Equity Trustees Limited v Tactical Global Management Ltd

The issues in the proceedings generally 8 The issues in dispute are in summary as follows. 9 TGM provided currency-hedging services for EQT pursuant to an Investment Management Agreement (IMA) entered into between EQT and TGM on 16 May 2011 (as amended). Fermat is the Manager under the IMA. 10 The proceedings relate to what EQT's statement of claim defined as "Over-Hedging Trades" that took place on 5 April 2022. 11 By its statement of claim, EQT alleged that the Over-Hedging Trades were made by TGM in breach of the IMA, alleged fiduciary duties and alleged tortious duties. 12 By its defence, TGM said that: (a) Fermat was authorised to instruct TGM on behalf of EQT to manage the hedge of the Funds (as defined) and rely on data provided by it for that purpose, and TGM was entitled and otherwise required to rely on those instructions; (b) from 6 June 2019 to 26 April 2021, and again from 12 March 2022 to at least 4 May 2022, there were issues with the valuation data provided to TGM by State Street Australia Limited (State Street); (c) As a consequence, Fermat, on behalf of EQT instructed TGM to rely on data provided to it by Fermat for the purposes of TGM maintaining a currency hedge for the Portfolio (as defined) pursuant to the IMA; (d) TGM relied on instructions and valuation data provided to it by Fermat on behalf of the EQT in making the Over-Hedging Trades; and (e) by reason of TGM's reliance on valuation data and instructions from Fermat on behalf of EQT in executing the alleged Over-Hedging Trades, TGM did not breach the IMA, any alleged fiduciary duties or tortious duties. 13 By its cross-claim against Fermat, TGM relevantly alleged that: (a) Fermat represented to TGM that: (i) it was authorised by EQT to provide instructions to TGM on behalf of EQT; (ii) it was authorised by EQT to provide valuations of the Portfolio to TGM on behalf of EQT for the purposes of TGM maintaining a currency hedge for the Portfolio pursuant to the IMA; and (iii) the 5 April 2022 Fermat Portfolio Valuation (as defined) was an accurate basis upon which TGM could rely to maintain a currency hedge for the Portfolio pursuant to the IMA; (b) Fermat was at all times the agent of EQT for the purposes of giving instructions with respect to the IMA; (c) if Fermat was not entitled to act and instruct TGM then its conduct was misleading or deceptive contrary to s 18 of the Australian Consumer Law, and Fermat was in breach of its implied warranty of authority; (d) by failing to provide TGM with an accurate valuation of the portfolio of the Funds on 5 April 2022 with the knowledge that TGM would rely on information it provided for the purposes of maintaining the currency hedge, Fermat engaged in conduct that was misleading or deceptive contrary to s 18 of the Australian Consumer Law, or alternatively negligent; and (e) in the event that EQT has suffered loss or damage as a result of the conduct of TGM (which it denied), Fermat caused or contributed to that loss. 14 At the heart of TGM's claim against Fermat is the allegation that the 5 April 2022 Fermat Portfolio Valuation was an accurate basis upon which TGM could rely to maintain a currency hedge for the Portfolio pursuant to the IMA. 15 Like many pleadings which build defined term upon defined term, in order properly to understand what is alleged, it is necessary to unpick the defined terms. 16 I do not propose to set out lengthy parts of the cross-claim to so unpick it. 17 The important paragraphs are as follows. 