McLaughlin v Dungowan Manly Pty Ltd

Patrick David McLaughlin (First Plaintiff) PARTIES : Jennifer Therese McLaughlin (Second Plaintiff) Dungowan Manly Pty Ltd (Defendant)

COUNSEL : S J Burchett (Plaintiffs) D A Priestley (Defendant)

SOLICITORS : Turner Freeman (Plaintiffs) Pikes Lawyers (Defendant)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

4924/06 PATRICK DAVID MCLAUGHLIN V DUNGOWAN MANLY PTY LTD

JUDGMENT 1 In these proceedings an application has been brought, by notice of motion filed on 15 June 2009, by Rodney Garratt QC (Mr Garratt) to set aside in whole or in part a subpoena to produce issued on 25 May 2009 requiring the production by Mr Garratt of documents from 1 January 2002 to date within either of the two categories specified in the subpoena. Mr Garratt is the chairman and a shareholder of the defendant but not a party to the proceedings. The application is brought pursuant to rule 33.4 of the Uniform Civil Procedure Rules 2005 and is supported by an affidavit sworn on 15 June 2009 by Mr Garratt's solicitor (David Patrick Baxter), annexing correspondence between Mr Baxter's firm (Pikes Lawyers) and Turner Freeman, the firm representing the plaintiffs in these proceedings (Mr and Mrs McLaughlin). Pikes Lawyers also represent the defendant in these proceedings. 2 Mr Garratt's initial objection to the subpoena, as intimated in his solicitor's correspondence, was that it appeared to constitute a fishing expedition. It was said (by letter dated 5 June 2009 from Mr Baxter to Turner Freeman) that "Our review of the pleadings in the matter does not throw up any legitimate forensic purpose for the documents you seek". 3 Turner Freeman responded (by letter dated 11 June 2009), identifying the various paragraphs of the Amended Statement of Claim by reference to which it was said that the documents sought under the subpoena were relevant to the material facts in issue (that identification being non-exhaustive). Those paragraphs were paragraphs 5, 7-9, 11, 12(c), 13, 15, 16, 17, 19 and 21. Broadly speaking, in those paragraphs the plaintiffs put in issue the validity of various resolutions passed in general meetings of the defendant company or by its board of directors and notices issued pursuant thereto, as well as alleging oppression and breach of s 232 of the Corporations Act 2001. 4 In particular, Turner Freeman's letter noted the allegations which had been made in the proceedings to the effect that the conduct of Mr Garratt (purportedly acting on behalf of the defendant, including as chairman of the relevant meetings of members and directors, in purporting to declare passed the contested resolutions in general meeting and in the company's dealings with other shareholders regarding a levy) was a fraud on the minority, for improper purposes, and discriminatory against and oppressive of the plaintiffs. It was said that the documents which were sought under the subpoena would directly prove, or suggest the likelihood of, the resolutions passed at the meetings of members and directors improperly favouring Mr Garratt at the expense of the plaintiffs (and members generally), would prove the facts and suggest the motivation of Mr Garratt in his dealings with the shareholders, as pleaded, and would shed light on his credibility on the facts of those matters. I should note that no affidavit evidence has yet been filed by Mr Garratt in the substantive proceedings. 5 Reference was made to correspondence in the discovered documents of the defendant between St George Bank (and its solicitors) and the defendant and its solicitors which it was said gave rise to a relevant course of enquiry, namely as to the existence of an agreement between Mr Garratt and others in relation to the purchase of a unit in the Dungowan building (the redevelopment of which building being the genesis of the underlying dispute between the parties) by a third party as undisclosed agent for a company (Loafer Pty Limited) with which Mr Garratt was associated. Background to the application 6 These proceedings were commenced in 2006 by the McLaughlins seeking interlocutory relief restraining the defendant company from acting upon certain resolutions purportedly passed at a meeting of the company's members on 9 September 2006. The resolutions related to amendments to the Articles of Association of the defendant company, which was described by Barrett J, before whom the interlocutory application was heard, as a company title home unit company under the constitution of which the holder or holders of distinct parcels of shares enjoy rights in respect of the unit or apartment within the company's property. The resolutions contemplated the redevelopment of the apartment building (subject to the board's satisfaction with the construction and finance agreements); approval of the amount for which the company might buy back the shares to Units 22 and 23, payable on completion of the project; and for an allowance of $250,000 to be paid to Mr Garratt on completion of the project for his work in relation to the project. 7 The urgency in relation to the matter in September 2006 was that contractors were apparently ready to start work on the re-development within a few days of the application; the building at that stage being largely, if not completely, vacant. 8 His Honour found that there was a serious question to be tried regarding compliance with the requirements for the due passing as a special resolution of the first of the four contested resolutions ("at least" because the notice convening the meeting made no reference to any proposal to pass a special resolution) and that there was conceivably also a question arising from the fact that the resolution was apparently not referred to as a special resolution at the meeting, either upon it being introduced or upon the declaration that it had been passed. 9 His Honour also found that there was a serious question to be tried as to the adequacy of disclosure to shareholders about the project. In that regard, his Honour considered that there was some substance to criticism which had been made of a letter dated 4 September 2006 from a Mr Bartrop of Stane Project Services Pty Limited in relation to the status of the Dungowan redevelopment, including the lack of information about alternatives to the financing package offered by St George Bank and the section about Mr Garratt's "allowance", where his Honour noted that the "brief discussion is qualitative rather than quantitative". 10 However, on the balance of convenience, his Honour considered that none of the resolutions presented the prospect of immediate hardship or irremediable prejudice to the plaintiffs and that the question of the validity of the resolutions could be left to be dealt with at a final hearing without apparent hardship to the plaintiffs in the meantime. His Honour found that, to the extent that the plaintiffs' real complaint was about the exclusion from their flat, this was not of itself a product of the resolutions and that such an invasion of their rights as this might ultimately be found to entail would be able adequately to be compensated by damages. 