Cove House Illiquid Investments DAC v YA Global Investments LP - [2018] WASC 349

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION:   COVE HOUSE ILLIQUID INVESTMENTS DAC-v- YA GLOBAL INVESTMENTS LP [2018] WASC 349
CORAM:   SMITH J
HEARD:   11 SEPTEMBER 2018
DELIVERED          :   16 NOVEMBER 2018
FILE NO/S:   CIV 2074 of 2017
BETWEEN:   COVE HOUSE ILLIQUID INVESTMENTS DAC
First Plaintiff
RICHARD SCOTT TUCKER, JOHN ALLAN BUMBAK AND RAHUL GOYAL AS THE JOINT AND SEVERAL RECEIVERS OF COMPASS RESOURCES LTD (IN LIQ) (RECEIVERS AND MANAGERS APPOINTED)
Second Plaintiff
NORTHERN TERRITORIES RESOURCES PTY LTD
Third Plaintiff
AND
YA GLOBAL INVESTMENTS LP
Defendant

Catchwords:

Practice and procedure - Application for further and better discovery of categories of documents - Do the categories sought relate to a matter in question - Train of inquiry - Turns on own facts

Legislation:

Federal Court Rules 1979 (Cth), O 15, O 15 r 2(3)
Federal Court Rules 2011 (Cth), r 20.14(2)
Law of Property Act 2000 (NT)
Rules of the Supreme Court 1971 (WA), O 26 r 6

Result:

Application allowed in part

Category: B

Representation:

Counsel:

First Plaintiff	:	Mr B Dharmananda SC & Ms R T Heath
Second Plaintiff	:	Mr B Dharmananda SC & Ms R T Heath
Third Plaintiff	:	Mr B Dharmananda SC & Ms R T Heath
Defendant	:	Mr S Penglis & Mr S M Murphy

Solicitors:

First Plaintiff	:	Squire Patton Boggs
Second Plaintiff	:	Squire Patton Boggs
Third Plaintiff	:	Squire Patton Boggs
Defendant	:	DLA Piper

Case(s) referred to in decision(s):

British Association of Glass Bottle Manufacturers Ltd v Nettlefold [1912] AC 709
Compagnie Financiere et Commerciale du Pacifique v Peruvian Guano Co (1882) 11 QBD 55
Forty Two International Pty Ltd v Barnes (No 2) [2011] FCA 210
Fudlovski v JGC Accounting & Financial Services Pty Ltd [2014] WASCA 237
Ibes Corp & Seas Sapfor Ltd v Momentum (Aust) Pty Ltd [1994] FCA 1580
Perpetual Trustees Co Ltd v Burniston [2012] WASC 26
Roe v The State of Western Australia [2013] WASC 130
Singh v Friedman [2013] WASC 78
Sunland Waterfront (BVI) Ltd v Prudentia Investments Pty Ltd (No 4) [2010] FCA 863
Technomin Australia Pty Ltd v Xstrata Nickel Australasia Operations Pty Ltd [2010] WASC 218
Youlden Enterprises Pty Ltd v Health Solutions (WA) Pty Ltd [2005] WASC 60

SMITH J:

The application

This is an application by the defendant, YA Global Investments, for further and better discovery by the plaintiffs in this matter Cove House, the receivers of Compass Resources Ltd and Northern Territory Resources (NTR).

