Fiduciary Ltd v Morningstar Research Pty Ltd

Supreme Court of NSW|2007-05-04|Before: Barrett J, Mr J, Mr P, Austin J

CITATION : Fiduciary Ltd v Morningstar Research Pty Ltd [2007] NSWSC 432

JURISDICTION : Equity Division Corporations List

DECISION : Interlocutory process of plaintiffs dismissed with costs.

LEGISLATION CITED : Uniform Civil Procedure Rules 2005, Rules 22.1, 22.2

American Flange & Manufacturing Co Inc v Rheem (Australia) Pty Ltd (No 2)[1965] NSWR 193 Boyle v Downs [1979] 1 NSWLR 192 British Association of Glass Bottle Manufacturers Ltd v Nettlefold [1912] AC 709 Chong v Nguyen [2005] NSWSC 588 Conor Medsystems Inc v The University of British Columbia (No 3) [2006] FCA 121 CASES CITED : Director-General, Department of Community Services v D [2006] NSWSC 827 Douglas v Tasmania [2004] TASSC 131 Fiduciary Ltd v Morningstar Research Pty Ltd [2004] NSWSC 664 Hall v Truman Handbury & Co (1885) 29 ChD 307 Schutt v Queenan [2000] NSWCA 341 Tony Azzi (Automobiles) Pty Ltd v Volvo Car (Australia) Pty Ltd [2006] NSWSC 283

Fiduciary Limited - First Plaintiff/First Cross-Defendant Graham John Rich - Second Plaintiff/Second Cross-Defendant Fiduciary Consultants Limited - Third Plaintiff/Third Cross-Defendant Brillient Pty Limited - Fourth Cross-Defendant Morningstar Research Pty Ltd - First Defendant/First Cross-Claimant PARTIES : Morningstar Inc - Second Defendant/Second Cross-Claimant Joe Mansueto - Third Defendant Tao Huang - Fourth Defendant Donald James Phillips II - Fifth Defendant Bevin Desmond - Sixth Defendant Nicholas John Reynolds - Seventh Defendant

COUNSEL : Mr D.J. Russell SC/Mr J.V. Gooley - Plaintiffs Mr P.R. Whitford SC/Mr S.A. Goodman - Defendants