11 Following dismissal of that interlocutory application, the building work commenced. There was a further general meeting held on 17 December 2006, at which a special resolution was passed amending Article 4 (so as to allow for the inclusion, by way of a "shortfall levy", of unpaid amounts from earlier levies in levies imposed under that Article). 12 By early 2007 difficulties were encountered by the defendant company in obtaining the loan finance necessary to undertake and complete the building works. The directors of the defendant company decided to impose a special levy on shareholders. The plaintiffs were notified of that levy by the strata management agents and Mr Garratt wrote to them advising that if the levy was not paid within the time specified their shares were liable to be forfeited. 13 Another interlocutory application was made by the plaintiffs, this time seeking to restrain the defendant company from taking any action under the Articles of Association against the plaintiffs on the grounds of failure to pay the special levy and from purporting to forfeit or sell the shares owned by the plaintiffs in the defendant company on those grounds. 14 This application again came before Barrett J, who inferred, from the evidence as it stood before him, that all shareholders were given notice of levy at or about the same time. (In the Amended Statement of Claim the plaintiffs allege that shareholders other than the plaintiffs were notified of the levy by way of notices served at Mr Garratt's chambers.) 15 The plaintiffs put their case before Barrett J on various bases, including that the decision of the directors of the defendant company to make the levy notified on 25 January 2007 was made for improper and collateral purposes (that is for the purpose of intimidating the plaintiffs to give undertakings to the bank or to sell their shares or to settle the proceedings or a combination thereof) and that action by the defendant to forfeit the plaintiffs' shares for non-payment of the levy would be oppressive or unfairly prejudicial to, or unfairly discriminatory against, the plaintiffs. 16 His Honour did not consider that the evidence before him supported an inference that the removal of the plaintiffs by forfeiture and sale of their shares was an actuating purpose attending the decision to impose the levy on all shareholders. His Honour considered that the pressing financial needs of the company and the apparent absence of means other than the levy to satisfy them must have led to the decision to impose the levy regardless altogether of impact on the plaintiffs and the possibility that it might result in their elimination from the ranks of membership [Para 75]. His Honour was not persuaded that the plaintiffs had shown an arguable case of abuse of directors' powers. 17 Further, his Honour was not satisfied that there was a serious question to be tried in relation to the fourth ground (of breach of directors' duties), his Honour distinguishing between discrimination amongst members and the differentiation which is permitted and might even be required after the imposition of the levies. His Honour said, "Directors are not obliged to move with mindless uniformity when it comes to decisions to sue for unpaid levies, to take steps towards forfeiture and sale of shares or otherwise to bring home to the company the moneys intended to be raised by the levy. The power to forfeit and sell shares is only one of several means by which the directors, acting for the company, may seek to recover moneys to be raised. The choice of the means to be employed is a choice to be made by directors in good faith according to the circumstances". 18 His Honour noted that, as far as the evidence showed, there had been no action taken actually to forfeit the plaintiffs' shares; the most that had been shown was that Mr Garratt, by letter dated 13 February 2007, had informed the plaintiffs that their shares would be "liable" to forfeiture and sale if one of two things did not happen, the payment of the levy or the making of arrangements satisfactory to the company. 19 Although not necessary for the determination of the application before him, his Honour was further of the view that the balance of convenience, if it were relevant, would strongly favour the defendant company. 20 His Honour noted that, in the course of the hearing before him, it had been made known that the plaintiffs regarded it as suspicious that the levy notice addressed to the plaintiffs was sent by the strata management company directly to them whereas notices for other shareholders were sent by the strata management company to Mr Garratt's chambers. His Honour noted that why that should be suspicious had not been explained to him. (As I understand it, the plaintiffs consider this suspicious as indicating the existence of the striking of arrangements between Mr Garratt or the board in relation to the payment of levies by other shareholders other than the plaintiffs.) 21 I was informed that, after an application by the plaintiffs for leave to appeal from his Honour's decision was dismissed, the plaintiffs proceeded to pay the levy in full, albeit under protest. Subsequently, a request was made for part or all of the levy to be repaid, in circumstances where it was discovered by the plaintiffs that the board had subsequently issued a notice to other shareholders that the levy would only be required to be paid as to half. There has been no refund to the plaintiffs of any part of the levies so paid. Counsel for Mr Garratt (Mr Priestley) informs me that it is very likely that the rest of the levy will have to be paid by all the other shareholders. There is no evidence as to that matter on the application before me, nor does it seem to me to be relevant other than by way of general background. 22 Mr Priestley submits that the whole of the plaintiffs' case depends on the thesis that the building did not need to be vacated and repaired (or did not need to be repaired or redeveloped in the fashion it was) and that the plaintiffs would need to satisfy the court that there were other options available to the company in circumstances where the evidence will be that there was concrete cancer in the building. It was submitted that if it was necessary for the building to be vacated/repaired then the plaintiffs' obligation to pay the special levy cannot be the basis for any grant of relief. However, the plaintiffs' case, as presently pleaded, seems to go beyond a complaint merely as to the fact that they were required to vacate the building for the purposes of the redevelopment or that the building was redeveloped in a particular way. Discriminatory or oppressive treatment in the imposition or enforcement of the special levy, for example, might sound in relief irrespective of whether there were alternative options to the course propounded by Mr Garratt and the board. Subpoena 23 The subpoena seeks production of the following documents: All documents [within the meaning of Section 25 of the Acts Interpretation Act 1901(Cth)] recording;

