These proceedings are listed for final hearing commencing on 23 March 2021.
The first plaintiff, Fogo Brazilia Holdings Pty Ltd (Holdings), claims to be a creditor of Fogo Brazilia Franchise Holdings Pty Limited (in liq) (Franchise). The second plaintiff, Mr Ian Dresner, is a director and also claims to be a creditor of Franchise.
The defendant, Mr Gavin Moss, is the liquidator of Franchise (the Liquidator).
Mr Stewart Levitt, solicitor, of Levitt Robinson Solicitors was the second defendant in the proceedings but the plaintiffs discontinued their claims against him on 28 September 2020.
Franchise carried on a Brazilian cuisine restaurant franchise business as franchisor.
In the winding up of Franchise, proofs of debt have been lodged by a number of franchisees in respect of damages claims against Franchise. The total quantum of those damages claims exceeds $4.78 million (the Franchisee Damages Claims).
On 19 August 2019, the Liquidator entered into agreement with Galactic Fogo Litigation Liquidators LLC (the Funder) and Mr Levitt for the funding of examinations to be conducted by the Liquidator in relation to Franchise pursuant to ss 596A and 596B of the Corporations Act 2001 (Cth) (the Funding Agreement). The Liquidator is referred to in the Funding Agreement as "the Client" and Mr Levitt is referred as "the Representative". The Funding Agreement defines the "Proceedings" as the examinations (including preparation for and all things incidental to the examinations) "in which the Representatives act as the Client's legal representatives".
Elanor Operations Pty Ltd v Chief Commissioner of State Revenue [2021] NSWSC 242 | Case summary | Zoe
Clause 9.1 of the Funding Agreement provides:
"9.1 The Funder may, from time-to-time, request such information as it reasonably requires concerning the conduct and progress of the Proceedings. The Representatives agree that they will not settle or otherwise compromise the Proceedings without prior consultation with the Funder and acknowledge the Funder's right under Clause 10.2."
Clause 10 of the Funding Agreement provides:
"10.1 The Client will disclose to the Representatives forthwith, who will in turn disclose to the Funder, any information which comes to their knowledge which may have a material impact on the continuing conduct, resolution or result of the Proceedings.
10.2 The Client will promptly notify the Representatives if he receives any offer of settlement from any one or more of the Examinees or made on behalf of any one or more of the Examinees.
10.3 The Client agrees to consult with the Funder through the Representatives on any issue arising in relation to the conduct and progress of the Proceedings and in particular, in relation to any offer to settle or otherwise compromise the Proceedings.
10.4 The Client will not, without reasonable cause, fail to commence the Proceedings and/or maintain the Proceedings to conclusion."
On 10 December 2019, the Liquidator applied to this Court for examination summonses to be issued pursuant to ss 596A and 596B of the Corporations Act.
Levitt Robinson acted as the Liquidator's solicitors in relation to that application.
After the examination summonses were issued, there was a hearing before Gleeson JA on 3 February 2020 at which the Liquidator asked the Court to note an undertaking offered by Mr Stewart Levitt of Levitt Robinson. In an ex tempore judgment delivered on that day, Gleeson JA recorded that:
1. Levitt Robinson had previously acted for a number of franchisees who were creditors or potential creditors of Franchise;
2. in those circumstances, the Liquidator had sought and obtained legal advice from Piper Alderman, solicitors, as to whether there was a conflict or possible conflict in his retaining Levitt Robinson to act as his solicitors in relation to the examinations;
3. the Liquidator deposed that he was satisfied that retaining Levitt Robinson did not give rise to any conflict that impairs his independence as liquidator of Franchise; and
4. for abundant caution, Mr Levitt offered an undertaking to the Court not to disclose documents obtained during the public examinations to any person other than the Liquidator and members of his staff, solicitors within Levitt Robinson, counsel retained by the Liquidator and the Funder.
