Dove v Everforex Financial Pty Ltd

Federal Court of Australia|2023-10-03|Before: Goodman J

The respondent/cross-applicant's application to set aside the Notices to Produce dated 20 December 2022, 7 June 2023 and 13 July 2023 (Notices to Produce) be dismissed.
The respondent/cross-applicant is to produce for inspection the documents sought by the Notice to Produce dated 20 December 2022 by 9.30 a.m. on 4 October 2023.
The respondent/cross-applicant is to produce to the Court the documents sought by the Notices to Produce dated 7 June 2023 and 13 July 2023 at 9.30 a.m. on 4 October 2023.
The first applicant/first cross-respondent and the respondent/cross-applicant are to confer and to provide to the Associate to Goodman J by 4.00 p.m. on 9 October 2023 an agreed proposed timetable for submissions as to the costs of the respondent/cross-applicant's application to set aside the Notices to Produce, or failing agreement, competing proposed timetables. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

A. INTRODUCTION 1 These reasons concern an application by the respondent/cross-applicant, Everforex Financial Pty Ltd, to set aside several Notices to Produce served upon it by the first applicant/first cross-respondent, Mr Dove. 2 The application was heard on 4 August 2023. The evidence on the application comprises: Mr Dove's affidavit made on 8 June 2023 and the affidavits of his solicitors, Mr Krass made on 14 June 2023 and Ms Taporaie made on 3 August 2023; and an affidavit of Mr Lu, Everforex's solicitor, made on 1 August 2023. At the end of the hearing on 4 August 2023, I gave the parties leave to file further written submissions. I have considered the subsequently filed submissions. However, I have not considered the affidavit of Mr Dove made on 18 September 2023 as no leave was given to file that evidence and Everforex has not had an opportunity to address it.

B. BACKGOUND 3 Everforex operated at material times a foreign exchange, margin and CFD trading business. It appears to be common ground between Everforex and Mr Dove that the latter was employed by the former as its Chief Executive Officer during the period from about January 2019 until about February 2020. Everforex also contends that the fourth cross-respondent, Mr Starkey, was employed by it in various positions during the same period. 4 In October 2020, Mr Dove commenced this proceeding in the (then) Federal Circuit Court of Australia. In broad terms, Mr Dove contends that Everforex: (1) contravened various provisions of the Fair Work Act 2009 (Cth) (FW Act) and the Banking, Finance and Insurance Award 2020 (Cth); (2) contravened ss 18 and 31 of the Australian Consumer Law (ACL), being Sch 2 to the Competition and Consumer Act 2010 (Cth), by engaging in conduct in trade or commerce which was misleading or deceptive; and (3) breached a contract of employment between Mr Dove and Everforex. 5 The second applicant, GFY Markets Pty Ltd, contends that Everforex is liable to it in contract for breaches of an "Introducing Broker Agreement", pursuant to which GFY Markets claims to be entitled, in broad terms, to payments of commissions for introducing clients to Everforex. 6 Everforex has brought a cross-claim against Mr Dove, GFY Markets, DK International Pty Limited and Mr Starkey. The present version of that pleading is the Further Amended Statement of Cross-Claim (FASCC), which Judge Cameron of the Federal Circuit and Family Court of Australia (Division 2) granted Everforex leave to file on 9 September 2022: Dove v Everforex Financial Pty Ltd [2022] FedCFamC2G 752. The principal allegations in the FASCC are that: (1) Mr Dove: (a) contravened statutory, contractual and equitable duties owed by him to Everforex including: the making of unauthorised payments to third parties, a failure to return property of Everforex, and the disabling of a trading platform/server which had the effect that Everforex's business was unable to be continued from February 2020; (b) engaged in conduct in contravention of s 18 of the ACL; (2) Mr Starkey: (a) contravened statutory, contractual and equitable duties owed by him to Everforex including by signing an authorised representative agreement with a third party and working for a competitor of Everforex; (b) engaged in conduct in contravention of s 18 of the ACL; (3) each of DK International and GFY Markets: (a) is accessorily liable for certain conduct of Mr Dove and Mr Starkey; and (b) knowingly received and knowingly participated in breaches of fiduciary duty by Mr Dove and Mr Starkey. 7 The context in which the application to set aside the Notices to Produce arises includes pending applications by: (1) Mr Dove to strike out the FASCC, or for an order in the alternative that Everforex provide security for Mr Dove's costs of the cross-claim (security for costs application); and (2) Everforex to split the determination of its loss claimed in the cross-claim from the determination of the other issues raised on the pleadings or for an order in the alternative that Everforex have further time to put on an expert report concerning such loss (separate question application).

