Michael Wilson and Partners Limited v Robert Colin Nicholls

Ampolex Limited v Perpetual Trustee Company (Canberra) Limited (1995) 18 ACSR 218 Australian Prudential Regulation Authority v Rural & General Insurance Limited [2006] FCA 151 Capital Television Group Limited & Anor v Northern Rivers Television Pty Limited (Supreme Court of New South Wales, Bainton J, 4 September 1995, unreported, BC9505272) Crest Homes PLC v Marks [1987] AC 829 Harman v Secretary of State for the Home Department [1983] 1 AC 280 Holpitt Pty Ltd v Varimu Pty Ltd (1991) 103 ALR 684 CASES CITED : Liberty Funding Pty Limited v Phoenix Capital Limited (2005) 218 ALR 283 Michael Wilson & Partners Limited v Robert Colin Nicholls & Ors [2007] NSWSC 317 National Employers' Mutual General Insurance Association Ltd v Waind and Hill [1978] 1 NSWLR 372 Prentice & Barila (as liquidators of Tumut River Orchard Management Ltd (in liq)) v Treetop Projects Ltd [Supreme Court of New South Wales, Gzell J, 4 October 2006, unreported, BC200607990) Springfield Nominees Pty Ltd v Bridgelands Securities Ltd (1992) 38 FCR 217 Sweetman v Australian Thoroughbred Finance Pty Limited; Jones v Mortgage Acceptance Nominees Ltd (Federal Court of Australia, Lockhardt J, 23 July 1992, unreported, BC9203232) Wellness Pty Limited v Hamilton Bond & Ors [2002] NSWSC 1259 Woolworths Limited v Lawson [2002] NSWSC 985

Michael Wilson & Partners (Plaintiff) Robert Colin Nicholls (First Defendant) David Ross Slater (Second Defendant) PARTIES : Temujin Services Limited (Third Defendant) Temujin International Limited (Fourth Defendant) Temujin International FZE (Fifth Defendant) Shaikenov & Partners, LLP (Sixth Defendant) Scoulton Holdings Limited (Seventh Defendant)

Mr M Walton SC, Mr J Drake (Plaintiff) COUNSEL : Mr A Fox (Second to Fifth Defendants mention for First Defendant) Ms J E Richards (PJT Corporate Services, a non-party)

Clayton Utz (Plaintiff) SOLICITORS : Henry Davis York (First to Fifth Defendants) Shand & Associates (PJT Corporate Services, a non-party)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST

Friday 23 May 2008 ex tempore Revised 29 May 2008

50151/06 Michael Wilson & Partners Limited v Robert Colin Nicholls & Ors JUDGMENT

1 There is before the court a notice of motion filed by the plaintiff on 20 May 2008 seeking leave to use documents produced to the court pursuant to subpoenas issued to PJT Corporate Services Pty Limited, Mr Brian Weir and Ms Debra Lighezzolo in the Eastern Caribbean Supreme Court in the High Court of Justice of the British Virgin Islands. Submissions have been addressed to the court by the second to fifth defendants on their own behalf as well as on behalf of the first defendant. Submissions have been addressed to the court by Ms Richards, counsel for PJT Corporate Services Pty Limited [albeit that PJT Corporate Services was not a party to the motion].

2 The circumstances in which the motion is brought are generally summarised in the plaintiff's submissions in the following terms:

1. By Notice of Motion dated 14 March 2008, MWP seeks an order for leave to use the documents produced to the Court pursuant to subpoena by PJT Corporate Services Pty Limited, Mr Bryan Weir and Ms Debra Lighezzolo ("the Documents") for the purposes of Claim No 307 of 2006 in the Eastern Caribbean Supreme Court in the High Court of Justice of the British Virgin Islands (respectively "BVI proceedings and BVI Court"). Such an order would modify the implied undertaking which attaches to the use and disclosure of documents produced under subpoena which is usually associated with the decision of the House of Lords in Harman v Secretary of State for the Home Department [1983] 1 AC 280 (the "Harman undertaking"). 2. MWP relies on the affidavit of Sidney Wang sworn 19 May 2008 (the "Wang affidavit").

The urgency of this application arises from the fact that an application in the BVI proceedings to appoint a receiver over assets and undertaking of the third defendant - Temujin Services Limited ("TSL") - and the fourth defendant - Temujin International Limited ("TIL") has been heard in the BVI and MWP understands that judgment is imminent. MWP wishes to make use of the Documents and the information contained in the Documents for the purposes of that application.

