Neo Modular Pty Ltd v Enderby Apartments Investment Pty Ltd
[2021] WASC 146
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: NEO MODULAR PTY LTD -v- ENDERBY APARTMENTS INVESTMENT PTY LTD [2021] WASC 146
CORAM: REGISTRAR WHITBY
HEARD: 30 APRIL 2021
DELIVERED : 7 MAY 2021
FILE NO/S: CIV 1238 of 2020
BETWEEN: NEO MODULAR PTY LTD
Plaintiff
AND
ENDERBY APARTMENTS INVESTMENT PTY LTD
Defendant
ENDERBY APARTMENTS INVESTMENT PTY LTD
Plaintiff by counterclaim
NEO MODULAR PTY LTD
Defendant by counterclaim
JACK ROBERT JAMES as receiver of PILBARA METRO DEVELOPMENTS PTY LTD
First Interested Party
PAULA LAUREN SMITH as receiver of PILBARA METRO DEVELOPMENTS PTY LTD
Second Interested Party
Catchwords:
Practice and procedure - Subpoenas to produce documents - Application to set subpoenas aside - Whether subpoenas serve a legitimate forensic purpose - Turns on own facts
Legislation:
Rules of the Supreme Court 1971 (WA)
Result:
Subpoenas set aside
Category: B
Representation:
Counsel:
| Plaintiff | : | Mr M A MacLennan |
| Defendant | : | Mr G D Cobby SC |
| Plaintiff by counterclaim | : | Mr G D Cobby SC |
| Defendant by counterclaim | : | Mr M A MacLennan |
| First Interested Party | : | No appearance |
| Second Interested Party | : | No appearance |
Solicitors:
| Plaintiff | : | Bennett + Co |
| Defendant | : | Murfett Legal |
| Plaintiff by counterclaim | : | Murfett Legal |
| Defendant by counterclaim | : | Bennett + Co |
| First Interested Party | : | HWL Ebsworth |
| Second Interested Party | : | HWL Ebsworth |
Cases referred to in decision:
Jensen v Nationwide News Pty Ltd [No 6] [2018] WASC 415
Weeks v Nationwide News Pty Ltd [No 3] [2019] WASC 268
Wookey v Quigley [No 5] [2011] WASC 275
REGISTRAR WHITBY:
Introduction
These proceedings concern the proceeds of the sale of 1 Enderby Close, North Coogee (the Property) and whether it is the plaintiff or the defendant who is entitled to the proceeds of the sale of the Property.
Pilbara Metro Developments Pty Ltd (Metro) was the registered proprietor of the Property from 18 June 2014 to 10 February 2020. Mr Paul Jennings was the sole director of the plaintiff and Metro.
Metro engaged Sphere Capital Services Pty Ltd (Sphere) to assist in finding investors to participate in the development of the Property.
In August 2014, the defendant was incorporated for the purpose of investors being able to provide loan funds to Metro to develop the Property. Mr Greg Devine was the sole director of the defendant.
In September 2014, the defendant entered into a loan agreement and general security agreement with Metro. Metro granted the defendant a first ranking fixed and floating charge over the Property as security for the loan, subject to any other permitted encumbrances.
In May 2015, Angas Securities Limited as trustee for the Responsible Entity for the Angas Prime Income Fund (Angas Securities) also advanced funds to Metro for the development of the Property. Metro granted Angas Securities a first ranking mortgage over the Property.
In mid to late 2016, Mr Jennings was trying to source additional funds in order to pay out the loan to Angas Securities and obtain an equity investor. Mr Jennings secured an investment from a Singaporean company, Hetat Holdings Pte Ltd (Hetat).
In November 2016, the plaintiff was incorporated as a vehicle to advance funds from Hetat to Metro. The plaintiff says that this loan from the plaintiff to Metro was earmarked to repay Angas Securities and to progress the development of the Property.
The plaintiff submits that it entered into a facility agreement to secure the funds it loaned to Metro. The plaintiff claims it is entitled to a first ranking mortgage over the Property as a permitted encumbrance.
The defendant submits, in effect, that the plaintiff is not entitled to a first ranking mortgage over the Property because all parties did not consent to it being a permitted encumbrance.
The defendant has a caveat over the Property and has refused to remove the caveat to allow the plaintiff to register a first ranking mortgage over the Property.
On 5 February 2019, the defendant appointed receivers to Metro to sell the Property.
On 10 February 2020, the receivers sold the Property to Treefield Holdings Pty Ltd.
On 23 April 2020, the receivers paid the proceeds of sale of the Property into court.
In these proceedings, each of the plaintiff and the defendant asserts it has a first ranking security over the Property and is entitled to the proceeds of sale of the Property.
The plaintiff has issued a number of subpoenas which seek documents relating to the development of the Property. The plaintiff says that these documents are relevant to the proceedings.
The defendant objects to the subpoenas being issued on the basis that they are an abuse of process and serve no legitimate forensic purpose.