Gleeson JA then stated (citations omitted):
"On the material presently before the Court, there is nothing to suggest that the retainer of Levitt Robinson would impair the independence of the liquidator in carrying out his functions and duties, and in particular, with respect to the proposed examination of various persons. The liquidator has taken the prudent step of seeking independent advice in relation to his proposed course of action, and although that advice is not before the Court, there is nothing to suggest that the proposed course of action the liquidator intends to take would impair his independence or is otherwise unreasonable.
Of course the liquidator will need to remain alert to whether circumstances arise that might require him to take advice from another solicitor on a particular aspect of the investigations or any proceedings or more generally."
His Honour then formally noted Mr Levitt's undertaking referred to above.
The public examinations took place between 17-20 March 2020 and on 1 May 2020. Levitt Robinson acted as the Liquidator's solicitors in relation to those examinations.
These proceedings were commenced by originating process filed on 1 June 2020. Points of claim and points of defence were filed on 24 June 2020 and 21 July 2020 respectively.
The plaintiffs' allegations pleaded in the points of claim include the following:
1. the Funder had control, or at least partial control, over the conduct of the examinations by reason of clauses 9 and 10 of the Funding Agreement (paragraph 45 of the points of claim);
2. the Funder has a financial interest in a foreshadowed class action concerning the Franchisee Damages Claims, in respect of which Levitt Robinson acts for the franchisees (paragraph 46);
3. by entering into the Funding Agreement, the Liquidator placed himself in a position of conflict in breach of his fiduciary duty not to be in a position of conflict (paragraph 49), in that:
"In circumstances where the funder had a financial interest in the Franchisee Damages Claims, by entering into the funding agreement with the funder which, inter alia, gave the funder control over the conduct of the examinations in return for payment of legal expenses associated with the examinations, [the Liquidator] facilitated the funder's financial interests by agreeing to gather information through the statutory examination procedure under ss 596A & B of the Act in respect of the claims of the franchisee creditors against [Franchise] to the benefit of the franchisee creditors and funder, and to the detriment of [Franchise]."
1. further, by entering into the Funding Agreement and subsequently using his powers to conduct examinations to, inter alia, gather information to the benefit of franchisees in the Franchisee Damages Claims, the Liquidator "has facilitated the claims of the franchisee creditors" to the detriment of Franchise in breach of the Liquidator's duties, including his duty to exercise his powers in good faith in the best interests of Franchise and for a proper purpose, his duties not to use his position or information obtained by him to gain an advantage for someone else (namely the Funder and the franchisee creditors), his duty not to improperly use his position to cause detriment to the Company and his duty to be impartial and independent (paragraph 51); and
2. the matters above (and various other matters pleaded in the points of claim) amount to actual bias or give rise to a reasonable apprehension of bias in respect of the Liquidator's conduct in the winding up of Franchise (paragraph 54).
The principal relief claimed by the plaintiffs is an order removing the Liquidator and an order appointing to Franchise an independent liquidator selected by the Court.
For present purposes, it is not necessary to refer to the points of defence, save to note that the Liquidator either does not admit or denies the allegations that I have summarised above and also relies on Mr Levitt's undertaking given to the Court on 3 February 2020 to which I have referred above.
On 30 November 2020, Black J made orders requiring the Liquidator to discover certain categories of documents, including copies of all documents evidencing or recording communications between the Liquidator and his firm and the Funder in relation to Franchise during the period from 1 January 2018 to date. The Liquidator did not produce any documents in this discovery category.
On 24 February 2021, the plaintiffs issued a subpoena to Mr Levitt trading as Levitt Robinson requiring production of the following three categories of documents:
"1. Documents passing between Galactic Fogo Litigation Liquidators LLC (Funder) and Levitt Robinson Solicitors relating to the 'Proceedings' (as defined in clause 1.1 of Funding Agreement dated 19 August 2019, a copy of which is attached to this subpoena (Funding Agreement), including without limitation:
a. documents requested by the Funder and provided to the Funder by Levitt Robinson Solicitors pursuant to clause 9.1 of the Funding Agreement;
b. documents provided to the Funder by Levitt Robinson Solicitors pursuant to clause 10.1 of the Funding Agreement;
c. documents provided to Levitt Robinson Solicitors by the First Defendant pursuant to clause 10.2 of the Funding Agreement;
d. documents provided to the Funder by Levitt Robinson Solicitors pursuant to clause 10.3 of the Funding Agreement.
