Brady Queen Pty Ltd and 280 Queen Street Pty Ltd and Anor (No 1)
[2018] VSC 334
•22 June 2018
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2017 00204
| BRADY QUEEN PTY LTD (ACN 600 268 817) (IN ITS OWN CAPACITY AND AS TRUSTEE OF THE BRADY QUEEN UNIT TRUST) | Plaintiff |
| and | |
| 280 QUEEN PTY LTD (ACN 600 087 741) AUSTHOME DEVELOPMENTS PTY LTD (ACN 140 051 387) (IN ITS OWN CAPACITY AND AS TRUSTEE OF THE WU FAMILY TRUST) | First Defendant Second Defendant |
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JUDGE: | SIFRIS J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 8 June 2018 |
DATE OF JUDGMENT: | 22 June 2018 |
CASE MAY BE CITED AS: | Brady Queen Pty Ltd and 280 Queen Street Pty Ltd & Anor (No 1) |
MEDIUM NEUTRAL CITATION: | [2018] VSC 334 |
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PRACTICE AND PROCEDURE – Subpoenas to produce documents – Subpoenas are oppressive, vague and too wide in scope – Documents are not relevant to issues in dispute and subpoenas serve no legitimate forensic purpose – Documents sought for the purpose of verifying second defendant’s expert’s assumptions, inputs and analysis – Misuse of jurisdiction to require production to assist the second defendant’s expert – Subpoenas set aside – r 42A.02 Supreme Court (General Civil Procedure) Rules 2015.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | A Schlicht | Capstone Koroneos Legal Pty Ltd |
| For the Defendant | B Gibson | Aptum Legal Pty Ltd |
| For the Subpoenaed Parties, Brady Vision (Vic) Pty Ltd and Brady Lonsdale Pty Ltd | C Twidale | Tisher Liner FC Law |
| For the Subpoenaed Party, CBRE (V) Pty Ltd | B Dowling, Solicitor | Moray & Agnew Lawyers |
HIS HONOUR:
Introduction and Relevant Background[1]
[1]Much of the background is taken directly from the second defendant’s submissions.
The parties are shareholders in a company, 280 Queen Pty Ltd (the Company). The Company was incorporated for the purpose of developing land at 272-280 Queen Street (the Property).
The Company is the trustee of the 280 Queen Unit Trust (the Unit Trust), the registered proprietor of the Property. The plaintiff (Brady Queen) holds 2/3 of the shares and units. The plaintiff by counterclaim/second defendant (Austhome) holds 1/3 of the shares and units.
The proceeding involves competing claims of oppression. Brady Queen alleges oppressive conduct by Mr David Wu for and on behalf of Austhome. Austhome alleges oppressive conduct by Mr Anthony Brady for and on behalf of Brady Queen.
The parties are in agreement that the relationship between them has broken down and that the appropriate remedy in the proceeding is that Austhome’s shares in the Company and units in the Unit Trust be purchased by Brady Queen for their value.
The parties disagree as to the value of those shares and units, and in particular the value of the development at 280 Queen Street, and the methodology by which that development is to be valued.
The competing methods of valuation
Austhome submits that the shares and units ought to be valued on an income basis using a discounted cash flow methodology (DCF methodology).
The DCF methodology involves calculating the investment value of the Property by estimating the projected income and outgoings of the Property and then applying an appropriate discount factor to reflect risks associated with the forecasted cash flows and the time value of money.
Austhome relies on the expert report of Greg Meredith dated 3 April 2018 (Meredith Report) in this respect.
Brady Queen submits that the development site should be valued on the basis of a ‘direct comparison approach’ (Direct Comparison method). This involves calculating the current fair market value of the Property to a hypothetical arm’s length buyer by reference to actual sales of comparable properties. The sale prices are a proxy for the future net revenues of the sites in question.
As the property at 280 Queen Street has yet to be developed, and has not been sold, both valuation methods involve valuing the property by reference to a hypothetical counterfactual.
The Direct Comparison method involves inferring the price that would be achieved if the Property was sold from sale prices that have been achieved for comparable properties.
Likewise, the DCF methodology involves inferring the cash flows (costs and revenues) that would be achieved if the Property was developed from assumptions that can be informed by and tested against cash flows that have been achieved by comparable developments.
Plaintiff’s application to exclude evidence based on the DCF method
The question of the appropriate valuation method for the development and whether the second defendant could rely on the DCF methodology at trial was first raised at a directions hearing on 23 February 2018. I invited submissions on this question and listed the matter for hearing.
At the hearing on 20 April 2018 I found that:
the methodology that [Mr Meredith] proposes is an available method of valuation, whatever the difficulties and uncertainties…. Its appropriateness and indeed the valuation that will follow will be the subject matter of the trial on value.
I ordered that the second defendant file its expert report valuing the shares and units using the DCF methodology on or before 18 June 2018.
I stated that this would give Mr Meredith three weeks to obtain the material that he had identified as necessary and then allow him a further four weeks to complete his valuation report.
