Adam Paul Ritchie and the Persons Detailed in Schedule a to the Writ of Summons Herein v Great Southern Managers Australia Ltd (in Liq) (Receiver and Manager Appointed)
[2012] WASC 90
•20 MARCH 2012
ADAM PAUL RITCHIE AND THE PERSONS DETAILED IN SCHEDULE A TO THE WRIT OF SUMMONS HEREIN -v- GREAT SOUTHERN MANAGERS AUSTRALIA LTD (IN LIQ) (RECEIVER AND MANAGER APPOINTED) [2012] WASC 90
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2012] WASC 90 | |
| Case No: | CIV:1647/2010 | 2 FEBRUARY 2012 | |
| Coram: | ALLANSON J | 20/03/12 | |
| 15 | Judgment Part: | 1 of 1 | |
| Result: | Application allowed | ||
| B | |||
| PDF Version |
| Parties: | ADAM PAUL RITCHIE AND THE PERSONS DETAILED IN SCHEDULE A TO THE WRIT OF SUMMONS HEREIN GREAT SOUTHERN MANAGERS AUSTRALIA LTD (IN LIQ) (RECEIVER AND MANAGER APPOINTED) CAMERON ARTHUR RHODES PHILLIP CHARLES BUTLIN STEVEN COLE MURRAY COLVIN ROBERT PETER JENKINS MICHAEL GEORGE SNELGROVE AND THE PERSONS DETAILED IN SCHEDULE A TO THE WRIT OF SUMMONS HEREIN |
Catchwords: | Practice and procedure Application for discovery Considerations in making order for discovery Turns on own facts |
Legislation: | Nil |
Case References: | Compagnie Financiere et Commerciale du Pacifique v Peruvian Guano Co [1882] 11 QBD 55 Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Ltd [1978] HCA 11; (1978) 140 CLR 216 Kent Coal Concessions Ltd v Duguid [1910] 1 KB 904 Leighton Contractors Pty Ltd v Public Transport Authority of Western Australia [2007] WASC 65 March v Stramare (E&MH) Pty Ltd [1991] HCA 12; (1991) 171 CLR 506 Youlden Enterprises Pty Ltd v Health Solutions (WA) Pty Ltd [2005] WASC 60 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- Plaintiffs
AND
GREAT SOUTHERN MANAGERS AUSTRALIA LTD (IN LIQ) (RECEIVER AND MANAGER APPOINTED)
First Defendant
CAMERON ARTHUR RHODES
PHILLIP CHARLES BUTLIN
Second Defendants
STEVEN COLE
MURRAY COLVIN
ROBERT PETER JENKINS
Third Defendants
- Plaintiffs
AND
GREAT SOUTHERN MANAGERS AUSTRALIA LTD (IN LIQ) (RECEIVER AND MANAGER APPOINTED)
First Defendant
CAMERON ARTHUR RHODES
PHILLIP CHARLES BUTLIN
Second Defendants
STEVEN COLE
MURRAY COLVIN
ROBERT PETER JENKINS
Third Defendants
Catchwords:
Practice and procedure - Application for discovery - Considerations in making order for discovery - Turns on own facts
Legislation:
Nil
Result:
Application allowed
(Page 3)
Category: B
Representation:
CIV 1647 of 2010
Counsel:
Plaintiffs : Mr D H Solomon
First Defendant : Mr D B Shaw
Second Defendants : Mr G K Rich
First Third Defendant : No appearance
Second Third Defendant : Mr M D Howard SC & Mr J D Steedman
Third Third Defendant : No appearance
Solicitors:
Plaintiffs : Solomon Brothers
First Defendant : DLA Piper Australia
Second Defendants : Tottle Partners
First Third Defendant : No appearance
Second Third Defendant : Karp Steedman Ross-Adjie
Third Third Defendant : No appearance
CIV 1648 of 2010
Counsel:
Plaintiffs : Mr D H Solomon
First Defendant : Mr D B Shaw
Second Defendants : Mr G K Rich
First Third Defendant : No appearance
Second Third Defendant : Mr M D Howard SC & Mr J D Steedman
Third Third Defendant : No appearance
Solicitors:
Plaintiffs : Solomon Brothers
First Defendant : DLA Piper Australia
Second Defendants : Tottle Partners
First Third Defendant : No appearance
Second Third Defendant : Karp Steedman Ross-Adjie
Third Third Defendant : No appearance
Case(s) referred to in judgment(s):
Compagnie Financiere et Commerciale du Pacifique v Peruvian Guano Co [1882] 11 QBD 55
Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Ltd [1978] HCA 11; (1978) 140 CLR 216
Kent Coal Concessions Ltd v Duguid [1910] 1 KB 904
Leighton Contractors Pty Ltd v Public Transport Authority of Western Australia [2007] WASC 65
March v Stramare (E&MH) Pty Ltd [1991] HCA 12; (1991) 171 CLR 506
Youlden Enterprises Pty Ltd v Health Solutions (WA) Pty Ltd [2005] WASC 60