The issue is whether the documents sought in the subpoenas give rise to a line of inquiry which is relevant to the matters in issue.
For the reasons which follow, the subpoenas should be set aside.
The subpoenas
On 18 February 2021, the plaintiff issued a subpoena to each of:
(a)Redmont Resources Pty Ltd;
(b)Mr Nicholas Stuart Duncan;
(c)Griffin Projects Group Pty Ltd;
(d)Dandy DS Pty Ltd;
(e)Loorits Super Pty Ltd;
(f)William Buck (WA) Pty Ltd;
(g)Mr Simon Robert Thomson and Mrs Sharon Kay Thomson;
(h)Mr Alexander Campbell McPherson and Mrs Dorothy Roslyn McPherson;
(i)Sphere Capital Management Pty Ltd;
(j)Mr Michael James Taylor and Mrs Dianne Margaret Taylor;
(k)Neil and Ellen Custodians Pty Ltd;
(l)Sphere Capital Services Pty Ltd;
(m)Feltright Pty Ltd; and
(n)Westery UT Pty Ltd.
The subpoenas seek production of all documents from 1 January 2014 to 28 February 2018 relating to the project to develop the Property (Subpoena Documents). The Subpoena Documents include:
1.8a proposal to transfer the Property to an entity other than [Metro];
1.9an attempt to remove or replace [Metro] as developer for the Project;
1.10 an attempt to remove Paul Jennings from the Project, or from benefitting from the Project either:
1.10.1 in his personal capacity;
1.10.2 as a director of Metro;
1.10.3 as a director of [the plaintiff].
Applications to set aside the subpoenas
There are two applications before me for determination:
(a)the defendant's application made by letters dated 26 February 2021 and 2 March 2021; and
(b)an application by Sphere, Sphere Capital Management Pty Ltd and Griffin Projects Pty Ltd (Subpoena Recipients) made by letter dated 4 March 2021.
On 23 April 2021, I made orders by consent withdrawing the subpoenas issued to the Subpoena Recipients. The defendant's application remains to be determined.
The defendant relies upon the affidavits of Kiralee Amber Duke sworn on each of 26 February and 28 March 2021 (First Duke Affidavit and Second Duke Affidavit respectively) and the outline of submissions dated 9 April 2021.
The plaintiff opposes the applications and relies upon the affidavits of Darren Kurt Zusman sworn 29 March 2021 (Zusman Affidavit) and Demi Ellen Swain sworn on 16 April 2021 (Swain Affidavit) and its outline of submissions dated 16 April 2021.
At the application hearing, counsel for the defendant objected to the admission of the Swain Affidavit on the basis that it annexed conferral material. I dismissed that objection on the basis that the First Duke Affidavit and the Second Duke Affidavit also annexed conferral material and for the sake of consistency and context, it was appropriate to have regard to the Swain Affidavit.
Legal principles
The Court's jurisdiction
The court has jurisdiction to set aside a subpoena pursuant to O 36B r 8A(2) of the Rules of the Supreme Court1971 (WA) (RSC) which provides:
On a request by the addressee, a party or any other person with a sufficient interest, the Court may, by order –
(a)set aside a subpoena or part of it; or
(b)make or vary directions in relation to removing from and returning to the Court, and the inspection, copying and disposal, of any document or thing that has been or is to be produced under it; or
(c)grant other relief in respect of it.
The court can also exercise its inherent jurisdiction to set aside a subpoena. It may do so where the subpoena does not serve a legitimate forensic purpose, where it is oppressive or where it amounts to an abuse of process: Jensen v Nationwide News Pty Ltd [No 6] [2018] WASC 415 [26].
Legitimate forensic purpose
A subpoena is for a legitimate forensic purpose if the documents it seeks give rise to a line of inquiry which is relevant to the matters in issue, are required for the fair disposal of the action, will allow the parties to appraise the strengths of their and their opponent's case and should be made available to the parties: Weeks v Nationwide News Pty Ltd [No 3] [2019] WASC 268 [9].
In order to determine whether subpoenaed documents are relevant to matters in issue, the court must look to the pleadings: Wookey v Quigley[No 5] [2011] WASC 275 [8] ‑ [9].
A subpoena will be set aside if it is 'fishing', that is, if it has been issued to obtain documents which may give rise to a case or a defence not currently pleaded: Weeks [16].
Do the Subpoena Documents give rise to a line of inquiry which is relevant to the matters in issue?
Plaintiff's submissions
Counsel for the plaintiff referred me to a document discovered by the defendant – an email dated 20 November 2016 from Stephen Smith of Sphere Capital to Mark Collins of William Buck titled 'Enderby Strategy' (Email): Zusman Affidavit Annexure DKZ1. The plaintiff says that the Subpoena Documents give rise to a line of inquiry that is initiated by the Email.
