Toppro Pty Ltd v Yoo

Background

1. It appears that Toppro imported recording and digital equipment manufactured by a company described in argument as "Topfield Korea". Both Toppro and a company known as Topfield Australia Pty Ltd (Topfield Australia) distributed products manufactured by Topfield Korea. The Chief Executive Officer of Topfield Korea was Mr Lee, the husband of Ms Joo. Ms Joo is the second defendant in the Equity Division Proceedings.

Pleadings

1. Mr Yoo's case in the Equity Division Proceedings is pleaded in the Fourth Amended Statement of Claim (4ASC) filed on 19 May 2015. He seeks a declaration that a transfer of shares in Toppro dated 20 June 2014, that he signed in favour of Ms Joo, be declared void and of no effect. Mr Yoo also seeks an order requiring the shares to be returned to him and, in the alternative, seeks damages for conversion of the shares from Ms Joo.
2. The 4ASC pleads as follows: 1. On about 30 April 2012, Mr Yoo acquired a 100 per cent shareholding in Toppro. In May 2012, at the request of Ms Choi, Mr Yoo agreed to execute a form of transfer, partly in blank, of his shares in Toppro in favour of Wealth Wisdom Investments Ltd (WWI), the fourth defendant in the Equity Division Proceedings. Mr Yoo instructed Ms Choi that the transfer was to lapse after three months. 2. Between May 2012 and June 2014, Ms Choi, acting without authority, gave the partially completed document to Ms Joo. On or before 20 June 2014, Ms Joo fraudulently altered the transfer to insert her own name as transferee and made other alterations to the transfer. 3. On or about 3 September 2014, WWI executed the transfer in knowledge of the fraudulent alterations previously made to the document. At about the same time, WWI made further alterations to the transfer, including inserting its own name as transferee in place of Ms Joo. These alterations were also made fraudulently and without Mr Yoo's authority. 4. By reason of the matters pleaded, Ms Joo and WWI converted the shares. Mr Yoo is therefore entitled to the relief he claims.
3. The defendants denied any misconduct. It is, however, not necessary to consider the defence in any more detail.

The Notice to Produce

1. On 19 January 2016, Mr Yoo filed a notice to produce in the Equity Division Proceedings requiring Toppro to produce the following documents: 1. Production of all bank statements for the periods from 1 January 2014 to date. 2. Production of all Business Activity Statements for the periods from 1 January 2014 to date. 3. Production of all Profit and Loss Statements for the periods from 1 January 2014 to date. 4. Production of all balance sheets for the periods from 1 January 2014 to date. 5. Production of all records of orders [to] Topfield Korea for the periods from 1 January 2014 to date. 6. Production of all records of payment to OK Shop for the periods from 1 January 2014 to date. 7. Production of all wage records for the periods from 1 January 2014 to date. 8. Production of all documents of communications between Topfield Korea and in particular with Yong Chul Lee between takeover to now for the periods from 1 January 2014 to date.
2. On 28 January 2016, Toppro filed a notice of motion seeking orders setting aside each of the paragraphs of the notice to produce. Toppro contended that the notice to produce was oppressive and required the production of documents with insufficient apparent relevance to the proceedings and which were commercial-in-confidence.