(Page 5)
1 ALLANSON J: The plaintiffs were members of the Great Southern 2007 Beef Cattle Project (CIV 1647 of 2010) and the Great Southern 2006 Beef Cattle Project (CIV 1648 of 2010). Each of those projects was a managed investment scheme registered under s 601EB of the Corporations Act 2001 (Cth). The first defendant (GSMAL) was the responsible entity for each scheme, and for 6 other Great Southern schemes. The second defendants were the directors of GSMAL and also directors of Great Southern Ltd. The third defendants were also directors of GSMAL, but were not directors of Great Southern Ltd. Great Southern Ltd, GSMAL and other companies were part of the Great Southern Group of companies.
2 The plaintiffs commenced proceedings in each action on 7 May 2010. The parties have pleaded, and GSMAL is giving discovery in stages. That discovery is not complete, and there are issues relating to inspection that will need to be determined.
3 The defendants seek orders in each action for discovery on oath by the plaintiffs. The second defendants seek discovery on oath of 11 categories of documents set out as 'annexure A' to a minute of proposed orders filed 20 December 2011. The first and third named third defendants joined in that request, although they made no separate submissions. The second named third defendant, Mr Colvin, asks for discovery of the documents in items 1 to 4 only, and seeks only informal discovery. I deal with the categories of documents sought in more detail below.
4 It is convenient to set out my reasons by referring only to one scheme (the 2007 Project). I do not overlook that there are two actions, with approximately 500 plaintiffs in each. But the categories of documents sought, and the underlying facts, are identical in each application.
5 A party does not have a strict entitlement to an order for discovery: Kent Coal Concessions Ltd v Duguid [1910] 1 KB 904, 910; Youlden Enterprises Pty Ltd v Health Solutions (WA) Pty Ltd[2005] WASC 60 [6]. The power to order discovery is discretionary. Relevance is not the only factor the court must consider in the exercise of the discretion to order discovery. In particular, the decision whether to order discovery is subject to the matters set out in O 1 r 4B of the Rules of the Supreme Court 1971 (WA), including the cost to the parties and whether it is proportionate to the value, importance and complexity of the subject matter in dispute. But whether a document relates to a matter in question
(Page 6)
- in the proceedings remains the descriptive criterion in O 26 of what documents should be discovered.
6 To determine whether a class of documents may be relevant, the court should consider the pleadings, together with the conduct and admissions of the parties and the nature of the action: Youlden Enterprises Pty Ltd v Health Solutions (WA) Pty Ltd [5].
7 The court must also consider when a party should give discovery and may order that discovery be given at that stage or at some specified future stage of the action: O 26 r 7(3)(a).
8 The request that the plaintiffs give discovery of specified categories of documents rather than general discovery, is a sensible attempt by the defendants to limit the process. The court has power, under O 4A r 2 and O 26 r 7(3), to limit discovery in the manner sought. The proposed limit on general discovery does not, as the plaintiffs submitted, bring this application within O 26 r 6.
Background
9 On 19 January 2009, members of the scheme voted in favour of two resolutions:
1. to modify the constitution of the scheme to enable GSMAL to propose an arrangement which if supported would be binding on all scheme members; and
2. to approve the arrangement.
10 The meeting of 19 January 2009 followed an earlier meeting on 1 December 2008 to consider the same arrangement. The December meeting was adjourned.
