Kenquist Nominees Pty Limited v Campbell

YATES J: 1 The fifth respondent applies to set aside a subpoena issued at the request of the applicant. The subpoena has been addressed to the Proper Officer of QRxPharma Limited (QRxPharma or the company). 2 On 10 March 2016, I granted leave for the subpoena to be issued.

background 3 QRxPharma is engaged in pharmaceutical development. It is listed on the Australian Securities Exchange. Its relevant primary business operations were directed towards developing and obtaining regulatory approval for a dual opioid drug called MoxDuo. QRxPharma needed regulatory approval to market and sell MoxDuo in the United States of America (the US). The US is the largest market for pain relief, and according to the applicant, MoxDuo was represented to investors as a potential "blockbuster" drug for that market. 4 The applicant's case is that during the years 2009 to 2011, QRxPharma undertook three relevant capital raisings to provide funds for its regulatory approval studies. The statement of claim alleges that over the course of those capital raisings, the respondents, who comprised former directors and advisers of QRxPharma, were involved in misleading conduct and/or contraventions of the Corporations Act 2001 (Cth) relating to the company's continuous disclosure and capital raising obligations. 5 The applicant submits that the critical allegation in the statement of claim is that QRxPharma failed to disclose that the US Food and Drug Administration (the FDA) had rejected its application for a streamlined regulatory approval process for MoxDuo. This streamlined process is called a Special Protocol Assessment (SPA). The applicant's case is that QRxPharma repeatedly represented to the market that this streamlined approval was a central component of its regulatory risk strategy. 6 The statement of claim alleges that each of the respondents was involved in these disclosure failures. The former directors, who are the first, second and third respondents, are alleged to have been ultimately responsible for approving each of the capital raising documents and ensuring QRxPharma's compliance with its continuous disclosure obligations. 7 The fifth respondent is a business name. It is the name of a firm of solicitors carrying on practice in partnership. The applicant's case is that the firm was the company's legal adviser during the capital raising process and advised QRxPharma of its disclosure obligations. 8 The fourth respondent was a lead manager of the capital raisings and according to the applicant was responsible for "pitching" the capital raising to investors.

statement of claim 9 By way of general summary only, the statement of claim alleges that because MoxDuo was a combination of two existing drugs, QRxPharma could avail itself of the SPA, by which the FDA would confirm that a proposed study, if successful, would satisfy the regulatory requirements for a New Drug Approval (NDA). 10 From late 2008 to October 2009, QRxPharma made several SPA applications in relation to the study that was intended to satisfy the NDA requirements for MoxDuo. This study was referred to as Study 008. The ultimate outcome of these applications was that the FDA denied the SPA request for that study in October 2009. 11 The applicant pleads that QRxPharma regularly represented to the market that the SPA was an important part of its strategy to reduce regulatory risk. Notwithstanding the SPA rejection, from 2010, QRxPharma undertook Study 008. After reporting to investors that Study 008 had succeeded, QRxPharma submitted an NDA application in August 2011. On 27 June 2012, the FDA provided a so-called "complete response" which rejected the NDA. 12 Between the SPA rejection and the complete response, QRxPharma raised substantial sums of capital to fund the regulatory approval studies. On each occasion, the applicant says that the respondents were involved to varying degrees in conducting a due diligence process to determine whether any matters needed to be disclosed to the market, drafting the investor presentation and booklets and drafting the regulatory disclosures to satisfy the capital raising disclosure obligations. The applicant says that at no time during these capital raisings or otherwise, as part of its continuance disclosure obligations, did QRxPharma disclose the fact that the FDA had rejected its SPA application.

