Re Elders Australia Ltd; Super John Pty Ltd v Futuris Rural Pty Ltd (No 3)

[1998] FCA 633

FEDERAL COURT OF AUSTRALIA

PRACTICE AND PROCEDURE - application for preliminary discovery from prospective respondents - O 15A r 6 of the Federal Court Rules - application of O 15A r 6 where proceedings already commenced against another respondent - delay - relevance to current proceeding.

Corporations Law - ss 243H, 243N, 319, 701
Federal Court Rules - O 15A r 6

Ricegrowers Cooperative Ltd v ABC Containerline NV (1996) 138 ALR 480 - cited

Re ELDERS AUSTRALIA LIMITED; SUPER JOHN PTY LIMITED, BATOKA PTY LIMITED, ELIZABETH LANCEY & JULIAN LANCEY, ALLISTAIR HAZARD and IAN MORTON v FUTURIS RURAL PTY LIMITED

NG 3072 of 1997

FOSTER J

14 MAY 1998

SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG 3072 of 1997

In the matter of                ELDERS AUSTRALIA LIMITED
   A.C.N. 061 617 230

BETWEEN:

SUPER JOHN PTY LIMITED
A.C.N. 000 375 093
FIRST APPLICANT

BATOKA PTY LIMITED
A.C.N. 002 904 930
SECOND APPLICANT

ELIZABETH LANCEY & JULIAN LANCEY
as Trustees for Elizabeth Superannuation Fund
THIRD APPLICANTS

ALLISTAIR HAZARD
FOURTH APPLICANT

IAN MORTON
FIFTH APPLICANT

AND:

FUTURIS RURAL PTY LIMITED A.C.N. 009 339 333
RESPONDENT

JUDGE:

FOSTER J

DATE OF ORDER:

14 MAY 1998

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:

1. An application for leave to bring the notice of motion in these proceedings be refused.

1. The notice of motion be dismissed with costs.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG 3072 of 1997

In the matter of                ELDERS AUSTRALIA LIMITED
   A.C.N. 061 617 230

BETWEEN:

SUPER JOHN PTY LIMITED
A.C.N. 000 375 093
FIRST APPLICANT

BATOKA PTY LIMITED
A.C.N. 002 904 930
SECOND APPLICANT

ELIZABETH LANCEY & JULIAN LANCEY
as Trustees for Elizabeth Superannuation Fund
THIRD APPLICANTS

ALLISTAIR HAZARD
FOURTH APPLICANT

IAN MORTON
FIFTH APPLICANT

AND:

FUTURIS RURAL PTY LIMITED A.C.N. 009 339 333
RESPONDENT

JUDGE:	FOSTER J
DATE:	14 MAY 1998
PLACE:	SYDNEY

REASONS FOR JUDGMENT
(Extempore)

On 8 May 1998 I heard a notice of motion in these proceedings brought by the applicants under O 15A r 6 of the rules of this Court.  The notice of motion seeks the following orders:-

“1.... that each of the Respondent, Futuris Corporation Limited, Elders Australia Limited, Alan Leslie Newman, William Robert Beischer, Francis Michael Davidson, Richard Blair Mollison, Stephen Gerlach, David George Watherton Hills, Catherine Sheree Cooper and Lawrence John Clark be required to provide discovery on oath to the Applicants of all documents described in schedule ‘B’.

2.        Costs.

3.        Such further or other orders as the Court sees fit.”

Futuris Rural Pty Ltd is, of those named in the notice of motion, the only one currently a respondent in these proceedings. The proceedings as presently framed raise, broadly speaking, issues between the parties as to whether the applicants are, pursuant to s 701 of the Corporations Law, entitled to avoid compulsory acquisition of their shares in Elders Australia Ltd (“Elders”) by the respondent; whether the applicants, in bringing or continuing the proceedings, have been engaged in an abuse of the process of this Court; and whether the applicants, in relation to the proceedings, have engaged in insider trading.

