Elanor Funds Management Limited v Alceon Group Pty Ltd

GREENWOOD J: 1 These proceedings are concerned with an application by Elanor Funds Management Limited ("Elanor") for an order that the first respondent, Alceon Group Pty Ltd ("Alceon") and the second respondent, CPRAM Investments Pty Ltd ("CPRAM") give discovery to Elanor of the documents described in Schedule B to the application. Schedule B, in the form as filed, is Attachment A to these reasons. 2 Since the filing of the application, discussions have taken place between the parties which have led to the position that by agreement the documents described at para 1(c)(x) are no longer sought. The respondents to the present application take issue with other aspects of the documents described in Schedule B and I will return to those matters later in these reasons. 3 The present application is made under r 7.23 of the Federal Court Rules 2011 which is in these terms: Division 7.3 - Preliminary discovery 7.21 Definitions for Division 7.3 In this Division: prospective applicant means a person who reasonably believes that there may be a right for the person to obtain relief against another person who is not presently a party to a proceeding in the Court. prospective respondent means a person, not presently a party to a proceeding in the Court, against whom a prospective applicant reasonably believes the prospective applicant may have a right to obtain relief. … 7.23 Discovery from prospective respondent (1) A prospective applicant may apply to the Court for an order under subrule (2) if the prospective applicant: (a) reasonably believes that the prospective applicant may have the right to obtain relief in the Court from a prospective respondent whose description has been ascertained; and (b) after making reasonable inquiries, does not have sufficient information to decide whether to start a proceeding in the Court to obtain that relief; and (c) reasonably believes that: (i) the prospective respondent has or is likely to have or has had or is likely to have had in the prospective respondent's control documents directly relevant to the question whether the prospective applicant has a right to obtain the relief; and (ii) inspection of the documents by the prospective applicant would assist in making the decision. (2) If the Court is satisfied about matters mentioned in subrule (1), the Court may order the prospective respondent to give discovery to the prospective applicant of the documents of the kind mentioned in subparagraph (1)(c)(i). 4 The rule makes reference to a "prospective applicant" and a "prospective respondent". The prospect the rule has in mind, as applied to the present case, is that Elanor is an entity whose relevant officer or guiding mind reasonably believes that there "may be a right" for Elanor to "obtain relief" against Alceon and CPRAM in a proceeding to be brought before the Court seeking that relief. Elanor is, of course, a present applicant in the sense that it seeks an order in the exercise of the discretion conferred by r 7.23(2) for discovery of particular documents and Alceon and CPRAM are present respondents to that application although, of course, all parties are prospective parties to a putative substantive proceeding should Elanor decide to start such a proceeding. 5 Elanor says that based on the affidavits filed in support of the application, Mr Blake McNaughton, Elanor's Executive Director, holds a reasonable belief that Elanor may have a right to obtain relief arising out of six categories of contended representations made by Alceon and/or CPRAM to Elanor in relation to Elanor's acquisition from Alceon of a commercial property described as the "Bluewater Square Shopping Centre" (the "Property"). It is not necessary to describe the representations in detail. It is sufficient to note that the representations are described in these terms which gives an indication of the subject matter of the representations: the "Passing Base Rent Representation"; the "Rent Representation"; the "Outstanding Incentive Schedule Representation"; the "Incentive Representations"; the "Arrears Representations"; and the "Rental Return Representation". 6 Elanor says that it relied on the representations in entering into and completing the purchase. 7 Elanor says that the representations were misleading or deceptive or likely to mislead or deceive in contravention of s 18 of Schedule 2 (the "Australian Consumer Law", "ACL") to the Competition and Consumer Act 2010 (Cth) because each of the six representations were "incorrect and contained material omissions" in relation to, put simply, the rental position and rental and incentive arrangements as between Alceon and particular tenants/lessees of the Property. 