2. Documents evidencing and recording all communications between Levitt Robinson Solicitors and the Funder in relation to claims or potential claims against Fogo Brazilia Franchise Holdings Pty Ltd (in liq) from 1 July 2019 to the date of this subpoena.
3. Documents communicated between Levitt Robinson Solicitors and the Funder in relation to the negotiation of the Funding Agreement."
By interlocutory process filed on 8 March 2021, the Liquidator applied to set aside the subpoena pursuant to r 33.4 of the Uniform Civil Procedure Rules 2005 (NSW). Correspondence annexed to an affidavit sworn by the Liquidator's solicitor stated that the application was made on the basis that the documents in categories 1 and 3 of the schedule to the subpoena were privileged and it was unclear how the documents in category 2 were relevant to the plaintiffs' pleaded case.
The plaintiffs filed and served detailed written submissions on 12 March 2021 addressing the privilege issue raised by the defendants concerning categories 1 and 3 and stating that the plaintiffs no longer press category 2.
It became apparent from the Liquidator's written submissions served later that day that the Liquidator sought to set aside the subpoena solely on the grounds that the subpoena does not have a legitimate forensic purpose.
At the hearing of the interlocutory process on 15 March 2021, counsel for the Liquidator informed the Court that Levitt Robinson has already produced two bundles of documents in answer to the subpoena, one of which is labelled "privileged" and one of which is labelled "non-privileged". Counsel for the Liquidator had been requested by Mr Levitt to inform the Court that Levitt Robinson wished to be heard about claims for privilege in the event that the Liquidator's application to set aside the subpoena did not succeed.
I indicated that this approach was wholly unsatisfactory in view of the proximity of the final hearing date and that all applications relating to this subpoena should be heard at one time within the next few days. I granted a short adjournment to allow counsel for the Liquidator to communicate with Levitt Robinson with a view to then fixing a time for the hearing of the Liquidator's application to set aside the subpoena together with any application made by Levitt Robinson, as the recipient of the subpoena, concerning any claims for privilege in connection with the subpoena or the documents produced. On the resumption of the hearing, counsel for the Liquidator informed the Court that Mr Levitt did not wish to be heard in relation to the Liquidator's application and did not wish to be heard in relation to any privilege claims.
I now turn to consider the parties' submissions concerning whether the subpoena has a legitimate forensic purpose insofar as it requires production of the documents described in categories 1 and 3 as set out in the schedule to the subpoena.
As the defendant's submissions identified, the applicable principles were recently summarised by Ward CJ in Eq in Elanor Operations Pty Ltd v Chief Commissioner of State Revenue [2020] NSWSC 840 at [42]-[45]. I gratefully adopt her Honour's summary:
"42. As to the applicable legal principles on an application to set aside a subpoena or a notice to produce it is not here disputed that, for a subpoena or notice to produce to be issued there must be a legitimate forensic purpose and that the party issuing the subpoena or notice to produce bears the onus of establishing that legitimate forensic purpose (see, for example, Rinehart v Rinehart [2018] NSWSC 1102 at [43]-[50] (Rinehart); Broadway Plaza Investments Pty Ltd v Broadway Plaza Pty Ltd [2019] NSWSC 410 at [52]; and Xinfeng Australia International Investment Pty Ltd v GR Capital Pty Ltd [2020] NSWSC 620 (Xingfeng) at [35]-[41]).
