Fair Go Group Pty Ltd v Riseley
[2020] VSC 27
•13 February 2020
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
EMPLOYMENT AND INDUSTRIAL LIST
S ECI 2019 3468
| FAIR GO GROUP PTY LTD (ACN 616 511 507) | Applicant |
| v | |
| JILLIAN RISELEY | First Respondent |
| COMMUNITY BUYING GROUP PTY LTD (ACN 612 156 448) | Second Respondent |
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JUDGE: | Daly AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 5 December 2019 |
DATE OF JUDGMENT: | 13 February 2020 |
CASE MAY BE CITED AS: | Fair Go Group Pty Ltd v Riseley |
MEDIUM NEUTRAL CITATION: | [2020] VSC 27 |
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PRACTICE AND PROCEDURE – Application for preliminary discovery under rule 32.05 of Supreme Court (General Civil Procedure) Rules 2015 (‘Rules’) – Dispute between the current director and the former director of the applicant – Alleged breach of duties by the former director in the process of winding up the business of the applicant – Principles in relation to each of the prerequisites under rule 32.05 of the Rules – Victorian Tax Families Inc & Anor v Taxi Services Commission [2018] VSC 594, referred to – Applicant already has sufficient information to determine whether to issue a proceeding in relation to most claims – Claims rather weak given involvement and oversight of current director’s accountants of the relevant transactions – Alex Fraser Pty Ltd v Minister for Planning [2018] VSC 391, referred to – Order for production of invoices over the relevant period – Application otherwise dismissed
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APPEARANCES: | Counsel | Solicitors |
| For the Applicant | Mr J S Mereine | Mills Oakley |
| For the First and Second Respondents | Mr E J Batrouney | Maddocks |
HER HONOUR:
Background
The applicant, Fair Go Group Pty Ltd (‘Fair Go’), is controlled by Mr Glenn Riseley (‘Glenn’).[1] Glenn is a distant cousin of the first respondent, Ms Jillian Riseley (‘Jill’).
[1]The parties’ first names are used in these reasons to avoid confusion given they are related. No disrespect is intended.
In November 2015, Jill founded the second respondent, Community Buying Group Pty Ltd (‘CBG’). From November 2016, Jill was CBG’s sole director and shareholder. CBG was a social enterprise designed to assist entities in the not-for-profit sector to obtain discounted rates on utilities and other services using their combined purchasing power.
In December 2016, Fair Go was established by Jill and Glenn to, in effect, take over the business of CBG, with Glenn (through his nominated entity) owning 49.5% and Jill (through her nominated entity) owning 50.5% of the share capital of Fair Go. The parties agreed that both Glenn and Jill would provide funding to Fair Go, with Glenn to make contributions of $350,000, and Jill contributing $150,000 plus her labour in the business.
However, in or around October 2017, Glenn decided to stop funding Fair Go, after providing approximately $120,000 in funding.
On 14 November 2017, Mr Clive Marriott became a director of Fair Go. He served as a director of Fair Go until his resignation on 21 March 2018. Jill also ceased to be a director of Fair Go on that date. Their resignations took place in the context of an agreement between Jill and Glenn that Jill would wind up the Fair Go business and Glenn would take control of Fair Go for unrelated purposes. During the course of December 2017 and January and February 2018, Jill liaised with Mr Andrew Butler, director of Wheelhouse Advisory (‘Wheelhouse’), who acted as Glenn’s representative in discussions with Jill regarding the terms upon which the business of Fair Go would be wound up and control of Fair Go transferred to Glenn.
From around 31 January 2018, CBG recommenced trading.
Also on or about 31 January 2018, Jill and Mr Marriott:
(a) signed a circulating resolution of the directors of Fair Go (‘circulating resolution’) which recorded that Fair Go agreed to release Mr Marriott from all liabilities and any restraint of trade, to release Fair Go from any liabilities owed to Jill, to terminate the employment of Jill, and to waive any restraint of trade. The circulating resolution also granted a license for Jill to use Fair Go’s confidential information, and to transfer Fair Go’s unencumbered property to Jill; and
(b) executed a series of documents to give effect to the circulating resolution, including:
(i) a separation deed between Fair Go and Jill;
(ii) a separation deed between Fair Go and Mr Marriott; and
(iii) a deed of transfer and release between Fair Go and CBG,
(together, the ‘release documents’).
Glenn alleged that he did not know of the circulating resolution or of Fair Go’s entry into the release documents until many months after their execution.
On 11 April 2018, Jill transferred her share in Fair Go to Glenn via a corporate entity nominated by him for a nominal consideration of $2.00. Glenn also requested a share sale agreement be executed by Jill to complete the transaction, but this did not take place.
Since Jill’s resignation on 21 March 2018, Glenn has had full control of Fair Go as the company’s sole director.
In January 2019, CBG ceased trading.
Application for preliminary discovery
On or about 6 June 2018, Fair Go’s solicitors sent a letter to Danaher Legal (which had prepared the release documents) requesting all files in relation to the release documents and invoices rendered to Fair Go by creditors. Thereafter, Fair Go’s solicitors sent two follow up emails, without response.