(a) Any agreement (including but not limited to notes or letters of understanding, deeds, charges and mortgages) by you and/or any company, of which you are or have been a director or shareholder (including but not limited to the Defendant, Loafer Pty Ltd and Garmen Pty Ltd), with: i) any current and/or former shareholder of the defendant company (including but not limited to Ms Ashford, Ms Pether and Mr O'Meagher), ii) any current and/or former director of the defendant company, or iii) the defendant company; relating to occupation or renovation of the defendant company's premises, voting at meetings of the defendant company or payments to you or any person or company for your benefit or the benefit of any company in which you have had a shareholding, from l January 2002 to date, and

(b) any payment or other benefit received by you and/or any company in which you are or have been a director or are or have been a shareholder (including but not limited to Loafer Pty Ltd and Garmen Pty Ltd), from current and/or former shareholders of the defendant company, from 1 January 2002 to date. 24 Counsel for the plaintiffs (Mr Burchett) says that, by the subpoena, what the plaintiffs are seeking (against the background, I note, of the existence of one private arrangement in relation to ownership of shares in the defendant company) is to obtain the records of any private arrangements entered into by Mr Garratt with shareholders in relation to the project, which he contends will shed light on Mr Garratt's purpose in proposing and putting into effect the board decisions regarding the levy, how they affect Mr Garratt and those shareholders with whom he has made agreements, and thus provide a basis from which the discriminatory effect of the levy can be established. 25 It is submitted for Mr Garratt that the subpoena should be set aside as a abuse of process on the grounds that it:

(b) seeks documents apparently solely for the purpose of impugning credit;

(e) is oppressive. Test 26 In Cosco Holdings Pty Limited v Commissioner of Taxation (1997) 37 ATR 432, Spender J discussed Beaumont J's statement in Trade Practices Commission v Arnotts Limited (No 2) (1989) 21 FCR 306, that the "test of adjectival relevance" (as distinct from substantive relevance) is satisfied where the documents called for "could possibly throw light on the issues in the main case". Spender J noted that the word "possibly" is "not used in any speculative sense" and so a subpoena may be set aside if the issuing party cannot, on reasonable grounds, show that there is a reasonable possibility that the documents sought will assist in resolving a matter in dispute in the proceedings. 27 Nicholas J in ICAP Pty Limited v Moebes [2009] NSWSC 306 adopted an approach to Trade Practices Commission v Arnotts consonant with that of Spender J in Cosco. The authorities concerning relevance largely deal with the subject in the context of "fishing" objections in which questions of relevance necessarily arise. Accordingly, there is a significant, though not complete, overlap between the considerations raised by the submissions of Mr Priestley, in particular whether the subpoena seeks relevant evidence, whether it is oppressive and whether it constitutes impermissible fishing. 28 In ICAP, having referred to the formulation of the test which had been considered by Brereton J in Portal Software v Bodsworth [2005] NSWSC 1115 of "apparent relevance" (which Beaumont J in Trade Practices Commission v Arnotts had considered established if the documentation called for "could possibly throw light on the issue") Nicholas J expressed caution in the application of a test which incorporates a phrase such as "on the cards" or "could possibly throw light on" when the legitimate forensic purpose of a subpoena is challenged. 29 In Attorney-General (NSW) v Chidgey [2008] NSWCCA 65, Beazley JA saw no reason to depart from the test and the language used in Alister v R (1984) 154 CLR 404 and Regina v Saleam [1999] NSWCCA 86. 30 In Saleam at [11], Simpson J (Spigelman CJ and Studdert J agreeing), in the context of criminal proceedings had stated the relevant test as follows: The principles governing applications [for an order that documents be produced] are no different from those governing applications for access to documents produced in answer to a subpoena. Before access is granted (or an order to produce made) the applicant must (i) identify a legitimate forensic purpose for which access is sought; and (ii) establish that it is 'on the cards' that the documents will materially assist his case. 31 Gibbs CJ, in Alister, considered that a less stringent test (there in respect of judicial inspection of documents over which public interest immunity was claimed) applied in criminal proceedings than in civil proceedings (see also Commonwealth v Northern Land Council (1991) 30 FCR 1 at 37 per Black CJ, Gummow and French JJ). Certainly, in criminal cases, it has often been stated that an accused must establish that it is "on the cards" that the material sought will assist. In some instances, this has been treated as a means of establishing the criterion that a subpoena be issued for a legitimate forensic purpose (eg R v Saleam (1989) 16 NSWLR 14 per Hunt J; Carroll v Attorney-General (NSW) (1993) 70 A Crim R 162 per Hunt CJ at CL; R v Ali Tastan (1994) 75 A Crim R 498 per Barr AJ; Attorney-General (NSW) v Stuart (1994) 34 NSWLR 667 at 676 per Hunt CJ at CL; R v Gergis [2000] NSWCCA 508 per Whealy J; R v Taylor (2007) 169 A Crim R 543 at [11] per Hidden J) and in other instances this has been treated as a discrete criterion in addition to the criterion that there be a legitimate forensic purpose (Carroll v Attorney-General (NSW) (1993) 70 A Crim R 162 per Kirby ACJ; Saleam [1999] NSWCCA 86 at [11] per Simpson J; Chidgey per Beazley JA). 32 In civil proceedings, the test has frequently been stated in terms such as those used by Nicholas J in ICAP, namely that "it must be shown that it is likely the documentation will materially assist on an identified issue, or there is a reasonable basis beyond speculation that it is likely that the documentation will". 33 That requires a consideration of the issues in the proceedings to which the subpoenaed documents are or may be of relevance in order to assess whether there is a legitimate forensic purpose served by the subpoena. 34 Here, in my view, the subpoena identifies the documents sought with reasonable specificity. However, as in Alister, the plaintiffs are unable to say whether or not documents of the kind described do in fact exist. They assert that there is reasonable cause to believe (or, perhaps, to use the words of Gibbs CJ at 414 in Alister that it is not unreasonable to believe) that there are such documents in existence - by reference to an Agency Agreement which came to light on discovery (to which I refer below) and the fact (asserted from the bar table) that such payment of the levies as has to date been made by a number of the shareholders was by cheque from Mr Garratt. 35 In this regard, I note that in Chidgey, albeit in the context of criminal proceedings, Beazley JA (with whom James and Kirby JJ agreed) emphasised that mere relevance was not sufficient to establish a legitimate forensic purpose. Her Honour referred to what was said by Mahoney AP in Carroll v Attorney-General for New South Wales (1993) 70 A Crim R 162, where his Honour was concerned with the question whether access should be given to certain documents that had been subpoenaed in criminal proceedings. His Honour said, at 181: "… the court must, in general, be satisfied that the documents are relevant to an issue for decision by the court in the litigation. It is not open to a party, as on a 'fishing expedition', to subpoena documents merely in order to determine whether they may be relevant and may be of assistance to his case in the proceeding ." (Emphasis per Beazley JA) 36 Her Honour did not accept the reframing of the test by Adams J in Roads & Traffic Authority of NSW v Conolly [2003] NSWSC 327 at [12] as her Honour considered this to be reducing the test to one of "mere relevance": … I think the essential notion is that there is a reasonable chance that the material sought will assist the defence. If it is reasonable to infer that the material sought exists and that it is relevant to an issue, though its content is unknown, it will almost invariably be logically the case (as it seems to me) that such a chance exists, even though it might be thought to be unlikely. Seeking that material therefore seems to me to be a legitimate forensic purpose, providing of course that the factual issues and the character of the material sought are precisely identified. (Emphasis per Beazley JA) 37 Her Honour held: Notwithstanding that the subpoena sought documents that were identifiable, I am of the opinion that the legitimate forensic purpose identified by the Magistrate amounts to no more than a proposition that the respondent was entitled to engage in a " fishing expedition " to ascertain whether there had been compliance with s 5(2A). That is apparent from the terms in which the Magistrate identified the forensic purpose. There was no material before the Magistrate to indicate that there had been, or might have been, non-compliance with s 5(2A).