8 Elanor says that had it known that the representations were incorrect and omitted material information, it would have done one of three things: it would have paid less to purchase the property; or, it would have negotiated a higher "Rent Support Payment" as part of the transaction; or, had neither of the first two possibilities eventuated, it would not have entered into the sale and purchase contract and would not have purchased the property. 9 In the draft Statement of Claim which would form the basis of Elanor's proposed proceeding subject to Elanor obtaining discovery of particular documents in order to assist it in making a decision as to whether to start a proceeding, Elanor says that each of the six representations are incorrect and contain material omissions in respect of tenancies described as the "Food Outlets". The Food Outlets are described as these (by reference for present purposes simply to the trading name of each food outlet): Dizzy Dukes, Burrito Bar, Bel Cibo, Mass Nutrition, Kebab Express, Sushi Kuni, Mumbai Blues, Thai Me Down and Redcliffe Noodle Kitchen. 10 As to these matters, Elanor says that it has suffered loss and damage in a sum equal to the difference between the purchase price and the actual value of the Property at the time of purchase. The relief it says it would seek to claim in any proceeding agitating these causes of action against both Alceon and CPRAM is put this way: "Damages[;] Further or in the alternative, damages under section 236 of the ACL[;] Interest[;] Costs". Section 236 of the ACL provides that if a person (the claimant) "suffers loss or damage" "because of" the conduct of another, and the conduct contravenes, relevantly, s 18 of the ACL, the claimant may "recover the amount of the loss or damage by action" against that "other person or against any person involved in the contravention". 11 Rule 7.23 contemplates that a prospective applicant to such a prospective proceeding may apply to the Court for an order, in the exercise of the Court's discretion under s 7.23(2), that the prospective respondent give discovery of documents "of the kind" mentioned in r 7.23(1)(c)(i). 12 To make such an order, the Court must be "satisfied" about the matters in r 7.23(1). 13 As to r 7.23(1), the Court must be satisfied that the prospective applicant reasonably believes that it may have the right to obtain the particular relief and that after making reasonable inquiries the prospective applicant does not have sufficient information to "decide" whether to "start a proceeding" to obtain "that relief". The Court must also be satisfied that the prospective applicant, Elanor, reasonably believes first, that Alceon (and CPRAM) has in its control, documents "directly relevant" to the question of whether the prospective applicant "has a right to obtain the relief" (the para 1(c)(i) documents), and second, that Elanor reasonably believes that inspection of those directly relevant documents would "assist" in making the decision to start a proceeding. 14 In this application, neither Alceon nor CPRAM opposes an order for preliminary discovery. 15 Both entities accept that r 7.23 is engaged having regard to the evidence filed on behalf of Elanor. 16 The contest relates to the scope of the documents sought by Elanor. The jurisdiction to order preliminary discovery should go no further than is necessary to enable a decision to be made as to whether to start a proceeding: Glencore International AG v Selwyn Mines Ltd and Others (2005) 223 ALR 238 at 240-241 [13]; Ebos Group Pty Ltd v Team Medical Supplies Pty Ltd [2011] FCA 862 at [21]; McFarlane as Trustee for the S McFarlane Superannuation Fund v IOOF Holdings Limited [2018] FCA 692 at [68]; and Automotive, Food, Metal, Engineering, Printing and Kindred Industries Union known as The Australian Manufacturing Union v BRI Pty Ltd [2020] FCA 1498 at [13]. Ultimately, however, the question of the scope of documents to be produced begins and ends with the text of r 7.23. 17 Applying the text of the rule, the fundamental guiding consideration is whether the documents sought are "directly relevant" to the "question" of "whether the prospective applicant has a right to obtain the relief" it believes it may have a right to obtain in the Court in the putative proceedings from Alceon and CPRAM, that is, documents "of the kind mentioned in subparagraph (1)(c)(i)". 18 As can be seen from Attachment A, having regard to the deletion of any reference to "any other tenant of the Bluewater Square Shopping Centre (the deletion of para 1(c)(x) of Attachment A), the first category of documents is concerned with any "email, letter, correspondence, file note, report, electronic communication such as SMS text messages, iMessages or Whatsapp messages, or any other document recording any: (a) request, proposal, offer, agreement, or waiver of rights; or (b) performance of that request, proposal, offer, agreement, or waiver of rights", between the person or entity conducting each of the Food Outlets on the one hand, and Alceon, CPRAM or Savills (Qld) Pty Ltd (an entity said to have been retained by Alceon to act as the Manager of the Property) on the other hand, to vary the rent owed, or to create an abatement or incentive in respect of the rent payable, for any period between 1 December 2016 and 1 November 2017 in respect of a lease held by the Food Outlet tenants. 