Background

The subject matter of the action is Compass Resources Ltd (in liq) (Receivers and Managers Appointed) (Compass Resources Ltd) and the sale of its assets.
Compass Resources Ltd:
(a)was a publicly‑listed mining company; and
(b)was the owner of interests in mining assets, plant and real estate in the Northern Territory including, principally, joint venture interests in the Browns Project near Batchelor in the Northern Territory including:
(i)an open‑cut copper oxide project (mined in 2007 ‑ 2008);
(ii)an underground lead sulphide project; and
(iii)established site infrastructure, including an oxide or hydrometallurgical processing plant which operated in 2008 ‑ 2009.
From December 2007 to late 2014, the defendant invested substantially in Compass Resources Ltd and some of its subsidiaries (together, Compass Resources). From November 2011, the defendant has been the majority shareholder in Compass Resources Ltd.
Between January and July 2015, the first plaintiff, the defendant and Compass Resources engaged in substantial correspondence and negotiations regarding the first plaintiff's intended investment in Compass Resources.
Compass Resources Ltd entered external administration in 2009 and the external administration ceased in 2011. The Browns Project was mothballed in 2009 and has been on care and maintenance ever since.
In the period from July to September 2015, the first plaintiff and the defendant, and other entities, entered into a suite of agreements that facilitated the first plaintiff's investment in Compass Resources Ltd, and to restructure Compass Resources Ltd's debts. One agreement executed by the first plaintiff and the defendant was an inter‑creditor deed.
The terms of the inter‑creditor deed provided that:
(a)the first plaintiff's security over the assets of Compass Resources was ranked ahead of the defendant's security over the assets of Compass Resources;
(b)the defendant had no right to payment until after the first plaintiff had been paid in full; and
(c)pursuant to cl 5(a), the defendant agreed to release its security interests over assets 'which are the subject of a bona fide sale for market value by' the first plaintiff.
In mid‑2016, the first plaintiff appointed receivers and managers in relation to Compass Resources Ltd. The receivers of Compass Resources Ltd are the second plaintiff in the action and are employed by KordaMentha.
The receivers took steps to sell the assets of Compass Resources, and by asset sale agreement sold the assets (which comprise an interest in a number of mining tenements and the processing plant) to the third plaintiff (NTR), who is a subsidiary of the first plaintiff.
The assets sale agreement was entered into on 29 September 2016, and completed on 18 January 2017.
The defendant characterises the sale of assets in its amended defence filed on 7 May 2018 as a 'purported sale'. Before the 'sale', the third plaintiff held an approximately 50% interest in the mining tenements and plant and, by the receivers' 'sale', acquired the balance of the interests in both assets.
Compass Resources entered into liquidation on 28 October 2016.
Pursuant to the asset 'sale' agreement, the assets were sold to the third plaintiff for $17,391,019 (paid to the first plaintiff and applied in reduction of its secured debt).
The plaintiffs seek to compel the defendant to release its security over the assets that were (the defendant claims purportedly) sold pursuant to the asset sale agreement.
At the heart of the action is a claim made by the defendant that the 'sale' of the assets was not a bona fide sale at arm's length to a third‑party purchaser for market value. It claims, through the receivers, the first plaintiff effectively sold the assets to itself and now seeks to defeat the defendant's otherwise valuable security interest which the defendant claims is an amount of approximately $40 million.
The defendant claims in determining the action the court will be required to scrutinise closely the 'sale' and related transactions. In these circumstances, the defendant claims that the court ought to allow the defendant to bring before the court for the court's scrutiny all motivating factors and pre‑insolvency plans of the plaintiffs.
Prior to the hearing of this application, the plaintiffs had provided discovery of:
(a)all documents identified in the amended statement of claim as required by orders made by Registrar Boyle on 11 August 2017; and
(b)categories of documents set out in a letter from the plaintiffs' solicitors to the defendant's solicitors dated 7 May 2018 (agreed categories)[1] pursuant to order 5 of orders made by Derrick J on 8 May 2018.
[1] Pending the hearing and determination of this application for further and better discovery the parties agreed to discovery of 14 agreed categories of documents.
As a consequence of the orders made by Registrar Boyle and Derrick J, the plaintiffs had discovered approximately 15,947 documents.[2]
[2] Second supplementary affidavit of Graeme Michael Slattery sworn 11 September 2018 [16].
In this application the defendant seeks further and better discovery of documents that are beyond the 14 categories of the agreed categories.
Each of the agreed categories provided for discovery of documents created from 17 June 2016 (being the day before receivers of Compass Resources Ltd were appointed by the first plaintiff) to January 2017 (the 'period' of the agreed categories).
The defendant, in its amended application, essentially seeks to widen the agreed categories of discovery by amending the 'period', to require discovery of documents created from 'the date on which any of the first plaintiff, Compass Resources or the third plaintiff first contacted KordaMentha in relation to Compass Resources to 31 January 2017'. The defendant also seeks to widen the scope of categories of documents to be discovered by capturing additional documents within and in addition to the agreed categories of documents.
The plaintiffs accept that any order for further discovery can be expressed in respect of a 'period' to end on 31 January 2017 and says that discovery of the agreed categories has been given on this basis.
Whilst there is a dispute about the number of potential additional documents sought to be discovered in this application, the plaintiffs claim (having caused to be conducted a preliminary computer search of a potential pool of documents that may come within the categories of documents now sought by the defendant) to have identified a pool of an additional 62,458 documents.[3]
[3] Second supplementary affidavit of Graeme Michael Slattery sworn 11 September 2018 [16] and see also affidavit of Graeme Michael Slattery sworn 21 May 2018.

Issues on which discovery is sought

The defendant points out that a critical issue in the action is whether the test provided for in cl 5(a) of the inter‑creditor deed was satisfied. The parties disagree about the proper construction of cl 5(a) but the defendant's case is that cl 5(a) requires a sale that:
(a)was bona fide; and
(b)intended to and did, in fact, achieve fair market value;
by [13(a)] and [29] of the amended defence, the defendant:
(c)puts the plaintiffs to proof on the issue of bona fides (contending that the bona fide requirement of cl 5(a) includes the appointment of the receivers and the steps leading up to the appointment); and
(d)denies that the purported sale of the assets satisfied the 'fair market value' requirement of cl 5(a).

General principles relevant to discovery

The legal principles relating to the scope of discovery, particularly in matters admitted to the court's CMC list are well established.
Whilst in more recent times orders requiring discovery are usually restricted to discovery of documents that are directly relevant to an issue, it remains open to parties to an action to make an application to the court for an order for discovery of specific classes or categories of documents that directly or indirectly enable the party seeking discovery to advance his or her case or damage the case of his or her adversary.
The power to order discovery under O 26 r 6 of the Rules of the Supreme Court 1971 (WA) and the inherent jurisdiction of the court to order further and better discovery confers a discretion on the court to make an order for discovery of relevant documents.[4]
[4] Technomin Australia Pty Ltd v Xstrata Nickel Australasia Operations Pty Ltd [2010] WASC 218 [3] ‑ [8]; British Association of Glass Bottle Manufacturers Ltd v Nettlefold [1912] AC 709, 714.
When the inherent jurisdiction of the court is invoked, where the insufficiency of a party's discovery appears from the party's pleadings, or its affidavit of documents, or the documents referred to therein, or any source constituting an admission by that party of discoverable documents, the test is whether the court has reasonable grounds for being fairly certain that there are other relevant documents which ought to have been disclosed.[5] This is also the test that is applied under O 26 r 6.[6]
[5] Technomin Australia Pty Ltd v Xstrata Nickel Australasia Operations Pty Ltd [2010] WASC 218 [6].
[6] Technomin Australia Pty Ltd v Xstrata Nickel Australasia Operations Pty Ltd [2010] WASC 218 [6].
Apparent or adjectival relevance is addressed by considering, primarily, the issues raised by the pleadings. However, the generality of a pleading in defence, such as a mere denial, does not of itself enable an order to be made to widen the net of discovery.[7]
[7] Ibes Corp & Seas Sapfor Ltd v Momentum (Aust) Pty Ltd [1994] FCA 1580 [14]; Forty Two International Pty Ltd v Barnes (No 2) [2011] FCA 210.
Relevant documents are documents that would either advance a party's case or damage his or her opponent's case or lead to a train of inquiry that would either advance a party's case or damage his or her opponent's case.[8]
[8] Perpetual Trustees Co Ltd v Burniston [2012] WASC 26 [30].
As Allanson J in Singh v Friedman observed:[9]
Relevance is not the only factor the court must consider in the exercise of the discretion to order discovery. But whether a document relates to a matter in question in the proceedings remains the descriptive criterion in O 26 of what documents should be discovered.
[9] Singh v Friedman [2013] WASC 78 [4].
This point was explained by Master Newnes in Youlden Enterprises Pty Ltd v Health Solutions (WA) Pty Ltd who said:[10]
In determining whether to make an order for further discovery, the Court must have reasonable grounds for being fairly certain that there are other relevant documents which ought to have been discovered: Beecham Group Pty Ltd v Bristol Myers Co [1979] VR 273. The Court must be able to infer from the nature of the document in question that it is relevant; it will not speculate as to its relevance. Relevance may either appear from the nature of the document or its contents, and if the latter then there must be a prima facie case as to the contents before an order for further discovery will be made: Astra-National Productions Ltd v Neo‑Art Productions Ltd [1928] WN 218 at 219. Where an application is made in respect of a document referred to in a document already discovered (the relevance of the latter being conceded by its discovery) it is generally reasonable to assume, in the absence of a contrary indication in the document discovered, that the document referred to is relevant: see Compagnie Financiere et Commerciale du Pacifique v Peruvian Guano Co [1882] 11 QBD 55; Kent Coal Concessions Ltd v Duguid [1910] 1 KB 904 at 915 and the discussion in PDM Australia Pty Ltd v Kellogg Overseas Corporation & Ors, unreported; SCt of WA; Library No 6646; 26 March 1987 at [5‑14].
In determining whether a document relates to a matter in question, and, therefore, whether it ought to have been discovered, the test is that set out in Compagnie Financiere et Commerciale du Pacifique v Peruvian Guano Co (supra) as follows:
'It seems to me that every document relates to matters in question in the action which not only would be evidence upon any issue, but also which, it is reasonable to suppose, contains information which may ‑ not which must - either directly or indirectly enable the party requiring the affidavit either to advance his own case or to damage the case of his adversary. I have put in words 'either directly or indirectly' because it seems to me, a document can properly be said to contain information which may enable the party requiring the affidavit either to advance its own case or to damage the case of its adversary, if it is a document which may fairly lead to a chain of inquiry, which may have either of those two consequences.'
The matters in issue are to be determined by reference to the pleadings: Mulley v Manifold (1959) 103 CLR 341 per Menzies J at 345. But regard must also be had to the conduct and admissions of the parties and the nature of the action: Schlam v WA Trustee Executor & Agency Co Ltd [1964] WAR 178 at 186.
It is also important to bear in mind that there is not a strict entitlement to an order for discovery, including an order for further discovery: Kent Coal Concessions Ltd v Duguid (supra) at 910. Moreover, amendments to the Rules in more recent times, including the introduction of O 1 r 4B and O 26 r 7, emphasise the need to have regard to the timely and cost effective disposal of the action in the exercise of the discretion to order discovery.
[10] Youlden Enterprises Pty Ltd v Health Solutions (WA) Pty Ltd [2005] WASC 60 [3] ‑ [6].
The task of considering whether to make an order for discovery is a balancing exercise. Justice Allanson articulated this point in Singh as follows:[11]
... The discretion is to be exercised having regard to the timely and cost effective disposal of litigation: Corporate Systems Publishing Pty Ltd v Lingard [No 3] [2008] WASC 1 [7]; Youlden Enterprises Pty Ltd v Health Solutions (WA) Pty Ltd [6]. On the other hand, discovery has been described as promoting the ascertainment of truth in litigation and as an essential part of the proper administration of justice: Hamersley Iron Pty Ltd v Lovell (1998) 19 WAR 316, 321. Subject to the rules of privilege, there is a 'public interest in having available all evidence relevant to the issues in litigation': Carter v Managing Partner, Northmore Hale Davy & Leake [1995] HCA 33; (1995) 183 CLR 121, 128. The ultimate test is whether the discovery is necessary for fairly disposing of the proceedings: Science Research Council v Nasse [1979] UKHL 9; [1980] AC 1028, 1065.
[11] Singh v Friedman [2013] WASC 78 [3].
The principles in Singh were adopted by Martin CJ in Roe v The State of Western Australia who went on to observe:[12]
… Put shortly, it is now established that general discovery is no longer regarded as a right. Rather, the extent of the obligation to give discovery and the entitlement to discovery will be fashioned having regard to the general principles that are articulated in the Rules of the Supreme Court 1971 (WA) and in particular the principles enunciated in O 1 r 4A and r 4B. Those principles include and expressly embody the notion of proportionality, which requires a court, before ordering any interlocutory process, to assess whether the forensic benefit to be derived by that process is proportional to the cost and delay which will flow from the undertaking of the process, having regard to the value, importance and complexity of the subject matter in dispute and the financial position of the parties.
In the context of discovery, this means that when issues arise with respect to the breadth of the discovery to be ordered, the ambit of discovery will be determined taking into account the cost and delay associated with the provision of discovery over a broader ambit, as compared to the forensic benefit likely to be derived from the provision of discovery over that broader ambit. Unless the cost and delay involved in the provision of that discovery is proportionate to the forensic benefit likely to be derived from a broader ambit of discovery, and to the value and importance or complexity of the subject matter of the proceedings, a narrower ambit of discovery will be ordered.
The only proposition I would add to the principles enunciated in the defendant's written submissions is the proposition that at least in cases such as this, when general discovery has not been sought or ordered, adjectival or indirect relevance of itself will no longer determine whether or not a document will be ordered to be discovered, and in particular the approach to general discovery enunciated in cases like Compagnie Financiere et Commerciale du Pacifique v Peruvian Guano Co (1882) 11 QBD 55 will no longer guide the court in relation to issues with respect to informal discovery.
Rather, those issues will be determined by the balancing of the likely forensic benefit to be obtained against the risk of cost and delay in the manner that I have described, viewed in the context of the value, importance and complexity of the subject matter of the proceedings. In that context, the forensic significance of the issue in respect of which discovery is sought and the relevance of the documents sought to that issue, in a qualitative sense, will be pertinent to the proper disposition of any application for discovery.
[12] Roe v The State of Western Australia [2013] WASC 130 [10] ‑ [13].