C. PRELIMINARY ISSUE 8 Everforex submitted that the Court should not address the Notices to Produce now and that this should await or be determined with the determination of the applications referred to in [7] above. No submissions were made as to why this deferral should occur, and I see no reason to do so, particularly when the documents sought by the Notices to Produce may be relevant to (at least) the security for costs application.

D. THE NOTICES TO PRODUCE 9 The first Notice to Produce, dated 20 December 2022, is a Notice to Produce under r 20.31(1) of the Federal Court Rules 2011 (Cth) in the following terms: To the Respondent/Cross Claimant The First Applicant requires you to produce for inspection the following document/s mentioned in the affidavit of Jonathan Lu affirmed on 29 July 2022 and filed on 8 August 2022: 1. Each of the bank statements and audits from 2020 and 2021 to which paragraph 14 of the affidavit refers. 10 Paragraph 14 of the affidavit of Mr Lu affirmed on 29 July 2022 is in the following terms: The Respondent and Cross Applicant is still ascertaining if its primary accounting records are available from the service provider Reckon. While the Respondent and Cross Applicant has access to its bank statements and audits from 2020 and 2021, it is not yet possible to definitively ascertain where the initial and injected money went, how they were mixed together and ultimately lost. (emphasis added) 11 The second Notice to Produce was issued twice: (1) on 7 June 2023, under r 30.28(1) of the Rules; and (2) on 13 July 2023, under r 30.28(3) of the Rules. No party suggested that the rule under which the second Notice to Produce was issued is important for present purposes. The second Notice to Produce is in the following terms: To the Respondent/Cross Claimant The First Applicant requires you to produce for inspection the following documents or things on or by 5.30 PM on 19 July 2023: 1. All bank statements of the Respondent for the financial years ending 30 June 2021 and 30 June 2022. 2. All audited or verified financial statements of the Respondent for the financial years ending 30 June 2021 and 30 June 2022. 3. Each taxation return of the Respondent for the financial years ending 30 June 2021 and 30 June 2022. 4. Each notice of assessment by the Australian Taxation Office of the Respondent for the financial years ending 30 June 2021 and 30 June 2022. 12 Everforex has not produced any documents in response to either Notice to Produce. Nor has it made any objection other than on the basis of relevance.

Everforex's submissions 13 Everforex's submissions do not distinguish between the two Notices to Produce. Those submissions may be summarised as follows: (1) the documents sought in the Notices to Produce must be relevant to facts in issue; (2) the only facts in issue identified by Mr Dove are: (a) the calculation of Everforex's claim for damages; (b) Everforex's ability to meet an adverse costs order; (3) in so far as the documents sought are relevant to the calculation of Everforex's claim for damages: (a) the documents sought are irrelevant to the extent that they call for documents after Mr Dove left the employ of Everforex; (b) the audit reports called for in the first Notice to Produce in so far as they relate to the 2019 and 2020 financial years are already in evidence; (4) in so far as the documents sought are relevant to Everforex's ability to meet an adverse costs order: (a) s 570 of the FW Act applies to the cross-claim; (b) there is "no prospect" that s 570(2) will be satisfied in relation to the cross-claim; (c) as such, there is no prospect that costs would be ordered against Everforex; (d) thus, no order requiring Everforex to provide security for costs should be made and the Court should not require the production of documents relevant to the question of security for costs; (e) for the Court to require the production of the documents sought it must first form the view that it is likely to accede to the security for costs application; and (f) in any event, the only documents relevant to Everforex's ability to meet an adverse costs order are current rather than historical documents.

