Building Corp Australia Pty Ltd v A & B Australian Investment Pty Ltd

[2024] NSWDC 260

District Court

New South Wales

Medium Neutral Citation:

Building Corp Australia Pty Ltd v A & B Australian Investment Pty Ltd [2024] NSWDC 260

Hearing dates:

28 June 2024

Date of orders:

5 July 2024

Decision date:

05 July 2024

Jurisdiction:

Civil

Before:

Russell SC DCJ

Decision:

(1)   Dismiss the Notice of Motion filed by the defendant on 30 April 2024.

(2)   Order the plaintiff to pay the defendant’s costs of and incidental to that Notice of Motion.

(3)   Dismiss the Notice of Motion filed by the defendant on 13 June 2024.

(4)   Order the defendant to pay the plaintiff’s costs of and incidental to that Notice of Motion.

Catchwords:

CIVIL PROCEDURE – application to set aside all or parts of subpoenas – whether categories and dates are too broad – apparent relevance to issue in dispute – legitimate forensic purpose – reasonable basis beyond speculation that it will be likely to assist – capable of providing a basis for cross examination – documents can go to credit of a witness

Legislation Cited:

Civil Procedure Act 2005 (NSW), s 68(a)

Uniform Civil Procedure Rules 2005 (NSW), r 33.4(1)

Category:

Procedural rulings

Parties:

Building Corp Australia Pty Ltd (Plaintiff)
A & B Australian Investment Pty Ltd (Defendant)

Representation:

Counsel:
E Vuu (Plaintiff)
D Elliott (Defendant)

Solicitors:
McGirr & Associates (Plaintiff)
Pikes & Verekers (Defendant)

File Number(s):

2023/71655

Judgment

Introduction

1. The plaintiff Building Corp Australia Pty Ltd (Building Corp) is a builder. The defendant A & B Australian Investment Pty Ltd (A & B) was the owner and developer of a property at 6 Felton Road at Carlingford.

The Pleadings

2. By its Statement of Claim Building Corp alleges (pars 3 and 4) that it entered into a written building contract on 15 March 2021 with A & B. That contract was to provide building works upon the land at Carlingford.

3. Building Corp alleges (par 6) that it completed part of the works and issued progress claims to A & B. The Statement of Claim alleges (par 7) that in breach of the building contract A & B failed to pay significant sums of money to Building Corp.

4. By its initial Defence, A & B admitted (par 3) that it executed the building contract but said that it “otherwise denies the contract document evidenced the terms of any agreement made between the parties”. The original Defence also pleaded (par 6) that Building Corp did not complete any works in accordance with the building contract.

5. By an Amended Defence, A & B made the following allegations (par 3):

1. In January 2020 A & B entered into a loan agreement with Bank of Sydney Ltd (Bank of Sydney) in the amount of $3,505,000.

2. A & B entered into a first building contract with Mars Property Development Pty Ltd (Mars).

3. The first building contract was terminated by mutual agreement.

4. A & B did execute the building contract pleaded by Building Corp.

5. At the time of executing the building contract and a Builders Side Deed, both Building Corp and A & B “had a common intention that the Building Contract and the Builders Side Deed” was not to have any legal consequences between them.

6. The parties executed the building contract and the Builders Side Deed “for the sole purpose of deceiving Bank of Sydney into thinking that there was a valid building contract between the plaintiff and the defendant and the plaintiff was undertaking the construction works at the Development Site”.

7. Such arrangements were reached during a conversation in a coffee shop between Mr Dib on behalf of the plaintiff and Mr Ebrahim Zahrooni (sole director of the defendant) and his son Mr Seena Zahrooni.

6. A & B also pleads in the Amended Defence (par 6) that all works on the Carlingford site were carried out by contractors engaged and paid by A & B and/or ProProperty Plus Pty Ltd (ProProperty) on behalf of A & B. ProProperty is Mr Seena Zahrooni’s company.

7. Building Corp also pleads (par 11) that the parties entered into a management contract. In the Amended Defence A & B pleads that this too was a sham, designed to deceive the Bank of Sydney.

