Du Chateau v Philip Chun and Associates Pty Ltd

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE
COMMERCIAL COURT

S CI 2017 1142

GREGORY WALTER JOHN DU CHATEAU & ORS (according to the attached Schedule)	Applicants
v
PHILIP CHUN & ASSOCIATES PTY LTD (ACN 007 401 649) & ORS (according to the attached Schedule)	Respondents

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JUDGE:	LANSDOWNE AsJ
WHERE HELD:	Melbourne
DATE OF HEARING:	22 May 2017
DATE OF JUDGMENT:	1 November 2017
CASE MAY BE CITED AS:	Du Chateau & ors v Philip Chun and Associates Pty Ltd & ors
MEDIUM NEUTRAL CITATION:	[2017] VSC 667

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PRACTICE AND PROCEDURE – Preliminary discovery – Applicants former directors or employees of, or unitholders in, the respondents – Applicants departed the respondents in 2014 following an oppression proceeding brought by the first two applicants – Applicants subsequently received profit distributions that did not reflect previously projected profit for that year – Some explanation for adjustments to the 2014 profit and some financial documents provided – Whether any applicant has shown facts that might reasonably support a right to relief – Whether sufficient information already provided – Scope of the documents sought too wide – More limited discovery ordered to some applicants – Supreme Court (General Civil Procedure) Rules2015, r 32.05.

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APPEARANCES:	Counsel	Solicitors
For the applicants	Mr S Rubenstein	Kalus Kenny Intelex
For the respondents	Mr J Slattery	Clayton Utz

TABLE OF CONTENTS

Introduction and summary of conclusions................................................................................... 1

Background......................................................................................................................................... 2

Legal Principles.................................................................................................................................. 6

Facts already known to the applicants........................................................................................... 9

Settlement agreement................................................................................................................. 10
Profits for FY 2014....................................................................................................................... 12
Inquiries made and explanations provided for change in profit........................................ 15
Correction of previous insufficient provision for employee entitlements............... 16
Debtor write-offs................................................................................................................ 16
Impaired loans................................................................................................................... 17
Motor vehicles.................................................................................................................... 17
Other possible adjustments............................................................................................. 17

Supply of financial statements and tax returns...................................................................... 17

Discussion.......................................................................................................................................... 18

Possible right to obtain relief: r 32.05(a).................................................................................. 18
Breach of settlement agreement: Mr du Chateau and Exactbuild............................. 18
Breach of settlement agreement: other applicants........................................................ 21
Breach of an agreement as to the terms of departure................................................... 24
Oppression......................................................................................................................... 25
Conclusions as to r 32.05(a).............................................................................................. 27

Reasonable inquiries yet insufficient information: r 32.05(b).............................................. 28
Employee entitlements..................................................................................................... 28
Debtor write-offs................................................................................................................ 30
Impaired loans................................................................................................................... 30
Motor vehicles.................................................................................................................... 32

Possession of relevant documents by the respondents: r 32.05(c)....................................... 33
Documents sought...................................................................................................................... 34
Categories (a), (b) and (c): financial records.................................................................. 34
Category (d)........................................................................................................................ 34
Category (e): worksheets and work papers................................................................... 35
Category (f): management accounts................................................................................ 36
Category (g): documents including Board minutes relating to the calculation of profit for 2012-2015.......................................................................................................................... 36
Category (h): documents including Board minutes relating to accounting treatment for 2012-2015.................................................................................................................................. 37

Conclusion......................................................................................................................................... 38

Orders................................................................................................................................................. 38

HER HONOUR:

Introduction and summary of conclusions

The applicants seek discovery pursuant to r 32.05 of the Supreme Court (General Civil Procedure) Rules 2015 from each of the respondents. I will discuss the rule in detail shortly, but, put simply, it enables the Court to order discovery from a prospective defendant for the purpose of assisting the applicant to decide whether or not to commence a proceeding against that defendant. In other words, the applicants seek discovery from the respondents to assist them to decide whether or not to sue them.

The individual applicants were former directors or employees of companies in the Philip Chun Group of companies. The corporate applicants are the corporate vehicles for the individual applicants and were unitholders for the purpose of profit distribution in the trusts of which the respondent companies are trustees. The applicants departed their employment and membership of the Group in May 2014 following settlement of an oppression proceeding commenced by the first two applicants.

The issue that underlies the application is the applicants’ concern that they may not have been paid their proper profit distribution by the respondents for the 2014 financial year. They seek various documents to help them determine whether or not to commence proceedings in respect of this concern. The respondents resist the application entirely. In the alternative, they propose that a narrower class of documents be provided, and only to the first and second applicants.

Prior to the hearing the applicants gave notice that they would seek to amend the originating motion and summons so as to add a further category of documents; clarify a category already sought; and identify the respondents as in each case the trustee of a nominated unit trust. The respondents did not object to these amendments.

For the reasons that I now give I have concluded that each of the first, second, fourth, fifth, and seventh applicants have made out a case for preliminary discovery of certain documents. In the case of the fourth, fifth and seventh applicants this is solely because the facts show that they, as former members of a respondent, may have a right to relief by way of an oppression claim. On the information before me, it appears that the third and sixth applicants are not former members of a respondent. If that is correct, then they have not made out facts by which they may have a right to relief against any respondent and so their applications fails. I ask the parties to confer to confirm this factual assumption. If it is incorrect, then those applicants may also have made out their application, consistently with these reasons.

Although the successful applicants have made out the pre-requisites for an order for preliminary discovery under r 32.05, I consider that a narrower class of documents should be discovered to them than the amended summons seeks. In part this is because some of the documents requested were provided to the applicants after the commencement of the proceeding. In large part, however, it is because the applicants cast their net too wide for the purpose permitted by r 32.05; it would be unduly oppressive to the respondents to require the discovery sought; or, in respect of some content thought to be revealed by the requested documents, the applicants failed to show that they did not already have sufficient information on that topic.

Background

As noted earlier, the applicants are former officers or employees of companies within the ‘Philip Chun Group’[1] (the Group) and/or the trustees of their respective family trusts. The individual applicants held their interests in the businesses conducted by the Group via units held by their family trusts. The Group includes a number of corporate entities which provide consultancy services to the building and construction industry on relevant building codes, issues of accessibility, fire protection and essential services. The core companies are the first two respondents. The third respondent is a disability access consultancy; the fourth an essential services consultancy; and the fifth a building technology consultancy; and they are each also within the Group.
[1]All the individual applicants were directors of one or more companies in the Group, except Ms Chai who was an employee. Her company, the seventh applicant, was a unitholder in the second to fifth respondents.

The first applicant, Mr du Chateau, and the third applicant, Mr Philip Chun, together with three other individuals began the Group when they started a building surveying business called Philip Chun & Associates Pty Ltd (Philip Chun & Associates) in 1990. This company is the first respondent, in its capacity as trustee of the Philip Chun & Associates Unit Trust. Mr Chun, the third applicant, was the managing director and chairman of Philip Chun & Associates from 1990 until 2008. In 2008, the shareholders of that company voted to diversify the business and created a series of corporate entities in Australia and overseas. Some, but not all, of those corporate entities are respondents to this application. Each corporate entity had a different composition of directors and unit holders, but Mr du Chateau, the first applicant, was a director and, through his company the second applicant, unit holder of each of the respondent companies until his departure from the Group in 2014.

In 2013 a dispute arose as between some directors and unit holders of corporate entities within the Group. Mr du Chateau, the first applicant, and his corporate vehicle, the second applicant, commenced a shareholders suppression action under ss 232 and 233 of the Corporations Act 2001 (Cth) in this Court in December 2013 (the Oppression Proceeding)[2]. All but one of the other applicants were joined to the Oppression Proceeding as defendants. The sixth applicant, Ms Christina Chai, was not personally a party to the Oppression Proceeding, although her company, the seventh applicant, was joined as a defendant.[3] Of the five respondents, only the second respondent was a party (as a defendant) to the Oppression Proceeding.[4] There were multiple other defendants to the Oppression Proceeding who are not parties to this proceeding.
[2]Re Philip Chun Building Surveying Pty Ltd (Supreme Court of Victoria, SCI 2013 6280).
[3]Ms Chai deposes in her affidavit sworn 17 March 2017 (‘Chai Affidavit’) that ‘I’ was joined as a defendant to the Oppression Proceeding, but scrutiny of the file copy of orders in that proceeding shows this to be incorrect, and the assertion by Mr Dean Gerakiteys in his second affidavit sworn 18 May 2017, [5(f)] (‘Supplementary Gerakiteys Affidavit’) to be correct.
[4]Supplementary Gerakiteys Affidavit, [5]. This differs from the account given by Mr Gregory Walter John du Chateau in his first affidavit sworn 24 March 2017, [12] (‘Principal du Chateau Affidavit’), but is conceded by the applicants to be correct in the Transcript of Proceedings, Du Chateau and ors v Philip Chun and Associates Pty Ltd and ors (Supreme Court of Victoria, S CI 2017 1142, Lansdowne AsJ, 22 May 2017) 6 ll 5-14 (‘Transcript’).

