Fitz Jersey P/L v Atlas Construction Group P/L

Decision

1. I decline to set aside the notices to produce.

Background

1. Fitz Jersey and the first defendant, Atlas Construction Group Pty Ltd (now in liquidation) were involved in a construction project in which Atlas was the builder and Fitz Jersey was the developer.
2. On 15 November 2016, after the development was complete, Atlas served on Fitz Jersey a payment claim under the Building and Construction Industry (Security of Payment) Act 1999 (NSW) ("the Act") for some $10.8 million.
3. In January 2017 Atlas obtained a judgment for that sum following an adjudication under the Act. On 3 February 2018 Atlas recovered the sum, plus interest, from Fitz Jersey by way of a garnishee order.
4. On 8 February 2017 Mr Yazbek as director of Atlas resolved to pay a dividend to its principal shareholder, the third defendant Kebzay Pty Ltd, of some $6.1 million ("the Dividend").
5. Fitz Jersey commenced these proceedings against Atlas on 13 January 2017.
6. Atlas was subsequently placed into administration and then liquidation.
7. The liquidator of Atlas admitted Fitz Jersey's claim against Atlas as a creditor for some $10.8 million.
8. In December 2019 Atlas, by its liquidator, assigned to Fitz Jersey the causes of action that Fitz Jersey now pursues in these proceedings.
9. The allegations made by Fitz Jersey against Mr and Ms Yazbek, Kebzay Custodians, 620 Botany Road and six other defendants are complex. Fitz Jersey's Second Further Amended Technology and Construction List Statement is over 100 pages long and identifies numerous payments said to have been made between the various defendants.
10. The claims against Mr Yazbek include a claim for breach of his fiduciary duty as director of Atlas in causing or permitting the payment of the Dividend to be paid to Kebzay at a time when he knew that Fitz Jersey disputed Atlas' right to retain the funds it had obtained from Fitz Jersey under the Act.
11. The claims against Ms Yazbek include claims for receipt as a volunteer of funds into which part of the Dividend can be traced and relief under s 588FF(c) or (d) of the Corporations Act 2001 (Cth).
12. Issues relative to Fitz Jersey's pending application for a freezing order against Mr and Ms Yazbek include: 1. the extent to which the Dividend can be traced into Ms Yazbek's hands and into the Avalon property; 2. the extent to which Mr Yazbek funded the purchase of the Avalon property; and 3. the risk of any judgment obtained by Fitz Jersey against Mr or Ms Yazbek not being satisfied.

Principles

1. The relevant principles were recently summarised by Ward CJ in Eq in Xinfeng Australia International Investment Pty Ltd v GR Capital Group Pty Ltd [1] : "As I explained in Broadway Plaza Investments Pty Ltd v Broadway Plaza Pty Ltd [2] , there must be a legitimate forensic purpose for a subpoena or notice to produce in that the documents sought must be relevant and must have a sufficient apparent connection to the issues in the case to justify their production (or, put differently, it must be able to be concluded that they could possibly throw light on the issues in the case) (see Lindsay-Owen v HWL Ebsworth Lawyers [3] ). It is not, however, sufficient merely to show that the documents sought are, or may be, relevant to an issue for decision; rather, it must be shown 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 Cohen v Morgans [4] ). This must be determined by reference to the issues in the proceeding (see Broadway Plaza at [52]; see also Rinehart v Rinehart [5] )."
2. In a familiar passage, Brereton J said [6] : "…it is plainly not the question at this (first) stage whether the documents, production of which is sought, will definitely advance the case of the parties issuing the subpoena, nor whether they will be admissible in evidence at the trial. It is sufficient that they could "possibly throw light" on the issues in the substantive proceedings, or that it appears to be "on the cards" that they will do so. What are the issues in the proceedings will appear from the pleadings (where there are pleadings), the affidavits, and the legal principles which govern the claims for relief in the substantive proceedings."
3. The documents sought must be identified with reasonable particularity. [7] There is no suggestion of an absence of reasonable particularity in this case.
4. Before turning to the notices to produce themselves, I will deal with two preliminary matters.
5. First, it is not to the point to say that Fitz Jersey does not know whether the documents sought will shed light on the contested issues. The question is whether it is "on the cards", that is likely beyond mere speculation, that they will.
6. Second, it is not necessary that Fitz Jersey show "exceptional circumstances" within the meaning of Practice Note SC Eq 11.
7. Fitz Jersey is not seeking general disclosure of documents and is not seeking to use a notice to produce to subvert the intended operation of the Practice Note. [8]
8. In this case, the situation is as Black J described the circumstances before his Honour in Re Octaviar Ltd (Receivers and Managers appointed)(in liq), [9] namely that the notices to produce seek production of documents in a narrow category and raise no issue of the use of notices to produce in substitution for discovery.
9. In any event, as was pointed out on behalf of Fitz Jersey, assuming that Practice Note SC Eq 11 did apply in relation to Fitz Jersey's motion, evidence on the motion is now closed, so that no threshold requirement of exceptional circumstances could arise.