This is acknowledged in his Honour's comment that there should be access to the documents to enable the respondent to check whether there had been compliance with s 5(2A). In other words, the Magistrate identified the legitimate forensic purpose in terms that meant the respondent needed to have access to the documents " to discover whether he has a case at all ": see The Commissioner for Railways v Small at 575. As Jordan CJ stated in that case, a party is not entitled to use a subpoena for that purpose.

38 This raises concern as to whether, if (notwithstanding that it could be said to be "on the cards" or reasonably possible that documents of the kind falling within the subpoena would materially assist the plaintiffs' case and hence that there would be a legitimate forensic purpose in seeking their production) the plaintiffs are unable to point to evidence that there are in fact any such documents in existence, this becomes, in effect, seeking to discover whether there are any such documents to make out a claim, akin to a preliminary discovery application. 39 The fact that an issuing party does not know whether the documents sought in a subpoena exist does not of itself lead to the conclusion that the subpoena should be set aside. Whether a party has cause to believe that particular documents exist may be a relevant factor in determining whether the subpoena is oppressive and/or constitutes "fishing", but that is something considered in conjunction with the potential relevance of the documents sought and the breadth of the subpoena. It seems to me that those cases in which the ignorance of a party as to the existence of the documents sought has contributed to the setting aside of a subpoena tend to be cases in which the assistance sought from the documents is highly speculative and/or the subpoena fails to specify documents with reasonable particularity. 40 In National Employers' Mutual General Insurance Association Ltd v Waind and Hill [1978] 1 NSWLR 372, Moffitt P (with whom Hutley and Glass JJA) said (at 382): … It does not follow, however, that because the party who issues a subpoena is unaware of the precise description of a particular document, or whether a particular document or documents is in the possession of the witness, or even whether it exists , or is unaware of its contents, that the subpoena, or even a subpoena in general terms, amounts to the use of the subpoena for the [impermissible] purpose of "discovery". … (My emphasis) 41 This statement of principle has been applied on a number of occasions. 42 In Universal Press Pty Limited v Provest Limited (unreported, FCA, 14/07/89), Hill J stated: Like Clark J, as his Honour then was, in Southern Pacific Hotel Inc v Southern Pacific Hotel Corporation (1984) 1 NSWLR 710 at p 717, I am of the view that there are two separate grounds for setting aside a subpoena that are often confused. The first, to which I have already referred, is the ground that the subpoena is so widely framed as to be burdensome and oppressive and therefore an abuse of process. The second, often linked with the first, is that the subpoena requires the addressee, being a third party to the litigation, to produce all documents which may afford evidence of the matters in dispute between the parties, is thus used as a way of obtaining discovery against a person not party to the litigation and so should be set aside (cf Small's case supra).

Where the objection to a subpoena is that it is a misuse of the process of the Court for the purpose of discovery, what is usually meant is that it is an abuse of process to require a person not a party to litigation to form a judgment as to what is relevant to the issues joined in a proceeding to which he is not a party: National Employers' Mutual Association Ltd v Waind & Hill (1978) 1 NSWLR 372 at p 382. It does not follow that a subpoena, issued in circumstances where the person requesting its issue is uncertain whether any documents exist which fall within the description in the subpoena, that description being otherwise precise, will be bad. (My emphasis) 43 In Carter v Hayes (1994) 61 SASR 451, King CJ, with whom Bollen and Mullighan JJ agreed, having considered the evidentiary value or legitimate forensic purpose of the subpoenaed documents (at 453): Emphasis was placed upon the appellant's lack of knowledge as to the contents or even the existence of the documents. A party's lack of knowledge of the existence or contents of the material sought is not of itself, however, a valid objection to a subpoena: National Employers' Mutual General Association Ltd v Waind [1978] 1 NSWLR 372 at 382. Alister v The Queen (1984) 154 CLR 404 is an instance of a valid subpoena for the production of documents the existence of which was not known to the accused with any specificity. Hunt v Wark (supra) is plainly distinguishable. … The purpose was purely "fishing", that is to say to see whether anything might turn up in the documents which might provide a ground for the rejection of evidence. This case is quite different. The documents sought to be produced by the present subpoena must, by their nature, have a bearing on the issues in the case and may well have evidentiary value. To my mind the description "fishing" is not properly applied to such a subpoena. 44 Waind has been applied in various cases; see for example in Marsden v Amalgamated Television Services Pty Limited [1999] NSWSC 619, where Levine J said (at [455]): … it does not follow that because the party who issues a subpoena is unaware of the precise description of a particular document, or whether a particular document or documents is in the possession of the witness, or even whether it exists, or is unaware of its contents, that the subpoena, or even a subpoena in general terms, amounts to the use of the subpoena for the purpose of "discovery". This involves a misconception of the different functions of discovery and of a subpoena for production: see Waind v Hill at 382B ff. (My emphasis)

and see also Telstra Corporation Limited v Minister for Communications, Information Technology and the Arts [2007] FCA 1398 per Graham J (at [52]). 45 In Associated Dominions Assurance Society Pty Ltd v John Fairfax & Sons Pty Limited (1952) 72 WN (NSW) 250 at 254 it was said: It is true, as counsel for the appellant has argued, that a defendant in a libel action who has pleaded justification is not to be allowed to go on a mere "fishing expedition" into the plaintiff's records in the hope of finding there something which may supply him with the evidence necessary to support this plea. But whether a particular expedition is a mere "fishing expedition" depends upon the meaning of that phrase. A "fishing expedition", in the sense in which the phrase has been used in the law, means, as I understand it, that a person who has no evidence that fish of a particular kind are in a pool desires to be at liberty to drag it for the purpose of finding out whether there are any there or not. If, however, there is material before the Court pointing to the probability that a party to litigation has in his possession documents tending to destroy his case or to support the case of his opponent and that privilege from inspection of such documents has been wrongly claimed, an application by that opponent to be allowed to inspect them cannot properly be described as a mere "fishing expedition". 46 The explanation there given of a fishing expedition is not significantly different from Moffitt P's statement in Waind that a subpoena would be liable to be set aside if it sought all cheques received by a bank in a particular year in order to find a cheque of the opponent in a false name, but not if it sought from a hospital its file in respect of the medical treatment of the opposing party (without knowing what might be in that file).