Primary Judgment

1. The primary Judge heard the motion on 15 February 2016 and delivered an ex tempore judgment on that day.
2. His Honour summarised the case pleaded by Mr Yoo and set out the terms of the notice to produce. His Honour recorded that Mr Yoo did not press para 8 of the notice to produce.
3. The principal submission advanced on behalf of Mr Yoo was that it was "on the cards" that the documents would reveal that after 20 June 2014 the business of Toppro declined, while that of Topfield Australia grew. His Honour explained the submission as follows: [3] "That [there might have been a transfer of business] is not merely speculation but is founded on evidence that, to the knowledge of the Court and the defendants, has been given in related proceedings. [4] The plaintiffs then say, principally, that if the documents in fact show that to be the case, that would provide some evidence - or at least a basis for cross-examination of the defendants' witnesses - to the effect that they were conscious of guilt in procuring the impugned transfer, as such a transfer of business would manifest an attempt, once having obtained control of the company, to transfer away its business and place it beyond the plaintiff's reach. Additionally, the plaintiffs argue that such a transfer of business would be relevant to the appropriateness of restitution of the subject shares as a remedy, and to the measure of damages".
4. The primary Judge said that it was important to recognise that a notice to produce, unlike discovery, is: [5] "… not confined to documents that relate to matters in issue in the proceedings, but may seek documents that go purely to credit. It is a fundamental distinction between processes of and akin to subpoenas for production, and those of discovery, that while the latter is limited to documents that relate to matters in issue in the proceedings, the former are not, to the extent that they may be used to obtain documents that relate only to the credit of a party or witness. [6] Moreover in this case, documents that would provide a basis for suggesting a motive, or consciousness of guilt, would in fact not be relevant only to credit, but would bear on a fact in issue in the proceedings, namely whether the impugned transfer was a fraudulent or otherwise improper transaction".
5. His Honour continued as follows: "[4] Although it has been suggested in a number of cases that in this context the question of relevance is to be determined by reference to the pleadings and affidavits, [7] they cannot always define the ambit of legitimate forensic purpose, since pleadings are confined to material facts, while evidence may go beyond the material facts - not only as to credit but also (as in this case) motive. [5] In my view, having regard to the evidence given in the related proceedings, it is 'on the cards' that the documents called for by these subpoenas will assist in the resolution of the issues in these proceedings. I must say it would have been much more helpful had the plaintiffs bothered to articulate the basis they now advance for the subpoenas in question in response to the letter from the defendants' solicitors which complained that there was no apparent legitimate forensic purpose for their issue. Nonetheless, I think the plaintiffs have shown sufficient to avoid having these subpoenas set aside, in circumstances where they are relatively limited in scope as to financial statements, bank accounts, business activity statements and the like, for a period of only about two years."

Matters Not in Dispute

1. It can be seen that the primary Judge found, on the basis of evidence given in other proceedings to which Toppro was a party (Toppro Proceedings), that it was "on the cards" that the documents covered by the notice to produce would assist in the resolution of the issues in the Equity Division Proceedings. At the time his Honour delivered the Primary Judgment, he had heard the evidence in the Toppro Proceedings and reserved his judgment. In those proceedings, Toppro sought compensation for alleged breaches of duty by the former General Manager of Toppro and a former director of the company.
2. The transcript of the hearing in the Toppro Proceedings was not tendered during the hearing before the primary Judge, but his Honour made it clear in the course of argument that he had consulted the transcript. Although counsel appearing for Toppro before the primary Judge initially submitted that no reference should be made to the transcript of the Toppro Proceedings, he made no complaint about the course adopted by his Honour and no complaint is made on Toppro's behalf in this Court. The White Book filed on behalf of Toppro contains extracts from the transcript of the other proceedings. Both parties were content to proceed on the basis that the material was properly before this Court.
3. Toppro's draft notice of appeal contained grounds alleging that the primary Judge had applied an incorrect legal principle and had erred in giving insufficient weight to what was said to be the commercial confidentiality of the documents covered by the notice to produce. Mr Neil QC, who appeared with Mr O'Brien for Toppro, did not press these grounds.

