Australian Securities and Investments Commission v Storm Financial Limited

Counsel for the Second Defendant: Mr R Hollo SC with Mr R McInnes

Counsel for the Third Defendant: Mr A Crowe SC with Mr M Jones

Counsel for the Fourth Defendant: Mr JC Sheahan SC with Mr A Pomerenke

Solicitor for the Fourth Defendant: Allen Arthur Robinson

Counsel for the Others: Mr J Bond SC with Mr D Mackay

Solicitor for the Others: Minter Ellison

QUD 590 of 2010 Counsel for the Applicant: Mr I Davidson SC with Mr D Klineberg and Ms A Rao

Solicitor for the Applicant: Levitt Robinson

Counsel for the Respondent: Mr JC Sheahan SC with Mr A Pomerenke

Solicitor for the Respondent: Allen Arthur Robinson

NSD 811 of 2010 Counsel for the Applicants: Mr I Davidson SC with Mr D Klineberg and Ms A Rao

Solicitor for the Applicants: Levitt Robinson

Counsel for the Respondents: Mr R Hollo SC with Mr R McInnes

IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY GENERAL DIVISION QUD 577 of 2010

BETWEEN: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

AND: STORM FINANCIAL LIMITED (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION)

CHALLENGER MANAGED INVESTMENTS LIMITED ACN 002 835 592 and CHALLENGER LIMITED

IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY GENERAL DIVISION QUD 590 of 2010

AND: MACQUARIE BANK LIMITED ABN 46 008 583 542

IN THE FEDERAL COURT OF AUSTRALIA New South Wales DISTRICT REGISTRY GENERAL DIVISION NSD 811 of 2010

JUDGE: REEVES J DATE: 5 APRIL 2012 PLACE: BRISBANE

Introduction 1 This ruling relates to certain objections taken by Challenger Limited and Challenger Managed Investments Ltd (to be jointly referred to as Challenger) to the Australian Securities and Investments Commission (ASIC), the applicant, providing certain of the other parties to these proceedings, access to a quantity of Challenger's documents in ASIC's possession. It arises in the circumstances summarised below. This summary is partly extracted from one of my earlier rulings in these proceedings: see, eg [2011] FCA 858 at [1]-[2], [23]-[26] and [29]-[32].

Factual context 2 Until about the time it was placed in liquidation on 26 March 2009, Storm Financial Limited (Storm) operated a number of investment schemes for its customers throughout Australia. Those investments schemes are central to these proceedings. If any one of them was a "managed investment scheme", as that expression is defined in s 9 of the Corporations Act 2001 (Cth) (the Act), Storm was required to register it under Pt 5C.1 of the Act. If it did not do so, subject to various exclusions and defences contained in the Act, it contravened s 601ED(5) of the Act. 3 ASIC commenced these proceedings seeking, among other things, a declaration that Storm had contravened s 601ED(5) of the Act. In addition, ASIC also sought injunctions under s 1324(1) of the Act against the Commonwealth Bank of Australia (CBA), the Bank of Queensland Limited (BOQ) and the Macquarie Bank Limited (Macquarie) for being "directly or indirectly, knowingly concerned in, or party to, the contravention by" Storm of s 601ED(5) of the Act. 4 As well as ASIC's regulatory proceedings against these three banks, these proceedings include two class action proceedings: Sherwood v Commonwealth Bank of Australia (NSD 811 of 2010) and Richards v Macquarie Bank Limited (QUD 590 of 2010). The central allegation in these two class action proceedings is the same as that above, that is, to paraphrase, that the respondent bank was knowingly concerned in Storm's contravention of the Act in operating an unregistered managed investment scheme. 5 On 23 September 2011, all three proceedings - ASIC's and the two class actions -were set down for trial to commence on 10 September 2012. At the same time, I made a set of trial programming orders. Among many other things, those orders included a requirement for the parties to give discovery in accordance with a Discovery Plan that had been agreed between the parties. 6 That Discovery Plan accommodated an unusual situation. It was that ASIC held the vast majority of the documents relating to all three proceedings. It obtained most of those documents by use of its investigatory powers under the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act). Included in those documents were documents ASIC had obtained from third parties to these three proceedings. Challenger was one of those third parties. That came about because in 2009 and 2010, ASIC obtained approximately 27,700 documents from Challenger (the Challenger documents), using the powers mentioned above. Because of this unusual situation, the Discovery Plan included a provision whereby a third party, such as Challenger, could object to ASIC giving any of the other parties to these proceedings access to that person's documents. 7 The specific part of the Discovery Plan was Clause 6, as follows: Prior to giving the Parties access to the documents contained in the Ringtail Database and the NUIX Database, ASIC will provide: a. the Parties and the non-parties who produced the documents contained in the Ringtail Database and the NUIX Database; and b. the persons who were examined pursuant to section 19 of the ASIC Act and the persons who were examined by the external administrators of Storm pursuant to section 596A and, or, 596B of the Act (examinees), whose transcripts of examination are contained on the Ringtail Database with the opportunity to make objections to access to such documents being given to the Parties. Any objections by the Parties to access to such documents being given are to be made by giving written notice to ASIC and the other Parties of the objection and the grounds thereof on or before 26 October 2011. ASIC will give the Parties written notice of any objection by ASIC to giving access to any documents in the Ringtail Database and the grounds thereof on or before 26 October 2011. ASIC will notify the Parties of any objections made by non-parties or examinees to access being given to any documents in the Ringtail database, and the grounds thereof as soon as reasonably practicable after receipt of any such objection. (Emphasis in original)

