Application of the Securities and Exchange Commission under the Evidence on Commission Act 1995 (NSW)

[2020] NSWSC 1212

Supreme Court

New South Wales

Medium Neutral Citation:

Application of the Securities and Exchange Commission under the Evidence on Commission Act 1995 (NSW) [2020] NSWSC 1212

Hearing dates:

7 September 2020

Date of orders:

8 September 2020

Decision date:

08 September 2020

Jurisdiction:

Common Law

Before:

Wright J

Decision:

(1) The hearing of the plaintiff’s summons filed on 19 August 2020 is to be expedited.

(2) The costs of the plaintiff’s notice of motion filed on 26 August 2020 are to be each party’s costs in the cause.

Catchwords:

EXPEDITION – Summons under s 32 of Evidence on Commission Act 1995 – Application for expedition – Whether factors warranting expedition – Whether disentitling delay or oppression – Hearing of summons expedited in the circumstances

Legislation Cited:

Evidence on Commission Act 1995 (NSW)

Cases Cited:

British American Tobacco (Investments) Ltd v Eubanks (2004) 60 NSWLR 483; [2004] NSWCA 158

Gredd v Arpad Busson [2003] EWHC 3001

Greetings Oxford Koala Hotel Pty Ltd v Oxford Square Investments Pty Ltd (1989) 18 NSWLR 33

Category:

Procedural and other rulings

Parties:

Securities and Exchange Commission (Plaintiff)
Bradley Twynham (First Respondent)
Marcus Alan Leith Nicholson (Second Respondent)
Jon Waldron (Third Respondent)
Chris Kelada (Fourth Respondent)
Tom Richardson (Fifth Respondent)
Tom Pennington (Sixth Respondent)
Miriam Ingrid Lane (Seventh Respondent)
Matthew Smith (Eighth Respondent)
Matthew Keaney (Ninth Respondent)
Darren Murphy (Tenth Respondent)
Eric Pulier (Eleventh Respondent)

Representation:

Counsel:
D Tynan (Plaintiff)
P Lange (Third Respondent)
H Mann (Fourth, Fifth, Sixth, Seventh, Eighth, Ninth and Tenth Respondents)
H Younan (Eleventh Respondent)

Solicitors:
McCullough Robertson Lawyers (Plaintiff)
Nyman Gibson Miralis Lawyers (First and Third Respondents)
Herbert Smith Freehills (Fourth, Fifth, Sixth, Seventh, Eighth, Ninth and Tenth Respondents)
Arnold Bloch Leibler (Eleventh Respondent)

File Number(s):

2020/00242151

Judgment

1. By a summons filed on 19 August 2020, the United States Securities and Exchange Commission (SEC) has applied under s 32 of the Evidence On Commission Act 1995 (NSW) for an order for evidence to be obtained in this State from 10 nominated persons and related orders.

2. Presently before the Court is an application by notice of motion filed on 26 August 2020 seeking that the proceedings be expedited and that costs be costs in the cause.

Background

3. On 27 September 2017, the SEC commenced civil proceedings against Eric Pulier in the United States District Court for the Central District of California (the US Proceedings).

4. These proceedings arose out of the purchase by Computer Sciences Corporation (CSC) of ServiceMesh pursuant to an Equity Purchase Agreement (EPA) in 2013. According to the SEC’s allegations, the EPA contained an earn-out provision, under which a portion of the consideration paid to ServiceMesh’s equity holders, including Mr Pulier, was based on ServiceMesh’s revenue. The SEC alleges that Mr Pulier, as the former CEO of ServiceMesh, improperly inflated the earn-out payment that CSC owed ServiceMesh equity holders and defrauded CSC by paying bribes to obtain two sets of contracts between ServiceMesh and the Commonwealth Bank of Australia (CBA). The SEC claims that Mr Pulier secured the CBA contracts and obtained an additional payout under the earn-out provision by paying bribes in 2014 to two CBA executives, Keith Hunter and Jon Waldron, through a charitable organisation named the Ace Foundation.

5. More specifically, in the US Proceedings, the SEC alleges that Mr Pulier:

1. engaged in fraud in connection with the offer or sale of securities in violation of the Securities Act of 1933 of the United States (Securities Act);

2. engaged in fraud in connection with the purchase or sale of securities in violation of the Securities Exchange Act of 1934 of the United States (Exchange Act);

3. lied to auditors in violation of rules made under the Exchange Act;

4. circumvented internal controls and falsified books and records in violation of the Exchange Act; and

5. falsified books and records in violation of rules made under the Exchange Act.