SOLICITORS : Nash O'Neill Tomko - Plaintiffs Clayton Utz - Defendants

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST

5308/01 FIDUCIARY LIMITED & 3 ORS v MORNINGSTAR RESEARCH PTY LTD & 6 ORS JUDGMENT 1 These proceedings were commenced in 2001. The plaintiffs (Mr Rich and interests associated with him) sue the defendants (Morningstar Inc and its associated interests) upon a number of causes of action in relation to the parties association as shareholders in the first defendant, an Australian company often referred to as "MDU". The causes of action were summarised in a judgment of Austin J delivered on 27 July 2004: Fiduciary Ltd v Morningstar Research Pty Ltd [2004] NSWSC 664. For ease of reference, I include paragraphs [30] and [31] of that judgment as an appendix to these reasons. I do so because those paragraphs contain a useful summary of the issues (or, at least, the allegations) in the proceedings. 2 This present judgment relates to an application made by the plaintiffs by interlocutory process filed on 23 November 2006. By that interlocutory process, the plaintiffs seek leave to administer specified interrogatories to the first, second, third, fourth, sixth and seventh defendants. When the matter came before me on 24 April 2004, however, the application was pressed only as to certain of those interrogatories, being interrogatories involving the second, third, fourth, sixth and seventh defendants. These are, in terms of the application, interrogatories 11, 12, 13, 14 and 15. 3 The parties have, for some time, been engaged in efforts to create a system of pre-trial discovery of documents, including electronic documents (being the form of documents relevant for present purposes). With the assistance and encouragement of the court, they reached a position based on consent orders. By mid-September 2006, however, the plaintiffs had developed concerns based on replies received to requests for certain electronic documents. The concerns were to the general effect that certain electronic records (in the form of back-up tapes and email files) may have been deleted from computers so as to be no longer available. 4 At a directions hearing before Austin J on 15 September 2006, the plaintiffs' solicitor referred to questions raised in then recent correspondence about those matters and said: "My request of your Honour will be to make some directions to the effect that affidavits be put on answering the very questions that are raised in that letter." 5 Counsel for the defendants referred to the seriousness of the matters raised and said: "They are matters which should be dealt with on a formal application supported by evidence to which we will respond. We will also respond in detail to the letters." 6 The plaintiffs' solicitor returned to the question of filing of affidavits by the defendants, whereupon his Honour said: "I just wonder whether that is the right application or whether it is really all about interrogatories. I just raise that." 7 When the matter was before Austin J again on 21 September 2006, there was further foreshadowing of some application by the plaintiffs. On 26 September 2006, the following order was made: "The plaintiffs to serve an interlocutory application related to the discovery process, if any, by 6 October 2006." 8 No such application had been filed when the matter came back before Austin J on 30 October 2006. The plaintiffs' solicitor outlined at length perceived inadequacies in discovery of electronic documents. It was ordered that the defendants perform certain key word searches as requested in a letter of 24 October 2006 from the plaintiffs' solicitors for the purpose of gauging quantities of documents of various kinds. 9 By 9 November 2006, when the matter again came before the court, the plaintiffs were still not satisfied with discovery of electronic documents and answers to related questions about such documents. The court ordered that the plaintiffs serve by 20 November 2006 "any application for the defendants to answer specified interrogatories pursuant to Part 22 of the Uniform Civil Procedure Rules". 