Australian Mortgage & Finance Company Pty Ltd as trustee of the Melnikoff Family Trust & Ors v Rome Euro Windows Pty Ltd as trustee of the Rome Euro Windows Unit Trust & Ors

Judgment - EX TEMPORE 1By Notice of Motion dated 27 October 2014, the Second and Third Defendants, Ms Rosinska and Mr Rudi, move to set aside a subpoena served upon a firm of solicitors, Lloyds and Barclay Lawyers Pty Ltd, and four notices to produce to the Court, two of which were served on each of Ms Rosinska and to Mr Rudi. A substantial amount of material was relied upon by both parties in the application, which was heard within the two hours that had been allocated to it, albeit at the cost of some abbreviation of the submissions of Counsel. 2By way of background to the subpoena and notices to produce, the plaintiffs in the proceedings, which include Australian Mortgage & Finance Company Ltd as trustee of the Melnikoff Family Trust and Mr and Mrs Melnikoff, seek leave to amend a Statement of Claim and seek leave under s 237 of the Corporations Act 2001 (Cth) to bring parts of that Amended Statement of Claim as derivative proceedings on the part of the First Defendant, Rome Euro Windows Pty Ltd as trustee of the Rome Euro Windows Unit Trust ("REW"), and also to defend proceedings that had been brought against REW in the District Court of New South Wales on REW's behalf and the transfer of those proceedings to this Court. 3Several affidavits were read in the course of the application before me. Ms Rosinska and Mr Rudi relied on the affidavit of their solicitor, Mr Ben-Arie, affirmed 4 November 2014, which annexed the notices to produce which are in issue and a copy of the subpoena which was in issue was also marked for identification. Mr Ben-Arie's affidavit otherwise annexed correspondence between the various parties and one of the letters which was annexed was supplemented by a further page, which had been inadvertently omitted from it, by an affidavit of Ms Wright sworn 7 November 2014. The Plaintiffs rely on an affidavit of Mr MacCallum sworn 7 November 2014 which added additional correspondence to the bundle. An affidavit of service of Mr Icbudak sworn 15 October 2014 was read in respect of the subpoena, although it is ultimately unlikely to be material to the question whether the subpoena should be set aside. 4I was taken to the form of the Amended Statement of Claim, as to which leave to amend and leave to bring derivative proceedings is sought under s 237 of the Corporations Act, and Ms Rosinska and Mr Rudi also, by their Counsel, Mr Baran, provided a brief summary of that document by way of aide memoire. I was also taken to the history of notices to produce and subpoenas to produce in these proceedings which are, to say the least, numerous. I do not place any particular weight upon the number of notices to produce that have been issued, so far as the question as to the validity of any particular subpoena and any particular notice to produce must be determined by reference to that subpoena and that notice to produce. I also recognise that some of those notices to produce and subpoenas will have related to earlier stages in the proceedings, in particular, the point at where various forms of interlocutory relief were sought, particularly against the Defendants. I do note, however, that the number of notices to produce and subpoenas which have been issued do give some concern under case management principles, generally, and draw attention to the relevance of the principles in Practice Note SC Eq 11 to which I will refer below. 5Ms Rosinska and Mr Rudi helpfully tendered the affidavits of Ms Rastrigo and Mr Shtifelman sworn in the proceedings, each of which were admitted with limiting orders under s 136 of the Evidence Act 1995 (NSW), that they were tendered for the purpose of identifying the evidence to which the notices to produce were directed. Similarly, the Plaintiffs helpfully tendered the affidavits of Mr and Mrs Melnikoff, which were admitted with similar limiting orders. Without access to those documents, it would not have been possible to make any rational determination of the extent to which the notices to produce or subpoena served any legitimate forensic purpose in the proceedings. 6Before turning to the subpoena and notice to produce, I should note one further matter. Mr Ben-Arie's affidavit annexed, and Mr Baran placed considerable weight upon, a letter dated 3 November 2014 from the solicitors for Ms Rosinska and Mr Rudi to the solicitors for the Plaintiffs which, without prejudice to the Defendants' rights and without admission, made certain suggestions as to the manner in which the parties might proceed, by consent, in respect of the amendment of the statement of claim and the transfer of the District Court proceedings to this Court. That proposal was subject to some conditions and Ms Hogan-Doran, who appeared for the Plaintiffs, indicated that proposal had not been accepted and would not be accepted on its present conditions. Mr Baran submitted that the fact that that proposal was, he contended, a reasonable one, was a matter to be taken into account in determining whether the subpoena or notices to produce should be set aside. I do not proceed on that basis because it seems to me that the Court must treat the application for leave to amend and the application for leave to bring derivative proceedings as