TZ Ltd v ZMS Investments Pty Ltd & Ors; Sigalla v TZ Ltd

CATCHWORDS : PRACTICE AND PROCEDURE - Subpoena to produce documents - application to set aside subpoena issued on ASIC following s.19 examinations - whether documents sought for legitimate forensic purpose - whether production of documents is oppressive - whether restricted access should be given in respect of certain documents where confidentiality or commercial sensitivity is claimed.

LEGISLATION CITED : Australian Securities and Investments Commission Act 2001 (Cth) - s 19 Corporations Act 2001 (Cth) - s 228(2)

• Alister v R (1984) 154 CLR 404 - Attorney General (NSW) v Chidgey (2008) 182 A Crim R 536 CASES CITED : - R v Saleam (1989) 16 NSWLR 14 - R v Saleam [1999] NSWCCA 86 - Shipley v Masu Financial Management Pty Ltd (2008) 68 ACSR 412 - Travel Compensation Fund v Blair [2004] NSWSC 501

2009/00290315 TZ Limited (Plaintiff) ZMS Investments Pty Ltd (First Defendant) BZI Pty Ltd (Second Defendant) Andrew John Sigalla (Third Defendant)

PARTIES : 2009/00290688 Andrew John Sigalla (Plaintiff) TZ Limited (Defendant)

Non-party applicants Siimon Reynolds and Moon Corporation Pty Ltd Terrence Caplice John Falconer and Dunbar & Associates Pty Ltd

FILE NUMBER(S) : SC 2009/00290315; 2009/00290688

D.F.C. Thomas (TZ Ltd) G. Sirtes SC (ZMS Investments Pty Ltd & Ors) COUNSEL : Ms K. Williams (S. Reynolds and Moon Corporation Pty Ltd) A.C. Harding (T. Caplice) F. Gleeson SC (J. Falconer and Dunbar & Associates Pty Ltd)

Landerer & Co (TZ Ltd) SOLICITORS : HWL Ebsworths (ZMS Investments Pty Ltd & Ors) Sparke Helmore ((S. Reynolds and Moon Corporation Pty Ltd))

20009/00290315 TZ Ltd v ZMS Investments Pty Ltd & Ors 2009/00290688 Sigalla v TZ Ltd

1 These are applications by the Defendants and others to set aside a subpoena served by the Plaintiff ("TZ") on the Australian Securities and Investments Commission ("ASIC") and, in the alternative, to allow restricted access to the documents which ASIC has produced in answer to the subpoena. 2 On 10 August 2009 the TZ requested ASIC to investigate a number of allegations which TZ made against its former director, Mr Andrew Sigalla, in respect of transactions entered into by TZ said to have resulted in large losses. ASIC acceded to the request and commenced investigations, requiring the production of documents from various persons and companies and conducting private examinations of certain persons pursuant to s 19 of the Australian Securities and Investments Commission Act 2001 (Cth) ("the ASIC Act"). 3 On 26 August 2009, TZ commenced these proceedings by way of Summons. The Defendants were ZMS Investments Pty Ltd ("ZMS"), Seamus Robert Caplice and Melissa Anne Sigalla. TZ filed a Statement of Claim on 22 October 2009. The Defendants now are ZMS, BZI Pty Ltd ("BZI") and Mr Sigalla. 4 I will return to the detail later, but it is sufficient to note that the essence of the various causes of action pleaded by TZ in the Statement of Claim is that in a number of substantial transactions into which TZ entered, the directors of TZ, being Mr Sigalla, Mr John Falconer and Mr Michael Otten, committed breaches of their duties, statutory and fiduciary, not to place themselves in a position of conflict of interest, not to profit from their positions as directors of TZ, and to act in good faith in the interests of TZ. It is alleged that Mr Sigalla was at all material times the director and controller of ZMS and BZI and to the extent that those companies participated in the transactions complained of, or received proceeds of those transactions, they are liable to make equitable compensation to TZ. Tracing orders are sought accordingly. 5 The allegations made in the Statement of Claim are some, but not all, of the matters of which TZ complained to ASIC in requesting an investigation in its letter of 10 August 2009. 6 On 19 November 2009, ZMS, BZI and Mr Sigalla filed a Defence in which the material allegations in the Statement of Claim are denied. 7 On 24 December 2009, TZ issued a subpoena to ASIC to produce a very substantial volume of material which it had gathered in the course of its investigations into the allegations made by TZ. Of the subpoenaed material only a part is now in question. It is contained in a Schedule of Agreed Documents ("the Schedule"), which is in evidence. The Schedule specifies precisely certain banking records, specifies transcripts of private examinations of nine persons under s 19 ASIC Act, including Mr Sigalla, Mr Falconer, Mr Otten and others to whom I will come in a moment. The final category is documents in the possession of ASIC "relating to" specified transactions identified with some particularity or to the employment or engagement by TZ of Mr Sigalla and Mr Falconer during specified periods. 8 ASIC has produced these documents to the Court without demur in answer to the subpoena but access has not yet been afforded to anyone. The issues