47 If the documents sought are of sufficient potential assistance to the plaintiff's claim and they are identified with reasonable particularity in the subpoena, as I think is here the case, then it matters not, in my view, that the plaintiffs do not know whether any of the documents sought in fact exist. Insofar as it is relevant that the plaintiffs have some reasonable basis for believing that the documents may exist, then the fact of the agency agreement would provide some support for this, the undisclosed nature of that arrangement giving rise to questions of motive and intention, which lead, in my view, to a train of enquiry of potential relevance to the issues of adequacy of information/discriminatory treatment. Issues 48 I turn then to the specific issues identified in the pleadings and particulars which, as Nicholas J noted in ICAP is the point of reference by which the legitimacy of the subpoena may be determined. 49 In relation to the September Resolutions and the Special Resolution (using those terms as defined in the Amended Statement of Claim) there are allegations as to the adequacy of information provided to the members (paras 5(d), 7(d)) and that they were procured by material misrepresentation by the defendant company as to various matters including the terms of funding and compensation to directors (paras 5(g), 9). In relation to the Levy Resolution, paragraph 11 pleads various matters going to its alleged invalidity, including the existence of collateral and improper purposes for which it was said to have been struck (and similarly, paragraphs 12(c) and 15(d) allege that the Notice of Levy and Forfeiture Notice, respectively, were served for collateral, improper or unauthorised purposes). It is alleged that, in the premises, the conduct of the affairs and acts of the defendant company were oppressive, unfairly prejudicial to, or unfairly discriminatory against, the plaintiffs (paragraph 17). 50 What is then alleged (in paragraph 19) is that the directors (which would include Mr Garratt) acted in breach of their duty as officers of the defendant company by reason of their conduct as pleaded in paragraphs 19(a) to (g). 51 It was submitted by Mr Burchett that if there were (other) secret or side agreements between Mr Garratt (or an associated company) and the defendant company or current or former shareholders or directors of the defendant company then this would be relevant to whether or not the material put before the shareholders of the defendant company had materially misrepresented the position or was misleading by omission in relation to what benefit Mr Garratt would be deriving from the project and as to whether or not it was necessary for the defendant to enter into the project or to agree to the matters the subject of the resolutions. Emphasis was placed upon the fact that the adequacy of information to shareholders was a matter in respect of which Barrett J had found there was a serious question to be tried on the first of the interlocutory applications before him. 52 Similarly, documents relating to an agreement between Mr Garratt and the shareholders (in relation to payments or benefits to Mr Garratt or to the occupation or redevelopment of the Dungowan building) would, it was said, go to whether or not there really was a proper intention objectively underpinning the levy (or an intention to procure payment of costs or forfeiture of shares). While, on the evidence before Barrett J, his Honour was unable to conclude that the actuating motivation for the levy was otherwise than as professed, it was suggested that the subpoenaed documents would have the potential to affect the final determination of that issue. 53 Reliance was placed by Mr Burchett on Duke Group Limited (in liq) v Pilmer (1998) 27 ACSR 1 to the effect that evidence of a director's secret shareholding in a takeover target may assist in determining the true motives of those controlling the company in recommending the takeover to shareholders; the use of that evidence not having been criticised in the Court of Appeal. 54 Reference was also made to Doyle v ASIC (2005) 227 CLR 18 for the proposition that even though subjective intention or purpose was not a necessary ingredient in determining improper use of position, the presence of such an intention or purpose might be relevant in assessing impropriety. It was submitted that, when looking at whether or not there had been an impermissible collateral purpose which was causative of the decision to proceed with the resolutions it is permissible to look at evidence of intention. 55 In seeking to set aside the subpoena, it was submitted by Mr Priestley that whether or not the impugned resolutions were invalid was a matter which must turn on the objective circumstances and not on the motives or credibility of any one or more of the directors; that any finding that the company's conduct was contrary to the interests of the members as a whole or oppressive could be based only on the objective facts; and that entitlement to bring a derivative action would not depend on the motives or credibility of individual directors. Hence, it was suggested that the subpoenaed documents would not be relevant to any issue in the proceedings. 56 It was noted that all relevant board decisions were unanimous and that all relevant votes at the general meetings had been unanimous (but for the votes of the plaintiffs); and that there was no allegation of misconduct against Mr Garratt as such, the only allegation of improper purpose being against the defendant company. It was submitted, therefore, that the only relevant question was what those supporting the impugned resolutions had objectively sought to achieve by them. 57 Insofar as Mr Burchett asserts the requisite degree of relevance by reference to paragraph 19(e), I do not accept this submission. Paragraph 19 pleads certain facts said to give rise to an entitlement on the part of the defendant to bring proceedings (described as "the derivative proceedings") against its directors for breaches of duty pursuant to ss 180, 181 and 182 of the Corporations Act. In paragraph 21(o), the plaintiffs seek leave pursuant to s 237 of the Corporations Act to bring the derivative proceedings on behalf of the company. Paragraph 19 does not plead a claim brought by the plaintiffs in these proceedings. 58 What s 237(2) requires is that there be a serious question to be tried; the applicant does not need to prove any element of the foreshadowed derivative suit in order to satisfy s 237(2). Insofar as the defendant denies paragraph 20(d) of the Amended Statement of Claim (which pleads that there is a serious question to be tried), arguably such a denial would render the matters in paragraph 19 the subject of dispute in the present proceedings. The documents sought under the subpoena might shed light on that issue. 59 However, the consequence of a finding that a plea of the kind contained in paragraph 19 did form a ground upon which a subpoena to a prospective defendant in derivative proceedings could be upheld would be that in every proceeding where a member sought leave to bring derivative proceedings against a third party (and the existence of a serious question in the derivative proceedings was denied), that third party's documents might be subject of a subpoena, notwithstanding that their potential relevance is only to the (as yet non-existent) proceedings in respect of which leave is sought. If an applicant under s 237 cannot show that there is a serious question to be tried without seeking evidence on subpoena from the prospective defendant, then it is hard to see how the subpoena would not be seen as being impermissible "fishing". The applicant would be using the subpoena to determine whether it had a case, rather than to seek evidence in support of a known case. 60 I have some doubts as to the relevance of Doyle to the argument raised by Mr Priestley, as I am not presently dealing with an action against Mr Garratt personally (though leave to bring such an action is sought by way of the derivative proceedings). Rather, the substance of Mr Priestley's submission appeared to be that, whatever the subjective motives of Mr Garratt were, these cannot be relevant in impugning the actions of the company or the board. That submission may well be correct in relation to the September Resolutions and the Special Resolutions which were passed by the members in general meeting (though it does not avoid the issue regarding the adequacy of the information given to the members). However, it is not clear that it is correct in relation to the Levy Resolution which was passed by the board. 61 McLelland J dealt with a not dissimilar submission in Kelly v Raymor (Illawarra) Pty Limited [1981] 1 NSWLR 720 at 721, in which the following question arose: … whether in proceedings in which the validity of the resolution of directors of a company is challenged, on the basis that it was adopted for an improper purpose, it is permissible to interrogate a director as to his state of mind or motives at the time he participated in the passing of the resolution, with a view to establishing his motives or reasons for so doing.

The contention that such an interrogatory is not permissible is based on the proposition that the subjective state of mind of individual directors is irrelevant to the issue of the validity of such a resolution. The relevant purpose, it is submitted, can be legitimately ascertained by reference only to such objective facts as the formal acts of the company and the facts or documents which were before the board as a whole at the relevant time. 63 In the present case, Mr Priestley argues that "whether the Levy Resolution is invalid or not must turn on the objective circumstances". In relation to the corresponding submission in Kelly v Raymor, McLelland J found (at 721-722) that: the contrary is clearly established; that is, that the validity of such a resolution can be legitimately challenged on the basis of mala fides or improper motives on the part of individual directors without whose participation the resolution would not have been adopted. It is not necessary, in support of this proposition, to go further than the decision of the Privy Council in Howard Smith Ltd v Ampol Petroleum Ltd [1974] AC 821, where at p 835; [1974] 1 NSWLR 68, at p 77, their Lordships approved, in unequivocal terms, the following statement by Viscount Finlay in Hindle v John Cotton Ltd (1919) 56 Sc LR 625, at pp 630, 631: "Where the question is one of abuse of powers, the state of mind of those who acted, and the motive on which they acted, are all important, and you may go into the question of what their intention was, collecting from the surrounding circumstances all the materials which genuinely throw light upon that question of the state of mind of the directors so as to show whether they were honestly acting in discharge of their powers in the interests of the company or were acting from some bye-motive, possibly of personal advantage, or for any other reason." 64 Accordingly, while there is no personal action against Mr Garratt in the present proceedings asserting a breach of duty by reason of his acting for an improper purpose, evidence shedding light on the issue whether he acted for an improper purpose may well be relevant to the question whether the resolution of the board itself was so motivated. Insofar as the defendant may wish to challenge the reasoning in Kelly v Raymor (which was not raised by the plaintiffs on the application before me), or may wish to address the broader difficulties relating to subjective and objective assessment of directorial conduct adverted to by Owen J in Part 20.7 of The Bell Group Limited (in liq) v Westpac Banking Corporation (No 9) (2008) 70 ACSR 1, those are not issues which ought to be resolved on an interlocutory basis. For present purposes I am not convinced that documents which may assist in ascertaining Mr Garratt's subjective motivation lack the requisite degree of relevance. 65 If, for example, there was material which would show that the subjective object and motivation of the directors' decision to impose the levy was to remove the plaintiffs as shareholders then (whether or not there was an available proper object which might also have been achieved by exercise of that power, namely to raise the levy to pay for the project) this would be of potential relevance in determining what inferences should be drawn as to the conduct of Mr Garratt and the other directors. 66 While Mr Garratt is only one of the directors who made the relevant decisions in relation to the levy/forfeiture notices, his position as chairman (and what seems to have been his prominent role in relation to the work for the project - expressly recognised in the "allowance" contemplated to be paid to him for his work on completion of the project) suggests that if there were evidence of a collateral purpose or motivation on his part there might be a basis on which inferences could be drawn as to the conduct of the board itself. I say this without any criticism of Mr Garratt's conduct, as to which I am not in a position to make, and do not make, any comment. However, it seems to me that it cannot be said the subpoenaed documents could have no (or insufficient) potential relevance to warrant a conclusion on this ground that the subpoena should be set aside. 67 As to the potential relevance of payments or benefits received by Mr Garratt or his companies, again that seemed to be put on two bases - first that they could provide evidence of arrangements or agreements between Mr Garratt and others, the non-disclosure of which would be relevant to whether there had been a material misrepresentation made to company members and, secondly, that (insofar as the payments related to the levies which had been struck) they would be relevant to the question whether there had been any unfairly discriminatory treatment of the plaintiffs attributable (via its chairman's actions) in some way to the defendant company. It seems to me that, considered in that way, there is potential relevance of documents recording payments or benefits of this kind. 68 I note that the second ground on which Mr Garratt sought to set aside the subpoena related to the situation, if it were to be found (as is not the case in light of what I have concluded), that the potential relevance of the subpoenaed documents would go only to credit (or the credibility of his evidence). It was said that a subpoena for this purpose is impermissible at least unless there is reasonable cause to believe such documents actually exist. 69 In this regard, Mr Priestley submitted that the only matter to which documents of the kind subpoenaed could go would be the credibility of Mr Garratt; and that it was not a legitimate purpose to seek the production of documents sought solely because of their capacity to impugn the general credit of a witness (Re Bird v Military Rehabilitation & Compensation Commission [2006] 91 ALD 691; Liristis v Gadelrabb [2009] NSWSC 441). 70 It sees to me that this objection forms part of the overall objection as to the subpoena being a fishing expedition. Reference was made to the judgment of Brereton J in Liristis v Gadelrabb where his Honour made a distinction between trawling/fishing applications and considered that, if there was no reasonable basis for inferring that there was a document and it would alone impugn credit, then a subpoena seeking production of such a document would be bad, but that where there was known evidence it would be appropriate for leave to issue a subpoena even if it only went to credit. 71 Here, the plaintiffs place reliance on the fact that it is known that there was at least one "secret" agreement between Mr Garratt and another shareholder. The plaintiffs are seeking to find evidence of any other agreements with shareholders in relation to the project. Even if it went solely to credit, it is said by Mr Burchett that the test arising from the distinction drawn by Brereton J in Liristis would be satisfied. 72 Following discovery by the defendant, reference was noted in one or more documents produced on discovery to an agreement (which I have adverted to earlier) made 17 April 1997 between Mr Garratt, Loafer Pty Limited (a company with which Mr Garratt is apparently associated) and a Mr Peter Simon O'Meagher (another shareholder), pursuant to which Loafer requested Mr O'Meagher to purchase, as its undisclosed agent, certain shares in the defendant company (to which the right to occupy one of the apartments within the building attached). That agency agreement made it clear that the purchase of the shares (and hence the rights to an apartment) was to be for and on behalf of Loafer Pty Limited, as the undisclosed principal. Mr Garratt indemnified Mr O'Meagher against any loss or liability in respect of the shares and in respect of the apartment including any tax liability which might arise from income derived from the apartment and capital gains tax which may be incurred from the sale of the shares relating to the apartment. 73 Mr Priestley submitted that the test is whether or not there is sufficient reason to believe that there is a likelihood that the documents subpoenaed would exist and that the fact that there is one document (emerging in the way in which it did) does not suggest that there were others, nor does it suggest that there were documents recording payments made in relation to the levy or otherwise. It was submitted that if the question of credit or credibility alone arises then the question arises as to what Mr Garratt would have to establish in this case given that, as he is not a party, Mr Garratt does not have to establish the board's motives himself, the board's motives rather being ascertained by objective evidence. Therefore, it is said that the credibility of Mr Garratt would not come into play. (I note that at this stage evidence in the substantive proceedings has not been served, so it is by no means apparent that any issue as to his general credit will become relevant in the hearing before me.) 74 It was submitted by Mr Priestley that there is no reason to think that there are any side or secret agreements entered into by Mr Garratt with anyone. Mr Priestley nevertheless conceded that, if there were reason to think that there were such agreements, then this might convert the current subpoena from that which he says it is (an impermissible "trawling expedition") to a (permissible) "line fishing" expedition. 75 It was suggested by Mr Priestley that, since the Agency Agreement had become known to the plaintiffs during the course of discovery by the defendant (it having been referred to in a financing context in correspondence between St George Bank's solicitors and the defendant's solicitors) and no other such document (or reference thereto) had been discovered, there was no reason to think there would be any other secret agreements. Similarly, it is said that there is no reason to think that there would be any document recording a payment or other benefit passing between Mr Garratt and former or current shareholders of a kind that would be relevant to the case. 76 However, it seems that it was only indirectly (and perhaps fortuitously) that knowledge of the 1997 Garratt/Loafer agency agreement came to light in the first place. Had no reference been made to it in the St George Bank correspondence, there is no suggestion that it would otherwise have been discovered. Why the arrangements were required to be kept undisclosed and what other such documents might be in existence (to which no similar reference was made in discovered documents), I do not know. It seems to me that it is open, by reference to the hidden nature of the document (at least where the reason for that arrangement remaining undisclosed is not apparent), for an inference to be drawn that there may be other private arrangements of this or a similar kind. 77 Mr Burchett referred to the evidence of the Garratt/Loafer agency agreement, and to the admission by the company that Mr Garratt had caused all levy notices (other than those to the plaintiffs) to be sent to him through the strata management agent, as providing a reasonable basis to think that there may be agreements of some sort between Mr Garratt and one or more of the shareholders in relation to the project or the levies imposed in relation thereto. 