11 In very general terms, the effect of the arrangement approved on 19 January 2009 was that scheme members collectively exchanged their entitlements under the scheme for fully paid shares in Great Southern Ltd. The arrangement was part of a wider proposal, referred to as 'Project Transform', to change the business operations of the Great Southern Group.
12 Concurrently with the arrangement under which members could collectively exchange their interests in the schemes for shares, Great Southern Ltd offered scheme members the opportunity to individually exchange their interests in the schemes for shares (the Individual Offers).
(Page 7)
The statement of claim
13 In the statement of claim, pars 40 to 42, the plaintiffs say that GSMAL contravened duties under s 601FC(1) of the Corporations Act. They specify several ways in which GSMAL breached those duties. The plaintiffs further allege that the second and third defendants were involved in the contraventions by GSMAL, and themselves breached duties under s 601FD(1) of the Act (pars 43 and 44).
14 The plaintiffs plead their entitlement to damages under s 601MA and s 1325 of the Corporations Act. Each section permits a court to make orders to compensate for loss or damage where a person has suffered or is likely to suffer loss or damage because of conduct of another person that was engaged in in contravention of specified parts of the Corporations Act, including ch 5C. The breaches alleged against the defendants are of provisions in ch 5C.
15 The plaintiffs allege the defendants breached their duties under the Act by the following conduct:
1. convening the meeting on 1 December 2008 and the meeting on 19 January 2009 and proposing the resolutions: pars 40.1, 41.1;
2. offering financial inducements and thereby procuring some scheme members to change their votes from being against to being in favour of the resolutions and other scheme members to cancel their votes: pars 33, 40.2, 41.5;
3. issuing an explanatory memorandum which failed to disclose or explain certain matters: par 41.2;
4. issuing a supplementary explanatory memorandum, including a recommendation by the third defendants to pass the resolutions, without disclosing or explaining specified matters: par 41.3;
5. issuing an announcement to the ASX on 13 January 2009, including the recommendation that scheme members pass the resolutions, without explaining certain matters: par 41.4;
6. allowing the adjourned meeting to proceed to business and in implementing the resolutions: par 41.6;
7. convening the meeting and the adjourned meeting and allowing the adjourned meeting to proceed to business: pars 41.7.
(Page 8)
16 Paragraphs 41.2, 41.3 and 41.4 assert that GSMAL failed to disclose or explain matters set out earlier in the pleading. These include:
1. that there was a serious risk that the Great Southern Group would be unable to continue as a going concern (par 30), and
2. that if the Great Southern Group was unable to continue, scheme members would be likely to be financially better off if the arrangement was not approved, and the scheme members thereafter removed GSMAL as the responsible entity and appointed a substitute responsible entity (par 31).
17 In par 45, the plaintiffs plead that 'but for' the contraventions:
1. the first resolution and the second resolution would not have been passed and each of the plaintiffs would have retained their individual scheme member's property;
2. the scheme would have continued in operation with GSMAL or another responsible entity holding the scheme property subject to the constitution of the scheme and the Corporations Act; and
3. none of the plaintiffs would have received shares in Great Southern Ltd in exchange for their individual scheme member's property and their interests in the scheme.
18 The plaintiffs say that they suffered loss and damage by reason of the matters pleaded in par 45 because Great Southern Ltd went into administration on 16 May 2009, and into receivership on 18 May 2009. They claim relief including the difference between the value of their member's assets as members of the scheme and the value of the Great Southern Ltd shares they received. The plaintiffs claim compensation for loss or damage from all defendants. Their claim for compensation will require the court to consider whether the individual members' assets in the scheme would have retained value had the scheme continued in operation, or at least that the members had lost that chance or opportunity.
19 The plaintiffs do not plead that the conduct referred to in pars 41.2, 41.3 and 41.4 was misleading or likely to mislead, or that any of the plaintiffs was misled or induced by that conduct in relation to their vote. The plaintiffs do not allege that any one of them attended either meeting, voted, or changed their vote as a result of the defendants' conduct.
