The plaintiff, Jennifer Hardy, and the second defendant, Lynette Hardy, are the directors and equal shareholders of the first defendant, Hardy Bros Equipment Pty Ltd (HBEPL).
In these proceedings, the second defendant is the sole director and ultimate shareholder of the third defendant, Hardy Mining Pty Ltd (HMPL). The plaintiff has no association with HMPL.
The plaintiff applies for an order winding up HBEPL on the just and equitable ground pursuant to s 461(1)(k) of the Corporations Act 2001 (Cth) or alternatively as a remedy for alleged oppression pursuant to s 233(1)(a) of the Corporations Act. The plaintiff alleges that the relationship between the two directors has been hostile since about 2018, that the second defendant has denied her access to the books and records of HBEPL and that the purpose for which HBEPL was formed ceased to exist in about 2019. For reasons that will become apparent, it is relevant to note that the second defendant denies the allegation that she has refused the plaintiff access to the books and records of HBEPL.
The plaintiff also applies for leave to bring a claim in the name of HBEPL for compensation against the second defendant and HMPL under s 1317H of the Corporations Act for alleged breaches of ss 180-183 of that Act. Those alleged breaches relate to:
1. certain payments out of HBEPL's bank account to the second defendant, the husband of the second defendant and HMPL (the improper payment allegations); and
2. certain sales of HBEPL's equipment by the second defendant or by financiers of that equipment and the alleged retention of the whole or part of the proceeds of sale by the second defendant (the sale proceeds allegations).
The plaintiff also alleges that HBEPL's equipment has been used by HMPL without paying market rent for the equipment, and seeks an order for delivery up of that equipment or damages in detinue or conversion (the equipment use allegations).
The parties have not yet served their evidence in the proceedings.
By interlocutory process filed on 17 March 2021, the plaintiff applies for orders pursuant to Uniform Civil Procedure Rules 2005 (NSW) r 21.2(1) and Practice Note SC Eq 11 requiring the second defendant to disclose the three categories of documents in Schedule A to the interlocutory process and HMPL to disclose the three categories of documents in Schedule B to the interlocutory process. Schedules A and B are reproduced in the Annexure to these reasons for judgment.
In support of the application, the plaintiff relied on the affidavit of her solicitor, Simone Therese Rees, sworn on 17 March 2021. In opposing the application, the second and third defendants relied on the affidavit of their solicitor, Blaise Prentice-Davidson affirmed on 1 April 2021.
The plaintiff must demonstrate that each of the categories of documents are relevant to facts in issue in the sense that the documents could rationally affect the assessment of the probability of a fact in issue (other than by relating solely to the credibility of a witness). It is not necessary that the documents would be admissible in evidence.
The plaintiff must also demonstrate that the disclosure is necessary for the resolution of the real issues in the proceedings (in the sense that the disclosure is reasonably required in the interests of a fair trial) and that there are exceptional circumstances (in the sense that the circumstances are unusual or out of the ordinary) necessitating disclosure of the categories of documents before the parties have served their evidence: HDI-Global SE v Zurich Australian Insurance Ltd [2020] NSWSC 1384 at [8] (Ball J); Leighton International v Hodges; Thiess v Reinforced Earth [2012] NSWSC 458 at [20] - [22] (McDougall J).
With the exception of category 1(d), all of the documents falling with Schedule A are books and records of HBEPL, as the plaintiff's counsel candidly acknowledged. The plaintiff seeks an order that the second defendant disclose those documents on the basis that:
1. the books and records of HBEPL are in the possession, custody or power of the second defendant;
2. the plaintiff alleges that the second defendant has excluded her from accessing those books and records for a considerable period of time; and
3. in circumstances where the relationship between the plaintiff and the second defendant as directors of HBEPL is alleged to have broken down, HBEPL will be unable to make decisions with respect to disclosure of documents.
The plaintiff has a statutory right to inspect the books and records of HBEPL, including any documents falling within the categories in Schedule A (save for category 1(d)), pursuant to ss 198F and 290 of the Corporations Act. Whether the second defendant has precluded the plaintiff from inspecting the books and records of HBEPL is an issue that is in dispute in these proceedings and will fall to be determined at the final hearing. It would be inappropriate for me to express any view about that issue for the purpose of determining the plaintiff's application for disclosure.