10 The application that came before me on 24 April 2007 was then filed and served. 11 The proposed interrogatories now pressed relate to three matters. The first is dealt with in proposed interrogatory 11. It has its genesis in an affidavit filed by the defendants in connection with an earlier and unrelated interlocutory application. That affidavit contained evidence of the review of a quantity of electronic documents within the defendants and the creation of approximately 45 folders within which those documents had been separated into categories. In subsequent discovery, there was no specific reference to these 45 folders. The defendants' solicitors later stated that the 45 folders "no longer exist in that form". Proposed interrogatory 11 poses a number of questions about the creation of the 45 folders, their content, what happened to them, the form in which their content is now held and the comprehensiveness of that content. 12 The plaintiffs say that proposed interrogatory 11 is put forward as a means of seeking material information or admissions about the current existence of the 45 folders, the content of the folders, the sources from which the content was obtained, the form in which the folders were held, the location of the folders, the question whether any part had been deleted and the question of the extent (if any) to which the content has been discovered. The plaintiffs say that answers are essential to the plaintiffs obtaining a fair trial in a context where they have been given access to all relevant information. 13 The plaintiffs also say that the answers to proposed interrogatory 11 are necessary or ancillary to the obtaining of the remedies sought in the statement of claim and to a pending further application by the defendants for security for costs. Further, according to the plaintiffs' contentions, the answers to interrogatory 11 "may mean" that (a) there has been destruction of relevant documents, including destruction of electronic material sourced from the third and further defendants, resulting in the possible inability of the plaintiffs to obtain a fair trial;

(b) explanations are given concerning the contents of documents comprising the 45 folders;

(d) amendments to the discovery regime may take place;

(e) the plaintiffs will have to further amend the statement of claim;

(f) no further security for costs ought to be ordered to be given by the plaintiffs for the costs of the second to seventh defendants giving electronic discovery;

(g) the security for costs application brought by the defendants and which is listed to be heard on 9 May 2007 be stayed;

(h) the costs of the second to seventh defendants giving discovery in these proceedings would be significantly decreased;

(i) adverse credit inferences should be drawn against the defendants. 14 Proposed interrogatories 12 and 13 relate to a different matter, being the existence of back-up tapes of MDU's database, network or publishing database. The plaintiffs point to statements in a letter from the defendants' solicitors of 29 September 2006 as to the existence of a network back-up as at 12 September 2001, a network back-up as at 20 December 2001 and email archive files as at 28 January 2003. They also point to a letter of 27 October 2006 saying that the defendants possessed no back-up for MDU for the period 12 September 2001 to 20 December 2002 except that contained on a network back-up tapes taken on 20 December 2002. 15 These interrogatories are said to be aimed at eliciting answers and admissions about the adequacy of MDU's retention of electronic material relevant to the proceedings, the question whether instructions were given to any employee or contractor of MDU in relation to obtaining a complete back-up of electronic documents for the purposes of the litigation and the question why no such instructions were given (if that be the case). The plaintiffs make in relation to proposed interrogatories 12 and 13 submissions corresponding, in essence, with those referred to at paragraph [12] above. They also say that the answers may mean that: (a) the plaintiffs may have to further amend the statement of claim;