The compulsory acquisition sought to be avoided relates to a takeover bid made by the respondent for the shares in Elders which bid closed in January 1997.  Apart from the respondent, the five applicants are the only other shareholders in Elders.  These proceedings were commenced by the applicants in April 1997.  There have been a number of interlocutory proceedings and directions hearings.  The proceedings have reached the stage where directions may soon be given for final preparation for trial.  It has been frequently stated to the Court by the respondent that the finalisation of the proceedings is sought as a matter of urgency. 

Order 15A r 6 is entitled “Discovery from prospective respondent”.  It provides as follows:-

“Where -

(a) there is reasonable cause to believe that the applicant has or may have the right to obtain relief in the Court from a person whose description has been ascertained;

(b)after making all reasonable inquiries, the applicant has not sufficient information to enable a decision to be made whether to commence a proceeding in the Court to obtain that relief; and

(c)there is reasonable cause to believe that that person has or is likely to have or has had or is likely to have had possession of any document relating to the question whether the applicant has the right to obtain the relief and that inspection of the document by the applicant would assist in making the decision-

the Court may order that that person shall make discovery to the applicant of any document of the kind described in paragraph (c).”

I have been taken to decided cases in relation to the operation of the rule.  The effect of them is set out in Butterworth’s Practice and Procedure (at p 51,506) as follows:-

“The rule is to be given the fullest scope that its language will reasonably allow, the proper brake on any excesses of its use lying in the discretion of the court which is to be exercised in the particular circumstances of each case: Paxus Services Ltd v People Bank Pty Ltd (1990) 99 ALR 733.  Consequently it is no answer to an application under the rule to say that the proceeding is in the nature of a fishing expedition: Paxus Services supra; Ricegrowers Cooperative Ltd v ABC Containerline NV (1996) 138 ALR 480 at 484.  ...  After the commencement of proceedings the rule ceases to apply so that preliminary discovery is not available to provide a basis for further relief.”

Ricegrowers Cooperative Ltd v ABC Containerline NV (1996) 138 ALR 480 is cited for the last proposition. Ricegrowers has been relied upon by Mr Bennett for the respondent on the basis that the proceedings having been well and truly commenced, O 15A r 6 is no longer available to the applicants.  Mr Blanks for the applicants submits the case is distinguishable.  In the circumstances, I have found it unnecessary to resolve this question. 

The respondents to the motion, apart from the corporations, are directors of Elders with the exception of Ms Cooper and Mr Clark, who are company secretaries.  The evidence relied upon by the applicants for the making of orders against all respondents in these proceedings is to be found in the affidavit of Ian Edward Morton, one of the applicants, and in documents exhibited and annexed to it.  The affidavit refers to events occurring at the Annual General Meeting of Elders on 27 November 1997 and to telephone conversations between Mr Morton and officers of Elders and Futuris Corporation Ltd (“Futuris”) in February 1998.  It is alleged that at the meeting Mr Newman, in answer to a question from Mr Catto, one of the applicants, stated that Elders had not provided guarantees in favour of Futuris or any related party, and that if it had done so, “you’d be right onto us”.  It is further alleged that later Mr Newman said that if he wanted Elders to provide guarantees he would go ahead with or without the consent of minority shareholders, and that he would do whatever he liked. 

In February 1998, according to the affidavit, Mr Morton sought information as to whether Elders had become a guarantor in respect of the obligations of Futuris incurred in relation to an Unsecured Note Issue undertaken by that company.  The information was sought from an officer of Elders and also of Futuris.  Mr Morton was informed that Elders was in fact a guarantor as it was now “virtually a wholly owned subsidiary owned by Futuris”.  He was also told that Elders had become a guarantor under an amendment to the Trust Deed of December 1997 relating to the Note Issue.  He has been unsuccessful in obtaining a copy of the Trust Deed, despite approaches to Futuris and Elders.  He says that such guarantees are not unusually “cross-guarantees, with the effect that each subsidiary guarantees the borrowings of the parent company and each other subsidiary”.  He also said that such guarantees were commonly unlimited.  He further pointed to the fact that no approval had been sought from a general meeting of Elders in relation to any guarantee given by Elders for the benefit of Futuris.  He averred that the presence of such guarantees could have a detrimental effect upon the value of the shares in Elders. 

