In the matter of Eastmark Holdings Pty Limited (receivers and managers appointed) and 1 Denison Street Holdings Pty Ltd (receivers and managers appointed; In the matter of Eastmark Holdings Pty Limited (receivers..

[2015] NSWSC 2070

Supreme Court

New South Wales

Medium Neutral Citation:

In the matter of Eastmark Holdings Pty Limited (receivers and managers appointed) and 1 Denison Street Holdings Pty Ltd (receivers and managers appointed; In the matter of Eastmark Holdings Pty Limited (receivers and managers appointed) (subject to a deed of company arrangement) & ors [2015] NSWSC 2070

Hearing dates:

25 June 2015

Date of orders:

25 June 2015

Decision date:

25 June 2015

Jurisdiction:

Equity - Corporations List

Before:

Brereton J

Decision:

Notice to produce set aside; interlocutory processes dismissed.

Catchwords:

PROCEDURE – disclosure – notice to produce – application to set aside notices to produce – substantive application to terminate deed of company arrangement – where applicant entitled to adduce evidence not only to prove grounds for termination but also relevant to exercise of discretion – test of relevance – sufficient that it is “on the cards” that documents sought in some way add to available evidence – strength of defence does not bear on question of relevance – Practice Note SC Eq 11 – early production warranted by practical considerations – validity of notice under (NSW) Uniform Civil Procedure Rules 2005, r 34.1 – lack of specificity.

Legislation Cited:

(CTH) Corporations Act 2001, s 439A, s 445D
(NSW) Evidence Act 1995
(NSW) Uniform Civil Procedure Rules 2005, r 34.1

Texts Cited:

Practice Note SC Eq 11

Category:

Procedural and other rulings

Parties:

In proceedings 2015/22409:
The Owners Corporation of Strata Plan 74602 (plaintiff)
Eastmark Holdings Pty Limited (receivers and managers appointed) (ACN 003 921 953) (first defendant)
1 Denison Street Holdings Pty Limited (receivers and managers appointed) (ACN 156 399 727) (second defendant)

  In proceedings 2015/155286:
The Owners – Strata Plan No 74602 (plaintiff)
Eastmark Holdings Pty Limited (receivers and managers appointed) (subject to a deed of company arrangement) (ACN 003 921 953) (first defendant)
1 Denison Street Holdings Pty Limited (receivers and managers appointed) (subject to a deed of company arrangement) (ACN 156 399 727) (second defendant)
Absolute Investment Opportunity II Limited (ACN 160 726 358) (third defendant)
Secured Asia Pacific Limited (ACN 158 527 130) (fourth defendant)
Philip Patrick Carter (fifth defendant)
Marcus William Ayres (sixth defendant)

Representation:

Counsel:
C R C Newlinds SC w T E O’Brien (plaintiff)
C Withers (first and second defendants)
E Holmes (receivers of first and second defendants)
M Izzo w J Burnett (third and fourth defendants)

 

Solicitors:
In proceedings 2015/22409:
Jones Day (plaintiff)
Gilbert + Tobin (first and second defendants)

  In proceedings 2015/155286:
Jones Day (plaintiff)
Gilbert + Tobin (first and second defendants)
King & Wood Mallesons (third and fourth defendants)

File Number(s):

2015/22409; 2015/155286

Judgment (ex tempore)

1. HIS HONOUR: These applications to set aside notice to produce issued by the plaintiff to the defendants have to be addressed with necessary economy due to the proximity of the final hearing and the need for an immediate resolution of these questions and constraints on the available time of the Court. In the substantive proceedings, the plaintiffs apply pursuant to (CTH) Corporations Act 2001, s 445D, to have a Deed of Company Arrangement terminated upon grounds which have now been particularised as including (1) material omissions from the administrator's s 439A report to creditors, and (2) that it is not apparent from that report, or any other communication to the creditors, that the administrator's investigations for the purposes of the report were adequate in a number of respects including, in particular, the circumstances in which the “senior creditors” obtained their claimed status as secured creditors. The Deed Of Company Arrangement invites that question because by it the secured creditors agree to pay into a deed fund a sum of $600,000 and, upon certain conditions, to provide a further $1.1 million, in circumstances where, in the ordinary course of events, they would not participate in a Deed of Company Agreement and where the benefit to them of the Deed is that they obtain releases by the company and by the so-called deed creditors – who are effectively the unsecured creditors of the companies – of any claims that those parties might have against the secured creditors.

2. The circumstance that the secured creditors are prepared to pay up to $1.7 million for such releases begs the question: What is the threat or prospect in respect of which they seek such a release and are prepared to pay such an amount? I hasten to say that there may be a very good answer which involves showing that there is nothing that they have to fear at all, but the nature of the deed itself, on its face, I think legitimately gives rise to that question.

3. On an application under s 445D, it is well established that there are, at least, two steps in the Court's approach, although sometimes answering the first step affirmatively will practically dictate the second. The section confers a discretion to terminate a Deed of Company Arrangement if one of the various grounds referred to in subsection (1) are made out. If, for example, the ground referred to in subsection (1)(f)(ii) – that the deed was contrary to the interests of the creditors of the company as a whole – were made out, little would be involved in the second stage of determining whether, as a matter of discretion, it should be set aside. And the ground in subsection (1)(g) effectively subsumes the question of discretion into the ground itself – that it should be terminated for some other reason. However, when one comes to the grounds relevant to this case, in particular those referred to in subsections (1)(a) and (c) – that there were omissions from the reports that can reasonably be expected to have been material to creditors – there is very distinctly a two-stage exercise in deciding first, whether there was such an omission and, secondly, whether, as a matter of discretion, the deed should be terminated. The second stage involves consideration, amongst other things, of the materiality of the relevant omissions, and their likely impact on the decision of the creditors. In that respect, for example, it may appear that an omission, though material, would not have changed the outcome of the creditors' meeting, in which case the Court might well decline to set aside the deed. On the other hand, if it appeared that it probably would have made a difference to the outcome of the creditors' meeting, the Court might incline in favour of setting aside the deed.