43. It must be able to be concluded that the documents sought could 'possibly throw light' on the issues in the case, or that it is likely that the documents will materially assist on an identified issue or that there is a reasonable basis, beyond speculation, that it is likely that they will materially assist (see, for example, ICAP Pty Ltd v Moebes [2009] NSWSC 306 at [28]-[30], per Nicholas J, affirmed on appeal in ICAP Australia Pty Ltd v BGC Partners (Australia) Pty Ltd [2009] NSWCA 307 at [27], per Tobias JA, Basten JA and Handley AJA agreeing) Elsewhere it has been said that the question is whether there is a reasonable basis for supposing that the material called for will likely add in some way to the relevant evidence in the case (including whether the documents called for are capable of providing a legitimate basis for cross-examination) (see Sharpe v Grobbel [2017] NSWSC 1065 at [35], per Brereton J, as his Honour then was).
44. It is accepted that a subpoena or notice to produce will be set aside if it is being used as part of what is commonly referred to as a 'fishing expedition' (see Associated Dominions Assurance Society Pty Ltd v John Fairfax & Sons Pty Ltd (1952) 72 WN (NSW) 250 at 254, per Owen J, Street CJ and Herron J agreeing) or where it is oppressive (the question of oppression to be determined as part of a multifactorial balancing exercise - i.e., balancing the degree of apparent relevance to issues in the proceedings against the likely cost or burden of production; see for example Azzi v Volvo [2006] NSWSC 283 at [6], per Brereton J, as his Honour then was; and Rinehart at [49]). (See generally on the issue: In the matter of One.Tel Ltd (in liq) - Singtel Optus Pty Ltd v Weston [2010] NSWSC 1491 at [31]-[40].)
45. It is noted by the plaintiffs that, where a subpoena or notice to produce is drafted in a manner which is objectionable, it is ordinarily not for the Court to redraft it (see Xinfeng at [41]; Lowery v Insurance Australia Ltd [2015] NSWCA 303 at [25], per Basten JA; Rinehart v Rinehart [2019] NSWSC 759 at [38). However, the same issue does not arise, for obvious reasons, to the extent of discovery that should be ordered to be provided; nor is it necessarily an inflexible rule, when approaching the extent to which compliance will be ordered in relation to a subpoena (see for example, how the matter was approached in Rinehart)."
As senior counsel for the plaintiffs accepted, the plaintiffs bear the onus of demonstrating a legitimate forensic purpose.
The plaintiffs submitted that the documents falling within subparagraphs (a) to (d) of category 1 of the subpoena were documents that were the very documents that the Liquidator had entered into a contractual obligation to provide to the Funder pursuant to clauses 9.1 and 10.2 to 10.3 of the Funding Agreement. By reason of clause 9.1, the Liquidator was required to provide the documents to the Levitt Robinson (as the Representative), who would in turn provide them to the Funder. It was submitted that these documents are likely to materially assist in relation to the issue raised for determination by paragraphs 49 and 51 of the plaintiffs' points of claim summarised above.
Senior counsel for the plaintiffs particularly emphasised the allegations pleaded and particularised in paragraph 51 of the points of claim that the Liquidator "has facilitated the claims of the franchisee creditors" to the detriment of Franchise by using his powers to conduct examinations in order to, inter alia, gather information to the benefit of franchisees in the Franchisee Damages Claims. The provision of documents by Levitt Robinson to the Funder under the terms of the Funding Agreement would not have breached Mr Levitt's undertaking given to the Court on 3 February 2020. Senior counsel for the plaintiffs submitted that the documents in category 1 would materially assist in relation to the question of whether the provision of such documents, in Levitt Robinson's capacity as Liquidator's solicitors in the examination proceedings and pursuant to contractual obligations that the Liquidator entered into, and in circumstances where the Funder was also funding the Franchisee Damages Claims, involved the gathering of information to the benefit of franchisee creditors in relation to the Franchisee Damages Claims.