6. The relief sought against Mr Pulier in the US Proceedings is:

1. an order permanently enjoining Mr Pulier from directly or indirectly violating the applicable provisions and rules of the federal securities laws, a form of civil injunction;

2. an order that Mr Pulier disgorge all ill-gotten gains from his illegal conduct together with interest;

3. an order that Mr Pulier pay civil penalties;

4. an order prohibiting Mr Pulier from serving as an officer or director of any entity having a class of securities registered with the SEC; and

5. further and other relief as appropriate.

7. Substantially the same allegations against Mr Pulier were the subject of criminal proceedings in the United States but these proceedings were dismissed with prejudice, such that they cannot be reinstated, on 20 December 2018.

8. In July 2019, the US Proceedings were set for a jury trial to take place beginning on 1 December 2020 and continuing for approximately 10 days. “Discovery” was ordered in the US proceedings originally to be completed by 28 August 2020. That time has now been extended so that discovery must be completed by 16 October 2020.

9. It can be noted that under the relevant provisions of the United States Federal Rules of Civil Procedure, “discovery” has a wider meaning than it usually has in this Court. Under those Rules, the discovery process for the parties may include the taking of depositions of witnesses. A deposition, for this purpose, consists of questions to which the witness provides sworn recorded answers. Under some circumstances, if a witness cannot be present to testify from the witness stand, that witness’s testimony may be presented, under oath, in the form of a deposition. If so, the questions and answers will be read, or the video will be shown, during the course of the trial. The deposition testimony is entitled to the same consideration as if the witness had testified in court.

10. The SEC and Mr Pulier jointly petitioned the US Court to request the issuing of Letters of Request by the US Court to this Court and Letters of Request relating to each of the proposed witnesses were issued on 11 May 2020. In these circumstances and particularly noting that the depositions must be completed by 16 October 2020, unless the time for discovery is extended by the US District Court, the SEC contends that its present application by the summons filed on 19 August 2020 has a degree of urgency.

11. The 10 witnesses, who are respondents to the notice of motion for expedition and in respect of whom a Letter of Request has been issued by the US Court are: Bradley Twynham; Marcus Nicholson; Jon Waldron; Chris Kelada; Tom Richardson; Tom Pennington; Miriam Lane; Matthew Smith; Matthew Keaney; and, Darren Murphy. In addition, Mr Pulier is also a respondent to the present notice of motion.

12. It was common ground that the hearing of the summons is likely to take in the order of two days. Enquiries of the Registry indicate that unless an order for expedition is made in respect of the hearing of the summons, the matter will not be given a hearing date which is before about February 2021.

The positions of the persons affected

13. At this point it is useful to record the different positions adopted by the respondents in relation to the motion for expedition. In summary:

1. only Mr Waldron and Mr Pulier opposed the making of an order for expedition;

2. Mr Kelada, Mr Richardson, Mr Pennington, Ms Lane, Mr Smith, Mr Keaney and Darren Murphy, who were identified as “the CBA witnesses”, neither consented nor opposed the making of an order for expedition;

3. Mr Twynham neither consented nor opposed the making of an order for expedition; and

4. Mr Nicholson, who had previously been in contact with the solicitors for the SEC by email and indicated that he consented to the examination subject to his reasonable legal costs being paid, was informed of the present application but did not appear and did not indicate his position one way or the other concerning expedition.

14. Mr Lange of counsel, who appeared for Mr Waldron, opposed the making of an order for expedition on essentially two grounds:

1. delay, which was said to disentitle the SEC to expedition; and

2. prejudice to Mr Waldron amounting to oppression because an expedited hearing would interfere with the preparation of Mr Waldron’s criminal trial in the District Court of New South Wales concerning alleged offences arising out the circumstances which also give rise to the US Proceedings. That trial is presently scheduled to commence in about six weeks with an estimate that it will take 10 weeks.

15. Ms Younan of counsel, who appeared for Mr Pulier, submitted in substance that the case for expedition had not been made out but she did not join in the submission that the SEC was disentitled from a grant of expedition on the basis that somehow it had delayed its proceeding. Rather her case was put on the bases that:

1. the US District Court would be likely to grant an extension of time for the completion of discovery, including the provision of depositions from the witnesses proposed to be examined as a result of the Letters of Request, if the application under ss 32 and 33 of the Evidence on Commission Act could not be considered before the current due date for completion of discovery, 16 October 2020;

2. the US Proceedings involved a jury trial and no such trials would be conducted in criminal or civil cases in California until further notice because of the COVID-19 pandemic;

3. the request from the US District Court to this Court for expedition was qualified by whether expedition was “possible and permissible”; and

4. no special factor warranting expedition had been made out by the SEC.

