MCL 105 Pty Ltd v The Agency Group Australia Ltd (No 2)
[2021] FCA 339
•9 April 2021
FEDERAL COURT OF AUSTRALIA
MCL 105 Pty Ltd v The Agency Group Australia Ltd (No 2) [2021] FCA 339
File number: WAD 7 of 2021 Judgment of: COLVIN J Date of judgment: 9 April 2021 Catchwords: PRACTICE AND PROCEDURE - application to set aside subpoenas - where discovery not sought before seeking issue of subpoenas - whether subpoenas have legitimate forensic purpose in relation to issues in proceedings - application allowed with limited order for discovery Cases cited: Australian Building and Construction Commissioner v Construction, Forestry, Maritime, Mining and Energy Union [2019] FCA 2087
Commonwealth of Australia v Albany Port Authority [2006] WASCA 185
Harvard Nominees Pty Ltd v Tiller [2019] FCA 1672
MCL 105 Pty Ltd v The Agency Group Australia Ltd [2021] FCA 264
Niardone v Clubb [2021] FCA 14
Wong v Sklavos [2014] FCAFC 120
Division: General Division Registry: Western Australia National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Number of paragraphs: 29 Date of hearing: 8 April 2021 Counsel for the Cross‑Claimant: Mr P Russell Solicitor for the Cross‑Claimant: Ashurst Australia Counsel for the Cross‑Respondent: Mr AJ Papamatheos Solicitor for the Cross‑Respondent: Tottle Partners ORDERS
WAD 7 of 2021 BETWEEN: MCL 105 PTY LTD (ACN 638 967 218)
Cross-Claimant
AND: THE AGENCY GROUP AUSTRALIA LTD (ACN 118 913 232)
Cross-Respondent
ORDER MADE BY:
COLVIN J
DATE OF ORDER:
8 APRIL 2021
THE COURT ORDERS THAT:
1.The subpoenas issued by the cross‑claimant to each of the following recipients be set aside:
(a)Canaccord Genuity (Australia) Limited;
(b)Michael Birch;
(c)Aura Capital Pty Ltd;
(d)Australian Business Credit Pty Ltd; and
(e)Catalyst Advisers Pty Ltd.
2.On or before midday AWST on 12 April 2021, the cross‑respondent do provide discovery and inspection of all documents recording or showing any communications between Canaccord and the cross‑respondent relating to requests for funding, inquiries, negotiations for, entry into or the carrying out of the agreement between Canaccord and the cross‑respondent set out in the letter from Canaccord to the cross‑respondent dated 30 April 2020 re: 'MANDATE TO ACT AS A CORPORATE ADVISOR IN RESOECT TO A DEBT REFINANCING AND POTENTIAL REQUITY RAISING' in the period between 1 April 2020 and 4 May 2020.
3.The cross‑respondent is relieved from complying with the cross‑claimant's notice to produce dated 7 April 2021.
4.Costs reserved.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
COLVIN J:
MCL 105 Pty Ltd (MCL) claims that it is entitled to the payment of certain fees based on the terms of an offer of finance that it made to The Agency Group Australia Ltd (The Agency). The terms of the offer of finance (Offer) were accepted by The Agency, but in the result finance was not provided. MCL claims that liability to pay the fees claimed arose upon acceptance of the Offer which it says required the fees to be paid even if MCL did not provide finance. Liability is also said to arise because The Agency withdrew from the agreement or was in breach of an exclusivity provision thereby entitling MCL to withdraw or revoke the Offer. Amongst other things, The Agency says that it is not liable to pay the fees because MCL did not have the capacity to provide the finance.
The proceedings were commenced in February 2021 as a cross‑claim by MCL in proceedings commenced by The Agency. The initiating claim by the directors of The Agency has been determined: Niardone v Clubb [2021] FCA 14. Both parties have sought to have the matters the subject of the cross‑claim determined with urgency. The cross‑claim is listed for hearing on 14, 15 and 16 April 2021. Those dates were allocated on 26 February 2021. At that time, MCL was ordered to provide discovery of a limited category of documents by 2 March 2021 and discovery orders were not sought by MCL.
In late March 2021, at the request of MCL, subpoenas to produce documents were issued to five parties. The Agency applied to set aside the subpoenas. I determined that the subpoenas should be set aside, but on the basis that there should be a limited order for discovery. These are my reasons for that decision.
The subpoenas
As to four subpoena recipients, the subpoenas each sought the same category of documents, namely all documents created between 1 January 2020 and 30 May 2020 recording or showing communications between The Agency and the subpoena recipient in which the raising of funds by the subpoena recipient for The Agency was discussed.
The fifth subpoena recipient was the Proper Officer of Canaccord Genuity (Australia) Limited (Canaccord). The subpoena to Canaccord sought the following documents:
All Documents recording or showing any communications between Canaccord and [The Agency] relating to requests for funding, inquiries, negotiations for, entry into or the carrying out of the agreement between Canaccord and [The Agency] set out in the letter from Canaccord to [The Agency] dated 30 April 2020 re: 'MANDATE TO ACT AS A CORPORATE ADVISOR IN RESOECT [sic] TO A DEBT REFINANCING AND POTENTIAL REQUITY RAISING' in the period between 1 January 2020 to 30 October 2020.
Background to the application to set aside the subpoenas
Prior to the issue of the subpoenas, MCL had not sought discovery from The Agency of documents concerning communications with other parties in which the raising of funds by The Agency was discussed. MCL had initially proposed that there be orders for general discovery by both parties, but that was opposed on the basis that consideration could be given to discovery after pleadings. Thereafter, The Agency sought certain specific discovery which was ultimately ordered to be provided. However, MCL sought no specific discovery. The hearing dates have been allocated for some time without any such application being forthcoming.
The limited discovery as ordered was not provided by MCL on time. On 19 March 2021, MCL sought a suppression order that would have prevented the disclosure of certain parts of the documents that it was to produce by way of specific discovery to one of the directors of The Agency. The director had an association with Canaccord. It was claimed that Canaccord was a direct competitor of Magnolia Capital Pty Ltd (an entity related to MCL) and there would be adverse consequences for the business of Magnolia Capital if certain of the contents of the documents became known to the director. I determined that the application for a suppression order should be refused and provided my reasons for doing so on 22 March 2021: MCL 105 Pty Ltd v The Agency Group Australia Ltd [2021] FCA 264.
MCL then sought the issue of the subpoenas. When notified that the subpoenas had been issued, the solicitors for The Agency complained that the documents sought by the subpoenas did not go to any pleaded issue and were an abuse of process given that the documents had not been sought by way of discovery (though it was maintained for The Agency that if they had been sought an issue would have arisen as to whether such discovery should have been ordered). It was also suggested that, given the lack of forensic purpose, it might be concluded that the subpoenas had been sought on a 'tit for tat' basis so that Canaccord and others would have to disclose documents given the outcome on the application for a suppression order was known. It was pointed out that MCL had been content to proceed up to that point without discovery. An application to set aside the subpoenas was foreshadowed.
Solicitors for MCL responded to the effect that the subpoena addressed to Canaccord was 'drafted to capture relevant documents and is not an abuse of process' because it related to denials of claims by MCL that the Offer had been withdrawn or revoked by MCL and that The Agency had breached a term of the agreement that MCL maintained afforded it exclusivity when it came to providing finance to The Agency.
As to the other subpoena recipients, the documents sought were said to be relevant to a claim by The Agency that an exclusivity provision of the kind alleged by MCL would be contrary to public policy as a fetter upon the proper discharge by directors of The Agency of their duties as directors. Although MCL maintained that there was no such fetter it maintained that the subpoenas sought documents that would be relevant to whether the directors of The Agency were in fact fettered or whether they actually sought alternative finance.