8. A & B pleads in the Amended Defence that it requested Building Corp to issue a payment claim for $297,390 and that the sum of $197,766 received in respect of that payment claim was, by agreement between Building Corp and A & B, to be paid to ProProperty. The Amended Defence pleads that Building Corp issued the progress claim to A & B, at the request of A & B, “for the sole purpose of deceiving Bank of Sydney into thinking that Progress Claim 1 was a valid payment claim under the Building Contract, so that Bank of Sydney would authorise a drawdown under the Construction Facility”.

9. A & B has filed its affidavit evidence in support of the allegations in the Amended Defence. A timetable is running requiring Building Corp to file its evidence. I was informed from the Bar Table by counsel for Building Corp, that it denies entering into a sham arrangement with A & B, and that it denies any intention on its part to assist A & B to deceive Bank of Sydney. Affidavit evidence will be put on to support those denials.

Notice of Motion filed by A & B on 30 April 2024

10. A & B issued a subpoena on 22 November 2023 directed to Building Corp. The subpoena, in broad terms, sought production of all documents relating to work allegedly done at the Carlingford site and copies of financial records relating to such work.

11. The subpoena was returnable before the court on 7 December 2023. Building Corp did not appear or communicate with the court or A & B regarding compliance with the subpoena.

12. The solicitor for A & B chased up the solicitors for Building Corp by emails on 29 January 2024. There was then correspondence in February 2024 concerning the form of the categories of documents in the subpoena. Building Corp still did not comply with the subpoena. This led to A & B filing its motion dated 30 April 2024 seeking an order pursuant to s 68(a) of the Civil Procedure Act 2005 (NSW) that the sole director of Building Corp attend the court for examination. The Notice of Motion also sought costs.

13. Some time later Building Corp complied with the subpoena. That meant that A & B no longer sought the order under s 68(a), but still sought its costs of the Notice of Motion, which essentially were costs spent in trying to obtain compliance by Building Corp with a subpoena, which obliged it to produce documents many months before.

14. I am required to determine the costs of the Notice of Motion. In my view the plaintiff, being in default of compliance with the subpoena, has by its inaction caused expense to the defendant. There was no reason advanced why there was non-compliance with the subpoena in the first place. In my view the appropriate order is for Building Corp to pay the costs of A & B, of and incidental to the Notice of Motion filed on 30 April 2024.

Notice of Motion filed by Defendant on 13 June 2024

15. Building Corp issued a number of subpoenas to third parties. By a Notice of Motion filed on 13 June 2024, A & B seeks orders setting aside all or parts of some of the subpoenas.

16. The application is made pursuant to r 33.4(1) of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR). This subrule provides as follows:

“The court may, on the application of a party or any person having a sufficient interest, set aside a subpoena in whole or in part, or grant other relief in respect of it.”

17. It was common ground that the law requires a subpoena to only call for documents which have apparent relevance to the issues in dispute in the proceedings. There must be a legitimate forensic purpose. It must be shown that the documentation will assist on an identified issue, or there is a reasonable basis beyond speculation that it will be likely to assist. A subpoena which has no legitimate forensic purpose because it does not seek documents relevant to an identified issue may be regarded as a “fishing expedition”.

18. The documents sought will have a legitimate forensic purpose if they are capable of providing a basis for cross-examination or go to the credit of a witness, even if the documents sought may be inadmissible.

19. The summary of the pleadings provided above shows that the following are issues in the proceedings:

1. Whether in executing both the building contract and the management contract, A & B was entering into a sham transaction with Building Corp.

2. Whether in executing both the building contract and the management contract, Building Corp was entering into a sham transaction with A & B.

3. Whether the plaintiff and the defendant entered into a sham transaction with the intent of deceiving Bank of Sydney and inducing it to pay funds to or for the benefit of A & B.

4. Whether the parties made a request by means of a progress payment for Bank of Sydney to pay money when there was no entitlement to monies under such progress claim.

5. Whether Building Corp did the work which it claims to have done at the Carlingford site.

6. Whether, as alleged by A & B, Building Corp did no work at the Carlingford site.

20. As recited above, Building Corp, when it has the chance to respond to the Amended Defence and the evidence already filed by A & B, will be saying that it did not enter into a sham arrangement; it entered into a binding building contract and a binding management contract; and it did work under those contracts which entitles it to substantial payments.

21. To say that credit will be in issue is an understatement. The defendant is basically saying in its Amended Defence:

1. A & B dishonestly agreed with Building Corp to deceive Bank of Sydney.

2. A & B dishonestly procured funds from Bank of Sydney.

3. Building Corp is now making a dishonest claim in these proceedings, firstly because there was no binding building contract or binding management contract, and secondly because Building Corp did no building work at the Carlingford site.

22. There is always a legitimate forensic purpose in subpoenas requesting production of documents relevant to pleaded issues, but in this case there is also a legitimate forensic purpose in seeking documents which provide a legitimate basis for cross-examination or go to the credit of a witness.

23. Counsel for A & B helpfully set out the portions of each subpoena which are challenged and the basis for the challenge in Written Submissions (MFI 2). I will adopt the same format as appears in those written submissions.

Pikes & Verekers Subpoena

24. A & B objects to categories 1 and 2 in the Pikes & Verekers subpoena. The subpoena is directed to the solicitors who act for A & B. The categories of documents which are challenged are described as large volumes of documents on USB thumb drives, referred to in pars 24 and 25 of the affidavit of Mr Walton, solicitor, sworn 9 February 2024.

25. The basis for objection is twofold:

1. The categories seek documents in the nature of discovery from a party to the proceedings.

2. The documents sought have no apparent relevance to any fact in issue in the proceedings and are a fishing expedition.

26. A & B did not tender the affidavit of its solicitor Mr Walton dated 9 February 2024. However, it was tendered by Building Corp (PX 1). Paragraphs 24 and 25 refer to documents which Mr Walton had on USB thumb drives relating to: invoices and receipts issued to A & B by various contractors and consultants who performed building works for A & B after the building contract was executed; and bank statements evidencing payments made by A & B to those contractors and consultants for the work.

27. As previously recited, the Amended Defence alleges that Building Corp did no work at the Carlingford site, and that it was all done by or on behalf of A & B, who paid for it. The documents are obviously relevant to issues on the pleadings. There will be no order made to set aside part of the Pikes & Verekers subpoena and those solicitors must comply with it.

Commonwealth Bank of Australia Subpoena

28. The subpoena to Commonwealth Bank of Australia (CBA) seeks bank statements in relation to accounts conducted by A & B, ProProperty, Mr Ebrahim Zahrooni (the sole director of A & B), and Mr Seena Zahrooni (the son of that sole director, the principal of ProProperty and one of the participants in arranging the “sham”). The bank statements sought relate to a period between 1 April 2019 and 1 December 2022.

29. CBA itself does not seek to set aside the subpoena.

30. The objection to those categories of documents by the defendant is that the period prior to 15 March 2021, and after November 2021 (being the start and end dates of the involvement of Building Corp) have no apparent relevance to any fact in issue in the proceedings. I disagree.

31. The Amended Defence pleads (par 3) the relationship between A & B and Bank of Sydney prior to 15 March 2021, and pleads the first building contract with Mars. That makes the earlier documents relevant. Further, given that A & B says that it did, or caused to have done, all of the building work at the property, it is also relevant to have documents relating to work done after Building Corp ceased to be involved.

32. Further, such documents may provide a legitimate basis for cross examination, and most certainly will be used in exploring the credibility of the A & B witnesses, in particular, Mr Ebrahim Zahrooni and Mr Seena Zahrooni. In a case where A & B says that it actively deceived its own bank, and procured funds by such deception, there is a legitimate forensic purpose in examining documents concerning the transactions between A & B and its bank from the start of that relationship until the sale of the Carlingford property.

33. A & B can hardly be heard to say that it has entered into a sham arrangement to deceive its own bank but should simply be permitted to say that that is so, and that Building Corp should not have access to documents covering the entire period of the relationship between A & B and Bank of Sydney. Categories 1 and 2 in the CBA subpoena are allowed without restriction.

34. Category 3 in the CBA subpoena relates to OSKO payment summaries of transfers made by A & B or ProProperty into the account of Building Corp. The payments concerned are for the period between 1 April 2019 and 1 December 2022. All financial dealings between A & B and Building Corp will need to be thoroughly scrutinised by the court to decide the major issue in the case, which is the issue of credit concerning the so-called sham transaction. Building Corp should have a full opportunity to examine all documents relating to financial matters between A & B and ProProperty, and Building Corp. For those reasons the CBA subpoena stands in its present form and will not be set aside in part.

Westpac Subpoena

35. The Westpac subpoena is in the same format as the CBA subpoena and the objection to production is the same. For the reasons set out in relation to the CBA subpoena, there will be no order setting aside the Westpac subpoena wholly or in part.

36. Westpac itself does not seek to set aside the subpoena.

Bank of Sydney Subpoena

37. The Bank of Sydney subpoena seeks security documents in relation to the application for finance made by A & B to Bank of Sydney, and any pre-sale contracts or deposits made by prospective purchasers of the properties.

38. Bank of Sydney itself does not seek to set aside the subpoena.

39. In relation to security documents, there is a legitimate forensic purpose in seeking production of those documents, as they are directly relevant to the financial relationship between A & B and Bank of Sydney, which forms the background to the deception alleged by A & B.

40. In relation to pre-sale contracts or deposits, there is some degree of speculation by Building Corp that Bank of Sydney may have required such documents as a condition of granting finance. That is unknown to the defendant. In my view such documents, if they exist, would be relevant to the dealings with Bank of Sydney and the issues in the proceedings. If there are no such documents, then there is no burden cast upon A & B. If there are such documents, then they are relevant to the financial dealings between A & B and its bank.

41. There will be no order setting aside wholly or in part the subpoena to Bank of Sydney.

ProProperty Plus Subpoena

42. In broad terms, the documents sought from ProProperty Plus, the company of the son of the sole director of A & B, and the company which is said to have done or arranged all the building work at the Carlingford site, are documents relevant to: whether ProProperty did building work; whether it paid for work to be done by others; or whether it was paid by A & B for work. The objection is that documents are sought prior to 15 March 2021 or after November 2021. The evidence for A & B shows that there was some involvement of ProProperty with the first building contract, ie the Mars contract. There is thus a legitimate forensic reason to require ProProperty to produce documents which pre-date 15 March 2021. There is an even stronger reason to require ProProperty to produce documents after November 2021, because any work done after that date must have been done by ProProperty, and not by Building Corp.

43. The documents will also relate to the credit of Mr Seena Zahrooni of ProProperty, who A & B says was involved in the creation of the sham arrangement.

A & B Notice to Produce

44. Category 1 in the A & B Notice to Produce relates to documents held by A & B and completed by persons who attended the Carlingford site to perform work. Such documents would have relevance to a fact in issue in the proceedings, being the dispute as to who did the work at the site while the Building Corp agreement was on foot.

45. Categories 2, 3 and 4 relate to financial records concerning work done at the Carlingford site. Even though the period covered by the subpoena pre-dates 15 March 2021, documents before that date could well be relevant to credit. When A & B is alleging that it has deceived Bank of Sydney by the so-called sham agreement, Building Corp has a legitimate forensic interest in at least investigating the arrangements reached between A & B and the bank, and the circumstances in which Mars did work before the first building contract was terminated. Such termination would most probably have involved, or at least become known to, Bank of Sydney.

46. Categories 6 and 7 of the A & B Notice to Produce are the same as Categories 1 and 2 in the Pikes & Verekers subpoena. They are documents which should be produced.

47. There will be no order setting aside the A & B Notice to Produce wholly or in part.

Conclusion in Relation to the Subpoena Motion

48. For the reasons set out above, the application to set aside the various subpoenas fails entirely. There will be an order for A & B to pay the costs of Building Corp of the defendant’s Notice of Motion filed on 13 June 2024.

Orders

49. The orders of the court are:

1. Dismiss the Notice of Motion filed by the defendant on 30 April 2024.

2. Order the plaintiff to pay the defendant’s costs of and incidental to that Notice of Motion.

3. Dismiss the Notice of Motion filed by the defendant on 13 June 2024.

4. Order the defendant to pay the plaintiff’s costs of and incidental to that Notice of Motion.

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Decision last updated: 05 July 2024