Challenger's objections 8 Acting in accordance with this clause, Challenger objected to ASIC giving any party access to the Challenger documents. In December 2011, I joined Challenger as a party to these proceedings for the limited purpose of determining its objections. I then heard those objections and ruled that I should not approach the question of access to the Challenger documents by reference to the test for discovery of documents as set out in Pt 20 of the Federal Court Rules 2011, but rather on the basis of apparent or adjectival relevance as if the party wishing to obtain access to the Challenger documents had subpoenaed them: see [2011] FCA 1536 at [13]-[16]. 9 Following this ruling, I directed that the parties who wished to obtain access to any of the Challenger documents were to identify the documents to which they wished to obtain access and demonstrate to Challenger why those documents had apparent or adjectival relevance in these proceedings. 10 By the time the proceedings next came before me in early March 2012, there was substantial agreement as to which parties required access to which documents and the apparent or adjectival relevance of those documents. A schedule was provided to me showing the categories in relation to which each party wished to obtained access. There were some 16 categories involved: 11 of them were categories in relation to which Macquarie sought access and the remaining five were categories in relation to which the class action parties, Sherwood and Richards, sought access. 11 Challenger did not object to access being provided in relation to 14 of these 16 categories. Accordingly, orders were made to set in train a process whereby Challenger was to examine the documents, place them into the categories concerned, and then provide access to either Macquarie, or the class action parties, as the case may be. However, Challenger raised objections to the apparent or adjectival relevance of two categories of documents, in relation to both of which, access was sought by Macquarie. Those categories (3A and 4A) are set out hereunder, together with the correlated head category, which may have some bearing on Challenger's objections (3 and 4): 3 The Storm product maintenance and development deed term sheet dated on or about 11 January 2007. 3A Correspondence and notes of meetings between representatives of Challenger and representatives of Storm regarding the negotiation of the Storm product maintenance and development deed term sheet dated on or about 11 January 2007. 4 Correspondence and notes of meetings between representatives of Challenger and representatives of Storm regarding the development and structure of the Challenger funds. 4A Documents recording communications among representatives of Challenger which refer to or comment on correspondence to or from Storm or meetings with representatives of Storm regarding the establishment and structure of the Challenger funds. 12 Before setting out Challenger's objections to categories to 3A and 4A, it is convenient, first, to set out why Macquarie sought these two categories of documents. With both, it claimed they were relevant to the issues raised by para 20 of ASIC's statement of claim. In relation to category 3A, Macquarie contended: … that documents evidencing the negotiation of the terms sheet are adjectivally or apparently relevant to whether or not the fact of entry into that agreement amounts, as alleged by ASIC, to evidence of Challenger and Storm acting in concert in relation to the development and structure of the Challenger funds; 13 In relation to category 4A, Macquarie contended: … that internal communications of this kind are likely to be a valuable source of evidence of the dealings between Challenger and Storm and whether or not Storm developed and structured the Challenger Funds in concert with Challenger. MBL says that these documents are no less relevant than external communications. 14 Challenger's objections to these two categories are as follows: 3A (a) it is the terms of the Storm product maintenance and development deed term sheet which have been particularised to support ASIC's allegation that Challenger and Storm worked 'in concert' to develop and structure the Challenger Funds, not the fact of entry into the Storm product maintenance and development deed term sheet; (b) On that basis, the negotiations between Challenger and Storm of the Storm product maintenance and development deed term sheet are not adjectivally or apparently relevant to whether Challenger and Storm worked 'in concert' to develop and structure the Challenger Funds. Only the final version of [the] Storm product maintenance and development deed term sheet itself can be apparently or adjectivally relevant to this issue. Further, the Storm product maintenance and development deed term sheet does not address 'the eligibility criteria for investment in the Special Funds, the existence of special conditions or other preferential treatment or targeting of Storm clients and the structure and investment strategy of Special Funds' and therefore the negotiation of the Storm product maintenance and development deed term sheet cannot be apparently or adjectivally relevant to those issues. 4A (a) category 4A will require review of thousands of documents in order to identify those of the Challenger Documents which would fall within this category. The burden of doing so would be very onerous (in terms of cost and time) and is at odds with the requirement in Rule 20.11 of the Federal Court Rules 2011 that an order for discovery should not be made unless it would facilitate 'the just resolution of the proceeding as quickly, inexpensively and efficiently as possible'. (b) Only the following particulars relating to the establishment, development and structure of the Challenger Funds have been given by ASIC in support of the allegation that Challenger and Storm worked 'in concert': (i) an email from David McCullough of Storm to David Asplin of Challenger dated 16 October 2003; and (ii) a meeting on 13 November 2003 between Emmanuel Cassimatis and Julie Cassimatis of Storm and David Asplin, Rob Stewart, Hayden King and Rodney Greenhalgh of Challenger. Further, in respect of proceedings QUD590/2010 and NSD811/2010, the best evidence of the eligibility criteria for investment in the Challenger Funds, the existence of special conditions or other preferential treatment or targeting of Storm clients and the structure and investment strategy of Challenger Funds is found in the constituent documents and disclosure documents. (Emphasis in original) 15 Macquarie's responses to these objections by Challenger are as follows: 3A MBL does not accept Challenger's position that the category does not meet the test of apparent or adjectival relevance. The terms of the negotiations between Challenger and Storm leading to the finalisation of the Storm product maintenance and development deed term sheet are clearly adjectivally or apparently relevant to the broad allegation that Challenger and Storm worked 'in concert' to develop and structure the Challenger Funds. While the Storm product maintenance and development deed term sheet also evidences this allegation, this does not undermine the adjectival or apparent relevance of Challenger and Storm's negotiations. 4A MBL does not accept that the identification of the relevant documents will be onerous in the manner described by Challenger. Challenger's letter fails to substantiate the oppression it considers will be caused by the provision of such documents. Further, if it is the case that the category will be unfairly onerous (a position which MBL does not accept), it is not appropriate to limit the category in the manner proposed by Challenger. First, it is unclear how the amendment proposed by Challenger will not involve a review of each Challenger document dated on or after 16 October 2003 and, therefore, limit the impact of Challenger's search. Further, category 4A should not be limited with reference to the particulars provided at paragraph 20 of the Further Amended Statement of Claim in the ASIC Proceeding. Paragraph 20 includes a broad allegation that Challenger and Storm worked 'in concert' to develop and structure the Challenger funds and this is properly reflected in the terms of proposed category 4A.

The pleadings 16 The relevant parts of para 20 of ASIC's statement of claim dealing with the deed term sheet and the Challenger Funds mentioned in the objections and responses above are as follows: 20 … In concert with Challenger, Storm developed and structured the Challenger Funds referred to in paragraph 19. Particulars … In respect of the Challenger Funds (vi) On or about 16 October 2003, David McCullough of Storm sent an email to David Asplin of Challenger which attached proposals regarding the construction of new index fund products as to: (A) industry weightings and rules governing the various indices; (B) management fees; (C) trailing fees and commissions; (D) royalties; (E) distributions to unit holders; (F) taxation of unit holders; (G) unit price information; and (H) reporting capabilities. (vii) On 13 November 2003, Emmanuel Cassimatis and Julie Cassimatis of Storm met with David Asplin, Rob Stewart, Hayden King and Rodney Greenhalgh of Challenger to provide Challenger with Storm's requirements for the new index fund management products. (viii) On or about 11 January 2007 Storm entered into an agreement with Challenger styled "Storm product maintenance and development deed Term sheet" whereby Storm and Challenger agreed that, for a period of 5 years: (A) Storm would provide Challenger with the first right to develop any new fund management product to be developed for Storm; (B) Storm would not develop a new fund management product with another person unless Storm had notified Challenger of the proposal to develop the product and Challenger had notified Storm that it did not wish to develop the product; (C) Storm would not develop new fund management products with another person on terms more favourable than previously offered to Challenger; (D) Storm would provide advice to Challenger on what would make fund management products more attractive to and meet the interests and objectives of Storm's clients; (E) Storm would use reasonable endeavours to explore opportunities to enhance existing products and to develop new products that may be of interest to Storm clients; (F) Challenger would operate the fund management products and be remunerated through fees payable from the products; and (G) Storm was obliged, on request from Challenger, to provide reasonable assistance to Challenger to identify any improvements that could be made to the fund management products for the purpose of increasing their use by Storm advisers and for the benefit of Storm clients. (Emphasis in original) 17 I interpolate that ASIC has applied to amend its statement of claim, but that application has not yet been resolved. Mr Bond SC, for Challenger, submitted that Challenger's objections would be strengthened if they were to be considered under the proposed amended statement of claim, but he was content to have them determined under the existing statement of claim. In those circumstances, I consider the most efficient course is to rule on the basis of ASIC's existing statement of claim. 18 Since para 20 of the statement of claim refers back to the Challenger Funds described in para 19, it is necessary to set out the relevant parts of that paragraph. They are as follows: 19 Storm established with each of Colonial and Challenger Managed Investments Limited (Challenger) four "white label" index share funds which were promoted by Storm to Investors. Particulars … (ii) On or about 30 April 2004, Storm established with Challenger the following funds (Challenger Funds): (A) Challenger Australian Broadmarket Indexed trust (ARSN 108 934 854); (B) Challenger Australian Industrials Indexed trust (ARSN 108 934 569); (C) Challenger Australian Resources Indexed trust (ARSN 108 934 964); and (D) Challenger Australian Technology Indexed trust (ARSN 108 934 318). (Emphasis in original) 19 It is also necessary to briefly describe how these index share funds are connected to the central allegations against Macquarie. As noted above (at [4]), for present purposes, ASIC's central allegation against Macquarie is that it was knowingly concerned in Storm's contravention of the Act in operating an unregistered managed investment scheme. That scheme is described in ASIC's statement of claim as the Storm Scheme. Insofar as the Storm Scheme involved the use of index share funds, para 6 of the statement of claim alleges as follows: Storm's principal business was the promotion to members of the public of a programme or plan of action in the form of a standardised leveraged investment programme (Storm Scheme) that provided for each person who invested pursuant to the Storm Scheme (together, the Investors): (a) to make leveraged investments in index share funds by investing: (i) money available to the Investors from their existing resources, including in many cases money borrowed by way of a loan secured on the Investor's home; and (ii) money borrowed pursuant to a margin loan secured against units acquired in index share funds; (Emphasis added) 20 Then, in para 21 of the statement of claim, it is alleged that: By reason of the matters alleged in paragraphs 6 to 20 above, the Storm Scheme was a "scheme" within the meaning of "managed investment scheme" in section 9 of the Act. 21 This allegation obviously encapsulates paras 6, 19 and 20 set out above which are the paragraphs that specifically refer to the Challenger Funds, or the index share funds generally. 22 Paragraph 22 of the statement of claim describes how the investors' money was contributed to the Storm Scheme and para 23 alleges that the money so contributed was applied, in part, to: "acquisition of units in index share funds including the [Colonial First State] Funds and the Challenger Funds". 23 Paragraphs 24 to 29 variously describe certain benefits the investors obtained by investing in the Scheme; the alleged common enterprise involved and the pooling of the contributions to produce benefits; and certain other features of the Storm Scheme. Paragraph 30 then alleges that the investors were "therefore members of the Storm Scheme within the meaning of section 9 of the Act" and para 31 alleges that: At all material times, the Storm Scheme was: (a) required to be registered pursuant to section 601EB of the Act; and (b) was not so registered. 24 Finally, para 32 alleges that: By reason of the matters alleged in paragraphs 6 to 31 above, at all material times after 1 July 2000, Storm operated the scheme in Australia in contravention of section 601ED(5) of the Act. 25 Thereafter, the statement of claim sets out the allegations about the Banks' involvement in the Storm Scheme and their knowledge of Storm's contravention of the Act. Insofar as those allegations involve the index share funds and Macquarie, they are as follows: Involvement in the operation of the Storm Scheme … 35 Macquarie engaged in the following conduct in connection with the Storm Scheme: … (e) it submitted applications on behalf of the Investors for units in index share funds; … (i) it conducted almost all dealings on behalf of Investors with Macquarie margin loans with index funds operators. Knowledge of Contravention 36 At all material times, each of CBA, BOQ and Macquarie had a close commercial relationship with Storm and was familiar with its business model and operations. … (xii) From on or about 20 August 2001, Macquarie provided margin loans to Investors through MML. Subsequently, on or about 1 October 2004, Macquarie purchased Challenger's margin lending loan book (which included Investors), which strengthened the margin lending relationship between Macquarie and Storm. Between 2004 and 2007, Storm referred between $400 million and $500 million worth of margin lending business to Macquarie. … 37 At all material times, each of CBA, BOQ and Macquarie knew the matters alleged in paragraph 6 above. … (xxi) The Alliance Agreement states that Macquarie would provide Storm-referred clients with "80% LVRs for the 4 Challenger index funds, the 4 Colonial index funds, and the MLC fund". … (Emphasis in original) 26 The "Alliance Agreement" referred to in para 37 (above) is described in para 17 of ASIC's statement of claim as follows: Storm dealt with Macquarie and secured its agreement: (a) for Storm to process, on behalf of Macquarie and Investors, applications to Macquarie by Investors for margin loans; Particulars (i) The agreement or arrangement was express and in writing and contained in the document entitled "Macquarie Margin Lending Working in Alliance" dated December 2004 (Alliance Agreement). (ii) Further, the agreement is to be implied from the practice of Storm at all material times from 2004 to 2008 interviewing Investors and gathering information for submission to Macquarie. (b) to receive from Macquarie and to resolve margin calls for Investors; and Particulars (i) The agreement or arrangement was express and in writing and contained in the Alliance Agreement. (ii) Further, the agreement is to be implied from the practice of Storm at all material times from 2004 to 2008 communicating and resolving margin calls to Investors by Macquarie. (c) to obtain advantageous terms and arrangements for Investors. Particulars The agreement or arrangement was express and in writing and contained in the Alliance Agreement. (Emphasis in original) 27 In submissions, the class action parties also identified certain paragraphs of the statements of claim in their proceedings to which they claim the documents in categories 3A and 4A had apparent relevance. By way of example, they pointed to paragraphs 7(b), 9, 13(b), 13(d) and 16 of the Richards' amended statement of claim, as follows: 7. Further, by no later than 17 February 2005, MBL and Storm agreed that they would perform or adhere to the following additional terms in respect of the money borrowed by the Applicant and Group Members from MBL (the "Special Terms"): … (b) each of the Applicant and Group Members would be able to invest in the following Investment Funds: (i) Challenger Australian Broadmarket Indexed Trust; (ii) Challenger Australian Industrials Indexed Trust; (iii) Challenger Australian Resources Indexed Trust; (iv) Challenger Australian Technology Indexed Trust; (v) CFS SFA Sharemarket Index Fund; (vi) CFS SFA Industrials Index Fund; (vii) CFS SFA Resources Index Fund; (viii) CFS SFA Technology Index Fund; and (ix) MLC-Vanguard Australian Share Index Fund (the MLC Index Fund). (the "Special Funds"); … 9. Further, at all material times, each of the Special Funds other than the MLC Index Fund was operated, managed and administered such that investment in each of the Special Funds other than the MLC Index Fund was restricted to Storm clients, including the Applicant and Group Members, in that: (a) all printed product disclosure statements for each of the Special Funds other than the MLC Index Fund were held in offices of Storm only; (b) electronic copies of the Product Disclosure Statements for each of the Special Funds other than the MLC Index Fund were available only through the Storm website; and (c) Storm clients, including the Applicant and Group Members, were offered a zero entrance fee into each of the Special Funds other than the MLC Index Fund, whereas investors in those funds who were not Storm clients would be charged an entrance fee of 6.6% of their investment. … 13. The rights of the Applicant and Group Members to benefits produced by the Scheme comprised: … (b) the ability to invest in the Special Funds, or in the alternative an ability to invest in the Special Funds at a zero entrance fee; … (d) the fact that each of the Special Funds: (i) pooled the investments made by the Applicant and Group Members; and (ii) used the said pooled funds to acquire a range of shares, thereby, among other things, providing each individual investor with consequential benefits otherwise enjoyed by larger investors with investments in direct shares; … 16. In the alternative to paragraph 15 some of each Group Member's Contributions was pooled in the Special Funds in order to produce the Financial Benefits or the Rights Benefits. (Emphasis in original)

The principles on apparent relevance 28 In Campaign Master (UK) Limited v Forty Two International Pty Ltd (No 4) (2010) 269 ALR 76; [2010] FCA 398 (Campaign Master), Yates J summarised the principles that bear on the identification of apparent or adjectival relevance (which I respectfully adopt) as follows (at [39]-[40]): 39. In relation to the first ground, Beaumont J in Arnotts (at 103) posed questions to the following effect: Does the material sought have an apparent relevance to the issues in the principal proceeding, that is, is adjectival, as distinct from substantive, relevance established? Does the subpoena have a legitimate forensic purpose to this extent? In a similar vein, Waddell J in Spencer Motors Pty Ltd v LNC Industries Ltd [1982] 2 NSWLR 921 at 927 invoked the question whether the material that is sought "is reasonably likely to add, in the end, in some way or other, to the relevant evidence in the case": see also Seven Network Ltd v News Ltd (No 5) (2005) 216 ALR 147; [2005] FCA 510 at [10]; Cosco Holdings Pty Ltd v Federal Commissioner of Taxation (1997) 37 ATR 432 at 439-40. In Tamawood Ltd v Habitare Developments Pty Ltd [2009] FCA 364 at [13] and [35]-[38] Collier J addressed the issue by asking whether it appears to be "on the cards" that the document sought will materially assist the party on whose request the subpoena has been issued: see Alister v R (1984) 154 CLR 404 at 414 per Gibbs CJ. 40. Apparent relevance is addressed by considering, primarily, the issues raised by the pleadings: Bailey v Beagle Management Pty Ltd (2001) 105 FCR 136; 182 ALR 264; [2001] FCA 60 at [28]; McIlwain v Ramsey Food Packaging Pty Ltd (2005) 221 ALR 785; [2005] FCA 1233 at [35]; Dorajay Pty Limited v Aristocrat Leisure Limited [2005] FCA 588 at [34]. (Emphasis added)

Contentions 29 Mr Bond SC, on behalf of Challenger, made the following submissions in support of its objection to Macquarie and the class action parties having access to the documents in categories 3A and 4A: CATEGORY 3A Macquarie Paragraph 20 of the ASIC's Further Statement of Claim (ASIC FASOC) alleges that "in concert with Challenger, Storm developed and structured the Challenger Funds referred to in paragraph 19". This paragraph has been confined by particulars to 3 identified matters, namely, the Term Sheet and an email from David McCullough of Storm to David Asplin of Challenger regarding the construction of new index fund products on 16 October 2003 and a meeting between Storm personnel and Challenger personnel on 13 October [sic November] 2003. It follows that the only case which MBL has to meet in relation to the allegation that Storm developed and structured the Challenger Funds referred to in paragraph 19 in concert with Challenger is a case that that proposition is made good by the 3 matters particularised. Challenger has already agreed to the discovery of the Term Sheet" (Category 3 of the MBL Categories). However, the negotiations of the Term Sheet do not have a legitimate forensic purpose and are not reasonably likely to add to the evidence in the case. It is the terms of the Term Sheet which have been particularised to support ASIC's allegation that Challenger and Storm worked 'in concert' to develop and structure the Challenger Funds, not the negotiations or dealing between the parties regarding the Term Sheet. Documents relating to the negotiations do not meet the test of adjectival relevance.

The class action parties Levitt Robinson, solicitors for class action plaintiffs in proceedings QUD590 of 2010 and NSD 811 of 2010 contend in their letter of 20 January 2012 that category 3A has apparent or adjectival relevance to the following issues: (i) The eligibility criteria for investment in the Special Funds or the existence of special conditions or other preferential treatment or targeting of Storm clients (see paragraphs 7(b), 9 and 13(b) of the Richards FASC); and (ii) The structure and investment strategy of Special Funds [Challenger Funds] as raised in paragraphs 13(b), 13(d) and 16 of the Richards FASC. But the proposition that there are issues in the class action case which may be so described does not withstand scrutiny. Because the issue of apparent relevance is determined primarily by reference to the issues raised in the pleadings it is appropriate to consider what the pleadings actually allege. As to the referenced paragraphs of the Richards FASC: (i) Paragraph 7(b) is an allegation that by no later than 17 February 2005 MBL and Storm reached an agreement containing a particular term. (ii) Paragraph 9 alleges that Special Funds were operated, managed and administered in a particular way. (iii) Paragraph 13 alleges that a scheme carried on between MBL and Storm produced certain identified rights and benefits. (iv) Paragraph 16 alleges that the Special Funds were operated in a particular way. … No part of the issues which arise in relation to those allegations justifies an examination of the documents falling within category 3A. One does not need to look into the negotiations which preceded the Storm product maintenance and development deed term sheet dated on or about 11 January 2007 in order to consider those matters. It follows that this category should not be included. CATEGORY 4A Macquarie Again paragraph 20 of the ASIC FASOC alleges that "in concert with Challenger, Storm …." and that allegation is confined by reference to only 3 particulars. Presumably MBL justifies its position by contending it wants to take a broad view of the full context of what passed between Challenger and Storm in order to assess the allegation that the three particularised documents evidence the pleaded acting in concert. But at most that would justify what Challenger has already agreed to by proposing category 4, namely the production of correspondence and notes of meetings between Challenger and Storm representatives regarding the establishment, development and structure of the Challenger funds. It does not support the notion that there is a legitimate forensic purpose for examination not of what passed between Storm and Challenger, but internal documents of Challenger which refer to correspondence or comment on meetings regarding the establishment, development and structure of the Challenger funds. The class action parties Levitt Robinson allege in their letter of 20 January 2012 that category 4A has apparent or adjectival [relevance] to the same two issues set out above. Challenger makes the same submission as it made in relation to category 3A. 30 Mr Pomerenke, on behalf of Macquarie, made the following submissions:

CATEGORY 3A The documents within Category 3A meet the relatively undemanding requirements of [the test set out in National Employers' Mutual General Assn Ltd v Waind and Hill [1978] 1 NSWLR 372 at 385; Spencer Motors Pty Ltd v LNC Industries Ltd [1982] 2 NSWLR 921 at 927 and Trade Practices Commission v Arnotts Ltd (1989) 88 ALR 90 at 103]. As to this: The issue in the case is whether Storm and Challenger developed and structured the funds in concert. The term sheet sets out a framework for dealings between Storm and Challenger in respect of those funds. The documents sought bear upon how they arrived at that framework. The documents will tend to show one of a number of things: (i) Storm presented the framework to Challenger as a fait accompli; (ii) Challenger presented the framework to Storm as a fait accompli; or (iii) Storm and Challenger worked together cooperatively over a period of time to arrive at the framework. Each of these would throw light on whether or not Storm and Challenger were working in concert to develop and stricture the funds. The suggestion that the documents do not throw light on the issues in the case because ASIC's particulars are confined to the entry into the agreement and its terms cannot be accepted. First, it involves an unduly narrow approach to the test of apparent relevance. Challenger's approach resembles that which might be taken if one were considering whether, on a strict reading of ASIC's pleading (as confined by the existing particulars), the documents had been shown to be directly relevant. Secondly, it fails to take into account the need to look at the matter from the point of view of the defendants. The defendants should not be confined to discovery of the documents that ASIC has chosen to particularise in support of its case. They should be given discovery of documents which tend both to support and to undermine ASIC's case. It would be grossly unfair to the defendants if ASIC were obliged to disclose only those documents that it has chosen to particularise in support of its case. … CATEGORY 4A There is no difference in principle between Categories 4 and 4A. The only distinction between the categories is that: (i) Category 4 deals with correspondence and notes of meetings between Storm and Challenger. Its focus is upon what passed between Storm and Challenger. (ii) Category 4A deals with those same meetings, but its focus is upon internal communications within Challenger. It would, for example, capture an internal report from a participant in the meeting to his or her superior recording what had occurred. This is a distinction without a difference in terms of the apparent relevance of the documents. Both categories capture evidence of what occurred at the same meetings. It would be wrong to deprive MBL of the documents in Category 4A. Those documents would provide valuable evidence as to what had occurred at the salient meetings. For the same reasons as those given above in respect of Category 3A, Challenger's objection: (i) involves an unduly narrow approach to the test of apparent relevance; and (ii) fails to take into account the need to look at the matter from the point of view of the defendants - it being grossly unfair to the defendants if ASIC is obliged to disclose only those documents which bear directly upon the particulars [it] has chosen to provide in support of its case. Again, the position will be no different if ASIC's proposed amendments to paragraph 20 are allowed. (Emphasis in original) 31 Mr Davidson, on behalf of the class action parties, essentially adopted the submissions made by Macquarie in relation to the apparent relevance of the documents based on ASIC's statement of claim against Macquarie. However, as between his clients and Macquarie, he pointed out that the documents in both categories 3A and 4A were apparently relevant to the allegations in various paragraphs of the Richards statement of claim against Macquarie, which allegations had either been denied, or not admitted, by Macquarie. They were paragraphs 7(b), 9, 13 and 16 (see at [27] above). He submitted that the general issue being pursued in each of these paragraphs was that the Challenger Funds were used by both Storm and Macquarie as an essential part of the scheme operated by them. He submitted that the circumstances surrounding the development of the Challenger Funds were apparently relevant to this issue and it was not enough for Challenger to say that the only thing his clients should be able to examine was the end product. In this respect, he submitted that if either or both of category 3 and 4 were apparently relevant, then the related categories 3A and 4A were similarly apparently relevant.

Consideration 32 In his oral submissions, Mr Bond aptly summarised the two categories of documents in contention as follows. The documents in category 3A relate to the negotiations leading up to the formation of the term deed sheet on or about 11 January 2007 and the documents in category 4A relate to internal communications within Challenger about its communications with Storm leading up to the establishment of the Challenger Funds. 33 The fundamental question, therefore, is whether these pre-formation or establishment negotiations and communications could be considered to be apparently relevant in these three proceedings in the sense that they are reasonably likely to add, in the end, in some way or other, to the relevant evidence in these proceedings, or materially assist one of the parties involved in them. As was noted in Campaign Master, this question has to be answered by reference to the issues raised by the pleadings in these proceedings. Those pleadings are essayed at [16]-[27] above. 34 To establish the apparent relevance of both these categories of documents, Macquarie relies upon para 20 of the ASIC statement of claim and particularly the allegation therein that Storm and Challenger acted "in concert" to develop and structure the Challenger Funds. The Challenger Funds in question are described in the particulars to para 19 of ASIC's statement of claim as being established on or about 30 April 2004. Insofar as they relate to the Challenger Funds, the particulars in para 20 describe three events: an email sent on 16 October 2003, a meeting held on 13 November 2003 and entering into the term deed on 11 January 2007. Since the Challenger Funds were established on or about 30 April 2004, it is self-evident that the last of these three events could not have been a part of the development and structuring of those funds. It is, therefore, not possible for the acting "in concert" allegations in para 20 to be relevantly connected with the entry into the term deed some two years and nine months later. It necessarily follows, in my view, that the negotiations leading up to the formation of the term deed could not be apparently relevant to the allegations in para 20 of ASIC's statement of claim that Storm and Challenger acted "in concert" to develop and structure the Challenger Funds. For these reasons, I reject Macquarie's submissions that the documents in category 3A are apparently relevant to an issue in these proceedings in the way described at [33] above. 35 Since the allegations in the class action parties' statements of claim are essentially the same as those in ASIC's statement of claim insofar as they relate to the documents in category 3A, I consider the same reasoning applies to the apparent relevance of the documents in category 3A for the purposes of the class action parties' proceedings. 36 The documents in category 4A raise different considerations. They clearly do relate to the development and structuring of the Challenger Funds. However, the documents in that category are directed to Challenger's role in the development and structure of those funds. This is to be contrasted with the documents in category 4, which are directed to Storm's role in that process. Since the central allegations in these proceedings are directed to Storm's use of investor funds borrowed from Macquarie to purchase units in, among others, the Challenger Funds, I fail to see how Challenger's role in the development and structuring of those funds, including any internal communications which occurred prior to those funds being established, could have any apparent relevance to the dealings between Storm and Macquarie after those funds were established, which dealings are said to give rise to Macquarie's being knowingly concerned in the operation of an unregistered managed investment scheme by Storm. It may be different if Challenger were alleged to have been knowingly concerned in that conduct, along with Macquarie, but that allegation is not made in the pleadings. 37 For these reasons, I reject Macquarie's submissions, and those of the class action parties, that the documents in category 4A are apparently relevant to any issue in these proceedings in the way described at [33] above.

Conclusion 38 For these reasons, I rule that neither Macquarie nor the class action parties may have access to the Challenger documents falling within categories 3A and 4A. I certify that the preceding thirty-eight (38) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Reeves.