Historical Holdings Pty Ltd v Hills Health Pty Ltd - [2024] WASC 489

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL

CITATION:   HISTORICAL HOLDINGS PTY LTD -v- HILLS HEALTH PTY LTD [2024] WASC 489
CORAM:   SEAWARD J
HEARD:   22 NOVEMBER 2024
DELIVERED          :   20 DECEMBER 2024
FILE NO/S:   CIV 1906 of 2024
BETWEEN:   HISTORICAL HOLDINGS PTY LTD
Plaintiff
AND
HILLS HEALTH PTY LTD
Defendant

Catchwords:

Civil procedure - Practice and procedure - Discovery - Application for pre‑action discovery - Turns on own facts

Legislation:

Rules of the Supreme Court 1971 (WA), O 26A r 4

Result:

Application granted

Category: B

Representation:

Counsel:

Plaintiff	:	A Willinge
Defendant	:	C Russell SC

Solicitors:

Plaintiff	:	DLA Piper
Defendant	:	Corrs Chambers Westgarth

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

Ainsworth v Criminal Justice Commission [1992] HCA 10; (1992) 175 CLR 564
BE Australia WD Pty Ltd v Sutton [2011] NSWCA 414; (2011) 82 NSWLR 336
Fair Work Ombudsman v Foot & Thai Massage Pty Ltd (In Liq) (No 4) [2021] FCA 1242
Judamia v Western Australia (Unreported, WASC Full Court, Library No 960114, 1 March 1996)
Kelbush Pty Ltd v Australia and New Zealand Banking Group Ltd [2016] WASCA 14; (2016) 49 WAR 374
PK Riddell Investments Pty Ltd v Onwards Up and Gone Pty Ltd [2024] VSC 159; (2024) 73 VR 219
Scanlan v 2‑4 McCabe Pty Ltd [2023] WASCA 135
Sons of Gwalia Ltd v Margaretic [2007] HCA 1; (2007) 231 CLR 160
Stellar Vision Operation Pty Ltd v Hills Health Solutions Pty Ltd [2023] NSWCA 102
Tobacco Institute of Australia Ltd v Australian Federation of Consumer Organisations Inc (1993) 41 FCR 89
Wyloo Metals Pty Ltd v Quarry Park Pty Ltd [2021] WASC 356

SEAWARD J:

Introduction

The plaintiff, Historical Holdings, brings an application seeking pre‑action discovery from the defendant, Hills Health.
Historical Holdings considers it may have causes of action against Hills Health and its former directors for misleading and deceptive conduct. Historical Holdings maintains that it has not been able to obtain sufficient information to make a decision as to whether to commence proceedings against Hills Health and its former directors. On that basis, Historical Holdings seeks orders that Hills Health discover the documents to which I refer later in these reasons.
Hills Health opposes the application on the ground that Historical Holdings does not have a cause of action against Hills Health. Hills Health submits that a Deed of Company Arrangement (DOCA) entered into on 23 August 2023 extinguished any cause of action that Historical Holdings may have against Hills Health.
For the reasons set out below, I am of the view that it is appropriate to grant Historical Holdings' application for pre‑action discovery.

Background

The background facts for the purposes of this application are not in dispute. The below summary of the facts is largely drawn from [4] ‑ [14] of Historical Holdings' outline of submissions dated 1 November 2024, which is not disputed by Hills Health for the purposes of this application only.[1] In summarising the background facts, I emphasise that I am not making factual findings in this application, but rather I am setting out the facts as relevant to the application. It is neither possible nor appropriate to attempt to determine all factual issues in an application such as this or make any final findings of fact.
[1] Defendant's submissions dated 11 November 2024 [6].
Hills Health was, at all relevant times up to 29 May 2023:
(a)a publicly listed company, trading on the ASX; and
(b)the parent company of Hills Health Solutions Pty Ltd (HHS).
In April 2023, Historical Holdings acquired a significant volume of shares in Hills Health. At the time of that acquisition:
(a)HHS had been a party to legal proceedings brought against it by Stellar Vision Operations Pty Ltd (Stellar) in the Supreme Court of New South Wales (Stellar Proceedings);
(b)the Stellar Proceedings concerned claims for damages for breach of contract and breach of fiduciary duty relating to an alleged agreement between Stellar and HHS for the development of patient entertainment systems for hospitals in Western Sydney;
(c)the Stellar Proceedings were dismissed in February 2022; and
(d)Stellar had lodged an appeal in the New South Wales Court of Appeal against the first instance decision to dismiss the proceedings.
Prior to Historical Holdings acquiring its shares in Hills Health, Hills Health issued a number of market announcements to the effect that:
(a)Hills Health had contingent liabilities at 30 June 2022 with respect to a claim against a 'Group company' concerning a third‑party contract;
(b)that claim had been dismissed;
(c)Hills Health had received legal advice that:
(i)the appeal would not succeed;
(ii)its obligations in respect of the claim could not be measured with sufficient certainty;
(d)based upon that legal advice, the directors were of the opinion that provisions were not required in respect of that claim.
Those announcements included the following (together the Announcements).
On 31 August 2022, Hills Health released the preliminary final report for the year ended 30 June 2022 on the ASX Markets Announcement Platform (MAP). On 26 September 2022, Hills Health released its annual report for the year ended 30 June 2022 on MAP. Both the preliminary final report and the annual report for 2022 contained the following words:
The appeal is currently listed for hearing in November 2022. Based on legal advice, the Directors are of the opinion that provisions are not required in respect of the one outstanding matter as it is not probable that a future outflow of economic benefits will be required, or the amount of the obligation cannot be measured with sufficient reliability.
On 28 February 2023, Hills Health released its interim financial report for the half year ended 31 December 2022 on MAP, containing the following words:
The Group has a commercial legal claim common to businesses of its type. This claim is against a Group company and related to a dispute concerning a third-party contract. In February 2022, this claim was dismissed by the Court, with costs awarded in favour of the company. The claimant has appealed. Legal advice indicates the appeal process will not be successful.
On 13 March 2023 and 23 March 2023, Hills Health released investor presentations on MAP. Both investor presentations contained the following words:
Two claims are currently outstanding against the Company. One, which was related to a dispute concerning a third-party contract. This claim has been dismissed by the Court, with costs awarded in favour of the Company. The decision has been appealed by the other party. The appeal is currently listed for hearing in May 2023. Based on legal advice, the Directors are of the opinion that no provision is required in respect of this outstanding matter as it is not probable that a future outflow of economic benefits will be required, or the amount of the obligation cannot be measured with sufficient reliability
On 22 March 2023, Historical Holdings entered into a subscription agreement and an underwriting agreement to purchase shares in Hills Health. In accordance with those agreements, Historical Holdings acquired a significant volume of shares in Hills Health in April 2023 as follows:
(a)Historical Holdings paid the sum of $2,665,760.14 to Hills Health on 18 April 2023; and
(b)Hills Health issued a total of 175,000,000 ordinary fully paid shares to Historical Holdings on 20 April 2023.
On 18 May 2023, the New South Wales Court of Appeal allowed Stellar's appeal and on or around 26 May 2023 the Court of Appeal entered judgment for Stellar for the amount of $5,482,312.83 plus costs.[2]
[2] Stellar Vision Operation Pty Ltd v Hills Health Solutions Pty Ltd [2023] NSWCA 102.
In the immediate aftermath of the appeal decision, the following occurred:
(a)on 29 May 2023, Hills Health was suspended from the official quotation on the ASX;
(b)on 2 June 2023, Hills Health entered into voluntary administration. This information become publicly available via an ASX announcement on 5 June 2023;
(c)on 23 August 2023, a DOCA was executed. I will return to the text of the DOCA later in these reasons; and
(d)on 31 October 2023, the DOCA was effectuated and Hills Health came out of administration.

