Bloc (ACT) Pty Ltd v Crafted Capitol Pty Ltd (No 3)
[2021] ACTSC 178
SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
| Case Title: | Bloc (ACT) Pty Ltd v Crafted Capitol Pty Ltd (No 3) |
| Citation: | [2021] ACTSC 178 |
| Hearing Date: | 23 July 2021 |
| Decision Date: | 5 August 2021 |
| Before: | McWilliam AsJ |
| Decision: | See [35] |
Catchwords: | PRACTICE AND PROCEDURE – SUBPOENAS – Application to set aside subpoena – whether legitimate forensic purpose – |
| whether oppressive | |
| Legislation Cited: | Building and Construction Industry (Security of Payment) Act |
| 2009 (ACT) Court Procedures Rules (2006) (ACT) rr 6604, 1728 Corporations Act 2001 (Cth) s 482 | |
| Cases Cited: | Alister v R (1984) 154 CLR 404 A Pty Ltd v Z [2007] NSWSC 999 Bloc (ACT) Pty Ltd v Crafted Capitol Pty Ltd [2021] ACTSC 81 Re Warbler Pty Ltd (1982) 6 ACLR 526 |
| Ryan v Commercial and Residential Developments (SA) Pty | |
| Ltd [2013] FCA 656 | |
| Sahore v Ahmad [2021] ACTSC 30 | |
| Secretary of the Department of Planning, Industry and | |
| Environment v Blacktown City Council [2021] NSWCA 145 | |
| Parties: | Crafted Holdings Pty Ltd (ACN 168 210 624) (First Applicant) |
| Crafted Central Pty Ltd (ACN 605 053 709) (Second Applicant) Crafted Capitol Pty Ltd (in liquidation) (ACN 605 053 763) (First Respondent) | |
| Henry Joseph Kazar in his capacity as joint and several liquidator of Crafted Capitol Pty Ltd (in liquidation) (Second Respondent) | |
| Lachlan Macarthur Abbott in his capacity as joint and several liquidator of Crafted Capitol Pty Ltd (in liquidation) (Third Respondent) | |
| Bloc (ACT) Pty Ltd (ACN 149 091 592) (Fourth Respondent) | |
| Representation: | Counsel |
| Dr A J Greinke (Fourth Respondent) | |
| K Petch (Applicants) | |
| Solicitors | |
| Mills Oakley (Fourth Respondent) | |
| Terracon Legal (Applicants) | |
| File Number: | SC 79 of 2021 |
| McWilliam AsJ: |
1. Before the Court is an application to set aside a subpoena issued to a non-party, namely the proper officer of PKS Kapital Pty Ltd (ACN 605 835 596) (PKS). For reasons that follow, I have determined effectively that the subpoena should be set aside in part. It is appropriate to limit both the categories and the scope of what is required to be produced under the existing subpoena.
Background context to the present application
2. On 29 April 2021, upon the application of Bloc (ACT) Pty Ltd (Bloc) as petitioning creditor, Mossop J ordered that Crafted Capitol Pty Ltd (Capitol) be wound up in insolvency: Bloc (ACT) Pty Ltd v Crafted Capitol Pty Ltd [2021] ACTSC 81 (Winding Up Judgment) at [74].
3. As set out in the Winding Up Judgment, the genesis of the application to wind up Capitol was the failure by Capitol to pay a judgment debt. That judgment debt was the product of an adjudication award under the Building and Construction Industry (Security of Payment) Act 2009 (ACT). Bloc was the builder of a development project on London Circuit. Capitol was the developer for that project.
4. On 1 June 2021, two further creditors of Capitol, namely Crafted Central Pty Ltd (Central) and Crafted Holdings Pty Ltd (Holdings), applied to this Court seeking an order pursuant to s 482 of the Corporations Act 2001 (Cth) to terminate the winding up of Capitol (the s 482 Application). The substantive hearing of the s 482 Application is set down for 16 August 2021 before Mossop J.
5. Central owns the land the subject of the development. Holdings is the shareholder of Central and Capitol. Capitol, Central and Holdings all have common directors, namely Mr Peter Sarris, and Mr Matthew James. In these reasons, Central and Holdings will
be referred to together as “the applicants”. Capitol, Central and Holdings will
collectively be referred to as “the Crafted entities”.6. As part of the preparations for that hearing, Bloc issued a subpoena on 2 July 2021 to PKS. On 7 July 2021, the applicants filed the present application in proceeding, seeking to have the subpoena issued to PKS set aside in its entirety and for Bloc to
pay the costs of the applicants’ application.
The subpoena under challenge
7. The circumstances giving rise to the issuing of the subpoena are as follows. On 1 June 2021, the solicitors for the applicants wrote to the representatives of Bloc, informing
them of Central’s intention to pay $2,442,532.33 (the Payment) to Bloc. The Payment was to be transferred into Bloc’s bank account on behalf of Capitol. The Payment was
said to be sufficient to fully repay the debt owed by Capitol to Bloc plus post judgment
interest. Such debt was the catalyst for Bloc’s application to wind up Capitol, addressed
in the Winding Up Judgment.
8. On the same day, a sum equivalent to the Payment was deposited in Bloc’s bank
account. The difficulty appears to be that money received did not originate from the bank account of Central; rather, the funds were transferred by PKS. Bloc rejected the Payment on the basis that it required more information about PKS and its relationship to the Crafted entities. The applicants did not disclose the relationship either in correspondence or in evidence.
9. This led Bloc, on 2 July 2021, to issue the subpoena now under challenge. The documents for which production is sought are contained in the following schedule:
1 If PKS Kapital Pty Ltd (PKS) acts as a trustee, a copy of each trust deed by which PKS acts as a trustee.
2 The annual financial statements including balance sheet and profit and loss statements for the financial years ended 30 June 2018, 30 June 2019 and 30 June 2020.
3 Tax returns for the financial years ended 30 June 2018, 30 June 2019 and 30 June 2020.
4 Loan agreements between PKS and Crafted Central Pty Ltd.
5 For any loan accounts between PKS and Crafted Central Pty Ltd, statements for such loan accounts from 1 January 2018 to date.
6 Minutes of meetings of directors for PKS regarding the payment of monies to Bloc (ACT) Pty Ltd.
7 Minutes of general meetings of PKS regarding the payment of monies to Bloc (ACT) Pty Ltd.
8 Correspondence including letters, facsimiles and emails regarding the payment of monies to Bloc (ACT) Pty Ltd.
10. The applicants raised two objections to the documents sought. The first complaint is that the subpoena has no legitimate forensic purpose, as the categories of documents are not relevant to the issues to be determined in the interlocutory process. If the Court
finds to the contrary, the applicants’ second objection is that the categories are so broad
as to be oppressive.
Bloc’s position is that there were two purposes behind seeking the documents in the
above schedule. The first was that Bloc wishes to assess the solvency of PKS. Bloc
contends that the solvency of PKS is relevant to the s 482 Application because:
(a) If PKS were itself to be put into liquidation, there is a possibility that any subsequent liquidator of PKS may seek to claw back the Payment if it was assessed to be an uncommercial director-related (and therefore voidable) transaction. (b) On the pending application to stay the winding-up, a recapitalisation is proposed, with Central providing funding to Capitol. Central’s funding is in
turn submitted to derive from PKS.
12. The second purpose was to confirm the authority given by PKS to loan money to Central. It appears the concern is that the Payment was either unauthorised by PKS,
or paid in breach of: (a) trust, (b) directors’ duties, or (c) fiduciary duties.
13. No doubt in partial answer to the complaint of oppression, Bloc also indicated at the hearing that:
(a) Category four is limited in time from 1 January 2018 to date. (b)
Category five was refined, and the category is only pressed insofar as seeking any list of transactions between PKS and Central in respect of loans in the last 12 months.
(c) Category eight was no longer pressed. 14. Under r 6604 of the Court Procedures Rules 2006 (ACT) (the Rules) the Court may grant other relief in relation to a subpoena. It has been held in other jurisdictions that
the same words of the equivalent procedural rule are wide enough to permit a court to make an order limiting the scope of production required by a subpoena: see, for example, A Pty Ltd v Z [2007] NSWSC 999 at [41] and Ryan v Commercial and
Residential Developments (SA) Pty Ltd [2013] FCA 656 at [21]. Accordingly, I have treated the schedule of the subpoena as being amended to reflect the clarifications made during oral argument.
The Court’s power and applicable principles
15. The power to set aside a subpoena, in whole or in part, is relevantly contained in r 6604 of the Rules. Subrule 6604(1) of the Rules is in the following terms:
Setting aside subpoena or other relief
(1) On the application of a party or someone else having a sufficient interest, the court may set aside a subpoena completely or partly, or grant other relief in relation to it.
16. Relevant to the two grounds for objection raised by the applicants, a subpoena may be set aside is if the subpoena lacks a legitimate forensic purpose (including a lack of apparent or adjectival relevance). I recently set out a summary of applicable principles in Sahore v Ahmad [2021] ACTSC 30 at [17]-[22]:
[17] The test for relevance is less stringent than that which applies in the context of admissibility of evidence at trial: Gloucester Shire Council v Fitch Ratings [2016] FCA 587 (Gloucester Shire Council) per Wigney J at [23], in the context of a relatively recent discussion of the established authorities which have been applied in this Court (see [20] of these reasons below).
[18] Informing the principle is the public interest in a fair trial, which should be conducted on the footing that all relevant documentary evidence is available, subject to other public interest considerations, such as legal professional privilege: see Grant v Downs (1976)
135 CLR 674 at 685, cited in Gloucester Shire Council at [24].
[19] Accordingly, the approach a Court takes in determining whether the documents sought under subpoena have apparent relevance is broad rather than narrow. The Court should not too readily exclude the possibility that a document or class of documents might at the end of the day be relevant to a fact in issue in the litigation: Gloucester Shire Council at [23]. I have emphasised those words to highlight the low threshold for apparent relevance.
[20] There are various descriptions among the authorities of the question for the Court.
These include whether the documents could “possibly throw light on the issues in the main case” (being the language used by Beaumont J in Trade Practices Commission v Arnotts (1989) 88 ALR 90 at 103), and whether it is “on the cards” that the documents
sought will materially assist the party at whose request the subpoena has been issued: Alister v R (1984) 154 CLR 404 (Alister) at 414; Portal Software v
Bodsworth [2005] NSWSC 1115 … at [24]. See also DPP v Warren [2015] ACTSC
111 at [22] and Elmaraazey v Capital Lawyers Pty Ltd [2016] ACTSC 54 at [44], where Mossop AsJ (as his Honour then was) cited in addition Spencer Motors Pty Ltd v LNC
Industries Ltd [1982] 2 NSWLR 921 at 926–927 and Re North Coast Transit Pty
Limited [2013] NSWSC 1912 at [7]–[9].[21] A mere “fishing” expedition is impermissible. That is, a party cannot seek documents
in an attempt to discover if the issuing party has a case (hence the fishing metaphor of casting a wide net to see what is caught). It can only seek documents to support a case that has already been articulated: Commissioner for Railways v Small (1938) 38 SR (NSW) 564 at 575.
[22] The party issuing the subpoena bears at least a forensic onus of showing the relevance of the documents sought to the issues in the proceedings: see Portal Software at [29] and the cases there-cited.
17. Since that summary, the New South Wales Court of Appeal has given detailed consideration of what constitutes a legitimate forensic purpose in Secretary of the Department of Planning, Industry and Environment v Blacktown City Council [2021] NSWCA 145 (Dept PIE v Blacktown CC). The NSW Court of Appeal cautioned
against using the language of “tests” for the setting aside of subpoenas: see [60] per
Bell P, [88] per Brereton JA, [98] per McCallum JA. Further, President Bell (with whom McCallum J agreed) stated at [41] that care must be taken before transposing observations in Alister, a case primarily concerned with a claim for public interest immunity, to the general law relating to the setting aside of subpoenas.
18. Importantly, in Dept PIE v Blacktown CC at [33]-[67], through a careful discussion of
the authorities, it was clarified that “apparent relevance” will be established if “it can be
seen that the documents sought to be produced by way of subpoena will materially assist on an identified issue or there is a reasonable basis beyond speculation that it is likely the documents subpoenaed will so assist”: Dept PIE v Blacktown CC at [65]
(emphasis in original). An issuing party is not required to show that it is “on the cards”
that the documents sought will materially assist its case, as distinct from adding in some way to the relevant evidence in the case more generally: see Dept PIE v Blacktown CC at [65] per Bell P, at [89] per Brereton JA, at [98] per McCallum JA.
The evidence
19. The applicants relied on the affidavit of their solicitor, Mr Harry Kay, sworn 7 July 2021, as well as the affidavit of the director of PKS, Mr Peter Sarris, sworn 25 June 2021 (Sarris Affidavit). With leave of the Court, after the hearing the applicants also tendered an ASIC Search relating to PKS showing that Mr Peter Sarris is the sole director of PKS.
20. Bloc also relied on paragraphs 8-12 of the Sarris Affidavit. It also relied on limited sections of two further affidavits of Mr Sarris: one dated 1 June 2021 (only paragraphs 70-71 and Exhibit pages 1059-1066) and another dated 3 June 2021 (only Exhibit PK 5). Two further affidavits were read on the application, affirmed by the solicitor with carriage of the matter, Ms Madeleine Ness, dated 22 July 2021 (read in its entirety) and 30 June 2021 (paragraphs 13-14 only).
Consideration
21. I am not persuaded that there is a legitimate forensic purpose in seeking the documents
listed in the schedule to analyse whether the payment made by PKS – expressly on behalf of Central – was authorised by PKS, or was in some way the product of a breach of trust, of fiduciary duty, or of statutory directors’ duties. In my view, that is an entirely
collateral purpose to the s 482 Application to be heard later this month. It falls squarely
within the category of ‘fishing’ for a different case against a different entity (being PKS).
22. Similarly, the idea that if PKS was liquidated in the near future, a subsequent liquidator might assess whether there were any uncommercial transactions and might form a view about the Payment falling within that category is so far removed from the s 482 Application that I am not satisfied there is, or is likely to be, any identified issue in that
proceeding which might be assisted by the documents sought. Bloc’s concern is purely
speculative in that regard.
23. There is, however, some force in the submission that the ability and willingness of PKS to provide financial support to Central may have adjectival relevance to the upcoming litigation. This is because of the evidence that is expected to be read on the s 482 Application and the submissions made about the solvency of Central.
24. In paragraphs [8]-[12] of the Sarris Affidavit, Mr Sarris deposes to a loan to Central in
the sum of $3.06 million, described as the “PKS Kapital Loan”. The purpose of the loan
was to enable Central to pay amounts to creditors of Capitol (the bulk of which was the
Payment to Bloc). Mr Sarris then states as follows (emphasis added):I am confident, both as a director of PKS Kapital and as a director of Central that PKS
Kapital had the capacity to lend, and Central has the capacity to repay, the PKS Kapital
Loan. I am confident of that fact because I have direct oversight and day-to-day management over the financial affairs of both PKS Kapital and Central.
25. The mere fact that something is mentioned in evidence does not, of itself, give rise to an entitlement to subpoena a non-party to proceedings to divulge more information on the topic. The threshold for relevance is low, but there must still be some forensic purpose identified. It is important to remember that the return to solvency of Capitol and its ongoing capacity to remain solvent is at the heart of the s 482 Application. If
Central had paid Capitol’s debt to Bloc by sending a letter on Central letterhead
attaching a bank cheque issued by Westpac (being the financial institution from which the funds in the account of PKS were drawn), it is doubtful that Bloc would have even known about PKS, let alone had any legitimate forensic basis to start exploring the ongoing financial solvency of PKS, its trustee responsibilities or its corporate governance.
26. However, Dr Greinke, who appeared for Bloc on the present application, drew the
Court’s attention to the written submissions that had been filed for the applicants on the
s 482 Application, dated 15 July 2021, and the submissions made by the applicants about the view taken by the liquidator in relation to their application. The applicants intend to rely on a report of the liquidator, Mr Eddie Senatore, in submitting that:
(a) Capitol was dependent on financial support from Central before the winding up. (b) If the winding up is terminative, Capitol will again be dependent on financial support from Central. (c) That support was available as a matter of course and Central remains solvent. Central has further undertaken to continue to support Capitol. 27. The opinion of the liquidator is plainly a matter that is relevant to the s 482 Application
(see Re Warbler Pty Ltd (1982) 6 ACLR 526). Where Capitol’s solvency is tied to Central’s solvency, and that is in part tied to debts owed to PKS, the financial
relationship between PKS and Central may be an issue. Documents which may assist
with testing or exploring the extent of financial support given by PKS to Central – and
if Central is itself reliant upon financial support from PKS, the capacity of PKS to
continue to support Central so that it can meet the undertaking proposed – do have
apparent relevance, as that term is understood following Dept PIE v Blacktown CC.
28. I appreciate that Central takes the view that it has assets worth over $7 million and the proceeds of sale of real property more than meet any debt owed to Bloc. However, the Court is not here determining the merit of this point. In order for there to be a legitimate forensic purpose, all that the Court needs to be satisfied of is that there is an identified issue that might be materially assisted by the production of the documents sought under subpoena.
29. Given that a forensic purpose has been established, but not to the full extent of that for which Bloc contended, the categories as set out above should be amended to reflect
the above findings, pursuant to the Court’s power under r 6604 of the Rules to grant
other relief.
30. The evidence before the Court was that Mr Sarris was the sole director of PKS, and as a result, there may be nothing to produce with regard to minutes of meetings of directors of PKS. However, to the extent that any decision regarding the terms of payment of monies to Bloc was minuted, such a document may shed light on any conditions attached to either:
(a) the ongoing support to be provided by PKS for Central, or (b) the repayment to PKS of monies lent to Central or paid on Central’s behalf.
31. I consider it appropriate to amend the schedule of the subpoena to require production of the following categories of documents only:
(a) The tax returns and annual financial statements, including the balance sheet and profit and loss statements, of PKS for the financial years ended 30 June 2019 and 30 June 2020; (b) Any loan agreement between PKS and Central where the monies advanced pursuant to that loan have not been repaid; (c) Any list of transactions between PKS and Central in respect of loans in the last 12 months; and (d) Minutes of meetings of directors, or general meetings, of PKS regarding the payment of monies to Bloc (ACT) Pty Ltd. 32. The tax returns and financial statements have been further limited in time because I
have not been persuaded that PKS’s financial position in 2018 could have any bearing
on assessing the future solvency of Capitol, even on the low threshold of apparent
relevance that has been discussed and accepted above.33. As to any remaining argument about oppression, although categories six and seven, seeking the minutes of PKS, are not limited to time, they are limited to a particular subject. On the evidence before the Court, the only money paid to Bloc was the Payment giving rise to the subpoena. On that basis, I do not consider categories six and seven of the schedule to be oppressive.
Costs
34. Neither party has been totally successful on this application. It is an interlocutory process in preparation for a further interlocutory process. In those circumstances, and noting that costs are in the discretion of the Court, it is appropriate that the costs of this application simply form part of the costs of the s 482 Application and abide by whatever costs order is made following the hearing of that application. Accordingly, pursuant to r 1728 of the Rules I will reserve the question of costs.
Orders
35. Accordingly, the orders of the Court are as follows:
1) The schedule to the subpoena dated 2 July 2021 issued to the proper officer of PKS Kapital Pty Ltd (ACN 605 835 596) is amended to read as follows:
1 The tax returns and annual financial statements including the balance sheet and profit and loss statements of PKS for the financial years ended 30 June 2019 and 30 June 2020; 2 Any loan agreement between PKS and Central where the monies advanced pursuant to that loan have not been repaid; 3 Any list of transactions between PKS and Central in respect of loans in the last 12 months; and 4 Minutes of meetings of directors, or general meetings, of PKS regarding the payment of monies to Bloc (ACT) Pty Ltd. 2) Costs of the application are reserved.
I certify that the preceding thirty-five [35] numbered paragraphs are a true copy of the Reasons for Judgment of her Honour Associate Justice McWilliam.
Associate: Dominic Page
Date: 5 August 2021
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