on foot, unless and until the parties choose to compromise it, in determining whether subpoenas and notices to produce may be issued in respect of it. 7Nonetheless, I should repeat a matter I raised with Counsel in the course of submissions, that two days have been allocated by this Court to determination of an application for amendment of the Statement of Claim and for leave to proceed by way of derivative proceedings. Those two days are funded by the community, and will impose significant costs on the community, as well as other parties who are deprived of final hearings while the Court is hearing an interlocutory application in this matter, and will also impose significant costs upon the parties. It is incumbent upon the parties, having regard to ss 56 - 60 of the Civil Procedure Act 2004 (NSW), to seek to isolate the matters which are in disagreement between them. It would be, with respect, regrettable if the Court were to devote two days of hearing time to determination of an application for leave, for example, to bring derivative proceedings if the only matters in dispute between the parties were, in truth, narrower issues as to timetable or as to the form of injunctions in respect of assets which are presently in place, which could otherwise be dealt with by isolating those particular matters for determination. 8Turning now to the question of whether the subpoena and notices to produce should be set aside, I will first deal with the question of the subpoena and then turn to the notices to produce. The subpoena was, as I noted above, issued to a firm of solicitors, Lloyds & Barclay Lawyers, and calls for production of their file or files (electronic and hardcopy) held and/or maintained in respect of REW, covering the period 30 June 2009 to date, including without limitation, certain other documents. Those other documents include correspondence, client service and retainer agreements and engagement agreements between the solicitors and REW, invoices, receipts, trust statements and credit notes, contracts or agreements drafted or prepared by the solicitors for REW, all books and records of REW provided to the solicitors, and the originals of all file notes of telephone attendances, meetings and any other attendances. Those paragraphs may extend, rather than be particular examples of, the opening paragraph of the subpoena, so far as some of those items may or may not properly be characterised as part of the solicitor's files, as distinct from, for example, records maintained in the course of their business generally. 9I will return to the potential forensic purpose of the subpoena in one moment, after saying something about the applicable legal principles. Mr Baran referred to the decision in Spencer Motors Pty Ltd v LNC Industries Ltd (1982) 2 NSWLR 921, which in turn referred to the leading decision in Commissioner for Railways v Small (1938) 38 SR (NSW) 564 and observed that a subpoena should be held to be oppressive or an abuse of process if the production of the documents which it sought was excessively burdensome and the documents appeared not to be sufficiently relevant to the proceedings and identified the test of sufficient relevance as whether production was reasonably likely to add, in the end, in some way or another to the relevant evidence in the case. That test has frequently been applied in subsequent authorities and, in City of Sydney v Streetscape Projects (Australia) Pty Ltd [2011] NSWSC 364, Einstein J referred, with reference to authority, to the need to identify a legitimate forensic purpose in respect of documents to which access is sought and that it is "on the cards" that the documents will materially assist a party's case. His Honour further observed that a subpoena should be permitted where the Court formed the view that the material fell within the legitimate field of inquiry raised by the issue in context and was reasonably likely to add in the end in some way or another to the relevant evidence in the case. I adopted that approach, in respect of a notice to produce, in Re DCM Solar Pty Ltd (in liq) [2013] NSWSC 423 and reviewed the relevant principles in respect of in Re North Coast Transit Pty Ltd [2013] NSWSC 1912 at [6] - [9] where I adopted the same approach. It should be recognised, however, that the fact that a subpoena might, if issued in broad terms, catch some documents which would satisfy that test will not be sufficient to support that subpoena. In particular, a subpoena that is excessively broad, so as to call for documents which are not properly justifiable in that manner, may be set aside, either because it is oppressive or because its breadth gives rise to an abuse of process. 