Upon these facts Mr Blanks has submitted that the applicants, as minority shareholders in Elders, were entitled to the orders sought. Put compendiously, his submissions were that there may have been a breach by Elders of s 243H of the Corporations Law in that Elders, as a public company, had given a financial benefit to a related party, Futuris, in circumstances not coming within relevant exceptions in the Corporations Law. In this regard, it was asserted by the solicitors for Elders in correspondence with Mr Blanks that a relevant exception applied under section 243N in that the benefit had been given in circumstances no more favourable to Futuris than would have been the case in an arm’s length transaction.

It is apparent that the applicants have not been prepared to accept this assertion and in consequence have sought the orders in the notice of motion. It may be noted that if the orders were made in these proceedings the only immediate result would be that discovery of documents would take place in terms of the orders. The decision would then have to be taken by the applicants as to whether they would seek to join parties to the present proceedings and allege against them relevant breaches of s 243H, and seek consequential relief.

Mr Bennett has made a number of submissions as to why this notice of motion should be dismissed. He has said that the application is misconceived in that the only appropriate procedure open to the applicants is provided by s 319 of the Corporations Law which is, in effect, a code for the entitlement of shareholders to have access to documents under the control of the management of a company.  He cites authority in this regard.  He also submits, again on authority, that, in any event, the evidence relied on does not establish objectively that there is reasonable cause to believe that the applicants have, or may have, any right to relief under the Corporations Law as required by O 15A r 6.  He also relies upon the principle of Ricegrowers, as I have previously mentioned, to assert that O 15A r 6 cannot now be relied upon by the applicants.  He further submits that the orders sought, and the parties against whom they are sought, indicate that the notice of motion is cast so widely as to be oppressive.  Also, the demand for the production of legal advice subverts legal professional privilege.

These submissions have all been contested by Mr Blanks.  In the result, however, it is not necessary for me to reach a decision in respect of them as I am quite persuaded that the motion should be dismissed on another ground relied upon by the respondent.

Mr Bennett submits that it would be wholly inappropriate for this proceeding to be permitted in the context of the current proceedings.  If the motion were successful it could result, in all likelihood, in an application to add further parties and causes of action to the current proceedings.  This would cause very significant and unacceptable delay in their disposal.  Furthermore, the projected causes of action relating to events well after the period of the takeover bid, the subject of the current proceedings, would be totally unrelated to any claims already made in those proceedings.  They are quite separate and remote allegations that could have no relevance to the issues in relation to the compulsory acquisition of the applicant’s shares in Elders and could not help in the resolution of those issues; on the contrary, their introduction into the case would be a positive hindrance.  Equally, they could have no bearing on or relation to the issues of abuse of process and insider trading raised in the cross-claim. 

Mr Blanks’ submissions to the contrary have failed to persuade me.  I am satisfied that I should not make these orders in the present proceedings.  Also, insofar as there may have been an application for leave to bring the notice of motion in these proceedings, I also refuse to grant such leave. 

The notice of motion is dismissed with costs.

I certify that this and the preceding four (4) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Foster

Associate:

Dated:             14 May 1998

Counsel for the Applicant:	Mr S. Blanks (Solicitor)
Solicitor for the Applicant:	Stephen Blanks & Associates
Counsel for the Respondent:	Mr M.L. Bennett with Mr S.J. Lemonis (Solicitor)
Solicitor for the Respondent:	Harper Watson
Date of Hearing:	14 May 1998
Date of Judgment:	14 May 1998