McGrath v HNSW Pty Limited (No 2)

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FEDERAL COURT OF AUSTRALIA

McGrath v HNSW Pty Limited (No 2) [2015] FCA 442

Citation: McGrath v HNSW Pty Limited (No 2) [2015] FCA 442
Parties: JOHN ALBERT BRUCE MCGRATH and VICKY ELIZABETH MCGRATH v HNSW PTY LTD, HORWATH MOTOR INDUSTRY SERVICES PTY LTD ACN 104 833 556 , DAVID ARTHUR COWPER, WAYNE KENNETH PEARSON and STAVROULA PAPADATOS
File number: NSD 1867 of 2012
Judge: GLEESON J
Date of judgment: 12 May 2015
Catchwords: PRACTICE AND PROCEDURE – application to set aside notice to produce – where discovery given of agreed categories of documents – where respondents sought certain documents to be included by discovery but applicants opposed inclusion – where respondents did not press for documents to be included in discovery order – whether documents satisfy apparent relevance test – whether notice to produce is abuse of process as impermissible substitute for application for further discovery – notice to produce not an abuse of process – documents sought relevant to question of loss suffered by applicants – application dismissed – Federal Court Rules 2011 (Cth), r 30.28(1)
Legislation: Federal Court Rules 2011 (Cth), r 30.28(1)
Cases cited: Australian Competition and Consumer Commission v Shell [1999] FCA 212; (1999) 161 ALR 686
Azzi v Volvo [2006] NSWSC 283
Cheung Kong Infrastructure Holdings Ltd v BlueScope Steel Ltd [2010] FCA 739
Commissioner for Railways v Small (1938) 38 SR (NSW) 564
Construction, Forestry, Mining and Energy Union v BHP Coal Pty Ltd (No 3) [2012] FCA 61
Diddams v Commonwealth Bank of Australia [1998] FCA 497
Lucas Industries Ltd v Hewitt (1978) 18 ALR 555
Seven Network Ltd v News Ltd (No 5) [2005] FCA 510; (2005) 216 ALR 147
Trade Practices Commission v Arnotts Ltd (No 2) [1989] FCA 248; (1989) 88 ALR 90
Date of hearing: 21 April 2015
Place: Sydney
Division: GENERAL DIVISION
Category: Catchwords
Number of paragraphs: 39
Counsel for the Applicants: Mr AP Spencer and Mr D Krochmalik
Solicitor for the Applicants: MatthewsFolbigg Lawyers
Counsel for the Respondents: Mr SA Lawrance
Solicitor for the Respondents: Allens
Table of Corrections
22 October 2015 In the cover sheet and in paragraph 24, “Diddams v Commonwealth Bank of Australia [1998] FCA 9497” has been replaced with “Diddams v Commonwealth Bank of Australia [1998] FCA 497”

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

GENERAL DIVISION

NSD 1867 of 2012
BETWEEN:

JOHN ALBERT BRUCE MCGRATH
First Applicant

VICKY ELIZABETH MCGRATH
Second Applicant
AND:

HNSW PTY LTD
First Respondent

HORWATH MOTOR INDUSTRY SERVICES PTY LTD ACN 104 833 556
Second Respondent

DAVID ARTHUR COWPER
Third Respondent

WAYNE KENNETH PEARSON
Fourth Respondent

STAVROULA PAPADATOS
Fifth Respondent

JUDGE:

GLEESON J

DATE OF ORDER:

12 MAY 2015

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:

1.The application to set aside the notice to produce dated 12 March 2015 be dismissed with costs.

2.The notice to produce be made returnable on 11 June 2015 at 9.30 am.

Note:    Entry of orders is dealt with in Rule…

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Details
Case
[2015] FCA 442
Decision Date

CaseChat Overview and Summary

In the matter of McGrath v HNSW Pty Limited (No 2), the applicants sought an order to set aside a notice to produce documents issued by the respondents. The notice sought the production of documents mentioned in a valuation report prepared by KPMG dated 26 October 2012. The applicants argued that the notice was an abuse of process and constituted an impermissible substitute for an application for further discovery. The applicants further argued that the documents were irrelevant to the dispute concerning the loss suffered as a result of the restructure of the McGrath group. The legal issues before the court were whether the notice to produce was an abuse of process and whether the documents sought satisfied the apparent relevance test.

The court found that the notice to produce was not an abuse of process. The notice sought the production of 13 specified documents, which was not oppressive in scope. The court also rejected the contention that an application for further discovery was the only appropriate application in this case. The court held that the notice to produce was an appropriate and convenient tool to seek the production of documents which the applicants were not willing to produce voluntarily. The court further held that the question of relevance was a matter of degree and that the documents sought had apparent relevance to the question of the loss, if any, suffered by the applicants as a result of the restructure transaction.

The court dismissed the application to set aside the notice to produce with costs and ordered that the notice to produce be made returnable on 11 June 2015 at 9.30 am.