(b) no additional security for costs ought to be ordered against the plaintiffs for the costs incurred by the defendants in attending to discovery (or other review by the defendants' solicitors) of the first defendant's electronic documentation;

(c) the security for costs application brought by the defendants and which is listed to be heard on 9 May 2007 be stayed;

(d) adverse credit inferences should be drawn against the sixth and seventh defendants. 16 Proposed interrogatories 14 and 15 concern matters relevant to the third defendant (Mr Mansueto) and the fourth defendant (Mr Huang) who were, at material times, officers of MDU and the second defendant. They, it is said, were integral to most if not all of the circumstances pleaded in the plaintiff's statement of claim. In response to a question, the defendants' solicitors said in a letter of 22 August 2006 that neither the third defendant nor the fourth defendant had any documents "stored in their PCs and/or laptops which relate to MDU". The defendants' solicitors had earlier said (in an email of 16 August 2006) that a back-up tape of the second defendant's enterprise server dated December 2001 held past files of, among other people, the third and fourth defendants. The plaintiffs also refer to earlier statements that the second defendant's policy for backing up the electronic files of personnel was "rare" and "by chance", which causes the plaintiffs to doubt that documents sent or received by the third and fourth defendants would be contained on the December 2001 tape. This doubt is said to be confirmed by other statements in correspondence. 17 The plaintiffs contend that answers to the proposed interrogatories 14 and 15 are necessary because they seek answers or admissions concerning the adequacy of electronic document retention and the material shared on PCs in laptops of the two persons relevant to the proceedings. Submissions generally in line with those at paragraph [12] above are again made. The plaintiffs say that the answers given may mean that: (a) there has been destruction of relevant documents, including destruction of electronic material sourced from the third and fourth defendants, resulting in the possible inability of the plaintiffs to obtain a fair trial;

(b) the plaintiffs may have to further amend the statement of claim;

(c) no additional security for costs ought to be ordered against the plaintiffs for the costs incurred by the defendants in attending to discovery (or other review by the defendants' solicitors) of the second, third and fourth defendants' electronic documentation;

(d) the security for costs application brought by the defendants and which is listed to be heard on 9 May 2007 be stayed;

(e) adverse credit inferences should be drawn against the third and fourth defendants. 18 The defendants oppose the making of the orders sought by the plaintiffs. They point to the fact that the plaintiffs were, on 21 September 2006, ordered to serve any application relating to the discovery process by 6 October 2006 and elected not to do so. Thereafter, further orders with respect to discovery were made by consent. The defendants regard as impermissible the plaintiffs' subsequent attempt, by means of the present motion, to find out what documents the defendants have available for discovery. This, according to the defendants, is a departure from the usual approach whereby the affidavit of documents is the means by which a defendant is compelled to disclose the availability of documents for discovery and any alleged inadequacy is then met by an appropriately framed discovery application. 19 The defendants argue that the proposed interrogatories are relevant only to the ascertainment of what documents the defendants have available for discovery, with the result that they suffer from two important shortcomings: first, they seek to interrogate as to the adequacy of discovery; and, second, they do not relate to a matter in issue between the plaintiffs and the defendants. As a result, it is submitted, grant of the leave sought is precluded by the rules. 20 It is to the rules that I must now turn. Rules 22.1 and 22.2 of the Uniform Civil Procedure Rules 2005 are as follows: " 22.1 Interrogatories (cf SCR Part 24, rules 1-6; DCR Part 22A, rules 1-6) (1) At any stage of the proceedings, the court may order any party to answer specified interrogatories. (2) An application for such an order must be accompanied by a copy of the proposed interrogatories. (3) In the case of proceedings on: (a) a claim for damages arising out of the death of, or bodily injury to, any person, or (b) a claim for contribution in relation to damages so arising, such an order is not to be made unless the court is satisfied that special reasons exist that justify the making of the order. (4) In any case, such an order is not to be made unless the court is satisfied that the order is necessary at the time it is made. (5) An order to answer interrogatories: (a) may require the answers to be given within a specified time, and (b) may require the answers, or any of them, to be verified by affidavit, and (c) in circumstances in which rule 35.3 authorises someone other than the party to whom the order is addressed to make the relevant affidavit, may specify the person to make the affidavit, or the persons from whom the person to make the affidavit may be chosen, in relation to the interrogatories or any of them.

