Anna Poli by next friend Carmelo Poli v Poli
[2021] WASC 247
•21 JULY 2021
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: ANNA POLI by next friend CARMELO POLI -v- POLI [2021] WASC 247
CORAM: ARCHER J
HEARD: 2 JULY 2021
DELIVERED : 2 JULY 2021
PUBLISHED : 21 JULY 2021
FILE NO/S: CIV 2740 of 2019
BETWEEN: ANNA POLI by next friend CARMELO POLI
First Plaintiff
ANTONINO POLI
Second Plaintiff
AND
PAUL POLI
First Defendant
SONYA KATHLEEN POLI
Second Defendant
BURGUNDY TRIANGLE PTY LTD
Third Defendant
Catchwords:
Application for further and better discovery - Turns on its own facts
Legislation:
Nil
Result:
The defendants are to give discovery of documents within the categories of documents identified in these reasons
Category: B
Representation:
Counsel:
| First Plaintiff | : | Mr L N Firios |
| Second Plaintiff | : | Mr L N Firios |
| First Defendant | : | Mr K de Kerloy |
| Second Defendant | : | Mr K de Kerloy |
| Third Defendant | : | Mr K de Kerloy |
Solicitors:
| First Plaintiff | : | Lavan |
| Second Plaintiff | : | Lavan |
| First Defendant | : | Herbert Smith Freehills |
| Second Defendant | : | Herbert Smith Freehills |
| Third Defendant | : | Herbert Smith Freehills |
Case(s) referred to in decision(s):
Kelbush Pty Ltd v Australia and New Zealand Banking Group Ltd [2016] WASCA 14
Perpetual Trustees Company Ltd v Burniston [2012] WASC 26
Raindale Holdings Pty Ltd v Hundermark [2019] WASC 276
Roe v The State of Western Australia [2013] WASC 130
Singh v Friedman [2013] WASC 78
Woodley v Woodley [No 2] [2015] WASC 274
Youlden Enterprises Pty Ltd v Health Solutions (WA) Pty Ltd [2005] WASC 60
ARCHER J:
(This judgment was delivered extemporaneously on 2 July 2021 and has been edited to add complete references, correct matters of grammar and re-order some references to the submissions.)
The first and second plaintiffs have brought an application for further and better discovery. The parties have been able to agree much of it.
Two issues remain. Unfortunately, in order to resolve one of those issues, it is necessary to go into the detail of the issues arising on the pleadings.
Background
The parties
These proceedings involve a dispute between different members of the Poli family. As all of the natural persons involved in this matter have the surname Poli, I will refer to them by their first names. No disrespect is intended by this.
The first plaintiff, Anna, is represented by her next friend Carmelo. Carmelo is Anna's son and enduring attorney, pursuant to an Enduring Power of Attorney dated 17 September 2015. Anna is the widow of Luciano, who died in February 2016, and she is the sole beneficiary of Luciano's estate. The second plaintiff is Antonino, son of Luciano and Anna (the Parents).
The first defendant, Paul, is also a son of the Parents. Paul is the husband of the second defendant, Sonya, and, for all material purposes, the controlling mind of the third defendant.[1] The third defendant is Burgundy Triangle Pty Ltd (ACN 132 738 866) (Burgundy Triangle). Burgundy Triangle is a duly incorporated company registered 14 August 2008.
Overview of claim
[1] Writ of Summons indorsed with Statement of Claim filed 3 October 2019 [4] (SOC); Amended Defence of the First, Second and Third Defendants filed 11 May 2021 [4] (Defence).
The plaintiffs allege that various sums of money and bundles of shares managed or held by the defendants from 2002 to 2017 were held on trust for the benefit of the Parents.[2] The plaintiffs allege that the defendants have not satisfied various obligations imposed by those relationships of trust, including duties to account and to not derive a personal benefit.[3]
[2] SOC [6] - [7], [9], [11] - [12], [14], [16], [18], [20], [21], [22], [31], [40], [66].
[3] SOC [10], [25] - [27], [34], [43], [47] - [49], [52] - [57], [66], [68].
The plaintiffs make further allegations in relation to a purported deed entitled 'This Deed of Acknowledgement of Gifts' (Deed). The Deed is said to release the defendants from any liability arising from the matters the subject of this proceeding.[4]
[4] SOC [70]; Defence [70].