10In the present case, it appears that the issue of the subpoena to Lloyds and Barclay Lawyers reflects the service of the affidavit of Mr Shtifelman sworn 29 August 2014, to which I referred above, in which he gives evidence that he was engaged in early 2010 to carry out work in relation to particular matters for REW. Those matters included, it is said, providing legal advice and support for the business, drafting various contractual documentation, reviewing particular issues and litigation support. Mr Shtifelman then gives evidence of narrower scope in respect of particular meetings and conversations in May 2010, June 2011 and October 2013. Ms Rosinska and Mr Rudi seek to set aside the subpoena issued to Lloyds and Barclay Lawyers on the basis that there is no pleaded issue in the Amended Statement of Claim as to the solicitor's retainer and no basis to require production of the solicitors' whole file from June 2009 to November 2014, and they submit, applying the test to which I have referred above, that production of the solicitors' file is not reasonably likely to add to the relevant evidence in the case and characterise the requirement for production of that file as a "fishing" expedition. They also submit that the breadth of the subpoena is oppressive, although there is some force in Ms Hogan-Doran's submission that the production of an entire file may be practically simpler for a solicitor than production of selected documents from it. 11The Plaintiffs respond that Ms Rosinska and Mr Rudi have served the solicitor's affidavit on the basis that it is relevant to the application and, they say, it follows that the Plaintiffs must be entitled to test the veracity of his evidence. It seems to me that that proposition requires at least two qualifications. The first is that an application for leave under s 237 of the Corporations Act is not a final hearing of the claims which leave is sought to bring. The second is that a subpoena that is unduly wide can still be set aside, even if it is relevant to matters raised by disputed evidence of a witness. 12Mr Shtifelman's evidence is, as I have noted above, that he was retained to do certain things. It appears that there is a dispute as to whether he was retained at all by REW, but it does not seem to me that the existence of such a dispute warrants a requirement for production of the solicitor's whole file, still less for the period from 2009 when he says he was retained in early 2010. In particular, the existence or non-existence of a retainer could readily be established by, for example, production of some sub-categories of documents which the subpoena seeks, within the much broader category which it seeks, namely, the existence of retainer letters and invoices and other accounting records of the engagement. In the particular case, the production of requirement of the solicitor's entire file seems to me to go well beyond any matter which would potentially be legitimate in respect of an application for leave to bring a derivative proceeding under s 237 of the Corporations Act, or any particular dispute as to the existence or non-existence of Mr Shtifelman's retainer. It does not seem to me that access to that file is necessary to determine whether such a retainer does or does not exist, which could be established by the narrower categories of documents to which I refer. The production of that file is also likely to require production of documents which, in the ordinary course, would be subject to claims for legal professional privilege by REW. In the present case, that will give rise to a particular difficulty, because REW is deadlocked and unable, so far as the evidence goes, to assert such claims, so that the documents would ultimately be produced, potentially without any claim to privilege over them, and would be held in the registry where they might be the subject of an application for third party access in an appropriate case. 13It seems to me that the subpoena to Lloyd & Barclay Lawyers is too broad to be justified by the matters to which the Plaintiffs refer. It may be that some documents which fall within it could, had it been drafted in narrower terms, have been supported as likely to assist in the determination of matters in dispute including the existence or non-existence of the relevant retainer. However, the subpoena should be set aside where it travels well beyond those categories. 14Turning now to the notices to produce, two notices to produce had previously been issued to REW but are no longer pressed, or at least do not seem to be currently in issue. The Defendants have pointed out with substantial force that REW should not be required to answer them where the Court has not granted leave for REW to take any step in the proceedings and where no order is sought to change that position. 15The notices to produce then issued to Ms Rosinska and Mr Rudi were, in practical terms, substitutes for the notices to produce issued to REW which called for production of identical documents. This seems to me to raise three difficulties. The first is that there may be a question as to the legitimacy of two directors of REW issuing notices to produce to two other directors of REW seeking production of REW's documents which, in the ordinary course, are under the control of a board of a company as a whole. Second, Mr Baran submits that that course is inappropriate or at least unnecessary in circumstances that orders were previously made at an interlocutory stage providing a regime for inspection of REW's documents. There is a question why, if the Plaintiffs seek access to these documents, they should not take advantage of that regime rather than requiring Mr Rudi and Ms Rosinska to engage in the process of producing those documents. Third, and possibly most significantly, the fact that the notices to produce seek to require the directors to produce REW's documents emphasises the potential significance of SC Eq Practice Note 11, so far as the notices to produce are, in substance, a means of requiring disclosure by REW, a party to the proceedings, without the controls which the Court would exercise over the disclosure process. The number of notices to produce previously issued in the proceedings reinforce the cause for concern in that respect. 