22.2 Objections to specific interrogatories (cf SCR Part 24, rule 6 (3)) A party may not object to being ordered to answer an interrogatory except on the following grounds: (a) the interrogatory does not relate to any matter in issue between that party and the party seeking the order, (b) the interrogatory is vexatious or oppressive, (c) the answer to the interrogatory could disclose privileged information." 21 The plaintiffs emphasise that the requirement of necessity imposed by rule 22.1(4) is met whenever a case of necessity in the interests of a fair trial is made out. This is a formulation that was used in Boyle v Downs [1979] 1 NSWLR 192 at pp.204-5 and has been repeated in other cases, including by the Court of Appeal in Schutt v Queenan [2000] NSWCA 341 at [11] - [15]; and see the discussion by Rothman J in Chong v Nguyen [2005] NSWSC 588 at [11] - [17]. 22 But, as the defendants emphasise, the concept of necessity for the purposes of achieving a fair trial is closely related to the recognition in rule 22.2(a) that an interrogatory is objectionable if it "does not relate to any matter in issue between" the party to be interrogated and the party wishing to interrogate. It is pertinent to quote from the judgment of Brereton J in Director-General, Department of Community Services v D [2006] NSWSC 827 at [49]: "Interrogatories must generally be relevant to matters in issue between the parties and to the proof of each party's case, so that interrogatories of a 'fishing' nature - when a party seeks to investigate matters beyond those matters raised by the pleadings or by their respective cases, merely in the hope of finding something to assist the party interrogating to make out some case, not limited to achieving a clear and defined end - are not permitted [ Associated Dominions Assurance Society Pty Ltd v John Fairfax & Sons Pty Ltd (1952) 72 WN (NSW) 250, 254 (Owen J); see also WA Pines Pty Ltd v Bannerman (1980) 41 FLR 169; Mulley & Marney v Manifold (1959) 103 CLR 341, 345; Blair v Queanbeyan City Council (1995) 88 LGERA 247]. As Owen J said [ Associated Dominions Assurance Society Pty Ltd v John Fairfax & Sons Pty Ltd (1952) 72 WN (NSW) 250, 254]: 'A "fishing expedition" in the sense in which the phrase has been used in the law means, as I understand it, that a person who has no evidence that there are a particular kind of fish in a pool desires to be at liberty to drag it for the purpose of finding out whether there are any there or not.'" 23 The matters that are likely to be in issue are those outlined by Austin J in the extract from his 2004 judgment which I have included as an appendix to these reasons. The defendants' objection based on rule 22.2(a) accordingly has merit. The questions the plaintiffs wish to have answered bear no relationship to those issues. 24 I also accept the defendants' submission that interrogatories are not permissible if directed at ascertaining what documents are available to be discovered. That was made clear by Myers J in American Flange & Manufacturing Co Inc v Rheem (Australia) Pty Ltd (No 2)[1965] NSWR 193 at p.196: "Next I must say something with relation to interrogatories as to documents. It is well established that the proper method of ascertaining what documents a party has or has had in possession or power is by an order for discovery of documents and that interrogatories for that purpose will not be allowed except in special circumstances. In my experience, the special circumstances have always been treated as circumstances existing after an affidavit of discovery has been filed and I do not know any case in which it has been decided otherwise. See, for example, Hall v Truman, Hanbury & Co (1885), 29 Ch D 307 ." 25 In the ordinary course, if one party can point to good reason to think that discovery is incomplete after the other party purports to have completed it, the appropriate course is to ask the court to order further discovery: British Association of Glass Bottle Manufacturers Ltd v Nettlefold [1912] AC 709. Where the suspicion as to insufficiency relates to a particular document or class or description of documents, the order sought may appropriately be an order for particular discovery: see, for example, Conor Medsystems Inc v The University of British Columbia (No 3) [2006] FCA 121. 26 Generally speaking, it will be an abuse of process to seek to employ alternative means of attempting to elicit documents to complete discovery suspected to be incomplete. I refer, in that connection, to the decision of Brereton J in Tony Azzi (Automobiles) Pty Ltd v Volvo Car (Australia) Pty Ltd [2006] NSWSC 283. His Honour there set aside a notice to produce calculated to elicit from the defendant documents which, the plaintiff said, should have been the subject of discovery. In the course of his judgment, Brereton J referred to the position with respect to discovery applying under the Uniform Procedure Rules and continued: "However, in my opinion, this does not affect the previous rule that a subpoena which seeks documents which could have been the subject of discovery is an abuse of process. The fundamental purpose of the amendments to the rules which limit discovery to classes was to avoid parties having excessively burdensome discovery obligations imposed on them, by excluding from discovery those documents which were outside the classes which were agreed or determined to be appropriate for discovery. If it remained open to a party to subpoena classes of documents which had been excluded from discovery, that would completely defeat the purpose of the rules in limiting discovery to specified classes. It would amount to using a subpoena to obtain discovery.