On 6 August 2018, Danaher Legal responded by saying that they had never acted for Fair Go. On 1 August 2018, Fair Go’s solicitors requested documents from Jill directly, following which Jill instructed her current solicitors, Maddocks.
In September 2018, Jill’s solicitors provided some of the requested documents to Fair Go’s solicitors, including balance sheets and profit and loss statements for Fair Go for the period between June 2017 and October 2017, and the memorandum of understanding referred to in the release documents.
In February 2019, Fair Go’s solicitors requested further documents but did not receive any response from Maddocks.
On 17 July 2019, Fair Go filed an originating motion seeking the following categories of documents by way of preliminary discovery pursuant to r 32.05 of the Supreme Court (General Civil Procedure)Rules 2015 (Vic) (‘Rules’):
a.any "Confidential Information” as that term is defined in the separation deed between the Applicant and First Respondent executed on or around 31 January 2018 (‘Separation Deed’), exhibited at GAR-8 of the affidavit of Glenn Riseley sworn 16 July 2019 and filed in this proceeding (‘Riseley Affidavit’);
b.any documents recording or evidencing the "sweat equity agreement” or SEA as referred to in the separation deed between the Applicant and Clive Marriot executed on or around 31 January 2018, exhibited at GAR-8 of the Riseley Affidavit;
c.any documents recording or evidencing the transfer of any “Property” (as that term is defined in the Separation Deed), from the Applicant to the First Respondent;
d.any documents recording or evidencing any agreements executed by the Applicant or the Second Respondent relating to the "Transfer” (as that term is defined in clause 2.1 of the Deed of Transfer and Release between the Applicant and the Second Respondent executed on or around 31 January 2018 and which is exhibited at GAR-8 of the Riseley Affidavit;
e.the Applicant’s financial statements, whether in draft of final form, including balance sheets, profit and loss statements generated during the period between 1 November 2017 to 21 March 2018;
f.the Applicant’s accounting records, whether stored physically or electronically, for the period between 19 December 2016 to 21 March 2018 (Period);
g.the bank statements for any bank account that the Applicant maintains with any financial institution for the period between 1 January 2018 to 21 March 2018;
h.the bank statements for any bank account that the Second Respondent maintains with any financial institution for the period between 1 July 2017 to 21 March 2018;
i.all invoices issued by the Second Respondent between 1 July 2018 to present;
j.all financial statements including profit and loss statements and balance sheets of the Second Respondent for the period 1 January 2018 to present;
k.all invoices issued to the Applicant by creditors during the Period;
l.all written correspondence passing between the First Respondent and Clive Marriot in the period 1 July 2017 to 21 March 2018;
m.all documents and written communication passing between the Applicant and any employee, partner or consultant of Danaher Legal, including emails, letters of advice, draft documents and invoices;
n.all documents and written communication passing between the First Respondent and any employee, partner or consultant of Danaher Legal, including emails, letters of advice, draft documents and invoices;
o.all documents and written communication passing between the Second Respondent and any employee, partner or consultant of Danaher Legal, including emails, letters of advice, draft documents and invoices; and
p.all documents and written communication passing between Clive Marriot and any employee, partner or consultant of Danaher Legal, including emails, letters of advice, draft documents and invoices.
Correspondence followed between the solicitors for the parties, which resulted in Jill providing some documents, and, in some cases, providing instructions that she had no documents answering the description referred to in the originating motion. By the time Fair Go filed its submissions on 31 October 2019, the categories of documents sought had been reduced to six categories of documents. By the date of hearing of the application, the categories of documents were further reduced to three categories of documents, as follows:
(a)All invoices issued to Fair Go Group Pty Ltd by its creditors during the period from 19 December 2016 to 21 March 2018 (‘invoices’).
(b)All correspondence passing between Jillian Risely and Clive Marriott in the period from 1 July 2017 to 21 March 2018 in relation to, or in connection with:
(i) Jillian Risely’s involvement in the company;
(ii) Clive Marriott’s involvement in the company;
(ii) the disposition of the assets of the company;
(iv)the reimbursements paid to Jillian Risely and/or Clive Marriott; and/or
(v) the negotiation, preparation and/or execution of the:
A.Separation Deed between Jillian Risely and Fair Go Group Pty Ltd which was executed on 31 January 2018;
B.Separation Deed between Clive Marriot and Fair Go Group Pty Ltd which was executed on 31 January 2018; and
C.Deed of Transfer and Release between Fair Go Group Pty Ltd and Community Buying Group Pty Ltd executed on 31 January 2018, (together the Release Documents) (‘Marriott documents’);
(c) All documents and written communications passing between:
(i) Fair Go Group Pty Ltd;
(ii)Jillian Riseley, in her capacity as a director and/or employee of Fair Go Group Pty Ltd; and/or
(iii)Clive Marriott, in his capacity as a director, officer or employee of Fair Go Group Pty Ltd,
and any employee, partner or consultant of Danaher Legal, including emails, letters of advice, draft documents and invoices in relation to, or connection with, the negotiation, preparation and/or execution of the Release Documents (‘Danaher legal documents’).
