arguably be satisfied without the liquidator needing to prove an estimate of potential recoveries that hypothetically might affect the ultimate dividend that creditors would receive in the liquidation, but the potential recoveries are not matters that the liquidator intends to pursue.
9. Nonetheless, it is not necessary to determine on the present application the proper construction of the causation element in s 588M, or whether the defence in par 8 is reasonably arguable. Those questions were not raised or argued on this application. Mr Hill limited his challenge on the question of legitimate forensic purpose to the "cart before the horse" argument. That is, the evidence adduced by the liquidators of potential recoveries, limits the area of inquiry on the question of "loss and damage caused by the company's insolvency" and hence it is premature for the defendants to seek to obtain material directed to that issue. I do not agree.
10. Given the absence of challenge (by either the liquidators or Mr Hill on this application) to the causation argument sought to be advanced by the defendants, and the absence of any application by the liquidators to strike out par 8 of the defence, I do not regard the defendants' ability to mount a causation defence to be limited in the manner suggested by Mr Hill. That the liquidator takes the position that it is likely that no dividend will be paid to creditors, does not preclude a defendant from arguing the contrary.
11. For these reasons, I have approached the question of the apparent relevance of the documents sought by the defendants on the basis that the defence in par 8(b) is fairly arguable.

Apparent relevance of documents to proposed cross-claim

1. Insofar as the defendants point to the apparent relevance of the documents sought to the issues raised in the proposed cross-claim against the receivers, plainly that does not provide a legitimate forensic purpose for the subpoena given that leave has not yet been obtained to file such a claim in this proceeding.

Apparent relevance of documents to par 8 defence

1. Insofar as the defendants point to the apparent relevance of the documents sought to the issues raised by par 8 of their defences (read as if incorporating by reference, the entirety of the pleading in the proposed cross-claim), I am not persuaded that all the documents sought in the revised categories could reasonably be expected to throw light on the issues raised by the defence as particularised.
2. The one exception is the valuations prepared by the receivers or any other person (par (c)). I am satisfied that this material has apparent relevance to the allegation that the Force Corp assets were sold at a significant discount to market value. However, insofar as the defendants already have in their possession the documents described in their defences as the Pickles Valuation and the AAM Report, there is no legitimate forensic purpose in seeking these documents. Similarly, the defendants already have in their possession the valuation obtained by the receivers' from Tiger Asset Group report dated 30 July 2015. Again, there is no justification in seeking this document as it is already in the defendants' possession.
3. As to the other material sought, the question of apparent relevance is to be assessed by reference to the issues raised by the particulars given under par 8 of the defence, and the explanation given in the affidavit of Mr Breen, the defendants' solicitor, referred to above. The particulars of the alleged lack of reasonable care by the receivers in the sale process are directed to two matters: the speed of the sale process (about 6 weeks) compared to a longer period (of up to or exceeding 12 months) recommended in earlier reports obtained by Force Corp in 2014, and the sale of the majority of the assets to a single purchaser at a significant discount to market: cf, Expo International Pty Ltd v Chant [1979] 2 NSWLR 820. Against this, the scope of the subpoena is directed to a far broader category of documents.
4. As to documents recording all advertising and marketing campaigns (par (a)), and documents recording all advice received by the receivers in respect of the advertising or marketing campaign or sale process (par (b)), these categories go far beyond the issue of the length and timing of the advertising, marketing and sale process by the receivers. I do not consider that apparent relevance has been demonstrated.
5. As to all communications with any person contacted during the sale process (par (d)), and all communications with the receivers' appointors relating to the sale (par (e)), no issue is raised by the particulars of negligence directed to the apparent relevance of these communications.
6. As to all documents recording the receivers' analysis and evaluation of initial offers and final offers and the receivers' reasons for the eventual sale to Coates (par (f)), again no issue is raised by particulars of negligence directed to the apparent relevance of the receivers' assessment of offers received or decision to accept the Coates offer. As indicated, the asserted basis of the potential recovery the liquidators have against the receivers is put on a far more limited basis, concerning the speed and timing of the sale and in selling the majority of the assets in one line to a single buyer at a significant discount to market value.

Is the subpoena too wide or oppressive?