78 As to the service of notices of levy it was submitted by Mr Priestley that if the board decided all notices should go to the chairman for distribution and the chairman decides that they should go to one shareholder directly then that is not something from which one could infer any form of intent. It was submitted that there is no evidence that there is a reasonable likelihood that arrangements existed between the shareholders and Mr Garratt for payment of benefits and no reason to think there were agreements between the same for the chairman to arrange service of notices. However, the fact that a direction or instruction was presumably given (whether by the shareholders themselves or by Mr Garratt as chairman) for service of levy notices to other shareholders care of Mr Garratt himself does in my view provide a reasonable basis for an inference that there was some form of arrangement or understanding in relation to the notices or the subject matter thereof. 79 It was further put (although there was no evidence before me as to this) that there was some evidence of a small payment made in respect of the levies by three shareholders, albeit that such payment was made by the one cheque from Mr Garratt. Mr Burchett suggested that this indicated that there was an agreement in relation to the payment of levies in some way. The plaintiffs suspect that other shareholders were never expected to pay the levy and that the notice of levy was simply a token or device to remove his clients as shareholders. It is said that that inference is supported by the discovered documents, to which I was not taken, insofar as the St George Bank documents indicate that the bank wished for the plaintiffs to be removed as shareholders and that this was in some way a condition of the provision of loan finance. There was no evidence before me to enable me to form a view on this. 80 There was also some debate from the bar table as to whether there had been a sale of certain other units by directors at a premium not offered to the plaintiffs; although the relevance of this to whether the subpoena should be set aside is not immediately apparent to me. 81 I do not consider that the potential relevance of the subpoenaed documents is limited to credit. If it were so limited then I would have had difficulty in upholding the subpoena. As it is, I consider that the legitimate forensic purpose of the subpoena has been established. Width/uncertainty/oppressive nature of subpoena. 82 It was submitted for Mr Garratt that if he did not succeed in having the subpoena set aside, then at least the subpoena would need to be substantially narrowed. Further it was submitted that any call on the subpoena should be deferred until after the plaintiffs' evidence in chief had been filed. As I understand the latter submission, it was in order to see whether, on the evidence to be filed for the plaintiffs, the subpoenaed documents might be relevant (presumably to credit) or not. 83 Turning to this issue first, I am not aware of any authority for the proposition that the permissible scope of a subpoena should be tested by reference to the evidence to be adduced by the parties (as opposed to testing it by reference to the facts in issue in the proceedings). I do not see any reason to defer the subpoena until after the plaintiffs' evidence in chief has been filed, nor do I consider that there is any forensic advantage to the plaintiffs (or corresponding disadvantage to the defendant) in the subpoena being made returnable at this stage. 84 Insofar as the subpoena is said to be too broad or uncertain in its terms, various matters were raised. It was submitted that in its terms it would call for agreements between Mr Garratt and companies of which he is himself a shareholder or director (such as Loafer Pty Limited or Garmen Pty Limited), as well as agreements with the defendant and that it would include agreements entered into by the defendant company itself in relation to the renovations of the Dungowan building (so, for example, retainer of a an adviser in relation to heritage listing, etc). 85 Insofar as there is an "overlapping" in the categories specified in the subpoena such that they would cover documents involving Mr Garratt and his own companies without reference to the project or the impugned resolutions or notices (such as dividend payments and the like), as to which (notwithstanding the matters raised in argument by Mr Burchett) I think there could be no relevance to the issues in the proceedings, I agree with Mr Priestley's submissions. I think the subpoena should be limited to exclude documents relating to the payment of dividends to Mr Garratt and should exclude documents otherwise falling within (a) which relate to agreements there may have been by or on behalf of the defendant with third parties (such, as, for example, heritage consultants or the like) not being current or former shareholders or directors of the defendant, in respect of the steps taken to obtain the requisite approval from regulatory authorities and then to effect the redevelopment itself. 86 As to uncertainty, it was submitted that the words "agreement relating to renovation", "agreement relating to voting at meetings" and "agreement as to occupation of the defendant company's premises" were uncertain. For example, a question was raised as to whether the words "agreement as to occupation … " meant occupation of the whole building or only part thereof. In relation to the second category of documents subpoenaed, namely documents recording any payment or other benefit to Mr Garratt, it was submitted that this would cover broad benefits, (such as hospitality in the form of a drink) including a payment for the use of a flat or to settle the outcome of a sporting wager. 87 It was submitted that, to the extent that the subpoena might "catch" many financial records of Loafer Pty Limited and Garmen Pty Limited, this was a gross invasion of privacy in relation to documents which could have no bearing on the issues in the case. If, in relation to the subpoenaed document, as was suggested, there are privacy issues, they can be dealt with by an appropriate arrangement or by an application being brought, after production, for access to be refused or limited. 88 In general, I consider the objections to the terminology in the schedule are not likely in practical terms to be productive of sufficient uncertainty to render the subpoena objectionable. I would have thought a common sense view could be adopted when construing the terms of the subpoena. In my view it calls for documents with reasonable particularity. 89 However, I do not consider it appropriate for the subpoena to be cast as broadly as it is in relation to payments or benefits. Insofar as complaint is made that it and would catch things such as "sporting wagers" or everyday hospitality, I accept that it might be thought unlikely for documents recording such benefits to be kept in the ordinary course. If there are such documents and there is any doubt as to whether they must be produced, that is a matter which could presumably be clarified with the plaintiffs' legal representatives, who I trust will take a sensible view. However, insofar as, literally read, the subpoena would encompass, for example, payment of fees to Mr Garratt who might have been briefed in a professional capacity in respect of matters wholly unconnected with the Dungowan development, it would seem to me to be too broad. 90 In that regard the subpoena needs to be limited to make it clear that what is sought in (b) are documents recording payments or benefits in respect of the levies struck by the directors and notified to shareholders in January 2007, or otherwise in respect of the occupancy, use, vacation or redevelopment of the Dungowan building, not payments of benefits Mr Garratt may have received in his capacity as a barrister (for which, presumably, formal memoranda of fees would have been issued). 91 In general, I am not persuaded that the subpoena is too wide in its terms. In this regard, it is relevant that Mr Garratt is not someone on the periphery of the transactions the subject of the proceedings; he is (or was) directly involved. Further, he is well equipped, as counsel, to form a considered view as to what would be covered by the subpoena. If there is doubt as to what is intended by the terms of the subpoena, that can be clarified with the plaintiffs' legal representatives. I note that in Lucas Industries Limited v Hewitt (1978) 18 ALR 555 it was said (at 571): It is reasonable to believe that [the subpoenaed party's] records, even relating to past years, are in accessible situations and reasonably indexed and controlled by efficient staff. Also it is required of a person to whom a subpoena is directed that he will read it sensibly and with reference to the circumstances as known to him. It is relevant that the subject matter … is one with which [the subpoenaed party] is well acquainted and to which it has given much attention in relevant times. 92 It was further submitted that it would be oppressive for a third party in the position of Mr Garratt to be required to review seven and a half years of email and other records in order to ascertain whether the documents were available. As to the alleged oppressiveness by reference to the time period within which documents were sought, I was advised that the time period for the documents sought by the subpoena was referable to the fact that the project of Mr Garratt (and one or two other of the directors) to pursue the redevelopment of the building commenced in 2002. As chairman of the defendant I can only assume that Mr Garratt has already reviewed his records for the purposes of discovery by the defendant and, therefore, I do not accept that the time frame encompassed by the subpoena renders it so oppressive as to warrant the subpoena being set aside. Conclusion 93 I do not consider that the subpoena should be set aside. It seems to me, for the reasons set out above, that there is a legitimate forensic purpose served by the subpoena and it dos not constitute an oppressive fishing (or trawling) expedition. I would, however, limit the scope of the subpoena to delete from paragraph (a), where appearing in the second set of parentheses, the words "the Defendant" to address the potential overlapping with discovered documents and to exclude documents relating to agreements between the defendant company and third parties not within (i) and (ii), relating to the steps taken for the physical redevelopment of the property; and to exclude from (b) records of dividend payments received by Mr Garratt from either Loafer Pty Limited or Garmen Pty Limited or payments received by Mr Garratt pursuant to memoranda of fees rendered in his professional capacity as a barrister. 94 Accordingly, I propose to dismiss the notice of motion, but to direct that the subpoena be limited as indicated in these reasons. I will hear the parties on the form of the amended subpoena and on costs, but am minded at this stage simply to reserve the costs of the motion to be dealt with at the hearing. **********

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