16The Plaintiffs seek to support the notice to produce as issued on the basis of r 34.1 of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") and submit that the notices to produce may properly call for production of documents which satisfy a stated description within a specified period: Grace v Grace (No 8) [2014] NSWSC 419 at [8]. It is, of course, the case that a notice to produce may be formulated in that way, but not all notices to produce formulated in that way are proper notices to produce. The relevant principles were summarised by Brereton J in Portal Software International Pty Ltd v Bodsworth [2005] NSWSC 1115 at [19] - [26], where his Honour noted that the Court has power to set aside a notice to produce, as an instance of its power to regulate its own processes and to prevent an abuse of process; that lack of relevance is a basis to set aside a notice to produce; and that a notice to produce can be supported if the relevant documents could "possibly throw light" on the issues in the substantive proceedings or that it is "on the cards" that they would do so. That test has been frequently applied subsequently; for example, see Singtel Optus Pty Ltd v Weston [2010] NSWSC 1491 at [31] where Ward J (as her Honour then was) pointed to the need to identify the matters in issue in the proceedings and to assess whether the notice to produce had a legitimate forensic purpose by reference to those matters and see DCM Solar above, where I adopted the test of whether documents "possibly throw light" on the relevant issues or it was "on the cards" that they would do so. It is also necessary to note here, so far as those principles are concerned, that the Court will also have regard to the requirements of SC Eq Practice Note 11, at least by way of analogy, in dealing with notices to produce, and that it is not open to the parties to use the process of issuing notices to produce as an unregulated substitute for disclosure which would otherwise be regulated under SC Eq Practice Note 11. 17The first notice to produce issued to each of Ms Rosinska and Mr Rudi seeks production of specified original documents exhibited to an affidavit of Ms Rastrigo, who is an accountant to REW, and gives affidavit evidence on behalf of Ms Rosinska and Mr Rudi in the proceedings. Ms Hogan-Doran draws attention to some matters which appear to be sought to be established by Ms Rastrigo's affidavit, although it should again be noted that the Court will not be determining, in any application for leave, the matters that might be determined at a final hearing, particularly where competing inferences might be available from documents or evidence. The Plaintiff seeks to support the notice to produce, so far as it calls for the originals of those documents, on the basis that they put in issue the authenticity of those documents. Ms Rosinska and Mr Rudi respond that the pleading does not put in issue the authenticity of those documents, although they acknowledge that there is some evidence that Mr and Mrs Melnikoff either do not recall the execution of documents or do not recall signing them. They submit, with some force, that this notice to produce has the hallmarks of an attempt to see if a case might be established as to the authenticity of documents annexed to the affidavit, without first identifying any challenge to that matter. 18It seems to me that the question of this notice to produce can be addressed on narrower grounds. First, it does not seem to me that any issue is presently raised, by way of any allegation that any of those documents are not authentic, and the production of originals is not likely to take further the question of whether Mr and Mrs Melnikoff knew of documents being executed or recall their execution. Second, in any event, the Court will not determine an application for leave to bring derivative proceedings by reaching any final determination, on the one hand, that a document is authentic or on the other that it is not, because that is a matter which would have to be determined in the context of all of the evidence in a final hearing. If there is a serious question as to the authenticity of documents, then that will be identified as a serious question, and a leave application will be determined on that basis, namely, on the basis that that question exists, not by finally determining it in order to determine whether to grant leave to bring a derivative action. 19It does not seem to me to be that, whatever the position might be in respect of a final hearing, it is on the cards that production of the original documents will advance any issue that is likely to be determined in respect of the application for leave to bring derivative proceedings or to amend the Statement of Claim. It seems to me that the notice to produce, in that sense, is not supported at this stage of the proceedings and also is inconsistent with SC Eq Practice Note 11, so far as it seeks the production of documents that might properly be the subject of an application for disclosure by REW, without seeking to comply with the requirements of that Practice Note in respect of such a disclosure. For that reason, the first notice to produce addressed to each of Ms Rosinska and Mr Rudi in respect of those documents should be set aside. 