Consideration

16. The principles relevant to whether expedition should be ordered were identified by Young J in Greetings Oxford Koala Hotel Pty Ltd v Oxford Square Investments Pty Ltd (1989) 18 NSWLR 33. In that case at 42-43, seven relevant factors were identified as follows:

“(1) Is this the appropriate Court for the litigation, in particular:

(a) does the litigation fall into the work normally done by this Court; and

(b) is there a sufficient nexus with New South Wales.

(2) Is there a special factor involved which warrants expedition. Usually these factors will be:

(a) the loss of witnesses if the case is not fixed at an early date;

(b) matters of public importance;

(c) that the subject matter of the litigation will be lost if it is not heard quickly;

(d) that the litigation to date has been delayed through no fault of the applicant;

(e) that the applicant is suffering hardship not caused through his own fault;

(f) that there is self-induced hardship (including those cases where corporate bodies fix a meeting date in the near future and then expect the Court to displace all other matters to hear their dispute before that date);

(g) the nature of the case (for example, ejectment, child custody); and

(h) that there are large sums of money involved.

There may, of course, be other matters which can count as special factors ….

(3) Have the parties proceeded up to the date of the hearing of the motion for expedition with due speed?

(4) Are the parties willing if expedition is granted to do all in their power to abridge the hearing time including joining in an agreed bundle of documents, preparing statements of witnesses, filing lists of objections to affidavits, making admissions of matters not really in dispute and restraining wide-ranging cross-examination. Of course there will always be cases where one party's interests are to delay resolution of the dispute as much as possible. Such cases can usually be recognised and special procedures adopted.

…

(5) Any application for expedition must be judged in the light of the number of other cases of equal or higher priority that also seek an expedited hearing.

(6) Any “right” to expedition is a right to have the case fixed on one occasion. If, after a date has been fixed, it has to be vacated, it is difficult indeed to justify again expediting the proceedings: Ron Hodgson Cabramatta Pty Ltd v Wewoka Pty Ltd t/as B P Cabramatta Motors (Waddell CJ in Equity, 30 March 1989, unreported).

… there is a seventh guideline, namely, that the Court should not expedite a case if it considers that in all the circumstances the chances of the applicant obtaining what it seeks in the litigation cannot be put as higher than speculative.”

17. While Young J stated that these considerations applied in the Equity Division, I can discern no reason why they should not equally apply in the Common Law Division.

18. There can be no doubt that this Court is the appropriate court for these proceedings given the express provision in s 32 of the Evidence on Commission Act that an application for assistance in obtaining evidence is to be made to the Supreme Court.

19. The general approach to an applications for assistance with obtaining evidence for foreign proceedings has been held by the Court of Appeal, in British American Tobacco (Investments) Ltd v Eubanks (2004) 60 NSWLR 483; [2004] NSWCA 158 at [42], to include the matters set out by Burnton J in Gredd v Arpad Busson [2003] EWHC 3001 at [27]. In relation to the present application for expedition of the hearing of the application under s 32, the following of those matters are the most relevant:

1. comity requires this Court to view a Letter of Request issued by a foreign court for the purpose of civil proceedings before it benevolently. It is our pleasure and duty to assist those courts and the parties to them in arriving at a fair and just determination of their civil litigation where we can properly do so; and

2. when an application for an order under s 32 of the Evidence on Commission Act is disputed, this Court must determine whether the order sought is one which it can or should properly make.

20. As has been noted above, in the ordinary course and without an order for expedition, it appears that the SEC’s application under s 32 would be unlikely to be heard before February next year. This would lead to substantial delay, if it was determined that the application should be granted, in conducting any examinations and the provision of certified transcripts of the evidence. Viewing proceedings benevolently involves, in my view, dealing with an application for evidence to be obtained in pursuance of a request issued by a court outside New South Wales as expeditiously as possible and appropriate, having regard to all the relevant circumstances.

21. Furthermore, if, as in this case, the requesting court specifically asks this Court to proceed with expedition, where possible and permissible, this is also a matter which will usually weigh significantly in favour of the application being heard as soon as reasonably practicable.

22. In addition, I have also taken into account that there are a number of special factors which alone and in combination support a grant of expedition. These are:

1. the US Proceedings relate to alleged conduct involving persons and corporations in Australia, significant sums of money and serious breaches of US securities laws;

2. the US Proceedings are brought by a governmental regulatory body responsible for enforcing US federal securities laws;

3. the SEC’s application in this Court relates directly to obtaining evidence relevant to the US Proceedings; and

4. there is the potential for the subject matter of the proceedings in this Court to be lost or rendered worthless if depositions cannot be taken from the witnesses in question before 16 October 2020, the current date by which “discovery” is to be completed, or before the trial in the US Proceedings, which is currently set to commence on 1 December 2020.

23. Although the Letters of Request were issued by the US Court on 11 May 2020, the summons in this matter was not filed until 19 August 2020. This is a delay of a little over three months. This delay was explained in some detail in the evidence of Mr Munstermann. I accept his evidence. The US Proceedings are complex. The SEC’s representatives in the United States had to deal with a number of applications and preparatory steps in the US Proceedings during May, June and July which limited time and resources available to prepare for the application in this Court. In addition, Mr Miller’s affidavit, which provides significant evidence in support of the SEC’s application under s 32 of the Evidence on Commission Act, had to be sent to Washington DC for review and approval, which alone took approximately one month.

24. In the circumstances, I accept that there has been no significant or disentitling delay by the SEC in bringing the present application under s 32. Accordingly, I reject Mr Lange’s submission that the delay, whether by itself or in combination, should lead to the application for expedition being refused.

25. It can be accepted that the US Court retains the ability to extend the time for completion of discovery beyond 16 October 2020 and may postpone the date for trial of the US Proceedings until after 1 December 2020, especially in light of the COVID-19 pandemic. As is evident from the affidavits of Ms Ford and Mr Munstermann, the parties to the US Proceedings have been in discussion concerning whether there should be an application to the US Court to extend the date for discovery or to vacate the trial date. Nonetheless, these factors do not, in my view, detract from the duty and propriety of this Court attempting, to the extent permissible and appropriate, to deal with the request from the US Court promptly. It does not appear to me that giving the present application priority by way of expedition would cause any significant delay to other matters of equal or higher priority. On this basis, I do not accept Ms Younan’s submission that the facts that the time for completion of discovery in the US Proceedings might be extended or that the trial date of 1 December 2020 might be vacated mean that expedition is not appropriate or justified in the present case.

26. Mr Lange also submitted that requiring his client, Mr Waldron, to deal with the SEC’s application under s 32 at a two day expedited hearing while he is preparing for his trial in the District Court of New South Wales on charges related to the conduct alleged in the US Proceedings amounted to oppression. It is accepted that Mr Waldron’s trial is fixed to commence in about 6 weeks and is anticipated to last for about 10 weeks. In my view, to require Mr Waldron to prepare for and appear at a two day hearing in relation to the SEC’s s 32 application during the six weeks before his trial commences is not oppressive. It is unlikely that Mr Waldron’s legal representatives would need more than one week to prepare for and appear at the hearing of the SEC’s application. His trial lawyers have already had considerable time in which to prepare for his District Court trial and will have approximately five more weeks until his trial, even if he does not retain additional legal representatives to deal with some or all aspects of the SEC application.

27. Apart from Mr Waldron, the witnesses proposed to be examined neither oppose nor consent to expedition. It has not been suggested by any party that they would not be available for an expedited hearing of the SEC’s application or for examinations in the remainder of this year, if the application is granted. The inconvenience of potentially not having sufficient time to prepare for the examinations, raised by Ms Younan, is a matter to be considered at the hearing of the s 32 application and does not, in my view, weigh significantly against expedition being granted.

28. Finally, I observe that it does not appear to me that the SEC’s application is merely speculative. It has considerable substance and deserves to be heard promptly.

23. In all the circumstances, I am satisfied that expedition should be ordered.

Costs

30. The SEC in its notice of motion sought that costs should be costs in the cause. No party sought to contend to the contrary and I consider that this is an appropriate way in which to deal with the costs of this application for expedition.

Orders

31. Accordingly, the orders of the Court are:

1. The hearing of the plaintiff’s summons filed on 19 August 2020 is to be expedited.

2. The costs of the plaintiff’s notice of motion filed on 26 August 2020 are to be each party’s costs in the cause.

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Decision last updated: 08 September 2020