9 By Interlocutory Processes filed at various times, application is now made to the Court either to set aside the subpoena entirely or to restrict access to the documents produced by ASIC to TZ's legal advisers upon their giving undertakings to the Court to keep the information therein confidential and not to use the information other than for the purposes of these proceedings. 10 The Applicants are the three Defendants in the proceedings, i.e. Mr Sigalla and the companies which he controls, and in addition the following, who are not parties to the proceedings: Mr Falconer and a company of which he is a director, Dunbar Associates Pty Ltd ("Dunbar"); Mr Siimon Reynolds and Moon Corporation Pty Ltd ("Moon") of which Mr Reynolds is sole director; and Mr Terrence Caplice, the father-in-law of Mr Sigalla. ASIC has taken no active part in the contest. 11 The grounds upon which the applications are founded are:

• abuse of process in that the documents are not sought for a legitimate forensic purpose but are, rather, in the nature of "fishing";

• the information contained in the documents, particularly the s 19 transcripts, is confidential. 12 All applications were heard together. In support of the applications Mr G. Sirtes SC appeared for the Defendants, Mr F. Gleeson SC appeared for Mr Falconer and Dunbar, Ms K. Williams of Counsel appeared for Mr Reynolds and Moon, and Mr Harding of Counsel appeared for Mr Caplice. Mr J. Chambers, Solicitor, appeared for ASIC but has made no submissions at this stage. Mr D.F. Thomas of Counsel, who appears for TZ, opposes the applications to set aside the relevant paragraphs of the subpoena but consents to the imposition of a confidentiality regime as a condition of granting access to the documents which have been produced. The terms of an appropriate confidentiality regime have not been agreed. Whether legitimate forensic purpose

13 The relevant principles upon which the Court proceeds in an application of this kind are clear. The difficulties, as always, arise in applying principle to particular facts. 14 In order to uphold a subpoena for the production of documents or in order to gain access to documents produced upon subpoena, the party issuing the subpoena must show:

• that there is a legitimate forensic purpose for which the documents are sought; and

• that it is "on the cards" that the documents will materially assist that party's case.

These two requirements are often stated separately but, in fact, if the issuing party shows that it is "on the cards" that the documents would materially assist its case, then the requirement of legitimate forensic purpose is also shown: see Alister v R (1984) 154 CLR 404, at 414 per Gibbs CJ; R v Saleam (1989) 16 NSWLR 14; R v Saleam [1999] NSWCCA 86, at [11]; Attorney General (NSW) v Chidgey (2008) 182 A Crim R 536, at [64]-[69] per Beazley JA, and Shipley v Masu Financial Management Pty Ltd (2008) 68 ACSR 412 per White J. 15 All Applicants focus primarily on the submission that the documents produced by ASIC could not be relevant to any issue in the TZ proceedings and, therefore, access could not be required for a legitimate forensic purpose. 16 The submissions emphasised that it was not known what particular matters ASIC had investigated, so that it was no more than speculation that the subpoenaed material bore upon the issues in TZ's proceedings. However, in the course of the hearing, TZ's letter to ASIC of 10 August 2009 was tendered and admitted. There is no doubt that that letter triggered ASIC's investigation into TZ's affairs. Some of the complaints or allegations in the letter relate to matters of minor significance. The major complaints may be summarised thus:

• TZ entered into a Deed of Release with Mr Sigalla on 2 June 2009 upon his resignation as a director whereunder TZ was to pay Mr Sigalla $1,160,000 as compensation for his retirement and agreed to indemnify him in respect of certain liabilities ("the Deed of Release Complaint");

• TZ sold an asset, namely, shares in a subsidiary called "Golf Link" for approximately $2.4M, but TZ never received the money for that sale - it was paid to an entity associated with Mr Sigalla and it has not been accounted for ("the Golf Link Complaint");

• TZ made the following unexplained payments to Mr Sigalla or for his benefit: $1,459,525. 37 paid to Mr Sigalla between 1 August 2008 to 15 June 2009 $6,294,562.06 paid to BZI, of which Mr Sigalla and his wife are directors $649,390.44 paid to Dunbar, Mr Falconer's company $1,000,035.00 paid to Kas Bank NV of the Netherlands $1,000,000 paid to the brother-in-law of Mr Sigalla, Mr Seamus Caplice, between 29 August 2009 and 23 October 2009;

("the Unexplained Payments Complaint"). 17 Each of these complaints founds, or forms part of, a cause of action pleaded in TZ's Statement of Claim ("SoC"). 18 As to the Deed of Release Complaint, in paragraphs 61 to 65 SoC it is alleged that Mr Sigalla procured execution of the Deed of Release by duress and misrepresentation and that the transaction was improvident. Alternatively, TZ says that the Deed of Release:

• was a "related party transaction" within s 228(2) Corporations Act 2001 (Cth);

• was not in the best interests of TZ and was executed on its behalf by Mr Falconer in breach of his statutory and fiduciary duties as a director;

• on its proper construction, does not release Mr Sigalla from the claims made against him in the SoC.

TZ seeks an order declaring the Deed of Release void. 19 As to the Golf Link Complaint, it is alleged in paragraphs 47 to 52 SoC that:

• on or about 28 April 2004, TZ entered into a contract to sell its wholly owned subsidiary, Golf Link Partners Pty Ltd, to Simbient Golflink Pty Ltd for $2M;

• between 2004 and 2005 Mr Sigalla directed that the consideration for the sale be paid to Telezygology Pty Ltd, of which he was sole director and shareholder;

• the payments to Telezygology were for no consideration;

• Mr Sigalla breached his statutory and fiduciary duties as a director of TZ and is liable to make equitable compensation to TZ. 20 As to the Unexplained Payments Complaint:

• paragraphs 10 to 20 SoC allege that Mr Sigalla procured TZ to make payments totalling $4,555,205 to him or for his benefit and $6,294,562 to BZI;

• the payments were effected by Mr Falconer and another as signatories to TZ's bank account;

• neither Mr Sigalla nor BZI were entitled to the payments and they were not made for a proper purpose, whereby Messrs Sigalla, Falconer and Otten as directors of the company were in breach of their statutory and fiduciary duties to TZ;

• TZ is entitled to recover equitable compensation from Mr Sigalla and to trace the benefit of the payments into the hands of Mr Sigalla, BZI and ZMS;

• paragraphs 22 to 46 SoC plead alternative causes of action for the recovery of monies paid by TZ to BZI;

• paragraphs 53 to 57 SoC allege that TZ, at the request of Mr Sigalla, paid amounts to Mr Seamus Caplice totalling $1M, which payments were authorised by Mr Falconer as signatory to TZ's bank account;

• the payments to Mr Caplice were for no consideration and were not for a proper purpose of TZ;

• in procuring and approving the payments, Messrs Sigalla and Falconer were in breach of their statutory and fiduciary duties as directors of TZ;