What is relevant for the purpose of the plaintiff's application is that the plaintiff adduced no evidence of having sought access to HBEPL's books and records after commencing these proceedings. It appears that the filing of the interlocutory process on 17 March 20201 was the plaintiff's first step towards inspecting those books and records for the purpose of these proceedings.
On 31 March 2021, the second and third defendants' solicitor wrote to the plaintiff's solicitor stating that the second defendant did not dispute that the plaintiff, as a director of HBEPL, was generally entitled to access books and records of the company and offered to provide digital access to "relevant books and records" of HBEPL to the plaintiff and her legal representatives and for the plaintiff to "inspect the primary records herself". The letter set out the second and third defendants' position that disclosure of HBEPL's books and records would be unnecessary once the plaintiff had undertaken the suggested inspection and that disclosure of records of HMPL or the second defendant was unnecessary, at least at this stage, because the books and records of HBEPL provided a full record of its dealings with HMPL and other relevant parties.
The letter acknowledged the possibility that, following the plaintiff's review of HBEPL's books and records, the plaintiff may seek disclosure of specific documents of HMPL or the second defendant if the plaintiff considered the records of HBEPL to be inadequate in particular respects. To that end, the letter proposed that the plaintiff's application for disclosure be stood over until she had inspected HBEPL's books and records, with the plaintiff to then notify the second and third defendants whether and to what extent the plaintiff pressed the application for disclosure of documents. The letter proposed a timetable for any further evidence or submissions that would have facilitated a hearing of those aspects of the disclosure application that were pressed on 3 May 2021.
The plaintiff's solicitors replied by letter dated 1 April 2021, stating that the plaintiff pressed the application for disclosure of HBEPL's documents in Schedule A unless and until the second defendant provided the plaintiff with access to the company's books and records and the plaintiff determined that it was no longer necessary to press the application.
The letter also stated that the plaintiff pressed the application for disclosure of the documents of the second defendant (Schedule A, category 1(d)) and the documents of HMPL (Schedule B).
On 1 April 2021, the affidavit of the second and third defendant's solicitor was sworn. In that affidavit, the solicitor deposed:
"I am informed by Lynette Hardy, and believe, that:
(a) The books and records of the first defendant (HBE) are presently kept at an office in Kilaben Bay, New South Wales, which is shared with the third defendant (HM).
(b) Without any concession that either she or HM either are or should be compelled to give discovery of, or otherwise produce, any particular documents, she is taking steps to collate, for inspection and copying (if desired) by Jennifer Hardy documents which:
(i) are part of HBE's books and records; and
(ii) which would fall within paragraphs 1 (a)-(c), 2(a)-(f) and 3(a)-(c) of Schedule A to the Plaintiff's Interlocutory Process filed on 17 March 2021.
(c) She expects that the above exercise will be completed before 9 April 2021, and she has no objection to Jennifer Hardy inspecting and copying those documents at the office in Kilaben Bay upon reasonable notice and within usual business hours.
(d) Furthermore, she has no objection to Jennifer Hardy inspecting and copying any other documents which are part of HBE's books and records, at the office in Kilaben Bay upon reasonable notice and within business hours.
(e) She expects that the documents at sub-paragraph [b] above will comprise approximately 250 separate documents of varying numbers of pages."
At the hearing of the disclosure application on 12 April 2021, the plaintiff submitted that the necessity and exceptional circumstances requirements were established in relation to Schedule A, notwithstanding her ability to inspect all of the books and records of HBEPL, because there is a history of mistrust between the plaintiff and the second defendant, because the plaintiff interpreted the 31 March 2021 letter as a conditional offer to provide access to HBEPL's books and records only if the plaintiff agreed to adjourn her disclosure application, and there had been no reply by the second and third defendants to the letter sent by the plaintiff's solicitors on 1 April 2021.
In my opinion, the plaintiff's interpretation of the 31 March 2021 letter was mistaken. The letter plainly acknowledged the plaintiff's right of inspection of the books and records as a director, independently of the disclosure application. The proposed deferral of the application merely recognised that the plaintiff would likely be reluctant to abandon the application before she had taken the time inspect those records. Paragraph 3 of the affidavit sworn by the solicitor for the second and third defendants on 1 April 2021 further confirmed that the second defendant unconditionally acknowledged the plaintiff's right to inspect all of the books and records of HBEPL.
