Haddad v A and W Hollier Wholesale Distributors Pty Ltd
[2005] FCA 930
•7 JULY 2005
FEDERAL COURT OF AUSTRALIA
Haddad v A & W Hollier Wholesale Distributors Pty Ltd [2005] FCA 930
PRACTICE AND PROCEDURE – application to set aside subpoena – no question of principle
ANTHONY HADDAD v A & W HOLLIER WHOLESALE DISTRIBUTORS PTY LIMITED & ANOR
NSD 1813 OF 2004HELY J
7 JULY 2005
SYDNEY
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
NSD 1813 OF 2004
BETWEEN:
ANTHONY HADDAD
PLAINTIFFAND:
A & W HOLLIER WHOLESALE DISTRIBUTORS PTY LIMITED
(ACN 001 479 367)
FIRST DEFENDANTARTHUR JOSEPH ESSEY
SECOND DEFENDANTA & W HOLLIER WHOLESALE DISTRIBUTORS PTY LIMITED
(ACN 001 479 367)
FIRST CROSS CLAIMANTARTHUR JOSEPH ESSEY
SECOND CROSS CLAIMANTANTHONY HADDAD
FIRST CROSS DEFENDANTMARIE HADDAD (AS EXECUTRIX FOR THE ESTATE OF THE LATE JOSEPH HADDAD)
SECOND CROSS DEFENDANTJUDGE:
HELY J
DATE OF ORDER:
7 JULY 2005
WHERE MADE:
SYDNEY
THE COURT ORDERS THAT:
1.The notice of motion filed on behalf of Simon Chhoeu on 14 June 2005 be dismissed with costs.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
NSD 1813 OF 2004
BETWEEN:
ANTHONY HADDAD
PLAINTIFFAND:
A & W HOLLIER WHOLESALE DISTRIBUTORS PTY LIMITED
(ACN 001 479 367)
FIRST DEFENDANTARTHUR JOSEPH ESSEY
SECOND DEFENDANTA & W HOLLIER WHOLESALE DISTRIBUTORS PTY LIMITED
(ACN 001 479 367)
FIRST CROSS CLAIMANTARTHUR JOSEPH ESSEY
SECOND CROSS CLAIMANTANTHONY HADDAD
FIRST CROSS DEFENDANTMARIE HADDAD (AS EXECUTRIX FOR THE ESTATE OF THE LATE JOSEPH HADDAD)
SECOND CROSS DEFENDANT
JUDGE:
HELY J
DATE:
7 JULY 2005
PLACE:
SYDNEY
REASONS FOR JUDGMENT
The plaintiff is a member of the first defendant (‘Hollier’) and has instituted proceedings in the Court which are in the nature of an oppression suit. On 18 May 2005 Hollier’s solicitors issued a subpoena to Simon Chhoeu of Wintergate & Associates, Chartered Accountants, to produce:
‘The entire Audit file whether in electronic or hard copy format for A & W Hollier Wholesale Distributors Pty Limited for the financial year end 2003 including but not limited to all notes, memoranda, correspondence, spreadsheets and working papers.’
By a notice of motion filed on 14 June 2005 Simon Chhoeu seeks an order that the subpoena be set aside.
Background
Michael Watson of Watson & Proud, Chartered Accountants, was Hollier’s accountant and he prepared its annual financial statements, tax returns and other accounting records. He also seems to have acted as Hollier’s auditor. The name of his firm was later changed to Watson Le & Partners. On 19 May 2003 Mr Chhoeu purchased the accountancy practice conducted by Mr Watson, including its receivables. That practice was thereafter conducted under the name of Wintergate & Associates. From 19 May 2003 until about 28 June 2004 Mr Watson practised ‘on a non-equity basis’ with Mr Chhoeu in the accountancy practice of Wintergate & Associates. Mr Watson has given uncontradicted evidence of a conversation which he had with Mr Chhoeu on 31 May 2003, in which it was agreed that invoices would continue to be rendered to clients of the practice on the letterhead of Watson Le & Partners.
On 25 June 2003 a letter was sent by Mr Watson on the letterhead of Watson Le & Partners to the second defendant (‘Mr Essey’) who is the Managing Director of Hollier. The letter advised that Mr Chhoeu had become Mr Watson’s partner, and that the firm had changed its name to Wintergate & Associates, but that Mr Watson would continue to be Hollier’s auditor. The letter stated that ‘[W]e will have to present you with a new Engagement Letter’, but this never occurred.
On 22 August 2003 an invoice on the letterhead of Watson Le & Partners was rendered to Hollier in the sum of $15,180. The work covered by that invoice included work performed from 16 June 2003 to the date of the invoice towards the audit of Hollier for the year ended 30 June 2003. That invoice was paid on 22 August 2003 by a cheque drawn by Mr Essey on behalf of Hollier in favour of Watson Le & Partners, and given to Mr Watson.
On about 1 June 2004 Mr Watson received a letter from Mr Chhoeu purporting to terminate their partnership. On about 4 June 2004 Mr Watson informed Mr Essey that he had a falling out with Mr Chhoeu. Mr Essey requested Mr Watson to continue to perform accounting services for Hollier.
On 4 June 2004 an invoice on the letterhead of Watson & Proud was forwarded to Hollier in the sum of $9,460. That invoice was paid by a cheque drawn by Mr Essey on behalf of Hollier in favour of Watson & Proud on 4 June 2004, which was duly banked by Mr Watson.
On 22 August 2004 Wintergate & Associates forwarded an invoice to Hollier in the sum of $6,369. Mr Essey’s evidence is that in a conversation which he had with Mr Chhoeu shortly thereafter it was agreed that Hollier would pay this amount in full satisfaction of any outstanding monies which Hollier owed Wintergate and on the basis that Mr Chhoeu would give him all of the company’s files and any other documents relevant to the business. Although Mr Chhoeu has sworn an affidavit for use in connection with these proceedings, that affidavit does not put this conversation in issue. The invoice was paid on about 30 September 2004.
The uncontradicted evidence of Mr Essey is that in about April 2005 he had a conversation to the following effect with Mr Chhoeu:
‘Arthur:“Simon, despite having paid your final invoice of August last year, you have not yet provided me with access to all of the documents you still possess for Hollier and my other related entities. You may know that I am currently involved in Federal Court proceedings with Anthony Haddad regarding Hollier. In order to assist in my defence of these proceedings, I need you to give me urgent access to any of the audit file and working papers you have for Hollier”.
Simon:“I will not release those documents to you until you pay me all outstanding amounts Hollier owes to Wintergate.”
Arthur:“That was not our agreement when I paid you last September.”’
Thereafter, on about 15 April 2005 Wintergate & Associates raised invoices on its letterhead directed to Hollier totalling $24,640 in lieu of the invoices which Mr Chhoeu asserted had been incorrectly printed on the Watson Le letterhead and which had been incorrectly collected by Michael Watson.
On 17 May 2005 Hollier’s solicitors wrote to Mr Chhoeu stating that ‘[I]t has now become most pressing that my clients have access to the Audit file and working papers for the financial year end 2003, which are currently in your possession.’ The letter stated that Hollier required the documentation:
‘… in order for it to both properly comply with a Subpoena for Production issued against it by Mr Haddad in relation to a Federal Court proceedings and in order for it to properly complete its financial returns for submission to ASIC and in compliance with the Corporations Act.’
The letter included the confirmation of an offer on the part of Hollier to put up either a bank guarantee for, or to pay into Court, the amount of $24, 640 pending the outcome or resolution of the dispute in relation to allegedly unpaid fees, provided that Mr Chhoeu ‘agree to provide A & W Hollier with a copy of the relevant Audit files and working paper for the financial year end 2003 by way of exchange.’ The letter threatened the issue of the subpoena which, as previously indicated, was in fact issued on 18 May 2005.
Wintergate Solicitors, acting on behalf of Wintergate & Associates, responded to that letter on 27 May 2005. There is nothing in the letter which suggests either that there is no audit file, or that Mr Chhoeu does not know what that file comprises. On the contrary, that letter includes the following:
‘4. The audit files that you requested are in our control and possession and not yours.
…
10. Alternatively, we suggest your client pay the $24,640 owing to our client and it is up to your client to recover this money from Mr Watson.
11. As soon as we are in receipt of this money we will instruct our client to release the audit files immediately.’
The letter asserted that Wintergate & Associates had a lien on the files and as they were not in Hollier’s possession, there was no need for Hollier to issue a subpoena to obtain them in order to comply with its obligations under the subpoena issue against it by the plaintiff. The letter also suggested that in a conversation between Mr Chhoeu and Mr Essey on 21 April 2005 Mr Essey indicated that the subpoena may have been issued for an improper purpose, but the paragraph in Mr Chhoeu’s affidavit which deposed to a conversation on that date was not read.
However, there is in evidence a letter on the letterhead of Hollier signed by both Mr Essey and Mr Watson addressed to Mr Chhoeu dated 21 April 2005. That letter provides as follows:
‘Following our conversation this morning, I am writing to you to confirm our verbal discussion.
Michael Watson is aware of the contents, and has agreed to sign this letter also as his agreement to the terms.
Our company and Michael have been subpoenaed to produce many items about the Audited Financial Statements for the year ended 30 June 2003. This includes from Michael a copy of the Working Papers file.
I formally request that your firm photocopy the entire file for me, or make the original available and keep a copy yourself, so when we hand it to the court, there will be original documentation in it.
I will pay for the task to be completed.
Michael and I agree that we will not use the file, and your supply of it to us, in litigation against you or your firm.’
Mr Chhoeu’s evidence is that he has in his possession three arch-lever folders which relate to Hollier, the Victoria Street Unit Trust and to A & W Wholesalers Pty Ltd which is the trustee of that trust. Hollier does not own any shares in A & W Wholesalers Pty Limited nor does it own any units in the Victoria Street Unit Trust. The three arch-lever folders include documents which appear to relate only to the financial year ended 30 June 2003.
Paragraph 7 of Mr Chhoeu’s affidavit is as follows:
7. To the best of my knowledge and belief I am not fully aware of whether the documents in the arch-lever folders were used in completing any audit for the year ended 30 June 2003, or any other year. I do not know whether an audit was actually completed for the year ending 30 June 2003 for any of the entities being A & W Hollier [sic] Wholesalers Pty Limited (ACN 003 628 242), the Victoria Street Unit Trust and A & W Hollier Wholesale Distributors Pty Limited (ACN 001 479 367). None of the three arch-lever folders contains any document which could be described as an audit report for any of the entities, or any other entity. I note that the invoice dated 22 August 2003 which is annexed to this affidavit, adopts the wording “… towards the audit …”. I did not prepare that invoice. I believe that Mr Watson prepared and issued that invoice.’
Mr Watson’s uncontradicted evidence is that whilst at Wintergate & Associates, he commenced preparations for Hollier to be audited for the 2003 financial year, and he commenced that audit. After Hollier paid the sum of $6,639 to Wintergate & Associates on or about 30 September 2004 he received a bundle of documents from Mr Chhoeu. Mr Watson subsequently examined these documents and discovered that Mr Chhoeu had not provided the 2003 audit file or working papers for Hollier.
Paragraph 41 of Mr Watson’s affidavit is as follows:
‘41. From my accounting services which I have provided to Hollier, I believe the following documents which I prepared and which were not in the documents provided to me by Wintergate remain in the possession of Wintergate:
(i)A complete copy of the working papers for the 2003 audit that I conducted for Hollier, including reconciliations and documents substantiating each of the items identified in the company’s balance sheet for 2003;
(ii)Documents which:
(a)clarify the financial status and viability of Hollier for the financial year end 2003;
(b)tend to show that the cash collected by Hollier was properly recorded in Hollier’s financial or accounting records or books for the financial year end 2003;
(c)tend to show that, Hollier was properly managing its indebtedness from Spacebud Pty Ltd for the financial year end 2003;
(d)tend to show that the price offered by Essey in October 2004 for the purchase of Haddad’s shares was fair and reasonable and represented true value;
(e)tend to show that Hollier kept and maintained adequate accounting and financial records for the financial year end 2003;
(f)tend to show that the write down of inventory for the financial year 2003 represented a true and fair view of the value of stock; and
(iii)Contingent liability notes for Hollier.’
Whilst objection was taken to the admission of this paragraph, Mr Watson can give, and in this paragraph has given, direct factual evidence as to the types of documents which he prepared for Hollier, as to the documents which he was later given by Mr Chhoeu with respect to Hollier and that he was not given documents which satisfy the description given in par 41. Neither Mr Watson, nor Mr Chhoeu, nor Mr Essey was cross-examined. Mr Chhoeu did not respond to this affidavit.
The grounds
Counsel for Mr Chhoeu did not rely in his submissions upon any alleged lien either as a basis for setting aside the subpoena, or as a basis for resisting inspection of the documents produced if the subpoena is not set aside. The grounds on which it is contended that the subpoena should be set aside are:
(i)there is no such ‘thing’ as the audit file for Hollier for the financial year ended 30 June 2003 because there is no evidence that an audit has been completed or undertaken for that year;
(ii)the subpoena seeks production of a ‘thing’ which is not relevant to, or sufficiently relevant to, any issue in the proceedings;
(iii)to the extent that the subpoena calls for the production of documents, the documents are not sufficiently identified, and unfairly requires Mr Chhoeu to exercise a judgment as to which documents were prepared in connection with an audit of Hollier; and
(iv)the subpoena was issued for an improper purpose.
An audit file, as ordinarily understood, is a file which contains papers collected for the purpose of, or prepared for the purpose of, or otherwise relating to, an audit. An audit file will commonly come into existence in preparation for an audit, and the file satisfies the description of an ‘audit file’ whether or not the audit to which the file relates is ultimately completed. Mr Watson’s evidence, which I accept, establishes the existence of such a file and the correspondence referred to above contains admissions on behalf of Mr Chhoeu that he has such a file in his possession which he was prepared to release to Hollier if Hollier again paid to Mr Chhoeu the two fees which it had earlier paid to Mr Watson. Whilst it is clear that Mr Watson never completed his audit of Hollier for the year ended 30 June 2003, that does not establish the non-existence of the ‘thing’, the production of which is sought by the subpoena, nor does it demonstrate a lack of relevance.
The contents of an audit file for the year ended 30 June 2003 are at least adjectively relevant to issues which arise in the proceedings, which include the proprietary and proper recording of transactions entered into by Hollier, the adequacy of its accounting and financial records, and whether a stock write-down recorded as at 30 June 2003 represents a true and fair view of the value of stock so as to disguise the true profitability of Hollier.
In discussions and correspondence prior to the issue of the subpoena, Mr Chhoeu and his solicitors acknowledged that the papers in Mr Chhoeu’s possession were, or were part of the audit file in relation to Hollier which would be released to Hollier if fees already paid to Mr Watson were paid again to Mr Chhoeu. That conduct on the part of Mr Chhoeu is inconsistent with the submission made by his counsel that the subpoena unfairly requires Mr Chhoeu to exercise a judgment about the documents to be produced in response to the subpoena. Mr Chhoeu’s affidavit does not demonstrate any inability on his part to comply with the subpoena by reason of insufficiency of the description of the documents, the production of which is sought. All that par 7 asserts is that Mr Chhoeu is not ‘fully aware’ of whether the documents in the arch-lever folders were used in completing an audit for the year ended 30 June 2003, or any other year. That is beside the point.
For these reasons, none of the first three grounds on which it is sought to set aside the subpoena have been made out.
Both the plaintiff in these proceedings and Hollier assert the relevance of the audit file for the year ended 30 June 2003 to these proceedings. It may also be right to say that Hollier requires that file in order to complete its financial returns for the year ended 30 June 2003 as asserted in its solicitor’s letter of 17 May 2003. That letter was sent as part of a dialogue in a continuing dispute as to whether Hollier was contractually entitled to the documents retained by Mr Chhoeu as a result of the agreement reached in late 2004, which culminated in Hollier paying Wintergate’s invoice for $6,369.
A subpoena may only be issued for a legitimate forensic purpose, that is to say, in general terms, to obtain the production of documents for use in connection with the litigation. It would be an abuse of process of the Court for documents to be subpoenaed not for the purpose of use in connection with the pending proceedings, but to enable Hollier to complete its accounts for the year ended 30 June 2003. It would also be a contempt for documents subpoenaed to be used for a purpose foreign to the resolution of the proceedings in which the subpoena was issued.
However, it seems to me that the audit file for the year ended 30 June 2003 is relevant for the reasons explained above. The statement made in the solicitor’s letter of 17 May 2003 as to collateral advantages which would accrue to Hollier if Mr Chhoeu handed over the files in return for the agreement offered in that letter, does not persuade me that a subpoena seeking production of relevant documents issued after failure to reach agreement on these matters has been issued for an improper purpose. Nor am I so persuaded by reason of a possibly misguided assertion on the part of Hollier’s solicitors that it was incumbent upon Hollier to get into its possession documents which fell within the terms of the plaintiff’s subpoena. The terms of the plaintiff’s subpoena and the present subpoena are quite different, although it may be that if the documents called for by the present subpoena were in Hollier’s possession, production of them may have been required pursuant to the plaintiff’s subpoena.
The motion to set aside the subpoena should be dismissed with costs.
I certify that the preceding twenty-six (26) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Hely. Associate:
Dated: 7 July 2005
Counsel for the Plaintiff: J McLeod Solicitor for the Plaintiff: Aitken McLachlan Thorpe Counsel for the Applicant on the motion: M J Watts Solicitor for the Applicant on the motion: Wintergate Solicitors Counsel for the Defendant: M Walsh Solicitor for the Defendant: Coleman & Greig Date of Hearing: 27 June 2005 Date of Judgment: 7 July 2005
0
0
0