In this case, orders were made for discovery on several occasions, and classes for discovery were identified. So far as I can tell at this stage, the plaintiff specified classes of documents of which it sought discovery. Either the documents now sought fall within those classes and, if they exist, ought to have been discovered, or they fall outside the specified classes. If the plaintiff contends that documents falling within one of the classes which it specified and in respect of which an order for discovery was made have not in fact been discovered, the only proper remedy is for it to seek further and better discovery, upon proof that there has been a failure to give proper discovery in that class. The defendant, of course, should be alert that if it transpires that it has not given proper discovery of documents in classes which were identified for discovery, then that will have been a serious default on its part. I do not suggest for a moment that that is in fact the case, but in view of the debate which has taken place and in view of the arguments which have been advanced about the subpoena, it should not be assumed that a conclusion that it was not permissible to subpoena these documents involves any conclusion as to whether or not there has been sufficient compliance with the order for discovery in the first place.

If, on the other hand, the plaintiff contends that it now seeks documents which were not covered by the order for discovery, then the proper approach would have been to make an application for further discovery by adding a further class to the documents for discovery. …" 27 The position is the same in relation to the use of interrogatories to obtain intelligence about the sufficiency of discovery. This is made clear by the above extract from the judgment of Myers J in American Flange. I would quote also paragraphs [12] and [13] of the judgment of Master Holt of the Supreme Court of Tasmania in Douglas v Tasmania [2004] TASSC 131 which contain a relevant passage in the judgment of Cotton LJ in Hall v Truman Handbury & Co (1885) 29 ChD 307: "It is common ground that the defendant has caused to be filed and served an affidavit verifying its list of documents. The forms of the list and affidavit required by the rules compel the party making discovery to list all relevant documents including those in respect of which a claim of privilege is made and those which the party once had but no longer has. In other words, I have no reason to think that the plaintiff does not already have an affidavit filed on behalf of the defendant stating whether relevant visitor records exist or once existed. A further statement is not required and an interrogatory ought not to be administered for the purpose of testing the sufficiency of an affidavit verifying a list of documents. I was told of no suggestion by the plaintiff that visitor records are privileged or have been lost or destroyed and so the appropriate way for the plaintiff to ascertain the contents of those records is to inspect them and the appropriate way to prove the contents of those records is to tender them rather than attempt to elicit a description of them from a party or other person. An interrogatory effectively asking whether a party has or did have certain documents is objectionable and such an objection was upheld in Hall v Truman Handbury & Co (1885) 29 ChD 307 where Cotton LJ said at 320 - 321: 'It is not an interrogatory the answer to which will assist him in making out his case at the trial of the action. The evidence which he hopes to get by means of it is that which he will obtain under an order for the production of documents in case the interrogatory should be answered in the sense that there are such documents in the Defendant's possession. In my opinion Mr Justice Kay was quite right in refusing to order the interrogatory to be answered, the Defendant declining to answer it on the ground that he was really called upon to make a further affidavit as to documents. Though the interrogatory refers to particular classes of documents it is expressed in perfectly general terms. It amounts to a cross-examination of the Defendant on his former affidavit as to documents, and that is a thing which cannot be allowed. Jones v Monte Video Gas Company 5 QBD 556 was relied upon for the Plaintiff. But there the question was not whether the administration of interrogatories should be permitted, and nothing which was then said by the Judges of this Court was intended to support, or, in my opinion, does support the contention of the Appellant that an interrogatory such as this can be allowed. It is difficult no doubt to say what circumstances would justify the putting of an interrogatory as to documents to a party who has already made a sufficient affidavit of documents. But, if the Court is satisfied that, notwithstanding the affidavit, there is or may be some specified relevant document or documents in the possession of the party whom it is desired to interrogate, it may possibly be right to allow an interrogatory to be put whether that particular document, or those particular documents, is or are in his possession. But a prima facie case must be shown before such an interrogatory can be permitted, and it should be made the subject of a special application.' Interrogatories which enquire after the contents of documents which are capable of being produced are also objectionable. Such an objection was upheld in Winterbottom v Vardon & Sons Ltd [1921] SASR 364 where Poole J said at 366 - 367: 'The fifth and sixth interrogatories are objected to on two grounds - (1) that they are interrogatories as to the contents of a written document: ... I think the first ground of objection to answer is in each case sound. ... The fifth interrogatory enquires whether it is not a fact that in the issue of `The Diggers' Gazette' of the 15th Nov 1919 there appeared the article allged to be defamatory. Now, a copy of the issue of a magazine or newspaper complained of (ie an original) is the best evidence of its contents, and unless the original is lost or destroyed, and that is not suggested, the interrogatory cannot be upheld. See Stein v Tabor (1874) 31 LT 444; Fitzgibbon v Greer (1875) 9 Ir CL 294. For the same reason the objection to answer the sixth interrogatory is sound also.'" 28 The clear message is that interrogatories should not become a form of inquiry into the adequacy and completeness of discovery, at least unless the processes of discovery have run their full course and grounds for some apprehension of completeness continue to exist. 