Negotiations for the settlement of the Oppression Proceeding were conducted in correspondence between the solicitors for the first applicant and second applicant, who were then Altus Lawyers, and the solicitors for certain of the defendants to the Oppression Proceeding. Those solicitors were Clayton Utz, who also act for the respondents to this proceeding, although they did not act for the second respondent at that time. The current respondents concede that Altus Lawyers also acted for Philip Chun and Kara Chun (defendants in the Oppression Proceeding and applicants in this proceeding) in those negotiations.[5]
[5]Supplementary Gerakiteys Affidavit.

The Oppression Proceeding settled. As part of the terms of that settlement, the first applicant resigned as a director and employee of certain corporate entities within the Group on certain financial terms. Mr du Chateau deposes that the other individual applicants (the third, fifth and sixth applicants) decided at that time to leave the Group as well, on the basis that they were ‘Departing Parties’ as described in the settlement agreement. The third, fifth and sixth applicants agree with this account. The respondents take no position on whether or not the other individual applicants were Departing Parties, but say that if even if they were, they were not entitled to the distribution of profit term that applied to Mr du Chateau and/or his company Exactbuild Pty Ltd (Exactbuild).[6]
[6]Transcript 64, ll 7-22

Each of the unitholder applicants subsequently received substantially less by way of profits for the Group for the financial year ending 30 June 2014 than they had expected to receive on the basis of projected profit for that year. They have each sought an explanation from the Group for what they consider to be the reduced amount paid to them, and each say that they have not received sufficient explanation to decide whether or not to commence proceedings.

Mr du Chateau expresses his concerns in these terms in his principal affidavit sworn on 17 March 2017:

I am concerned that the defendants have effected a reduction in the profits of the Philip Chun Group for the financial year ending 30 June 2014 in order to minimise payments to the plaintiffs following the settlement.
…
I am concerned that the defendants may have engaged in false accounting or contravened accounting standards in order to reduce profits for the 2014 financial year.
…
Without the information requested, the plaintiffs cannot determine whether to commence proceedings against the defendants seeking to recover losses arising from the dramatic reduction in profit between the time the proceeding settled and the end of financial year 2014. I seek this information so that I can ascertain whether the defendants have engaged in a breach of the settlement agreement by false, unauthorised or incorrect accounting to reduce profits in order to withhold money that is due to me under the settlement agreement. I am considering whether to bring a claim for breach of the settlement agreement, but presently do not have sufficient information as to whether the accounting treatment for the 2014 financial year was genuine and valid, or otherwise was improper.[7]

[7]Principal du Chateau Affidavit, [34]–[35], [37].

The other individual applicants adopt the account given by the first applicant Mr du Chateau. The third applicant Mr Philip Chun deposes on behalf of himself and his corporate vehicle, the fourth applicant, that he was the managing director of Philip Chun & Associates from 1990 to 2008 and a major unit holder and shareholder. He was joined to the Oppression Proceeding commenced by the first and second applicants in his capacity as a director of defendants to that application. When that proceeding settled, he elected to resign and depart from the Group, believing that he was a ‘Departing Party’ and would receive a dividend on the basis of the draft financial report dated 31 March 2014.

The fifth applicant Kara Chun deposes that she is the daughter of Mr Philip Chun and the partner of Mr du Chateau. She was a director of the company within the Group relating to disability access but held interests in a number of companies and unit trusts within the group. She too deposes that she opted to resign as a ‘Departing Party’ and expected to receive a dividend based on profit in accordance with the draft 31 March 2014 accounts but did not. She too had been joined as a defendant to the Oppression Proceeding in her capacity as director.

The sixth applicant Ms Chai deposes on behalf of herself and her corporate vehicle the seventh applicant that she was an associate and senior building surveyor for Philip Chun & Associates. Her corporate vehicle was joined as a defendant to the Oppression Proceeding. Ms Chai deposes that she elected to resign as a ‘Departing Party’ on the departure of the first applicant. She assumed she would receive a distribution based on 2014 profit ‘pro-rated to 30 May 2014’[8] and received less than she thought she would.
[8]Chai Affidavit, [11]. This date is at odds with the date actually agreed in the settlement of the Oppression Proceeding for 2014 pro rata profit which was 31 March 2014.

Each of the applicants depose that they have sought information but not received what they consider to be required.

Legal Principles

Order 32 of the Rules provides for two forms of preliminary discovery - discovery to identify a defendant (r 32.02) and discovery from a potential defendant (r 32.05). It is discovery pursuant to r 32.05 which is sought here. That rule provides as follows:

32.05 Discovery from prospective defendant
Where—
(a)there is reasonable cause to believe that the applicant has or may have the right to obtain relief in the Court from a person whose description the applicant has ascertained;
(b)after making all reasonable inquiries, the applicant has not sufficient information to enable the applicant to decide whether to commence a proceeding in the Court to obtain that relief; and
(c)there is reasonable cause to believe that that person has or is likely to have or has had or is likely to have had in that person's possession any document relating to the question whether the applicant has the right to obtain the relief and that inspection of the document by the applicant would assist the applicant to make the decision—

the Court may order that that person shall make discovery to the applicant of any document of the kind described in paragraph (c).

The applicants rely on a convenient compilation of the principles to apply to an application under r 32.05 by Ierodiaconou AsJ in 2015 in Orora Ltd and ors v Asahi Holdings (Australia) Pty Ltd and ors (Orora).[9]
[9][2015] VSC 749, [31].

In Orora, Ierodiaconou AsJ summarised the relevant principles as follows (quoted without references):

The following principles are relevant to this application.
(a)The rule should be construed benevolently, because it is intended to assist an applicant who does not have sufficient, precise information to commence a proceeding, and to prevent the bringing of speculative suits. This is also consistent with modern case management principles in the Civil Procedure Act 2010.
(b)The rule ‘must be given the fullest scope its language will reasonable allow.’
(c)The applicant need not identify a cause of action precisely. It is sufficient to identify facts which may reasonably give rise to a right to obtain relief.
(d)A ‘flimsy foundation’ or ‘mere hunch’ is insufficient to constitute a reasonable cause of action.
(e)‘An applicant does not have to prove that there will be, only that there may be, a real benefit from making the order.’
(f)‘The benefit may be the drawing of an appropriate pleading with proper particulars and the avoidance of substantial amendment after discovery, or, alternatively, the possible avoidance of unnecessary and fruitless litigation.’
(g)The benefit may be ‘to determine the extent of the respondent’s breach and the likely quantum of any damages award.’
(h)‘The ‘reasonable cause to believe’ requirement is primarily concerned with whether, as an objective fact, an applicant has sufficient information to decide whether to commence proceedings. So, an application cannot succeed if the applicant has sufficient information (assessed objectively), but where the inability to determine whether to commence proceedings arises, for example, due to an overly indecisive or cautious nature.’
(i)If the applicant has decided to commence proceedings, it will be fatal to the application.
(j)‘The existence and content of legal advice has no bearing on the question of whether the test in r 32.05 has been made out.’

(k) The rule is a discretionary one.

Her Honour drew these principles largely from Beston Parks Management Pty Ltd and anor v Sexton and anor (Beston Parks)[10] a decision of Hollingworth J in 2008, and Grocon Constructions (Vic) Pty Ltd v Biosciences Research Centre Pty Ltd (Grocon),[11] a decision of Vickery J in 2014.
[10][2008] VSC 392.
[11][2014] VSC 204.

In Beston Parks, Hollingworth J relevantly held:

The following general principles are not controversial. The rule should be construed benevolently, because it is intended to assist an applicant who does not have sufficient, precise information to commence a proceeding, and to prevent the bringing of speculative suits. It must be given the fullest scope its language will reasonably allow.
It is not necessary to show precisely what cause of action the applicant may have, merely that the facts are such from which it may reasonably be believed that the applicant may have a right to obtain relief. The word “may” indicates that the putative belief does not have to amount to a firm view that there is a right to relief. Although some “fishing” enquiry is permitted, a “flimsy foundation” or “mere hunch” will not be sufficient to constitute reasonable cause. An applicant does not have to prove that there will be, only that there may be, a real benefit from making the order. The benefit may be the drawing of an appropriate pleading with proper particulars and the avoidance of substantial amendment after discovery, or, alternatively, the possible avoidance of unnecessary and fruitless litigation.[12]

[12][2008] VSC 392, [52]-[53] (without footnotes).

Beston Parks has been cited with approval in a number of subsequent single judge decisions of this Court prior to Grocon, and in Grocon itself. The applicant in Grocon further submitted that the principles embodied in the Civil Procedure Act2010 (Vic) (CPA) supported a benevolent interpretation of the rule. Vickery J accepted this submission, in the following words:

Consistently with giving full effect to the overarching purpose of the Civil Procedure Act and to the observations already referred to in the relevant case law (such as those of Hollingworth J in Beston Parks, above), it is accepted that r 32.05 should be construed benevolently, and that it should be given the fullest scope its language will reasonably allow in its exercise.
However, that does not mean that the plain language of the requirements of the Rule should be eroded to the point where the prescribed tests are sucked dry of meaningful content. The tests remain as the defined gateways to the application of the Rule.[13]

[13][2014] VSC 204, [52]-[53].