18 Paragraph [17] pleads: 17. On 5 April 2022, Fermat provided a valuation to TGM, which valued the Portfolio as at 31 March 2022 (5 April 2022 Fermat Portfolio Valuation). PARTICULARS A. Email from Sue Farmer of Fermat to Peter Howes of TGM on 5 April 2022 at 9.17am and attachment MktBids_FGA1FGA9_2022-4-4_770.xlsx. B. Email from Peter Howes of TGM to Sue Farmer of Fermat on 5 April 2022 at 10:46AM. 19 Paragraph [43] pleads: 43. By providing the 5 April 2022 Fermat Portfolio Valuation to TGM, Fermat represented that the valuation was an accurate basis upon which TGM could rely to maintain a currency hedge for the Portfolio pursuant to the Agreement (the 5 April 2022 Representation). PARTICULARS The representation was implied by the provision of the 5 April 2022 Fermat Portfolio Valuation to TGM, in the context of: (a) the terms of the Agreement; (b) the Fermat Authority Representation; (c) the Valuation Authority Representation; and/or (d) the matters in paragraphs 7-16 above. 20 Fermat pleads to paragraph [17] in its defence as follows: 17. In answer to paragraph 17, it: (a) admits that at or around 7:17 pm on 4 April 2022 (United States Eastern Standard Time), Sue Farmer of Fermat emailed Peter Howes of TGM a Microsoft Excel spreadsheet titled "MktBids_FGA1FGA9_2022-4-4_770.xlsx" (4 April Market Bids Report); (b) says further that: (i) the circumstance in which the 4 April Market Bids Report was provided to TGM was that: A. on 4 April 2022 (United States Eastern Standard Time), Peter Howes of TGM sent Sue Farmer of Fermat an email requesting to "have a call over Teams to discuss this valuation timing issue"; B. Ms Farmer and Mr Howes then engaged in a discussion over Microsoft Teams from 6:30 pm United States Eastern Standard Time to discuss the timing of the settlement of certain trades; C. during the conversation, in response to a question from Mr Howes, Ms Farmer informed Mr Howes that Fermat maintained its own internal records of asset positions; D. Mr Howes requested a copy of the document, and Ms Farmer provided the 4 April Market Bids Report to him in response to that request; (ii) at no time during the Microsoft Teams call did: A. Ms Farmer inform Mr Howes that the 4 April Market Bids Report was a valuation of the Portfolio or instruct TGM to rely upon it; B. Ms Farmer inform Mr Howes that the 4 April Market Bids Report was a report as to the foreign currency exposure of or inherent in the Portfolio; C. Ms Farmer inform Mr Howes that the 4 April Market Bids Report recorded the liabilities of the Funds; D. Mr Howes inform Ms Farmer that TGM intended to rely upon or use the 4 April Market Bids Report as a substitute for the valuation data provided by State Street; E. Mr Howes inform Ms Farmer that TGM intended to rely upon or use the 4 April Market Bids Report in order to determine the foreign currency exposure of or inherent in the Portfolio without regard to any liabilities of the Funds including borrowings under repurchase agreements; (c) denies that the 4 April Market Bids Report was a valuation of the Portfolio as at 31 March 2022; (d) says that the 4 April Market Bids Report: (i) recorded the market bids for bonds from which Fermat prepared an internal assessment of the market value of the bonds in the Portfolio; (ii) was not a complete balance sheet for the Funds; (iii) did not record all assets of the Funds, including accrued interest or cash; (iv) did not record the liabilities of the Funds, including unsettled trades and borrowings under repurchase agreements; (e) says that a competent currency manager exercising reasonable care and skill would or should have been aware of the matters in subparagraph (d) above; and (f) otherwise denies the paragraph. 21 Fermat pleads to paragraph [43] in its defence as follows: 43. In answer to paragraph 43, it: (a) denies paragraph 43; (b) repeats paragraphs 17 to 21 and 38 above; and (c) says further that if (which is denied) the conduct referred to in paragraph 43 of the Cross-Claim constituted the making of a representation as alleged by TGM, then such representation was one of opinion or belief, and Fermat held the opinion or belief and had reasonable grounds for making the representation.