application for and issue of the SUBpoena 13 The schedule to the subpoena identifies the following documents for production: 1. Copies of correspondence between officers and employees of QRxPharma Ltd and the US Food and Drug Administration referring to the Special Protocol Assessment application for Study 008 between 1 December 2008 and 1 December 2010. 2. Copies of any minutes of directors' meetings of QRxPharma Ltd between: a. 1 October 2009 and 31 December 2009; b. 1 October 2010 and 31 December 2010; c. 1 July 2011 and 31 August 2011. 3. Copies of any document tabled at the directors' meetings referred to in item 2 of this schedule that refer to the Special Protocol Assessment application for Study 008. 4. Copies of any minute or other note of meetings of the due diligence committees established in respect of the capital raisings undertaken by QRxPharma Ltd between: a. 1 October 2009 and 31 December 2009; b. 1 October 2010 and 31 December 2010; c. 1 July 2011 and 31 August 2011. 5. Copies of any documents tabled at the meetings of the due diligence committees referred to in item 4 of this schedule. 6. Copies of any due diligence report, directors or management questionnaire or other due diligence material prepared as part of the capital raisings referred to in item 4 of this schedule. 7. Between 1 January 2009 and 1 July 2012, copies of any correspondence involving officers and employees of QRxPharma Ltd, the partners and employees of Dibbs Barker or officers and employees of RBS Morgans Corporate Ltd (now Morgans Corporate Limited) referring to or concerning: a. the capital raisings referred to in item 4 of this schedule; or b. the Special Protocol Assessment application for Study 008. 14 At the time that leave was sought to issue the subpoena, I was satisfied that the documents sought by the subpoena had an apparent relevance to the issues raised by the statement of claim. They concerned the state of negotiations between QRxPharma and the FDA in relation to the SPA application and were directed to deliberations and correspondence apparently connected to QRxPharma's capital raisings and due diligence material related thereto, including the company's SPA. 15 The evidence discloses that on 8 March 2016, Mr Anthony Jefferies, the applicant's solicitor contacted Mr Bruce Hancox, one of the current directors of QRxPharma. Mr Hancox informed Mr Jefferies that he held the documents that would respond to the subpoena and was content to comply with the subpoena. Further, Mr Hancox said that he had no objection to the applicant being given access to the documents.

applicable law 16 Rule 24.15(1) of the Federal Court Rules 2011 provides that: The Court may, on the application of a party or any person having a sufficient interest, set aside a subpoena in whole or in part, or grant other relief in relation to it. 17 In Wong v Sklavos (2014) 319 ALR 378; [2014] FCAFC 120, the Full Court at [12] said: ...A subpoena may be set aside if it requires the production of documents which do not have apparent relevance to the issues arising on the pleadings: Trade Practice Commission v Arnotts Ltd (No 2) (1989) 21 FCR 306; 88 ALR 90; Campaign Master (UK) Ltd v Forty Two International Pty Ltd (No 4) (2010) 269 ALR 76; [2010] FCA 398 at [39]-[40]; McHugh v Australian Jockey Club Ltd (No 2) [2011] FCA 724 at [13]; McIlwain v Ramsey Food Packaging Pty Ltd (2005) 221 ALR 785; [2005] FCA 1233 at [35]; Dorajay Pty Ltd v Aristocrat Leisure Ltd [2005] FCA 558 at [17]. Other cases have used different terminology, but with essentially the same effect, for example, by requiring that, viewed realistically, the documents sought have a bearing on an issue which is not unreal, fanciful or speculative (R v Barton (1981) 2 NSWLR 414 at 420), or that the material sought is reasonably likely to add in some way to the relevant evidence in the case (Spencer Motors Pty Ltd v LNC Industries Ltd (1982) 2 NSWLR 921 at 927), or that it be "on the cards" that the documents sought will materially assist the party at whose request the subpoena has been issued: Allister v R (1984) 154 CLR 404 at 414; 51 ALR 480 at 481; Tamawood Ltd v Habitare Developments Pty Ltd [2009] FCA 364 at [13] and [35]-[38].