MWP is a law firm with its main offices in Almaty, Kazakhstan which provides legal services through Kazakhstan, central Asia and the Caucasus Region, Russia and the Ukraine. The First Defendant ("Mr Nicholls") and the Second Defendant ("Mr Slater") were lawyers employed by MWP from April 2004 and September 2004 (respectively) to 1 March 2006 and 7 January 2006 (respectively). The Third to Fifth Defendants (collectively, the "Temujin Companies" which include TIL) and the Sixth Defendant ("Shaikenov") are companies which operate or are interested in a business providing business advisory, agency and legal services in Kazakhstan and central Asia. Messrs Nicholls and Slater (and Mr Emmott, another former lawyer with and a director of MWP) are employed or engaged by and are interested in the Temujin Companies and Shaikenov.

In these proceedings, the essence of MWP's allegations is that Messrs Nicholls and Slater breached their contractual and fiduciary duties and duties of confidence to MWP, and acted fraudulently, from about September 2005 by (inter alia):

(a) setting up the business of the Temujin Companies and Shaikenov;

(b) diverting clients and business opportunities, fees, remuneration, compensation and other income from MWP to the Temujin Companies and Shaikenov;

(c) using the confidential information and resources of MWP to establish and conduct the business of the Temujin Companies and Shaikenov;

(d) procuring staff of MWP to leave the employ of MWP and join the Temujin Companies and Shaikenov; and

(e) conducting the business of the Temujin Companies and Shaikenov in competition with MWP.

MWP alleges that, in doing the above matters, Messrs Nicholls and Slater acted in concert with Mr Emmott and were knowingly concerned in and aided and abetted the breaches by Mr Emmott of his fiduciary duty and contractual obligations and duties of confidence owed to MWP. MWP further alleges that the Temujin Companies and Shaikenov were knowingly concerned in and aided and abetted the breaches by Messrs Emmott, Nicholls and Slater of their fiduciary and contractual obligations owed to MWP. The relief claimed by MWP includes a declaration that all monies, shares, options, warrants and other success fees, bonuses, funds and benefits (of whatsoever nature) arising from their improper conduct are and have been held on trust for MWP as beneficiary.

On 9 October 2006, Justice Palmer of this Court made ex parte freezing orders against Messrs Slater and Nicholls. On 20 October 2006 and 27 October 2006, Justice Bergin continued the orders made by Palmer J. On 20 November 2006, Bergin J varied and continued the freezing orders made by Palmer J on 9 October 2006. MWP currently has an application before this Court to vary the freezing orders and also claims freezing orders against PJT Corporate Services Pty Limited, PJT International Pty Limited and Temujin Holdings Limited.

In the BVI proceedings, MWP sues TSL and TIL (both incorporated in the BVI) adopting the allegations made against the Temujin companies in the Further Amended Commercial List Statement in these proceedings .

On 19 December 2006, the BVI Court made ex parte freezing orders against the Temujin companies over their worldwide assets up to the value of US$30 million. On 5 February 2007, those freezing orders were continued after a contested hearing in the BVI Court (see the judgment of Hariprashad-Charles J of the BVI Court, appearing at page 59 of the bundle of documents being Exhibit SW-1 to the Wang affidavit). Also on 5 February 2007, the BVI Court ordered that the substantive proceedings between MWP and TSL and TIL be stayed until the conclusion of these NSW proceedings or further order.

9.1 By Notice of Application dated 2 April 2007 in the BVI Court, MWP seeks the appointment of a receiver over the assets and undertaking of TSL and TIL. This application was heard in the BVI on various dates throughout 2007, with judgment reserved and understood to be imminent. 3 The broad background to the proceedings has been the subject of a number of past judgments [both on ex parte applications as well as on contested applications]. Simultaneously with the delivery of this judgment the court is in a position to deliver judgment [albeit presently confidential to the parties] on applications made last week and earlier this week which serve to provide adjectival information as to the nature of the proceedings and the past history. The principles