1. Further and in any event, subject to my observations concerning par (c) of the revised categories, I consider that the subpoena is too wide and oppressive.
2. As to the width of the subpoena, some attempt has been made by the defendants to narrow the scope of the subpoena by the revised categories dated 30 May 2018. However, the scope of the revised categories remain far too broad in that they fail to describe the documents sought with reasonable particularity, save for par (c) in relation to valuations: Spencer Motors Pty Ltd v LNC Industries Ltd [1982] 2 NSWLR 921 at 926.
3. That is, the revised categories of documents call for material far more extensive than documents which could be reasonably expected to throw light on the issues of whether the receivers acted with reasonable care in realising the assets of Force Corp within a period of about six weeks (rather than a longer period) and in selling the majority of the assets in one line to a single buyer at a significant discount to market value.
4. As to oppression, Mr Prestwich, the solicitor for Mr Hill, deposed in his affidavit of 14 May 2018 that the task in answering the subpoena would require keyword searches to be conducted over a significant number of electronic and hardcopy documents relevantly: [19] … (a) Email inboxes of approximately 10 relevant PPB staff comprising approximately 555,000 emails for the period 13 June 2015 to date. Approximately 78,000 emails fall within the period of 13 June 2015 to 31 October 2015; (b) PPB's electronic internal files dedicated to Force Corp comprising approximately 19,100 documents in total; and (c) Hard copy files dedicated to Force Corp comprising 21 boxes in storage, and 7 folders in PPB's offices (approximately 91 folders in total).
5. Mr Prestwich explained that once the electronic keyword searches were undertaken by Mr Hill's IT department, it would be necessary to undertake a review of the documents identified by those searches by either an external review team or an internal review team within the receiver's office, and in either case at significant cost. While acknowledging the difficulty in estimating with precision the costs likely to be involved in locating the documents responsive to pars 1(d)-(f) of the subpoena dated 30 April 2018, Mr Prestwich estimated that those costs would likely be in the order of hundreds of thousands of dollars.
6. Although Mr Prestwich's evidence was directed to the subpoena dated 30 April 2018, in particular pars 1(d)-(f), the defendants did not challenge that evidence as being irrelevant because it has been overtaken by the revised categories in pars (d)-(f). Nor did the defendants suggest that the revised categories are likely to significantly reduce the work involved in answering the subpoena. Take for example, par (d). This calls for all communications by the receivers with potentially interested parties, which on the evidence, included in excess of 100 parties both domestic and internationally.
7. I accept that the burden and likely cost of answering the subpoena by reference to the revised categories, is oppressive. Given that the defendants have not attempted to identify with any degree of reasonable particularity the documents sought in the revised categories, save par (c), the receivers should not be put to the time and expense involved in answering the balance of the subpoena.

Practice Note SC Eq 11

1. One further matter should be mentioned. Mr Hill also submitted that the subpoena was an attempt to subvert the operation of Practice Note SC Eq 11 by seeking, in substance, disclosure of broad categories of documents without demonstrating exceptional circumstances.
2. Practice Note SC Eq 11 relevantly provides (in par 4) that the Court: Will not make an order for disclosure of documents (disclosure) until the parties of the proceedings have served their evidence, unless there are exceptional circumstances necessitating disclosure.
3. Whilst Practice Note SC Eq 11 does not, in terms, apply to either notices to produce or to subpoenas because they do not seek an order "for disclosure of documents" (Re Mempoll Pty Ltd [2012] NSWSC 1057 at [12] (Black J)), it has been recognised that a notice to produce or subpoena could be set aside if it involved an attempt to subvert the operation of the Practice Note, by seeking what was in substance disclosure within the scope of the Practice Note: The Owners Strata Plan SP 69567 v Baseline Constructions Pty Ltd [2012] NSWSC 502 at [21]-[24] (Stevenson J); Re Mempoll Pty Ltd at [13] (Black J); Re North Coast Transit Pty Ltd [2013] NSWSC 1912 at [55] (Black J). See also New Price Retail Services Pty Ltd v Hanna [2012] NSWSC 422 at [19], where McDougall J expressed the view that similar considerations to those underlying Practice Note SC Eq 11 apply to the issuing of subpoenas.
4. Given the conclusions I have reached above, it is not necessary to address what I took to be an oral application by counsel for the defendants for leave nunc pro tunc, to the extent that leave was required, to issue the subpoena to Mr Hill given the terms of Practice Note SC Eq 11.

Conclusion and Orders

1. Mr Hill has succeeded in setting aside the subpoena dated 30 April 2018 (which the defendants did not seek to justify) and in demonstrating that the revised categories dated 30 May 2018, save par (c), lack a legitimate forensic purpose and, in any event, are too wide and oppressive. As Mr Hill has substantially succeeded, there is no reason why the defendants should not pay Mr Hill's costs of the application.
2. Accordingly, the Court orders: 1. The subpoena to produce documents dated 30 April 2018 issued to Christopher Hill by the first, second, third and fourth defendants be set aside, save par (c) of the revised categories dated 30 May 2018 (but not including the Pickles Valuation, the AAM Report or the Tiger Asset Group report dated 30 July 2015). 2. The first, second, third and fourth defendants pay Mr Hill's costs of the interlocutory process filed on 15 May 2018.

Amendments 18 June 2018 - [6] - Typographical amendment (x 2) DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 18 June 2018