(Page 9)
20 The only plea that any vote was affected by the conduct of the defendants, or any of them is in pars 33 and 35 where the plaintiffs allege that some scheme members were procured by financial inducements to change their votes, and others to cancel a vote against the resolutions (par 33).
The defences
21 All defendants deny pars 40 to 47, including the allegation that but for the conduct set out in pars 40 and 41 of the statement of claim, the resolutions would not have passed.
22 In his defence (par 17), Mr Colvin pleads in some detail the information that was put before scheme members in the explanatory memorandum, and that the third defendants encouraged scheme members to read the explanatory memorandum and the annexures to it, including an independent expert's report. He pleads (in pars 37 and 38) the information set out in the supplementary explanatory memorandum and in an updated independent expert's report (pars 40 and 41), and that the third defendants advised scheme members of that report and encouraged members to read it (par 43).
23 Mr Colvin pleads that any loss or damage suffered by the plaintiffs was caused by intervening, extraneous or superseding causes and not by his conduct (par 57). He further pleads that the scheme would have failed in any event as a result of the Great Southern Group having become unable to continue as a going concern (par 58).
24 The defence of the first and third named third defendants (Mr Cole and Mr Jenkins) sets out in greater detail the content of some of the documents referred to by other parties. Relevantly to this application, they describe more fully the Individual Offers (pars 8 and 9).
The application for discovery
25 The proposed categories of documents for discovery by the plaintiffs are:
1 All documents recording, referring or relating to each Plaintiff's consideration as to how they would vote on the First and Second Resolutions from 26 August 2008, including any consideration by them of the documents referred to in 2, 13, 14, 26, 27, 29.1 and 29.2 of the Amended Statement of Claim (Explanatory Material).
[The documents referred to as Explanatory Material are the Constitution of the Scheme (par 2); the notice of the meeting to
- consider the two resolutions, including the explanatory memorandum (par 13); the notice of meeting of the other schemes of which GSMAL was the responsible entity, to consider the same resolutions (par 14); the notice of adjourned meeting and supplementary explanatory memorandum (pars 26 and 27); and the 2008 Accounts and an announcement by Great Southern Limited to the ASX on 13 January 2009 (par 29).]
- 2 All documents recording, referring or relating to any communications between each of the Plaintiffs and any of their financial advisers regarding Project Transform or the Explanatory Material, including how they should vote on the First and Second Resolutions from 26 August 2008.
3 All documents recording, referring or relating to each Plaintiff's consideration as to whether they would accept the Individual Offer made by GSL, including any consideration by them of the Explanatory Material.
4 All documents recording, referring or relating to any communications between each of the Plaintiffs and any of their financial advisers regarding whether they would accept the Individual Offer made by GSL.
5 All documents recording, referring or relating to the re-financing or re-negotiation of any loan entered into by each of the Plaintiffs with either GSL or Adelaide and Bendigo Bank during the period from 26 August 2008 to 31 December 2009.
6 All documents recording, referring or relating to any communications between each of the Plaintiffs and any of their financial advisers regarding to re-negotiation of loans entered into by the plaintiffs with GSF or ABL in order to finance their investments in the Schemes as a result of Project Transform during the period from 26 August 2008 to 31 December 2009.
7 All documents recording, referring or relating to:
(a) any income received by the Plaintiffs as a result of the sale of GSL shares which they received under the Arrangement;
(b) any tax deductions claimed by the Plaintiffs arising from the sale of their GSL shares which they received under the Arrangement;
(c) any consideration by the Plaintiffs as to whether they ought to sell their GSL which they received under the Arrangement; and
- (d) the amounts of management fees, agistment fees, GST and shortfall amounts paid by the Plaintiffs (including any amounts which were owing by the Plaintiffs) resulting from their membership in the Schemes
- 8 All documents recording, referring or relating to any consideration by each of the Plaintiffs as to whether GSMAL should be removed as the Responsible Entity of the Schemes and whether a new Responsible Entity of the Schemes should be appointed.
9 All documents recording, referring or relating to any communications between each of the Plaintiffs and any of their financial advisers as to whether GSMAL should be removed as the Responsible Entity of the Schemes and whether a new Responsible Entity of the Schemes should be appointed.
10 All documents recording, referring or relating to any consideration by each of the Plaintiffs as to whether it was in their own best interests to approve the Arrangement.