Orders

Orders of the court

1. The application to set aside the notice to produce dated 12 March 2015 be dismissed with costs.

2. The notice to produce be made returnable on 11 June 2015 at 9.30 am.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

The notice to produce, issued pursuant to rule 30.28(1) of the Federal Court Rules 2011 (Cth), seeks the production of documents mentioned in a valuation report prepared by KPMG dated 26 October 2012 and discovered by the applicants. The KPMG report contains an opinion as to the fair market value of the McGrath group as at 31 August 2010.Factual background The ownership of the McGrath group was restructured in November 2006. The transaction underpinning the restructure is the subject of the proceedings. The applicants contend that they suffered loss as a result of the restructure while the respondents contend that the applicants were better off. The applicants’ case is that, prior to the restructure, they (through their ownership of shares in Suveli Pty Ltd) owned 50% of the McGrath group and Robert McGrath and his wife (through their ownership of Tahuvo Pty Ltd (“Tahuvo”)) owned the other 50%. On the applicants’ case, the restructure involved the first applicant, John McGrath, reducing his stake in the McGrath group from 50% to 30%. This was achieved by the cancellation of Suveli’s shares in the McGrath group, the issuing to John McGrath of 30% of the shares in Tahuvo, the transfer of certain assets previously owned by the McGrath group to John McGrath, and a cash payment from Robert McGrath to John McGrath. On about 1 December 2006, John McGrath and Robert McGrath entered into an agreement titled “shareholder agreement” containing provisions apparently directed to protecting John McGrath’s minority interest in Tahuvo and in the underlying assets of the McGrath group. Clause 8 of the agreement provides for the valuation and sale of shares in Tahuvo in certain events. Clause 8.2 of the shareholder agreement provides:The parties must procure that the Valuer undertakes and completes a valuation of the Tahuvo Shares within 3 months after receiving instructions and must value Tahuvo by reference to audited accounts and the fair market value of the McGrath Group as a whole (including all Subsidiaries of Tahuvo and the McGrath Group generally) specifying the value in terms of a dollar amount per Share. From 2007 to 2012, Robert McGrath and John McGrath had various disputes as to the affairs of the McGrath group. Those disputes culminated in the KPMG valuation and the purchase by Robert McGrath of John McGrath’s 30% stake in Tahuvo. According to the applicants, immediately after the restructure Automotive Holdings Group purchased many of the McGrath group’s significant assets (being the group’s motor dealerships but not its real property). As a consequence, it is said that the KPMG valuation is of little or no relevance to the value of the McGrath group immediately before and after the restructure.The applicants’ discovery On 29 September 2014, the respondents filed an interlocutory application for discovery of categories of documents including documents relating to the value of John McGrath’s shares in Tahuvo in the period 20 October 2006 to 31 December 2012.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

As the disputed documents were not tendered on the application, and having found the apparent relevance test to have been met, I cannot be satisfied that they are either irrelevant or of insufficient relevance to warrant production. Conclusion The application will be dismissed with costs.

Ratio Decidendi

Legal Principle Established

In Construction, Forestry, Mining and Energy Union v BHP Coal Pty Ltd (No 3) [2012] FCA 61, the Court set aside a notice to produce issued pursuant to rule 30.28. The notice was served shortly before the commencement of the trial in the matter. The notice required production of several broad categories of documents. The proceeding had been the subject of an extensive agreed discovery process as well as court ordered discovery. Collier J expressed the view that the “potential disruption of a trial by unduly proximate service of a Notice to Produce may be a determinative factor in considering an application to set aside the Notice” (at [7]). Her Honour found that the timing of the service of the notice to produce was unreasonable, particularly in light of orders for discovery that had been made six weeks earlier. The notice was set aside because her Honour was not satisfied that the documents were sufficiently relevant to justify production.Consideration None of the cases referred to above supports a conclusion that the notice to produce in this case is an abuse of process. The notice to produce makes a request for 13 specified documents (in contrast to the notice to produce in Azzi which was said at [7] to cast “a considerable burden” on its recipient). It is not oppressive in its scope, and it was not served at a disruptive or otherwise inconvenient time. I do not agree that an application for further (or supplementary) discovery was the only appropriate application in this case where specific documents are sought. The essence of discovery is that it places an obligation on the discovering party to decide whether documents in that party’s possession are discoverable because they relate to the issues in the proceeding: Lucas Industries Ltd v Hewitt (1978) 18 ALR 555 at 569. In this case, the respondents are not seeking an order that would require the applicants to make such a decision: they simply want to see particular documents which they contend are of apparent relevance and which the applicants had resisted providing by way of discovery. Nor are the respondents seeking to go behind an affidavit of discovery. It is common ground that the documents now sought did not fall within the ambit of the discovery ordered by consent. I also reject the contention that the parties’ agreement as to categories for discovery operates as any kind of bar on a respondent’s entitlement, in an appropriate case, to seek documents by notice to produce. Rule 30.28(1) provides no support for such a contention. In my view, the notice to produce was an appropriate and convenient tool to seek the production of documents which the applicants were not willing to produce voluntarily. Accordingly, I do not accept that the notice to produce is an abuse of process. Turning to the applicants’ contentions concerning the lack of relevance of the documents sought, apparent relevance is a matter of degree: Azzi at [6]. Here, the question is whether the documents sought have apparent relevance to the question of the loss, if any, suffered by the applicants as a result of the restructure transaction.