Stratford Sun Limited v OM Holdings Limited; In the Matter of OM Holdings Limited

Category 2 13 In an endeavour to get to the heart of the dispute concerning category 2, I requested Counsel for the defendant to make available to me on a confidential basis a copy of the Proxy Reports called for by category 2. I was told that there was only one such report. A copy of that report was made available to me. Mr Stoljar SC, who appears for the plaintiff, accepted that I may look at the document produced in this way in order to resolve the present dispute about category 2 and that, unless I ultimately ruled in his favour in respect of that category, he would not be permitted to see the document merely because I had called for its production in this way. I marked the copy of the category 2 document produced to me as "MFI-Z". 14 The plaintiff referred me to ASX Listing Rules 7.1 and 14.11.1. ASX Listing Rule 14.11.1 provides that shareholders who may participate in a proposed issue or who may obtain a benefit if the resolution is passed (except a benefit solely in the capacity of a holder of ordinary securities) must be excluded from voting on a resolution approving the issue. Any person excluded from voting must be named in the Notice of Meeting. 15 In an endeavour to meet the requirements of those rules and, in particular, Listing Rule 14.11.1, the defendant propounded a voting exclusion statement in the Notice of Meeting in the following terms: The Company will disregard any votes cast on Resolution 6 by any person who may participate in the proposed issue and any person who might obtain a benefit, except a benefit solely in the capacity of a holder of ordinary shares if Resolution 6 is passed, or any associate of those persons. However, the Company need not disregard a vote if it is cast by a person as proxy for a person who is entitled to vote, in accordance with the directions on the proxy form, or if it is cast by the person chairing the meeting as proxy for a person who is entitled to vote, in accordance with a direction on the proxy form to vote as the proxy decides. 16 The Explanatory Statement which accompanied the Notice of Meeting included the following statement: The Global Offering will comprise an international placing of Offer Shares by the Company outside the United States of America (including to institutional and professional investors and excluding retail investors in Hong Kong) and a public offering of Offer Shares to the public in Hong Kong. The company may also extend the international placing to the Company's existing institutional and professional investors based in Australia who qualify as professional and/or sophisticated investors under the Australian Corporations Act 2011. 17 The essence of the plaintiff's argument in respect of category 2 is to be found in paragraphs 14-18 of its Outline of Submissions which are in the following terms: 14. It follows that the persons or the categories of person to whom the new share issue may be offered include: • "institutional and professional investors" outside the United States of America; and • "the Company's existing institutional and professional investors based in Australia who qualify as professional and/or sophisticated investors" (emphasis added). 15. It further follows, most particularly from the reference to "existing" investors in the EM, that some of the shareholders in the defendant who cast a vote at the AGM may also be persons to whom the proposed new shares are offered. 16. In that event, conformably with the Listing Rules, the defendant will need to disregard any votes cast on Resolution 6 by such persons. However that in turn may have an effect on the outcome of the vote at the AGM. 17. The documents sought by Category 2 are relevant to these issues. In particular, it is clearly relevant to the question whether Listing Rules have been or may be breached and, if so, what remedy the Court should order in the exercise of its discretion, to understand which shareholders submitted proxies, how those proxies were directed or whether the proxies were undirected. 18. Only if such information is provided will the Court be in a position to determine whether, and if so to what extent, votes cast on Resolution 6 or other resolutions at the AGM may in due course need to be disregarded, and the consequences of that disregarding of votes. 