4. I make those observations because, to my mind, the nature of the exercise under s 445D illustrates that it is necessary, or at least permissible, that an applicant to set aside a deed, acting prudently, would adduce evidence not only to prove the ground, but also relevant to the exercise of the discretion and, in those circumstances, where what is alleged is that appropriate investigations were not conducted, it is at least appropriate for an applicant to adduce evidence as to what would have been discovered had those investigations been conducted.

5. The concept of necessity, both in the law of discovery generally and in Practice Note SC Eq 11, is not one of absolute necessity, but has many times been held to involve what is necessary in order to enable justice to be done in the case. The fact that a plaintiff may be able to prove the matters of fact it alleges by the evidence available to it without discovery does not mean that discovery is not necessary in the relevant sense. A plaintiff is not required to limit itself to evidence that barely or just proves its allegations; it is entitled to seek all of the available evidence so that it may tender it and prove its case as comprehensively as it can.

6. On this kind of application, the concept of relevance is a much broader one than when the evidence is actually tendered and the question falls to be decided under the test of relevance in the (NSW) Evidence Act 1995. Where the question is whether a subpoena or a notice to produce should be set aside, a much broader concept of relevance applies. It is not necessary, for example, that the material be admissible. It suffices that it be on the cards that in some way or another it adds to the available useful information in the case. In this context, when a Court comes to consider the question of relevance, there is no bright line, and a judgment as to relevance is often affected by the width of the subpoena. If the subpoena or notice has a burdensome or oppressive quality, then the Court will be inclined to take a much stricter view as to relevance than if it does not. There is no suggestion in this case of any question of oppression or undue burden in complying with the notices arises.

7. Mr Izzo made some submissions which pointed, on at least one of the issues, to what is prima facie a very strong answer on the part of the defendant to one of the allegations that the plaintiffs propound. But, once again, the strength of a defence to a case does not bear on the question of relevance. If it did, many prima facie strong defences would go untested and unchallenged by the evidence that can ultimately undermine them.

8. The arguments advanced, particularly by Mr Withers, that the notices to produce in question are premature, having regard to the provisions of Practice Note SC Equity 11, would, in almost any other case, be of very telling force. It may well be that the defendants' evidence would reveal in greater detail what was and was not in issue, and it might enable the scope of discovery to be reduced. But there are practical considerations in this case which, to my mind, make it one in which a more liberal application of the requirements of the Practice Note, or their dispensation, is warranted.

9. The defendants' evidence is due to be served under directions previously made, on 3 August. The proceedings are set down for hearing for two days, commencing on 26 August. They were set down for hearing on that day having regard to the pendency in September (before another Judge) of other complex proceedings between the same parties which will be affected by the outcome of these proceedings. If the hearing on 26 August is jeopardised, then that will jeopardise not only that hearing, but potentially the September hearing that is to follow it.

10. In those circumstances, it seems to me that there is a great deal of interest in having such material as is likely ultimately to become discoverable following service of the defendants' evidence produced at the earliest possible time. If this were left to 3 August then, in all likelihood, the motion for disclosure would not come before the Court until about 10 August. Assuming it were decided on the first return date, an order for disclosure would not likely be complied with before about 17 August, and that would barely allow time for the plaintiffs' expert to review the material and prepare a report before a hearing on 26 August, let alone the defendants' time to consider that report and respond to it.

11. In my view, the proximity of the final hearing, the consequences of jeopardising that date, the fact that an expert has deposed to the need for most of the material sought to prepare a report – not only as to solvency but perhaps more significantly as to what a reasonably prudent administrator would have done in the circumstances and what investigations ought to have been undertaken – and the fact that the information which the plaintiffs need, to prove what would have been discovered if the investigations that they allege ought to have been taken were undertaken, is in the hands of the defendants, combine to make this a case in which it is appropriate to make orders in respect of disclosure now, rather than to defer doing so until the conclusion of the defendants' evidence

12. However, the notice to produce addressed to the fifth defendant Mr Carter, dated 12 June 2015, cannot stand as a notice to produce under (NSW) Uniform Civil Procedure Rules 2005, r 34.1. There is nothing sufficiently, or at all, specific about the documents of which it requires production to make it a valid notice under that rule. It does not comply with the requirements of r 34.1, and I propose to set it aside. The documents sought in the other notices are sufficiently relevant, in the broad sense to which I have referred, that those notices to produce ought not be set aside on grounds of relevance or prematurity.

13. Accordingly, the Court orders that:

1. The notice to produce dated 12 June 2015 issued by the plaintiffs to the fifth defendant, Phillip Patrick Carter, be set aside.

2. The interlocutory process of the third and fourth defendants filed on 18 June and amended 25 June 2015 be dismissed.

3. The interlocutory process of the first and second defendants filed on 28 May and amended on 25 June 2015 be dismissed.

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Decision last updated: 11 March 2016