I do not consider that the single instance decisions of this Court and of the Federal Court on which the respondents rely in essence depart from the principles summarised by Ierodiaconou AsJ in Orora, although in some preliminary discovery was refused on the particular facts of the case. An example with some factual similarity to the current case is Clime Investment Holdings Pty Ltd and anor v Pilley and ors,[14] and unreported decision of Vincent J (as he then was) from 1998. In that case the applicants sought preliminary discovery from one or more of eleven separate respondents and the documents sought potentially exceeded a couple of hundred categories and would require discovery of a huge volume of material. Vincent J emphasised in that case that a global approach was not permissible and a case needed to be made against each respondent.[15] In the proceeding before me, this caution applies in particular to the necessity for each applicant to make out his, her or its case.
[14]No 8325/197, 26 May 1998, BC 9802024.
[15]Ibid at 7.

Accordingly, I will apply a benevolent interpretation of the rule, but conscious that it is the requirements of the rule itself that must be satisfied, and they should not be deprived of content. In particular, I accept the submissions of the respondent that it is not enough for the applicants to have a suspicion, or wish to investigate their concerns – they must show facts that establish that each of them may have a right to relief (as opposed to a wish to know more) against each respondent from whom they seek documents.[16]
[16]Transcript, 55-56.

Facts already known to the applicants

The factual material is extremely dense, and regrettably the parties did not seek sufficient hearing time to expose it in detail. It has been necessary for me to consider it in detail after the hearing. On that analysis, the following matters appear the critical facts, as already known to the applicants.

Settlement agreement

There is no single document constituting the terms of settlement of the Oppression Proceeding. The terms were agreed in a series of letters and emails between the solicitors on record for the plaintiffs in that proceeding (the current first and second applicants), who were Altus Lawyers, and Clayton Utz. The letter of acceptance from Altus Lawyers is dated 9 May 2014 and refers in terms to a letter and an email from Clayton Utz, both also dated 9 May 2014. That letter and email from Clayton Utz refer to aspects of the offer only, and do not restate the entirety of the offer. It is accordingly necessary to trace through the whole of the correspondence to determine both the terms of, and the parties to, the agreement.

An offer was made by Clayton Utz to Altus Lawyers by letter dated 7 April 2014. The offer was expressed to be made by ‘our clients’ (without further identification) to ‘your clients’ (again without further identification). It was apparently envisaged that persons other than Mr du Chateau may depart the Group because the offer included reference to provisions to apply to ‘any departing Stapled Security Holder’. In relation to profit for 2014, however, that offer was expressed to apply to a ‘client’ of Altus Lawyers in the singular. Paragraph 15 of the letter proposed that ‘your client’ would be paid ‘all profit distributions on a pro rata basis for FY 14 up to and including the 31^st March 2014 such payment to be made on or before 31^st December 2015’.[17]
[17]Exhibit GDC-8 to the Principal du Chateau Affidavit, [15(b)].

Altus Lawyers put a counter offer by letter dated 18 April 2014. That counter offer also expressly contemplated the departure of others from the Group in relation to some matters. In response to paragraph 15 of the Clayton Utz letter, Altus Lawyers sought payment of profit distributions for FY 14 by 30 June 2015, rather than 31 December 2015.[18] They did not, however, seek that the paragraph be extended to persons other than their ‘client’ in the singular. Clayton Utz responded by email on 6 May 2014. The requested change of date was not agreed.[19]
[18]Ibid Exh GDC-9.
[19]Ibid Exh GDC-10.

Clayton Utz made a further offer by letter dated 8 May 2014. This letter attaches a schedule of the companies who would pass the resolutions the subject of the letter. That schedule includes each of the second to fifth respondents and their respective trusts, together with Philip Chun Fire Pty Ltd, and its associated trust. Philip Chun Fire Pty Ltd has since been deregistered. The schedule does not include the first respondent or its associated trust.

In relation to payment of profit, that offer provided in paragraph 17 as follows:

Our clients will sign a resolution for the following profit distributions to be paid to your client:
(a)payment of all profit distributions for FY 13 such payment to be made on or before 31^st December 2014; and
(b)payment of all profit distributions on a pro rata basis for FY 14 up to and including the 31^st March 2014 such payment to be made on or before 31^st December 2015.[20]

[20]Ibid Exh GDC-11, [17].

Altus Lawyers responded by letter dated 9 May 2014 seeking, amongst other changes, that the date to which the pro rata profit distribution for FY 14 was to be calculated be 16 May 2014, not 31^st March 2014. The rationale was expressed to be that ‘the date should be the last date of Mr du Chateau’s employment (16 May 2014)’.[21] Clayton Utz for their clients by a letter in reply on that same day, 9 May 2014, accepted some of the changes requested by Altus Lawyers, but not this change. The reason given was that ‘Mr du Chateau could have accepted the offer set out in our letter of 7 April 2014’.[22]
[21]Ibid Exh GDC-12.
[22]Ibid Exh GDC-13.

There was a further telephone conversation between the lawyers later that afternoon about employee entitlements, in which Clayton Utz confirmed that their clients did not accept a requested change. This was confirmed by email from Andrew Jordan Clayton Utz marked sent at 5.19pm on that day.[23] Acceptance of the offer, as renegotiated, was by letter dated 9 May 2014 from Altus Lawyers in these terms:

1.We refer to your letter dated 9 May 2014 and the email from Andrew Jordan sent at 5:29pm today.
2.We confirm that our clients agree with the terms of settlement set out in the above letter and email.[24]
[23]Ibid Exh GDC-12, GDC-13 and GDC-14.
[24]Ibid Exh GDC-15. The letter refers to an email sent at 5:29 pm, but the only email of that date in evidence from Mr Jordan is marked sent at 5:19 pm. I assume this is the email to which the letter refers, and the reference to 5:29 pm is an error.

Profits for FY 2014

There is no dispute that prior to the acceptance of the Clayton Utz offer the directors of the various entities within the Group had access, in the usual course of their role as directors, to two sets of figures for year to date profit for the FY 2014, each of which suggested that profit for the full year would be substantially higher than the final figure used to calculate the payout to Mr du Chateau and his company, and presumably other unit holders. The applicants rely on those figures in support of their contention that they may have a right to relief against the respondents arising from the substantially smaller final figure for profit.

The first of the sets of figures on which the applicants rely was provided at a board meeting held on 14 February 2014. Extracts of the papers for that board meeting are exhibited by Mr du Chateau. It appears from the front page of the exhibit that the board meeting related to numerous companies within the Group, some of which are not respondents. The front page of the exhibited report also contains a list of individuals, who I assume were the directors to be provided with the report. Mr du Chateau, Mr Chun and Ms Chun are on that list. It seems that within the report, there were separate reports for each company, because, for example, there is a page headed Philip Chun USA Pty Ltd in the exhibit (but no documents relating to that company are exhibited) and following the page headed ‘Philip Chun and Associates Pty Ltd’ there is exhibited an agenda for a meeting of directors of Philip Chun & Associates and Philip Chun Building Surveying Pty Ltd (henceforth Philip Chun BS), and various financial reports. I was informed that those companies reported together.

I pause to note that the financial connections and reporting arrangements as between the respondents was not otherwise made plain in argument and is not easily discernible on the evidence. The report to the directors on 14 February 2014 included financial information relating to Philip Chun Fire Pty Ltd, Philip Chun Access Pty Ltd, Philip Chun ESM Pty Ltd and Philip Chun Advanced Technology Pty Ltd. It was not made plain at the hearing whether or not the profit for 2014 for those companies was included within the offer made by the defendants to the Oppression Proceeding, that Mr du Chateau accepted. Nor is it clear on the evidence to which I was taken whether profit from Philip Chun & Associates and Philip Chun BS was distributed only through the unit trusts bearing those names (the first two respondents) or also through one or more of the other respondents.[25] To illustrate this uncertainty on the evidence, Mr du Chateau in his first and principal affidavit in relation to anticipated profit, sets out only the anticipated profit from Philip Chun & Associates and Philip Chun BS, not the other entities in the Group or respondents, but in relation to profit received set outs distributions that his corporate entity, the second applicant, received from the second to fifth respondents (but not the first respondent or other entities).[26]
[25]This may be apparent from the financial records and returns for the various companies later provided to the applicants, which are exhibited to Mr Gerakiteys’ first affidavit sworn 1 May 2017 (‘Principal Gerakiteys Affidavit’), but I was not taken to these documents.
[26]Principal du Chateau Affidavit– compare [16] and [27].

I note that Mr du Chateau’s accountants sought information on his behalf for the purposes of his taxation return from the accountants for the Group in relation to the second to fifth respondents and Philip Chun Fire Pty Ltd as trustee for the Philip Chun Fire Unit Trust.[27] Reconciliations that were provided by Clayton Utz, on behalf of the ‘Philip Chun Group of companies’ in response to that enquiry, relate to the second, third and fourth respondents, but not (at least by name) to the first or fifth respondents.[28] Counsel for the respondents did not take any point, or make any submission, on this issue.
[27]Ibid Exh GDC-17.
[28]Letter dated 14 July 2015 from Clayton Utz to Mr du Chateau’s accountants, being Exh GDC-19 to the Principal du Chateau Affidavit.

As counsel for the applicants only took me in detail to combined profit figures for Philip Chun & Associates and Philip Chun BS, I will proceed on the basis that for this application those are the figures that are relevant.[29]
[29]I remain concerned that this may not be correct, however. Counsel for the applicants also observed that Mr du Chateau and the other applicants gave up interests in other companies in consideration of receipt of profits – Transcript, 17-18.

