Killorgan Investments Pty Ltd v Baycorp Advantage Business Information Services Ltd and Ors [2002] VSC 270

Supreme Court of Victoria|2002-07-04|Before: Byrne J

PRACTICE and procedure - subpoena - subpoena returnable before Prothonotary - order for inspection - relevance of documents. RSC R. 42.10.

On 7 June 2002, the solicitors for the defendants in this proceeding filed a subpoena for production addressed to SAI Management Services Pty Ltd. The subpoena was made returnable before the Prothonotary pursuant to Rule 42.10.

On 14 June 2002 the solicitors for the plaintiff gave to the Prothonotary notice pursuant to Rule 42.10(9) of its objection to inspection by the defendants of certain of the documents, and this objection was referred to me for hearing and determination.

When the matter came on before me, SAI as the person named, raised objections to the form of the subpoena. Its solicitor on its behalf contended that in certain respects it was too wide and should be struck out, and further, that his client should have its cost of compliance pursuant to Rule 42.8.

I heard and determined these matters. I directed that certain parts of the subpoena be struck out and that the defendants pay to SAI an amount in respect of its expense or loss reasonably incurred in complying with the subpoena over and above the conduct money paid, such amount to be fixed by the taxing master in default of agreement.

Argument was then directed to the plaintiff's objection. It is necessary to observe that the matter before me at this stage was not whether the subpoena should be set aside as having been filed for a collateral purpose or as an abusive substitute for discovery, or as oppressive. The issue before me was whether I should permit the defendants to inspect these documents.

For this purpose argument proceeded on the basis, contrary to the fact, that the documents had been produced to the court. The thrust of the objection of the plaintiff was that the documents or some of them were its confidential financial records and that they were insufficiently relevant to any issue to warrant inspection.

The degree of relevance for this purpose is not high: the inspecting party need only show a legitimate forensic purpose in the inspection. A party is entitled to inspect documents not only to see if they contain relevant facts, but also to see if they contain information which may be proved otherwise than through that document.

I should record at this stage that SAI itself raised no objection to the inspection.

The schedule to the subpoena contains three paragraphs. Of these, the documents for which inspection was resisted were those described in paragraphs 1(a) to 1(e). They are as follows:

"The following documents held by or on behalf of [SAI] being the documents created, received and maintained in the course of providing advisory and other services to:

* Killorgan Investments Pty Ltd (formerly Equilink Australia Pty Ltd) (A.C.N. 070 513 441) (`Killorgan');

* Baycorp Advantage Decision Solutions Pty Limited (formerly called Equilink Australia Pty Limited, then called Equigen Corporation Pty Limited and then called Decision Advantage Pty Limited) (A.C.N. 076 631 297) (`Equigen'); and

(a) the financial statements of Killorgan (`Killorgan financial statements') for the financial years 1995/1996, 1996/97, 1997/98, 1998/99, 1999/2000 and 2000/2001 inclusive (`1996-2001 financial years');

(b) the documents referred to by the corporation in preparing the Killorgan financial statements, including instructions, journals, ledgers, advices and management accounts;

(c) statements of cash flows, asset registers and depreciation schedules in respect of Killorgan for the 1996-2001 financial years;

(d) the income tax returns (`Killorgan tax returns'), related capital gains tax schedules, business activity statements, related working papers, notices of assessment and correspondence with the Australian Taxation Office, in respect of Killorgan for the 1996-2001 financial years;

(e) the documents referred to in determining the values of the assets of Killorgan from time to time as disclosed or reflected in the Killorgan financial statements and Killorgan tax returns and related capital gains tax schedules, including instructions, advices and valuations."

It is necessary that I outline briefly the nature of the issues at the trial which is fixed to commence in October of this year. There are in fact three proceedings which are to be tried together. The dispute arises out of a sale in August 1998 by the plaintiff, Killorgan Investments Pty Ltd ("Killorgan"), of its shares in a company now called Decision Advantage Pty Ltd. The purchaser was the firstnamed defendant, Credit Advantage Pty Ltd, now called Baycorp Advantage Business Information Services Limited ("Baycorp").

The sale price was substantial, it was to be paid in four instalments. An initial payment of $12m; a second payment on 1 October 1999 equal to 12.5 per cent of the then value of Decision Advantage; a third payment on 1 October 2000 equal to 6.25 per cent of the then value of Decision Advantage; and a final payment on 1 October 2001 equal to 6.25 per cent of the then value of Decision Advantage.

The managing director or CEO of Decision Advantage at the time of the sale was one Marcus Price. Under the terms of the sale agreement as pleaded, the liability at Baycorp to make the payments to Killorgan was conditional upon Mr Price continuing in that office. On 25 May 2000 the employment of Mr Price was said to have been terminated so that this term became operative.

In its statement of claim Killorgan alleges that the thirdnamed defendant, David John Grafton; the fourthnamed defendant, Brian Peter Reginald Gatfield; the fifthnamed defendant, John Edward Martin; and the sixthnamed defendant, Bruce Bargon, engaged in conduct which was improperly directed to diminish the value of Decision Advantage and thereby to reduce the payments to be made under the sale agreement by Baycorp to Killorgan. This strategy, it is said, was further implemented by the wrongful dismissal of Mr Price. In their defence the defendants allege a large number of acts of misconduct of Mr Price which acts are relied upon as warranting his summary dismissal.

The second proceeding to be heard at the same time is Proceeding No. 6887 of 2000, a defamation action brought by Mr Price against Data Advantage Pty Ltd, the holding company of Baycorp; one Angela Michelle Blair, the group company secretary of Data Advantage; Decision Advantage and Mr Grafton. The publications relied upon were a publication to the stock exchange and a staff communique, each made on 25 May 2000, setting out the fact that Mr Price had been dismissed and the reasons for this.

The third proceeding, Proceeding No. 6833 of 2000 is also brought by Mr Price, this time against Decision Advantage, Data Advantage, Mr Grafton and Mr Gatfield. Mr Price in this proceeding seeks damages for wrongful dismissal.

A principal asset of Decision Advantage at the time of sale was its rights over a software product called Decision Point. This software, which had been developed by Mr Price and one Michael Price in New Zealand, was very valuable. It seems that in 1999 the defendants believed that the international rights to this software were held by a Singaporean company, Jeremex Trading Private Limited.

There is an issue as to whether Jeremex in fact held these rights. The defendants contend that a number of written agreements dated 1995 upon which the rights of Jeremex depended, were sham agreements and that they were back dated. They say that Mr Price at all times held a controlling interest in Jeremex, notwithstanding that he then professed this not to be the case. They contend that Mr Price's conduct in this regard, and indeed his other conduct, was wrongfully directed to advantaging his own interests at the expense of Decision Advantage.

The documents referred to in sub-paragraphs (a), (b), (c) and (d) of paragraph 1 of the schedule to the subpoena all relate to the financial statements of Killorgan for the financial years ending 1996 to 2001. Those in sub-paragraph (e) relate to the valuing of the assets of Killorgan in these financial statements. It is said that these will, or are likely to confirm or not the defendants' allegation that Killorgan did not have the dealings when and as referred to in the impugned agreements, and that it continued to have dealings with Jeremex after the sale. They may confirm or not Mr Price's statement that he had sold his interest in Jeremex in 1996.

The defendants contend that he maintained a covert interest in Jeremex after that date, as did his associates Pat Brady and Tony Castania. The accounts, it is said, may be relevant to these dealings and to the value of the business of Decision Advantage or its shares, as standing in the books of Killorgan before the sale.

The defendants further allege that, as recently as March 2001, Baycorp paid $3m to Jeremex for the international rights to the software, in circumstances which are not here relevant. It is thought that part of this money has found its way back to Mr Price or to his control. This also may be disclosed in the 2001 financial records of Killorgan.

To my mind these documents have been shown to be sufficiently relevant to warrant disclosure to the defendants. I enquired of the solicitor for Killorgan whether the interest of his client in maintaining the confidentiality of the documents might be achieved by imposing some restrictions upon the inspection. He said in response that such a course has, in his experience, created difficulties in other cases in preparation for trial, and I accept that this might be the case here.

Accordingly I will simply disallow the objection of the plaintiff and direct that the Prothonotary permit the defendants to inspect and take copies of all of the documents produced by SAI in compliance with the subpoena.

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Judgment (32 paragraphs)

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