Applicable rules for non-standard and extensive discovery 22 Rule 20.14 of the Federal Court Rules 2011 (Cth) is headed "Standard discovery" and relevantly provides: (1) If the Court orders a party to give standard discovery, the party must give discovery of documents: (a) that are directly relevant to the issues raised by the pleadings or in the affidavits; and (b) of which, after a reasonable search, the party is aware; and (c) that are, or have been, in the party's control. (2) For paragraph (1)(a), the documents must meet at least one of the following criteria: (a) the documents are those on which the party intends to rely; (b) the documents adversely affect the party's own case; (c) the documents support another party's case; (d) the documents adversely affect another party's case. … 23 This application was brought pursuant to r 20.15. It is headed "Non‑standard and more extensive discovery" and provides: (1) A party seeking an order for discovery (other than standard discovery) must identify the following: (a) any criteria mentioned in rules 20.14(1) and (2) that should not apply; (b) any other criteria that should apply; (c) whether the party seeks the use of categories of documents in the list of documents; (d) whether discovery should be given in an electronic format; (e) whether discovery should be given in accordance with a discovery plan. (2) An application by a party under subrule (1) must be accompanied by the following: (a) if categories of documents are sought - a list of the proposed categories; and (b) if discovery is sought by an electronic format - the proposed format; and (c) if a discovery plan is sought to be used - a draft of the discovery plan. (3) An application by a party seeking more extensive discovery than is required under rule 20.14 must be accompanied by an affidavit stating why the order should be made. (4) For this Division: category of documents includes documents, or a bundle of documents, of the same or a similar type of character. … 24 Ordinarily, a party is required to discover documents that are directly relevant to the issues raised in the proceeding, even in the case of non-standard discovery. 25 As Besanko, Markovic and Banks-Smith JJ explained in Clifton (Liquidator) v Kerry J Investment Pty Ltd [2020] FCAFC 5; 379 ALR 593 at 640-41 [172]-[173]: In making an application for non-standard discovery pursuant to r 20.15 of the Rules there is a positive obligation imposed on the applicant for discovery to identify a number of things including any criteria in rr 20.14(1) and (2) that should not apply. It follows that, on a proper construction of r 20.15, where an order for non-standard discovery is made the requirements of r 20.14 will continue to apply unless an application is made to have them excluded. The requirements of r 20.14 include that the documents are "directly relevant" to the issues raised in the proceeding. That this is the effect of the combined operation of the Rules is not surprising. Rule 20.14 gives guidance to parties as to how to proceed with discovery. There is a logic to the parameters it sets continuing to apply to non-standard discovery. That is particularly so in relation to an order for non-standard discovery by way of discovery in categories. It could not be the intent of such an order that the discovery to be provided would have a wider ambit than standard discovery in the same proceeding. The intent of discovery by categories is, in the usual case, to refine and narrow the range of discovery. To remove the requirement of direct relevance to the issues as a matter of course would be contrary to that intention. There is no doubt for that reason that r 20.15 is framed as it is, putting the onus on the applicant for non-standard discovery to make a case as to why aspects of r 20.14(1) and (2) should not apply.

Affidavit evidence produced under r 20.15 26 In this application, TGM relied on two affidavits of Ms Catherine Mills, a partner at Gadens, TGM's solicitors. 27 In the first of those affidavits, affirmed on 18 August 2023, Ms Mills deposed as follows: 20 In my opinion, formed based on my consideration of the issues raised by the pleadings and my experience in proceedings such as this, the categories of documents sought by TGM as set out in the Categories Document are directly relevant to the issues raised by the pleadings, specifically the documents that would likely fall within Categories: (a) 1-5 and 10 go directly towards the question of whether Fermat was authorised to act on behalf of EQT, including by issuing the Adopted Means of Fermat Instructions (as defined in TGM's Defence and Cross Claim), and the circumstances under TGM's pleaded case in which they were required to provide TGM with valuation data and instructions because State Street was unable to provide TGM with valuation data (see paragraphs 5A-F of TGM's Defence and paragraphs 6, 9, 10, 11, 14, 16, 17-32 of TGM's Cross-Claim); (b) 7 and 8 would be directly relevant to the question of whether Fermat provided TGM with erroneous data on April 5 which led to TGM making the Over-Hedging Trades (see paragraphs 5A, 5D and 6-16 of TGM's Defence and paragraphs 17-32 Cross-Claim); (c) 13-15 would be directly relevant towards establishing the extent of loss EQT alleges it has suffered as a result of the Over-Hedging Trades (see paragraph 30 of the Statement of Claim). 21 I am also of the opinion that all of the documents forming the subject of TGM's discovery categories are within the control of EQT and/or Fermat, and would be retrievable after those parties conduct reasonable searches … [A]t no time in response to TGM's requests for documents … has Fermat or EQT: (a) stated that they do not possess the documents requested, including the EQT/Fermat Agreement (noting my comments at paragraph 21 of the First Mills Affidavit); or (b) raised any practical issues associated with locating and producing the documents. 28 In the second of those affidavits, affirmed on 27 October 2023, Ms Mills set out the relevant procedural history of the present application. Although it was made "in support of TGM's interlocutory application for review … of the orders made by Senior National Judicial Registrar Legge", the affidavit did not attempt to state why the discovery orders should be made. See r 20.15(3) of the Rules.