• TZ is entitled to equitable compensation from Mr Sigalla and to trace the benefit of the payments into the hands of Mr Sigalla, BZI and ZMS. 21 There is no allegation in the SoC relating to Dunbar, Mr Reynolds, Moon or Mr Terrence Caplice. No claim for relief is made against any of those persons or companies. 22 ASIC has produced on subpoena the transcripts of the s 19 examinations of: Messrs Sigalla, Falconer, Otten, Reynolds, Terrence Caplice, Steven Fornascaro, Fraser Brown, Lindsay Gallagher and Jeff O'Donnell. 23 By virtue of the allegations made in the SoC relating directly to their conduct as directors of TZ in transactions which TZ requested ASIC to investigate, I am satisfied that it is virtually certain that the transcripts of the examinations of Messrs Sigalla, Falconer and Otten contain information directly concerning the transactions which TZ seeks to impugn in these proceedings and that it is at the least, reasonably likely that that information would materially assist TZ's case. It is not necessary to ascertain exactly what the information is or whether it could be tendered in evidence in these proceedings. It is sufficient if the information is reasonably likely to identify relevant lines of enquiry which can assist TZ's case: see Shipley at [30]-[31] per White J. 24 Mr Fornascaro is a partner of a firm of accountants which provided accounting services to Mr Sigalla. It is highly probable that he has an understanding of Mr Sigalla's financial affairs. It is, at the least, "on the cards" that Mr Fornascaro has given information in his s 19 examination which is relevant to Mr Sigalla's involvement in the impugned transactions, particularly relating to the tracing of assets through Mr Sigalla's hands and through BZI and ZMS, and which may materially assist TZ's case. 25 Mr Fraser Brown was an employee of TZ at times relevant to the impugned transactions. He was TZ's IT Manager and it is alleged that he received certain instructions from Mr Sigalla to delete e-mails on Mr Sigalla's computer. It is, in my view, at least reasonably likely that Mr Brown has given information in his s 19 examination which is relevant to Mr Sigalla's "consciousness of guilt", and which may materially assist TZ's case. 26 Mr Reynolds is alleged to be a business associate of Mr Sigalla. He is said to have received a loan from Mr Sigalla for the purpose of enabling him or his company to buy shares in TZ. Nothing has yet emerged which shows that Mr Reynolds or his company, Moon, has participated in any of the transactions impugned in the Statement of Claim or received funds generated by such transactions. In my view, it is speculative at this stage whether Mr Reynolds' s.19 transcript contains any information relevant to TZ's proceedings. TZ's application for access to Mr Reynolds' transcript seems to be a "fishing exercise". 27 Mr Jeff O'Donnell is a director of Golf Link Partners Pty Ltd and Simbient Golflink Pty Ltd. Clearly, it is very much "on the cards" that Mr O'Donnell has given information in his s 19 transcript which is directly relevant to the impugned Golf Link transaction and may materially assist TZ's case. 28 Mr Terrence Caplice is said to have provided funds to Mr Sigalla after a freezing order was imposed upon Mr Sigalla in these proceedings. Otherwise, no connection between Mr Terrence Caplice and any of the transactions impugned in the Statement of Claim appears, save that Mr Terrence Caplice is the father of Mr Seamus Caplice, who is alleged to have received $1M from TZ. In my view, this connection is not sufficient to make it reasonably likely that Mr Terrence Caplice's s.19 examination transcript will contain information relevant to any transaction impugned in the Statement of Claim. 29 For these reasons, I decline to allow TZ's legal representatives to have access to the s 19 examination transcripts of Mr Reynolds and Mr Terrence Caplice. 30 As to the transcripts of the other examinees, I am satisfied that, at the very least, there is a reasonable possibility that they contain information which would materially assist TZ's case, for the reasons I have briefly indicated. Access to that information is, therefore, sought for a legitimate forensic purpose. 31 Paragraphs 1.1 to 1.3 of the Schedule list records of specified bank accounts, including those of TZ and Kas NV. There is no submission that any of these documents are not reasonably likely to contain information relating to the impugned transactions. Obviously, it would be necessary for TZ to prove in its case in relation to each impugned transaction that money came out of its account, or out of other accounts at its directions, and went into certain other accounts at Mr Sigalla's direction. It will be necessary to follow the movement of monies from start to finish in order to conduct any tracing of misappropriated funds. I am satisfied that it is at least reasonably likely that the information in the bank records will materially assist TZ's case. I note, however, that TZ does not press access to the documents referred to in paragraph 1.1(g). 32 Paragraphs 2(a)-(f) of the Schedule list documents relating directly to the sale of Golf Link, the employment or terms of engagement and remuneration of Mr Sigalla and Mr Falconer as directors of TZ and to consultancy fees paid to ZMS, Mr Falconer and Dunbar. Their relevance to the issues in the TZ proceedings are obvious but, in addition, I am satisfied that these documents are reasonably likely to contain information which may materially assist TZ's case. 33 Paragraphs 2(h)-(j) list documents which refer to the use and movement of funds of Mr Sigalla, BZI and ZMS during the relevant period. I am satisfied that those documents are reasonably likely to contain information which could materially assist TZ's case in tracing funds from the impugned transactions. 34 For these reasons, I conclude that TZ has a legitimate forensic purpose in having access to the transcripts of the private examinations, other than those of Mr Reynolds and Mr Terrence Caplice, and to the documents in the Schedule other than those in paragraphs 1.1(g) and 2(g). Oppression