I return now to consideration of the papers for the 14 February 2014 board meeting for Philip Chun & Associates and Philip Chun BS. Those papers include profit and loss figures for each state in which those companies operated. The total reported year to date profit from July 2013 to 31 January 2014 was $1,256,286.[30]
[30]Exh GDC-5 to the Principal du Chateau Affidavit; Transcript 10, ll 1-6, 12, ll 4-9.

The second set of figures to which counsel for the applicants took me is contained in a profit and loss statement dated 15 April 2014 for the period July 2013 to the end of the third quarter of the 2014 financial year i.e. 31 March 2014, two months after the figures reported on 14 February 2014 and immediately prior to the April offer in the Oppression Proceeding. That statement showed that the net profit for Philip Chun & Associates (apparently inclusive of Philip Chun BS)[31] to that date was $2,024,371.59.[32]
[31]Transcript 12, ll 11-20.
[32]Exh GDC-6 to the Principal du Chateau Affidavit. The figure that Mr du Chateau gives in the body of his affidavit is slightly less– see [16].

Projected profit of this size was consistent with profit in previous years. Mr du Chateau exhibits to his supplementary affidavit a schedule showing the profit for Philip Chun & Associates and Philip Chun BS since their inception. That schedule records a net profit exceeding $1 million from FY 1999 to and including FY 2004, and a net profit exceeding $2 million for each of the nine financial years thereafter from 2005 to 2013.[33]
[33]Exh GDC-22 to the second, supplementary affidavit of Mr Gregory Walter John du Chateau sworn 1 May 2017.

Mr du Chateau also deposes that the profit for the financial year ending 2015 (the financial year after his departure) reverted to this pattern. His evidence is that the profit for that financial year was $3.10 million.[34] He does not exhibit any document to support this evidence, nor depose as to the source of his information or belief, but it appears from the letter sent to Clayton Utz on his behalf by his solicitors on 19 September 2016 that the source of this information may have been a copy of the Notice of General Meeting for Philip Chun BS and its unit trust. The solicitors’ letter also states that the explanatory statement to the Notice indicates an estimated profit of $3.45 million for the year ended 30 June 2016.[35] In response to that letter, the respondents expressed concern that Mr du Chateau, and the other applicants for whom his solicitors by then acted, had access to this Notice, on the basis that it was confidential.[36] The respondents did not, however, in this application object to Mr du Chateau’s evidence on this point or adduce any evidence to the contrary, and so I accept his evidence for the purposes of this application.
[34]Principal du Chateau Affidavit, [34].
[35]Exh HJR-10 to the affidavit of Heather Richardson affirmed 22 March 2017 (‘Richardson Affidavit’).
[36]Letter dated 27 September 2016 from Clayton Utz to the solicitors for the applicants, being Exh HJR-12 to the Richardson Affidavit.

In contrast to the projected profit as at 31 March 2014 (in excess of $2 million), when Mr du Chateau received (through the second applicant, his company) his payment pursuant to the settlement for profits for the full FY 2014, the payment was calculated on the basis that the final profit for that year was only $343,000.

Inquiries made and explanations provided for change in profit

Mr du Chateau became aware that accounts had been prepared and profit declared for Philip Chun & Associates for the 2014 financial year in April 2015. His accountants sought an explanation from the accountants for the Group for the drop in profit from the estimate given for 31 March 2014 to the amount declared as at 30 June 2014 by letters dated 28 April 2015 and 29 May 2015. Those letters stated that the information was necessary for Mr du Chateau to comply with his own taxation obligations. Clayton Utz solicitors replied by letter dated 14 July 2015, stating that they act for ‘the Philip Chun Group of companies’ and denying that any further information was required for that purpose. The letter added that:

We have otherwise been instructed to inform your client, without admission as to there being any basis on which such information is required to be provided, that, on detailed review of the accounting records for the companies, for which your client had primary responsibility during the relevant time, substantially insufficient provision had been made for annual leave, long service leave or unpaid salary packages. The required adjustments for FY2014 to amend these omissions were therefore extraordinary.

Mr du Chateau subsequently instructed his present solicitors who sought access under s 198F(2) of the Corporations Act 1961 (Cth) to the books and records of the second to fifth respondents, and an additional company Philip Chun Fire Pty Ltd as trustee for the Philip Chun Fire Unit Trust.[37] That request was refused on the stated basis that it was bad in law. Mr du Chateau’s solicitors then made a specific request for information and documents, including ‘all supporting documents in relation to the reduction of profit’ failing the provision of which an application for preliminary discovery would be made.[38] The request was made in relation to the same entities as earlier specified i.e. the second to fifth respondents, and Philip Chun Fire Pty Ltd. It subsequently became apparent that Philip Chun Fire Pty Ltd had been deregistered.
[37]Ibid Exh HJR-3.
[38]Letter dated 23 May 2016, being Exh HJR-6 to the Richardson Affidavit.

Further correspondence between the solicitors followed, culminating in more detailed explanation by letter dated 16 June 2016 from Clayton Utz. This letter provides further explanation as to the reasons for the reduction in profit, but no documents. In summary, the explanations provided to the applicants as a result of their enquiries are as follows.

Correction of previous insufficient provision for employee entitlements

The respondents claimed in the letter of 14 July 2015 that substantially insufficient provision had been made for annual leave, long service leave or unpaid salary packages. The letter of 16 June 2016 relates this assertion specifically to the liability recorded in the 2013 annual financial statements and asserts that this liability ‘could not be connected to any reconciliation of any or all of annual leave, long service leave, personal leave or amounts owing to staff for wages/unused packages’. The 16 June 2016 letter asserts that this was a breach of an identified accounting standard and that ‘accordingly, our client was required to include an adjustment of approximately $1,036,000 in its 2014 financial statements to appropriately account for these previously unaccounted for entitlements’.

Debtor write-offs

The letter of 16 June 2016 asserts that ‘all debts considered uncollectible were written off’ and that this was in the sum of $248,000. It adds that these debts have not subsequently been collected.

The earlier letter of 14 July 2015 did not include any reference to bad debts.

Impaired loans

The letter of 16 June 2016 states that two loans to affiliated entities, being Philip Chun Middle East Pty Ltd and Philip Chun USA Pty Ltd, totalling $221,996, were considered impaired because neither company had an ongoing profitable business or any net assets from which to repay the loans. Somewhat inconsistently, the letter states that Philip Chun & Associates will ‘shortly be commencing steps to collect these debts’. The letter asserts the loans were against normal practice and in breach of a named accountancy standard.

There is no reference to impaired loans in the earlier letter of 14 July 2015.

Motor vehicles

The letter of 16 June 2016 identifies losses totalling $277,241 from the sale of novated leases of five vehicles used by departing directors and employees. There is no reference to any such loss in the earlier letter of 14 July 2015.

Other possible adjustments

The letter of 16 June 2016 states that there are ‘also a number of other adjustments’ that have not been made to the 2013 or 2014 annual financial statements, but ‘may yet be required to be made’. Two such possible adjustments are identified, being lease make good costs, said to be in excess of $100,000, and sick leave liability said to be ‘well in excess’ of $314,000 for each of the 2013 and 2014 years.

Supply of financial statements and tax returns

After commencement of the proceeding, the respondents provided to the applicants the financial statements and taxation returns for FY 12, 13 and 14 for each of the trusts of which the respondents are trustees. These documents are also in evidence but I was not taken to them in detail.[39]
[39]Exhibited to the Principal Gerakiteys Affidavit.

Discussion
Possible right to obtain relief: r 32.05(a)

There is no dispute that the applicants do not need to identify a precise cause of action. Each applicant must, however, show facts on the basis of which he, she or it may reasonably have a ‘right to obtain relief’, in other words, a possible legal right.

Counsel for the applicants identified in oral submissions three possible causes of action - being breach of the agreement that settled the Oppression Proceeding (which of course could only apply to parties to that agreement); breach of an agreement with other departing directors and shareholders that they would depart on the same terms as the parties to the settlement agreement; and a possible oppression claim.

Breach of settlement agreement: Mr du Chateau and Exactbuild

The respondents take a number of points in relation to the applicants’ contention that they may have a cause of action against the respondents for breach of the settlement agreement of the Oppression Proceeding.

First, the respondents submit that no such cause of action can lie because the only respondent who was a party to the Oppression Proceeding was the current second respondent, and Clayton Utz did not then act for that company. In other words, the respondents say that only the parties to the Oppression Proceeding who were also then represented by Clayton Utz can fall within the description of Clayton Utz’s ‘clients’ and so be parties to the settlement agreement.

In my view it is not so plain that no cause of action can lie against the current respondents arising from breach of the settlement agreement. It is important to remember that in an application of this type the cause of action does not need to be precisely articulated, let alone pleaded. It does not appear to be in dispute that it is the respondents who were the source of profit distribution, and did make the 2014 profit distribution. Further, a number of the promises offered by the defendants for whom Clayton Utz acted in the Oppression Proceeding were in the form of resolutions to be passed, or other action to be taken by, companies and trusts listed in the schedule attached to the offer made by Clayton Utz by letter dated 8 May 2014, (which was not modified in this respect by their subsequent letter of 9 May 2014). The second to fifth respondents were included in that schedule. The applicants submit that this shows that the defendants for whom Clayton Utz then acted (who are clearly bound by the agreement) controlled the second to fifth respondents, and so the respondents’ submission is unduly technical for this application.[40]
[40]Transcript, 80-82.