19 Both Alceon and CPRAM accept the documents falling within that description are to be discovered to Elanor. 20 Category 2 of Attachment A is not contentious. 21 Categories 3(a), (b), (e) and (f) are contentious. 22 Alceon and CPRAM say that categories 3(a), (b) and (f) ought to be deleted entirely and that as to category 3(e), they say that it is more properly described as: (e) Cash Detail Report recording any and all amounts paid by Bluewater Square Tenants in relation to their premises during the period between 1 December 2016 and 1 November 2017. 23 Alceon (and CPRAM) says that it should not be required to produce a Cash Summary Report which concerns the whole of the Shopping Centre but it does not object to producing a Cash Detail Report for the nine tenancies described as the Food Outlets. 24 The central point of contention between the parties is that Alceon (and CPRAM) says that the documents directly relevant to the question of whether the prospective applicant has a right to obtain the relief it believes it may have a right to obtain, are those documents relating to the Food Outlets. That is said to be so having regard to the formulation of the prospective claim for relief discussed earlier in these reasons. 25 Elanor, on the other hand, says that its election to confine the category 1 documents to the nine tenants representing the Food Outlets, does not mean that the scope of the other documents it seeks should be limited to the Food Outlets. Elanor says that it ought to have access to documents which go to what it describes as the "overall health of the shopping centre and difficulties or otherwise that the shopping centre may [have] faced": T, p 13, lns 25-27. 26 Elanor also puts it this way (T, p 15, lns 17-24): [O]ne needs to look further and beyond the scope of the specific documents relating to these nine tenants, because we are dealing with a situation where the information that we've received to date is incomplete, is inconclusive and is contradictory, and so we are simply seeking to gauge the information in relation to the slightly broader picture in relation to the centre as a whole and … that's why … it's necessary to look at the centre as a whole, so that the issue about whether or not there were such rental abatement agreements, which are disputed by the prospective respondents, in fact, were given. 27 I am not satisfied that documents going to the overall health of the shopping centre and the difficulties the shopping centre may have been facing are documents which, as a matter of construction and application of the text of the rule, bear the characterisation of documents "directly relevant" to the question of whether Elanor has a right to obtain the relief it would seek to claim derived from the causes of action it has identified concerning the Food Outlets. 28 It necessarily follows that the documents described at category 3(a), (b) and (f) are to be confined to documents addressing matters concerning one or more of the nine tenants in the Food Outlets. A further question arises as to whether the documents in each of those categories are directly relevant in any event. 29 The three categories are in these terms: 3 The following reports or accounts in respect of the Bluewater Square Tenants: (a) profit and loss statements for any period between 1 December 2016 to 1 November 2017; (b) trial balances of the accounting ledger showing all debits and credits in any period between 1 December 2016 to 1 November 2017; … (f) paid and open invoices reports for any period between 1 December 2016 and 1 November 2017 or; ... 30 As to category 3(a), Alceon accepts that if in the period between 1 December 2016 to 1 November 2017, monthly reports were produced identifying a monthly profit and loss statement that recorded a waiver of rights by Alceon or a partial abatement of rent together with (if any) a commentary which notes or gives an explanation for any anomalies, abnormalities or variances attributable to non-payment of rent or concessions or abatements given to tenants of the Food Outlets, the profit and loss statements and accompanying report ought to be produced: see T, p 24, lns 7-11. Alceon says that any such document would, in any event, fall within category 1 and for that reason alone it is not necessary to include the documents at category 3(a) in the order. That may or may not be so but as a matter of clarification category 3(a) ought to be retained (relating only to the nine Food Outlets) with the following words added after "1 November 2017", "to the extent that any monthly (or other) profit and loss statement records a waiver of rights by or on behalf of Alceon or an abatement of rent given by Alceon together with a related commentary (if any) which identifies the non-payment of rent or abatement of rent or other concessions, reductions, offsets or waiver of rent in any way related to leasing arrangements with tenants of the Food Outlets". 31 Such documents are directly relevant to the question identified in r 7.23 having regard to the evidence of Mr McNaughton in his affidavit of 21 January 2021. It is not necessary to set out Mr McNaughton's background experience. I accept that he is a relevantly experienced person (see paras 1 to 10 of his affidavit of 21 August 2020). In his affidavit of 21 January 2021, Mr McNaughton says this: 9. In my experience, if benefits are provided to tenants which are not recorded in tenant specific reports or ledgers then they should show up in the monthly profit and loss, trial balance or cash flow statements. It is standard industry practice for property managers, such as Savills which managed the Bluewater Square Shopping Centre on behalf of [Alceon] whilst it was owner of that centre, to generate and provide to the owner of a shopping centre a profit and loss statement (sometimes called an income and expenditure report or net income report or income statement), trial balance and cash flow statement each month. … 12. [Elanor] has used six different property management companies over the 10 year period referred to in [Mr McNaughton's affidavit] to manage the [14 shopping centres … described by Mr McNaughton]. In respect of all [of those] centres the managers have provided [Elanor] with profit and loss statements, trial balances and cashflow statements on a monthly basis. 13. It is asserted in paragraph 10 of [Alceon's] Submissions that it is unnecessary for [Elanor] to be provided with copies of profit and loss statements and [trial] balances as sought in the Schedule "in circumstances where the prospective applicant is already getting the tenant ledgers (category 3(d)), tenant arrears reports (category 3(c)) again and every entry in a bank statement that records a deposit by one of the relevant tenants (categories 4 and 5)". I dispute that assertion. There are certain entries in a profit and loss statement, trial balance or cashflow statement which in my view may not be captured in any of the reports or statements referred to in paragraph 10 of [Alceon's] Submissions. Based on my experience and training, the profit and loss statements, trial balances or cashflow statements should capture any accounting entries that may have been processed outside of the tenant ledgers including any loans made to tenants, any tenant debt write-offs, adjustments or other forms of accounting which may not normally appear in a tenant ledger or in any other documents referred to in [Alceon's] Submissions. 32 Mr Milner is the solicitor acting for Alceon. He swore an affidavit on 2 December 2020 exhibiting a sequence of correspondence in the period 29 October 2020 to 1 December 2020 passing between his firm (Arnold Bloch Leibler), Holding Redlich (the solicitors for Elanor) and Clyde & Co (the solicitors for CPRAM). Many of the letters were admitted into evidence without objection (approximately 12). 33 However, objection was taken to the admissibility of the letters at Tabs 6, 10 and 15 (and potentially Tabs 7 and 8) of Mr Milner's affidavit on the ground that those exchanges were made for the purpose of seeking to resolve the present application with the result that they were said to be "without prejudice" communications. Alceon contended that the privilege, if fit once subsisted, had been waived. The waiver contention was later withdrawn. 34 The parties accepted that I should read all of the letters as, for example, the letter at Tab 6 dated 10 November 2020 (objected to) refers to a letter dated 29 October 2020 which was admitted into evidence and the letter at Tab 10 (objected to) refers to a letter dated 13 November 2020 which was admitted into evidence. 35 Although the letters objected to seem clearly enough to address a possible resolution of the present matter (or a contended lack of a need to move the Court for an order), it is not possible to coherently appreciate the letters admitted into evidence without considering the letters to which objection is taken. Once the bulk of the exchanges were admitted into evidence, the remaining letters became contextually important to the sequence of letters overall. 36 I mention these matters because I said I would look at all of the letters to determine the objection. 37 On the footing of necessity and coherence in addressing the letters admitted into evidence, I also admit into evidence those letters to which objection has been taken. However, the letters do not assist me in the resolution of the issues in the present application as to the scope of the documents and, in particular, the category 3(a) documents. 