The second and third defendants submitted that the plaintiff's 1 April 2021 letter did not call for a reply. I accept that submission. The letter notified the plaintiff's decision to press on with the disclosure application notwithstanding the position that the second and third defendants had made clear in the 31 March 2021 letter and in their solicitor's affidavit.
I assume (without deciding) that all of the documents in Schedule A (putting to one side category 1(d)) are relevant to facts in issue. In circumstances where the plaintiff has not yet exercised her right to inspect all HBEPL's books and records, including (but not limited to) any books and records that fall within the categories in Schedule A, I am not satisfied that disclosure of the Schedule A documents is necessary or that there are exceptional circumstances necessitating disclosure before the parties have served their evidence.
I am not persuaded that the circumstances are exceptional merely because there may be, as the plaintiff alleges, a history of mistrust between the plaintiff and the second defendant. There is no evidence that would justify an inference that the second defendant cannot be trusted to provide the plaintiff with access to HBEPL's books and records. On the contrary, the second defendant's conduct in proposing that the plaintiff inspect all of those books and records, in addition to the second defendant collating sub-sets of those books and records that fall within the categories sought by the plaintiff in Schedule A, is not the kind of conduct one would expect to see from a party not intending to facilitate a co-director exercising her statutory rights to inspect the company's books and records. It is not to the point that this collation exercise has not yet been completed.
I do not rule out the possibility that there may be a basis for a more targeted application for disclosure pursuant to UCPR r 21.2 and Practice Note SC Eq 11 after the plaintiff has completed her inspection of HBEPL's books and records. That will depend, amongst other things, on the nature and extent of the books and records that exist and the extent to which they fall within the categories in Schedule A. Given the collation exercise that the second defendant is undertaking as referred to in paragraph 3(b) of her solicitor's affidavit, it should not be a difficult exercise for the plaintiff to identify the extent to which the books and records described in Schedule A exist.
For those reasons, the plaintiff's application for disclosure of the documents in categories 1 to 3 of Schedule A, save for category 1(d), is dismissed.
It remains for me to determine the disclosure application in respect of category 1(d) of Schedule A and the three categories in Schedule B.
The plaintiff initially submitted that the bank records of the second defendant referred to in category 1(d) of Schedule A are relevant to the allegation pleaded in paragraphs 43 to 52 of the Amended Points of Claim filed on 9 December 2020 that the second defendant transferred, or caused to be transferred, funds from HBEPL's bank account to herself in breach of her duties as a director of HBEPL. Counsel for the plaintiff acknowledged that the fact of the payments is admitted, but emphasised that the purpose of the payments is in dispute. However, counsel for the plaintiff subsequently abandoned reliance on paragraphs 43 to 52 of the Amended Points of Claim to establish the relevance of category 1(d) in Schedule A. That concession was properly made, in my opinion, as it is difficult to see how the bank statements of the recipient of a payment would shed light on the purpose of the payment.
The plaintiff then submitted that the second defendant's bank statements in category 1(d) were relevant to the allegations in paragraphs 56 to 59 of the Amended Points of Claim that the second defendant had retained the proceeds of sale of HBEPL's equipment and the quantum of such sale proceeds retained. This submission had not been included in the plaintiff's written submissions served prior to the hearing. In her affidavit affirmed on 17 March 2021, the plaintiff's solicitor did not identify the alleged retention of sale proceeds of HBEPL equipment as a fact in issue to which category 1(d) of Schedule A was relevant.