29 In the present case, certain orders for discovery have been made on a consent basis. The parties are aware of the potentially vast quantity of documents that exists. There is a mutual desire that discovery be kept within manageable bounds and it is to be hoped that the parties will continue with their efforts to achieve that. 30 Interrogatories of the kind now proposed would, however, be irregular. The plaintiffs did not make any application in accordance with the direction of 26 September 2006. Discovery should proceed to its conclusion - if necessary, with a degree of formality beyond that so far prevailing. If, at that point, good grounds can be shown for a belief that one party has documents that should have been disclosed but were not - because, for example, of admissions or the content of other documents - the court could then properly be asked to address the perceived insufficiency. 31 The interlocutory process of the plaintiffs is dismissed with costs. APPENDIX "The eight causes of action are: (a) misleading and deceptive conduct frequently in the pleading, it is alleged that Morningstar Inc made representations amounting to misleading and deceptive conduct, partly or wholly in respect of future matters, for the purposes of ss 52 and 51A of the Trade Practices Act 1974 (Cth), and that all or some of the three plaintiffs, and sometimes the Company, acted in reliance on the representations and would not otherwise have acted as they did, and have suffered loss and damage; (b) breach of contract allegations are made of breaches of * the heads of agreement between Fiduciary and Morningstar Inc (especially the Best Interests Term), * the shareholders' agreement between Morningstar Inc, the Company, Fiduciary and Mr Rich, * the licensing agreement between Morningstar Inc and the Company (especially the Product Terms), and * the subscription agreement between Morningstar Inc, the Company, Fiduciary and Mr Rich, and it is pleaded that the innocent contractual parties suffered loss and damage by virtue of the breaches; it is also said that Fiduciary and Mr Rich have validly terminated the shareholders agreement under clause 5.5 and are therefore entitled to acquire the shares of Morningstar Inc in the Company at book value; (c) encouraged assumptions and estoppel it is contended that Morningstar Inc, by the agency of Mr Phillips and others, acted on various occasions in such a way as to encourage the Company and some or all of the plaintiffs to make specified assumptions about the attitude of Morningstar Inc and its future conduct, and the Company and Mr Rich acted in reliance on such assumptions, so that it was unconscionable for Morningstar Inc subsequently to act inconsistently with the assumptions and it was estopped from doing so; (d) unconscionable conduct it is said that in various specified ways, Morningstar Inc engaged in conduct that was unconscionable, both at general law and under s 51AA of the Trade Practices Act, and that the Company and some or all of the plaintiffs suffered loss and damage; (e) economic duress it is said that by its conduct, Morningstar Inc applied improper pressure to cause the Company, Mr Rich and Fiduciary to enter into four convertible loan agreements, and that the agreements should be set aside; (f) oppression it is said that in various specified ways, Morningstar Inc and some or all of the third to seventh defendants acted contrary to the interests of the members of the Company as a whole, and in a manner that was oppressive and unfairly prejudicial to, and unfairly discriminatory against, Fiduciary in its capacity as a shareholder in the Company, and that (by reason of the specific matters pleaded) the affairs of the Company are a being conducted in a manner that is oppressive or unfairly prejudicial to, or unfairly discriminatory against, Fiduciary in its capacity as a shareholder of the Company, and contrary to the interests of the members of the Company as a whole, for the purposes of Part 2F.1 of the Corporations Act, and that Fiduciary is entitled to relief, such as an order that Morningstar Inc buy its shares in the Company or an order that Fiduciary buy the shares of Morningstar Inc, at a price to be determined by the court; (g) breach of directors' duties it is said that in various specified ways Morningstar Inc (which, it is claimed (paragraph 35), was a director of the Company for the purposes of the statutory duties contained in the Corporations Act) and all or some of the third to seventh defendants failed to exercise reasonable care, or to act in good faith in the interests of the Company, or for proper corporate purposes, and that they improperly used their positions to cause detriment or gain advantage, contrary to s 180-182 of the Corporations Act and their general law duties (generally, see paragraphs 35-38); (h) breach of fiduciary duties as joint venture partner it is said that Morningstar Inc and its nominee directors on the board of the Company were each subject to fiduciary duties to act in the best interests of the Company and of the joint venture partners as a whole (apparently the joint venture partners were Morningstar Inc, Mr Rich, Fiduciary and Fiduciary Consultants) and not to improperly use their positions to gain advantage or cause detriment (generally, see paragraph 39).