11 All documents recording, referring or relating to any communications between each of the Plaintiffs and any of their financial advisers as to whether it was in their own best interests to approve the Arrangement.
The categories of documents requested
Categories 5 to 7
26 It is convenient to deal with categories 5 to 7 first, as the plaintiffs did not dispute the relevance of these documents. They said, however, that there is no present need for an order for discovery.
27 The plaintiffs submitted that, due to way in which the scheme was set up and operated, many of the documents in these categories would be in the possession of GSMAL, which is giving discovery, and inspection of GSMAL's discovered documents may be sufficient for the other defendants. Even if the plaintiffs will need to give some discovery, it should not be ordered until after that inspection.
28 The second defendants submitted that there is little prospect that GSMAL will have documents in categories 6 and 7(a) to (c). They submitted, further, that correspondence between the parties shows that the documents in categories 5 and 7(d) do not appear, to date, to have been discovered by GSMAL. And even if they were in the GSMAL documents, they would be part of the documents relating to all members of the schemes. There were thousands of members.
(Page 12)
29 I accept the second defendants' submissions as to these categories. The plaintiffs have adduced no evidence that discovery would be a disproportionate burden, and I can see no reason why case management principles would be better met by delaying discovery to some other stage of the proceedings. To try to structure the discovery to avoid duplication with that by GSMAL could well impose a greater burden on the parties.
Categories 1 and 2, 10 and 11
30 There is a preliminary matter which must be resolved in relation to the remaining categories of documents.
31 The documents in categories 1 - 2 and 10 - 11 relate to the plaintiffs' consideration of, and advice they received on, how each of them would vote on the resolutions.
32 The plaintiffs emphasised that they do not plead a case that any individual plaintiff did anything in reliance on a misrepresentation, or induced by a non-disclosure. Their case is that as a result of the conduct complained of in the amended statement of claim a sufficient number of scheme members, some of whom are not plaintiffs, passed resolutions requiring a 75% majority of voting scheme members.
33 In written submissions, the plaintiffs put forward two alternative ways of proving that case, although in oral submissions the emphasis was placed on the second alternative. First, they said that they can prove that the resolutions would not have been passed but for the impugned conduct by proving that a small percentage of scheme members voted in favour or perhaps did not cast a vote because of that conduct. The scheme members who give evidence may or may not be plaintiffs.
34 The second alternative is that only those plaintiffs who were offered inducements to change their votes would be called. Otherwise, the plaintiffs would rely on the likely effect of the impugned conduct on a hypothetical reasonable member of the class of scheme members to whom it was directed. Counsel for the plaintiffs asserted that this litigation is a 'paradigm case' for this approach, but that the plaintiffs would not go to trial based on it without a ruling that it is the correct approach. Counsel foreshadowed an application for a pre-trial ruling in those terms. Discovery, he submitted, is premature until the application, and an appeal should it not succeed, has been determined.
35 The plaintiffs said that there will be limited witnesses, and that it is 'clear beyond a doubt' that at most a small percentage of plaintiffs would
(Page 13)
- be called to establish the matters pleaded in par 45. Documents going to the consideration each plaintiff gave to the arrangement, or to the Individual Offer, and whether the arrangement was in his or her best interests, are irrelevant. Similarly, any advice each plaintiff may have received on those matters is irrelevant.
36 The plaintiffs said further that the defendants have not pleaded a positive case that all or any of the plaintiffs would have voted in favour of the resolutions despite the impugned conduct, and that there is no allegation that any of the plaintiffs considered an alternative to the arrangement that was implemented.
37 The defendants submitted that the position adopted by the plaintiffs is inappropriate. Where the plaintiffs have pleaded that the resolutions would not have passed but for the defendants' conduct, including failure to disclose or explain certain information, the plaintiffs need to establish a causal link between the defendants' conduct and something that was done by the members of the scheme who either voted or abstained from voting. Further, although the defendants' conduct was addressed to a class of persons, each member of the class can be identified.
38 The defendants do not agree that the court should give a pre-trial ruling in the manner proposed by the plaintiffs.
39 Those are very truncated summaries of the arguments. The present applications can be decided without deciding this core difference between the parties.