38 Mr Milner swore a further affidavit on 2 February 2021 in which the views of Mr Damien Cronin, an executive director of Alceon, are put forward on information and belief. Mr Cronin says that no profit and loss statements, trial balances or paid and open invoice reports were prepared (and are not held) "on a tenant-by-tenant basis". Rather, those reports were prepared on a whole of centre basis only disclosing rental amounts paid by tenants as a consolidated figure. Nevertheless, Mr Cronin does not contest Mr McNaughton's evidence (as set out at [31] of these reasons) and no doubt for that reason, counsel for Alceon took the position reflected at [30] of these reasons. 39 The evidence of Mr McNaughton is that any accounting entries that may have been processed outside the tenant ledgers including any loans made to tenants, any tenant debt write-offs or adjustments or other methods of accounting treatment relevant to tenant obligations "should" be captured in the profit and loss statements, trial balances or cashflow statements. 40 Category 3(b) therefore seeks discovery of the trial balances. 41 Those documents ought to be produced limited, however, to the extent to which the trial balances show or report any loans made to the Food Outlet tenants, any debt write-offs concerning those tenants or adjustments or other methods of accounting treatment concerning those tenants. That follows as a matter of consistency having regard to the approach in relation to the documents at category 3(a) and also because the category 3(b) documents, on the present evidence, would be documents "directly relevant" to the "question" contemplated by r 7.23(c)(i). 42 Discovery of those documents seems to engage the same factors informing Alceon's concession at T, p 24, lns 7-11 although the scope of the documents should be similarly limited as mentioned above. 43 The same considerations apply in relation to category 3(f) but limited in the way earlier described. In other words, if there are reports in relation to paid or open invoices concerning any tenant debt write-offs, adjustments or waivers or reports which show arrears of rent or special treatment arrangements in relation to rent concerning the Food Outlet tenants, those reports ought to be produced because they are "directly relevant" to the question contemplated by r 7.23(c)(i). 44 As to categories 4 and 5, I accept that Elanor should receive the bank statements maintained by Savills and Alceon redacted to show only those entries relating to the Food Outlet tenants. Production of the bank statements revealing financial transactions relating to the tenants, will reveal rental deposits and other rental payments. Those payments or non-payments can be reconciled with the other documents produced and, in particular, the documents at categories 3(c), (d) and (e), as discussed above and also documents at categories 3(a) and (b), as discussed above. 45 As to category 6, no objection is taken to an order for discovery of documents recording any contract or arrangement between Alceon and CPRAM for the provision of services by CPRAM to Alceon in connection with the shopping centre. Alceon says that the relevant contracts to be discovered are an "Investment Management Agreement" and an "Exclusive Agency Agreement" for the sale of the shopping centre. I accept that the order for discovery ought to be confined to documents recording legal obligations as between Alceon and CPRAM in the period between 1 December 2016 and 1 November 2017 including the two documents identified by Alceon but also extending to any document recording any arrangement by which CPRAM assumed an obligation to provide services in respect of the shopping centre for Alceon. I accept that these documents are directly relevant to the authority of CPRAM in relation to any arrangements made by CPRAM with the Food Outlet tenants in relation to any rental arrangements, adjustments, waivers or other such arrangements. 46 I do not accept that the scope of the documents captured by r 7.23 extends to documents described as unit certificates or the Unit Register or any other records for the "Bluewater Unit Trust" which identify the beneficiaries or unit holders of that Trust. Those documents are said to be susceptible of an order on the footing that they may show that CPRAM has an interest in the Trust from which other inferences might arise about its authority. I do not accept that such documents are "directly relevant" to the "question" raised by r 7.23(c)(i). 47 I take the same position in relation to the documents at category 6(b) and 6(c). 48 Accordingly, orders will be made for the discovery of the documents in accordance with these reasons. 49 The applicant is directed to submit within 14 days an order which gives effect to these reasons. I certify that the preceding forty-nine (49) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Greenwood.

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