The relevant issues as pleaded
The Agency admits that it entered into a mandate with Canaccord on 4 May 2020, but denies that in doing so it breached the agreement. It also admits that pursuant to that mandate it then obtained finance from another financier in May and October 2020. There is no claim by MCL in terms that there was a breach of the exclusivity arrangement by dealings with parties other than Canaccord or that there were actual dealings with other parties by The Agency.
In its pleading, MCL claims that the Offer (as accepted) provides that The Agency would deal exclusively with MCL in relation to any type of finance similar to that contained in the Offer (para 14). Further, that it would be a default if that term was breached and MCL could withdraw or revoke the Offer in that event (para 15). MCL then claims that The Agency breached the Offer terms (as accepted) 'by soliciting from and entering into a mandate with Canaccord … to act as a corporate advisor in respect to a debt refinancing and potential reequity raising' (para 23). It also says that at the meeting of the board of The Agency on 1 May 2020, The Agency withdrew from the Offer or that MCL was entitled to withdraw or revoke the offer and did so (para 24A). Other claims are also made, but the above claims are those that are relevant for present purposes.
As to the above allegations, in its defence The Agency says that the exclusivity obligation only applied to arrangements similar to the Offer and during the period that the engagement of MCL remained in existence (para 14(a)). It says that properly construed the exclusivity obligation was subject to a carve out that would require the directors of The Agency to consider, negotiate and enter into any mandate for the provision of finance that was necessary for continued solvency (para 14(b)). It says in the alternative that the exclusivity obligation was contrary to law or public policy as a fetter on the proper discharge of the duties of the directors of the Agency (para 14(c)). It also says that the exclusivity obligation did not apply if MCL gave its consent or waived any right to exclusivity (para 14(d)). It is to be noted that each of these pleas is a response to the plea as to what was provided by the Offer as to exclusivity.
Then, in response to the claim of breach of the exclusivity requirement, The Agency repeats the matters as to the meaning of the relevant provision in the Offer (para 23(a)). It says that 'by reason of the financial circumstances of' The Agency at the date of entry into the Canaccord mandate the duties of the directors required them to pursue financing with a corporate advisor 'being Canaccord or a like advisor' (para 23(b)). The particulars to that plea include a claim that at certain identified meetings in April the directors were considering sources of that finance 'including mandates with other corporate advisors'. It says that it was therefore not restricted by the exclusivity (para 23(c)). It admits that it entered into a mandate with Canaccord but says that it was not signed until 4 May 2020 (para 23(d)). It says that MCL by its director Mr Atkins (who had also been a director of The Agency) communicated its consent to the Canaccord mandate or waived the right to exclusivity (para 23(e)). It says that the Canaccord mandate was only signed after MCL had terminated the Offer (para 24(c)). It also admits that MCL terminated the Offer (or indicated it had expired) on 1 May 2020 (para 24A).
Therefore, the case by MCL does not claim that there was any breach by dealings with parties other than Canaccord. The defence by The Agency does not rely upon any actual dealings with any party other than Canaccord. It admits, in effect, that from 4 May 2020 it made an agreement with Canaccord which, if MCL's case as to the meaning of the exclusivity provision is accepted, will be a breach. There is no genuine issue on MCL's case that requires consideration as to whether there were dealings with parties other than Canaccord and no genuine issue as to whether an agreement was made with Canaccord and carried into effect from 4 May 2020.
On the defence advanced by The Agency, its claim is that it was not a breach for it to make the agreement with Canaccord and that the exclusivity agreement is void. The latter claim depends upon a point of construction of the terms of the Offer (as accepted). Although particulars are given in the defence that refer to consideration of mandates with parties other than Canaccord, there is no reliance upon any such dealings in fact.
However, there is an issue as to whether in fact there were dealings with Canaccord in April 2020 and up to 4 May 2020 that were a breach of the exclusivity provision.