The notices to produce addressed to Mr and Ms Yazbek

1. These notices to produce require production of bank statements for a joint account of Mr and Ms Yazbek for the period March to October 2017.
2. Fitz Jersey submitted that the movement of funds in and out of this joint account may materially assist ascertaining the extent to which traceable proceeds of the Dividend can be identified in Ms Yazbek's hands, and can be followed into the Avalon property.
3. I accept that this notice to produce can be justified on this basis.
4. On behalf of Fitz Jersey it was also submitted that the bank statements may materially assist in relation to what was described as the "June Transactions", being transactions which took place in June 2017 and October 2017.
5. By way of background, Fitz Jersey alleges that on the day after Atlas declared the Dividend, and thereby paid $6.8 million to Kebzay, Kebzay paid $6.1 million to another entity associated with Mr and Mrs Yazbek, Kebzay Investments Pty Ltd. Thereafter, Fitz Jersey alleges, Kebzay Investments made payments to various parties including Mr and Mrs Yazbek and 620 Botany Road.
6. In that context, the "June Transactions" are ones whereby: 1. On 27 June 2017 Kebzay Custodian received $13 million from Kebzay Investments or perhaps from 620 Botany Road; 2. On 28 June 2017 Kebzay Investments paid some $4.5 million to Kebzay Investments and $6.75 million to Mr and Mrs Yazbek; 3. On 29 June 2017 Mr and Mrs Yazbek paid $6.7 million to Kebzay Investments, Kebzay Investments paid $11.1 million to 620 Botany Road, and 620 Botany Road paid $9 million to Kebzay Custodian; and 4. On 25 October 2017, Kebzay Custodian paid some $8.3 million to Mr and Mrs Yazbek.
7. Fitz Jersey contends that it was on the cards that Ms Yazbek's bank accounts during this period might materially assist an understanding of the rationale of these transactions and that that question is relevant not just to the tracing issue, but also to the risk of any judgment against Mr and Mrs Yazbek being unsatisfied.
8. Fitz Jersey contended that the June Transactions suggested that Mr and Mrs Yazbek were, at that time, "cycling large amounts of cash between entities under their control … with no apparent commercial purpose".
9. In my opinion, the notices to produce to Mr and Mrs Yazbek can be justified on this basis and I do not propose to set them aside.

The notice to produce addressed to Kebzay Custodian

1. This notice to produce requires production of: 1. financial statements for Kebzay Custodian, and for Kebzay Superannuation Fund [10] for FY17 and FY18; 2. the income tax returns for Kebzay Custodian and the Kebzay Superannuation Fund for FY17 and FY18; 3. any ledger recording receipts and payments for the Kebzay superannuation fund for a four month period in 2017.
2. Fitz Jersey contends that the documents sought are likely to be relevant to explain the "June Transactions" "as well as confirming whether funds paid by [Kebzay Custodian] to Mr and Mrs Yazbek were distributions from Mr Yazbek's superannuation fund".
3. The defendants contended that tax returns and financial reports sought would not shed any light on "the nature or commercial purpose of the June Transactions"; or to the tracing exercise Fitz Jersey wishes to carry out.
4. The defendants did not dispute that the ledger records sought might so materially assist Fitz Jersey.
5. In my opinion the financial statements and income tax returns sought may well contain material casting light on the nature or purpose of the "June Transactions".
6. Accordingly, I do not think that a basis has been made to set aside this notice to produce.

The notice to produce addressed to 620 Botany Road

1. This notice to produce seeks production of: 1. The company's bank statements for the period March to October 2017; 2. the company's general ledger for FY17 and FY18; 3. the company's financial statements for FY17 and FY18 and the financial statements of any company of which 620 Botany Road was a trustee; 4. the company's income tax returns for FY17 and FY18 and those of any company for which 620 Botany Road was trustee; 5. any deed establishing any trust which the company was a trustee in a seven-month period in 2017; and 6. any register of holders identifying any unit holders of any such trust.
2. Fitz Jersey alleges that funds into which the Dividend can be traced "were, or may have been, paid" to 620 Botany Road and that the bank statements, and the other documents sought in this notice to produce, are likely to shed light on the nature of the transactions in which 620 Botany Road was involved between April 2013 and October 2017.
3. Fitz Jersey also pointed to the allegation it makes, that, on 25 October 2017, 620 Botany Road paid some $5 million to another Yazbek entity, Botany Road Project Pty Ltd.
4. There is evidence to suggest that 620 Botany Road is the trustee of the unit trust. In those circumstances Fitz Jersey submitted that the identity of unit holders in that trust, and whether they include Mr and Mrs Yazbek or 620 Botany Road itself, may cast light on whether Mr or Mrs Yazbek were beneficially entitled to the funds received from Botany Road Project. Fitz Jersey alleges that those funds were used to purchase the Avalon property.
5. The defendants' only response to these submissions was that "there was no pleaded case concerning any transaction on 25 October 2017". That is not correct. The 25 October 2017 transactions are referred to at para C125 of the current iteration of the List Statement, as well as in the annexure to the List Statement.
6. As this was the defendants' only response to Fitz Jersey's contentions as to the relevance of the documents sought from 620 Botany Road, I do not find them sufficient to justify setting aside the notices to produce.

Conclusion

1. The defendants have failed to make out a basis to set aside the notices to produce.
2. I order that the second, seventh, eighth and tenth defendants' notice of motion of 29 May 2020 be dismissed with costs.

Endnotes

1. [2020] NSWSC 620 at [36].
2. [2019] NSWSC 410 at [49]-[59]
3. [2017] NSWSC 1692 at [24] (Rothman J)
4. [2019] NSWSC 608 at [65]
5. [2018] NSWSC 1102 at [47]
6. In Portal Software International Pty Ltd v Bodsworth [2005] NSWSC 1115 at [25].
7. For example, Xinfeng Australia, supra note 1 at [37].
8. cf The Owners Strata Plan SP 69567 v Baseline Constructions Pty Ltd [2012] NSWSC 502 at [21]-[24] and Re Force Corp Pty Ltd (Receivers and Managers appointed) (in liq).
9. [2012] NSWSC 1027 at [44] and [55].
10. I understand there is no dispute that Kebzay Custodian is the trustee of the Kebzay Superannuation Fund. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 30 June 2020