Lakatoi v Walker [1999] NSWSC 1036 | Case summary

JUDGMENT [on Motions to set aside Subpoenas] 1 HIS HONOUR: There are presently before the court several sets of related proceedings being heard together concerning dealings between the parties relating to extensive land holdings at Helensburgh. Those dealings led to a heads of agreement document executed between 11 November and 1 December 1993 pursuant to which an agreement called the Helensburgh Unit Trust Unit Holders Agreement ['the HUTA'] dated 6 April 1994 was entered into. 2 Central to the disputes between the parties at a factual level are the circumstances in which attempts were made to secure the rezoning of the Helensburgh lands so as to allow a substantial portion thereof to be developed as a residential subdivision. It is common ground that those attempts were and remain unsuccessful and that a principal claim to relief pursued by the plaintiffs arises by the reason of the failure to secure the rezoning of the subject land. A number of other grounds of relief are also pressed. 3 Presently before the court for determination are notices of motion brought by the defendants and outside parties seeking to set aside a number of subpoenas to produce documents issued to outside parties. The particular notices of motion, the subject of the argument, are those filed for Balleroo Pty Ltd ['Balleroo'], first returnable on 10 September 1999 which appear behind tab six in the materials marked for identification 5A, and a further notice of motion filed by Warren Duncan and Paul Dovico also initially returnable on 10 September 1999, which appear behind tab 8 in the folder marked for identification 5A. This motion is sought to be dismissed by notices of motion pursued by the plaintiffs which appear behind Tabs 10 and 11 of the same folder. 4 The materials which have been read in support of the notices of motion are an affidavit by Susan Gay Ougham made on 23 August 1999 in support of the motion relating to Balleroo and an affidavit made by Susan Gay Ougham on 23 August 1999 in support of the notice of motion relating to Messrs Duncan and Dovico. Also read without objection by the plaintiffs are affidavits appearing behind tabs twelve, thirteen and fourteen in exhibit 5A, namely, the affidavit of Tania Schiff made on 20 August 1999, the affidavit of Anthony Gye made on 27 August 1999 and a further affidavit made by Anthony Gye on 30 September 1999. 5 The subpoenas have been answered in the sense that Balleroo and Messrs Warren Duncan and Paul Dovico have in answer to the subpoenas, as I understand the position, produced the documents to the court. 6 The Court is then presently at a stage in relation to the subpoena process referred to by Moffitt P in National Employers' Mutual General Association Limited v Waind and Hill [1978] 1NSWLR 372 at 381 as 'the second step', namely, the decision of the court concerning the preliminary use of the documents, which includes whether or not permission should be given to a party or parties to inspect the documents. 7 An initial question in relation to the procedure to be adopted on the hearing of the motions concerns the application pursued by the defendants, for whom Mr Shand of Queen's Counsel appears, for leave to cross-examine Mr Anthony Gye, the plaintiff's solicitor, the application said to be based upon the proposition that the subject subpoenas constitute an abuse of process. 8 The submission relies upon the statement made by Ms Ougham in her affidavits of 23 August 1999 in which she deposes that the documents described in the schedule to the subpoena addressed to Balleroo and to Messrs Duncan and Dovico, require production of documents held by Balleroo which 'do not relate to any matter pleaded in these proceedings' and applies for the court to set aside the subpoenas on the bases that they are said not to have been issued for a bona fide process and therefore to have constituted an abuse of process, that they are oppressive and that they constitute 'fishing' by the second, third and fourth plaintiffs. 9 Having heard both senior counsel on Mr Shand's application for leave to cross-examine Mr Gye, in my view that leave should not be granted. 10 Rolfe J, in his Honour's judgment of 31 July 1998 in these proceedings, dealt with a number of subpoenas which had been issued and dealt with a number of notices of motion seeking to set aside those subpoenas. The judgment included a reasonably detailed examination of the authorities and of the principles involved. His Honour enunciated, in a fashion which I would not depart from, the basic parameters which are to inform the court in the exercise of its discretion where an application to set aside a subpoena is pursued. 