Armstrong Strategic Management and Marketing Pty Ltd v Expense Reduction Analyst Group Pty Ltd

Judgment - EX TEMPORE 1By Originating Process filed on 28 June 2012, the Plaintiffs, Mr Robert Ho and others, seek relief under s 233 of the Corporations Act 2001 (Cth), for breach of fiduciary duty and under s 68 of the Fair Trading Act 1987 (NSW) as it stood prior to 1 January 2011. 2The relief claimed in the Originating Process includes, first, an order under s 233(1)(j) of the Corporations Act that the Defendants pay compensation in the amount of the alleged difference between the price paid by the Fourth and Fifth Defendants to acquire the Plaintiffs' shares in other Defendants and the asserted true value of those shares and, in the alternative, an order for equitable compensation in the amount of the difference between the price paid for the shares and the true value of those shares. The Originating Process therefore directs attention to the question whether the price paid for the relevant shares was less than the true value of the shares, which is the necessary premise of the claims for relief identified in the Originating Process. 3The Originating Process was supported, inter alia, by an affidavit of Mr Ho affirmed 27 June 2012 which identifies the subject matter of the proceedings as relating to an interest in the companies operating a restaurant known as "BBQ King" in Sydney. 4An Amended Statement of Claim was subsequently filed by the Plaintiffs on 14 August 2012 which pleads, relevantly, a relationship of trust and confidence and an obligation of good faith in respect of the restaurant business and pleads the circumstances relating to the purchase of the Plaintiffs' shares in the relevant companies. The Plaintiffs have foreshadowed a further amendment to make an express allegation that the shares in those companies were purchased by the Fourth and Fifth Defendants at a substantial undervalue. I understand the Plaintiffs' claim to raise issues of the kind considered in, for example, Brunninghausen v Glavanics (1999) NSWCA 199; [1999] 46 NSWLR 538 involving a purchase of shares within a closely held company. 5Immediately after the commencement of the proceedings, on 28 June 2012 and 29 June 2012, the Plaintiffs issued notices to produce to the Fourth, Fifth and Sixth Defendants. Further notices to produce were issued to the Fourth, Fifth and Sixth Defendants on 18 July 2012 and a subpoena was then issued at the request of the Plaintiffs to another entity, PAAC Group Pty Ltd ("PAAC Group") on 28 June 2012. 6I should note that care should be exercised by parties in proceedings in this Division in issuing expansive notices to produce since the introduction of Practice Note SC Eq 11. I will refer below to the circumstances in which that Practice Note is capable of affecting the issue of notices to produce. Having said that, the question which arises before me is not whether it would have been preferable for leave to be sought prior to the issue of the notices to produce in these proceedings, but whether those notices to produce should now be set aside, in circumstances that leave is now sought for their issue nunc pro tunc. Defendants' application to set aside notices to produce 7The first three of the notices to produce issued 28 June 2012 required production of detailed categories of financial information relating to the restaurant business conducted by the Fourth, Fifth and Sixth Defendants, including documents relating to revenue, purchases, assets, creditors, accounting records, business activity statements and tax returns of the relevant entities. The second group of notices to produce dated 29 June 2012 required production of exhibits to certain documents filed in proceedings in the Federal Court of Australia brought by two of the defendants against a third party. The third group of notices to produce dated 18 July 2012 required production of further documents relating to the Federal Court proceedings and referred to in the transcripts of those proceedings. The subpoena to PAAC Group seeks production of documents relating to transactions between BBQ King Restaurant or the relevant defendants on the one hand and another business, BBQ King Express, operated by the PAAC Group. 8By Interlocutory Process filed on 7 August 2012, the Fourth, Fifth and Sixth Defendants moved to set aside the notices to produce and the subpoena issued to PAAC Group in reliance on Practice Note SC Eq 11. That application was supported by evidence of the solicitor for several Defendants, Mr McKenzie, who also acts for PAAC Group in the application to set aside the subpoena. Mr McKenzie's evidence is that the notices to produce and subpoena to produce seek disclosure, and effectively discovery, of documents prior to the closing of pleadings and prior to the parties serving their evidence and was served contrary to Practice Note SC Eq 11. The issue thereby raised was that of compliance with Practice Note SC Eq 11, and no issue was raised in Mr McKenzie's affidavit or in argument before me that any of the categories in the notices to produce or the subpoena gave rise to any oppression or that there was any particular difficulty in identifying or producing the documents required, if production was otherwise appropriate. I will accordingly approach the application on the basis that the only issue before me is one of the timing of production of the documents, having regard to Practice Note SC Eq 11, not the content of the categories of documents which are sought to be produced. Plaintiffs' application for disclosure 9By Interlocutory Process filed 24 August 2012, the Plaintiffs sought an order, nunc pro tunc, for disclosure of documents in accordance with the notices to produce and subpoena. That interlocutory process is supported by an affidavit of Mr Richard Arnold sworn 24 August 2012. Mr Arnold has qualifications as an auditor and tax agent and has provided expert reports in litigation as to the value of shares in private companies. His evidence is that he needs access to financial records of the relevant companies to establish the level of their turnover, costs and goods sold and their expenses in order to establish their profit margin and express an opinion as to the value of their shares. He gives evidence of undertaking a similar exercise in other proceedings involving one defendant in these proceedings. Mr Arnold's evidence establishes the relevance of the documents but does not, as Counsel for the Fourth, Fifth and Sixth Defendants rightly points out, establish that it is appropriate for those documents to be produced at this point, within the policies identified in Practice Note SC Eq 11. That is ultimately a question for the Court and a matter which I will address below. 10The notices to produce are issued under Uniform Civil Procedure Rules 2005 (NSW) r 34.1 which provides for the service of a notice to produce requiring the production of specified documents or things. In Norris v Kandiah [2007] NSWSC 1296 at [3] Brereton J observed that a notice to produce under that rule is akin to a subpoena for production; see also Patonga Beach Holdings Pty Ltd v Lyons [2009] NSWSC 869 at [12]. It is not necessary for me to pause to consider whether the categories specified in the notices to produce were properly within the subject of the rule, since the Fourth, Fifth and Sixth Defendants did not contend to the contrary and, as I noted above, no point as to relevance or oppression was taken in this application. 11With that background, I turn to the issue which was the subject of the true contest before me, namely the application of Practice Note SC Eq 11 in the circumstances of these proceedings. That Practice Note is headed "Disclosure in the Equity Division" and took effect on 26 March 2012. It provides, relevantly, that: