By Interlocutory Process filed on 25 May 2020, the Defendant, Wetherill Park Holdings Pty Limited ("Holdings"), applies to set aside a notice to produce dated 8 May 2020 issued by the Plaintiff, Wetherill Park Plaza Pty Limited ("Plaza") and paragraphs 1-7 of subpoenas to produce issued by the Court at the request of Plaza on 8 May 2020 directed to Mr Graham Werry and a company associated with Mr Werry, Bridge Street Capital No. 2 Pty Ltd ("BSC2"). I will refer below to the content of that notice to produce and those subpoenas. As will emerge below, the subpoenas, the notice to produce, and possibly the affidavit evidence to which they are directed, illustrate a significant amount of confusion as to what is properly in issue in these proceedings.
Before turning to the notice to produce and subpoenas, I should say something further as to the history of the proceedings. By a creditor's statutory demand ("Demand") dated 25 July 2019, Plaza demanded the payment by Holdings of a debt in the amount of $153,810.16 which was described in the schedule as a judgment debt, arising from a judgment delivered in proceedings in the District Court of New South Wales on 2 April 2019. It appears that no application was brought by Holdings to set aside the Demand, perhaps not surprisingly, where there was a judgment then in place that supported it. It appears that that judgment was subsequently set aside, although the parties have devoted little attention to the significant question of any impact on the winding up application of the setting aside of that judgment: cf. the case law establishing that a creditor's statutory demand based on a judgment debt will be set aside, where that judgment is set aside: TQM Design & Construct Pty Ltd v M I Kitchen Design Pty Ltd [2011] NSWSC 800; Rhodium Australia Pty Ltd v Stateway Pty Ltd [2012] WASC 205; and Mutton v Living Australia Pty Ltd [2020] FCA 739 at [77].
By its Originating Process filed on 15 October 2019, Plaza then moved to wind up Holdings, relying upon the presumption of insolvency that arose from the Demand, at least while the judgment that underpinned it had not been set aside. Holdings then filed a Notice of Appearance on 22 November 2019, which identified several grounds of opposition to the winding up. It first indicated that it would seek to establish that it was solvent. It also foreshadowed that leave would be sought under s 459S of the Corporations Act 2001 (Cth) to contend that the debt on which the winding-up application was based was not due, which may or may not now raise a question as to the impact of the fact that the judgment that underpinned it has been set aside. It also raised a contention that:
"The agreement by which the purported debt was created should either be set aside or not allowed to be enforced, either under the general law or s243 of the [Australian Consumer Law], because of [Plaza's] misleading and deceptive conduct of:
(i) unlawfully and artificially inflating the sale price of the underlying property by $3 million by a side deed;
(ii) falsely representing the vendor finance, in the amount of the purported debt, was required to be provided to enable the company to complete the purchase at that artificially inflated price".
The status of Holdings' grounds of opposition to the winding up is now uncertain, to say the least. Mr McDonald, who appears for Holdings, has indicated that those grounds have been superseded by events, and that Holdings will now rely upon the grounds of its Defence and a Cross-Claim filed in the District Court proceedings. I have today made orders that will provide for the Amended Grounds of Opposition to the winding up to be filed and served, but that has of course not yet occurred. Mr McDonald has also indicated that, notwithstanding the grounds of opposition to the winding up, Holdings does not itself contend that Plaza had engaged in any fraudulent conduct of any kind, and instead relies on a claim, apparently made by a third party financier to Holdings rather than by Holdings, that there was misconduct by a former director of Holdings and that Plaza is implicated in that conduct by a closing of eyes in respect of that conduct. A further difficulty arises so far as the notice to produce and subpoenas appear to be directed to a possible offsetting claim, not then articulated by Holdings' grounds of opposition, but possibly raised in its affidavit evidence, relating to a claim for damages by Holdings against Plaza in respect of its alleged involvement in matters on which the grounds of opposition raise to impugn the arrangement that gave rise to the judgment.
Subsequently, by an Amended Interlocutory Process filed on 15 April 2020, Holdings has also indicated that it will seek leave under s 459S of the Act to raise a dispute, which could have been raised to set aside the Demand, as to the existence of the debt owed to Plaza. It also indicates that it will seek to establish solvency, or that the proceedings are an abuse of process on unidentified grounds. All of these matters indicate that there is considerable uncertainty as to what is the basis of any opposition to the winding up.
[3]
The application to set aside the notice to produce
The notice to produce issued by Plaza to Holdings in turn seeks documents within five paragraphs. The subpoenas issued at the request of "Plaza" to Mr Werry and BSC2 seek documents falling within 12 paragraphs, of which objection is taken by Holdings to paragraphs 1 to 7. The applicable principles do not appear to be in dispute between the parties. In Portal Software International Pty Ltd v Bodsworth [2005] NSWSC 1115 at [19] to [26], Brereton J noted, in respect of a notice to produce, that it was sufficient to support relevance that the documents called upon could "possibly throw light" on the issues in the substantive proceedings or that it is "on the cards" that they will do so, and also noted that notices to produce were traditionally treated more liberally than subpoenas to third parties in that regard. In City of Sydney v Streetscape Projects (Australia) Pty Ltd [2011] NSWSC 364, Einstein J in turn noted that, in respect of a subpoena, that the party issuing the subpoena must identify a legitimate forensic purpose for which the documents are sought, and establish that it is on the cards that the documents will materially assist its case. Mr Fernon helpfully also draws attention to the observations of Ward CJ in Eq in Marcos Accountants Pty Ltd v Nigtol Pty Ltd [2019] NSWSC 909 at [58], that a subpoena or notice to produce requires a legitimate forensic purpose to be shown for the invocation of the compulsory processes of the Court. Her Honour there noted that:
"Mere relevance does not satisfy the test, rather it must be 'likely the documentation will materially assist on an identified issue, or there is a reasonable basis beyond speculation that it is likely the document will (the onus being on the party seeking to call upon the subpoena to demonstrate that the documents had direct relevance to a line of enquiry rather than speculating on an issue more generally)."
Her Honour also there referred to the decision in ICAP Australia Pty Ltd v BGC Partners (Australia) Pty Ltd [2009] NSWCA 307, and Mr Fernon points out that the concept of "likely" overlaps with the phrase "on the cards" which was used by Brereton J in Portal Software above.
There is, of course, particular difficulty in this case in determining whether it is likely, or on the cards, that the documents sought to be produced will materially assist as to an identified issue, because of the obscurity of the matters in issue, arising from the difficulties to which I have referred above. I bear in mind that, as Mr Fernon points out, the facts underlying these matters may have been addressed in affidavit evidence. It does not follow from that proposition that matters which are not be properly in issue, but have been addressed by affidavit evidence, should provide the basis for wide requirements for the production of further documents that also do not advance the matters properly in issue.
Turning first to the notice to produce, paragraphs 1 - 4 are directed to the circumstances in which Mr Cacciola was appointed, or purportedly appointed, as a director of Holdings in January 2019. That appointment took place after the events that are said to give rise to the relevant claims. Mr Fernon points to the process by which Mr Cacciola was appointed, apparently by the use of a power of attorney and at the request of a secured creditor of Holdings, and submits that an inquiry into the circumstances of that appointment, or the validity of that appointment, will be relevant to determining the issues raised by the attack on the underlying transactions, if leave is granted under s 459S of the Act.
Mr McDonald responds by pointing to significant criticisms made by Mr Fernon, including in submissions in this matter, of the cogency of Mr Cacciola's evidence led in the application, on the basis that Mr Cacciola did not have knowledge of the relevant facts, and had made no inquiry to adequately inform himself of the relevant facts, and submits that those criticisms will not be advanced by an inquiry as to the validity of Mr Cacciola's appointment as a director of Holdings. It seems to me that that submission is correct. No doubt, Holdings may submit, if leave is granted under s 459S of the Act, that Mr Cacciola's evidence should be given little weight because of Mr Cacciola's lack of knowledge of the relevant circumstances, either by direct involvement in them or by inquiry. It will not, however, advance that submission to inquire into the validity or otherwise of his appointment as a director of Holdings. His evidence may be cogent, although he was improperly appointed, or not cogent, although he was properly appointed, and the lack of connection between the cogency of his evidence and the validity of his appointment is such that, in my view, it is not on the cards that evidence as to this matter would assist in a determination of the proceedings.
Paragraphs 5(a)-(c) of the notice to produce fall into a somewhat different category because, although they also appear to be directed to the question as to the validity of Mr Cacciola's appointment, they each seek production of documents that are referred to in Mr Cacciola's affidavit sworn 13 December 2019. It seems to me that, where Mr Cacciola has referred to documents in his affidavit, Plaza may properly require production of them, notwithstanding that Mr Cacciola's evidence in that regard may also not advance relevant matters or be relevant to any matter that is properly in issue.
Paragraph 5(d) of the notice to produce, so far as it is directed to the exercise of a power of attorney to appoint Mr Cacciola, has the same difficulties as paragraphs 1-4 to which I have referred above. Paragraphs 5(e)-(f) of the notice to produce in turn seek the production of documents which record "the seeking of legal advice" which Holdings received in respect of a particular matter, going to a claim advanced in Mr Cacciola's affidavit, and the obtaining of legal advice in respect of that matter. Mr McDonald submits that those paragraphs should be set aside, so far as they seek production of documents as to which legal professional privilege is likely to be established under s118 of the Evidence Act. Mr Fernon submits that they go to the genuineness of the challenge raised by Holdings to the District Court's judgment (I interpolate, since set aside), or the debt, if leave under s 459S of the Act is granted; that whether such legal advice was obtained may be relevant to the genuineness of that challenge; and that whether privilege is established will depend on matters such as the confidentiality of the relevant advice.
It seems to me that these paragraphs are framed in a way that they are calculated to, and very likely to, require the production of advice that is subject to legal professional privilege. The documents that record the seeking of legal advice will, in the ordinary course, be the client's request for advice which is at the core of legal professional privilege, and the documents which record the obtaining of legal advice will, in the ordinary course, be the advice or any record of it. Mr Fernon submits that documents can be produced, and a claim for legal professional privilege can be made in respect of them. While that is so, the Courts have regularly set aside notices to produce or subpoenas which, on the face of them, are likely to require production of largely privileged material, because a party should not be put to the wasted costs of producing documents, and then claiming legal professional privilege over them: Xinfeng Australia International Investment Pty Ltd v GR Capital Group Pty Ltd [2020] NSWSC 620 at [39]-[40]. Those paragraphs should be set aside so far as they are targeted, on the face of them, to advice which would be subject to legal professional privilege.
For these reasons, I will order that the notice to produce dated 8 May 2020, other than paragraphs 5 (a)-(c), be set aside.
[4]
The application to set aside the subpoenas
The subpoenas to produce to Mr Werry and BSC2 are in substantially identical form. The paragraphs that were in contest are not limited in time, but Mr Fernon submits, and I accept, that they have an implicit time limitation, so far as the events in issue have occurred since March 2018. The paragraphs are, however, very broadly drafted, in a way that does not seem to be limited even to the allegations raised in the grounds of opposition as they now stand, so far as they raise an allegation of an overstatement of the price in respect of the purchase of the relevant property. For example, paragraph 1 seeks correspondence between named persons concerning the purchase of the property, the registered mortgages, the judgment debt and the Demand. That is an extraordinarily wide scope of material, particularly when introduced by the word "concerning" which ordinarily would not be permitted in a subpoena. On the face of it, it would appear that the documents that "concern" the judgment debt, would potentially comprise all correspondence in respect of the litigation, and all documents contained in the files of the subpoenaed parties in respect of the District Court proceedings.
Paragraph 2 in turn seeks all documents that form part of the file or records maintained by the subpoenaed parties in respect of the mortgages or a loan facility, and then extends beyond that already broad category to include subcategories. That paragraph is not limited by any criteria that would link it, for example, to any more limited allegation as to the price at which the relevant property was purchased, but extends to production of all documents in respect of the security arrangements or the loan arrangements, and the value of the property, and loan applications in respect of it, and due diligence conducted by the subpoena recipients. It is, in my view, plainly beyond the proper scope of a subpoena in these proceedings, and warrants the pejorative description of "fishing" in the hope that something might emerge: cf Associated Dominions Assurance Society Pty Ltd v John Fairfax & Sons Pty Ltd (1955) 72 WN (NSW) 250 at 254; Xinfeng above at [38]. Paragraph 3 of the subpoenas in turn seek correspondence between the subpoena recipients and a named firm of lawyers in respect of the advance of funds in accordance with the loan facility, again not limited by any link to any overstatement of the purchase price, and should be set aside on the same basis.
Paragraph 4 turns on the circumstances of Mr Cacciola's appointment as a director of Holdings (a misprint in it having been corrected in the course of the application) and should be set aside on the basis that the similar paragraph in the notice to produce was set aside. Paragraph 5 seeks all documents recording or containing instructions or directions to Mr Cacciola in relation to the Defence filed in the District Court proceedings, the Cross-Claim filed in the District Court proceedings and the solvency of Holdings. The implication seems to be that Mr Cacciola is taking instructions from a third party, presumably the lenders to Holdings, in respect of those matters, and that that will in some way impugn the claims that may be made by Holdings in seeking to resist the winding up application. Again, it does not seem to me that that paragraph is sustainable, in respect of any legitimate forensic inquiry in respect of the matters presently in issue in the proceedings.
Paragraph 6 seeks documents containing correspondence with named persons in respect of a settlement adjustment sheet, a transfer, and an agreement for vendor finance of $3.94 million. These appear to be directed to matters which may have a connection with the suggested overstatement of the amount of the purchase price for the property, but is again drafted in a very wide fashion, again in a manner that seems to me to be characteristic of an exercise in "fishing" in the hope that something may emerge. What is not done, once again, is to limit that paragraph by any restriction to the suggested overstatement of the sale price. That paragraph should be set aside for that reason.
Paragraph 7 falls in a somewhat different category, so far as it calls for an executed copy of a document which is referred to in an affidavit of Mr Werry sworn 13 December 2019. That paragraph should be permitted. Paragraphs 8-10 of the subpoenas were not challenged.
For these reasons, I order that paragraphs 1-6 of the subpoenas to produce issued to Mr Werry and BSC2 be set aside.
[5]
Costs
It seems to me that, in these circumstances, there should be no order as to the costs of this application. Although Holdings has had a degree of success in setting aside aspects of the notice to produce and the subpoenas, it seems to me that real difficulty has arisen from the obscurity on the basis on which it resists the winding up, and from its reliance on affidavit evidence which, on the face of it, may raise a range of irrelevant issues, to which Plaza has responded by the issue of the notice to produce and subpoenas. In those circumstances, Holdings has significantly contributed to the fact that these issues have been pursued by Plaza, and it would not be appropriate that it have its costs of the application. Similarly, it seems to me that Plaza should not have its costs of the application, where it has pursued these issues, where it would, of course, have been open to it to undertake a more rigorous analysis of what was properly in issue in the proceedings, and, if necessary, bring the matter back before the Court to have that clarified, rather than seeking to pursue the matters to which I have referred above, by the issue of very wide notices to produce and subpoenas.
[6]
A remaining issue
Finally, I should make one other observation. This matter is presently listed for a hearing of one day plus on 30 June and 1 July 2020. It will be apparent from what I have said above that there is reason to be concerned that the parties have not come to grips with the matters that are properly in issue in the proceedings, so far as the winding up application relied on a judgment debt, arising from a judgment which has since been set aside, and so far as the parties appear to have assumed that a creditor's statutory demand based on a judgment debt would raise a range of wider issues as to the underlying transaction, including those to which I have referred above. It is likely that these issues will be clarified, first, by the order that I have made for the Plaintiff to file and serve, and send to my Associate, Amended Grounds of Opposition, and by Holdings' application under s 459S of the Act, because it is unlikely that the Court would grant leave under s 459S of the Act to raise matters that are not properly a response to the Demand or the winding up application, or could not have provided a proper basis to challenge the judgment debt, had it remained in place, or do not address any issue that arises after the judgment on which the Demand was based has been set aside.
The parties, and their legal representatives, should bear in mind their obligations under s 56 of the Civil Procedure Act 2005 (NSW) in respect of the just, quick and cheap resolution to the real issues in dispute in these proceedings, which plainly require a closer and more precise focus upon what is properly in issue in the proceedings than may have occurred to date.
[7]
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Decision last updated: 31 July 2020