Mr Dove's submissions 14 Mr Dove's submissions may be summarised as follows: (1) as to the first Notice to Produce: (a) the only grounds for objection to production are those set out in r 20.31(2)(b) and (c) and no objection has been taken on such grounds; (b) thus, Mr Dove has an entitlement to inspect the documents the subject of that Notice by dint of the operation of r 20.31 of the Rules; (c) in any event, the documents sought are relevant to (at least) the question of whether Everforex has suffered a loss by reason of the matters alleged in its cross-claim; (2) as to the second Notice to Produce: (a) the documents sought are relevant to: (i) the calculation of Everforex's claim for damages under the cross-claim; (ii) the separate determination application, on the basis that they might establish that there is no loss and thus a separate determination of the question of loss would be inutile; and (iii) Everforex's ability to meet an adverse costs order. In this regard it is "more probable than not" that s 570(2) of the FW Act will be engaged by reason of the conduct of Everforex and the documents sought should not be excluded from consideration at this stage of the proceeding; and (b) the audit reports already in evidence are unsigned.

First Notice to Produce 15 As noted above, the first Notice to Produce is a Notice under r 20.31 of the Rules. That rule provides: 20.31 Notice to produce document in pleading or affidavit (1) A party (the first party) may serve on another party (the second party) a notice to produce, in accordance with Form 39, for the inspection of any document mentioned in a pleading or affidavit filed by the second party. (2) The second party must, within 4 days after being served with the notice to produce, serve the first party with a notice: (a) stating: (i) a time, within 7 days after service of the notice, when the document may be inspected; and (ii) a place where the document may be inspected; or (b) stating: (i) that the document is not in the second party's control; and (ii) to the best of the second party's knowledge - where the document is and in whose control it is; or (c) claiming that the document is privileged and stating the grounds of the privilege. (3) If the second party does not comply with paragraph (2)(a) or (b) or claims that the document is privileged, the first party may apply to the Court for an order for production for inspection of the document. 16 Subject to the proper invocation of r 20.31(2)(b) or (c), neither of which is relied upon in the present case, this rule in effect provides Mr Dove with a right to inspect any document mentioned in an affidavit filed by Everforex. It is a rule of some antiquity. In Quilter v Heatley (1883) 23 Ch D 42 at 50, Lindley LJ explained that the analogous rule was intended to give the party receiving the pleading or affidavit the same advantage as if the document referred to had been set out in full in that pleading or affidavit. See also Canstruct Pty Ltd v Project Sea Dragon Pty Ltd (No 3) [2023] FCA 905 at [28] (Derrington J); Koolan Iron Ore Pty Ltd v Infrassure Ltd [2020] FCA 233 at [21] (Jackson J). It is also a rule of fundamental principle, reflecting basic procedural fairness: Betfair Pty Ltd v Racing New South Wales (No 2) [2009] FCA 195 at [11] (Perram J). Questions of relevance and the operation of s 570 of the FW Act do not arise. 17 The documents the subject of the first Notice to Produce ought to have been made available for inspection many months ago. They should be produced forthwith.