On 1 April 2021, MCL filed its outline of submissions for final hearing. Those submissions advance no submission to the effect that there were dealings by The Agency with parties other than Canaccord in order to obtain finance. As to Canaccord, the claim is that The Agency procured a mandate from Canaccord before entering into an agreement with Canaccord a few days later.
On 7 April 2021, MCL issued a notice to produce that seeks the return of documents by 8 April 2021. Relevantly for present purposes, it seeks documents in the same categories as those identified in the subpoenas.
The Agency applied urgently to set aside the subpoenas. In the alternative, it maintained that the Agency should not be required to comply with the Notice to Produce.
Relevant principles concerning setting aside a subpoena
In Harvard Nominees Pty Ltd v Tiller [2019] FCA 1672 at [2]‑[5], Jackson J summarised the relevant principles to be applied on an application to set aside a subpoena.
'The party issuing a subpoena bears the onus of demonstrating that the subpoena has a legitimate forensic purpose in relation to the issues in the proceedings' and a subpoena which lacks apparent relevance may be set aside: Wong v Sklavos [2014] FCAFC 120 at [12] (Jacobson, White and Gleeson JJ).
The court has an inherent jurisdiction to set aside a subpoena that is an abuse of that aspect of the Court's procedure: Commonwealth of Australia v Albany Port Authority [2006] WASCA 185 at [19]‑[20] (Steytler P). In that respect, a subpoena should not be used as a substitute for an application for discovery: see Australian Building and Construction Commissioner v Construction, Forestry, Maritime, Mining and Energy Union [2019] FCA 2087 at [9]‑[10].
Reasons for setting aside the subpoenas
MCL failed to demonstrate how documents within the category sought by the subpoenas issued to the recipients other than Canaccord would serve any forensic purpose in the proceedings. Evidence as to whether or not the directors of The Agency actually sought finance from parties other than Canaccord, despite the exclusivity provision, would not bear upon the issues on which the parties are joined which are relevantly confined to whether the exclusivity provision was qualified or void as being contrary to public policy. The category of documents sought lacked any apparent relevance and for that reason I concluded that the subpoenas should be set aside. For the same reason, I concluded that no purpose would be served in requiring The Agency to produce such documents in response to the notice to produce.
Further, as to whether there was a breach of the exclusivity provision, given the admissions that have been made concerning dealings with Canaccord, no forensic purpose would be served by requiring it to produce the documents sought on subpoena, at least to the extent that they relate to the period from 4 May 2020.
However, there appeared to be a legitimate forensic issue as to whether there had been dealings with Canaccord by The Agency between 1 April 2020 and 4 May 2020 and that there was a legitimate forensic purpose to be served in requiring The Agency to discover documents going to that issue notwithstanding the lateness with which the issue had been raised. No explanation was provided as to why discovery had not been sought and why it was proper to issue the subpoenas without first seeking discovery.
Therefore, notwithstanding the fact that part of the documents sought on subpoena from Canaccord had apparent relevance, the subpoena was an abuse of process because there was no reason stated as to why the documents could not (and were not) sought by way of discovery.
The belated delivery of the notice to produce in respect of documents in the same category as those sought from Canaccord on subpoena was, in effect, a request for discovery, but the category was too broad. The pleading by MCL only alleged dealings by The Agency with Canaccord from April 2020. The Agency could point to no prejudice or logistical difficulty with meeting a limited order for discovery of the category of documents for the period 1 April 2020 to 4 May 2020. As a matter of case management it was appropriate for such an order to be made even though the request was made very late in the day and without explanation for the delay. Therefore, I made an order to that effect.
There being no further forensic purpose to be served by requiring compliance with the notice to produce, I also ordered that The Agency be excused from any further compliance with the notice to produce.
I certify that the preceding twenty-nine (29) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Colvin. Associate:
Dated: 9 April 2021
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