11 On the one hand, there is clearly to be recognised, the obvious danger of permitting a party by use of the subpoena procedure, to investigate issues of credit having no conceivable relevance to issues pleaded, in the sense that to permit subpoenas of that type to be called would open up matters falling outside the legitimate field of enquiry raised by the issues in contest. On the other hand, it seems to me quite clear that inspection should be granted, so far as is necessary, in the proper conduct of the litigation, where the court forms the view that the material falls within the legitimate field of enquiry raised by the issues in contest and is reasonably likely to add in the end in some way or other to the relevant evidence in the case. The exercise, recognised by Rolfe J, involves the need to balance these alternative considerations. 12 The determination of the Court in the balancing exercise and in particular the proper approach to the question of relevance, requires the court, as Rolfe J indicated, to bear in mind the entitlement of the parties to build up what his Honour referred to as 'an evidentiary mosaic'. 13 As his Honour said, that exercise generally cannot be done, particularly in complicated commercial litigation, by the tender of one piece of evidence or the assertion that only limited material is relevant to the issues involved. As his Honour said, 'particularly is that so when one must have regard to the desirability of as full a cross-examination as possible, assisted by the availability of documents which will aid that'. Hence, as his Honour stated, both as to issues and as to the issue of credit, the court should not be astute to find irrelevance at an early stage in the proceedings. 14 In endeavouring to deal with the relevance issue, Mr Ellicott took the Court through a number of suggested arguable indicia said to require the production of the documents sought. The perceived significance of the transactions sought to be investigated using the materials sought to be produced, was outlined in detail. 15 The stage which these proceedings have presently reached is that in an attempt to familiarise the Court with the issues as pleaded on 9 March, senior counsel for both parties have opened their cases in detail and over several days. 16 From those openings it is quite plain that there is to be the clearest of issues as to credit as between the principal witnesses to be called by the plaintiffs on the one hand and by the defendants on the other hand, these being persons who were privy to the communications between the parties leading up to the entry into of the heads of agreement and HUTA to which I have referred. Rolfe J had recognised this as an important issue in his earlier judgment. 17 It is not presently appropriate that I review the plaintiffs' opening in order to make good the proposition that the plaintiffs' propose in the course of the proceedings, to submit that the defendants were time and time again and in respect of a number of pleaded facts and circumstances, content to breach what are said to have been fiduciary obligations said to have been owed to their joint venture partners. 18 The plaintiffs propose to submit there was a concerted use by the defendants of particular companies, including Ibenmore Pty Limited (later called Rosamond Pty Ltd), in order to carry out transactions for the purpose of deliberately advantaging the defendants against the interests of their joint venture partners. 19 In that regard the plaintiffs' third amended summons sets out at paragraphs 38 to 86, the specifics of the alleged breaches of covenant, and breaches of fiduciary duty, upon which the plaintiffs rely to support their causes of action. Those paragraphs also plead alleged breaches of statutory duty said to arise under Corporation Law section 232 (3) and (4), namely, breaches by the relevant defendants of duties as directors of the joint venture vehicle Rosamond, to act honestly in the exercise of their powers or the discharge of their duties as directors, and breaches of duties in like capacity to exercise the degree of care and diligence that a reasonable person in a like position in a corporation would exercise in the corporations circumstances. 20 In relation to the allegations now made in the third amended summons it is sufficient to refer to particular (i) of paragraph 45. That particular, in referring to donations said to have been made by Rosamond to the political parties referred to in paragraph 45, reads as follows: 'Each of the said donations was not made for the benefit of Rosamond but for the benefit of Walker Corporation Limited, its subsidiaries and the said directors. Rosamond or Ibenmore as it was then known was used by Mr Walker and Mr Dransfield as a front for Walker Corporation in order to make substantial donations perceived to be for the benefit of Walker Corporation, its subsidiaries and themselves as directors and shareholders of Walker Corporation.' 