40 The question raised on the plaintiffs' plea in pars 41.2, 41.3, 41.4 and 42 is not simply whether the defendants' conduct was likely to mislead or to influence the vote, but whether the resolutions would have been passed, and the scheme continued, 'but for' that conduct. Whether the vote would have been in favour of the resolutions 'but for' the defendants' conduct is a question of fact, and like all issues of causation should be approached by the application of common sense: March v Stramare (E&MH) Pty Ltd [1991] HCA 12; (1991) 171 CLR 506. It may be possible to infer that the causal link between the defendants' conduct and the outcome of the vote has been established by considering the likely effect of the defendants' conduct on a reasonable member of the class of voters, and without evidence that any plaintiff was actually misled or influenced in their vote. But whether that inference is drawn may be affected by evidence about the actual effect of the conduct on identified members of the class. Evidence of the effect of the defendants' conduct on members of the
(Page 14)
- scheme is not irrelevant: see, for example, Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Ltd [1978] HCA 11; (1978) 140 CLR 216, 228.
41 And where various members of the scheme may have received financial or other advice from the same group of advisors, evidence about that advice may also affect whether the inference is drawn. The advice given to one or more plaintiffs may show what advice was being given to other members of the schemes. It is a legitimate train of inquiry, even if the particular plaintiff may not be called as a witness.
42 Further, on the case as it is presently pleaded, the plaintiffs may choose to call witnesses from among their number. Even if those witnesses are confined to persons (presently not identified) who the plaintiffs allege were offered inducements, documents relating to those plaintiffs will be relevant.
43 For these reasons, I am not prepared to determine this application on the basis that the actual effect of the defendants' conduct on particular plaintiffs, and information and advice received by particular plaintiffs, is necessarily irrelevant. I am satisfied that documents in these categories relate to questions in issue for the purposes of the test of relevance set out in Compagnie Financiere et Commerciale du Pacifique v Peruvian Guano Co [1882] 11 QBD 55.
44 That conclusion is not sufficient to determine the application. Relevance is one aspect only. The factors to be considered depend upon the circumstances of each case: see, for example, Leighton Contractors Pty Ltd v Public Transport Authority of Western Australia [2007] WASC 65 [18]. But the plaintiffs have put forward no evidence about the likely burden in time and cost of giving discovery. I can reasonably infer from the number of plaintiffs (approximately 500 in each of the two actions) that preparing discovery will be difficult and possibly irksome. That is the result of the way in which the plaintiffs have combined to present their cases, and of the complexity inherent in the subject matter of the litigation. In the absence of evidence, I can make no finding on whether discovery would be oppressive, or require resources which are disproportionate to the possible effect on the outcome of the action. I am, however, satisfied that the discovery sought is likely to promote the just determination of the litigation.
(Page 15)
45 Directions may be given to alleviate the burden of discovery by so many plaintiffs, for example by allowing extended time to comply. None to date have been asked for.
Categories 3 and 4
46 These documents relate to the plaintiffs' consideration of, and advice on, the Individual Offers. The considerations relating to these categories are substantially the same as those discussed immediately above.
Categories 8 and 9
47 The plaintiffs plead that if the Great Southern Group became unable to continue as a going concern the scheme members were likely to be financially better off if they removed GSMAL as a responsible entity and appointed a substitute (par 31). Further, they plead that but for the defendants' conduct the scheme would have continued in operation with GSMAL or another responsible entity (par 45). The chance that GSMAL would have been replaced, and the schemes continued in a manner which preserved the value of a plaintiff's interest in scheme property, is critical to the plaintiff's case in damages.
48 It is not pleaded that any proposal was ever put, or any consideration ever given, to replacement of GSMAL. But the process for replacement of a responsible entity under s 601FM is by resolution at a meeting of members. Evidence about the members' consideration of such a course, and the advice they received, would be sufficiently relevant to make this a proper line of inquiry by the defendants.
Conclusion
49 I will make an order for the discovery of the categories of documents requested by the second and third defendants. I will, however, hear the parties as to the form of orders, and in particular the time required for the plaintiffs to comply.
0
5
1