The plaintiffs assert that the Deed should be set aside as having been procured by either unconscionable conduct or undue influence. Further or alternatively, the plaintiffs assert that the Deed, even if effective, does not release the defendants from liability.[5]
[5] SOC [85] - [86].
The defendants deny that all of the shares were beneficially owned by the Parents and deny any shares were held on trust.[6] The defendants say that, in any event, the Deed releases them from any potential liability.[7]
[6] See, for example, Defence [5] - [7].
[7] Defence [70].
It is unnecessary to summarise each of the plaintiffs' assertions against the defendants for the purposes of this application. The relevant assertions are summarised below.
The Aquila shares
From 2000 to 2002, shares in Aquila Resources Limited (Aquila) were registered in the name of Sonya Supanz (Supanz Shares).[8] Sonya's maiden name was Supanz. In 2002, shares in Aquila were registered in the name of Sonya Poli (Poli Shares).[9] All of the shares were legally owned by Sonya [10]
[8] SOC [5]; Defence [5].
[9] SOC [5]; Defence [5].
[10] By reason of her legal ownership, Sonya was occasionally issued 'bonus shares' at no additional cost - SOC [8]; Defence [8]. However, the bonus shares are not relevant to this application.
I will refer to the Supanz Shares and the Poli Shares collectively as the 'Aquila Shares'.
The plaintiffs allege that the Aquila Shares were held on trust for the Parents and that, accordingly, Sonya owed fiduciary duties to the Parents in relation to the Aquila Shares.[11] These duties required Sonya:[12]
(1)to account to the Parents;
(2)to not put herself in a position or otherwise act in a manner inconsistent with her duties; and
(3)to not derive a personal benefit from the Aquila Shares.
[11] SOC [6] - [10].
[12] SOC [10].
The defendants admit that the Supanz Shares were held solely for the benefit of the Parents.[13] In relation to the Poli Shares, however, the defendants deny that all of the Poli Shares were held for the Parents' benefit, asserting that effectively half were held for Sonya's benefit.[14]
[13] SOC [5]; Defence [5].
[14] Defence [8].
In relation to all of the Aquila Shares held for the benefit of the Parents, the defendants deny that Sonya was a trustee. Alternatively, they assert that, if she was a trustee, she was a bare trustee and did not owe the duties alleged by the plaintiffs.[15]
[15] Defence [7].
Sonja sold Aquila Shares on several occasions.
The first sale was no later than November 2006, and involved 5,000 of the Poli Shares (the First Sale).[16]
[16] SOC [13]; Defence [13].
Further sales occurred as follows:
(1)5,000 Supanz Shares in November 2007 (the Second Sale);[17]
(2)5,000 Poli Shares in June 2008 (the Third Sale);[18] and
(3)10,000 Poli Shares in August 2008 (the Fourth Sale).[19]
[17] SOC [15]; Defence [15].
[18] SOC [17(a)]; Defence [17(a)].
[19] SOC [17(b)]; Defence [17(b)]
The defendants admit the shares sold in the First, Second and Third Sale were beneficially owned by the Parents.[20]
[20] Defence [13], [15], [17(a)].
The defendants admit the shares sold in the Fourth Sale had been held for the benefit of the Parents, but contend that the shares were treated as having been beneficially owned by Sonya pursuant to an oral agreement between Paul and the Parents.[21]
[21] Defence [17(b)].
In July 2014, the balance of the Aquila Shares were acquired as part of a takeover arrangement (Fifth Sale), for which $1,053,904.80 was paid to Sonya.[22]
[22] SOC [23]; Defence [23].
Subsequently, Sonya caused $645,614 to be paid to the Parents.[23] The defendants allege that this payment was in satisfaction of the Parents’ entitlement in relation to the Aquila Shares. Further, the defendants allege that the amount was determined by oral agreement as between Luciano and Paul, and later confirmed by Antonino and Carmelo.[24]
[23] SOC [24]; Defence [24].
[24] Defence [24(b)].
The plaintiffs allege that the Parents were entitled to the portion of the proceeds retained by Sonya. They allege that Sonya, with Paul's involvement and knowing assistance, retained that money in breach of trust and fiduciary duty.[25]
The BWA account
[25] SOC [23] - [27], [29].
The parties have resolved the discovery dispute in relation to the BWA account. This means it is unnecessary to fully detail the disputed issues that relate to this account. I will refer to it only to the extent necessary to understand the second discovery dispute.