35 The second ground of opposition to access is that access would be "oppressive". The Applicants cannot, and do not, allege oppression to ASIC arising from the width of the subpoena or the volume of material which must be amassed. ASIC has not complained of oppression and the Applicants have no right to complain on its behalf: see Shipley at [23]. 36 The Applicants say that giving access to TZ to the documents would be oppressive to them, in the sense of "unfair". However, if confidential matter in the documents is properly protected and claims for legal professional privilege are recognised, as they will be, then I cannot see that making available to TZ information properly produced on subpoena for a legitimate forensic purpose can be unfair to the Applicants. 37 If access to the documents results in some or all of the non-party Applicants being joined as Defendants in the proceedings, or results in other causes of action against existing Defendants being added to TZ's claim, then that is a concomitant of TZ obtaining access for a presently demonstrated legitimate forensic purpose. The possibility that these other consequences may occur does not convert TZ's present forensic purpose from legitimate to illegitimate. Confidentiality

38 The Applicants say that much of the information to which TZ seeks access is confidential or would attract a claim for legal professional privilege. TZ does not dispute the assertion that some of the information may attract legal professional privilege. It proffers undertakings to the Court to protect the proper use of the documents generally and to preserve claims for legal professional privilege. To protect privilege, TZ suggests a regime in which the Applicants can mask portions of documents said to be privileged before TZ is given access. 39 The terms of the proposed undertakings of TZ were not debated in detail. Any such debate is to be left until the parties have had an opportunity of reading these reasons. However, the following remarks may be of assistance. 40 The undertaking proffered by TZ is to the general effect that access to the subpoenaed documents will be given only to its legal advisers and will be used by them only for the purpose of these proceedings. Further, the Applicants will have the opportunity of masking portions of the documents claimed to be subject to legal professional privilege before TZ has access, but the Applicants must give to TZ sufficient information to enable TZ to contest those claims if it sees fit. 41 The masking of parts of subpoenaed documents to protect legal professional privilege is now accepted practice: see e.g. Travel Compensation Fund v Blair [2004] NSWSC 501 per McDougall J. Masking to protect disclosure of material said to be both irrelevant and commercially sensitive is not established practice. For the reasons given by McDougall J in Travel Compensation Fund at [49], which I respectfully adopt, I think that it should not become accepted practice. A party adverse in interest to the issuer of a subpoena may classify too readily as irrelevant and confidential information which the issuing party, who best knows its own case, would regard as highly relevant, whether or not confidential. If material is said to be irrelevant and confidential, the usual undertakings exacted from the issuing party's legal advisers - which do no more than encapsulate the present law in any event - should be sufficient to protect the irrelevant and confidential information from misuse. 42 Subject to any further submissions which the Applicants wish to make, I regard the undertakings proffered by TZ to be appropriate. I will grant access to the documents upon terms of an undertaking by TZ, either agreed between the parties, or to be determined by me. 43 I shall stand the proceedings over for a short time to enable the parties to bring in Short Minutes of Order. At that time I will hear argument as to the terms of TZ's undertakings, if they have not been agreed, and as to costs. - oOo -

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.