In written and oral submissions, counsel for the plaintiff summarised its case as follows:
(a)the defendant ought to have disclosed to Mr Jennings, who later incorporated the plaintiff, that he was not free to arrange further financing without the written consent of all parties;
(b)the defendant knew that Mr Jennings was attempting to secure further financing, but it remained silent about an apparent future intention to rely upon the parties' lack of consent to allow the further financing to be secured by a first ranking mortgage;
(c)but for the defendant's silence as to its future intention, Mr Jennings would not have gone ahead with obtaining the further financing;
(d)the Email shows that, immediately before the plaintiff provided funds, the defendant was in discussions with the other parties to the Email about obtaining their own finance and causing Metro to go into receivership;
(e)the Email supports the plaintiff's proposition that the defendant had an obligation to disclose to Mr Jennings that it did not intend to consent to the plaintiff's finance being secured by a first ranking mortgage because that would not align with the strategy outlined in the memorandum attached to the Email;
(f)there are likely to be other communications that go to the defendant's intention, or lack thereof, to consent to security being provided to any party from which Mr Jennings may be able to obtain finance; and
(g)the documents sought in the subpoenas give rise to a line of inquiry as to whether the plaintiff would have advanced funds to Metro had it known that the defendant did not intend to waive the consent requirement in the relevant contracts.
The plaintiff also submitted that there are a number of potential witnesses that are likely to give evidence at the trial relating to the conduct and credit of Mr Devine in his capacity as sole director of the defendant. The plaintiff submitted that the Subpoena Documents relate to the credibility of Mr Devine and are for a legitimate forensic purpose.
Defendant's submissions
The defendant submitted that the subpoenas should be set aside because they are not for a legitimate forensic purpose. The essence of its objections are that the Subpoena Documents are not relevant to the matters in issue on the pleadings.
The defendant submitted that, in relation to misleading and deceptive conduct, all that is in issue is what the defendant did not say. The plaintiff does not plead misleading and deceptive conduct based on a positive representation made by the defendant.
The defendant further submitted:
(a)the Subpoena Documents are not relevant to misleading and deceptive conduct because they do not give rise to a line of inquiry relevant to the defendant's failure to communicate;
(b)the plaintiff does not plead that the defendant intended to withhold consent to a first ranking mortgage to the plaintiff and as the Subpoena Documents are only relevant to the defendant's intention, they are not for a legitimate forensic purpose;
(c)Mr Devine's conduct is not in issue in these proceedings and, to the extent that they relate to Mr Devine's conduct, the Subpoena Documents are not relevant; and
(d)the subpoenas are fishing because they are only relevant to whether the plaintiff has a cause of action against parties not joined to the proceedings.
Determination
The relevance of the Subpoena Documents is to be determined by reference to the pleadings.
There is an application by the plaintiff to join parties and to amend the pleadings which is yet to be determined. The subpoenas were issued prior to the hearing of that application.
It is the pleadings as they currently stand which inform my view of the relevance of the documents, not what those pleadings may be after amendment.
I make the following observations in relation to the plaintiff's case as pleaded in the Reply;
(a)in each plea of misleading and deceptive conduct, the plaintiff's case is that the defendant engaged in misleading and deceptive conduct by silence;
(b)the silence pleaded is a failure of the defendant to communicate to the plaintiff that Metro would be in breach of the various contractual provisions requiring the defendant to consent to a first ranking mortgage over the Property;
(c)the plaintiff pleads that it changed its position as a result of that failure to communicate, in that it pleads it would not have provided the finance to Metro had it known that the defendant would not consent to granting it a first ranking mortgage;
(d)the plaintiff does not plead that the defendant had an intention to refuse to consent to a first ranking mortgage being provided to the plaintiff;
(e)the plaintiff does not plead that the defendant attempted to remove Mr Jennings from being involved in and benefitting from the development of the Property; and
(f)the Reply does not put in issue the conduct of Mr Devine.
The Subpoena Documents relate to an alleged strategy to remove Mr Jennings from any involvement with the development of the property. They relate to the defendant's intention. However, the intention of the defendant is not in issue in the proceedings.
None of the Subpoena Documents give rise to a line of inquiry relevant to the defendant's failure to communicate. That is all that is in issue on the plaintiff's current plea of misleading and deceptive conduct. The subpoenas do not serve a legitimate forensic purpose.
I accept that the subpoenas may assist the plaintiff in determining whether to join parties to the proceedings and/or include additional causes of action. To the extent that they would so assist, they are fishing and ought to be set aside, in any event, as an abuse of process.
Conclusion and orders
I find that the subpoenas should be set aside because they do not serve a legitimate forensic purpose and/or are an abuse of process.
The parties are to confer in relation to final orders and file either consent orders, or competing minutes of proposed orders, within seven days of the provision of these reasons.
I certify that the preceding paragraphs comprise the reasons for decision of the Supreme Court of Western Australia.
TG
Court Officer
7 MAY 2021
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