Clime Capital Limited v Credit Corp Group Limited

[2010] FCA 343

FEDERAL COURT OF AUSTRALIA

Clime Capital Limited v Credit Corp Group Limited (No. 2) [2010] FCA 343

Citation:		Clime Capital Limited v Credit Corp Group Limited [2010] FCA 343
Parties:		CLIME CAPITAL LIMITED (ACN 106 282 777) v CREDIT CORP GROUP LIMITED (ACN 092 697 151)
File number(s):		NSD 1994 of 2008
Judge:		GRAHAM J
Date of judgment:		29 March 2010
Date of hearing:	29 March 2010
Catchwords:		PRACTICE AND PROCEDURE – administration of interrogatories allowed directed at determining what oral and written material was before a board of directors when it approved a release to the Australian Stock Exchange
Legislation:		Corporations Act 2001 (Cth) ss 674(2), 769C and 1041H(1) Australian Securities and Investments Commission Act2001 (Cth) s 12DA(1) Fair Trading Act 1987 (NSW) s 42
Cases cited:		Potter’s Sulphide Ore Treatment Limited v Sulphide Corp Limited (1911) 13 CLR 101 Tiver v Tiver and Tiverina Park Pty Ltd [1969] SASR 44 Kennedy v Dodson (1895) 1 Ch 334 Abduramanoski v Aidan Nominees Pty Ltd (as trustee for the Aidan City Centre Markets Unit Trust) [1987] FCA 607 Wildia Pty Ltd v Lee (1984) 9 ACLR 122
Place:	Sydney
Division:	GENERAL DIVISION
Category:	Catchwords
Number of paragraphs:	34
Counsel for the Applicant:	J Shepard
Solicitor for the Applicant:	William Roberts Lawyers
Counsel for the Respondent:	M J Darke
Solicitor for the Respondent:	Piper Alderman

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	NSD 1994 of 2008

BETWEEN:	CLIME CAPITAL LIMITED (ACN 106 282 777) Applicant
AND:	CREDIT CORP GROUP LIMITED (ACN 092 697 151) Respondent

JUDGE:	GRAHAM J
DATE OF ORDER:	29 MARCH 2010
WHERE MADE:	SYDNEY

THE COURT:

1.Grants leave to the applicant to file and serve upon the respondent a notice requiring the respondent to answer interrogatories in terms of the draft Notice to Answer Interrogatories being annexure “A” to the affidavit of Blagoj Petrovski sworn 23 March 2010 paragraphs 1a, 1b, 1c and 1d and paragraphs 2a, 2b(i),2b(ii), 2c, 2d(i) and 2d(ii) on or before 1 April 2010.

2.Directs the respondent to answer the said interrogatories with verification on or before 7 May 2010.

3.Notes that the parties agree that there should be no order as to costs of the Amended Notice of Motion filed 24 March 2010.

4.Orders that the directions hearing fixed for 9 April 2010 be vacated.

5.Orders that the matter stand over for directions before Nicholas J at 9:30am on Thursday 13 May 2010.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using Federal Law Search on the Court’s website.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	NSD 1994 of 2008

BETWEEN:	CLIME CAPITAL LIMITED (ACN 106 282 777) Applicant
AND:	CREDIT CORP GROUP LIMITED (ACN 092 697 151) Respondent

JUDGE:	GRAHAM J
DATE:	29 MARCH 2010
PLACE:	SYDNEY

REASONS FOR JUDGMENT

1. The matter presently before the Court is an Amended Notice of Motion filed 24 March 2010.  The applicant, Clime Capital Limited, claims that it acquired 384,537 shares in the respondent, Credit Corp Group Limited, during the period from 8 November 2007 to 11 February 2008. 

2. The applicant seeks to administer interrogatories upon the respondent;  they are within a relatively narrow compass.  There have been earlier iterations of the interrogatories which do not presently need to be addressed.

3. The interrogatories presently proposed are to be found in annexure A to the affidavit of Blagoj Petrovski sworn 23 March 2010.  The Notice to Answer Interrogatories contains two primary questions, the first of which directs attention to a letter apparently sent by the respondent to the Australian Stock Exchange Limited on 7 November 2007, and the second relates to a letter apparently sent by the respondent to the Australian Stock Exchange Limited on 11 February 2008.

4. In respect of each letter, a series of questions have been formulated, which are included in the draft Notice to Answer Interrogatories.  Interrogatory 1 contains a number of paragraphs and subparagraphs, as does interrogatory 2.  The respondent accepts the propriety of interrogatories 1(a), 1(b)(i) and (ii), 1(c), 1(d)(i) and (ii).  It further accepts the propriety of interrogatories 2(a), 2(b)(i) and (ii), 2(c) and 2(d)(i) and (ii). 

5. The dispute between the parties relates to the propriety of interrogatories 1(b)(iii) and 1(d)(iii), and interrogatories 2(b)(iii) and 2(d)(iii). 

6. In the Statement of Claim filed 23 December 2008, the applicant asserted that the respondent had represented to the applicant and ‘Group Members’ that:

   ‘11.        …

   a.on the information then available to CCP [apparently intended as a reference to the respondent] there was a reasonable basis for a NPAT forecast [which I would understand to be a Net Profits After Tax Forecast] … of between $17 and $19 million for FY2008 …’

7. The representation was said to have been partly express and partly implied.  The express part was said to have been contained in the letter of 7 November 2007, to which reference has been made.  In paragraph 17 of the Statement of Claim, a number of matters were asserted by the applicant under the heading ‘The True Position during the Relevant Period’.  Paragraph 17 contained some seven subparagraphs.

8. In paragraph 18, the applicant alleged:

   18.By reason of the matters pleaded in paragraph 17 …, as at 7 November 2007, and at all time during the Relevant Period:

   a.on the information then available to CCP, there was not a reasonable basis for the NPAT Forecast;

   …’

9. In paragraph 21 of the Statement of Claim, it was alleged that, by reason of the matters referred to, the respondent engaged in conduct that was in contravention of s 1041H(1) of the Corporations Act 2001 (Cth) (the ‘Corporations Act’), or s 12DA(1) of the Australian Securities and Investments Commission Act2001 (Cth) and/or s 42 of the Fair Trading Act 1987 (NSW).

10. Further material was included in the Statement of Claim under the heading ‘The Continuous Disclosure Breach’. That section of the Statement of Claim contained four paragraphs numbered 22 to 25 inclusive. The paragraphs in question alleged that matters were known to the respondent which should have been the subject of continuous disclosure, but which were not so disclosed. The pleading is somewhat vague and imprecise in terms of what it is that constituted the relevant alleged contravention of s 674(2) of the Corporations Act in that regard.

11. In the Defence filed 13 March 2009, the respondent denied paragraph 18 of the Statement of Claim, paragraph 21 of the Statement of Claim and paragraphs 24 and 25 of the Statement of Claim.  

12. The evidence, relied upon by the applicant, in support of the Notice of Motion includes a document, apparently signed by the chairman of the respondent on 29 November 2007, being minutes of a meeting of directors of the respondent held on Wednesday, 7 November 2007.  Those minutes disclose that six persons were present and one person was in attendance.  It would seem reasonable to assume that the six persons who were listed as being present constituted members of the board of the respondent.

13. The first name listed was that of the chairman, the second that of the person who was apparently the managing director and the sixth was the person who was apparently the chief financial officer.  The other three persons present included a Mr Thomas.  The minutes disclose that the board meeting commenced at 3:30pm and concluded at 4:45pm.  Under the heading ‘Item 2. Business Relating to the proposed Announcement to Market’, the following appeared, although, some words have been the subject of a redaction, apparently to take out reference to material that constituted legal advice from a person who joined the meeting, or for the purpose of that person giving such advice.  The relevant minutes provided as follows:

    ‘1.The CEO noted that management accounts for the period to the end of October had just become available and stated that revenues and profits for this period had fallen short of budget due to productivity shortfalls.  The CEO highlighted the delays in bringing new staff to expected levels of productivity and the impact of a change in the mix of the company’s assets [I would understand the reference to “CEO” to be to the chief executive officer, whom I presume to be the same person as served as the company’s managing director.]

    2.The CEO explained that as a consequence of underperformance in the month of October, management now believed that the company’s full year budgeted NPAT of $24million would not be achieved.  The CEO explained that a revised forecast had been prepared showing a full year NPAT of about $17million.  This revised forecast effectively extrapolated average productivity over the first 4 months into the balance of the year.  This position was conservative as some productivity improvement was likely in the latter part of the year and there was considerable scope for cost savings, including items such as the CEO’s short-term incentive.  Accordingly, the CEO recommended a revised NPAT guidance of $17million to $19million.

    3.The CEO then drew attention to the draft release.  The CEO noted that Mr David Lindsay of Channel Financial Communication had been engaged to assist with drafting the release and managing communication to the investor community.  The CEO also noted the engagement of Mr Frank Castiglia of Baker & McKenzie on the legal aspects of the announcement.

    4.The Chairman questioned the magnitude of the earnings adjustment.  The CEO described the impact of lagging productivity on the company’s earnings.

    5.Mr Thomas asked to review some of the financial detail [sic] and was provided with revenue, cost, EBITDA [which I would understand to be earnings before interest, tax, depreciation and amortization] and NPBT [which I would understand to be net profits before tax] projections for the current year.

    6.Mr Frank Castiglia was invited into the meeting [the redacted part of the minutes then follows].

    7.The draft release was reviewed in detail and various amendments were made. A revised final release was presented to the meeting.  The final release was approved.’

14. The so-called ‘final release’ would appear to be the document referred to as annexure ‘A’ to the draft Notice to Answer Interrogatories.  Whilst it may be desirable to include the terms of the whole of the annexure in these reasons for judgment, I will endeavour to introduce some measure of economy by referring to the first and fifth paragraphs alone, as follows:

    ‘Credit Corp Group Limited (ASX:CCP) advises that its financial year 2008 NPAT is expected to be below previous guidance due to increased costs from growth in employee numbers and infrastructure investments together with a change in the mix of Credit Corp’s portfolio of purchased debt ledgers.
    …
    After fully assessing the cost and asset mix factors contributing to underperformance in the first four months of FY08 and the infrastructure costs required over the balance of the year, the Company has revised its previous full year FY08 NPAT guidance of $24 million to between $17 and $19 million.
    …’

15. Interrogatories 1(a) and (b) are directed to a ‘draft or final version’ of the 7 November 2007 letter to the Australian Stock Exchange Limited and consideration thereof by the board of directors of the respondent. 

16. Interrogatories 1(c) and (d) are directed to the alternative possibility that the ‘draft or final version’ of the letter was considered at a meeting of a committee of the board of directors rather than by the board itself.  Essentially, the questions asked in respect of the draft or final version are the same in each case.

17. Interrogatory 1(b)(ii) sought to ascertain what documents were tabled at the [board] meeting relevant to the subject matter of the document [being the draft or final version of the letter to the Stock Exchange of 7 November 2007].  Interrogatory 1(b)(iii) asked ‘what was the substance of any conversation at the meeting relevant to the subject matter of the document?’  Corresponding questions were asked referable to a meeting of a committee of the board rather than a meeting of the board as a whole.  For the purpose of these reasons I will simply address interrogatory 1(b)(iii) in recording my reasons for judgment in relation to interrogatory 1. 

18. Counsel for the respondent submits that that interrogatory 1(b)(iii) does not serve a proper purpose and even if it did submits that it is not a necessary interrogatory. 

    It is conceded that the applicant is entitled to interrogate the respondent in relation to facts that are directly in issue between the parties and also to facts that are relevant to facts that are directly in issue (see Potter’s Sulphide Ore Treatment Limited v Sulphide Corp Limited (1911) 13 CLR 101 at 109-10).

19. Reliance has been placed by counsel for the respondent upon the leading judgment of Walters J in Tiver v Tiver and Tiverina Park Pty Ltd [1969] SASR 44 (‘Tiver’) at 47, 48 and 50.

    It is acknowledged that the court has a wide discretion when considering an application for leave to administer interrogatories.  It is submitted that the court should not permit interrogatories on matters which are ‘mere evidence of the facts in dispute, and form no part of the facts, themselves in issue’ (see per Walters J in Tiver at page 47).

20. Counsel for the respondent also refers to the judgment of AL Smith LJ in Kennedy v Dodson (1895) 1 Ch 334 at 341, where his Lordship said:

    ‘In my opinion, the legitimate use, and the only legitimate use, of interrogatories is to obtain from the party interrogated admissions of facts which it is necessary for the party interrogating to prove, in order to establish his case …’

    Later at page 50 in Tiver, Walters J concluded:

    ‘I think, therefore, that in deciding whether a particular interrogatory is permissible, the paramount considerations must be the relevance of the inquiry to the facts in issue, whether the information sought to be obtained by the question is strictly relevant to the issues in the action, and materially important for the purpose of establishing the party’s case.’

21. Reference was also made by counsel for the respondent to the judgment of French J, as his Honour then was, in Abduramanoski v Aidan Nominees Pty Ltd (as trustee for the Aidan City Centre Markets Unit Trust) [1987] FCA 607 (2 November 1987), in proceedings WAG 129 of 1986. In that case, his Honour referred to a relevant consideration, in determining whether or not the administration of interrogatories should be permitted, or not, being the necessity for, and utility of the proposed interrogatories, having regard to the fair and expeditious conduct of the proceedings.

22. The present case does not stand out as one where the motivation of the board, or of any controlling minds within the board, is a material consideration, unlike Wildia Pty Ltd v Lee (1984) 9 ACLR 122, where there was a serious issue as to whether the purpose of an allotment of shares by a company was in the best interests of the company itself, or directed to watering down the holding of one of the major shareholders, thereby diminishing the value of that shareholder’s shareholding.

23. Interrogatory 2 is expressed in terms which are similar to those chosen for interrogatory 1, however the proposed interrogatory 2 relates to a letter dated 11 February 2008, sent by the respondent to the Australian Stock Exchange Ltd, which recorded a further downgrade in the respondent’s profit guidance.  Whilst it is important to have regard to the whole of the terms of the letter, for reasons of economy I will again confine myself to recording part only of the relevant letter, namely paragraph 2, which provided:

    ‘Directors advise that financial year 2008 full-year NPAT outlook has been revised downwards, to a range of $10 - $12 million, and EBITDA ranging between $83 and $87 million.  This result is before anticipated costs associated with a restructure to be implemented by Directors following a detailed review of the Company’s operations.  These costs and charges are not expected to exceed $5 million.’

24. As I understand the case which the applicant wishes to advance, it is not suggested that there is anything misleading about the terms of the disclosure made to the Australian Stock Exchange Limited on 11 February 2008.  Rather, focus is placed upon the letter to indicate that matters were known, or should have been known by the board of directors earlier, such that the letter of 7 November 2007 was itself misleading, or, alternatively, the continuous disclosure requirements of the Stock Exchange Listing Rules required earlier disclosure than 11 February 2008 of the matters which were referred to in the letter of 11 February 2008. 

25. Section 1041H(1) of the Corporations Act provided:

    ‘1041H(1)A person must not, in this jurisdiction, engage in conduct in relation to a financial product, or a financial service, that is misleading or deceptive or is likely to mislead or deceive.’

26. Section 1041H falls within Chapter 7 of the Corporations Act, as does s 769C, which relevantly provided:

    ‘769C(1)For the purpose of this Chapter, or of a proceeding under this Chapter, if:

    (a) a person makes a representation with respect to any future matter (including the doing of, or refusing do, any act);  and

    (b) the person does not have reasonable grounds for making the representation;

    the representation is taken to be misleading.’

27. The applicant urges that the interrogatories which have been proposed are relevant to the determination of whether or not the respondent had reasonable grounds for making the representation referred to in paragraph 11(a) of the Statement of Claim. 

28. Section 674(2) of the Corporations Act relevantly provided:

    ‘674(2)              If:

    (a)       this subsection applies to a listed disclosing entity; and

    (b)the entity has information that those provisions require the entity to notify to the market operator; and

    (c)       that information:

    (i)        is not generally available;  and

    (ii) is information that a reasonable person would expect, if it were generally available, to have a material effect on the price or value of ED securities of the entity;

    the entity must notify the market operator of that information in accordance with those provisions.’

29. The applicant contends that the respondent contravened the relevant continuous disclosure provisions contained in s 674(2).

    Paragraph 18 of the Statement of Claim, alleging that there was not a reasonable basis for the 7 November 2007 net profits after tax forecast, was, as previously observed, qualified by the prefatory words, ‘By reason of the matters pleaded in paragraph 17.’  I will not take the time to set out in full paragraph 17.  However, it is perhaps appropriate to highlight some of the material there recorded, as follows:

    ‘17.By 7 November 2008 [sic] and at all times during the Relevant Period there was or had been a progressive and material deterioration in CCP’s profitability due to:

    a.CCP failing to efficiently manage collections across its entire portfolio (in the period leading up to 7 November 2007 and during the Relevant Period) by reason of management and workflow focus being directed to “freshly purchased debt”.

    …

    b.declining collections and productivity from July 2007 (and in the period leading up November 2007 and during the Relevant Period) in comparison to the level of collections and productivity achieved in prior years.

    …

    c.CCP’s inability to increase revenue by making new ledger acquisitions (being acquisitions funded in whole or in part from operating cash flows) by reason of CCP experiencing significant cash flow restraints.

    …

    d.declining productivity of CCP’s existing workforce due to the training and supervisory requirements of substantial numbers of new employees;

    …

    e.the consequences of a strategic decision by CCP in late 2007 not to renew one particular type of asset which historically produced shortterm revenues and the replacement of that asset with an asset which generated returns spread over an extended period;

    …

    f.underperformance from a particular Forward Flow Agreement which CCP subsequently took steps to terminate;

    …

    g.without new ledger purchases or in the alternative, without new ledger purchases of substantial volume, CCP’s cash flow and profit was required to be disproportionately derived from older ledgers which were harder to collect by an inexperienced workforce.’

1. It will be apparent from those parts of paragraph 17 that I have quoted that there is some correspondence between the lack of a reasonable basis for the NPAT forecast of 7 November 2007 and the material appearing in the letter of 7 November 2007 to which reference has earlier been made.  Whether the company had reasonable grounds for making the 7 November 2007 net profits after tax forecast which it did will no doubt ultimately be determined by reference to the material that was placed before the board at its meeting on 7 November 2007 both orally and in writing and the discussion thereon.

2. The ultimate paragraph of the minutes as quoted above which refer to a detailed review of the draft release to the Australian Stock Exchange Limited and a consideration of various amendments that were made thereto highlight the importance of discussion at the board meeting on 7 November 2007 in relation to the draft and final version of the document that was issued to the Australian Stock Exchange Limited.  It may be that the motivation of the board and a consideration of the relevant controlling minds is not germane to the present case but the material that was addressed seems to me to be highly germane.

3. In my opinion it will be appropriate to allow the proposed interrogatory 1(b)(iii) and correspondingly it will be appropriate to allow the interrogatory 1(d)(iii). 

4. I do not however take the same view in respect of conversation relevant to the subject matter of the letter of 11 February 2008 from the respondent to Australian Stock Exchange Limited.  It is not suggested that that letter was misleading or deceptive or likely to mislead or deceive.  As I understand it the applicant’s case is that, in effect, the net profits after tax guidance of $10-$12,000,000 contained in the letter of 11 February 2008 was appropriate and should have been given earlier.

5. It does not seem to me that conversation as to the terms of the draft or final version of the letter of 11 February 2008 to the Australian Stock Exchange Limited, will be germane to the establishment of a fact directly in issue, or relevant to facts directly in issue in the proceedings.  In my opinion interrogatories 2(b)(iii) and 2(d)(iii) should be disallowed.

I certify that the preceding thirty-four (34) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Graham.

Associate:

Dated:        9 April 2010