On or about 6 October 2008, $200,000 was withdrawn from the BWA Account and a bank cheque was issued to Paul in that amount (the BWA Funds).[26]
[26] SOC [32]; Defence [32].
It is common ground that the BWA Account contained funds that were beneficially owned by the Parents.[27] However, the parties dispute the extent of the Parents’ beneficial ownership.
[27] SOC [30]; Defence [30].
The plaintiffs assert that the money in the BWA Account belonged to the Parents and was held on trust for their benefit.[28]
[28] SOC [31].
The defendants assert some of the money belonged to Paul.[29]
The Matsa shares
[29] Defence [31].
The plaintiffs allege that Paul used the BWA Funds to cause Burgundy Triangle to purchase two million shares (Matsa Shares) in Matsa Resources Limited (Matsa) in or around December 2008. The plaintiffs allege that the BWA Funds were misappropriated and utilised in breach of fiduciary duties associated with the BWA Account.[30]
[30] SOC [4], [32] - [33], [56].
The defendants deny all of this.[31]
[31] Defence [32] - [33], [56].
This application
The categories which remain in dispute are category 1.3 and 1.5.
Category 1.3 relates to the Aquila Shares. It seeks:
Sonya's tax returns for the financial years covering the sales, namely those ending:
1.3.130 June 2007;
1.3.230 June 2008;
1.3.330 June 2009; and
1.3.430 June 2015.
Category 1.5 relates to the Matsa Shares. It seeks Burgundy Triangle's bank records, financial statements and tax returns recording the source of funds used to acquire the Matsa Shares.
Legal framework[32]
[32] This section reproduces, in part, what I have written in earlier judgments.
The principles that apply to an application for further and better discovery are well settled.[33] They may be summarised as follows.
[33] See, for example, Perpetual Trustees Company Ltd v Burniston [2012] WASC 26, Woodley v Woodley [No 2] [2015] WASC 274 and Raindale Holdings Pty Ltd v Hundermark [2019] WASC 276.
The party seeking a further discovery order bears the onus of satisfying the court that the order should be made.[34]
[34] Perpetual Trustees [26].
The court will not make a further discovery order unless it is satisfied that:[35]
1.there are reasonable grounds for being fairly certain that the documents (or class of documents) sought exist;
2.the documents are relevant; and
3.the documents ought to have been disclosed.
[35] Perpetual Trustees [29].
If the court is satisfied of these three requirements, the court will then consider whether the order should be made in the exercise of its discretion.[36]
[36] Perpetual Trustees [34].
Relevant documents are those that:[37]
(a)advance a party's case or damage the opponent's case; or
(b)lead to a train of inquiry that would either advance a party's case or damage the opponent's case.
[37] Perpetual Trustees [30].
To determine whether a class of documents may be relevant, the court should consider the pleadings, the conduct and admissions of the parties, and the nature of the action.[38]
[38] See Singh v Friedman [2013] WASC 78 [3] ‑ [4], Roe v The State of Western Australia [2013] WASC 130 [10] ‑ [12] and Youlden Enterprises Pty Ltd v Health Solutions (WA) Pty Ltd [2005] WASC 60 [5].
The court will be satisfied of the third requirement if there are reasonable grounds to believe that the documents were once in the possession, custody, or power of the other party.[39]
[39] Perpetual Trustees [32].
If the three requirements are met, the exercise of discretion involves balancing two considerations:
(a)first, the desirability of the timely and cost effective disposal of litigation, including considerations of proportionality; and
(b)second, the public interest in having available, subject to the rules of privilege, all evidence relevant to the issues in litigation.
It is a 'balancing of the likely forensic benefit to be obtained against the risk of cost and delay …, viewed in the context of the value, importance and complexity of the subject matter of the proceedings'.[40]
[40] Roe [13].
The balance will not fall in favour of discovery unless the cost and delay involved in the provision of that discovery is proportionate to the forensic benefit likely to be obtained.[41]
[41] See Roe [11], which was expressly endorsed by the court of appeal in Kelbush Pty Ltd v Australia and New Zealand Banking Group Ltd [2016] WASCA 14 (See [6], [8] and [122]).
In determining this, the court should consider, in a qualitative sense, the forensic significance of the issue in respect of which discovery is sought and the relevance of the documents sought to that issue.