submissions 18 The fifth respondent's objection is that the apparent relevance of the documents sought by the subpoena cannot be determined in advance of the pleadings being closed. On the basis of orders I have made today, the pleadings will not close until either 10 or 24 June 2016. Put simply, the fifth respondent says that, at the present time, it cannot be known what matters are in issue in the proceeding. The fifth respondent argues that in these circumstances, the subpoena could not have been issued for a legitimate forensic purpose. 19 The fifth respondent also relies on the provisions of s 37M(1) of the Federal Court of Australia Act 1976 (Cth) (the Act). It that regard it refers to the potential inefficiencies that may be caused by requiring an addressee of a subpoena to produce documents in circumstances where, before the closing of pleadings, the issues for determination at trial have not been properly identified. The fifth respondent argues that, in order for the subpoena to stand in the present case, there must be something unusual about the case itself in terms of the stage at which the subpoena has been issued. 20 For its part, the applicant argues that the documents sought by the subpoena have an apparent relevance and that, in any event, it is "on the cards" that the documents sought will materially assist it in conducting the proceeding. The applicant submits that it could not be said that the subpoena gives rise to a "fishing expedition" as understood by the cases.

consideration 21 Whilst the fifth respondent's argument on the question of apparent relevance might hold good in certain cases in certain circumstances, I am not persuaded that this case is one of them. I have the benefit of the applicant's statement of claim. I do not think that it can be argued cogently that, by reference to the allegations made in the statement of claim, the documents sought by the subpoena are not adjectivally relevant. It may be that some aspects of the applicant's pleaded allegations might not ultimately be put in issue by the defences to be filed by the respondents. But, for reasons I will discuss, I do not think that this fact alone leads to a conclusion that the documents sought do not have an apparent relevance at the present time. 22 The Court's power to issue a subpoena is not limited to issue of the subpoena at a particular point in time or at a particular stage in the proceeding. Thus, there is no reason why, in principle, a subpoena cannot be issued prior to the close of pleadings. In this Court, the question of whether a subpoena should be issued requires leave of the Court. Whether the issue of a subpoena is likely to be premature is a consideration to be taken into account when considering whether leave to issue should be granted. If, in a given case, the Court feels a concern that the issue of a particular subpoena is or might be premature, then that concern would stand as a reason, or perhaps the reason, for refusing leave to issue the subpoena. 23 However, I do not have that concern in the present case. Specifically, I am not persuaded by the fact, in the present case, that pleadings are yet to close, that the issue of the subpoena is premature. 24 In a case where pleadings are involved, the question of apparent relevance falls to be determined on the pleadings in their state at the time that the question of apparent relevance arises. Here, as I have said, I have the statement of claim. In those circumstances, apparent relevance on the face of the statement of claim will or may be sufficient. As I have recognised, it may be that some pleaded allegations of fact will be admitted, but even if that comes to be the case, it simply does not follow that a subpoena issued now must necessarily be set aside to await the filing of the respondents' defences. Much depends on the circumstances of the given case. In the present case, I can safely predict now that the facts and circumstances in which decisions were made or advice was given in relation to the public disclosure, or the extent of the public disclosure, of the passage and circumstances of the company's application for a SPA, and the fifth respondent's knowledge of those facts and circumstances, are likely to be relevant to the case brought by the applicant. This is so, regardless of specific admissions of fact which the fifth respondent might make in its defence to be filed. It can be reasonably anticipated that the documents sought by the subpoena are likely to record such facts and circumstances. As presently advised, I would be surprised if documents of the kind sought by the subpoena do not find their way into evidence as part of the applicant's case or, indeed, as part of one or more of the respondents' respective cases. 25 I should note that, in the present case, no question of oppression arises and QRxPharma does not itself seek to set aside the subpoena. Indeed, as I have recorded, one of its directors has expressed the company's preparedness to provide the documents sought. 26 In submissions, the applicant also sought to rely on the plenary power under s 33ZF of the Act in representative proceedings. The present proceeding is such a proceeding. It is not necessary for me to deal with that submission, in light of the view to which I have come on the applicant's principal submission.

disposition 27 For these reasons, the fifth respondent's interlocutory application dated 5 April 2016 should be dismissed with costs. 28 Orders will be made accordingly. I certify that the preceding twenty-eight (28) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Yates.

SCHEDULE OF PARTIES NSD 1364 of 2015 Respondents Second Respondent: MICHAEL QUINN Third Respondent: JOHN HOLADAY Fourth Respondent: MORGANS COPORATE LIMITED ACN 010 539 607 Fifth Respondent: DIBBSBARKER