18 In addition to the matters raised in those paragraphs, the plaintiff also submitted that the timing of the lodgment of proxy forms was a matter of significance in its case. This proposition was illustrated by the further proposition that the ASX announcement made by the defendant on 18 April 2011, which disclosed that the directors and senior management of the defendant would not participate in the proposed new share offer and also that the proposed listing on the HKSE would dilute existing shareholders, was provided contemporaneously with the expiration of the deadline for the submission of proxies, namely, at 10.30 am on Monday, 18 April 2011 and was therefore too late to be taken into account by those shareholders in the defendant who wished to vote at the AGM by proxy. I did not understand that there was any other particular significance of the so-called "timing issue". The plaintiff submitted that disclosure of the proxy report from the AGM would cast light upon this timing issue because the plaintiff would be able to ascertain when particular proxies were received and thus whether the 18 April 2011 ASX announcement could have been taken into account by the person or entity who gave the proxy. This submission has some logical difficulties which I do not presently need to explore. 19 In addition, the plaintiff submitted that the category 2 documents were relevant to an understanding of how and to whom representations made in the Notice of Meeting were conveyed and therefore how they would be reasonably understood. These matters were said to be relevant to the misleading and deceptive conduct case sought to be propounded by the plaintiff. 20 The defendant, on the other hand, submitted that the category of documents called for by category 2 does not go to any pleaded issue in the case and therefore was not a proper category for discovery. The defendant highlighted the fact that, in its Statement of Claim, the plaintiff concentrates upon the inadequacy of the Notice of Meeting and the materials which accompanied that Notice and the relevant requirements of the Listing Rules. The defendant also submitted that the particular report called for by category 2 will not meet the expectations of the plaintiff in terms of its utility. 21 The defendant also submitted that the material sought by the plaintiff, being the names and addresses of the shareholders, is material which is confidential and could not possibly be of any value or use to the plaintiff having regard to the pleaded issues. The defendant submitted that it must therefore be the case that the material was being sought for purposes otherwise than those legitimately connected with the current litigation. 22 As I mentioned earlier, I have had the benefit of looking at what is described as the Proxy Report in respect of the votes cast at the AGM of the defendant held on 20 April 2011. 23 Critical to the plaintiff's contentions is the proposition that it is entitled to attempt to secure evidentiary material that would allow it to identify, in particular, existing institutional and professional shareholders in the defendant who are based in Australia and who meet the description of "professional and/or sophisticated investors". The Proxy Report (MFI-Z) lists the shareholders in the defendant and provides information about the number of shares held by each shareholder, the person in whose favour the proxy for the 20 April 2011 AGM was granted in each case and the way in which votes were cast at that AGM. 24 In addition, there appears to be a section which provides other information in respect of certain shareholders. I will not describe the information in any more detail than I have just done, but it seems to me that there may be material in this document which either alone or in combination with other evidentiary material might provide a basis for a submission ultimately to be made on behalf of the plaintiff as to the identity of existing institutional and professional investors based in Australia who qualify as professional and/or sophisticated investors and which may have other significance at the final hearing. I think that the material has conceivable relevance to these issues. 25 In my view, the so-called "timing issue", taken on its own, would not justify disclosure of the category 2 documents. 26 I do not think that the concerns expressed on behalf of the defendant in relation to the plaintiff's motives in seeking the category 2 documents are sufficient to outweigh the factors in favour of discovery of the category 2 documents. The proposition that the material may be used for purposes other than those connected with this litigation does not carry much weight because to do so, in my view, would be a clear breach of the Harman undertaking and would place the plaintiff in danger of action for contempt of Court. I should not assume against the plaintiff that it would place itself in such jeopardy. 27 I propose to order that the defendant give discovery of the documents called for by category 2 but that the documents to be produced be subject to an appropriate confidentiality order of the usual kind, restricting access to it to Counsel for the plaintiff, a named instructing solicitor on behalf of the plaintiff and, if necessary, the expert proposed to be called on behalf of the plaintiff.