The ultimate test is whether the discovery is necessary for fairly disposing of the proceedings.
Analysis
Category 1.3 documents - Aquila shares
The defendants said that they would discover Sonya's tax returns showing her income for the relevant years. However, the defendants said they would redact all other information in the returns on the basis everything else is irrelevant. They submitted, in effect, that, because capital gains tax was deducted at the top rate of 24.5% from the sale proceeds of the shares held on behalf of the Parents before the net proceeds were paid to them, the only issue is whether the rate of deduction was excessive having regard to Sonya's taxable income in the relevant years.
The plaintiffs did not oppose the redaction of irrelevant information. However, they submitted that the relevance of the documents is not limited to Sonya's income.
In particular, the plaintiffs did not accept the defendants' assertion that capital gains tax was deducted at the top rate of 24.5% from the sale proceeds of the shares held on behalf of the Parents before the net proceeds were paid to them. The plaintiffs' case is that the defendants overstated the amount withheld purportedly for tax payable, and thereby deprived the Parents of their full entitlement with respect to the proceeds of sale in breach of duty.
The plaintiffs submitted that the documents are relevant because they will provide information regarding the cost base of shares acquired, consideration received, the total and net capital gains made, as well as capital gains schedules and capital gains worksheets. The plaintiffs submitted that this would enable a comparison to be made between the amounts actually received by Sonya and the amounts actually paid to the Parents, said to be the net after-tax proceeds of sale. It is not only the tax that is in issue. It is also the proceeds received and whether the alleged duty to account was discharged.
The defendants agreed to ‘bear in mind’ the plaintiffs' position, but did not agree to leave unredacted anything other than what would show Sonya's income tax rate.
I am satisfied that the relevance of the documents in this category extends beyond simply determining Sonya's income and income tax rate. The information in these records is relevant to the other issues identified in the plaintiffs' submissions and in the statement of claim, in particular at [25] and [26].
There is no dispute that the documents exist and are in Sonya's possession, custody or power.
Accordingly, I am satisfied that the three requirements have been met.
I am further satisfied that I should exercise my discretion to order further and better discovery in relation to this category.
While the total quantum of the claims is relatively modest,[42] the defendants do not (and could not) assert it would be burdensome to provide discovery of these documents. Indeed, they have agreed to provide them, subject to redactions. Nor could there be any suggestion it would cause delay.
[42] Being a total of just over one million dollars.
Further, the alleged wrongdoers were the parties who conducted the relevant transactions and had access to the relevant documents. They did not provide written accounts to the Parents.
The documents are likely to be of forensic benefit.
In my view, discovery of these documents is necessary for fairly disposing of the proceedings.
Any redactions must be limited to those matters that are irrelevant to the issues identified by the plaintiffs, not everything except the matters that would establish her income and tax rate.
Category 1.5 documents - Matsa Shares
After conferral, the only issue remaining in relation to the Matsa Shares is whether an affidavit by the first defendant should be sufficient, or whether the director of Burgundy Triangle, Mr Harris, should also provide an affidavit. Nevertheless, to understand why it matters, it is necessary to say more about the context.
It will be recalled that the plaintiffs allege that Paul used the BWA Funds (the $200,000 withdrawn from the BWA Account) to purchase two million shares in Matsa in or around December 2008. The defendants admit the BWA Funds were withdrawn, but deny Paul used them to buy the shares.
The defendants initially resisted the application in relation to the records in this category on the basis that there is no evidence to support the plaintiffs' assertion that Burgundy Triangle acquired two million shares in Matsa for $200,000 on the date alleged.
In their reply submissions, the plaintiffs helpfully summarised the uncontroversial facts:[43]
(a)By circular resolution dated 31 July 2008, Matsa Resources Limited resolved to allot two million shares to the third defendant for 10 cents per share. The third defendant was not registered until 14 August 2008.
(bThe first defendant is the controlling mind of the third defendant. He was also a director of Matsa Resources Limited at the relevant time.
(c)The third defendant acquired those two million shares in Matsa Resources Limited at some stage in the second half of 2008.
(d)The shares were acquired at 10 cents per share.
(e)10 cents multiplied by two million is $200,000.
(f)On 6 October 2008, $200,000 was withdrawn from the BWA Account and provided to the first defendant.
[43] Plaintiffs' Reply Submissions [25].