Reasoning

1. The only ground pressed by Mr Neil in oral argument was that the primary Judge's exercise of discretion miscarried because his Honour misapprehended the evidence given in the Toppro Proceedings. According to Mr Neil, that evidence did not suggest that there had been a transfer of business from Toppro to Topfield Australia after 20 June 2014 (when the transfer was allegedly fraudulently altered by Ms Joo). There was therefore no basis for his Honour's conclusion that the notice to produce sought production of documents that might be relevant to the credit of Ms Joo and other witnesses to be called on behalf of the defendants in the Equity Division Proceedings.
2. It is well settled that leave to appeal will ordinarily not be granted from a decision involving a matter of practice and procedure unless the application raises an issue of principle or the applicant can demonstrate that a significant injustice is likely to result if leave is not granted. [8] The fundamental reason is that unless appellate courts exercise restraint in interfering with decisions of trial judges on matters of practice and procedure, the result will be excessive delays, expense and uncertainty in the conduct of litigation. [9]
3. The argument advanced by Mr Neil raised no issue of principle. He did not submit that the documents are particularly sensitive or that the commercial interests of Toppro would be unduly compromised if the documents had to be produced. Nor did he submit that it would be unduly burdensome for Toppro to be required to collect and produce the documents covered by the notice to produce. In the absence of any such submissions, Mr Neil could not identify any significant injustice that Toppro would suffer if leave to appeal were refused. These considerations would be enough of themselves to justify dismissal of Toppro's application for leave to appeal.
4. In any event, the Court was not persuaded that the contention advanced by Mr Neil had reasonable prospects of success. The passages in the transcript of evidence in the Toppro Proceedings to which this Court was taken demonstrate that there was a conflict in the evidence. However, the evidence of Mr Nascimento, formerly employed by Toppro as its National Sales and Marketing Director, clearly supported the view taken by the primary Judge. Mr Nascimento's evidence indicated that Toppro's activities as a distributor of Topfield products ceased or became dormant for a significant period after June 2014. During this time, the "new entity" (as Mr Nascimento described Topfield Australia) took up the role of "resupplying" the market with Topfield products.
5. Mr Nascimento said that these developments occurred when "the parent company", Topfield Korea, acquired control of the Topfield business in Australia. As part of the reorganisation of the group's interests, Mr Nascimento did not formally sever his association with Toppro, but in effect became Topfield Australia's marketing manager.
6. Ms Joo's evidence, although somewhat vague and general, was to some extent inconsistent with that of Mr Nascimento. But the primary Judge considered that the documents sought in the notice to produce were relevant to the Equity Division Proceedings precisely because they might have a bearing on the credibility and motivation of Ms Joo and other witnesses to be called by Toppro.
7. Toppro's written submissions on the application for leave to appeal advanced an argument that even if the documents sought by the notice to produce suggested that business had been diverted from Toppro to Topfield Australia, they could not be relevant to Mr Yoo's pleaded case of conversion, since conversion does not require proof of fault. Mr Neil did not develop the submission in oral argument. The difficulty it confronts is that the case pleaded in the Equity Division Proceedings is not confined to conversion, but includes allegations of fraud.

Conclusion

1. It was for these reasons that the Court made orders dismissing the application for leave to appeal, with costs.

Endnotes

1. Since the decision was interlocutory, leave is required: Supreme Court Act 1970 (NSW), s 101(2)(e).
2. Ahn v Toppro Pty Ltd [2016] NSWSC 221 (Primary Judgment).
3. Primary Judgment at [2]. The reference in the extract to "plaintiffs" appears to be an error.
4. "Toppro Pty Ltd v Kwon (2014/247347), heard by me on 28-31 July and 14-16 September 2015, in which the same counsel appeared. Evidence was given to the effect that the business of Toppro was transferred by Topfield Australia shortly following Ms Joo assuming control."
5. Primary Judgment at [3].
6. Brand v Digi-tech (Australia) Pty Ltd [2001] NSWSC 425, [36]; Liristis v Gadelrabb [2009] NSWSC 441; Mackintosh v Commissioner of Police (NSW) [2010] NSWSC 1064. [The citations in this footnote and note 7 below have been edited.]
7. Hatton v Attorney General of the Commonwealth of Australia [2000] FamCA 892; 26 Fam LR 570; ICAP Pty Limited v Moebes & Anor [2009] NSWSC 306.
8. ICAP Australia Pty Ltd v BCG Partners (Australia) Pty Ltd [2009] NSWCA 307 at [29] (Tobias JA, Basten JA and Handley AJA agreeing; Be Financial Pty Ltd as Trustee for Be Financial Operations Trust v Das [2012] NSWCA 164 at [32]-[33] (Basten JA, Tobias AJA agreeing).
9. Adam P Brown Male Fashions Pty Ltd v Phillip Morris Inc [1981] HCA 39: 148 CLR 170 at 177 (Gibbs CJ, Aickin, Brennan and Wilson JJ), citing Re the Will of Gilbert (1946) 46 SR (NSW) 318 at 323 (Jordan CJ). 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. Decision last updated: 23 May 2016