Document 82 28 The defendant claimed that Document 82 is protected from disclosure by client legal privilege (as to which see s 118 of the Evidence Act 1995 (Cth) (the Evidence Act) and the definitions in s 117 of that Act). The defendant also submitted that the document had no conceivable relevance to the issues in the case. However, the document falls squarely within category 8 of the plaintiff's request for discovery. The defendant agreed to discover documents covered by category 8. It is not now open to it to argue that some of the documents called for by category 8 are not relevant. This is especially so when all of the documents called for by category 8 have been discovered except Document 82. 29 At the commencement of the hearing today, the plaintiff conceded that Document 82 was privileged but argued that privilege in the document had been waived. In circumstances which I will explain shortly, Senior Counsel for the plaintiff subsequently sought to withdraw that concession. 30 The claimed privilege was asserted on behalf of the defendant by its Sydney solicitor. She asserted that claim in an affidavit sworn yesterday. It has been put to me that, because the matter has been moving at a great pace and, in particular, because the defendant has been compelled by the Court to accept an early final hearing in circumstances where discovery to be given by the defendant has been given under significant pressure, I should take these matters into account in considering whether the privilege has been waived. In respect of the alleged waiver by the inadvertent production of the document, I propose to take these matters into account. However, in respect of the first argument concerning waiver (ie the argument based upon disclosure to HKSE), it does not seem to me that these matters carry any weight. 31 In her affidavit, the solicitor for the defendant said the following: 9 Document 82 is written in Chinese Mandarin. 10 There is no logo on the document that indicates that Document 82 was created by a legal advisor. 11 I do not speak or read Chinese Mandarin, nor do any of the solicitors from Gilbert + Tobin who have assisted me in these proceedings. 12 I am informed by Denise Jong, a partner at Reed Smith Richards Butler, Hong Kong legal advisers to OMH and believe that: (a) Document 82 is a draft legal opinion provided to OMH by Deheng Shanghai Law Offices, the legal advisors to OMH in the People's Republic of China (China); (b) Document 82 relates to the operations of certain subsidiary companies of OMH in China and their compliance with Chinese laws; (c) Document 82 records confidential legal advice provided to OMH; (d) Document 82 was disclosed to the Hong Kong Stock Exchange (HKSE) on a confidential basis for the limited purpose of consideration by the Listing Committee of the HKSE of OMH's listing application; (e) provision of Document 82 to the HKSE was a requirement of the vetting process undertaken by the HKSE in relation to OMH's listing application; (f) the HKSE treats all listing applications confidentially, and the material submitted to the HKSE in connection with a listing application during the HKSE's vetting process is not available to the public. 13 Document 82 was included on the List of Documents and the Disc inadvertently. I did not appreciate at the time discovery was given that Document 82 was a draft legal opinion provided to OMH. I did not receive instructions about the contents of Document 82 in the course of preparing discovery in these proceedings (other than that Document 82 was part of the set of documents provided to the HKSE by OMH on 28 February 2011, and therefore responsive to category 8 of the Plaintiff's discovery request). 14 Under the timetable set down by the Court to facilitate an urgent final hearing in this matter, OMH had 3 business days following receipt of the Plaintiff's discovery request to give discovery. The Plaintiffs' discovery request included of [sic] a number of broad categories of documents, and it was necessary for me and the lawyers assisting me to review several hundreds of documents from OMH for the purpose of assessing their responsiveness to the Plaintiff's discovery request, and for issues of privilege and confidentiality. 15 On 4 May 2011, following a request by Mallesons for an English translation or description of the contents of Document 82, I became aware on seeking instructions from OMH regarding that request that Document 82 was a draft legal opinion. On 4 and 5 May 2011 I and Justine Cameron, a solicitor employed by Gilbert + Tobin assisting me in the conduct of these proceedings, exchanged email correspondence with Mallesons in respect of Document 82 and requested that Mallesons delete and destroy all copies of Document 82 and any notes that had been made from Document 82, on the basis that it is a privileged document that was provided to them inadvertently. A true copy of that email chain is at pages 1 to 2 of Exhibit RSJ-2. 16 On 5 May 2011, Gilbert + Tobin sent a letter to Mallesons in respect of Document 82 and Mallesons responded to that letter on 6 May 2011. True copies of those letters are at pages 3 to 6 of Exhibit RSJ-2. In their response of 6 May 2011 Mallesons refused to destroy or return copies of Document 82. 