Originating Summons

By originating summons filed 31 July 2024, Historical Holdings seeks an order pursuant to O 26A r 4 of the Rules of the Supreme Court 1971 (WA) (RSC) that Hills Health provide discovery on affidavit of 'all documents that are or have been in its possession, custody or power evidencing' the legal advice referred to in the Announcements.
In the originating summons, Historical Holdings also seeks an order for inspection of those documents, but Historical Holdings does not press that order at this stage. Historical Holdings accepts that the question of inspection is a separate question to be determined after discovery is provided (if it is ordered). In the present case, an obvious issue at the time of any application for inspection will be whether any legal advice discovered is subject to a claim of legal professional privilege, or whether that privilege has been waived by the references to it in the various announcements. As this order is not pressed at this stage, I have not considered this issue.

Legal principles - pre-action discovery

Historical Holdings brings its application pursuant to O 26A r 4 of the RSC which provides as follows:
(1)This rule applies if a person who may have a cause of action against a person whose description has been ascertained (the potential party) wants:
(a) to commence proceedings against the potential party; or
(b) to take proceedings against the potential party in the course of an action to which the person is a party,
but the person, after reasonable enquiries, has not been able to obtain sufficient information to enable a decision to be made as to whether to commence or take the proceedings.
(2) If there are reasonable grounds for believing that the potential party had, has, or is likely to have had or to have, possession of documents that may assist in making the decision, the person may apply for an order under this rule.
(3) The application shall be supported by an affidavit and a copy of both shall be served on the potential party.
(4) On the application the Court may order the potential party to give discovery of all documents that are or have been in the potential party's possession and that may assist the applicant in making the decision.

The principles applicable to applications made pursuant to the above provisions were outlined by the Court of Appeal in Kelbush Pty Ltd v Australia and New Zealand Banking Group Ltd[3] and Scanlan v 2‑4 McCabe Pty Ltd.[4] It is not necessary to repeat those paragraphs in full. The key principles which apply to an application under O 26A r 4 are as follows:
[3] Kelbush Pty Ltd v Australia and New Zealand Banking Group Ltd [2016] WASCA 14; (2016) 49 WAR 374[9] ‑ [18], [66] ‑ [71] and [120] ‑ [124].
[4] Scanlan v 2‑4 McCabe Pty Ltd [2023] WASCA 135 [46] ‑ [51].
(a)O 26A r 4 applies if the following conditions are satisfied:
(i)there must be a person who 'may have a cause of action' against a person whose description has been ascertained (the potential party);
(ii)the person must want to (relevantly here) commence proceedings against the potential party;
(iii)the person must have made 'reasonable enquiries' for the purpose of obtaining sufficient information to enable the person to make a decision as to whether to commence or take the proceedings;
(iv)after making those reasonable enquiries, the person has not been able to obtain sufficient information to enable the decision to be made;
(v)there are 'reasonable grounds for believing' that the potential party had, has, or is likely to have had or to have, possession of documents that may assist in making the decision; and
(vi)the person has filed an affidavit in support of the application and served the application and affidavit on the potential party.