21 Another example of a particular allegation to be found in the third amended summons is to be seen paragraph 62 of the contentions: 'On or about 20 June 1994 Mr Walker and/or Mr Dransfield and/or Walker Consolidated procured Mr Thompson for a consideration to grant to Walker Consolidated for its own benefit an option to purchase the Thompson Land (the "Current Thompson Option"). The actions of Mr Walker and Mr Dransfield were in breach of their respective duties as directors of Rosamond under Section 232(2) and 232(4) of the Corporations Law. The failure of Walker Consolidated to secure the Thompson Option for Rosamond was in breach of the covenant referred to in paragraph 37 and in breach of the fiduciary obligations owed to Lakatoi referred to in paragraphs 36(a) to (e) (inclusive).' 22 Yet another of the allegations to be found in the notice of contention relates to a company known as Vamden Pty Limited. 23 Paragraph 64 reads: 'On or about 10 December 1995 Mr Walker and Mr Dransfield caused Vamden to submit to the Wollongong City Council ("WCC") a development application in respect of the Thompson Land (the 'Vamden Development Application").' 24 Paragraphs 67 and 68 of the notice of contentions then are to the effect that it was the duty of Mr Walker and Mr Dransfield as directors of Rosamond to cause: '(a) any development application for the Thompson Land which could be beneficial to the achievement of the joint venture objectives to be lodged and pursued and, if development consent thereto be obtained, then to obtain such development consent in the name of Rosamond. (b) any material in which property rights did or may exist which could be beneficial to the achievement of the joint venture objectives to be obtained for and be owned by Rosamond.' 25 The particulars given as to the duty are that it arose under section 232(2) and (4) of the Corporations Law. Paragraphs 68 and 69 of the notice of contentions then plead: '68. In lodging the Vamden Development Application and accepting the Vamden Development Consent in the name of Vamden and for the benefit of Vamden: (a) Mr Walker and Mr Dransfield acted in breach of the duties owed by them as directors as alleged in the preceding paragraph; and (b) Mr Walker acted in breach of the fiduciary duty he owed to Mr Hogarth referred to in paragraph 29(a) to (e) (inclusive). 69. The Vamden Development Consent is held by Vamden for the benefit of Rosamond and the rights in and over the materials referred to in paragraph 65 above are held by Vamden on trust for Rosamond.' 26 It is clearly inappropriate to repeat on this interlocutory application in relation to a question going to subpoenas, the whole of the terms of the amended summons, nor to refer with any precision to the latest amendments to that document. 27 I turn to the subject matter of the particular subpoenas the subject of this notice of motion. Mr Ellicott has submitted that by reference to the evidence relied on by the plaintiffs on the motions, the proposition has been made good that the plaintiffs are entitled to inquire into whether the beneficial ownership in shares in the company Balleroo, is in fact held for Mr Walker. 28 Mr Ellicott submits that the materials read in answer to the notices of motion to set aside the subpoenas, should satisfy the Court that a number of transactions occurred which, on a close examination of each of the transactions and of the suggested or perceived relationships between the transactions, would show that Balleroo was used by Mr Walker or by certain of the defendants, for the purpose of making profits which ought to have been profits available to the shareholders in Walker Corporation. 29 A number of steps were taken by Mr Ellicott, in endeavouring to establish the interconnection of these alleged related transactions. These steps are generally dealt with in the affidavits read by Mr Ellicott in answer to the notices of motion and outlined in the detailed oral submissions. 30 The submission was that the material now sought to be tendered through use of the subject subpoenas are generally consistent with the actions of the relevant defendants thrown up for examination on the issues pleaded such as the suggested use of Ibenmore for political donations. The submission is that the plaintiffs will seek to prove use by relevant defendants of other bodies corporate for the purpose of the defendants and not disclosed to the plaintiffs. 31 One aspect of one of those issues on which Mr Ellicott opened, (the transcript will record the precise detail) related to the issue of security alarms. The submission was that these materials may show that relevant defendants in substance acted in respect of the matters the subject of these subpoenas, in similar fashion to the manner in which the plaintiffs plead that the defendants acted on joint venture related transactions. 32 Mr Shand submitted that the suggested wide ranging nature of the inquiry sought to be engaged in by the plaintiffs ought not be permitted. Mr Shand's submission is that the materials appear ex facie to be totally irrelevant to the proceedings and would represent a complete distraction from the issues in the proceedings. The submission is that, by reason of the number of potential issues sought to be addressed by the plaintiffs as allegedly going to credit, the plaintiffs are engaging in conduct which is oppressive. 33 Mr Shand also referred to section 103(1) of the Evidence Act, 1995, which provides that the credibility rule does not apply to evidence adduced in cross-examination of a witness if the evidence has substantial probative value. 34 Mr Shand also referred to subsection 2 of section 103 of the Evidence Act, which provides that: "[W]ithout limiting the matters to which the Court may have regard in deciding whether the evidence has substantial probative value, it is to have regard to: (a) whether the evidence tends to prove that the witness knowingly or recklessly made a false representation when the witness was under an obligation to tell the truth, and (b the period that has elapsed since the acts or events to which the evidence relates were done or occurred. 35 Mr Shand also draws attention to the definition in the Evidence Act dictionary of the words 'probative value of evidence' which means 'the extent to which the evidence could rationally affect the assessment of the probability of the existence of a fact in issue'. 36 It need hardly be said that the present stage of these proceedings is not the stage when the Court determines whether evidence may be tendered, at which stage, questions as to the application or terms of the credibility rule would clearly be squarely in focus. 37 Mr Shand also drew attention to so much of the judgment of Rolfe J, at pages 30 to 32, as dealt with subpoenas relating to Colgate Palmolive Pty Ltd. On those pages Rolfe J referred to the terms of the documents sought to be produced on a subpoena and added, 'Prima facie, those documents have nothing to do with the present proceedings. There is no reference to either Colgate Palmolive Pty Ltd or Waterview Properties Pty Ltd in the pleadings. There is no suggestion that any of the defendants have any interest in or association with either company'. 38 As Mr Ellicott said in argument, the last sentence of that extract from Rolfe J's judgment is not apposite in terms of the way the plaintiffs presently seek access to the documents on subpoena. There is here a suggestion that the defendants have an interest in Balleroo. It is that very alleged interest in or association with Balleroo and the series of transactions which Balleroo may, on the plaintiffs' case, be shown to have entered into, and the mode of use of Balleroo, which the plaintiffs seek to further investigate to prove a course of conduct similar to that here pleaded. 39 Having closely listened to the submissions on the respective notices of motion and subpoenas and bearing in mind the way in which the plaintiffs in this case seek to make good the proposition that the credit is to be in issue, and bearing in mind the way the plaintiffs seek to press a case centred upon the proposition that the relevant defendants engaged in a course of conduct involving alleged serious legal wrong doing under a series of causes of action including breaches of fiduciary obligation, I have come to the conclusion that the plaintiffs ought to be permitted to have access to the materials called for by the subject subpoenas and notices to produce. 40 In that regard the materials which have been before the court to this point in time, will need to be identified by agreement, if possible, by counsel. 41 The motions filed by Balleroo, W. Duncan and P. Dovico to set aside the subject subpoenas are dismissed. 42 I do not propose to deal with questions of costs on the interlocutory application, being of the view that it will often occur that costs of interlocutory motions in a set of proceedings set down for an extended period will go one way or another and that such costs should generally be reserved unless there are exceptional circumstances.

Lakatoi v Walker

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Judgment (10 paragraphs)

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