In my opinion, category 1(d) has not been drafted in terms that would require disclosure of documents limited to those relevant to the question of whether the second defendant has retained sale proceeds of HBEPL equipment. There is a clear disconnect between the time period specified in category 1(d) (from 1 January 2019 to date) and the time period during which HBEPL equipment is alleged to have been sold (during the period since October 2018). As I have already referred to, the plaintiff failed to avail herself of the opportunity to inspect all books and records HBEPL prior to prosecuting the disclosure application. Had she first inspected the books and records, it is likely that she may have ascertained further information about the alleged equipment sales and how the proceeds of those sales were accounted for. Assuming that the plaintiff then formed the view that she required some further information concerning alleged retention of the sale proceeds by the second defendant, it is likely that the plaintiff would have been in a position to seek disclosure of more limited bank statements of the second defendant (for example, by reference to periods of time coinciding with the time of each relevant sale of equipment). For those reasons, I am not persuaded that the plaintiff has established that category 1(d) seeks disclosure of documents relevant to the facts in issue belatedly identified during oral submissions and that disclosure those documents is necessary in the requisite sense. Even if I am wrong about that, I am not satisfied that the circumstances are exceptional as required by Practice Note SC Eq 11 because the plaintiff has chosen to press this disclosure application without first inspecting HBEPL's books and records.
I now turn to Schedule B, comprising categories 4, 5 and 6.
The plaintiff submitted that the bank statements of HMPL within category 4 are relevant to the allegation pleaded in paragraphs 43 to 52 of the Amended Points of Claim field on 9 December 2020 that the second defendant transferred or caused to be transferred funds from HBEPL's bank account to HMPL in breach of her duties as a director of HBEPL. As I have referred to above, the fact of the payments is admitted, but the purpose of the payments is in dispute. As I have also stated above, it is not apparent to me how the bank statements of the recipient of a payment would shed light on the purpose of the payment. Moreover, the period in respect of which category 4 would require disclosure of HMPL bank statements (from 1 January 2019 to date) is significantly greater than the period in which the payments pleaded were made (from February to May 2019). Even if I am wrong about the irrelevance of HMPL's bank statements to the issue of the purpose of the payments, category 4 would capture many documents that are plainly not relevant to that fact in issue.
In oral submissions, counsel for the plaintiff submitted that categories 4, 5 and 6 were all relevant to the fact in issue of whether HMPL had made payments in respect of its use of HBEPL equipment. The second and third defendants deny the allegation that no payments were made, and plead a positive case that HMPL paid more than the market rental value of HBEPL's equipment by paying finance and other liabilities on behalf of HBEPL, which payments are alleged to have been recorded in a loan account that the second defendant caused to be maintained between HBEPL and HMPL.
I accept that the documents relevant to this fact in issue fall within categories 4 to 6. However, it is likely that the plaintiff's inspection of HBEPL's books and records will narrow the scope of any disclosure that is necessary in order to ensure a fair trial. It remains to be seen whether or to what extent that inspection may remove any necessity for disclosure of categories 4 to 6 before service of evidence, and I do not rule out the possibility that there may be a proper basis for an application for some disclosure under Practice Note SC Eq 11 before service of evidence. I note that the defendants' submissions also acknowledged this possibility. However, it is likely that, after inspecting HBEPL's books and records, the plaintiff would be able to limit any such application to much more specific categories of documents than the very broadly drafted categories 4 to 6. Category 5 is not even limited in time. I do not accept that disclosure of the documents in categories 4 to 6 is necessary or that there are exceptional circumstances requiring disclosure at this time.
It is not to the point that the plaintiff "may" decide to brief a forensic accountant who may require "documents of the kind sought" in order to prepare an expert report concerning HBEPL's loss and damage resulting from the matters that are the subject of the improper payment allegations, the sale proceeds allegations and/or the equipment use allegations. An application for disclosure under Practice Note SC Eq 11 is typically supported by an affidavit of a solicitor deposing to the fact that an expert has been briefed and deposing as to the necessity of the expert having access to the specific documents sought for the purpose of completing their report.
For those reasons, the plaintiff's interlocutory process filed on 17 March 2021 is dismissed. Neither party sought any specific costs order in the event that the disclosure application was dismissed. UCPR r 42.7 will apply in relation to the costs of the interlocutory process.
My review of the court file indicates that no directions have been made for the service of evidence at this stage. It therefore seems appropriate that the matter be listed for further directions in 3 weeks, by which time the plaintiff will have had an opportunity to inspect the HBEPL records and the parties will have had an opportunity to discuss the timetable for preparation and service of evidence.
I make the following order and direction:
1. Order that the plaintiff's interlocutory process filed on 17 March 2021 is dismissed.
2. List the matter for directions before the Corporations List Judge at 9.30am on 3 May 2021.
[2]
Annexure
Schedule A
Categories of disclosure sought from Lynette Hardy
1. Category 1: Bank statements and financial records of Hardy Bros Equipment Pty Ltd (HBE)
1. all bank statements for any bank accounts held by HBE during the period 1 January 2019 to present, including but not limited to statements for any loan accounts held by HBE;
2. all financial statements of HBE which have been prepared in draft and/or lodged, during the period 1 January 2019 to present;
3. all management accounts of HBE during the period 1 January 2019 to present, including but not limited to balance sheets and profit and loss statements; and
4. all bank statements during the period 1 January 2019 to present for any bank accounts which are held by or on behalf, or controlled by, Lynette Hardy.
1. Category 2: Records of equipment and machinery held by HBE
1. all documents recording details of any equipment and vehicles which are or were owned, leased, held or otherwise possessed by HBE during the period 15 October 2016 to present, including but not limited to the following documents in respect of each item of equipment or vehicle:
1. (i) all purchase contracts;
2. (ii) all leases and/or hire contracts;
3. (iii) all disposal records such as registration transfers;
4. (iv) all loan accounts taken out for the purchase or hire of equipment of vehicles and statements pertaining to those loan accounts;
5. (v) all appraisals or valuations carried out;
6. (vi) all depreciation schedules; and
7. (vii) all lease repayment schedules;
1. all equipment maintenance records;
2. all correspondence with financiers during the period 15 October 2016 to present regarding the repossession of equipment or vehicles owned by HBE, including but not limited to correspondence recording balances owing and any payment instructions;
3. all documents recording the use by Hardy Mining Pty Ltd (Hardy Mining) of earthworks equipment or vehicles belonging to HBE, including but not limited to:
1. (i) all registers which record usage, location or hour meter readings and all pre-start inspection sheets; and
2. (ii) all third party hire contracts;
1. all documents recording payments made by Hardy Mining to HBE for the use of equipment or vehicles belonging to HBE, including but not limited to bank statements;
2. all documents recording any arrangement between HBE and Hardy Mining for the use of earthworks equipment or vehicles belonging to HBE or the terms on which that equipment would be used by HBE; and
3. all documents recording the assets owned, held or possessed by Hardy Mining, including but not limited to any asset registers and any lease payment schedules.
1. Category 3: Documents concerning finance liabilities and operating costs of HBE
1. (all documents recording the finance liabilities of HBE during the period 1 January 2019 to present including but not limited to, in respect of HBE's earthworks equipment and vehicles:
1. documents recording any amounts owing by HBE for the financing, purchase and/or hire of that equipment or those vehicles; and
2. all statements of account recording payments made during the period and balances owing;
1. all documents recording the operating expenses of HBE during the period 1 January 2019 to present, including but not limited to all statements of account recording payments made during the period towards those operating expenses; and
2. all statements in respect of the Loan Account which is referred to in paragraph 16(b)(n)(10) of the Defence.
Schedule B Categories of disclosure sought from Hardy Mining Pty Ltd (Hardy Mining)
1. Category 4: Bank statements and financial records of Hardy Mining
1. all bank statements during the period 1 January 2019 to present for any bank accounts which are held by or on behalf, or controlled by, Hardy Mining.
1. Category 5: Records of equipment and machinery held by Hardy Mining
1. all documents recording the use by Hardy Mining of earthworks
equipment or vehicles belonging to HBE, including but not limited to:
1. all registers which record usage, location or hour meter readings and all pre-start inspection sheets; and
2. all third party hire contracts;
1. all documents recording payments made by Hardy Mining to HBE for the use of equipment or vehicles belonging to HBE, including but not limited to bank statements;
2. all documents recording any arrangement between HBE and Hardy Mining for the use of earthworks equipment or vehicles belonging to HBE or the terms on which that equipment would be used by HBE; and
3. all documents recording the assets owned, held or possessed by Hardy Mining, including but not limited to any asset registers and any lease payment schedules.
6. Category 6: Documents concerning finance liabilities and operating
costs of HBE
(a) all statements in respect of the Loan Account which is referred to in paragraph 16(b)(n)(10) of the Defence.
[3]
Amendments
14 April 2021 - formatting issue with annexure
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Decision last updated: 14 April 2021