Meaden v Bell Potter Securities Limited - [2012] FCA 1469 - FCA 2012 case summary — Zoe

Meaden v Bell Potter Securities Limited - [2012] FCA 1469 - FCA 2012 case summary — Zoe

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Introduction 1 This is an interlocutory application by the applicants for leave to issue a subpoena on the Australian Securities and Investments Commission ("ASIC") for the production of documents described in the Schedule to the proposed subpoena, a copy of which was annexed and marked "MC1" to the affidavit of Mr Milan Cakic sworn 23 January 2012 (Ex 1), filed in support of the application, subject to changes made to the Schedule during the hearing of the application. 2 The Schedule to the proposed subpoena, as altered by the changes made during the application hearing, relevantly reads: Schedule The documents and things you must produce are as follows: 1. All Documents including correspondence, transcripts and related books and documents in respect of any investigation or examination conducted by ASIC under s.19 of the Australian Securities & Investments Commission Act 2001 (Cth) ('ASIC Act') relating to: i. Bell Potter Securities Limited ACN 006 390 772 ('the Respondent'); ii. its directors; iii. its officers; or iv. its agents recommending to its/their clients that they acquire Progen Pharmaceuticals Limited ('PGL') shares during the period 13 December 2006 to 5 December 2007. 2. For avoidance of doubt, the Documents sought in (1) above are in particular, but not limited to: a. written records of an examination by ASIC and any related books in respect of Ms Linda Ong, Mr Alister Proven, Mr Martin Pretty, Mr Greg Ward, Ms Carol Simpson, Mr Bruce Skelton and Mr Ryan Mount; b, all working papers, calculations, research, reports, valuations and all other Documents used by the Respondent in preparation of the Reports or evidencing all of the matters and information included in the Reports; c. all Documents evidencing the methodology used or adopted by the Respondent in the Reports in respect of the valuation of PGL shares; d. in relation to each Report, all Documents evidencing the assumptions of the Respondent: i. as to the product life-span for PI-88; ii. zero terminal value for PI-88; Ill. earnings from PI-88; iv. probability weightings to estimates of PGL's expenses; v. PGL's gross margins in relation to the sale of PI-88; vi. PGL's foreign exchange rate exposures; and vii. as to risks of acquiring PGL's shares. e. all Documents evidencing the change in valuation methodology by the Respondent in the Report dated 5 December 2007; f. all Documents evidencing the earnings or likely earnings of PGL from PI-88 from December 2006 to December 2009; g. all Documents evidencing the gross margins and potential gross margins on sales of PI-88 by PGL from December 2006 to December 2009; h. all Documents evidencing PGL's foreign exchange rate exposures from PI-88 from December 2006 to December 2009; i. all Documents evidencing communications between employees and officers of the Respondent in respect of: i. each of the Reports or drafts of the Reports; ii. the information in each of the Reports or drafts of the Reports; and iii. the valuation of PGL in each of the Reports or drafts of the Reports. … k. all Documents evidencing the trading volume of PGL shares by the Respondent's clients between 13 December 2006 and 5 December 2007; l. all Documents evidencing the trading prices of PGL shares of the Respondent's clients from the sale or purchase of PGL shares between 13 December 2006 and 5 December 2007; m. all Documents evidencing commission received by the Respondent from the sale or purchase of PGL shares between 13 December 2006 and 5 December 2007; … i. all Documents evidencing the hiring of employees from Emerging Growth Capital Pty Ltd ACN 093 677 180 ('eG Capital') and the reasons for hiring such individuals; … iv. all Documents evidencing the volume of trades processed by individual brokers within the Bell Potter Group in the period 13 December 2006 to 13 December 2007; v. all Documents evidencing the commission received by individual brokers within the Bell Potter Group for PGL trades in the period 13 December 2006 to 13 December 2007; vi. all Documents evidencing the background and rationale for the downward revision of PGL's target price in the 5 December 2007 Report; vii. all Documents evidencing Linda Ong's expertise and experience in analysing biotechnology stocks, including copies of her qualifications and CV; viii. all Documents evidencing analysis into the probability of PI-88 receiving full approval for general sale by any government body in any recognised jurisdiction. 3 An affidavit of Mr Van Angelo Moulis sworn 13 December 2012 (Ex 2) was also filed in support of the application. 4 The application for a grant of leave to issue the subpoena was opposed by the respondent on four broad grounds which are set out at [14] below. 5 In support of its opposition to the applicants being granted leave to issue the proposed subpoena, the respondent relied on an affidavit of Mr Benjamin Giles sworn 14 December 2012 (Ex A); ASIC Regulatory Guide 103 headed "Confidentiality and release of information" dated February 1996 (Ex B); and a tender bundle of four documents: Notice to produce to the first applicant dated 23 February 2012; documents produced in response to that notice to produce; notice issued pursuant to s 19(2) of the Australian Securities and Investments Commission Act 2001 (Cth) ("the ASIC Act") to Linda Ong dated 10 July 2007; and notice issued pursuant to s 19(2) of the ASIC Act to Ms Ong dated 10 October 2007 (together Ex C).