Prior to the hearing, I was also provided with a Form 484, recording under 'C2 Issue of shares' that new share issues were 2,250,000, with the 'Earliest Date of Issue' recorded as 31 July 2008.
The supplementary affidavit of Mr Freeman,[44] solicitor for the plaintiffs, attached some documents including a notice of general meeting that was to be held on 18 December 2008. It attached an independent expert report dated 29 October 2008 prepared by William Buck Financial Services.
[44] Supplementary affidavit of Iain Robert Freeman sworn 4 June 2021 (Freeman Supplementary Affidavit).
That report sets out a table of the shareholders of Matsa.[45] Burgundy Triangle does not appear in that table. Annexure D is titled Matsa Shareholders and Burgundy Triangle is not on that list either.[46]
[45] Freeman Supplementary Affidavit page 6.
[46] Freeman Supplementary Affidavit page 7.
The supplementary affidavit also attaches a document said to have come from a subpoena issued to the share registry which maintained the share register of Matsa.[47] I am told that, from the subpoena and the response, it relates to 23 December 2008. This document records that Burgundy Triangle did have shares in Matsa.
[47] Freeman Supplementary Affidavit page 13.
From the materials available to me, there is plainly a question as to when the shares were acquired.
However, in my view, the fact that the plaintiffs may be wrong about the date does not weaken their application for further and better discovery. On the contrary.
The actual date of the acquisition is a matter which might be thought to be within the knowledge of the defendants. It is certainly not within the plaintiffs' knowledge. Further, it appears that the parties have been unable to agree the date it occurred. At present, the proposed statement of agreed facts puts the date at '[a]t some stage in the second half of 2008'.[48]
[48] Plaintiffs' Reply Submissions [25].
The gravamen of the plaintiffs' allegation in relation to the Matsa Shares is that the defendants used the BWA Funds, being money they allege was owned by the Parents, to buy the Matsa shares. The defendants deny that all of the BWA Funds were owned by the Parents. However, the plaintiffs are entitled to seek to prove that they were owned by the Parents, and to then prove what happened to the BWA Funds subsequently. They are also entitled to seek to prove what happened to the part of the BWA Funds which the defendants admit was owned by the Parents.
The defendants admit that Burgundy Triangle acquired two million shares in Matsa in the second half of 2008. The evidence shows this would have cost $200,000. On 6 October 2008, that amount (being the BWA Funds) was withdrawn from the BWA Account and given to Paul. Paul is the controlling mind of Burgundy Triangle.
While I have not yet received evidence from any of the parties or further information, on the materials available to me, it would seem to be quite a coincidence if the BWA funds were spent on something other than the acquisition of the Matsa Shares. That is, of course, only a preliminary observation based on limited information.
Had I been called upon to rule, I would have been satisfied the documents are relevant. They will either support or undermine the plaintiffs' allegation that the BWA Funds were used to buy the Matsa Shares.
The question now though is whether an affidavit from Mr Harris is required, or whether an affidavit from Paul should suffice.
The defendants submit that the plaintiffs issued a subpoena to Matsa, which did not produce any documents to support 'their thesis that Paul used the $200,000 bank cheque obtained on 6 October 2008 to cause Burgundy Triangle to acquire 2,000,000 shares in Matsa after that date'.[49]
[49] Defendants' Submissions [21].
The plaintiffs point out that Matsa is not the natural repository of the information that they seek.
The defendants next point out that Paul is the controlling mind of Burgundy Triangle, so there is no need for an affidavit from Mr Harris. The defendants further submit that the plaintiffs issued a subpoena to Mr Harris which did not produce any documents.
The plaintiffs pointed out that that subpoena related to the Aquila Shares and not the Matsa shares.
I am satisfied that Mr Harris should provide an affidavit.
The plaintiffs were not involved in these transactions, the defendants were. Although Paul is the controlling mind of Burgundy Triangle, Mr Harris is the sole director. The plaintiffs have made serious allegations of breach of fiduciary duties and unconscionable conduct. Mr Harris is not involved in those allegations.
Orders
I invited the parties to prepare a minute of proposed orders to reflect these reasons, and, after hearing from the parties, ordered the defendants to pay the plaintiffs' costs, fixed in the amount of $4,356, to be paid forthwith.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
KJ
Associate to the Honourable Justice Archer
21 JULY 2021
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