32 It is quite clear that, on the evidence of the defendant's solicitor, the question of whether the document was privileged had not been investigated by the defendant's lawyers in Australia prior to its being sent to the solicitors for the plaintiff. In my view, no blame or criticism should be attached to anybody for this because, as has been submitted to me and deposed to in the solicitor's affidavit, the matter has been moving very fast and the defendant has been under significant time pressures in meeting the orders of the Court. On the evidence, it seems to me that disclosure of the document at the point when it was forwarded to the plaintiff's solicitor was inadvertent within the meaning of the relevant authorities and, if it matters, I will approach the second basis of waiver in light of that finding. 33 In addition to the affidavit that was read in support of the claim for privilege and in support of the submission that privilege had not been waived, there was tendered before me as Exhibit A the document described as "Revised Guidance on New Listing Applications" (the Guidelines document) issued by HKSE, a copy of s 378 of the Securities and Futures Ordinance of Hong Kong and a copy of Schedule 1 to that Ordinance. The purpose of the tender of this material was to demonstrate that material provided to HKSE as part of a new listing application is to be kept confidential. The defendant submitted that the Hong Kong Ordinance provides that it must be kept confidential and prohibits specified persons (being the Hong Kong Securities and Futures Commission and its employees and officers and perhaps others) from disclosing to any person any material provided as part of such a listing application. In order to make good that submission, Counsel took me through the Guidelines document and the relevant statutory provisions. 34 As part of those documents which the HKSE requires to be submitted as part of a new listing application are documents which fall within the class of documents described under the following heading in the Guidelines document: 1 Documents to be submitted when making a new listing application … 1.B Additional information to be submitted Please provide additional information/confirmation by separate submission, making appropriate cross-references to the checklist below:- C Companies with operations in the PRC 12) Details of the relevant mainland interests where the Group has any PR legal entity in its shareholding structure. 13) A legal opinion on whether approval by any PRC government or regulatory authority is required for the listing of the Company's shares on the Exchange (see note). 14) For PRC incorporated Company, a copy of the PRC legal opinion to the CSRC. 15) A legal opinion setting out details of all the requirements under applicable PRC laws and regulations relevant to the conduct of the Group's business in the PRC, and whether it fully complies with the relevant requirements, including details of the licenses, permits or certificates obtained by the Group. 16) Copies of documentation from the relevant PRC tax bureau confirming the tax rate which the Company is subject to, and confirming that the Company has paid the relevant tax liabilities. 35 Counsel submitted that Document 82 was a document prepared in order to meet the requirements of section C.15 in the Guidelines document forming part of Exhibit A. However, a close consideration of the affidavit sworn by the defendant's solicitor does not reveal any statement to that effect in the affidavit. In addition, the description of Document 82 in the defendant's List of Documents suggests that it was produced for the purposes of category C.12 of the Guidelines document, not category C.15. I say this because that is what the description in the list expressly provides. 36 It is quite clear that the evidence of the solicitor for the defendant is based upon information and belief. The information was acquired from a partner of the Hong Kong firm of lawyers which is advising the defendant in relation to its proposed listing on HKSE and does not travel beyond what the solicitor in Sydney was told. Nonetheless, there is no direct evidence from anyone in the defendant's camp who has knowledge of the circumstances in which and the purposes for which Document 82 was brought into existence. 37 Despite the defendant's Sydney solicitor's description of the document as being "… a draft legal opinion …" it does not seem to me that it is aptly so described. It was, after all, part of the suite or package of documents that went to the HKSE and thus was sent on the basis that it was the final version of whatever it was that was to be sent in conformity with the guidelines promulgated by the Exchange. In addition, the description of the document in the defendant's List of Documents suggests that it is a document prepared for the sole, or at least, the dominant purpose of satisfying section C.12 of the HKSE guidelines, rather than section C.15. 