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Relevant Principles 6 The principles and authorities governing when leave ought to be granted to issue subpoenas were canvassed at some length by Greenwood J in McIlwain v Ramsey Food Packaging Pty Ltd (2005) 221 ALR 785 at [35]. Relevantly, his Honour said: (d) The documents for production must be identified with reasonable particularity: Commissioner for Railways v Small (1938) SR (NSW) 564 at 574-575 per Jordan CJ. The category of documents must not be so wide as to be oppressive. (e) The documents must be relevant to an issue raised on the pleadings and be used to elicit documents to support the applicant's existing case. It cannot be used for purposes of "fishing" or for the purpose of determining a preliminary question as to whether the party has a supportable case (Hennessy v Wright (1888) 21 QBD 509), or to investigate the character of the opposing party's evidence (Griebart v Morris [1920] 1 KB 659 at 666). (f) The test for relevance does not require that a party demonstrate direct relevance to the contest between the parties. Rather, the documents must have some potential relevance to the pleadings as they stand. In Australian Gas Light Company v Australian Competition & Consumer Commission [2003] FCA 1101, French J summarised the matters which are relevant to the grant of leave: [8] It is not appropriate to be overly prescriptive in setting out criteria for the grant of leave to issue a subpoena. Plainly, the documents sought must have at least some apparent potential relevance to the matters in issue in the litigation. The assistance that the requesting party may derive from the production of such documents must be taken into account. Case management considerations are also relevant. A wide-ranging subpoena, seeking documents of doubtful relevance at great inconvenience to, or that risk compromising the commercial privacy of, a third party, may not readily attract the grant of leave. Where the issue of such a subpoena is likely to delay progress to trial because of the legitimate interests of a party in resiting its issue, that may also be a practical factor to be weighed. (g) The same notion was expressed in Small (at 575) and Dorajay Pty Limited v Aristocratic Leisure Limited [2005] FCA 588 at [34] in requiring the existence of a legitimate forensic purpose for the production of documents. (h) In Trade Practices Commission v Arnotts Limited (No 2) (1989) 21 FCR 306; 88 ALR 90, Beaumont J said that the question of whether a subpoena should go can conveniently be addressed by reference to two questions. First, does the material sought by the subpoena have an apparent relevance in a descriptive or adjectival sense rather than a substantive sense? Does the subpoena have a legitimate forensic purpose to this extent from the perspective of the party issuing the subpoena? Secondly, does the subpoena cast a serious and unfair burden or prejudice upon the respondent to the subpoena? (i) Spender J in Cosco Holdings Pty Ltd v Commissioner for Taxation (1997) 37 ATR 432; [1997] FCA 1504 suggested that adjectival relevance looks toward the possibility whether the material sought could reasonably be expected to throw light on some of the issues in the principal proceedings. … (k) The relevance of the documents must not be disproportional to any benefit that their production might have for the respondent: Dorajay at [34]. … (o) In Dorajay Pty Limited v Aristocrat Leisure Limited [2005] FCA 588 at [17], Stone J noted the observations of Waddell J in Spencer Motors Pty Ltd v LNC Industries Ltd [1982] 2 NSWLR 921 at 927, summarising the views of Moffitt P in National Employers' Mutual General Association Ltd v Waind & Hill [1978] 1 NSWLR 372 to the effect that whether subpoenas are oppressive or an abusive process depends on whether "it is reasonably likely to add, in the end, in some way or other, to the relevant evidence in the case". Her Honour said at [18]: [18] These authorities show that the criteria by which one determines whether a subpoena should be set aside, in whole or in part, may be expressed in different ways but ultimately, they all come down to whether such action is required to prevent an abuse of the processes of the court to prevent injustice. As Deane and Gaudron JJ recognised [Hamilton v Gades (1989) 85 ALR 1 at 11] in the comments quoted by Beaumont J [in Trade Practices Commission v Arnotts Ltd], various terms may be used in focusing these concerns on the circumstances of a particular case. In this case, whether the documents are relevant (in the sense used by Beaumont J) will determine the issue provided that the requirements of the subpoena are not otherwise oppressive. 7 These principles are uncontroversial and are not in dispute. What is disputed is whether the documents sought to be produced by ASIC under the terms of the Schedule to the proposed subpoena satisfy the descriptive or adjectival relevance test referred to by Beaumont J in Trade Practices Commission v Arnotts Limited (No 2) (1989) 21 FCR 306.

