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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