Counsel for the respondents relies on the first paragraph of the letter dated 9 May 2014 from Clayton Utz to Altus Lawyers to cast doubt on the proposition that the defendants in the Oppression Proceeding controlled the respondents.[41] That paragraph allowed the then defendant offerors to terminate the settlement agreement if all unitholders did not sign a necessary resolution by a certain time and date. It follows that it may then have been the case that the defendant promisors could not guarantee that all unitholders would act at their direction. However, there is no suggestion in the evidence that the settlement agreement was terminated, and indeed the application proceeded on the basis that it was not. It seems that the then defendant promisors were able in fact, even if not in law, to control the actions of the current respondents. In my view this is sufficient for this application to show a possible cause of action against the second to fifth respondents. I note that Philip Chun Fire Pty Ltd was also listed in the schedule to the defendants’ promises, but was later deregistered.
[41]Exh GDC-13 to the Principal du Chateau Affidavit.

As I noted earlier, the respondents took no point that the first respondent is not listed on that schedule. The application proceeded on the unopposed basis that it reported financially with Philip Chun BS, and this seems consistent with the 2014 financial statements for Philip Chun & Associates and Philip Chun BS provided to the applicants after commencement of the proceeding.[42]
[42]These show that the whole of the retained profit of Philip Chun & Associates (NSW) Unit Trust was paid to the Philip Chun Building Surveying Unit Trust. Part of Exhibit DG-2 to the Principal Gerakiteys Affidavit.

The second point taken by the respondents in relation to a possible right to relief for breach of the settlement agreement relates to which applicants may have such a cause of action. The respondents concede that Altus Lawyers did not just act for Mr du Chateau and his company Exactbuild in the settlement negotiations, although they were the only two plaintiffs in the Oppression Proceeding. They concede that Altus Lawyers also acted in the settlement for Mr Chun and Ms Chun.[43] However, the respondents say that the promise to pay pro rata 2014 profit (as opposed to other terms of the offer) was made only to Mr du Chateau and/or Exactbuild. I will discuss this submission further shortly.
[43]Respondents, ‘Outline of Submissions’, Submission in Du Chateau and ors v Philip Chun and Associates Pty Ltd and ors, S CI 2017 1142, 18 May 2017, [7] (‘Respondents’ Outline of Submissions’).

The respondents’ third submission is that Mr du Chateau and Exactbuild have not shown that they may have a good cause of action for breach of the term. The respondents frame this submission in the terms used by Mr du Chateau to express his concern, being that the respondents may have engaged in false accounting or contravened accounting standards. The respondents say that there is nothing unusual in running management accounts being adjusted for the final accounts; that they have provided explanations for the adjustments made supported by reference to accounting standards and, after commencement of the proceeding, the relevant financial statements and taxation returns showing that the adjustments were in fact made; and that there is nothing from the applicants to show that these adjustments could not be made by reference to those accounting standards. In short, the respondents say that there is no evidence that any of the adjustments was improper.[44]
[44]Transcript, 68-69.

In my view, it is sufficient for this application that Mr du Chateau and Exactbuild were parties to a promise to be complied with by the respondents, and there are facts that reasonably show that that promise may not have been complied with. The dramatic difference in profit for 2014 compared to years before and the year after in my view shows that. Consideration of the sufficiency of the explanations for the adjustments that resulted in this difference in profit is for trial, if an action for breach of contract is brought. I will discuss shortly whether the information and documents already provided mean further pre-proceeding disclosure is not required.

I conclude that the first two applicants have satisfied the requirements of r 32.05(a) on the basis that they may have a right to relief for breach of the term of the settlement agreement relating to payment of pro rata 2014 profit.

Breach of settlement agreement: other applicants

As noted earlier, the respondents dispute that the terms of the settlement agreement required payment of profit to anyone other than Mr du Chateau or Exactbuild.[45] For this reason, they say that the other applicants have not shown a possible right to relief for breach of the settlement agreement.
[45]There is some inconsistency in the respondents’ oral submissions on this point - compare Transcript, 63, ll 8 and 25– but I think the intention of the submissions was that only Mr du Chateau and Exactbuild were parties to the profit distribution term – see Transcript, 64, ll 17-18.

Mr Chun, Ms Chun and Ms Chai each claim in their respective affidavits on behalf of themselves and their family trusts that they ‘elected’ (Mr Chun and Ms Chai) or ‘opted’ (Ms Chun) to resign as a ‘departing party’ as described in the settlement agreement, and that they expected to receive a dividend for 2014 based on projected profit for that year as at 31 March 2014. Mr Chun says he expected a dividend based on projected profit for Philip Chun BS. Ms Chun and Ms Chai each say that they expected a dividend based on projected profit for ‘all Philip Chun Group businesses’.[46] They also state in their affidavits that they did each receive some distribution of profit for 2014 that did not accord with their expectations.
[46]References are to the affidavit of Philip Kai-Chiu Chun sworn 17 March 2017, [12],[14]; the affidavit of Kara Patrice Chun sworn 24 March 2017, [13]; and the Chai Affidavit, [10]-[11].

This evidence sets out the beliefs and expectations of Mr Chun, Ms Chun and Ms Chai. Their evidence does not, however, show that the respondents were bound to make them any payment, or how that was to be calculated. The only evidence in this application that could show that, as a matter of fact or law, the respondents were so bound are the terms of the settlement agreement. Indeed, the only other evidence as to whether the settlement agreement extended to the other applicants is that of Mr du Chateau on the point, who says that ‘(o)nce I had reached agreement regarding my departure from the Philip Chun Group, Kara Chun, Philip Chun and Christina Chai also decided to leave the group as other ‘Departing Parties’ as described in the letter from Clayton Utz dated 8 May 2014.’[47] The time reference in this portion of his evidence might suggest, if anything, that these other persons were not parties to the agreement in that letter, because they decided to depart after the agreement was concluded.
[47]Principal du Chateau Affidavit, [22].

Turning to the letter of 8 May 2014 itself, I observe the following. First, the offer is expressed by the heading to relate to the Oppression Proceeding, not to any broader or other dispute. Ms Chai was not a party to the Oppression Proceeding, although her corporate entity the seventh applicant was. Philip Chun, his corporate entity the fourth applicant, and Ms Chun were parties to that proceeding.

Next, the offer as a whole is expressed to extend to ‘clients’ of Altus Lawyers, i.e. in the plural. Who those clients were is not made plain in the letter. Altus Lawyers were the solicitors on the record for the plaintiffs in that proceeding, the first and second current applicants, and so plainly those applicants were parties to the offer. None of the other applicants who were parties to the Oppression Proceeding had a solicitor on the record in that proceeding, let alone Altus Lawyers. Nor have the other applicants given evidence in this application that Altus Lawyers acted for them at that time. The respondents concede that Altus Lawyers also represented Mr Chun (and, I infer, his corporate alter ego) and Ms Chun during the settlement of the Oppression Proceeding.[48] Accordingly, I conclude for the purpose of this application that only the first and second applicants, Mr Chun, his corporate entity the fourth applicant, and Ms Chun can be considered parties to the settlement agreement. This excludes Ms Chai and her company.
[48]Supplementary Gerakiteys Affidavit, [5].

Being a party to the settlement agreement as a whole, however, is not enough for a possible right to relief for breach of the profit distribution term. The difficulty for the applicants other than Mr du Chateau and Exactbuild is that while the offer as a whole is said to be made to the ‘clients’ (plural) of Altus Lawyers, which arguably included Mr Chun, his company, and Ms Chun, there were multiple terms of the offer and each of those terms identified either by name or by the description ‘Departing Party’ to which of the persons represented by Altus Lawyers the term applied. Some terms on their face related only to Mr du Chateau and/or Exactbuild- for example, terms 1, 3, 6, 8, 10. Some terms also, or solely, related to ‘Departing Parties’- for example, terms 7(b), 9, 18, 19. The letter defines ‘Departing Party’ to be ‘any departing Stapled Security Holder’. The letter does not contain a list of these persons, but in their letter of 27 September 2016 Clayton Utz asserted that each of the applicants was ‘previously a party to the Stapled Security Holder’s Deed for Philip Chun Building Pty Ltd [sic] as trustee for the Philip Chun Building Surveying Unit Trust’.[49] For the purposes of this application, I infer that each of the applicants was a ‘Departing Party’ within the meaning of the settlement agreement, although as noted above Ms Chai and her corporate entity were not parties to it.
[49]Exh HJR-12 to the Richardson Affidavit.

Although some terms of the offer contained in the letter of 8 May 2014 did make offers to ‘Departing Parties’, there is no term in the letter of 8 May 2014 from Clayton Utz that expressly refers to the payment of profits (for either 2013 or 2014) to ‘Departing Parties’. The term for the payment of profits in that letter is term 17 and the whole of that term is expressed to apply to ‘your client’ (singular). The identity of that client is not expressly stated. The term is expressed in the same way in the earlier offer from Clayton Utz dated 7 April 2014, then in paragraph 15 of that letter.

It may be that in their response to that earlier offer, which was made by letter dated 18 April 2014,[50] Altus Lawyers did contemplate that not just Mr du Chateau or Exactbuild would be paid 2013 and 2014 profits as a term of the agreement, but also ‘all departing unit holders’. This interpretation is supported by paragraph 2 and the timeline component of that counter offer.
[50]Exh GDC-9 to the Principal du Chateau Affidavit.

As against this, Altus Lawyers did not include a reference to persons or unitholders other than Mr du Chateau or Exactbuild in the section of the letter of 18 April 2014 headed ‘Terms of Settlement’ which seeks changes to the offer made by Clayton Utz. The only change expressly sought in that section of the letter to the offer in paragraph 15 of the Clayton Utz letter is as to dates of payment, not as to payee. Further, in the draft resolution attached to this letter from Altus Lawyers to be passed by each of the respondents persons other than Mr du Chateau or Exactbuild would have the benefit of similar arrangements in relation to some matters (see, for example clauses 13 and 14 of the proposed form of resolution) but the clause in relation to profit distribution (clause 20) in the draft resolution is expressed to apply to Mr du Chateau or Exactbuild only.

For the purposes of this application, I accept the submission of the respondents that the promise made in the settlement agreement in relation to payment of 2014 profit is not shown to apply to any applicant other than Mr du Chateau and/or Exactbuild. It follows that only the first two applicants have shown facts on the basis of which he or it may have a right to relief for breach of the profit distribution term of the settlement agreement.

Breach of an agreement as to the terms of departure

Counsel for the applicants submitted that the facts show that the other applicants may have a right to relief for breach of an implied obligation to act in good faith in the calculation of 2014 profits to be paid consequent on their departure from the Group.[51]
[51]Transcript, 39.

In my view, there are not sufficient facts shown to reasonably support such a possible claim. First, none of the individual applicants other than Mr du Chateau depose to any discussions with the respondents, let alone any agreement with them, relating to the terms of their departure from the Group. Their evidence is that they assumed that they were be covered by the same terms as to payment of profit as Mr du Chateau and his company, but it does not disclose any facts by reason of which the respondents were bound by that assumption. In particular, there is no agreement to this effect in evidence.[52]
[52]Transcript, 93, ll 9-20.

Next, the amount paid to the unitholder applicants was presumably calculated on the same underlying profit figure as applied in respect of all unitholders. This is a difficulty to the extent this claim for a right to relief might be said to arise from breach of an obligation to act in good faith towards the departing unitholders.

I conclude that no other applicant has satisfied paragraph (a) of the rule by virtue of a possible right to relief for breach of an agreement, or obligation to act in good faith, as to the terms of their departure from the Group.

Oppression

As a further alternative ‘right to relief’, the applicants contend that they may be able to bring an oppression claim under s 233 of the Corporations Act 1961 (Cth) in respect of the quantum of the 2014 profit distribution to them.

The respondents’ first response to this claim is that an oppression claim cannot be brought because none of the applicants are current members of any of the respondents.[53] The applicants reply that they may be able to bring an oppression claim although none are still members of any of the respondents, by virtue of s 234(c) of that Act which relevantly provides:
[53]Respondents’ Outline of Submissions, [21]; and Transcript, 59, ll 8-10.

s 234 Who can apply for order

An application for an order under section 233 in relation to a company may be made by:
(c)a person who has ceased to be a member of the company if the application relates to the circumstances in which they ceased to be a member (emphasis added)

Neither party made any submissions in relation to the highlighted phrase (that the application must relate to the circumstances in which the applicant ceased to be a member of a respondent) or pointed to any authority as to its meaning. In particular, the respondents did not submit that payment of 2014 profits to those applicants who departed as members of the respondents in conjunction with the Oppression Proceeding could not relate to ‘the circumstances in which they ceased to be a member’. On the face of the phrase, I consider that it could.

As discussed earlier, there is no evidence that the respondents agreed with any applicant other than the first two to make any particular 2014 distribution of profit, but on its face the phrase does not seem to require breach of an agreement. The undisputed evidence is that the other applicants who were members of a respondent did receive a profit distribution that did not accord with their expectations, and that they departed the Group at the same time as Mr du Chateau and Exactbuild, apparently because they were aligned with Mr du Chateau rather than with the other directors and members with whom he was in dispute. I consider that these facts may be sufficient to bring the distribution of profit to them for the year of their departure within the ‘circumstances in which they ceased to be a member’.

A concern about the quantum of the profit is of course not enough for an oppression claim. Pursuant to s 232 of the Corporations Act an applicant in an oppression claim must show that the conduct or actual or proposed act or omission of the company is (or was) either contrary to the interests of the members as a whole, or oppressive to, unfairly prejudicial to, or unfairly discriminatory against one or more members. The respondents say that the applicants cannot bring such a claim because whatever occurred in the 2014 financial accounts affected all members equally.[54]
[54]Transcript, 59, ll 11, 60, l 7.

As noted above, I accept that all members of the respondents probably received a profit distribution for 2014 that reflected the adjustments. I see this as a difficulty in relation to any claim for lack of good faith in the calculations in respect of the departing applicants, as opposed to other unitholders. I do not see it as the same difficulty in relation to a possible oppression claim. First, oppression may occur even though all members of a company are treated equally.[55] Next, unfairness for the purpose of s 232 is assessed objectively, and motive or good faith is not determinative.[56]
[55]John J Starr (Real Estate) Pty Ltd v Robert R Andrew (A’asia) Pty Ltd (1991) 6 ACSR 63.
[56]Wayde v NSW Rugby League Ltd (1985) 180 CLR 459, per Brennan J at 472-473.

I consider the facts reasonably show that those applicants who departed in 2014 may have a right to relief by means of an oppression claim. This is because of the conjunction of three matters. First, that the projected profit for 2014 was similar in quantum to that of previous years as at 31 March 2014 i.e. prior to the departure of the applicants. Secondly, that the profit for 2014 as calculated after their departure was substantially less. Third, that the profit for the financial year following the departure of the applicants from the Group (2015) was considerably greater, and in line with years prior to 2014, as was the projected profit for 2016.[57] This pattern could show unfairness to the applicants.[58] Continuing members of the trusts would have benefited from the return to substantial profit in 2015. They may also have benefited from the allocation of some losses or liabilities to 2014 as opposed to earlier or later years.[59] In other words, the facts may support an oppression claim on the basis that the accounting treatment of some or all of the adjustments was unfair to the departing unit holders because it assigned the whole of that liability to the year of their departure, whereas the continuing members would take the benefit of the business going forward. Whether or not such a claim could be made good on the merits is, of course, not for this application.
[57]This is stated to be drawn from the Notice of General Meeting for Philp Chun BS as recited in the letter of 19 September 2016 from Kalus Kenny Intelex to Clayton Utz, Exh HJR-10 to the Richardson Affidavit. The respondents objected strongly to that information being known to the applicants- see Exh HJR-11 to the Richardson Affidavit- but did not deny its accuracy.
[58]Counsel for the applicants in oral submissions said that the applicants did not know what occurred in 2015, but did not withdraw any reliance on Exh HJR-10- Transcript, 43-44.
[59]As the applicants submit- Transcript, 77-78.

Conclusions as to r 32.05(a)

It follows that although it is established on the evidence before me that only the first two applicants may have a right to relief in respect of the profit distribution term in the settlement agreement, I am satisfied that any applicant who was a member of a respondent, was entitled to a FY 2014 profit distribution, and received less than projected by the figures to 31 March 2014 may have a right to relief by virtue of an oppression claim. On the oral submissions of the applicants, the applicants in this category are the second, fourth, fifth and seventh applicants.[60] As noted in the introduction, it does not appear that the remaining two applicants, Mr Chun (the third applicant) and the sixth applicant (Ms Chai) fall into this category, but, if they do, then they too have satisfied this paragraph of the rule.
[60]Transcript, 40, l 20, 41, l 10.

Reasonable inquiries yet insufficient information: r 32.05(b)

This paragraph contains two limbs, both of which must be satisfied. This paragraph is particularly relevant to the scope of documents, if any, to be discovered.

As to the first limb, the applicants have made enquiries of the respondents for explanation for the dramatic drop in profit for 2014 both through their respective accountants, and through lawyers. The respondents do not submit that inadequate inquiries have been made except possibly in relation to the claimed impaired loans. They do submit, however, that by virtue of the explanations and documents already provided by the respondents, together with information otherwise available to the applicants, the applicants already have sufficient information to decide whether to commence proceedings. For convenience, I will deal with these requirements by reference to the four types of adjustments that the respondents say were required to be made to the 2014 profit.

Employee entitlements

The respondents assert that Mr du Chateau has sufficient information to make a decision whether or not to litigate in relation to the largest adjustment being the adjustment for staff leave entitlements because he received a report on leave balances at the 14 February 2014 meeting of directors. From the list of directors on the front page of the agenda, it would appear that Mr Chun and Ms Chun may also have received this information.

The report to the board meeting of 14 February 2014 sets out the annual leave balances for employees of Philip Chun & Associates as at 31 January 2014. Certainly some of the balances are very large (for example, that of Mr Marinelli for personal and carer’s leave) but they seem to be expressed in terms of hours, rather than dollar equivalents. Indeed, the ‘value’ column is entirely blank.[61] In these circumstances, it is not immediately apparent from this report alone what was the quantum of outstanding leave, let alone why it had to be accounted for in one year only.
[61]Part of Exh GDC-5 to the Principal du Chateau Affidavit.

The respondents assert that Mr du Chateau had ‘primary responsibility’ for the accounting records for the Group, perhaps implying that he would be able to fill in any gaps in the information generally supplied to directors by virtue of this special responsibility.[62] There is no evidence to support this assertion, and so I disregard it.
[62]Letter dated 14 July 2015 from Clayton Utz to Mr du Chateau’s accountants, and letter dated 16 June 2016 to his solicitors, exhibited as Exh GDC-19 to the Principal du Chateau Affidavit and HJR-8 to the Richardson Affidavit respectively.

The respondents rely on the fact that they have identified in their responses to the applicants the accounting standards which were applied, including the standard that requires amounts due for leave and other employee entitlements to be included as liabilities. That standard may explain why any previous default had to be accounted for in 2014, but it is not in evidence, and neither counsel has referred in submissions to its content.

The respondents further rely on the fact that they have supplied to the applicants (after commencement of this proceeding) the financial statements and tax returns for the respondents for 2014 and the two previous tax years. Neither counsel has taken me to the content of those statements and returns to explain why that information is insufficient (in the case of the applicants) or sufficient (in the case of the respondents). I have looked at the 2014 profit and loss statement for Philip Chun & Associates (that being the company in respect of which leave balances were provided at the directors’ meeting in February 2014). Doing the best that I can without assistance from counsel, I observe that the balance sheet does show substantial increased liability for ‘short term provisions’ and ‘other current liabilities’ compared to 2013. These are identified in the Notes to the Financial Statements as being for superannuation, ‘provision for employee entitlements’ and ‘income in advance’ but not otherwise detailed as to employee or nature of entitlement.

On balance, I consider that the applicants who have shown a possible right to relief have shown that insufficient information has currently been supplied in relation to this component of the adjustments to determine whether or not to commence a proceeding.

Debtor write-offs

The respondents have not made any particular further submission in respect of this component of the adjustments, in the sum of approximately $248,000 for written off debts. They are described in the letter of 16 June 2016 as being ‘debts that were old for which our client’s collection attempts had otherwise been exhausted’. The debtors in question and the amount of each such debt is not identified in this letter or in the financial statements for 2014 later provided. Nor is this information provided in the 2014 financial statements for Philip Chun & Associates, reading them as best I can without assistance from counsel. The notes to the statements show a substantial decrease in trade debtors as assets compared to 2013, and a component for Debt Forgiveness as expenditure that does not appear at all as expenditure in 2013, but without further explication.

Accordingly, I am satisfied that insufficient explanation has been provided to date for these adjustments.

Impaired loans

The information provided by the applicants to the respondents concerning these loans is in the letter dated 16 June 2016 from Clayton Utz to Kalus Kenny. That letter said that the loans were considered impaired because each of the borrower companies had no ongoing profitable business nor any assets from which to repay the loans. It did state, however, that Philip Chun & Associates ‘will shortly be commencing steps to collect these debts’.

This assertion is rather puzzling. As far as Philip Chun USA Pty Ltd was concerned, recovery was already impossible by the date of that letter because that company was deregistered on 16 March 2016. There is no evidence as to whether any collection action was taken against the other company, Philip Chun Middle East Pty Ltd, after the date of the letter, but in any event that company was also shortly thereafter deregistered, on 16 October 2016.[63]
[63]Supplementary Gerakiteys Affidavit.

Although the suggestion of recovery action might suggest a need for further information, the fundamental difficulty for the applicants with their query about the adjustment for these loans is that Mr du Chateau and Ms Chun were each directors of these companies before their departure from the Group, and remained so after that departure until each company was deregistered.[64] Counsel for the applicants submitted in oral argument that ceased to be directors on their departure in 2014,[65] but the company searches show that submission to be incorrect. The companies each changed name after Mr du Chateau and Ms Chun departed from the Group, but those applicants each remained directors. As directors, Mr du Chateau and Ms Chun had access to information as to the nature of the loans, and whether they could be repaid. They have not shown any reason why they could not provide this information to the other applicants if requested to do so.
[64]Ibid Exh DG-3 and DG-4.
[65]Transcript, 86.

Counsel for the applicants submitted that there was a question as to why the loans were written off in 2015 for the 2014 year, and not at the later point in time when the companies were deregistered.[66] I accept that the loans were deemed impaired before the companies were deregistered, but this would seem consistent with, and essential to, the means of deregistration. Each company was deregistered voluntarily pursuant to s 601AA of the Corporations Act which required, amongst other things, that its assets were worth less than $1000 and that it not have any outstanding liabilities. If the loans were recoverable, and should not have been written off, then it would seem that deregistration should not have proceeded. A challenge to this adjustment would seem futile in the circumstances.
[66]Ibid 86-87.

For these reasons, I do not consider that the applicants have satisfied either paragraph (a) or paragraph (b) of r 32.05 in relation to the claimed impaired loans, viewed as a distinct category of adjustment. I will consider shortly the effect on the scope of documents to be discovered.

Motor vehicles

The final component of what is said by the respondents to have been appropriate adjustments in the 2014 accounts relates to losses on the sale of novated leases for vehicles previously used by ‘departing directors and employees’. Although it is not entirely clear, it seems that the applicants say that this may be inconsistent with that portion of the settlement offer that related to vehicles.[67] Paragraph 19 of the Clayton Utz letter dated 8 May 2014 applies to all Departing Parties. The defendants for whom Clayton Utz then acted promised to sign a resolution (for each of the companies and trusts listed in the schedule) permitting ‘Departing Parties’ to ‘transfer (the inference seems to be to themselves) ownership of any motor vehicle which any Company (defined to be listed in the schedule - and the schedule includes the second to fifth respondents) currently owns and which the Departing Party currently exclusively uses’ subject to certain conditions. Those conditions included that the Departing Parties would discharge any liability on such motor vehicles. In other words, why is there a loss claimed by a company in the Group on sale of a vehicle lease if on sale of that lease to a Departing Party that Departing Party was to take over all liabilities?
[67]Ibid 30.

The respondents have provided by their letter of 16 June 2016 identification of the vehicles in question and the loss made on the sale of each lease, and stated that the vehicles were vehicles previously used by a Departing Party, but they do not give the identity of the Departing Party who previously used the vehicle (including whether any of the vehicles were used by an applicant) or the details of the sale of the leases. In particular, the respondents do not say to whom the vehicle leases were sold and whether the purchasers of the leases were Departing Parties.

In my view, this is a critical gap in the evidence. Unless the vehicle leases were sold to a Departing Party the resolution did not apply. Sale to a third party may conceivably have been at a loss, properly recorded as such.

This gap is not filled by the evidence of the applicants. In the course of the hearing, counsel for the applicants conceded that the applicants do not depose as to which, if any, of the listed vehicles were previously used by them, or whether or not they chose to retain the vehicles on the terms stipulated in paragraph 19.[68] He concedes that this is a gap in the evidence, but submits that it is matter that requires ‘investigation’.[69]
[68]Ibid 33, l 28 - 34, l 11.
[69]Ibid 34, ll 7-11.

The test for preliminary discovery is not whether a matter requires ‘investigation’ but whether the applicant has shown facts that may reasonably support a right to obtain relief in respect of that matter. Whether the proposed cause of action is breach of the settlement agreement (in the case of the first and second applicants) or oppression (in the case of applicants who were departing members of a respondent) a critical element is that losses may have been attributed to the 2014 accounts contrary to a company resolution. This requires evidence of a sale of a novated lease to a Departing Party. In the absence of such evidence, I do not consider that the applicants have shown a potential cause of action in relation to the adjustments for these losses. It follows that they cannot show that the information currently provided in this regard is insufficient. I will return later to the question of the impact of this on the scope of documents to be discovered.

Possession of relevant documents by the respondents: r 32.05(c)

It is not disputed that the respondents fall into the category of persons required by this paragraph. What is disputed is whether the categories of documents sought are appropriate. The rule characterises a document that may be ordered to be discovered in wide terms – it is sufficient that the document relates to the question whether the applicant has the right to obtain the identified relief, and may assist the applicant to decide whether or not to commence a proceeding for that relief. However, the rule confers a discretion on the Court and as I apprehend it the respondents’ objections are directed to the exercise of that discretion.

Documents sought

I accept the general submission of the respondents that the categories of documents sought are too broad. Some documents have already been provided; some categories are not shown to be necessary for the potential rights to relief that have been established; and I accept that some categories would impose an undue burden on the respondents. I will, however, order discovery of a wider category of documents than put forward by the respondents in their submissions. My conclusions in relation to the categories sought are as follows.

Categories (a), (b) and (c): financial records

The financial statements, income tax returns and reconciliations for 2012, 2013 and 2014 have already been provided. The respondents resist discovery of the 2015 documents, but I accept the submission of the applicants that they should be discovered. This is because I accept the applicants’ submission that an applicant who was a member of a respondent may have a right to obtain relief by way of oppression if it was discriminatory or unfair to allocate liabilities to 2014 in particular, as opposed to a subsequent year. The 2015 financial statements, returns and reconciliations should be discovered because they provide a comparator for the question of any discriminatory treatment of departing members.

Category (d)

The amended originating motion seeks drafts of these financial records as well as the final documents. This category was not pursued in the written submissions for the applicants, but was pursued orally.[70] The applicants say that they wish to ascertain if changes were made to earlier financial documents. I will not order discovery of the drafts of the financial records. I am not satisfied that this degree of forensic examination over time is necessary to decide whether or not to commence a proceeding for breach of the settlement agreement (in the case of the first two applicants) or oppression (in the case of former members of a respondent). Changes along the way may go to questions of motive and so good faith, but as discussed earlier I do not consider sufficient facts have been shown to support a potential right to relief for breach of any obligation of good faith and an action may be oppressive in the relevant sense even if in good faith. Whether there has been a breach of the settlement agreement or unfair treatment is an objective question that turns on the final accounts, not the drafts.
[70]Ibid 49.

Category (e): worksheets and work papers

I agree with the applicants that working papers relate to the decision whether or not to commence a proceeding and so should be discovered, because it is only worksheets and work papers that may provide the detail necessary to determine if the adjustments claimed to have been made were appropriate. Financial statements and returns are generally at too high a level of generality to make this determination. The respondents also concede that this category is appropriate, if the Court is minded to make a preliminary discovery order, but seek that it be limited to documents relating to the adjustments identified in the Clayton Utz letter of 16 June 2016 that have been made (i.e. excluding the possible further adjustments mentioned in the letter), and excluding the impaired loans and motor vehicle adjustments.[71]
[71]Ibid 75-76.

As discussed earlier, the applicants have not shown that they have insufficient information in relation to adjustments for the impaired loans, and have not established a factual basis for relief in relation to claimed losses on the sale of motor vehicle leases. If in fact leases on the identified vehicles were sold to one or more departing applicants, then they should in any event be in a position to determine if the claimed losses were appropriate from information they already hold. Accordingly, I accept the submission of the respondents that documents relating to these two categories of adjustments are not discoverable. I also accept their submission that discovery should be limited to working papers relating to adjustments in fact made, not potential future adjustments. To the extent that it is possible or practicable in the working papers for the accounts as a whole to exclude information relating to potential adjustments, the impaired loans and the motor vehicle losses, that may be done.

Category (f): management accounts

It seems that the applicants seek management accounts (i.e. accounts prepared in the course of a year for the information of the directors) for the purposes of charting changes over time i.e. for similar reasons to their request for draft final accounts. Counsel for the respondents says from the bar table that such accounts were likely produced every month and the applicants seek four years of such accounts, for three of which the first applicant was a director.

As noted earlier, I am not satisfied that it will assist the applicants to chart changes over time in deciding whether or not to commence suit for breach of the settlement agreement or oppression. For those causes of action, it is the final accounts that matter. I also accept the submission of the respondents that this category would be very burdensome to discover. I will not order discovery of this category.

Category (g): documents including Board minutes relating to the calculation of profit for 2012-2015

I accept the submission of the respondents that this category is far too broadly expressed for the purposes of deciding whether or not to commence a proceeding, and that it would be unduly burdensome to discover.

I do consider, however, that documents that record a decision (as opposed to discussion) in relation to the calculation of profit for the 2014 year should be discovered. I reach this conclusion applying the same reasoning I have applied to drafts and management accounts - it is the concluded view that is relevant, not discussion or drafts beforehand. I will limit this category to 2014 as that is the year in which it is claimed that the approach to the calculation of profit changed. I will require each respondent to discover any resolution relating to the calculation of final profit for 2014 and that portion of any Board minutes relating to such a resolution. I will also require discovery of any recommendation or report by a respondent’s accountant or auditor as to the calculation of profit for the 2014 tax year. These documents are discoverable because of the respondents’ assertion that adjustments were required on the basis of accounting standards.

Category (h): documents including Board minutes relating to accounting treatment for 2012-2015

I accept the submission of the applicants that documents in this category may assist them to determine whether or not to commence a proceeding. This category relates directly to the claim of the respondents that a change in accounting practice was required and was the cause of what they themselves describe as ‘extraordinary’ adjustments.[72] However, I also accept the submission of the respondents that the category as currently expressed is far too broad and would be unduly burdensome to discover. For these reasons I will only order discovery of a narrower class of documents within this category.
[72]Letter dated 14 July 2015 from Clayton Utz to Mr du Chateau’s accountants, being Exh GDC-19 to the Principal du Chateau Affidavit.

Unlike the calculation of profit, the applicants do not depose to any knowledge of the accounting treatment or policy applied before their departure from the Group, and the respondents have not specifically identified any means by which the applicants would already have this information other than by reason of previously having been directors or members. In order for the applicants to determine if there has been a proper change in accounting treatment or policy it is necessary in my view for documents evidencing the accounting treatment or policy applied be discovered for each of the years sought i.e. 2012-2015. However, I do consider that refinement of the nature of the documents is required. Consistently with the approach I have taken in Category (g) I will require discovery of any resolution by any respondent relating to accounting treatment or policy in any of these years and any portion of any Board minutes relating to any such resolution. I will also require discovery of any recommendation or report by a respondent’s accountant or auditor as to accounting treatment or policy to be adopted in any of the relevant years.

Conclusion

I will order discovery of the documents identified in the preceding discussion. Discovery of these documents is to be made to the first and second applicants, and to such of the other applicants as were members of a respondent and departed the Group in the 2014 tax year.

As the respondents have objected on confidentiality grounds to the applicants having access to the Notice of General Meeting for Philp Chun BS for the 2015 tax year, I will hear the parties further if the respondents seek confidentiality terms in relation to any 2015 documents, and those terms cannot be agreed. I will also allow any party to seek redaction of information that that party considers to be commercially sensitive or confidential from this judgment before it is published beyond the parties. I give this opportunity because this judgment relates to pre-action discovery, and it may be that no action is subsequently commenced by an applicant against a respondent.

Orders

I ask the parties to prepare orders to give effect to these reasons. I indicated at the hearing that I would hear them later in relation to costs. I will do so if required.

SCHEDULE OF PARTIES

S CI 2017 1142

BETWEEN:

GREGORY WALTER JOHN DU CHATEAU

FIRST PLAINTIFF

– and –

EXACTBUILD PTY LTD (ACN 004 409 912) ATF GREG DU CHATEAU FAMILY TRUST

SECOND PLAINTIFF

– and –

PHILIP CHUN

THIRD PLAINTIFF

– and –

EIGHTH ORDER PTY LTD (ACN 004 330 083) ATF PHILIP KAI FAMILY TRUST

FOURTH PLAINTIFF

– and –

KARA CHUN ATF KARA CHUN

FIFTH PLAINTIFF

– and –

CHRISTINA CHAI

SIXTH PLAINTIFF

– and –

JAZ GROUP (AUST) PTY LTD (ACN 126 489 978) ATF WANG FAMILY TRUST

SEVENTH PLAINTIFF

– and –

PHILIP CHUN AND ASSOCIATES PTY LTD (ACN 004 401 649)

FIRST DEFENDANT

– and –

PHILIP CHUN BUILDING AND SURVEYING PTY LTD (ACN 131 489 686)

SECOND DEFENDANT

– and –

PHILIP CHUN ACCESS PTY LTD (ACN 130 553 068)

THIRD DEFENDANT

– and –

PHILIP CHUN ESM PTY LTD (ACN 130 553 212)

FOURTH DEFENDANT

– and –

PHILIP CHUN ADVANCED TECHNOLOGY PTY LTD (ACN 133 521 990)

FIFTH DEFENDANT

---

S CI 2017 1142
BETWEEN:
GREGORY WALTER JOHN DU CHATEAU	FIRST PLAINTIFF
– and –
EXACTBUILD PTY LTD (ACN 004 409 912) ATF GREG DU CHATEAU FAMILY TRUST	SECOND PLAINTIFF
– and –
PHILIP CHUN	THIRD PLAINTIFF
– and –
EIGHTH ORDER PTY LTD (ACN 004 330 083) ATF PHILIP KAI FAMILY TRUST	FOURTH PLAINTIFF
– and –
KARA CHUN ATF KARA CHUN	FIFTH PLAINTIFF
– and –
CHRISTINA CHAI	SIXTH PLAINTIFF
– and –
JAZ GROUP (AUST) PTY LTD (ACN 126 489 978) ATF WANG FAMILY TRUST	SEVENTH PLAINTIFF
– and –
PHILIP CHUN AND ASSOCIATES PTY LTD (ACN 004 401 649)	FIRST DEFENDANT
– and –
PHILIP CHUN BUILDING AND SURVEYING PTY LTD (ACN 131 489 686)	SECOND DEFENDANT
– and –
PHILIP CHUN ACCESS PTY LTD (ACN 130 553 068)	THIRD DEFENDANT
– and –
PHILIP CHUN ESM PTY LTD (ACN 130 553 212)	FOURTH DEFENDANT
– and –
PHILIP CHUN ADVANCED TECHNOLOGY PTY LTD (ACN 133 521 990)	FIFTH DEFENDANT

[2017] VSC 667

1 November 2017