The approach of Martin CJ in Roe does not, however, exclude the application of the expansive test of 'line of inquiry' test of relevance in Compagnie Financiere et Commerciale du Pacifique v Peruvian Guano Co[13] when considering an application for further and better discovery in respect of categories of documents.[14]
[13] Compagnie Financiere et Commerciale du Pacifique v Peruvian Guano Co (1882) 11 QBD 55.
[14] Fudlovski v JGC Accounting & Financial Services Pty Ltd [2014] WASCA 237 [2], [25].
However, the Peruvian Guano 'line of inquiry' test can lead to discovery of epic proportions in large commercial cases. In the Federal Court the Peruvian Guano test has been narrowed significantly.[15] Whilst the Peruvian Guano test had been limited by the effect of O 15 r 2(3) of Federal Court Rules 1979 (Cth), Logan J in 2010 (prior to the making of the current Federal Court Rules in 2011) in Sunland Waterfront (BVI) Ltd v Prudentia Investments Pty Ltd (No 4) observed that the Peruvian Guano approach to discovery:[16]
… may have well served the interests of justice in an era when the facility for the written recording of communications and financial transactions was limited to pen and ink and later a manual type writer. However, by the latter part of the 20th century the advent in rapid succession of telex, photocopier, facsimile, email and electronic databases and the labour intensive quality of the task made the process of complying with general discovery applying the 'train of inquiry' test an increasingly and at times inordinately expensive one to which the law of diminishing returns applied.
The practice was also one open to abuse by a well‑resourced party disposed to find controversy in relation to the extent of its discovery obligation or compliance by an adversary with its own such obligation. In this fashion, a less well-resourced adversary might be oppressed and a trial on the merits postponed or even avoided. Even in the absence of such abuses these same results could follow in cases if, in considering interlocutory applications with respect to adequacy of discovery, both Bench and Bar forgot that the practice was meant to be a handmaiden of justice, not its master.
[15] Federal Court Rules 1979 (Cth) O 15, Federal Court Rules 2011 (Cth) r 20.14(2).
[16] Sunland Waterfront (BVI) Ltd v Prudentia Investments Pty Ltd (No 4) [2010] FCA 863 [5] ‑ [6].
When regard is had to these observations and the approach of this court in Singh, Youlden Enterprises and Roe the entitlement to further and better discovery of categories or classes of documents should be determined by the following:
(a)In determining whether there are reasonable grounds for being fairly certain that there are other relevant documents that ought to be disclosed, it is open to apply the train of inquiry test. This test, however, should not allow an order for further and better discovery in respect of an issue or issues that are based on mere speculation.
(b)Further and better discovery is to be fashioned by regard to the notion of proportionality, that is:
(i)whether the forensic benefit to be derived by the discovery sought is proportional to the cost and delay which will flow from the undertaking of the process;
(ii)by an assessment of the value, importance and complexity of the subject matter in dispute; and
(iii)the financial position of the parties.[17]
[17] Roe v The State of Western Australia [2013] WASC 130 [10] ‑ [13].