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Background 8 By letter dated 25 February 2009, the applicants' solicitors requested ASIC to exercise its general discretion under s 25 of the ASIC Act and the ASIC Regulatory Guide 103 (as updated 26 February 2006 [sic]) to release the documents and information described in the letter to them subject to the undertakings and conditions set out on page 2 of the letter. The letter relevantly read: Contemplated Legal Proceeding Slater & Gordon expects to shortly commence a class action under Part IVA of the Federal Court of Australia Act 1976 (Cth) against Bell Potter Securities Limited ("Bell Potter") in relation to investment advice given by Bell Potter about Progen Pharmaceuticals Limited (ASX Code: PGL) ("PGL") ("the Proceeding"). The class will comprise those current and former retail clients of Bell Potter who have suffered financial loss in their dealings with certain investment advisers/brokers employed by Bell Potter, including Ms Linda Ong and two former EG Capital employees, Mr Greg Ward and Mr Nick Atkinson. We understand ASIC has conducted investigations that would have focused on issues, and gathered documents and information, relevant to the issues in the Proceeding. More specifically, we expect that the documents and information will be particularly relevant to the allegations in the Proceeding relating to: (i) conduct that breaches the prohibition against a corporation engaging in misleading or deceptive conduct or conduct likely to mislead or deceive in relation to financial advice pursuant to the Corporations Act and the ASIC Act; (ii) whether Bell Potter brokers were actively involved in a marketing push for investments in PGL using overvaluations of PGL stock; and (iii) misconduct in the circumstances surrounding a capital raising by PGL in June 2008 which was co-underwritten by Bell Potter ("the Confidential Documents and Information"). Bell Potter will be obliged in the upcoming class action to make available in discovery much the same documents and information that came to light during the ASIC investigation. In the normal course, no additional forensic disadvantage would be visited upon the affected persons. 9 The allegation in (iii) is no longer pressed. 10 By letter dated 1 March 2012, ASIC relevantly wrote, in the following terms: 2. You have requested copies of the transcripts and related books in respect of any section 19 ASIC Act examination arising out of any investigation relating to Bell Potter Securities Limited, its directors, officers or agents recommending to its clients that they acquire Progen Pharmaceuticals Limited shares during the period 13 December 2006 to 5 December 2007. This request has been duly considered and ASIC has decided to release the documents listed in the attached Schedule and enclosed in the accompanying folder (the Information), subject to the following conditions: … 11 Included amongst the released documents were redacted extracts from transcripts of examinations of Ms Ong, Greg Ward and Nick Atkinson as well as email communications passing between two or all of those persons between 12 December and 19 December 2006; nothing else.

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The Respondent's Argument in Opposition 14 The respondent's opposition to the grant of leave was predicated on four broad propositions: (1) The inference from the evidence is that anything in the possession of ASIC relevant to the proceeding has already been provided to the applicants by ASIC. (2) To the extent that the subpoena seeks to go beyond what has already been provided by ASIC, it really seeks to "fish for" documents that do not go to proving any aspect of the pleaded case. (3) The second ground aside, the structure of the Schedule is such that it seeks documents that are plainly not relevant. (4) There are aspects of para 2 of the Schedule which cannot sensibly be understood given that that paragraph is supposed to be a subset of the documents sought in para 1. 15 The respondent's counsel referred to the following matters in developing these four broad propositions: (1) It is clear from the documents produced by the first applicant in response to the notice to produce dated 23 February 2012 (part of Ex C), that back in July 2011 the applicant's solicitors were informed that ASIC's investigation into dealings in Progen Pharmaceuticals Limited ("PGL") shares was concerned with allegations of insider trading in those shares in the period before December 2006. (2) This is confirmed, at least as far as the time period is concerned, by the ASIC s 19(2) notices issued to Ms Ong dated 10 July and 10 October 2007 (also part of Ex C). There is about a week overlap, at the most, between the period with which this proceeding is concerned (13 December 2006 to 5 December 2007) and the period the subject of the ASIC investigation (before 13 December 2006 and, at most, not beyond 19 December 2006). (3) The conclusion is open, from the particularisation in the schedule (p 39 of Ex 2) of the extracts from the transcripts of the examination of Ms Ong, Mr Ward and Mr Atkinson and the redaction of those extracts, that particular pages only have been selected for release and particular parts of those pages have been selected for redaction and that the probable reason for this selection and redaction is because the subject matter of the investigation was something quite different to the subject of this proceeding. In addition to selection and redaction of specific pages of transcripts of examinations, specific documents have been selected as well. When considered in the context that ASIC requested and were provided with the draft application and statement of claim, as originally filed on behalf of the first applicant, such a conclusion is more readily open as a deliberate process