Second Notice to Produce 18 As noted above, the second Notice to Produce is a Notice to Produce under r 30.28 of the Rules. That rule provides in so far as is presently relevant: 30.28 Notice to produce (1) A party may serve on another party a notice, in accordance with Form 61, requiring the party served to produce any document or thing in the party's control: (a) at any trial or hearing in the proceeding; or (b) at any hearing before a Registrar or any examiner or other person having authority to take evidence in the proceeding. ... (3) If a notice under subrule (1) specifies a date for production, and is served 5 days or more before that date, the party served with the notice must produce the document or thing in accordance with the notice, without the need for a subpoena for production. 19 The objection taken is one of relevance. The test is: "whether the documents are 'reasonably likely to add, in the end, in some way or other, to the relevant evidence in the case'": Seven Network Limited v News Limited (No 11) [2006] FCA 174 at [6] (Sackville J). The onus of establishing relevance is on Mr Dove as the party that served the second Notice to Produce: Seven at [7]. 20 I am satisfied that the documents sought in the second Notice to Produce are relevant for the reasons set out below. 21 First, the documents sought are relevant to the issue of the loss claimed under the cross-claim. 22 In the cross-claim, Everforex makes a series of claims for loss caused by the alleged conduct of Mr Dove (and Mr Starkey). Those claims do not on their face purport to be limited to loss incurred during the period of the employment of Mr Dove (and Mr Starkey) and in some cases the particularisation of the loss is stated to be subject to the issue of subpoenas. 23 Further, some of the claims in the FASCC contemplate or at least leave open the proposition that the loss claimed continues beyond the departure of Mr Dove. A stark example concerns the allegations that: Mr Dove disabled a trading platform/server in February 2020 (at [141] to [142]); this had the effect that the "business of [Everforex] was unable to be continued" (at [143]); as a result, Everforex "did and is suffering loss, being a loss of profits" (at [143]). Thus, Everforex's submission that the documents sought in so far as they relate to the period after the employment of Mr Dove are irrelevant founders upon, and is contradicted by, its own pleading. 24 Secondly, the documents sought are directly relevant to the security for costs application and in particular to Everforex's ability to meet an adverse costs order. 25 As noted above, Everforex contends that: (1) s 570 of the FW Act applies to the cross-claim; (2) there is "no prospect" that s 570(2) will be satisfied in relation to the cross-claim; (3) as such, there is no prospect that costs would be ordered against Everforex; (4) thus, no order requiring Everforex to provide security for costs should be made and the Court should not require the production of documents relevant to the question of security for costs. 26 I accept that it seems likely that s 570 of the FW Act will apply to the cross-claim given the width of the expression "in relation to a matter arising under this Act" in s 570(1): see Joseph v Parnell Corporate Services Pty Ltd [2021] FCAFC 67; (2021) 284 FCR 546 at 566 to 571 ([90] to [115]) per Logan, Katzmann and Snaden JJ. Mr Dove did not contend otherwise. However, I do not accept that there is "no prospect" that s 570(2) will be satisfied in relation to the cross-claim. There is no evidentiary basis for that submission. Nor do I accept Mr Dove's submission it is "more probable than not" that s 570(2) of the FW Act will be engaged by reason of the conduct of Everforex. I am satisfied that there is some prospect that s 570(2) of the FW Act will be engaged, thus enlivening the discretion under s 570(1) of the FW Act to award costs against Everforex. 27 Nor do I accept Everforex's submission that I must find it is likely that security will be ordered before Everforex should be required to produce the documents sought. 28 It follows that I do not accept that: there is no prospect that costs would be ordered against Everforex; that no order requiring Everforex to provide security for costs should be made; or that the documents sought should not be produced. I note, for the avoidance of doubt, that whether security ought to be ordered and whether Everforex should be required to pay costs are questions for another day. For present purposes, it is sufficient that the documents sought are relevant to the first of these questions. 29 Everforex relied heavily upon the decision of the Full Court of this Court in Augusta Ventures Ltd v Mt Arthur Coal Pty Ltd [2020] FCAFC 194; (2020) 283 FCR 123. In that decision, the Full Court (Allsop CJ, Middleton and White JJ) set aside a decision of the primary judge requiring a litigation funder to provide security for costs in a proceeding to which s 570 of the FW Act applied. However, contrary to the submissions made on behalf of Everforex, the Full Court did not purport to lay down a rule that security for costs could never be provided in a proceeding in which the exercise of the costs discretion is informed by s 570 of the FW Act. Indeed, in Augusta at 160 ([126] to [127]), White J expressly contemplated that the provision of security could be ordered, albeit that such an order may be exceptional. 30 Finally, I do not accept Everforex's submission that only current, and not historical, records of its financial position are relevant to the security for costs application. The difference between such records is a matter of weight not relevance. In any event, all the documents caught by the Notices to Produce are relevant to the question of loss.

G. CONCLUSION 31 For the above reasons, Everforex's application to set aside the Notices to Produce should be dismissed. Orders should be made requiring the prompt production for inspection of the documents caught by the first Notice to Produce and for the prompt production to the Court of the documents caught by the second Notice to Produce. 32 Mr Dove seeks his costs of the application. As: s 570 of the FW Act appears to be a matter informing the exercise of the costs discretion; Everforex has not had the opportunity to make submissions on the question of costs of the application; and the reasons set out above may be relevant to that question, I will make orders requiring Mr Dove and Everforex to provide a timetable for submissions on the question of costs. I certify that the preceding thirty-two (32) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Goodman.

SCHEDULE OF PARTIES NSD 817 of 2022 Cross-Respondents Second Cross-Respondent DK INTERNATIONAL PTY LTD ACN 632 006 494 Third Cross-Respondent GFY MARKETS PTY LTD Fourth Cross-Respondent MATTHEW STARKEY

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