The principles which guide the Court in exercising its discretion to modify or relieve a party to proceedings from the Harman undertaking have been summarised by the Full Court of the Federal Court (Branson, Sundberg and Allsop JJ) in Liberty Funding Pty Limited v Phoenix Capital Limited (2005) 218 ALR 283 and 289 [31] as follows: In order to be released from the implied undertaking it has been said that a party in the position of the appellants must show "special circumstances": see, for example Springfield Nominees Pty Ltd v Bridgelands Securities Ltd (1992) 38 FCR 217. It is unnecessary to examine the authorities in this area in any detail. The parties were not in disagreement as to the legal principles. The notion of "special circumstances" does not require that some extraordinary factors must bear on the question before the discretion will be exercised. It is sufficient to say that, in all the circumstances, good reason must be shown why, contrary to the usual position, documents produced or information obtained in one piece of litigation should be used for the advantage of a party in another piece of litigation or for other non-litigious purposes. The discretion is a broad one and all the circumstances of the case must be examined. In Springfield Nominees , Wilcox J identified a number of considerations which may, depending upon the circumstances, be relevant to the exercise of the discretion. These were: · the nature of the document; · the circumstances under which the document came into existence; · the attitude of the author of the document and any prejudice the author of the document may sustain; · whether the document pre-existed the litigation or was created for that purpose and therefore expected to enter the public domain; · the nature of the information in the document (in particular whether it contains personal data or commercially sensitive information); · the circumstances in which the document came into the hands of the applicant; · most importantly of all, the likely contribution of the document to achieving justice in the other proceedings. 11. This approach has been adopted in this Court. In Wellness Pty Limited v Hamilton Bond & Ors [2002] NSWSC 1259 at [8] Campbell J said: The test which the Court uses in deciding whether it will grant permission for the documents to be used in some other way, when (as here) the documents have not been read in open court, is that the release of the documents will not be allowed save in special circumstances and when such use will not occasion injustice to the person who produced the documents under subpoena. See Crest Homes PLC v Marks [1987] AC 829 at 680, Ampolex Limited v Perpetual Trustee Company (Canberra) Limited (1995) 18 ACSR 218 at 221, Holpitt Pty Ltd v Varimu Pty Ltd (1991) 103 ALR 684 at 686, and Sweetman v Australian Thoroughbred Finance Pty Limited (FCA, Lockhardt J unreported 23 July 1992 at 3). Deciding whether "special circumstances" have been made out involves a balancing exercise which takes into account the particular nature of the material produced, the policy underlying the implied undertaking, and any other relevant factors, and asks whether the needs of justice are better served by relieving from or maintaining the undertaking: Capital Television Group Limited & Anor v Northern Rivers Television Pty Limited (NSWSC, Bainton J, 4 September 1995, unreported); Woolworths Limited v Lawson [2002] NSWSC 985.

12. A further matter of significance in the exercise of the Court's discretion is whether there is a commonality of issues between the proceedings in which the documents in respect of which modification of the Harman undertaking is sought were produced and the proceedings in respect of which the documents are sought to be used: see Springfield Nominees Pty Ltd v Bridgelands Securities Ltd (1992) 38 FCR 217 at 224; Michael Wilson & Partners Limited v Robert Colin Nicholls & Ors [2007] NSWSC 317 at [34] - [37]. The plaintiffs' submissions 13. First , the issues raised in the BVI proceedings and the issues raised in these proceedings are closely related (indeed, one and the same). The allegations against the Temujin companies in these proceedings are expressly adopted against TSL and TIL in the BVI proceedings (see [42] - [43] of the Re-Re-Amended Statement of Claim in the BVI proceedings appearing at page 35 of the bundle of documents being Exhibit SW-1 to the Affidavit of Sidney Wang sworn 19 May 2008). Einstein J was, with respect, entirely correct to observe at [37] of his Honour's judgment of 26 March 2007 ( Michael Wilson & Partners Limited v Robert Colin Nicholls & Ors [2007] NSWSC 317): "Plainly enough, the evidence presently before the Court establishes an enormous commonality as between the claims to relief and the underlying facts to those claims to relief sought in the many jurisdictions in which the plaintiff has commenced tracing proceedings".

14. Second , it is clear enough from the fact that the First to Fifth defendants withdrew their Notice of Motion dated 22 April 2008 seeking to set aside the subpoenas under which the Documents were produced and the commonality of the issues (as against TIL and TSL) between these proceedings and the BVI proceedings that the Documents must be relevant to the issues in the BVI proceedings. This is sufficient to justify a modification of the Harman undertaking. MWP does not have to show that each of the Documents will categorically further any particular end of justice either in the BVI proceedings generally, or the receivership application specifically. It will, ultimately, be up to those who are conducting the BVI proceedings and the BVI Court as to whether the Documents are admissible in the BVI proceedings, including in respect of the receivership application. It is sufficient that they may illuminate matters in the BVI proceedings: Liberty Funding Pty Limited v Phoenix Capital Limited (2005) 218 ALR 283 at 290, [33].

15 . Third , there has been no claim by the subpoenaed parties or the first to fifth defendants that the Documents contain information which is personally or commercially confidential. There has been no assertion by TIL or TSL or Messrs Nicholls or Slater as to confidentiality in any of the Documents. In any event, any concerns as to the sensitivity of the information contained in any of the Documents, if any, is sufficiently met by two matters. First, the fact MWP does not seek the Harman undertaking in respect of the Documents be dispensed with entirely (leaving it to make free with the Documents as it choses) but simply modified to permit it to use the Documents in the BVI proceedings; otherwise, MWP will remain bound by the Harman undertaking. Second, the BVI Court doubtless possesses the capacity to make confidentiality orders in the BVI proceedings to protect any interests the defendants have in the maintenance of the confidentiality in the Documents: Liberty Funding Pty Limited v Phoenix Capital Limited (2005) 218 ALR 283 at 290 [33].

16. Fourth , there is no other identifiable prejudice to any of the defendants in these proceedings which may be caused by granting MWP the modification of the Harman undertaking it seeks. Given the commonality of issues between the BVI proceedings and these proceedings, it is likely that if (or when) discovery is made in the BVI proceedings, the Documents would, in any event, be discovered by TSL and TIL in those proceedings.

17. Fifth , the Documents have come to MWP's attention in a perfectly regular manner, through the subpoena process in this Court: see Springfield Nominees Pty Ltd v Bridgelands Securities Ltd (1992) 38 FCR 217 at 225. The significance of the so-called Harman Undertaking 4 The court always pays very special attention to the significance of the so-called Harman undertaking which can of course, in appropriate circumstances, be released or modified by the court. In this particular instance I am satisfied that insofar as the plaintiff seeks leave to use documents produced to the court pursuant to materials produced by PJT Corporate Services, the principled exercise of the relevant discretion is to accede to that application. However, in my view the plaintiff has not made good a case for the grant of the leave insofar as the two named individuals referred to in the notice of motion are concerned, namely Mr Weir and Ms Lighezzolo. The different positions arise because Ms Richards, notwithstanding that her client was not joined to the application, has been fully heard on the application. Joinder in circumstances such as these, whilst preferable, is not always critical. 5 Questions concerning the proper procedure to be adopted insofar as documents produced to the court on subpoena are concerned were raised for consideration in Australian Prudential Regulation Authority v Rural & General Insurance Limited [2006] FCA 151, Gyles J, 27 February 2006. His Honour relevantly observed [at 9 and 10] as follows:

[9] The documents concerned have an apparent relevance to the matter before the AAT, in the sense that that term is used in the judgment of Moffitt P in National Employers' Mutual General Insurance Association Ltd v Waind and Hill [1978] 1 NSWLR 372 , although I cannot conclude that they are central to that case or that they will ultimately be considered as significant, or even admissible, by the AAT. There is no doubting the importance of the appeal against a disqualification of this kind to the individual concerned. Those matters in themselves may not be sufficient to counter the powerful considerations referred to on behalf of APRA. The factor which, in my opinion, makes the circumstances special enough to warrant not prohibiting use of the documents is the connection between the two proceedings. In a practical sense, the investigation under the Insurance Act 1973 led to both the winding up proceeding and to the disqualification. Again, in a practical sense, there could well be an overlap between the factors which would have been relevant to a contested winding up hearing and those likely to be relevant to a contested hearing as to disqualification. Furthermore, the reality is that, in pursuing an appeal against disqualification in these circumstances, it is more than likely that the very documents would have been subpoenaed for production regardless of any knowledge obtained through the winding up proceeding. It would be unfortunate if material which would have come to light in that way were precluded from use by reason of the documents having come to the attention of the solicitors for Stephenson by virtue of the apparent breach of the implied undertaking.

[10] I am therefore disposed to make an order along the lines of O 2 in the amended notice of motion. However, neither McCarthy nor Ernst & Young have been heard. Whilst I appreciate that all that could have been said against the proposed order is likely to have been said on behalf of APRA, they are necessary parties as they produced the documents. They should be joined, and have the opportunity of appearing and opposing the proposed orders. The matter will stand over enable to that to be done. I should indicate that I propose to order that Stephenson should pay the costs of APRA, and any other party that appears, on a solicitor client basis. He is seeking an indulgence. APRA was quite entitled to put what it did in the circumstances as an interested party and as a contradictor. 6 It seems clear that in the present context only PJT Corporate Services has had an opportunity to appear and to address arguments opposing the proposed orders. However, the two named individuals have not had that opportunity. Whether or not the remaining time [prior to the apparently imminent delivery of the judgment in the receivership application before the BVI court] may still permit the two individuals to be heard and/or joined in relation to the notice of motion insofar as concerns them remains to be seen. It is not clear to me that an application to the BVI court to hold off delivery of its imminent judgment pending clarification of the position of the two individuals may not, if made, be acceded to in the circumstances. 7 I tend to the view that whilst the position is somewhat clouded, the cautious approach taken by Gyles J should be followed. Where outside persons or corporations respond to a subpoena regularly issued in the jurisdiction, even though they may not take objection to the parties being entitled to inspect the documents, they are entitled to the benefit of the significant requirement that the implied Harman undertaking will be honoured absent very special circumstances. Hence their prima facie entitlement to be permitted to address in relation to the position even if not strictly joined as a matter of fact as parties to the application. 8 None of the other objections taken by the defendants nor by Ms Richards are of substance.

9 I repeat the observations made in the judgment delivered by myself on 26 March 2007 at paragraphs 33 to 37 and those paragraphs will be included in the revised form of the judgment which I am now delivering ex parte:

33. As to the order sought in paragraph 7 of the notice of motion, much of what has already been said is also relevant. This is an application by the plaintiff ex parte to have a relaxation of the usual rule in Harman v Secretary of State for the Home Department [1983] 1 AC 280 [the implied undertaking that documents obtained during the course of proceedings will only be used for the purpose of the proceedings].

34. That type of circumstance where a court will grant leave to litigants before it to utilise pleadings and affidavits and materials which are in the ordinary course only able to be utilised for one set of proceedings is able to be justified in particular situations. In Springfield Nominees Pty Ltd v Bridgelands Securities Ltd , a decision of Wilcox J, [reported at (1992) 38 FCR 217], his Honour observed that it is necessary for special circumstances to be shown before the usual Harmon undertaking to the court can be relaxed. Justice Wilcox said inter alia at 225: "For 'special circumstances' to exist it is enough that there is a special feature of the case which affords a reason for modifying or releasing the undertaking and is not usually present. The matter then becomes one of the proper exercise of the court's discretion, many factors being relevant." 35. Earlier in the same judgment [at 224], Wilcox J referred to the fact that Lockhardt J in Sweetman v Australian Thoroughbred Finance Pty Limited , [unreported, FedCt (NSW), 23 July 2002], had taken into account the extent of commonality as between applications in different jurisdictions, as constituting special circumstances.

36. Likewise, in Prentice & Barila v Treetop Projects Ltd , a decision of Gzell J of 4 October 2006 [BC 200607990], Gzell J accepted that one of the matters which constituted special circumstances was the commonality of issues between the two sets of proceedings.

37. Plainly enough, the evidence presently before the Court establishes an enormous commonality as between the claims to relief and the underlying facts to those claims to relief, sought in the many jurisdictions in which the plaintiff has commenced tracing proceedings. Conclusion 10 The plaintiff has made good its application insofar as it concerns the documents produced by PJT Corporate Services. These are urgent circumstances concerning matters of high moment where applications for appointment of receivers and/or freezing orders are made. Orders 11 The orders of the court are as follows:

1. The Court grants leave to the plaintiff to use documents produced to the Court pursuant to the subpoena issued to PJT Corporate Services Pty Ltd dated 10 April 2008 in relation to the receivership applications BVIHCV2006-0307 in the Eastern Caribbean Supreme Court in the High Court of Justice of the British Virgin Islands.

3. Order that the balance of the plaintiff's notice of motion filed on 20 May 2008 be stood over to 26 May 2008 at 2.00pm before me.

4. Order that on or before 9.00am on Monday 26 May 2008 the plaintiff notify the defendants to the motion and the solicitors and counsel for PJT Corporate Services Pty Ltd of any applications proposed to be made by the plaintiff to the Court at 2.00pm on that date. [By later order costs were reserved]

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.