Stevenson J, Hammerschlag J, Although Hammerschlag J
Catchwords
PRACTICE & PROCEDURE - subpoena - issued with leave prior to service of statements - whether for legitimate forensic purpose - whether fishing
Cases Cited: Alister v R [1984] HCA 85
Source
Original judgment source is linked above.
Catchwords
PRACTICE & PROCEDURE - subpoena - issued with leave prior to service of statements - whether for legitimate forensic purpose - whether fishing
Cases Cited: Alister v R [1984] HCA 85
On 26 June 2018 I set aside subpoenas issued at the request of the plaintiff, Cenric Group Pty Ltd and directed to the Department of Finance, Services and Innovation, Westpac Banking Corporation trading as St George Bank and Troy Stratti Pty Ltd ("TSPL").
These are my reasons for making that order.
The proceedings concern sandstone harvesting carried out by the second defendant, Bundanoon Sandstone Pty Ltd, at a site in Pyrmont. Cenric engaged Bundanoon as a subcontractor to carry out the harvesting works. The only party to whom Bundanoon has sold sandstone is the Department.
Cenric claims that Bundanoon owes it some $5.4 million.
In its Amended Technology & Construction List Statement, Cenric alleges that:
1. by the subcontract, Bundanoon agreed to pay Cenric a royalty for harvested sandstone at the rate of $1,000 per m3 of "First Class Sandstone"; and
2. by reason of various events occurring after the date of the subcontract, Bundanoon holds the proceeds of sale on trust to be distributed in accordance with the terms of the subcontract and the head contract between Cenric and TWT Property Group Pty Ltd.
On 1 June 2018 Bundanoon gave an undertaking to the Court that it would pay all proceeds of the sale of sandstone into a separate interest bearing account, and retain them there until further order.
On 15 June 2018 Hammerschlag J:
1. restrained Bundanoon from using some $570,000 held in the separate interest bearing account;
2. ordered that Bundanoon pay into the separate account $1,000 for each m3 of sandstone sold thereafter;
3. ordered that Bundanoon keep records of the sale of the sandstone from the Site and all payments made;
4. made a freezing order against Bundanoon to not reduce the value of its assets below $5,438,160.00;
5. released Bundanoon from its undertaking given on 1 June 2018; and
6. gave the parties leave to issue subpoenas returnable on 27 June 2018.
His Honour also made directions for the parties to exchange evidence and agree to a regime for discovery, set the matter down for hearing on 30 July 2018 and ordered that Practice Note SC Eq 11 not apply.
On 19 June 2018 Cenric served the three subpoenas.
The first subpoena was directed to the Department. It sought:
1. documents recording the contractual arrangements between the Department and Bundanoon; and
2. documents recording payments made by the Department to Bundanoon, to its parent company TSPL, and to Mr Troy Stratti, the sole director of both Bundanoon and TSPL.
The second subpoena was addressed to Westpac t/as St George (who are the bankers to Bundanoon and TSPL). It sought:
1. all bank statements of each of Bundanoon, TSPL and Mr Stratti; and
2. records showing details of two particular transactions to which I will refer below.
The third subpoena to TSPL sought:
1. that company's bank records;
2. documents referring to payments made between Bundanoon and TSPL;
3. documents recording any loans between Bundanoon and TSPL; and
4. documents recording any payments made to TSPL by the Department.
Although Hammerschlag J ordered that Practice Note SC Eq 11 not apply, the fact remains that Cenric sought production of these documents before it has seen the evidence of Bundanoon and before the disclosure of documents. I was informed that the parties are yet to agree on categories of documents.
The matter came before me in the Technology & Construction List on 22 June 2018. On that occasion I granted Bundanoon leave to file in Court a Notice to Motion to set aside the subpoenas and fixed that Notice of Motion for hearing before me on 26 June 2018.
Argument took the best part of the day.
Ultimately, the issue became whether it was appropriate to permit Cenric to call on the subpoenas when they purported to be in aid of ascertaining:
1. the volume of sandstone that Bundanoon had harvested and sold;
2. whether Bundanoon had "breached its obligation to hold the funds on trust".
[3]
The principles
Subpoenas must be issued for a legitimate forensic purpose.
In Alister v R [1984] HCA 85; (1984) 154 CLR 404, Gibbs CJ said (at [414]):
"Although a mere 'fishing' expedition can never be allowed, it may be enough that it appears to be 'on the cards' that the documents [sought to be subpoenaed] will materially assist the defence."
Other authorities suggest that documents may be subpoenaed if they "could possibly throw light on the issues in the main case" (for example Beaumont J in Trade Practices Commission v Arnotts Ltd (No 2) (1989) 88 ALR 90).
However, as Nicholas J observed in ICAP Pty Ltd v Moebes [2009] NSWSC 306:
"…caution is required in the application of a test which incorporates a phrase such as 'on the cards' or 'could possibly throw light on' when the legitimate forensic purpose of the subpoena is challenged lest it be given a reach wider than its author intended.
…to meet the test, it must be shown that it is likely the documentation will materially assist on an identified issue, or there is a reasonable basis beyond speculation that it is likely the documentation will."
[4]
The volume of sandstone issue
Mr Hughes, who appeared for Cenric, submitted that Cenric needs to know the volume of sandstone sold by Bundanoon in order to calculate the royalties payable to it.
The subpoenas issued on behalf of Cenric purport to be in service of ascertaining the volume of sandstone.
In particular, Mr Hughes submitted that volume can be "reverse engineered" if one knows:
"(a) [W]hat amounts [the Department] (or any other part of the NSW Government) has paid in connection to the stone, to whom, and for what services;
(b) what arrangements are in place between Bundanoon, TSPL and [the Department] (and any other emanations of the NSW Government, or entities connected with Mr Stratti); and
(c) what rate of payment Bundanoon and TSPL receive, and for what services."
However, there is already detailed evidence as to the volume of sandstone sold.
Bundanoon sent its solicitor a letter dated 7 June 2018 which states that 1,115 sandstone blocks have been harvested of which 597 blocks have been sold to the Department. Bundanoon's letter contains a summary of the invoices it sent to the Department. The summary states that the Department has paid Bundanoon some $5.2 million.
Bundanoon's Westpac trading account show that a sum in this order was paid into its account by the Department.
All of the invoices that Bundanoon sent the Department are in evidence.
Each of them describes, to the millimetre, the volume of sandstone sold.
Mr Hughes accepted that the Department would know the volume of sandstone it received. He also accepted that the Department would be in a position to check the volume of sandstone received against the volume stated in the invoices.
If Cenric was hoping to find some material to justify suspicions it evidently holds that the invoices do not accurately record the volume of sandstone delivered, it was plainly fishing.
There is no basis "beyond speculation" to suppose that the invoices are inaccurate or any of the documents sought in the subpoenas would "materially assist on" the issue of volume.
[5]
Whether Bundanoon has breached its obligations to hold the proceeds on trust
In oral submissions Mr Hughes submitted that an issue arises as to whether:
"Bundanoon [has] put all of its sales proceeds into trust in accordance with Hammerschlag J's interlocutory orders. That will be relevant, for example, to credibility at trial, and it's an issue that comes up in the proceedings."
Mr Hughes also submitted that there is reason to question the reliability of Bundanoon's records.
In his written submissions, Mr Hughes said that those questions "arise against the following background":
"(a) [T]here are discrepancies between the amount of payments between such [the Department] documents as Bundanoon has produced, and Bundanoon's bank statements…;
(b) Bundanoon has asserted that its financial records can only be understood together with the records of its parent company, [TSPL] with which it shares a sole director (Mr Troy Stratti). Bundanoon has admitted that monies pass between these companies 'when needed'…;
(c) one explanation for the discrepancy in payment records that Bundanoon has advanced is that [the Department] makes further payments for 'value added services', which are otherwise unexplained. It is not known whether these payments are made to Bundanoon or TSPL…;
(d) Bundanoon failed to disclose all of its bank accounts which hold sales proceeds…;
(e) Bundanoon has transferred significant amounts of sales proceeds to TSPL which have not been held on trust…; and
(f) Bundanoon has made financial entries which appear to be intentionally misleading (payments have been recorded as payments to and from parties to the proceeding, when in fact they appear to be transfers from one Bundanoon account to another)".
I am not in a position to determine the correctness of these contentions.
It is true that Bundanoon's trading account and savings account statements show that funds have been transferred from one account to the other and, from time to time, from Bundanoon to TSPL.
It is also true that there are two transactions which may well be misdescribed.
The first is a transfer of $323,530.02 on 13 April 2018 from Bundanoon's savings account to its trading account described as "Cenric debt-payment". That descriptor seems to suggest that Bundanoon either paid, or received payment from, Cenric. Yet on 7 June 2018 Bundanoon's solicitors wrote to Cenric stating that Cenric had failed to pay Bundanoon that precise amount.
The second is a credit of $1,347,167.17 to Bundanoon's savings account on 13 April 2018 described as "TWT Royalty 1347.16 m3". That is the exact sum which Cenric alleges Bundanoon has admitted it is liable to pay Cenric in royalties. That is curious. But Mr Hughes made no suggestion that the figure should be treated as being a payment from the Department.
As to Mr Hughes's submission that "Bundanoon failed to disclose all of its bank accounts which hold sale proceeds" (see [34(d)] above), a document produced by Bundanoon on 15 June 2018 suggested the existence of the savings account. When pressed about that matter, Bundanoon's solicitors provided copies of statements for the savings account and, "to avoid any further dispute", stated that Bundanoon was prepared to transfer the current balance of the savings account ($23,092.22) into the interest bearing account established to give effect to the undertaking of 1 June 2018.
The savings account bank statements show that Bundanoon transferred funds from its trading account to the savings account. Some of the funds from the trading account represent part of the deposits made into the trading account by the Department.
But the bank statements do not suggest that the Department directly deposited monies into the savings account. Neither did the statements suggest that the then balance of the account ($23,092.22) represented any payment from the Department that is not already counted for in Bundanoon's trading account bank statements.
None of these matters provides any basis, beyond mere speculation, to suppose that Bundanoon "breached its obligation to hold the funds on trust" (see [16(b)] above).
To the extent that the subpoenas were directed to that question, they were merely fishing and not for a legitimate forensic purpose.
[6]
Conclusion
It was for those reasons that, on 26 June 2018, I ordered the subpoenas be set aside.
[7]
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Decision last updated: 02 July 2018