The broad categories of facts alleged to give rise to these causes of action are: (1) pre-contractual representations by Morningstar Inc to the three plaintiffs (paragraphs 18-28, 43-45, 244) *misleading and deceptive conduct by Morningstar Inc, damage to the Company and the three plaintiffs; (2) failure by Morningstar Inc to comply with the Product Terms and other matters (paragraphs 29-34, 40-42, 244) *breach of contract (licensing agreement, subscription agreement, shareholders agreement) by Morningstar Inc, damage suffered by the Company and the three plaintiffs; (3) representations by Morningstar Inc with respect to business strategy and capital requirements from December 1999 to February 2000 ("Enhanced Plan Representations") (paragraphs 46-57, 244) *misleading and deceptive conduct by Morningstar Inc, damage to the Company and the three plaintiffs; *encouraged assumptions and estoppel, arising out of the conduct of Morningstar Inc, asserted by the Company and Mr Rich; (4) representations, agreement and conduct by Morningstar Inc in respect of the February 2000 funding and the April 2000 funding (paragraphs 58-72, 73-88, 244) *misleading and deceptive conduct by Morningstar Inc, damage to the Company and the three plaintiffs; *breach of contract by Morningstar Inc causing damage to the Company and the three plaintiffs; *encouraged assumptions and estoppel, arising out of the conduct of Morningstar Inc, asserted by the Company; (5) the negotiation and making of the first, second, third and fourth convertible loan agreements by Morningstar Inc and its nominee directors (paragraphs 89-102, 103-116, 143-157, 183-193, 244) *oppression by Morningstar Inc of Fiduciary as a shareholder of the Company; *unconscionable conduct by Morningstar Inc, damage to the Company and the three plaintiffs; *each of the loan agreements was secured by economic duress by Morningstar Inc, entitling the Company, Fiduciary and Mr Rich to set the agreements aside; *breach of directors' duties owing to the Company by Morningstar Inc and Mr Phillips (first and second convertible loan agreements) and by Morningstar Inc and the third to sixth defendants (third and fourth convertible loan agreements), causing damage to the Company; *breach of the duties of a joint venture partner, by Morningstar Inc and Mr Phillips (first and second convertible loan agreements) and by Morningstar Inc and the third to sixth defendants (third and fourth convertible loan agreements), causing damage to the Company and the three plaintiffs; *breach of contract by Morningstar Inc, namely the Best Interests Term in the heads of agreement and the terms of the second convertible loan agreement, causing loss to the Company and the three plaintiffs; (6) conduct on behalf of Morningstar Inc in respect of the 2001 Business Plan (paragraphs 117-129, 244) *misleading and deceptive conduct by Morningstar Inc, damage to the Company and the three plaintiffs; *encouraged assumptions and estoppel arising out of Morningstar Inc's conduct, asserted by the Company and Mr Rich; (7) conduct by Morningstar Inc and its nominee directors in connection with the 2001 capital raising, negotiations with Investorinfo and DST, the Combined Proposal, the DST Proposal and the Free Use Condition (paragraphs 130-142, 161-169, 170-182, 244) *misleading and deceptive conduct by Morningstar Inc, damage to the Company and the three plaintiffs; *breaches of directors' duties by Morningstar Inc and the third to sixth defendants, damage to the Company; *breaches of fiduciary duties of joint venture partner, by Morningstar Inc and the third to sixth defendants, damage to the Company and the three plaintiffs; *breaches of contract, namely the Best Interests Term in the heads of agreement, by Morningstar Inc, damage to the Company, Fiduciary and Mr Rich; (8) conduct of Morningstar Inc and its nominee directors in connection with the removal of Mr Rich as chief executive officer and managing director of the Company (paragraphs 195-217, 244) *oppression by Morningstar Inc of Fiduciary in its capacity as a shareholder of the Company; *breach of directors' duties owed to the Company by Morningstar Inc and the third to seventh defendants, damage to the Company; *breach of fiduciary duties to joint venture partners by Morningstar Inc and the third to seventh defendants, damage to the Company and the three plaintiffs; *breaches of contract by Morningstar Inc, namely clause 3.2 of the shareholders' agreement and the Best Interests Term in the heads of agreement, damage to the Company and the three plaintiffs; (9) failure by Morningstar Inc and its nominee directors to provide Fiduciary and Mr Rich with information since 24 November 2001 (paragraphs 218-223, 244) *breach of contract by Morningstar Inc, namely clauses 5.3 and 5.5(ii) of the shareholders agreement and the Best Interests Term in the heads of agreement, damage to the Company and the three plaintiffs; *oppression by Morningstar Inc of Fiduciary in its capacity as a shareholder of the Company; *breach of directors' duties owed to the Company by Morningstar Inc and the third to seventh defendants, damage to the Company; *breach of fiduciary duties owed to the joint venture partners, by Morningstar Inc and the third to seventh defendants, damage to the Company and the three plaintiffs; (10) failure by Morningstar Inc and its nominee directors to prevent conflict of interest arising out of Clayton Utz acting for the Company and also for the Morningstar interests (paragraphs 224-233, 244) *oppression by Morningstar Inc of Fiduciary in its capacity as a shareholder of the Company; *breach of directors' duties owed to the Company by Morningstar Inc and the third to seventh defendants, damage to the Company; *breach of fiduciary duties owed to joint venture partners, by Morningstar Inc and the third to seventh defendants, damage to the Company and the three plaintiffs; *breach of contract by Morningstar Inc, namely the Best Interests Term in the heads of agreement, damage to the three plaintiffs; (11) conduct of the third to sixth defendants in making and acting upon irrevocable agreements as to how to vote at board meetings of the Company (paragraphs 234-238, 244) *oppression by the third to sixth defendants of Fiduciary in its capacity as a shareholder of the Company; *breach of directors' duties owed to the Company by Morningstar Inc and the third to sixth defendants, damage to the Company; *breach of fiduciary duties owed to joint venture partners, by Morningstar Inc and the third to sixth defendants, damage to the Company and the three plaintiffs; *breach of contract (apparently by Morningstar Inc through the agency of the third to sixth defendants), namely the Best Interests Term in the heads of agreement, damage to the three plaintiffs." **********

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Trade Practices Act 1974(Cth)

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Judgment (31 paragraphs)

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Legislation Cited (1)

Cases Cited (10)

Cited By (3)