38 It is for the defendant to satisfy me that the dominant purpose for the preparation of Document 82 was the provision of legal advice within the meaning of s 118 of the Evidence Act. On the facts as I have outlined them, I am not satisfied that that was the dominant purpose for the creation of the document. It seems to me that, when those facts are considered, the contents of the document probably do not travel much beyond setting out factual information concerning the subsidiaries of the defendant in China and was provided, as the List of Documents says, in satisfaction of the obligation to describe various connections with the defendant in accordance with the requirements of section C.12 of the Guidelines document. 39 For these reasons, I am not satisfied that Document 82 was privileged at the time that it was created. Therefore, the plaintiff is entitled to have discovery of it. 40 The question then for me is whether I should allow Senior Counsel for the plaintiff to withdraw the concession which he made at the outset this morning. An important factor guiding me on this question is the circumstance that I have not been persuaded that Document 82 was ever privileged. In addition, Senior Counsel for the plaintiff submitted that he ought to be permitted to withdraw his concession because, when he made that concession, he did not have the documents comprised in Exhibit A but rather only had the description of Document 82 in the affidavit sworn by the Sydney solicitor for the defendant. I think there is some force in this submission. I propose to allow the plaintiff to withdraw the concession made and to argue that the document was never privileged. 41 For the reasons which I have given, the document was properly discovered by the defendant. What that really means in the circumstances of the present case is that I will not make any orders requiring the plaintiff to return the document and the plaintiff will be free to utilise it, subject to the usual constraints as to the use to which documents disclosed and produced under compulsion in litigation might be put. 42 Much of the argument in respect of Document 82 was directed to the question of waiver. Given my conclusion that Document 82 was never privileged, no question of waiver arises. However, I will briefly express my views concerning waiver. 43 Senior Counsel for the plaintiff relied upon two acts of waiver: One was the sending of the document to the HKSE in the circumstances in which it was sent and the other was the disclosure of the document during the discovery process in the circumstances which I have outlined above. 44 In my view, the latter disclosure would not have constituted waiver of the privilege in the document, had the document been privileged when it was created. In my view, an inadvertent disclosure of the type which occurred here would not be a disclosure of the character contemplated by s 122 of the Evidence Act and, had I been of the view that the document was privileged, then it would have remained so. Privilege would not have been waived by the inadvertent disclosure of Document 82 during the discovery process. The relevant principles are discussed in Unsworth v Tristar Steering and Suspension Australia Ltd [2007] FCA 1081 at [6]-[8]; and in CMA Corporation Ltd v Rowe [2010] FCA 1042 at [18]-[27]. 45 As far as the earlier disclosure made by the defendant to the HKSE is concerned, it may well be that, had the document been privileged, that disclosure would not have constituted a waiver. Whether this was so or not would depend upon findings as to the circumstances in which the document came to be disclosed to HKSE. I would need to be satisfied that those circumstances made the disclosure to HKSE an occasion of confidence within the meaning of s 122 of the Evidence Act. The resolution of this question would depend, in turn, upon whether the umbrella statutory provisions to which I was referred apply to documents sent to the HKSE as part of a new listing application or whether those documents were, in any event, furnished to HKSE in circumstances which impressed them with obligations of confidentiality. 46 The plaintiff sought an order that the defendant verify its List of Documents in accordance with the Federal Court Rules. Counsel for the defendant submitted that I should only make that order if I thought it was necessary to do so. I am not sure that the power is quite so limited. In any event, in this case I think that it is appropriate that the defendant's List of Documents be verified and I will require the defendant to verify its list. Counsel has also requested that the defendant have until 12 noon on Thursday 12 May 2011 in order to complete the task of verification. I have no difficulty with that, provided that the List of Documents is otherwise finalised and served before then in an unverified form. 47 Counsel for the defendant has sought to re-jig the timetable for the hearing next Friday. The plaintiff did not oppose the defendant's suggested amendments to the timetable. I will, therefore, include within any orders that I make as a consequence of the judgment which I have just delivered, the timetabling orders sought by Counsel for the defendant. 48 I will make an order that the costs of both Motions be costs in the proceeding. 49 I direct the parties to confer and to send to my Associate as soon as possible agreed Short Minutes of Order giving effect to these Reasons. I certify that the preceding forty-nine (49) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Foster.

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