20The second notice to produce is substantially wider and overlaps to some extent with the subpoena directed to Lloyd & Barclay Lawyers, although it also includes additional documents. Ms Rosinska and Mr Rudi attack its width and also submit that the notice to produce is inconsistent with the principles recognised in SC Eq Practice Note 11. The Plaintiffs correctly recognised that the challenge made to that notice to produce involves issues of relevance, whether it has a legitimate forensic purpose, its breadth, whether it is a fishing exercise and whether it circumvents SC Eq Practice Note 11. The Plaintiffs respond that the second notice to produce is not too broad, and seeks documents that satisfy a particular description, and fall within a particular period and are not a fishing expedition. They submit that the notice to produce does not offend SC Eq Practice Note 11 so far as the documents are relevant to the facts in issue on the leave motion which would be heard prior to any orders for discovery and, in that sense, do not attempt to circumvent the disclosure process. That submission, however, again reflects an assumption that the Court will, in a leave application, seek to determine the matters that would be determined at a final hearing if leave was granted to bring the relevant proceeding. The Plaintiffs also point to a suggested lack of access to documents of REW to the extent they are within the Defendants' control. That submission has the difficulty that, as I noted earlier, the Court made orders, now some time ago, establishing a regime for inspection of documents which have not been subsequently modified by any further order of the Court. 21The first category of documents sought by the second notice to produce is all documents, including without limitation, various categories of documents, evidencing the source or transfer of deposits to bank accounts held in the name of REW. This paragraph appears to be responsive to Ms Rastrigo's evidence in which she undertakes a reconstruction of REW's bank accounts in order to contend that the position as between the shareholders was of a particular character. It seems to me that Ms Rastrigo's evidence in that regard may well face the difficulty, to which I have referred above, that it is unlikely that the Court will determine a dispute as to the state of the Company's accounts on any final basis in a leave application. Even if Ms Rastrigo's evidence was sufficient to establish that the reconstruction she undertakes was arguably justified, it is difficult to see that the Court could determine a leave application on that basis, particularly in circumstances where it can hardly be thought that the parties seeking the leave to bring a derivative claim should seek to lead all the substantive evidence that they would lead at a final hearing. That proposition in turn has the consequence that, where the leave application is not a final hearing, it is not necessary or appropriate for the parties to seek production of documents for it as though it were a final hearing or as though the Court would finally determine at the leave application the factual issues that will be determined at a final hearing. 22It seems to me that the first paragraph of the second notice to produce is also very wide; it amounts to a substitute for disclosure which would fall within the regime provided by SC Eq Practice Note 11; and it has no useful purpose at this point so far as it could only be the starting point for an attack upon Ms Rastrigo's evidence, either by cross-examination or by expert evidence rebutting it, which is not of a kind that it is likely to be permitted in respect of a leave application because the issues addressed by Ms Rastrigo's evidence are equally not likely to be determined on any final basis in the course of the legal application. For that reason, and because of the application of the principles recognised in SC Eq Practice Note 11, it seems to me that paragraph 1 of the second notice to produce should also be set aside. 23Paragraphs 2, 3, 4, 5 and 6 of the second notice to produce overlap with the subpoenas issued to Lloyds & Barclay Lawyers Pty Ltd to which I have referred above. Paragraph 2 calls for all correspondence between REW and the lawyers from 1 January 2010; paragraph 5 for all advices provided by that firm and paragraph 6 for all agreements and contracts prepared by that firm. It seems to me that those paragraphs should be set aside for the same reasons as the subpoena to Lloyds & Barclay Lawyers should be set aside. However, paragraphs 3 and 4 of the second notice to produce call for retainer agreements, client service agreements and documents creating contractual relations between REW and that firm and paragraph 4 calls for tax invoices issued by that firm. Those paragraphs seem to me to be supportable, so far as there appears to be a dispute as to whether a retainer agreement existed, and the notice to produce should be permitted in respect of those paragraphs. I should note, for completeness, that the corresponding items in the subpoena to that firm cannot be permitted, since that subpoena has not been drafted in a manner which allows them to be separated from the balance of that subpoena. 24For these reasons, I make the following orders: