Determination
50The first question to be addressed is whether it "appears" that the Plaintiff "may be entitled to make a claim for relief from the court against a person". I have outlined the broad facts asserted by the Plaintiff.
51In Sons of Gwalia Ltd v Margaretic [2007] HCA 1; (2007) 231 CLR 160 Gleeson CJ observed, at [18], 180:
"...modern legislation ... has extended greatly the scope for 'shareholder claims' against corporations ... . Corporate regulation has become more intensive, and legislatures have imposed on companies and their officers obligations, breach of which may sound in damages, for the protection of members of the public who deal in shares and other securities."
52It seems clear that what was required to be disseminated could not be made available simultaneously to all of PHC's shareholders or to the public generally.
53Thus, PHC and the Defendants appear to have adopted a sequential process for the taking up of the new shares, first by those identified as shareholders to whom either extended an offer to subscribe on the basis of PHC's, or the Defendants', as Underwriters', belief, that they were an Institutional Investor. Alternatively, the Defendants, as Underwriters, identified those shareholders as shareholders to whom an offer to subscribe was extended on the basis of the Defendants', as Underwriters, belief, that they were an institutional, or other professional or sophisticated investor.
54RinRim has not identified any precise obligation upon either PHC, or the Defendants, as Underwriters, to extend the offer to subscribe to every shareholder on the basis of the belief that it was an Eligible Institutional Shareholder or upon the basis of the Defendants', as Underwriters, belief that it was an institutional, or other professional or sophisticated investor.
55The Defendants point to the ASX letter dated 12 February 2008 which states that those investors believed by the Defendants, as Underwriters, to be exempt investors under Chapter 6D of the Corporations Act "may be invited" and that this permitted PHC or the Defendants, as Underwriters to not extend the Institutional Entitlement Offer to any shareholder, even if it were an ineligible investor. (It is arguable that these words do no more than identify the investors to whom, or which, the Institutional Entitlement Offer could be made.)
56However, the definition of Ineligible Institutional Shareholder was one which, "if they had a registered address in Australia, would in the reasonable opinion of [PHC] be an Institutional Investor, but who [PHC] and the Underwriters agree shall not receive an offer under the Institutional Entitlement Offer".
57From the documents available on the application, it is not possible to know whether the Defendants, as Underwriters, formed the belief that RinRim was, or was not, an institutional, or other professional, or sophisticated, investor, and how any such belief was formed. What information the Defendants had received, or had obtained, about RinRim, to enable any such belief to be formed is not known. If there were such information available to them, the Defendants, one might have thought, would be obliged to consider it since "belief is an inclination of mind towards assenting to, rather than rejecting, [a] proposition": Apache Northwest Pty Ltd v Newcrest Mining Ltd [2009] FCAFC 39, per Moore and Gilmour JJ, at [3].
58It was not suggested by RinRim that there was any statutory, or other, right of appeal from a decision of the Defendants, or of PHC. But this does not mean that the decisions of either may not be examinable. It is at least arguable that it may be open to a shareholder to seek to challenge an erroneous decision.
59There are no documents in its possession to enable RinRim to ascertain how the Defendants' belief, whatever it was, was formed. Nor are there any documents that enable RinRim to determine whether PHC or the Defendants, as Underwriters, considered, at all, RinRim to be an institutional, or other professional, or sophisticated, investor and then exercised a discretion not to make the Institutional Entitlement Offer to it.
60Also, there are no documents in RinRim's possession to enable it to determine whether PHC and the Defendants, as Underwriters, agreed that RinRim should not receive an offer under the Institutional Entitlement Offer, thereby making RinRim an Ineligible Institutional Shareholder.
61Furthermore, since the Prospectus was not sent to Retail Investors until after the Institutional Entitlement Offer had been sent and the time for its acceptance had expired, RinRim had no forewarning of it and it had no way to communicate with the Defendants as to the belief they were required to form.
62Yet, I repeat that the first question posed by UCPR 5.3(1)(a) is not whether the applicant has sufficient information to decide if a cause of action is available against the Defendants, but whether RinRim has sufficient information to make a decision whether to commence proceedings. It seems to me that it does not. It knows nothing, or virtually nothing, of the decision making process and whether it was flawed as a result of acts or omissions of the Defendants.
63Furthermore, RinRim may be entitled to documents by way of preliminary discovery in order to determine what defences are available to the Defendants and the possible strength of those defences. Whilst RinRim, by virtue of the Defendants' submissions, has been provided with the nature of the defences that might be raised if proceedings are commenced, it knows nothing about what might be raised, by way of defence, regarding the decision making process.
64I have carefully considered the submissions on the first gateway made by the Defendants. In my view, they place too high a burden on RinRim at that stage. As stated above, it is not necessary for RinRim to show a prima facie, or pleadable, case.
65I am satisfied that it appears to the Court that RinRim may be entitled to make a claim for relief against the Defendants, as raised in its submissions. (In stating this, I express no view of the likely success, or otherwise, of either asserted possible claim.)
66The next question is whether the Plaintiff has been "unable to obtain sufficient information to decide whether or not to commence proceedings against the prospective defendant". If that question is answered in the affirmative, it will be necessary to decide whether the inability exists after, and despite, the making of "reasonable inquiries".
67I am satisfied that RinRim has been unable to obtain such information and that "reasonable inquiries" have been made. In circumstances where RinRim has established that it made inquiries of each of the Defendants, and also of PHC, putting each on notice of the reasons for the inquiries, I consider that, given the liberal construction to be accorded to UCPR rule 5.3, that the second gateway is satisfied.
68It is clear that none of the Defendants, or PHC, have provided any documentation. It was not until almost the conclusion of his submissions, that counsel for the Defendants stated that if the Court were satisfied that RinRim were entitled to relief, they would make available "documents created between 1 February 2008 and 14 February 2008 in relation to the Institutional Entitlement Offer conducted by PHC in or about February or March 2008 which records information about RinRim".
69This satisfies me that the Defendants had not made such documents available previously.
70The next question is whether it appears that any of the Defendants may have, or have had possession of documents or things that can assist in determining whether or not RinRim is entitled to make such a claim for relief and would assist the Plaintiff in making such a decision. Clearly, the Defendants, or some of them, would have the documents to which their counsel made reference and also documents that reveal any agreement between them, or any of them, and PHC, as to which shareholders an offer should, and should not, be extended.
71The next question is whether there are discretionary reasons for refusing the application in respect of all, or some, of the documents sought. The delay in bringing the application and the failure to explain it has caused me some concern. However, other than raising it, the Defendants' solicitor, in his affidavit, did not identify any prejudice that would be suffered because of the delay.
72More important, it seems to me, is the scope of the categories of documents (whether in Annexure A to the Summons or in a reduced form). As a matter of discretion, and remembering the purpose of the discovery, I would not require the Defendants to produce such a vast array of documents.
73It seems to me that in addition to the documents that the Defendants have identified, the only other documents that should be produced are documents going to any agreement between the Defendants, or any of them and PHC, relating to which shareholders the Institutional Entitlement Offer should, or should not, be extended.
74I respectfully agree that the documents should be limited to existing hard copy documents.
75I shall allow the parties 7 days to agree upon the scope of documents that fall into these limited categories. If they are unable to do so, competing schedules of documents should be provided, and I shall determine the issue although, obviously, this may not be able to be done with the speed that RinRim requires.
76In order to ensure that the process is given within a reasonable period, and whilst not putting undue pressure to complete the whole task within the unreasonable period (28 days) suggested by RinRim, perhaps, documents could be made available after say each 5 working days of the 42 day period that was suggested by the Defendants' counsel, which, in all the circumstances, and bearing in mind the time of year, is reasonable.
77Again, the parties may wish to consider reaching agreement on a workable approach.
78(In this regard, I respectfully agree with the Defendants' submission that the difficulties that may be experienced in this regard have been caused by RinRim's approach to bringing this application.)
79I then turn to the costs of compliance by the Defendants. UCPR rule 5.8 provides that "the court may make orders for the costs of the applicant, of the person against whom the order is made or sought and of any other party to the proceedings". Those costs may include the costs of preparing the affidavit of discovery and the costs of production: UCPR rule 5.8(2). The costs of production are recoverable in the same way as those incurred by a person who has responded to a subpoena: Airways Corp of New Zealand v Present Partners of Price Waterhouse Coopers Legal [2002] NSWSC 521 at [12] per Simpson J.
80The competing considerations were discussed by Ball J in Andrews Advertising Pty Ltd v Andrews [2011] NSWSC 244. Taking into account the facts of this case, and the matters referred to by Ball J, in my view, the most appropriate order is that RinRim should pay the Defendants' costs, calculated on the indemnity basis, of production and preparation of their affidavits of discovery.
81In Panasonic Australia Pty Ltd v Ngage Pty Ltd, Young CJ in Eq, at [40], wrote:
"Ideally what should happen is that the defendant should indicate a sum of money which it reasonably requires for preparing the list of documents and for supervising inspection and if there is any dispute, that could be settled by a Registrar."
82Because of the urgency of the requirement for production, which has been caused solely by RinRim, if there is any disagreement about the costs of production and the preparation of the affidavits of discovery, the amount sought by the Defendants, unless demonstrably unreasonable, should be paid by RinRim, into a controlled moneys account held in the names of the parties' solicitors, pending the determination of the issue of quantum. Alternatively, RinRim should provide security, satisfactory to the Defendants, for those costs.
83In relation to the costs of the actual application, whilst it is true that RinRim has had a measure of success, that success has been extremely limited. The application by RinRim, as initially conceived and even as pressed at the hearing, was simply too broad. The considerable burden that would have been imposed upon the Defendants in trying to amass the documents should have been obvious. To require production within 28 days, bearing in mind that the events took place over 5 years ago, further demonstrates the unreasonableness of RinRim's demands. In my view, the Defendants did not act unreasonably in taking the stance that they did.
84I have considered whether the disposition of costs should depend on the initiation and outcome of any litigation following preliminary discovery. I do not think it should bearing in mind the delay in bringing the application, which as stated, was not explained.
85Further, as has often been stated, the jurisdiction to order preliminary discovery is an extraordinary one "since an order for preliminary discovery involves an invasion of the prospective respondent's private affairs in order to determine whether or not a case can properly be brought against the prospective respondent": J & A Vaughan Super Pty Ltd v Becton Property Group Limited [2013] FCA 340 at [17].
86However, I note that it was not until almost the conclusion of counsel's submissions that the Defendants stated that in the event that the Court concluded that RinRim was entitled to some relief (which even then was opposed), some documents could be produced.
87In my view, RinRim should pay 80 per cent of the Defendants' costs, calculated on the ordinary basis, of the application, and that RinRim should bear its own costs of the application.
88I direct the parties, within 7 days, to bring in Short Minutes of Order reflecting these reasons. The parties should agree upon the precise categories of documents within the parameters that I have indicated and a regime for production.