Consideration 29 In my view, TGM did not discharge its onus by bringing an application under r 20.15 to make a case as to why aspects of rr 20.14(1) and (2) should not apply (see Clifton (Liquidator) v Kerry J Investment Pty Ltd [2020] FCAFC 5; 379 ALR 593 at 641 [173]). 30 I say so in substance for the reasons set out in the written submissions filed on behalf of Fermat (which were adopted by EQT). 31 Fermat submitted that TGM has not established that additional discovery is necessary for the determination of the issues in the proceedings when regard is had to both the pleadings and to the discovery which Fermat and EQT are already required to give. 32 It submitted that the categories sought by TGM "go well beyond seeking documents 'that are directly relevant to the issues raised by the pleadings' in accordance with r 20.14(1)(a) of the [Rules], and there is no good reason why discovery should be ordered pursuant to r 20.15". 33 I agree. 34 By category 1, TGM sought discovery of "[a]ny Document evidencing, recording or referring to Fermat's authority to act on behalf of [EQT] in relation to the Funds". 35 That is too broad because TGM's pleaded case is that the source of Fermat's authority to act on behalf of EQT was the IMA. And as to the question of authority, it seems to me that discovery should be limited, as it was limited by the learned Registrar, to the particular people through whom it is alleged that authority was implemented for the purposes of the particular trades - that is, Ms Sue Farmer and Mr Jeff Bates. Mr Hewitt SC, counsel for Fermat, submitted that a literal interpretation of category 1 "would require discovery of every document referring to the [IMA]". It is self-evident that this would be burdensome, unnecessary and not directly relevant to the issues raised by TGM's cross-claim. 36 By category 2, TGM sought discovery of "[a]ny Document … referring to a communication between Fermat and [EQT] in relation to an Instruction" during certain periods. But as Fermat submitted, such documents are not directly relevant to any pleaded issue - TGM's cross-claim "is a case pleaded by reference to representations made … by Fermat to TGM". Fermat correctly submitted that there is no impediment to TGM proffering evidence to support its case based on communications it received. Absent some explanation on oath as to why such discovery should be ordered, I decline to make such an order. 37 The same is true of category 3 ("[a]ny Document evidencing, recording or referring to [EQT's] or Fermat's awareness, understanding or knowledge of TGM acting or not acting on an Instruction"). No explanation on oath was given as to why such discovery should be ordered, so I again decline to make such an order. 38 By category 4, TGM sought discovery of "[a]ny Document evidencing, recording or referring to the provision of valuations by State Street in relation to the Funds in the period 6 June 2019 to December 2022 between: State Street and [EQT]; State Street and Fermat; and [EQT]and Fermat; and internally within [EQT]; or Fermat". But as Fermat submitted: Pursuant to clause 6 of the Investment Instructions, State Street was to provide TGM with the current market value of the Portfolio in the manner agreed from time to time by State Street and TGM on a regular basis. However, this category seeks discovery of "[a]ny Document evidencing, recording or referring to the provision of valuations by State Street in relation to the Funds in the period 6 June 2019 to December 2022". As so framed, the category is unnecessarily broad and will catch documents that are irrelevant to the issues in the proceedings. Discovery by Fermat of the documents identified in category 2 of Annexure C of the 6 October Orders are the documents that are "directly relevant to the issues raised by the pleadings". That category is framed by specific reference to the valuation data which is the subject of TGM's pleaded case. The additional documents sought in category 4 of the Annexure to the Application are not necessary.

Disposition 39 Discovery of documents in each proposed category would impermissibly capture documents that are irrelevant to the issues in the proceedings. 40 The application will thus be dismissed, with costs. I certify that the preceding forty (40) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice O'Callaghan.