Material requested by Mr Meredith
In his report of 3 April 2018, Mr Meredith identified the assumptions in respect of which he required information in order to complete his valuation of the development using the DCF methodology.
Mr Meredith also identified the further information he would require including information regarding the:
(a) timing of the development;
(b) costs of the development including:
(i) excavation costs;
(ii) costs of removing hazardous material;
(iii) costs of consultants;
(iv)construction costs;
(v) holding costs;
(vi)financial costs.
(c) sale prices of office premises and retail spaces; and
(d) type of funding of the development.
Mr Meredith has said that he would be assisted, in preparing his valuation, by evidence of the cash flows (costs and revenues) of comparable developments and the valuations of comparable sites.
Comparable developments and sites
The second defendant has identified two developments of the Brady Group that it and Mr Meredith consider to be comparable to the development in issue in the proceeding. These are the development at 500 Elizabeth Street (Vision Apartments) which was completed in late 2016/early 2017 and the development at 380 Lonsdale Street (380 Melbourne) which is underway. The second defendant has also identified a development site, at 380 Queen Street Melbourne (Queen’s Place), which it and Mr Meredith consider to be comparable to the site in issue in the proceeding. The reasons these developments and sites are considered comparable are set out in paragraphs 9, 10 and 11 of the affidavit of Alexander David Nicol affirmed 7 June 2018 (‘the Nicol affidavit’).
Existence of documents
For the reasons set out in paragraph 14 of the Nicol affidavit the second defendant submitted that there was good reason to believe that documents evidencing the cash flows (cost and revenues) of the Vision Apartment and 380 Melbourne developments exist as do valuations of the site at Queen’s Place.
Indeed, it is impossible to believe, according to the Nicol affidavit, that Brady Vision and Brady Lonsdale (as developers of Vision Apartments and 380 Melbourne) would not record the actual and projected cash flows of their developments or that CBRE would not hold a valuation of Queen’s Place.
Relevance of documents
For the reasons set out in paragraphs 12 to 13 of the Nicol affidavit, it was submitted that, Mr Meredith considers that the documents in question will assist him in valuing the development in issue, using the discounted cash flow method.
Specifically, the documents which evidence the total value, cash flows and timing of comparable projects will enable Mr Meredith to test and validate the assumptions upon which his valuation is based, and his ultimate valuation, and ensure that his opinion as to the value of the development is as reliable as possible. That is, the comparable valuations would allow Mr Meredith to ‘verify and “sense check” the inputs provided to him by Austhome and which are required to prepare a valuation using the DCF methodology. That may, it was submitted, not be in the plaintiff’s interest, but it is in the interests of justice.
Indeed, it was submitted that Mr Meredith is required by clause 3(d) and (i) of the Expert Witness Code of Conduct to identify the assumptions upon which his opinions are based and to make all inquiries that he believes are desirable and appropriate to ensure that all matters of significance which he regards as relevant have been put before the Court.
Request for discovery
On 18 April 2018, solicitors for Austhome (Aptum) wrote to solicitors for Brady Queen (CKL) seeking discovery of all documents within the plaintiff’s control relating to the assumptions and required information set out in paragraphs 63 and 65 of the Meredith Report for the Vision Apartments and 380 Melbourne developments, as well as another comparable project at 280-288 Little Lonsdale St (Melbourne Star).
The plaintiff did not respond to that request.
Attempts to cooperate to narrow the scope of discovery
On 23 April 2018, Aptum again wrote to Brady Queen confirming that the discovery request was confined to the 380 Melbourne, Vision Apartments and the Melbourne Star development and that no discovery was sought in related to other developments.
The letter further confirmed that the second defendant did ‘not seek discovery of every document that may fall within a category or may be relevant to the matters identified by Mr Meredith. Instead, [the second defendant sought] only discovery of sufficient documents to prove the actual (or in the case of 380 Melbourne, estimated) costs, sales, rental returns, applicability of the GST margin scheme and type of funding for each development’.
Aptum stated that the second defendant was willing to cooperate, and if necessary to narrow the scope of discovery, to address any legitimate concerns the plaintiff may have.
This letter was, it was submitted, designed to address the concerns raised by counsel for Brady Queen on 20 April 2018 where it was alleged that discovery was sought in relation to every part of the Brady Group over a lengthy period of time and that huge volumes of irrelevant documents would have to be produced.
Plaintiff’s refusal to discover documents
By email dated 24 April 2018, CKL refused to discover the documents requested stating that no such documents were in the ‘possession, power of control’ of Brady Queen.
Subpoenas issued
As a consequence, on 8 May 2018, three subpoenas were issued on behalf of Austhome addressed to CBRE, Brady Lonsdale, and Brady Vision pursuant to r 42A.02 of the Supreme Court (General Civil Procedure) Rules 2015.
In the case of Brady Vision and Brady Lonsdale the subpoenas were directed exclusively at the Vision Apartments and 380 Melbourne developments. The subpoenas sought production of the following documents:
(a) the current cash flow plans or statements for the developments;
(b) the current marketing plans or schedule for the developments;
(c) the price list for each apartment, office or rental premises in the developments;
(d) any valuations obtained including for the purpose of obtaining finance;
(e) the part of any executed constructed loan document that evidences the amount and terms of any construction finance;
(f) the part of any executed construction contract(s) for the developments or any reports of quantity surveyors which would evidence the total cost of the construction;
(g) statements of the amounts advanced and repaid under construction loan facilities;
(h) the annual finance statements for the developments;
(i) the monthly or quarterly BAS or GST report(s) for the development; and
(j) the current or final statement of the total costs and revenue for the developments.
The subpoena to CBRE sought the production of any valuation report, and supporting materials, in respect of 380 Melbourne or Queen’s Place. According to an affidavit affirmed by Ben Dowling on 8 June 2018, CBRE has not completed any valuation report for any property located at 380 Queen Street.[2]
Cover letter to subpoenas
[2]At paragraph [3]. Mr Dowling is special counsel at Moray & Agnew and has acted on instructions received from CBRE.
The subpoenas were served under cover of a letter that sought to clarify the scope of the documents requested.
The covering letters to the Brady Lonsdale and Brady stated:
…we do not require production of every document in your control that falls within the categories of the documents listed in the subpoena. It is sufficient that you produce only as many documents as are necessary to disclose the actual (or in the case of 380 Melbourne, estimated) total costs, sales, rental returns and type and terms of funding for each development.
The subpoena to CBRE was served under a cover letter confirming that valuation reports were only sought in relation to the 380 Melbourne and Queen’s Place.
All three covering letters also offered to cooperate with each recipient to minimise the documents to be produced.
No response was received to these letters.
Objections to subpoenas
On 17 May 2018, Brady Queen filed objections to the subpoenas issued to Brady Vision and Brady Lonsdale.
Brady Vision and Brady Lonsdale filed objections to the subpoenas issued to them on the same day.
On 21 May 2018, Brady Queen filed an objection to the CBRE subpoena.
CBRE filed an objection to the subpoena issued to it on the same day.
Each objection is made on the grounds that the request:
(a) seeks documents which are irrelevant and which have no legitimate forensic purpose;
(b) amounts to a fishing expedition;
(c) lacks adequate particularity and is too wide, vague and unclear; and
(d) is oppressive.
Further offer to cooperate
Following these objections, on 25 May 2018, Aptum again wrote to each of the subpoena recipients offering to cooperate with them to minimise the documents to be produced rather than incur the costs and delays associated with a disputed objection hearing.
No response was received from Brady Queen, Brady Vision or Brady Lonsdale.
On 6 June 2018, solicitors for CBRE responded to that they maintained their objection to the subpoena on the basis that:
(a) the valuations sought under the subpoena contain highly sensitive and confidential information, disclosure of which would likely cause detriment to CBRE and third parties;
(b) the subpoena serves no legitimate forensic purpose; and
(c) the subpoena does not seek documents that are relevant to the issues in the dispute.
Consideration
The subpoenas are fundamentally misconceived and were set aside on 8 June 2018 after a short hearing, following the filing of written submissions. I indicated that reasons would follow. These are the reasons. They are short.
First, the subpoenas are oppressive. They are vague and far too wide. The covering letter concedes as much. It is not for the recipients to trawl through their documents in order to attempt to meet the request. The documents (if relevant and amenable to production) need to be specifically targeted. Further, I agree with the submission that the subpoenas require the recipients to, in effect, undertake the exercise of discovery. This is sufficient reason to set them aside.
Secondly and more importantly, the production sought is not relevant for two critical reasons. First, the projects at 500 Elizabeth Street and 380 Lonsdale Street are entirely different projects as demonstrated by the plaintiff in paragraph 16 of its submissions and paragraphs 13 to 25 of the affidavit of Simon Philip Pethica sworn 7 June 2018 (‘the Pethica affidavit’).
Secondly, the basis on which the subpoenas were issued is fundamentally misconceived. The requested documents are not amenable to production whether by way of subpoena or otherwise. Documents subpoenaed for the purpose of enabling an expert to verify his assumptions, inputs and analysis are not relevant and seeking such production constitutes, in my view, a misuse of the jurisdiction. The other projects – sought to be used by an expert as a comparator or check – are of no relevance whatsoever. Further, and perhaps put another way, they serve no legitimate forensic purpose. Finally, companies associated with the plaintiff are not required to, in effect, give expert evidence or provide the basis for such expert evidence in order to assist the second defendant. The second defendant is required to establish its suggested methodology through its own expert or experts. Although valuation as such is a relevant issue, the manner of establishing it through expert evidence is solely a matter for the party calling the evidence. Calling on those related to the opposing party to assist because of other suggested similar projects is not open.
Save to say that I agree entirely with the submissions of the plaintiff and the subpoenaed parties and reject the submissions of the second defendant, it is not necessary to say anything further.
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