Senior counsel for the plaintiffs acknowledged that category 1 goes beyond sub-categories (a) to (d), but maintained that the width of category 1 was appropriate having regard to "the relevance of the information that was provided to the Funder as a result of the examination proceedings".
The plaintiffs rely on the Liquidator's consent to the discovery orders to which I have referred at [20] above, which required him to discover copies of all documents evidencing or recording communications between the Liquidator and his firm and the Funder in relation to Franchise during the period from 1 January 2018 to date. Senior counsel for the plaintiffs submitted that the Court should be reluctant to set aside the subpoena on the basis that the scope of category 1 exceeds a legitimate forensic purpose in circumstances where the Liquidator agreed to a similarly wide discovery category and, in addition, Levitt Robinson has had no difficulty in complying with the subpoena because they have already produced documents.
Senior counsel also submitted that, in circumstances where the documents have been produced to the Court, it would be contrary to s 56 of the Civil Procedure Act 2005 (NSW) to now set aside the subpoena except insofar as it requires production of documents in subparagraphs (a) to (d) of category 1, as this would cause further time and expense on the part of the subpoena recipient in reviewing the documents produced in order to ascertain which of those documents fall within subparagraphs (a) to (d) of category 1.
In relation to category 3, senior counsel for the plaintiffs submitted that those documents "may bear upon" the allegations pleaded concerning the control and level of control being exercised by the Funder with the permission of the Liquidator.
Counsel for the Liquidator submitted that category 1 should be set aside on the basis that it is impermissibly broad and constitutes a fishing expedition.
Counsel for the Liquidator referred to paragraph 51 of the plaintiffs' points of claim and submitted that the plaintiffs had not pleaded that information had in fact been passed on to the franchisee creditors, and this was a reason why documents provided to the Funder under the Funding Agreement falling within subparagraphs (a) to (d) of category 1 would not materially assist in relation to the issues pleaded in the plaintiffs' points of claim. Counsel characterised the case pleaded against the Liquidator as limited to an allegation that the entry into the Funding Agreement was a breach of the Liquidator's duties, and submitted that this could be determined by reference to the terms of the Funding Agreement.
In relation to category 3, counsel for the Liquidator submitted that it was not apparent how the documents falling within that category could materially assist the plaintiffs' claims against the Liquidator.
After the conclusion of the hearing, Levitt Robinson sent an email to my Associate noting that they had been informed that the plaintiffs no longer pressed category 2 of the subpoena and seeking leave to uplift the documents already produced and remove any documents that are responsive only to category 2. The plaintiffs and the Liquidator indicated, through their respective solicitors, that they did not object to such leave being granted.
The documents described in sub-paragraphs (a) to (d) of category 1 of the schedule to the subpoena are, by definition, documents that have been provided by Levitt Robinson to the Funder in accordance with the terms of the Funding Agreement entered into by the Liquidator. It follows, in my opinion, that the documents in sub-paragraphs (a) to (d) would materially assist in relation to the question whether the Liquidator's entry into the Funding Agreement, giving rise to his obligation and Levitt Robinson's obligation to provide those documents to the Funder, constituted a breach of the Liquidator's duties as alleged by the plaintiffs.
I accept the plaintiffs' submission that the documents within category 1 (including, but not limited to sub-paragraphs (a) to (d)), would materially assist in relation to the plaintiffs' claim that the Liquidator in fact used his powers to conduct examinations for the purpose of (amongst other things) gathering information for the benefit of franchisees in the Franchisee Damages Claims. The examinations would ordinarily be expected to cover the subject matter of the Franchisee Damages Claims due to the substantial quantum of those claims ($4.78 million). There is a reasonable basis, beyond speculation, to think that any documents relating to those examinations that were provided by the Liquidator's solicitor to the Funder, in circumstances where the Funder is alleged to be funding the Franchisee Damages Claims, is likely to materially assist in relation to the plaintiffs' allegation that the examinations were conducted for the purpose of gathering information to the benefit of franchisees. This is so, irrespective of whether or not the Funder passed any such documents on to franchisees.