(b)A party seeking pre-action discovery must affirmatively establish that he or she 'may have a cause of action' against the potential defendant. This requirement has been described as the jurisdictional requirement. The phrase 'cause of action' should be understood in its ordinary sense of the facts or combination of facts which gives the right to sue.
(c)An objective test is to be applied in assessing whether the applicant may have a cause of action against the potential defendant. It is unnecessary for the applicant to demonstrate a prima facie case or the actual existence of a cause of action against the potential party. The test is not that high. However, there must be some material to provide some tangible backing or objective foundation that takes the existence of the cause of action beyond a mere allegation, suspicion or assertion. The objective evidence must indicate that there are sufficient facts necessary to give rise to a right to curial relief that may be able to be established.
(d)Once the potential party can demonstrate that he or she may have a cause of action, then the jurisdiction of this court's discretion to order pre-action discovery is enlivened.
(e)The factors relevant to the exercise of that discretion include:
(i)the likelihood that a cause of action of the kind suggested will be found to exist;
(ii)the nature and significance of that potential cause of action;
(iii)the likely effect, on the person against whom discovery is sought, of the making of an order of the kind contended for;
(iv)whether there is any other adequate means available to the intending plaintiff of obtaining the information which it seeks;
(v)the nature and confidentiality of the documents proposed to be obtained;
(vi)the possible significance of the information contained within those documents to the decision whether or not to commence the contemplated proceedings;
(vii)whether the applicant is able to compensate the potential party for its cost of complying with the order;
(viii)whether there is any evidence of bad faith on the part of the applicant; and
(ix)the ordinary principles of case management contained in O 1 r 4B of the RSC, including matters going to the proportionality of the application.

Issues in dispute

There are only two issues in dispute between the parties.
The first, and key, issue in dispute is whether Historical Holdings is able to demonstrate that it may have a cause of action against Hills Health. Hills Health submits that any cause of action Historical Holdings may have had against Hills Health has been extinguished by the DOCA, and further that this application is barred by the DOCA.
Secondly, in the event I am satisfied that Historical Holdings is able to demonstrate that it may have a cause of action against Hills Health, it will also be necessary to consider the factors relevant to the exercise of my discretion.
The remaining statutory criteria for the grant of pre-action discovery under O 26A r 4 of the RSC were not disputed by Hills Health,[5] and I am satisfied on this basis, and having reviewed the evidence and submissions before the court, that these other criteria are satisfied.

The jurisdictional question - has Historical Holdings established that it may have a cause of action against Hills Health?

Historical Holdings' case

[5] ts 22 November 2024, 68.

Historical Holdings submits it may have one or more of the following causes of action against Hills Health and its former directors:
(a)as against Hills Health, a declaration that it engaged in misleading or deceptive conduct contrary to s 1041H and s 674A of the Corporations Act 2001 (Cth) (Corporations Act) and/or s 12DA of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act); and
(b)as against the former directors, damages on the basis that either they were knowingly concerned in Hills Health's misleading or deceptive conduct or themselves engaged in misleading or deceptive conduct.
For the purposes of this application, it is unnecessary to distinguish the differences, if any, between the causes of action under the Corporations Act and the causes of action under the ASIC Act. I will refer to both collectively as the potential cause of action for misleading and deceptive conduct.
The alleged misleading and deceptive conduct consists of the representations contained in the Announcements to the effect that:
(a)Hills Health had received legal advice that Stellar had no prospects of success in the appeal proceedings before the NSWCA;
(b)Stellar had no prospects of success in the appeal; and
(c)Hills Health's obligations in the event that Stellar was successful in the appeal could not be measured with sufficient reliability.
Historical Holdings' case is that, as a matter of common experience, lawyers do not generally express opinions as to the likelihood of success in absolute terms. Accordingly, if Hills Health received legal advice that was not expressed in the absolute terms conveyed in the Announcements, then it is arguable that Hills Health and its former directors engaged in misleading and deceptive conduct.
Further, Historical Holdings submits that it is clear from the Stellar appeal decision that in the Stellar Proceedings, both parties relied upon evidence of one quantum expert each, and that only one input was in dispute in the respective experts' calculation of quantum. Historical Holdings submits that in these circumstances, it is arguable that the amount of exposure could have been (and may have been) estimated within a range with a degree of certainty. Accordingly, if legal advice was given to this effect, then it is arguable that Hills Health and its former directors engaged in misleading and deceptive conduct.

Hills Health's case

Hills Health submits that Historical Holdings cannot establish that it may have a cause of action against it because the cause of action identified in the submissions was extinguished by the DOCA, and that the present application itself is barred by the DOCA.
Hills Health's submission requires a consideration of the terms of the DOCA itself.
Clause 5.1(a) of the DOCA provides that, in accordance with s 444D of the Corporations Act, the DOCA binds all 'Creditors'. Clause 1 of the DOCA defines a 'Creditor' as 'any person who has a Claim'.
The term 'Claim' is defined in cl 1 of the DOCA as:
A debt payable by, and all claims against the Deed Company (present or future, certain or contingent, ascertained or sounding only in damages), being a debt or claim that would be admissible to proof against the Deed Company in accordance with Division 6 of Part 5.6 of the Corporations Act, if the Deed Company had been wound up and the winding up is taken to have commenced on the Appointment Date, and any fine or penalty to which the Deed Company is subject or liable to be subject arising out of circumstances occurring prior to the Appointment Date that would be so admissible but for the operation of section 553B of the Corporations Act.
'Claim' includes a Claim of a Secured Creditor but does not include an Excluded Claim.
An 'Excluded Claim' is defined in cl 1 of the DOCA as:
Any:
(a) Priority Claim, including any annual or long service leave accrued from the Appointment Date to Completion (but not including any Trust Employee Entitlement Claims);
(b) Claim arising under an Excluded Contract other than an Excluded Contract Released Claim (unless otherwise agreed by the Deed Company and the counterparty to that Excluded Contract);
(c) Insured Claim but only to that extent; and
(d) other Claim that the Deed Proponent nominates in writing to the Deed Administrators as an Excluded Claim prior to the Completion Date.
'Claim', when used in this defined term, disregards the exclusion of 'Excluded Claims' from the definition of Claim.