The period

The defendant seeks documents relevant to the categories about what the first plaintiff did and when it enforced its security. In particular, it seeks discovery of any relevant document or documents passing between the plaintiffs, or any of them, once they were in dialogue with the receivers which led to the appointment of the receivers.[18]
[18] ts 37, 11 September 2018.
The defendant claims the 'period' as defined in the agreed categories of discovery starts too late to encompass a lack of bona fides in the first plaintiff's pre‑appointment dealings with the receivers.

Relevant pleadings relating to the appointment of the receivers

In [13] of the amended defence the defendant (as YA) pleads:
Save to deny that that on the proper construction of 'the subject of a bona fide sale for fair market value' in clause 5(a) of the Intercreditor Deed there is a bona fide sale for fair market value if the process involved in the sale is a process genuinely concerned with the obtaining of a fair market value for the assets, YA otherwise admits paragraph 16 and says further that:
(a)YA agreed to release YA's Security only to the extent that YA's Security related to assets that were the subject of a sale (which includes steps towards sale, the sale process and their outcomes) that was:
(i)bona fide;
(ii)for (ie achieved) fair market value; and
(iii)by Cove House and not a sale by other entities, such as Compass Resources, the Companies or a receiver or manager (clause 5(a)),
…
In [29] of the amended defence the defendant pleads:
Save that it:
(a)does not admit that the Compass ASA effected a bona fide sale within the meaning of clause 5(a) of the Intercreditor Deed;
(b)does not admit that the Compass ASA dealt with the full net proceeds of the sale (if any) in compliance with clause 5(b) of the Intercreditor Deed,
YA otherwise denies paragraph 36.
The defendant argues that there can be no question that, on the pleadings, whether or not cl 5(a) of the inter‑creditor deed was satisfied is not limited to 'the process involved in the sale' as pleaded by the plaintiffs.[19] It is said to follow therefore that, prima facie, discovery should be given on all documents relevant to the issue, irrespective of the date of the document.
[19] Defendant's further submissions, filed 18 October 2018 [5].
Subsequent to the hearing of this application, on 4 October 2018, the parties were requested to provide further written submissions addressing the question of whether in the event that the defendant's application for discovery is allowed (in whole or in part), is it open on the pleadings to define the 'period' in an order for further and better discovery to commence:
on the date on which any of the first plaintiff, Compass Resources or the third plaintiff first took steps towards the sale of Compass Resources and ends on 31 January 2017.
On 18 October 2018, the plaintiffs and the defendant each filed further submissions addressing this question. The plaintiff in its further submissions contends the answer to the question is 'no'.
The defendant in its further submissions maintains its submission that discovery should be given of all documents relevant to the issue (going to the steps toward sale), irrespective of the date of any document.
The defendant put a submission in the alternative, that if the court considers it appropriate to insert a commencement date and an end date, (there being no dispute about the appropriate end date), the answer to the question is 'yes'. It says, that if the commencement date of the period is defined to commence when the first plaintiff, Compass Resources or the third plaintiff 'first took steps towards the sale of' is sufficient to deal with the defendant's application for further and better discovery, even if the plaintiffs' construction is ultimately upheld. This is said to be so because a 'process' is something that constitutes 'a systematic series of actions directed to some end'.[20] Accordingly, the defendant submits that 'steps toward sale' would still fall within the concept of 'process involved in the sale' and require the plaintiffs to discover documents that led to the appointment of the receivers.
[20] Macquarie Dictionary (7^th ed).

Conclusion - the period

The defendant points out that the plaintiffs plead in [16(c)] of the amended statement of claim that the proper construction of cl 5(a) of the inter‑creditor deed is to the effect that a sale of assets will constitute a bona fide sale for fair market value if the process involved in the sale is a process genuinely concerned with the obtaining of a fair market value for the assets.[21] The defendant claims that because the matters pleaded in [13] and [29] of the defence constitutes a joinder of the issue, on a proper construction of cl 5(a) of the inter‑creditor deed, the plaintiffs must prove that they acted bona fide. In particular, the defendant argues that the plaintiffs must prove the facts that establish the entire process of sale is bona fide, which process includes the appointment of the receivers. It is said to follow, therefore, that the defendant has pleaded a positive case of what constitutes the duty the plaintiffs must satisfy.
[21] Amended statement of claim, filed 16 April 2018.
The plaintiffs claim that the defendant cannot seek discovery of documents that challenges the bona fide of the steps 'towards' sale (whatever their content), its process and their outcomes, without pleading any positive case that any of these matters lacked bona fides, even assuming the defendant's construction of cl 5(a) of the inter‑creditor deed is correct (which is denied). The plaintiffs simply say that the defendant pleads an alternative legal construction of what is a bona fide sale for the purpose of cl 5(a) and puts the plaintiffs to proof on the facts pleaded and particularised by the plaintiffs to establish that the asset sale agreement (and sale process leading up to it) effected a bona fide sale of the assets for fair market value.
No issue is raised about the first plaintiff's beliefs, intentions or knowledge in 2015 when the first plaintiff and the defendant entered into the suite of agreements which included the inter‑creditor deed.
The plaintiffs point out that it is pleaded in the statement of claim that a capital restructure was undertaken by Compass Resources Ltd in late 2015, including entering into agreements which form part of the restructure and their key terms which include the inter‑creditor deed. The fact of the restructure and the existence of the various agreements is admitted by the defendant. Save for alleging that additional agreements formed part of the restructure, no other facts are pleaded by the parties in respect of this issue.[22]
[22] Amended statement of claim [7] ‑ [10]; amended defence [4] ‑ [7].
The amended statement of claim pleads administrators were appointed to Compass Resources Ltd on 17 June 2016 and the first plaintiff appointed receivers to Compass Resources Ltd on 18 June 2016. The defendant admits the 'purported appointment' of both. However, the defendant does not admit the valid appointment of administrators, and denies the valid appointment of receivers, based on asserted breaches of notice requirements under the inter‑creditor deed and the Law of Property Act2000 (NT).[23] No other factual contentions are made about the appointments.
[23] Amended statement of claim [18] ‑ [19]; amended defence [15] ‑ [16].
The sale process undertaken by the receivers between 18 June 2016 and 18 January 2017 is pleaded and particularised in the statement of claim and in the plaintiffs' answers to requests for further and better particulars filed on 28 August 2017, 30 November 2017 and 18 April 2018. The defendant pleads a bare 'do not admit' to these allegations.[24]
[24] Amended statement of claim [22] ‑ [27]; amended defence [19] ‑ [21].
The amended statement of claim pleads the asset sale agreement made by the receivers and its material terms.[25] The defendant disputes that the asset sale agreement is valid and binding by reason of allegations as to the validity of the receivers' appointment, and raises some issues about the terms of the asset sale agreement.[26] However, no issues are raised on the pleadings that the first plaintiff was motivated with some knowledge about the value of assets to cause the appointment of receivers.
[25] Amended statement of claim [28] ‑ [29].
[26] Amended defence [22] ‑ [23].
I agree that the defendant's legal construction of cl 5(a) in itself raises no issue of fact requiring discovery. Except, perhaps, in relation to the issue as to the plaintiffs giving or failing to give certain legal notices, the only factual matters raised by the pleadings on the question of bona fides sale for fair market value are in the amended statement of claim.[27] These matters concern the asset sale agreement and the sale process followed by the receivers leading to it.
[27] Amended statement of claim [22] ‑ [28].
When regard is had to matters pleaded, I accept the question of good faith and 'bona fides' in respect of the appointment of the receivers does not arise 'at large'.
When regard is had to the material facts pleaded by the parties, I am not satisfied that a pleading which on the defendant's case includes 'steps toward sale' raises an issue or any action taken by the plaintiffs which lead up to and resulted in the appointment of the receivers.
As the plaintiffs point out, when regard is had to the first steps pleaded (as the steps toward sale in respect of which there is a joinder of issue) what is joined is that steps towards sale occurred from when administrators were sought to be appointed (that is on 17 June 2016 after default of Compass Resources) which resulted in the appointment of receivers and managers on 18 June 2016.
For these reasons, I am of the opinion that in any order for further and better discovery the 'period' should be defined to commence on 17 June 2016.

The categories

For reasons that follow, except in respect of an extension to the scope of category 5 of the agreed categories, and a minor extension to the scope of agreed category 3, I am not satisfied that the defendant has made out a case for further and better discovery. I have formed this opinion on grounds that the classes of documents sought to be discovered by the defendant go beyond the issues joined and beyond the scope of the classes of documents that are directly or indirectly relevant to a matter in question.
Consequently, I have found that it is not necessary to engage in the balancing exercise by applying the proportionality principle when considering each of the defendant's categories of documents.

Additional documents sought to be captured by the extension of the agreed categories of documents

Category 3 of the agreed categories

The parties agreed to discover the following documents in category 3 as follows:
Documents created during the Period referring to the fair market value of the Assets during the Period, including but not limited to:
(a)formal or informal valuations of the Assets;
(b)documents assessing whether to bid for the Assets in the Receiver's sale or otherwise referring to any decisions made whether to place any bid, and what bid to place.
The defendant claims a scope of this category is too narrow and seeks to extend this class of documents from documents '… referring to the fair market value of the Assets' to documents '… recording or referring to the value of the Assets'.[28]
[28] Defendant's amended categories of discovery [5].
Whilst I agree on the face of the pleadings that reasonable grounds arise upon which it could be said that there are relevant documents that 'record' the fair market value of the assets, I am not satisfied that the scope of this class of documents should be extended to documents recording and referring to the 'value of the assets'.
The plaintiffs have already given discovery in the agreed categories of documents addressing valuation, namely documents as to fair market value valuation and assessment (agreed category 3); independent valuation of assets or the Browns Project after 2010 (agreed category 4); documents evidencing the receivers and managers process including attempts to determine market value including obtaining valuations (agreed category 6); communications between the receivers and managers, Compass or the first plaintiff and Ravensgate as to valuation (agreed category 7); documents provided to Ravensgate to prepare valuation (agreed category 8) and draft valuations (agreed category 9).
To extend category 3 to all documents created during the period that go to the value of the assets would, as the plaintiffs submit, catch documents reflecting the subjective views or opinions of non‑experts who are not bidders, such as Compass Resources' officers, staff or employees, whose views and opinions would have no probative force on the question of fair market value. This class might also extend to references in documents to the purchase of equipment, repairs and other purely operational matters which would say nothing about the market price actually obtainable for the assets of Compass Resources at the critical time.

Category 5 of the agreed categories

Category 5 of the agreed categories requires discovery of:
All documents created during the Period that are held by the Receivers recording or referring to proposals for a sale or purchase of the Assets, any agreements to sell and/or any offers to sell any Assets, or proposals to otherwise purchase, obtain an option to purchase, invest in or gain control of the Assets, including but not limited to any proposal, attempts, agreements or offers (whether ultimately made or not):
(a)entered into by or on behalf of NTR; or
(b)with Doe Run (or a Related Body Corporate).
The defendant seeks to extend this category by removing the qualifying limitation to the class of documents 'held by the Receivers'[29] on grounds that the evidence indicates a contemporaneous on‑sale to Doe Run or a related party. The terms relied on are the fact that the plaintiffs have accepted that documents evidencing the on‑sale have been discovered as part of agreed category 13 which requires discovery of documents evidencing any on‑sale of the assets (ie sale after or assuming completion under the Compass asset sale agreement) or any agreement by which an entity obtains an option to purchase or obtain an interest in the assets.
[29] Defendant's amended categories of discovery [7].
The defendant's claim that all of the plaintiffs should provide discovery in respect of documents that go to the contemporaneous on‑sale to Doe Run and not just the receivers.
As the plaintiffs do not dispute that proposals or offers to sell Compass Resources' assets could be relevant to the fair market value of the assets, or the genuineness of the sale process followed in the period between 17 June 2016 to the end of January 2017, I agree this category should not be restricted to the documents held by the receivers and managers and should extend to discovery of this class of documents by all plaintiffs.

Category 7 of the agreed categories

Category 7 of the agreed categories requires discovery of:
All communications created during the Period between the Cove Receivers and Managers, Compass Resources or Cove House and Ravensgate in relation to the:
(a)valuation of the Assets;
(b)Technical Project Review and Independent Valuation Report of the Mineral Exploration Assets of Compass Resources dated 25 June 2015; and
(c)the Technical Project Review and Independent Valuation Report Mineral Exploration Assets of Compass Resources dated 23 September 2016 and referred to at paragraph 23 of the plaintiff's Amended Statement of Claim,
including any drafts thereof.
Apart from the definition of the period, the only 'extension' sought to category 7 is the deletion of the word 'created' after the word 'communications' and the addition of the words 'documents comprising, recording or referring to' communications.[30]
[30] Defendant's amended categories of discovery [10].
In oral submissions counsel for the defendant stated:[31]
So in other words, your Honour, if there is an oral communication we want ‑ and if there's a note of that oral communication, if there's a file note, if there's an email it should be discovered. If there's a record of a conversation it should be discovered because the way that 7 is drafted is too narrow. It will only capture a communication of that nature between the parties not capture any record of oral communications of that nature between the parties.
[31] ts 45, 11 September 2018.

However, I am not satisfied that the deletion and addition of the words sought by the defendant would enlarge the class of documents required to be discovered. Nor am I satisfied that category 7 of the agreed categories is not broad enough to require discovery of file notes and emails recording communications. Category 7 defines all documents in the specified class created during the period 'in relation to' the matters specified in sub‑clauses (a), (b) and (c).
It should also be noted that although communications with Ravensgate in connection with the 25 June 2015 valuation is not within the scope of the period, the plaintiffs have agreed to discover these communications even though they say those communications are not part of the sale process and not relevant to the matters in question. The plaintiffs have voluntarily agreed to provide these communications out of pragmatism, and because the burden of discovery on this issue is likely to be minimal.

Categories of documents in addition to the agreed categories of documents

'Control or transfer of control of the assets'

In [8] of the defendant's further amended categories of discovery, the defendant seeks discovery of:
All documents created during the Period recording or referring to any dealings or understandings with respect to the control, or transfer of the control of the Assets, including but not limited to any dealings or understandings:
8.1.1.entered into or considered by Cove House or NTR or other Related Body Corporate; or
8.1.2 from or to or with Doe Run (or a Related Body Corporate).
The subject matter of this proposed category is the same as agreed category 5.
I am not satisfied that such a class of documents sought to be discovered in [8] of the defendant's further amended categories of discovery is directly or indirectly relevant to any matter in respect of which there is a joinder of issue.
Proposed category 8 targets any documents recording or referring to 'dealings or understandings' with respect to the concept of 'control' of an asset or the transfer of that control. Documents dealing merely with the concept of 'control' (or transfer of control) of assets could not be expected to be probative of the market value of such assets. In any event, in the absence of a positive case that there was some earlier consideration of some sort of change in control, proposed category 8 does not seek discovery of documents on any relevant issue.
Further, in referring to any 'dealings or understandings' as to control and then, without limitation, referring to any dealings or understandings entered into or 'considered' by the first plaintiff or the third plaintiff is to create a category that is not certain in its terms and too vague to ensure compliance.

Other disputed additional categories

The defendant, in its amended categories of documents for discovery sought further and better discovery of classes of documents defined in [1], [4] and [15]. However, during the course of oral submissions counsel for the defendant stated that what the defendant is seeking in these proposed categories is the production of documents during the period that sheds light on what the first plaintiff and the third plaintiff considered:[32]
(a)when making a decision as to how to deal with the default by Compass Resources under its security; and
(b)when considering the on‑sale of the assets of Compass Resources.
[32] ts 46 ‑ 47, 11 September 2018.
Counsel informed the court that the description in [1], [4] and [15] do not adequately describe the class of documents sought and that the defendant would necessarily review its position and determine whether it will subsequently make a further application for further and better discovery.[33]
[33] ts 47, 11 September 2018.
Leaving aside the issue of whether [1], [4] and [15] adequately describe the class of documents sought, at this point in time it is not clear that the description of the documents as described by counsel (albeit in general terms) go to any pleaded case or disputed issue raised in the affidavit material in support of, or in opposition to this application. In particular, no issue is raised as to the motive or bona fides of the first plaintiff and the third plaintiff.

Conclusion

I will hear the parties as to the orders I should make to give effect to my findings that further and better discovery should be given in respect of categories 3 and 5 of the agreed categories of documents.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
VV
ASSOCIATE TO THE HONOURABLE JUSTICE SMITH
16 NOVEMBER 2018