For the reasons explained at [40]-[41] above, I reject the Liquidator's submission that the documents in sub-paragraphs (a) to (d) of category 1 would only materially assist if the plaintiffs alleged that the Funder in fact provided documents received under the Funding Agreement to franchisees. This submission overlooks that it is part of the plaintiffs' pleaded case that the Funder has a financial interest in the litigation or potential litigation relating to the Franchisee Damages Claims.
The plaintiffs' pleaded case turns on the terms of the Funding Agreement in fact entered into by the Liquidator, and the manner in which the Liquidator conducted the examinations with the benefit of the funding provided under that agreement. The plaintiffs' submissions did not articulate how documents falling within category 3 - being documents communicated between Levitt Robinson and the Funder prior to the Liquidator's entry into the Funding Agreement - were likely to materially assist. I accept the Liquidator's submission that it is not apparent from the pleaded issues how those documents could materially assist.
For those reasons, there will be an order setting aside the subpoena insofar as it requires production of the documents in categories 2 and 3 of the schedule, and otherwise dismissing the Liquidator's interlocutory process save in relation to the question of costs. The plaintiffs wish to make submissions about the costs they incurred preparing for what they understood would be a privilege dispute, based on the Liquidator's correspondence concerning the subpoena prior to the exchange of written submissions on the eve of the hearing
At the conclusion of the hearing of the interlocutory process, I inquired of both counsel whether a general access order should be made in favour of all parties if the subpoena is not set aside. The plaintiffs submitted that a general access order would be appropriate. The Liquidator submitted that he should have first access for one day in case of any privilege claims. I do not consider that there is any basis for a first access order in favour of the Liquidator in circumstances where he and Levitt Robinson abandoned any privilege arguments on the hearing of the interlocutory process. I infer from the Liquidator's abandonment of his privilege arguments that he formed the view that the scope of the subpoena did not extend to documents in which he had a claim for privilege. The Liquidator, as the client of Levitt Robinson at the time that any documents within category 1 were created, was in a position to instruct Levitt Robinson not to waive any claim for privilege that the Liquidator may have in relation to the documents to be produced. Levitt Robinson was offered and declined an opportunity to be heard about privilege claims as part of the hearing of the Liquidator's interlocutory process, even if that meant adjourning that hearing until later this week. As I have already referred to above, the Liquidator informed the Court during the hearing of the interlocutory process that Levitt Robinson did not wish to be heard in relation to any privilege issues. For those reasons, a general access order should be made, subject to one caveat.
The caveat is that Levitt Robinson should first have an opportunity to uplift the documents produced in response to the subpoena and to remove any documents that respond solely to categories 2 and/or 3.
For those reasons, I make the following notations and orders:
1. Note that the plaintiffs do not press for production of documents falling within category 2 of the schedule to the subpoena issued by the plaintiffs on 24 February 2021 to Stewart Alan Levitt trading as Levitt Robinson Solicitors (the Subpoena).
2. Order that the Subpoena is set aside insofar as it requires production of documents described in categories 2 and 3 of the schedule to the Subpoena.
3. Order that the interlocutory process filed by the defendant on 8 March 2021 is otherwise dismissed, save in relation to costs.
4. Grant leave to the recipient of the Subpoena, Stewart Alan Levitt trading as Levitt Robinson Solicitors, to uplift on or before 3pm on 17 March 2021 the documents produced in response to the Subpoena and remove from those documents any documents (if any) that do not fall within category 1 in the schedule to the Subpoena, provided that the documents produced within category 1 must be returned to the Registry of the Court no later than 3pm on 17 March 2021.
5. Order that the plaintiffs and the first defendant have access to the documents produced under the Subpoena from 3pm on 17 March 2021.
6. Stand over the question of the costs of the interlocutory process filed by the defendant on 8 March 2021 for submissions at the final hearing of the proceedings on 23-25 March 2021.
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Decision last updated: 16 March 2021