In support of its application, Fair Go relied on:
(a) an affidavit affirmed by Glenn on 16 July 2019;
(b) an affidavit of Mr Stuart Lewin of Mills Oakley, Fair Go’s solicitor, affirmed on 23 July 2019;
(c) an affidavit of Mr Lewin affirmed on 6 September 2019; and
(d) an affidavit affirmed by Glenn on 6 September 2019.
In his first affidavit, Glenn deposed, in summary, to the following matters:
(a) the agreement between him and Jill to establish the Fair Go business, and the transactions entered into to give effect to that agreement;
(b) his decision to cease funding the business and the subsequent transactions entered into to transfer Fair Go to his sole ownership;
(c) he deposed as follows:
During these negotiations, I became (and remain) deeply concerned that [Jill] caused [Fair Go] to enter into transactions which subjected [Fair Go] to detriment before I took control and ownership of it. Accordingly, the share purchase agreement was left unexecuted whilst I further investigated these concerns.
(d) he exhibited the circulating resolution and the release documents, and stated that he was not aware of these documents until many months after their execution;
(e) his concerns regarding the transfer of Fair Go’s confidential information to CBG;
(f) he referred to a number of transactions recorded in Fair Go’s bank accounts, totalling $58,604.67, which included ‘reimbursements’ to Jill, donations to the Australian Council of Social Services (‘ACOSS’) and the Asylum Seeker Resource Centre (‘ASRC’), and a payment to Danaher Legal;
(g) he exhibited Fair Go’s asset register (recording purchases of computer equipment and office furniture for approximately $9,000.00), and deposed that he had been unable to locate these items;
(h) his belief that Fair Go may have a right to obtain relief from Jill for breach of duty as a result of the matters and transactions above; and
(i) his belief that Jill would have the documents sought by Fair Go in the originating motion.
In his first affidavit, Mr Lewin deposed as to the enquiries he had made with Danaher Legal and Jill, and as to his correspondence with Maddocks. He deposed as follows:
On the facts deposed in this affidavit and [Glenn’s affidavit], I verily believe that:
a.documents adequately answering the description of the Required Documents are wholly within the possession, custody and / or control of the Respondents;
b.discovery of the Required Documents would enable the Applicant to determine the viability of any right to obtain relief against the First and Second Respondents;
c.all reasonable enquiries for necessary documents have been made without success.
In his second affidavit affirmed on 6 September 2019, Glenn deposed as follows:
7. On 21 March 2018:
a.[Jill] and [Mr] Marriott resigned as directors of [Fair Go];
b.I was appointed as the sole director of the [Fair Go]; and
c.I did not receive any of the books and records of the Applicant from either [Jill] or [Mr] Marriott.
8.Since 21 March 2018 I have been unable to find and access:
a.any of the computer systems used by [Jill], in the period from 19 December 2016 to 21 March 2018, in her capacity as a director and employee of [Fair Go];
b.any of the emails which [Jill] sent or received, during the period from 19 December 2016 to 21 March 2018, in her capacity as a director and employee of [Fair Go];
c.any of the computer systems used by [Mr} Marriot, in the period from 17 November 2017 to 21 March 2018, in his capacity as a director and employee of [Fair Go];
d.any of the emails which [Mr] Marriot sent or received, during the period from 17 November 2017 to 21 March 2018, in his capacity as a director and employee of [Fair Go]; and
e.any of the documents sought in the Originating Motion filed with the First Affidavit.
9.In the circumstances set out in paragraph 8 above:
a.I asked [Fair Go’s] accountants, being Wheelhouse Advisory (Wheelhouse), whether they have any of the documents sought in the Originating Motion filed in this Proceeding; and
b.I instructed Mills Oakley to make inquiries of [Jill] and further inquiries of Wheelhouse.
10.Based on the First Lewin Affidavit and the Second Lewin Affidavit, I believe that:
a.Mills Oakley has made a number of inquiries, on behalf of [Fair Go], of Wheelhouse about the whereabouts of [Fair Go’s] books and records; and
b.Wheelhouse does not have in its possession, custody or control the documents which are sought in [Fair Go’s] Originating Motion with the exception of those identified in the email from Wheelhouse Advisory to Mills Oakley dated 6 September 2019 …
In his second affidavit of 6 September 2019, Mr Lewin deposed as follows:
6.Further to those inquiries made with Danaher Legal and [Jill], inquiries were also with Wheelhouse Advisory (Wheelhouse), being [Fair Go’s] accountants and advisors.
7.Wheelhouse was retained by [Glenn’s company]to advise it in respect of its purchase of [Jill’s] shares in [Fair Go].
8.However, on or about 16 May 2018, the share purchase agreement negotiations between [Jill’s company’] and [Glenn’s company] stalled after Wheelhouse came into possession of the Release Documents.
9.On or about 16 May 2018 at 12:17PM, an email was sent by Mr Andrew Butler of Wheelhouse Advisory, to Ellen Rattray, a former employee of Mills Oakley who assisted [Glenn’s company] in the share purchase negotiations and documentation. I was copied into this email and note that Mr Butler expressed concern that [Jill] appeared to have misappropriated funds and other assets of [Fair Go] while she was operating the business.
Mr Lewin also deposed that he was provided with the following documents by Wheelhouse:
(a) the circulating resolution;
(b) the release documents;
(c) various ASIC forms and like documents;
(d) management accounts and financial reports for Fair Go for the year ended 30 June 2018;
(e) Fair Go’s asset register;
(f) Fair Go’s bank statements; and
(g) the only invoices in Wheelhouse’s possession, being invoices issued by Wheelhouse for accounting and bookkeeping services.
The respondents relied on an affidavit affirmed by Jill on 3 October 2019. In her affidavit, Jill responded in some detail to the allegations made in Glenn’s affidavit. She deposed, in summary, to the following matters:
(a) the history of CBG, and the transfer of CBG’s business to Fair Go following her agreement with Glenn;
(b) the role of Wheelhouse in assisting Jill and Glenn to establish Fair Go, in providing accounting and other back office services to Fair Go, and in representing Glenn’s interests in the transactions which caused the business of Fair Go to be wound up and the ownership of Fair Go to be transferred to Glenn;
(c) her communications with Wheelhouse and Glenn between October 2017 and May 2018 regarding Glenn’s cessation of funding, the possibility of Mr Marriott becoming a shareholder of Fair Go, the winding up of the business of Fair Go, the transfer of her shares in Fair Go to Glenn, and Glenn’s request that she execute a share sale agreement; and
(d) she referred to additional correspondence between Maddocks and Mills Oakley not exhibited to Mr Lewin’s affidavit.
In response to the categories of documents sought by Fair Go, Jill deposed as follows:
(a)As stated in Maddocks' letter dated 20 September 2018, no formal written agreement exists between [Fair Go] and [Mr Marriott] in relation to the sweat equity agreement. However, the arrangement is referred to in emails with Glenn and Wheelhouse (as referred to above).
(b)As stated in Maddocks' letter dated 24 September 2018, there are no documents which evidence the transfer of "Property" (as that term is defined in the Separation Deed) by [Fair Go] to me.
(c)CBG did not have a bank account during the period 1 July 2017 and 21 March 2018.
(d)I am not in possession of any financial statements for [Fair Go] (whether in draft or final form, including balance sheets or profit and loss statements) generated during the period between 1 November 2017 to 21 March 2018. To the extent that such documents exist, they would have been prepared by Wheelhouse. …
(e)[Fair Go's] accounting records were kept on Xero. That subscription is held by Wheelhouse and I do not have access to it.
(f)Fair Go maintained the same Commonwealth Bank of Australia account throughout the time that I was a director. [Fair Go] did not have any other bank account. Copies of the bank statements in my possession were enclosed with Maddocks’ letter dated 20 September 2018. I do not have copies of the bank statements for the period requested and as I am no longer a director of [Fair Go], I do not have authority to request them.
(g)Whenever I issued an invoice on behalf of [Fair Go], a copy was provided to Christine Tran ([Fair Go’s bookkeeper]), so that she could enter it into Xero. Copies of invoices issued by [Fair Go] are therefore in the possession of Christine and/or Wheelhouse, and would be recorded on Xero.
(h)[Mr Marriott] commenced employment with [Fair Go] on 24 April 2017. During the period between 1 July 2017 and 21 March 2018, I sent [Mr Marriott] a significant number of emails in the ordinary course of running the [Fair Go] business. This category is therefore broad and oppressive and I object to producing the documents requested.
(i)I maintain a claim for legal professional privilege over by communications with Danaher Legal.
Fair Go did not file any affidavits in response to Jill’s affidavit.
Relevant principles
Rule 32.05 of the Rules provides that Fair Go needs to establish the following matters when seeking preliminary discovery from a prospective defendant:
(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.
Where each of the preconditions of the Rule are satisfied, the Court would ordinarily exercise its discretion in favour of Fair Go.[2]
[2]Victorian Taxi Families Inc & Anor v Taxi Services Commission [2018] VSC 594 [72].
The authorities and principles in relation to each of the prerequisites were recently considered and summarised by Derham AsJ in Victorian Taxi Families Inc & Anor v Taxi Services Commission.[3]
[3][2018] VSC 594.
To paraphrase, the relevant principles are as follows:
(a) in relation to the first prerequisite, it is not necessary for an applicant to establish a prima facie case, and it is generally not appropriate to delve into the merits of a possible cause of action: rather, the applicant must establish sufficient facts to enable the Court to reach an objective conclusion that the applicant may have a right to relief;
(b) in relation to the second prerequisite, it is sufficient for an applicant to show that, notwithstanding they had made all reasonable enquiries, the information generated by those enquiries is insufficient for the applicant to make a prudent decision whether to issue proceedings, having regard to the strength and quantum of the applicant’s claim and the availability of potential defences; and
(c) in relation to the third prerequisite, the applicant must show that it is likely that the respondent has in its possession, custody or power documents which would materially assist the applicant to make a decision to bring a proceeding.
Further, numerous authorities have emphasised that the rule needs to be applied benevolently. However, as observed by Riordan J in Alex Fraser Pty Ltd v Minister for Planning[4] (omitting footnotes):
[4][2018] VSC 391.
Although the jurisdictional threshold is low, its satisfaction only empowers the Court to exercise its discretion. In the exercise of its discretion, the Court can control any excesses; and assess whether there may be real benefit in making the order. It will be entitled to weigh the full range of relevant matters in determining whether an order is in the interests of justice – including the following:
(a)The level of inconvenience and cost that will be caused to the respondent.
(b)Whether discovery may cause commercial or other damage to the respondent.
(c) Whether the respondent will be reimbursed for its costs.
(d)Whether an order would be inutile because the documents are privileged.
(e)The prospect of the documents sought providing the information required by the applicant.
(f)Whether the fact that there is no real prospect of success is apparent or discovery will not serve any useful purpose. However, delving extensively in the merits of the existence of a possible cause of action will usually not be appropriate.[5]
[5]Ibid [54(c)].
Submissions
Counsel for Fair Go submitted that Fair Go has reasonable cause to believe that it has or may have the right to obtain relief against Jill for breaches of duties owed by her to Fair Go under the general law and under the Corporations Act 2001 (Cth) (‘Corporations Act’), and against CBG for accessorial liability with respect to Jill’s alleged breaches of duty.
In its written outline of submissions, Fair Go set out the facts, matters and circumstances which it said gave rise to its belief that it may have a right to relief against Jill for breach of duty:
21. First, on or about 31 January 2018 Jillian Riseley and Clive Marriott:
21.1.without the knowledge or authorisation of Glenn Riseley (or GARI), signed a circular resolution of Fair Go, which authorised the company to enter into agreements which would:
(a)release Clive Marriott from all liability and any restraint of trade;
(b)release Jillian Riseley from any restraint of trade under her employment agreement or as a director;
(c)transfer all of Fair Go’s right, title and interest in its plant, equipment and intellectual property rights; and
(d)grant a perpetual, irrevocable and exclusive license to use any of Fair Go’s Confidential Information;
and,
21.2caused Fair Go to execute the following documents prepared by Danaher Legal:
(e)Separation Deed between Fair Go and Jillian Riseley (JR Separation Deed);
(f)Separation Deed between Fair Go and Clive Marriott; and
(g)Deed of Transfer and Release between Fair Go and Community Buying Group (Deed of Transfer).
22. Pursuant to the JR Separation Deed, Fair Go:
22.1.irrevocably and unconditionally released and forever discharged Jillian Riseley from all “Claims” which the company had or but for the execution of the deed may have had in relation to her employment agreement (clause 3.1);
22.2.released and forever discharged Jillian Riseley from Claims of any kind which it may have had against her arising from her position as an officer of the company (other than fraud) (clause 3.3); and
22.3.granted Jillian Riseley a perpetual, irrevocable and exclusive licence to use the Confidential Information of the company notwithstanding any of her obligations as a director (clause 3.4).
23.Pursuant to the Deed of Transfer, Fair Go agreed to do all things necessary to procure the transfer of the benefit and burden of the Memorandum of Understanding between Fair Go and Moreland Energy Foundation Limited to Community Buying Group for no apparent benefit.
24.Jillian Riseley did not disclose the circular resolution or any of the three documents to Glenn Riseley or GARI before she and Clive Marriott executed them on behalf of Fair Go. She first sent a copy of the three documents to Andrew Butler of Wheelhouse Advisory, the company’s accountants, on 2 March 2018. She only did so after he requested a copy of them on 16 February 2018 and again on 28 February 2018. Moreover, at 8:30am on 21 March 2018 a meeting of the Board of Directors of Fair Go was held at the offices of Maddocks Lawyers. Only Jillian Riseley attended. During that meeting she purported to cause Fair Go to ratify the three documents as “having been duly executed on behalf of the Company.
25.Secondly, Jillian Riseley and/or Community Buying Group appear to have used the valuable know-how and proprietary information of Fair Go. In particular, Glenn Riseley says that:
25.1.an article dated 15 May 2018 appears to confirm that Community Buying Group and Moreland Energy Foundation Limited are now working together;
25.2.since 2 July 2018 Fair Go’s websites have been redirected to the website of Community Buying Group;
25.3.on or about 1 August 2018, the website of Community Buying Group was publicly accessible and appeared to show the company in direct competition with, and most likely have used the proprietary information of, Fair Go; and
25.4.the website of Community Buying Group has since been made private and inaccessible without prior permission.
Thirdly, Glenn Riseley says that he has:
26.1.been unable to locate the whereabouts of assets previously recorded in the asset ledgers of Fair Go, totalling $9,366.56, and apprehends that they may have been misappropriated by Jillian Riseley; and
26.2.identified a number of questionable transactions which appear to have been authorised by Jillian Riseley, including numerous reimbursements paid to her.
In summary, Fair Go alleged that CBG used valuable know-how and proprietary information of Fair Go for use in CBG’s business, that Jill misappropriated Fair Go’s assets, and that Jill reimbursed herself from Fair Go’s funds without proper explanation or authorisation. Further, Fair Go questioned Jill’s ratification of the release documents and the circular resolution on 21 March 2018.
In relation to the question of whether Fair Go had reasonable cause to believe that it may have a right to relief from Jill, counsel for Fair Go submitted, in addition to the matters referred to in paragraph 33 above, that Jill did not inform either Wheelhouse or Glenn about the circulating resolution or the release documents, and did not provide copies of these documents until pressed. Further, the attempt by Jill to ratify the circular resolution and the release documents raises suspicions about the propriety of these transactions.
Fair Go submitted that it was necessary for Fair Go to obtain further documents in order to:
(a) assess whether in fact Fair Go had any potential claims against Jill and CBG;
(b) assess, in relation to the release documents and any questionable transactions, the likely quantum of those claims;
(c) assess whether Jill and/or CBG had any viable defences to the claims. For example, if Jill had received legal advice from Danaher Legal in her capacity as a director of Fair Go that it was necessary and/or prudent for Fair Go to enter into the release documents, she would have a prima facie defence pursuant to s 189(1)(a) of the Corporations Act; and
(d) if Wheelhouse had all of the documents Fair Go needed to determine whether to make a claim, Fair Go would not be asking for them. The documents provided by Jill to date to not go to the critical issues of concern to Fair Go.
Counsel for Fair Go observed that Jill did not deny that she had invoices addressed to Fair Go in her possession, and her evidence is that there was a substantial amount of correspondence between her and Mr Marriott. He rejected Jill’s contention that it would be oppressive to require her to produce the Marriott documents, particularly given that the scope of the documents sought has been narrowed. She has not deposed with any particularity as to why it would be oppressive to produce the Marriott documents. In any event, the documents sought by Fair Go are the books and records of Fair Go, and all reasonable efforts have been made by Fair Go to obtain these documents.
Counsel for the respondents submitted in opposition to the application, in summary, as follows:
(a) the information available to Fair Go, including the documents provided by Jill, is sufficient to enable Fair Go to determine whether to issue a proceeding;
(b) the Court has a role to play in exercising its discretion to control any excesses and oppression associated with applications for preliminary discovery;
(c) the potential claims against the respondents are quite weak;
(d) Jill has already produced a substantial quantity of documents;
(e) There is no evidence that Mr Marriott has been asked for any of these documents; and
(f) the cost and inconvenience associated with giving preliminary discovery needs to be borne in mind considering the likely quantum of any claim.
Further, counsel for the respondents submitted that the significant role of Wheelhouse in the business of Fair Go and the relevant transactions needs to be taken into account when assessing whether, objectively speaking, Fair Go has reasonable cause to believe it has a right to obtain relief against Jill. In winding up the business of Fair Go, Jill did no more than what she told Wheelhouse she had done or was going to do, in executing the release documents, transferring the confidential information to CBG, and taking the assets in lieu of remuneration.
Invoices
Counsel for Fair Go submitted that Fair Go needs to review the invoices issued to Fair Go by its creditors to assess the cost and risk of litigation against Jill in relation to the allegedly unauthorised reimbursements and other payments made by Fair Go prior to Glenn taking control (‘questionable transactions’).
Counsel for Fair Go noted that while the quantum of the questionable transactions is modest in the context of Supreme Court litigation, it was a substantial amount of money in the context of the business of Fair Go. Therefore, Fair Go needs to see the invoices to see if the reimbursements were justified, and that the invoices matched with Fair Go’s accounts.
The respondents submitted that as the invoices were stored on Fair Go’s accounting software, they should be in the possession of Fair Go’s accountants, Wheelhouse Advisory.
Counsel for the respondents further submitted that Fair Go’s concerns about questionable transactions were de minimis in nature, such that Fair Go’s pursuit of documents concerning this issue was disproportionate. Moreover, Glenn had decided to accept the transfer of the Fair Go shares to him despite his concerns at the time.
Marriott documents
Counsel for Fair Go submitted there must be written correspondence passing between Jill and Mr Marriott, because Jill deposed that she sent Mr Marriott a significant number of emails in the ordinary course of running the Fair Go business. Counsel for Fair Go submitted that those emails were part of the books and records of Fair Go, and as such should have been handed over to Glenn on 21 March 2018. Fair Go needs to know what communications passed between Jill and Mr Marriott concerning the affairs of Fair Go, including Mr Marriott’s involvement with Fair Go, the preparation and execution of the release documents, any authorisation of the reimbursements, and the dissipation of the assets of Fair Go in order to decide whether to commence a proceeding against Jill and/or CBG.
Fair Go seeks only correspondence passing between Jill and Marriott in their capacity as employees, officers and directors of Fair Go. In particular, Fair Go seeks the communications between Jill and Mr Marriott leading to the execution of the release documents. Given that Jill deposed as to there being negotiations with Mr Marriott regarding these issues, Fair Go expects there to be communications between them about the release documents. Further, counsel for Fair Go submitted that given Mr Marriott’s status as a director of Fair Go prior to 21 March 2018, there may be communications about reimbursements paid to Jill or other dispositions of Fair Go’s assets.
Counsel for Fair Go submitted that without knowing what Mr Marriott was doing in Fair Go and what work he undertook for Fair Go, Fair Go cannot assess the value of what it had surrendered in executing the release documents, and whether it was prudent for Fair Go to have executed the release documents at all.
In response, the respondents submitted that providing the Marriott documents would be oppressive because Jill is a busy person, and because ‘all written correspondence’ would include documents that have no relevance to the issues raised by Fair Go. The respondents submitted that Jill had kept Glenn informed about the preparation and execution of the release documents through Wheelhouse, Glenn’s agent, as evidenced by Jill’s correspondence with Mr Butler of Wheelhouse.
Danaher Legal documents
Counsel for Fair Go submitted that Fair Go could not decide whether to commence a proceeding without first knowing if the company obtained legal advice before executing the release documents and, if so, the content of that advice.
Counsel for Fair Go challenged Jill’s claim for legal professional privilege over her communications with Danaher Legal, on the basis that Jill did not depose to any facts which support a personal claim for legal professional privilege, in circumstances where Fair Go paid one of Danaher Legal’s accounts. If the privilege is a joint privilege held by Jill and Fair Go, Jill cannot rely upon legal professional privilege to keep the documents from Fair Go.
Further, the respondents submitted that the documents sought by Fair Go either do not exist or are privileged, as:
(a)Danaher Legal confirmed in a letter dated 6 August 2018 that they have not acted for Fair Go Group;
(b)Danaher Legal acted for Jill Riseley in her personal capacity (including in connection with a draft share sale agreement for Fair Go Group), and Ms Riseley claims privilege over her communications with Danaher Legal; and
(c)Fair Go Group has not made any inquiries of Clive Marriott in respect of [the Danaher Legal documents].
The respondents also challenged the Fair Go’s request for production of the Danaher Legal documents over an unspecified date range which would require the respondents to ‘undertake extensive and costly searches’.
Discussion
Prior to turning to the issues in the application, I would make some observations regarding the evidence relied upon by Fair Go in support of its application, in particular:
(a) the first affidavit of Glenn makes no mention of the role of Wheelhouse in the affairs of Fair Go, both during the period in which Fair Go operated its business and during the process of winding up the Fair Go business and the transfer of control of Fair Go to Glenn;
(b) the statements in evidence to the effect that Wheelhouse only learned of the release documents and the questionable transactions in May 2018, and that the share sale agreement was not executed by Glenn by reason of this discovery is somewhat self‑serving, and is not borne out by the evidence of Jill in her affidavit, which was supported by contemporaneous documents; and
(c) it is noteworthy that notwithstanding that a period of two months elapsed between the filing and service of Jill’s affidavit and the hearing of Fair Go’s application, no responsive affidavit was filed by Fair Go, and, while the criticisms of Jill’s evidence concerning her claim for legal professional privilege are valid, there is no evidence of any challenge being made to her assertion (and the assertion made by Danaher Legal in correspondence) that Danaher Legal acted for her personally, not Fair Go.
The observations made above refer to deficiencies in the evidence which are not fatal to Fair Go’s application, given the relative leniency of the test, and the authorities do suggest that it is generally not appropriate to canvass the merits of any potential claim in any great detail. However, those deficiencies do cause me to view the assertions made in the evidence advanced in support of Fair Go’s application with some caution. Further, in my view, it is appropriate to evaluate the evidence somewhat more critically in circumstances where it is apparent from the evidence that Jill has already been put to considerable expense in responding to Fair Go’s demands and this application, in circumstances where the quantum of any claim by Fair Go must be reasonably modest, given the small size and lack of profitability of Fair Go’s business.
For the purposes of determining whether Fair Go has satisfied the threshold for preliminary discovery, I shall consider, in respect of each of the potential claims identified by Fair Go, whether:
(a) Fair Go has reasonable cause to believe that it may have a claim against Jill;
(b) whether, on the basis of the information already in its possession, Fair Go has adequate information to decide whether to issue a proceeding in respect of that claim;
(c) whether the documents sought by Fair Go would assist it to make a decision as to whether to bring a proceeding against Jill in relation to that claim;
(d) in the event that the above prerequisites are satisfied, whether there are any discretionary factors which would tell against making an order for discovery in respect of particular categories of documents.
The conduct which was said to give rise to claims against Jill are as follows:
(a) her conduct in arranging the preparation and execution of the release documents. By reason of the broad ranging nature of the release documents, Jill’s conduct in arranging the release documents suggests that there were potential claims against her and Mr Marriott which have been released to the detriment of Fair Go;
(b) the transfer of valuable proprietary information from Fair Go to CBG;
(c) the questionable transactions; and
(d) the disappearance of assets (furniture, computer equipment and the like) from Fair Go.
Taking first the allegation that Jill breached her duty in organising and executing the release documents, it is apparent from the evidence that in the latter part of 2017 and the early part of 2018, Jill did all that she agreed to do to facilitate the winding up of what was at the time an unprofitable business, and she did so keeping Wheelhouse informed along the way. In her email to Mr Butler of 11 February 2018, she informed Mr Butler of precisely what she had done, including organising and executing the release documents.
I accept that the evidence shows that it is likely that Jill has in her possession, custody or control the Marriott documents, and the Danaher Legal documents, which may concern the organisation and execution of the release documents. However, I fail to see how there is any basis beyond mere speculation that Fair Go has a right to relief in respect of Jill’s role in the organisation and execution of the release documents. The terms of the release documents are apparent from their face. There is no evidence that Fair Go has, in the eighteen months or so after the exit of Jill and Mr Marriott, incurred or realised any liabilities by reason of their roles in the business of Fair Go prior to March 2018, such that the release documents have caused Fair Go any detriment, which is unsurprising given the nature of Fair Go’s business.
Further, in the event that I am wrong about this issue, and Fair Go has indeed surpassed the admittedly low threshold required to obtain preliminary discovery in relation to this claim, a number of relevant considerations would weigh against the exercise of my discretion in that regard. In particular:
(a) the responsibility for Glenn’s ignorance regarding what took place when the business of Fair Go was wound up rests with Wheelhouse, not Jill. Jill was entitled to assume that the information that she was providing Mr Butler about her activities was being passed on to Glenn; and
(b) while I accept that Jill has not deposed to the facts, matters and circumstances by which she says Danaher Legal acted for her personally, not Fair Go, it seems to me to be a disproportionately costly exercise in all of the circumstances to fully test her claim for privilege over the Danaher Legal documents in the usual way, given the amounts at stake. After all, one would expect that a law firm would be aware of the identity of their clients.
There might be a question mark regarding one aspect of the release documents, being the transfer of Fair Go’s confidential information to CBG for no consideration. Fair Go asserts that it may have a claim against Jill and/or CBG in relation to the transfer of the confidential information to CBG. However, Jill’s solicitors have provided Fair Go with what was said to be the confidential information, which was largely lists of various non-government agencies, much of which appear to have been generated from publicly available registers. One could also query whether this information was genuinely confidential, having regard to the nature of the information, and, given the unprofitability of Fair Go, of anything other than negligible value.
Accordingly, in relation to the question of whether Fair Go has sufficient information to enable it to determine whether it had a right to relief with respect to the transfer of Fair Go’s confidential information, Fair Go has all of the information it needs to commence a proceeding. It has the confidential information, such that it can make an assessment of its value. It has the release documents, which sets out the terms upon which the confidential information was transferred to CBG. It also has evidence that the confidential information may have been used by CBG in the period leading up to when CBG ceased trading in January 2019. Accordingly, the provision of further documents recording the transfer of the confidential documents is unlikely to add any further to Fair Go’s knowledge about the merit in pursuing what appears to be an arid claim.
Turning now to the questionable transactions, counsel for Fair Go drew my attention to some entries in the Fair Go bank accounts, which were described in such a way as to suggest the payments were made to Jill for reimbursement of expenses, or for donations to organisations such as ACOSS and ASRC. Fair Go would be arguably within its rights to require Jill to justify these payments. I do however note that reference was made to pending payments to ACOSS and ASRC (in the amounts actually paid) in the list of outstanding liabilities sent by Jill to Glenn on 26 October 2017, and there is no evidence that Glenn protested about or queried these items. Further, the evidence is that Wheelhouse did have, or should have had full view of Fair Go’s accounts during the course of the period in which Jill operated the Fair Go business. Further, it is difficult to see how either the Marriott documents or the Danaher Legal documents would assist Fair Go in relation to any claims Fair Go may have in relation to the questionable transactions. Many of the questionable transactions took place prior to Mr Marriott’s appointment as a director on 14 November 2017, and Danaher Legal prepared the release documents in early 2018.
The only documents sought by way of preliminary discovery which would assist Fair Go in relation to this potential claim are any invoices Jill has in her possession. While Jill deposes to her belief that all of the invoices directed to Fair Go would be in the possession of Wheelhouse, this appears not to be the case, and Jill does not expressly say that she has no invoices. As I do not consider this request to be oppressive, I would order preliminary discovery with respect to these documents.
As for any claim regarding the removal of assets from Fair Go, there is no factual dispute about the question of whether Jill took the computer equipment and furniture upon her departure. She did so, and she told Wheelhouse that she had done so. These assets were valued at approximately $14,000.00 as at 30 June 2017, and presumably depreciated further in value by 21 March 2018. Even if they had not depreciated in value, the documents in evidence showed that as at the end of January 2018, Jill was owed three months’ salary (approximately $25,000.00), with Mr Marriott also being owed unpaid wages. She took those assets in lieu of her claims for unpaid remuneration, and apparently gave some to Mr Marriott in partial satisfaction of his claims. It is difficult to see how Fair Go suffered any loss by reason of this transaction (given that it would be liable for unpaid remuneration in any event were it not for the execution of the release documents), or how obtaining discovery of the Marriott documents or the Danaher Legal documents would assist Fair Go in determining whether to issue a proceeding against Jill in relation to this claim.
Accordingly, I will order that Jill discover all invoices issued to Fair Go by its creditors in the period from 19 December 2016 to 21 March 2018, and otherwise dismiss the application. I shall hear from counsel on the question of costs.
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