undertaken by ASIC. (4) Reference was made to Mr Giles' affidavit (Ex A), in particular to paras 4, 5 and 6 which read: 4. Annexed and marked "A" is a letter from the applicants' solicitors dated 9 November 2012. The letter sets out the reasons why the applicants should be granted leave to issue the subpoena to ASIC. The letter refers to a request having been made to ASIC for provision of documents in ASIC's possession, and to ASIC having provided to the applicants "selected and redacted" copies of transcripts of ASIC examinations of three persons (Linda Ong, Greg Ward and Nicholas Atkinson), and documents referred to in such examinations. The letter then states: "Our clients' proposed Subpoena seeks, in complete and unredacted form, documents and/or information of the same nature as those sought in our request to ASIC. Such (complete and unredacted) documents and/or information would have already been available by ASIC to your client and the interviewees Our clients are therefore prejudiced so long as they do not have access to the same documents and/or information that your client has already been given access to." 5. I am informed by Carol Simpson, Head of Compliance at Bell, and verily believe as follows: (a) in or about May 2012 ASIC provided Bell with copies of 'selected and redacted' transcripts of examinations of the three persons referred to above; and (b) Bell does not possess, and has not ever possessed, complete and unredacted copies of those ASIC examination transcripts, or any more complete versions of the transcripts than the ones provided to it by ASIC. 6. I am informed by Murray Deakin of Middletons Lawyers, who acted on behalf of Bell in relation to the dealings with ASIC referred to in paragraph 5 above, and verily believe as follows: (a) that the documents released to Bell as referred to in paragraph 5(a) above are the same as the documents that had already been provided to the applicants' solicitors; and (b) that he was informed by ASIC that in relation to the application made by the applicants' lawyers pursuant to section 25(1) of the [ASIC Act], in determining which documents should be provided to the applicants' lawyers ASIC conducted a review of the material and made a determination as to the relevance of that material pursuant to section 25(1). (5) Particular emphasis was placed on what Mr Giles deposes to at para 6(b) as being the only direct evidence in relation to what ASIC has done. It was submitted that in the circumstances the only inference is that ASIC's investigation related to something different and the best evidence of that is the examination notices - an investigation of share trading prior to the relevant period; to the extent that it threw up material that was relevant, that is a process ASIC has already been through and has delivered up the relevant documentation. (6) The terms of the Schedule to the proposed subpoena do not simply seek full and complete production of the transcripts; it is much wider than that and it is wider than is permissible given the issues in this proceeding. This proceeding essentially concerns 10 written reports issued by the respondent to various people including the applicants. It is those 10 reports that found the alleged representations; it is those 10 reports that found the allegation of market manipulation. Paragraph 1 of the Schedule is much wider than that; it calls for all documents, including correspondence, transcripts, related books and documents in respect of any investigation or examination conducted by ASIC, and it is any investigation relating to not only the respondent, but, for instance, (ii), its directors. (7) There is no pleading in this proceeding against any directors; there is no pleading about anything directors have done. The only issues in this case relate to recommendations in the 10 reports. So to the extent it seeks evidence about other recommendations, they are not relevant to this proceeding. (8) Then there are structural problems with para 2 of the Schedule to the proposed subpoena. Paragraph 2 is said to be for the avoidance of doubt and the documents sought in para 1 are "in particular, but not limited to" and so one would infer that subparas (a) to (m) - it then reverts to Roman numerals - (i) to (viii) - are presumably all intended to be either a subset of or instances of documents that would fall within para 1. But relevant documents are not easy to identify; there are a number of preconditions to fall within para 1. One has to have a document, it has to be a document in some sense in respect of an investigation conducted by ASIC, and that investigation has to relate to either the respondent, its directors, its officers or its agents, recommending the acquisition of PGL shares during that period. One then comes, for instance, to para 2(k); it is very difficult to see how that can be a subset of a recommendation to acquire PGL shares. Similarly, (l); similarly, (m); we then get into the Roman numerals, (i) cannot be a subset of documents about recommendations to buy PGL shares. In any event, that paragraph is plainly irrelevant. What relevance is there in hiring of employees? Which pleaded issue does that go to? Similarly, (iv): How is that a subset of documents relating to recommendations? Or (v)? So, according to the respondent, this subpoena has structural problems in the sense that it is very hard to see how para 2 can appropriately be read as a subset of para 1, but, in any event, it goes way too far; it seeks documents which are not relevant, but in any event it is an abuse in the circumstances where there is no reason for the Court to think - and the question has not been asked of ASIC - that there is any material beyond that already produced and in the circumstances the Court should simply not grant leave to allow the subpoena to be issued.