Clause 5.3(i) of the DOCA relevantly provides that no Creditor may, 'in relation to that Creditor's Claim', 'enforce any right it might have or acquire except to the extent of that Creditor's entitlement, if any, to participate in the Trust Fund'.
Clause 5.4 of the DOCA provides that:
Subject to clauses 5.7, 6.3, 8, and 10.3 each Creditor's Claims are forever discharged, extinguished and released in full on Completion.
Clause 5.5 of the DOCA provides that:
Subject to section 444D of the Corporations Act, this document may be pleaded and tendered by:
(a) the Deed Company or the Deed Administrators against any person having or asserting a Claim released, discharged and extinguished by clause 5.4; and
(b) the recipient of any release or covenant contained in this document,
as an absolute bar and defence to any legal proceeding brought or made at any time in respect of a claim, release or covenant as the case may be.
Hills Health's case is that as the Announcements were all issued prior to the appointment date of 2 June 2023, if the Announcements do constitute misleading and deceptive conduct, then each of the contraventions would give rise to a statutory liability as at the date of the contraventions for the loss or damage suffered by Historical Holdings in consequence of those contraventions. Accordingly, Historical Holdings had a Claim within the meaning of the DOCA; Historical Holdings is a Creditor under the DOCA and is bound by it; and pursuant to cl 5.4 of the DOCA, that Claim has been forever discharged, extinguished and released.
In response, Historical Holdings submits that as against Hills Health it is only proposing to seek a declaration. Historical Holdings submits that the DOCA, when read in the context of s 553 of the Corporations Act, only applies to money claims and does not extend to claims for a declaration of the sort that Historical Holdings is contemplating claiming in this case. Historical Holdings refers to a number of decisions in support of its submission that an application for a declaration is not a claim admissible to proof under s 553 of the Corporations Act and therefore does not fall within the definition of 'claim' under the DOCA.
On the question of declaratory relief, Hills Health makes two broad submissions. First, that Historical Holdings' claim for declaratory relief is being sought 'in relation to' a claim that is captured by the DOCA. As Hills Health submits that the underlying claim has been extinguished by the terms of the DOCA, Hills Health submits that the claim for the declaration is also extinguished by the terms of the DOCA. Hills Health submits that the cases referred to by Historical Holdings do not assist, and instead refers the court to other authorities. Secondly, Hills Health submits that Historical Holdings does not have standing or an entitlement to seek the declarations sought.

Is an application for a bare declaration a cause of action?

Section 25(6) of the Supreme Court Act 1935 (WA) (Supreme Court Act) provides the court with the power to make a bare declaration:
No action shall be open to objection on the ground that a merely declaratory judgment is sought thereby, and it shall be lawful for the Court to make binding declarations of right without granting consequential relief.
Section 25(6) of the Supreme Court Act also finds expression in O 18 r 16 of the RSC which provides:
No action or other proceeding shall be open to objection on the ground that a merely declaratory judgment or order is sought thereby, and the Court may make binding declarations of right whether or not any consequential relief is or could be claimed.
Neither the RSC nor the Supreme Court Act define the phrase 'a cause of action'. However, the terms 'cause' and 'action' are individually defined as follows:[6]
action means a civil proceeding commenced by writ or in such other manner as may be prescribed by rules of court, but does not include any criminal proceeding;
cause includes any action, suit or other original proceeding between a plaintiff and defendant, and any criminal proceeding;
[6] Supreme Court Act 1935 (WA), s 4.
These inclusive definitions are broad, and by their terms would appear to include an application commenced by a writ or other civil originating process seeking a bare declaration.
In Kelbush Pty Ltd v Australia and New Zealand Banking Group Ltd,[7] Mitchell J held that the phrase 'cause of action', as it appears in O 26A r 4, should be understood in its 'ordinary sense of the facts or combination of facts which gives the right to sue'. Again, this definition would include an application for a bare declaration.
[7] Kelbush Pty Ltd v Australia and New Zealand Banking Group Ltd [2016] WASCA 14 [71].
In the context of the Crown Suits Act 1947 (WA) and the Limitation Act 2005 (WA), the phrase 'an action on a cause of action', has been held to extend to the seeking of a bare declaration.[8]
[8] Wyloo Metals Pty Ltd v Quarry Park Pty Ltd [2021] WASC 356[128] ‑ [138]; Judamia v Western Australia (Unreported, WASC Full Court, Library No 960114, 1 March 1996), 33 ‑ 35.
I was not referred by the parties to any authorities excluding a claim for a bare declaration from the scope of O 26A r 4 of the RSC.

Has Historical Holdings demonstrated that it may have a cause of action?

As outlined by the authorities, it is not necessary for Historical Holdings to demonstrate a prima facie case or the actual existence of a cause of action. The test is not that high. Historical Holdings need only establish that it 'may' have a cause of action.
Hills Health does not submit that Historical Holdings cannot meet this test because, for example, the affidavit material does not rise above a mere allegation, suspicion or assertion. Rather, Hills Health submits that any cause of action Historical Holdings may have had has been extinguished by the DOCA. There are three elements to Hills Health's submission:
(a)that a claim for compensation by Historical Holdings against Hills Health for misleading and deceptive conduct concerning the Announcements is a Claim for the purposes of the DOCA and is extinguished by the DOCA;
(b)that any proposed declaration is 'in relation to' that Claim and is therefore also extinguished and barred by the DOCA; and
(c)that Historical Holdings does not have standing or an entitlement to seek the proposed declaration.
Historical Holdings submits that the claims subject to and extinguished by the DOCA do not extend to claims for declaratory relief.
I have considered each in turn.

Does the DOCA extinguish a claim for compensation by Historical Holdings for misleading and deceptive conduct?

Hills Health submits that if the Announcements constitute misleading and deceptive conduct contrary to the Corporations Act and the ASIC Act, then each contravention would give rise to a statutory liability as at the date of those contraventions of Hills Health for the loss or damage suffered by Historical Holdings as a consequence of those contraventions. This is consistent with the decisions in Sons of Gwalia Ltd v Margaretic[9] and BE Australia WD Pty Ltd v Sutton.[10]
[9] Sons of Gwalia Ltd v Margaretic [2007] HCA 1; (2007) 231 CLR 160 [170] ‑ [176], with whom Gummow J ([45] - [46]), Heydon J ([261]) and Crennan J ([265]) agreed on this issue.
[10] BE Australia WD Pty Ltd v Sutton [2011] NSWCA 414; (2011) 82 NSWLR 336 [104] ‑ [107].
Subject to one caveat, as each Announcement was issued prior to the appointment date of 2 June 2023, this statutory liability falls within the definition of a 'Claim' contained in the DOCA, and Historical Holdings is a 'Creditor' for the purposes of the DOCA. The consequence of this is that Historical Holdings' Claim is extinguished by cl 5.4 of the DOCA, and cl 5.5 of the DOCA operates as an absolute bar to any legal proceedings brought or made at any time in respect of the Claim.
Historical Holdings does not directly dispute the above, but submits that there is an important requirement in order for any claim for damages for misleading and deceptive conduct to constitute a 'Claim' for the purposes of the DOCA. That is that the claim is not an 'Excluded Claim'. In the present case, Historical Holdings submits that it would be necessary for Hills Health to establish that any claim for damages would not be (relevantly for the purposes of the definition of 'Excluded Claim'):
(c) Insured Claim but only to that extent; and
(d) other Claim that the Deed Proponent nominates in writing to the Deed Administrators as an Excluded Claim prior to the Completion Date.
Historical Holdings submits that these are both matters within the knowledge of Hills Health, and no evidence as to either is before the court.
An 'Insured Claim' is defined in the DOCA as:
A Claim which a Creditor has against the Deed Company where:
(a) the Claim would have been entitled to a priority in a liquidation under section 562 of the Corporations Act;
(b) the Deed Company is insured against that Claim under a contract of insurance (not being a contract of reinsurance) entered into before the Appointment Date; and
(c) an amount in respect of that Claim would be payable by the insurer to the Deed Company under the contract of insurance,
but only to the extent of such part of the Claim as would be discharged by the payment from the insurer.
Clause 8 of the DOCA is also relevant to Insured Claims, and cl 8.1(a) provides that if insurance is held by or on behalf of the Deed Company in respect of an Insured Claim, the Creditor may take action to recover the amount due. However, cl 8.1(d) provides that where a Creditor intends to take such enforcement action:
(i) the Creditor must, prior to taking any enforcement action in relation to the Claim, provide the Deed Company with an indemnity in the form of the Creditor Indemnity in Schedule 2 (Creditor Indemnity);
(ii) if requested by the Deed Company, provide the Deed Company with evidence, to the reasonable satisfaction of the Deed Company, that the Creditor will be (and will continue to be) in a financial position, or have access to sufficient funds, to enable it to satisfy the Creditor Indemnity; and
(iii) the Deed Company may plead this document as a bar to any enforcement action taken by a Creditor in relation to the Claim in circumstances where the Creditor has not, prior to commencing that enforcement action, given the Creditor Indemnity referred to in clause 8.1(d)(i) to the Deed Company.
The evidence before the court establishes that no indemnity of the type referred to has been provided by Historical Holdings.[11] However, there is no evidence as to whether any relevant insurance policies exist.
[11] Affidavit of Brendan John McCarthy, affirmed 11 November 2024, [21] - [25] and BJM-3, BJM-4 and BJM-5 and BJM-6.
On the basis of the evidence before the court, it is not possible for me to presently exclude the application of paragraphs (c) and (d) of the definition of Excluded Claim to the present case. Whilst no indemnity has been provided, it is still first necessary to consider whether there is an insurance policy that responds. That is something which ought to be in the knowledge of Hills Health, as opposed to Historical Holdings.
In these circumstances, and given the nature of this application, whilst it may appear likely that any claim by Historical Holdings for damages for misleading and deceptive conduct would fall within the definition of 'Claim' for the purposes of the DOCA, absent evidence going to the application of paragraphs (c) and (d) of the definition of Excluded Claim outlined in the DOCA itself, a final conclusion on this issue cannot be made at this stage. Nonetheless, I have gone on to consider the remainder of the issues raised by the parties.

Does the DOCA also extinguish the proposed bare declaration?

Historical Holdings also made submissions that upon the proper construction of the DOCA, it is not a 'Creditor' and its proposed application for a bare declaration does not constitute a 'Claim', as the DOCA was intended to deal with, and then bar and extinguish, estimable money claims, and not claims for a bare declaration. Historical Holdings submits that this interpretation of the DOCA is consistent with s 553 of the Corporations Act. I was referred to various authorities by both parties in relation to this issue.
I do not consider that it is necessary to form a final view on this issue for the purposes of this application or to detail the reasons of each of these authorities for the purpose of dealing with Historical Holdings' application. This is for two reasons.
First, none of the authorities referred to by the parties conclude that a DOCA executed in accordance with the requirements of the Corporations Act can or cannot extinguish a claim for declaratory relief (or that a person seeking such declaratory relief is or is not a creditor). Rather, the authorities reveal that each case must be considered on its facts, and the question of whether an application for declaratory relief will constitute a provable debt (or whether the applicant constitutes a creditor) for the purposes of a DOCA will depend upon factors such as the terms and nature of the declaratory relief sought; whether it is accompanied by a claim for damages or compensation; the source of the power to seek declaratory relief; the terms of the specific DOCA; and the function and role (if any) of the person seeking the declaratory relief. As none of the authorities concern situations analogous to the present facts, the specific details of the authorities are therefore of limited assistance.
By way of example, Fair Work Ombudsman v Foot & Thai Massage Pty Ltd (In Liq) (No 4),[12] was concerned with a claim for declaratory relief by the Fair Work Ombudsman that the respondent company had contravened certain provisions of the Fair Work Act 2009 (Cth). Katzmann J had regard to the wording of the DOCA; the statutory role of the Ombudsman; the nature of the declarations sought and the contraventions in question, before concluding that the Ombudsman was not a creditor for the purpose of the DOCA in that case, and that the declarations sought were not provable debts.
[12] Fair Work Ombudsman v Foot & Thai Massage Pty Ltd (In Liq) (No 4) [2021] FCA 1242.
In PK Riddell Investments Pty Ltd v Onwards Up and Gone Pty Ltd,[13] a claim for damages and injunctive relief was sought in the Victorian Civil and Administrative Tribunal by an occupant of an apartment against the owner of another apartment in the same complex for water damage. That owner was then the subject of a DOCA. Waller J considered the statutory framework of the injunction application and concluded that the jurisdiction to grant an injunction was contingent upon the occupant demonstrating damage. On the basis of the statutory framework; the points of claim of the occupant (seeking both damages and the injunction); and the terms of the DOCA, Waller J concluded that the underlying cause of action (if established) would give rise to a liability on the part of the owner to pay damages and therefore may be characterised as being a claim having a basis, founded on an existing legal right, for asserting a right to participate in the division of the company's assets. Waller J held that therefore the claims for damages and injunctive relief were extinguished by the terms of the DOCA.
[13] PK Riddell Investments Pty Ltd v Onwards Up and Gone Pty Ltd [2024] VSC 159; (2024) 73 VR 219.
There is no dispute that the present case is different from Fair Work Ombudsman v Foot & Thai Massage Pty Ltd (In Liq) (No 4)in that Hills Health stands in a different position and does not have the statutory functions of the Ombudsman. The present case is also different from PK Riddel as proof of damage is not required to demonstrate misleading and deceptive conduct under the Corporations Act or the ASIC Act and there is no proposed claim for damages as against Hills Health.
Secondly, Hills Health's submission on this issue is not, as I understand it, that the DOCA directly extinguishes any claim for declaratory relief by a creditor. Rather, Hills Health's submission assumes that a claim for damages for misleading and deceptive conduct is a Claim and it is extinguished by the DOCA. Hills Health submits that the declaration is being sought 'in relation to a Claim that is captured by the DOCA', and for the following reasons the application for declaratory relief is therefore also extinguished and barred:
(a) clause 5.3 of the DOCA operates 'in relation to [Historical's] Claim'. Because the Claims extinguished by the DOCA derive from a breach of the Relevant Provisions, the declarations Historical is considering seeking are 'in relation' to those Claims;
(b) in those circumstances, cl 5.3(i) of that clause operates as a covenant by Historical not to enforce any right it might have to such relief (which right is in any event denied);
(c) further, cl 5.5 operates as a bar to 'any legal proceeding' brought by Historical against Hills 'in respect of' the claims extinguished. Plainly, both the contemplated proceeding for seeking declaratory relief and the current proceeding seeking orders under O 26A, r 4 falls within 'any legal proceeding' so as to be barred by the DOCA; and
(d) a creditor cannot avoid the extinguishment of its claim under a DOCA by in essence saying don't worry about my claim for damages, I only want a declaration.
Hills Health's submission is one possible interpretation of the interaction between the DOCA and the proposed application for declaratory relief. However, I do not consider it is the only possible interpretation.
Hills Health's submission is premised on the proposition that a declaration is being sought 'in relation to' a Claim that is captured by the DOCA. Whilst that is one interpretation, another is that the proposed declaration is not 'in relation to' a Claim that is captured by the DOCA - being a claim for damages for misleading and deceptive conduct - but rather is 'in relation to' the underlying conduct by Hills Health - being the Announcements.
Hills Health's submission is also premised on that basis that cl 5.3(i) of the DOCA applies. However, cl 5.3(i) provides that during or after the Deed Period no Creditor may, in relation to that Creditor's Claim, 'otherwise enforce any right it may have or acquire'. If Historical Holdings' Claim is a claim for damages for misleading and deceptive conduct, it is arguable that a proceeding seeking a bare declaration that Hills Health engaged in misleading and deceptive conduct in publishing the Announcements does not involve Historical Holdings otherwise enforcing any right it may have or acquire in relation to that claim for damages. Rather, it involves Historical Holdings seeking a declaration as to its rights in relation to the underlying conduct of Hills Health.
Finally, Hills Health's submission is based on the proposition that cl 5.5 of the DOCA bars both any proceedings seeking declaratory relief, and also the present application for pre‑action discovery. Again, if the application for a bare declaration is construed as being 'in relation to' the Announcements, and not a claim for damages for misleading and deceptive conduct, then it is arguable that cl 5.5 would not operate as a bar, and the application for declaratory relief would not be 'in respect of a claim' for the purpose of this DOCA.

Does Historical Holdings have standing or an entitlement to seek declaratory relief?

Hills Health submits that Historical Holdings does not have standing or an entitlement to seek a declaration that Hills Health engaged in misleading or deceptive conduct for the following reasons:
(a) the Court's jurisdiction to make an order under RSC, O 26A, r 4 requires that the applicant establish that it may have a 'cause of action'. In that regard, it is well-established that the Relevant Provisions merely establish a norm of conduct the breach of which do not themselves give rise to causes of action;
(b) Historical points to no right to declaratory relief under the Corporations Act or the ASIC Act, and it could not have standing to seek any such relief. Accordingly, it has no 'cause of action' within the meaning of RSC, O 26A, r 4;
(c) Historical does not, for example, seek a declaration as to defining its rights as between it and Hills, and it identifies no special interest in seeking a mere declaration of contravention;
(d) section 1317J(1) of the Corporations Act confers standing only on ASIC to seek a declaration of contravention of the Corporations Act;
(e) section 1317J(4) of the Corporations Act states no person may apply for a declaration of contravention unless permitted by s 1317J;
(f) section 12HD of the ASIC Act confers standing on 'a person' in relation to a matter 'arising under' Division 2 of Part 2 of the ASIC Act (in which s 12DA is found), but relevantly only for declarations 'in relation to the operation or effect of any provision' of that Division or 'in relation to the validity of any act or thing done' under that Division. The standing conferred by that section does not extend to seeking a mere declaration that particular conduct in trade or commerce has breached a provision of the Act; it extends only to the interpretation and effect of the ASIC Act itself and the validity of things done or proposed to be done pursuant to it.

I am satisfied in all the circumstances that Historical Holdings may have standing to seek a declaration that Hills Health engaged in misleading and deceptive conduct.
For the reasons outlined in [40] ‑ [46] above, I am satisfied that an application for a bare declaration is a 'cause of action' for the purposes of O 26A r 4 of the RSC.
It is not clear to me that it is necessary for Historical Holdings to point to a provision of the Corporations Act or the ASIC Act which grants it standing to seek declaratory relief. The Supreme Court has jurisdiction to make a bare declaration. That jurisdiction is, however, confined in the manner described by Mason CJ, Dawson, Toohey and Gaudron JJ in Ainsworth v Criminal Justice Commission:[14]
It is now accepted that superior courts have inherent power to grant declaratory relief. It is a discretionary power which '[i]t is neither possible nor desirable to fetter ... by laying down rules as to the manner of its exercise.' (Forster v Jododex Aust Pty Ltd (1972) 127 CLR 421 at p 437 per Gibbs J). However, it is confined by the considerations which mark out the boundaries of judicial power. Hence, declaratory relief must be directed to the determination of legal controversies and not to answering abstract or hypothetical questions (see In re Judiciary and Navigation Acts (1921) 29 CLR 257). The person seeking relief must have 'a real interest' (Forster (1972) 127 CLR at p 437 per Gibbs J; Russian Commercial and Industrial Bank v British Bank for Foreign Trade, Ltd [1921] 2 AC 438 at p 448 per Lord Dunedin) and relief will not be granted if the question 'is purely hypothetical', if relief is 'claimed in relation to circumstances that [have] not occurred and might never happen' (University of New South Wales v Moorhouse (1975) 133 CLR 1 at p 10 per Gibbs J) or if 'the Court's declaration will produce no foreseeable consequences for the parties' (Gardner v Dairy Industry Authority (NSW) (1977) 52 ALJR 180 at p 188 per Mason J; see also p 189 per Aickin J; 18 ALR 55 at pp 69, 71 respectively).
[14] Ainsworth v Criminal Justice Commission [1992] HCA 10; (1992) 175 CLR 564, 581 – 582.
In so far as there is a requirement that the person seeking declaratory relief must have 'a real interest', it is arguable that this is satisfied in the present case by Historical Holdings being a shareholder of Hills Health that invested a significant sum of money in Hills Health in circumstances where (on the assumption an application is commenced as foreshadowed) it was misled by the Announcements. I accept Historical Holdings' submission that it is not a stranger to the matter.
Further, I do not consider any of the provisions relied on by Hills Health have the effect that Historical Holdings does not have standing to seek the declaratory relief proposed. Section 1317J of the Corporations Act is concerned with who may apply for a declaration of a contravention of a civil penalty provision. Neither s 1041H of the Corporations Act, or s 12DA of the ASIC Act are listed in s 1317E of the Corporations Act as being civil penalty provisions. Section 12HD of the ASIC Act is concerned with a power to seek a specific type of declaration. Historical Holdings does not seek a declaration under s 12HD of the ASIC Act. There is nothing in the wording of s 12HD which indicates that it operates exclusively so as to exclude the ability of a person to otherwise seek a declaration, or the power of the Supreme Court to grant such a declaration under s 25(6) of the Supreme Court Act.[15]
[15] In this regard, see Tobacco Institute of Australia Ltd v Australian Federation of Consumer Organisations Inc (1993) 41 FCR 89, 96 ‑ 99 (Sheppard J), 106 (Foster J) and 111 ‑ 112 (Hill J).
I was also not referred to any provision in either the Corporations Act or the ASIC Act that imposes any general restriction on a party seeking a declaration as to whether an individual has engaged in misleading and deceptive conduct under the Corporations Act or the ASIC Act, or a court granting such a declaration. Whether an entity is successful in any such application for declaratory relief, is a different matter.

Conclusion as to the jurisdictional question

For the above reasons, I am satisfied that Historical Holdings has established that it may have a cause of action against Hills Health for a declaration that Hills Health engaged in misleading and deceptive conduct for the purposes of the jurisdictional question in O 26A r 4 of the RSC.
In reaching this conclusion, I am not expressing any final view as to the success of Historical Holdings' case in relation to any such application; or whether any or all of Hills Health's submissions as to the interaction between the DOCA and the proposed application for declaratory relief may or may not ultimately be successful; or whether any application for declaratory relief may or may not be granted. However, Historical Holdings does not need to establish a prima facie case, and in my opinion Hills Health's case that the DOCA has extinguished Historical Holdings' application for declaratory relief and that Historical Holdings does not have standing to seek declaratory relief is not so clear so as to render Historical Holdings' proposed cause of action inarguable.

Exercise of the discretion

Given my conclusion as to the jurisdictional question, it is now necessary to consider the exercise of the discretion.
I am satisfied in all the circumstances that it is appropriate to exercise my discretion to grant Historical Holdings' application.
I have had regard to the nature of the potential cause of action identified by Historical Holdings and the significance of the documents to it. At this stage, it is not possible to form a view as to whether the proposed application for declaratory relief will ultimately be found to exist. However, as outlined earlier in these reasons, I am satisfied that the documents sought are the key material required for Historical Holdings to make a decision as to whether to actually commence proceedings against Hills Health. I am also satisfied that Historical Holdings has taken reasonable steps to obtain the documents, and that there is no other adequate means for obtaining the documents.
I have also had regard to the ordinary principles of case management, including matters going to the proportionality of the application. Historical Holdings does not seek all documents relating to the legal advice, but rather all documents evidencing the legal advice. That is, Historical Holdings is seeking copies of the legal advice, or any documents which evidence that legal advice. The latter may be of relevance if (for example) no written legal advice was provided. Whilst the category of documents sought is not necessarily a limited number or set number, there is no evidence before me that the task of searching for and locating the documents will be oppressive. In the circumstances where the legal advice will likely be the key factor relevant for Historical Holdings to make a determination as to whether to commence the declaration application, I consider that the application is proportionate and not contrary to the ordinary principles of case management.
The originating summons proposes that there be no order as to costs. However, this is not the usual order in relation to applications for pre‑action discovery and it would ordinarily be appropriate that, if granted, Historical Holdings pay Hills Health's reasonable costs of complying with the orders of the court. There is also no evidence that Historical Holdings will have any difficulty in compensating Hills Health for these costs.
A further issue which arises in the context of considering the exercise of my discretion, is that the documents which have been sought are legal advice provided to Hills Health, or documents evidencing that legal advice. At this stage in the proceedings, Historical Holdings is not seeking inspection of the documents. A question may arise as to whether it is appropriate to exercise my discretion to grant discovery of documents which may be subject to legal professional privilege. In some cases, it may be clear that the documents sought by way of discovery will be subject to legal professional privilege and that privilege will be claimed by the potential party. In such cases, the likely existence of the privilege may be a factor against granting pre‑action discovery. However, both parties submitted that this is not such a case. I accept that submission. In the present case, a clear question arises as to whether legal professional privilege has been waived by the Announcements. This is not a case where the answer to that question is necessarily clear. I therefore consider that the question of whether the documents are subject to legal professional privilege is a matter which does not weigh against granting discovery, and is instead a matter best addressed at the point of inspection, if any documents are discovered and privilege is claimed.
A further issue to consider arises because the potential cause of action is one for a bare declaration as against Hills Health that its conduct in issuing the Announcements constituted misleading and deceptive conduct. A question as to the utility of that declaration was raised by Hills Health, in circumstances where no claim for damages was proposed to be sought against Hills Health and in circumstances where it would be extinguished by the DOCA in any event. Hills Health submitted that accordingly there would be no utility in making such a declaration. Further, Hills Health submitted that the real purpose behind seeking discovery was to obtain documents to be used in any action against the former directors of Hills Health. In these circumstances, Hills Health submitted that the appropriate course would have been to commence an action against the former directors, and issue a non-party discovery application or a subpoena to Hills Health for the documents (if required).
In response, Historical Holdings submitted that questions of utility in granting discretionary relief are not matters relevant to the assessment of this application, given that all an applicant needs to demonstrate is that it may have a cause of action. Further, Historical Holdings submitted that to the extent utility was relevant, that there were two bases upon which there is utility: first there is utility in the court making a declaration that an ASX listed company has engaged in misleading and deceptive conduct in financial statements and market releases, and secondly that the declaration may be relevant in any action against the former directors, particularly if it is alleged that the basis of any liability is of an accessorial nature.
As a declaration is a discretionary remedy, questions regarding the utility in grating the relief sought are matters for the court to consider when hearing an application for declaratory relief. However, in the context of considering a pre-action discovery application, an applicant is not required to establish a prima facie case. In the present case, I do not consider that it can be said with certainty that there is no utility in granting such a declaration if one is ultimately sought. Historical Holdings has identified at least two reasons why there may be utility. Accordingly, I do not consider that the question of utility is a matter which weighs against the exercise of my discretion. The position may be different in a case where the lack of utility is more certain.
Finally, I do not consider the fact that Historical Holdings did not commence an action against the former directors and then seek the documents via non-party discovery or a subpoena is a matter which weighs against the exercise of my discretion. The affidavit evidence before the court is that Historical Holdings has not yet decided whether to actually commence proceedings. That is the plain purpose of seeking the documents as described in this application. In these circumstances, it may be difficult for the legal representatives to comply with their obligations to the court if an action were commenced in these circumstances. I am also satisfied that there is no evidence before me of any bad faith on the part of Historical Holdings in commencing this application.
For the above reasons, I am satisfied that it is appropriate in all the circumstances that I exercise my discretion to grant the application for pre-action discovery.

Conclusions and orders

I will make order 1 of the orders sought in the originating summons only. I will hear further from the parties as to the precise wording of the orders and as to costs.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
HY
Associate to the Honourable Justice Seaward
20 DECEMBER 2024