Re Kingdom Developments 14 Pty Ltd (Receivers And Managers Appointed) - [2024] WASC 271

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION:   RE KINGDOM DEVELOPMENTS 14 PTY LTD (RECEIVERS AND MANAGERS APPOINTED); EX PARTE WHITE and WOODHOUSE as joint and several receivers and managers of KINGDOM DEVELOPMENTS 14 PTY LTD & ANOR [2024] WASC 271
CORAM:   MASTER RUSSELL
HEARD:   17 MAY 2024
DELIVERED          :   30 JULY 2024
PUBLISHED           :   2 SEPTEMBER 2025
FILE NO/S:   COR 156 of 2023
MATTER:   IN THE MATTER OF KINGDOM DEVELOPMENTS 14 PTY LTD (RECEIVERS AND MANAGERS APPOINTED) (ACN 638 164 486)

EX PARTE
HAYDEN LEIGH WHITE and DANIEL HILLSTON WOODHOUSE in their capacity as joint and several receivers and managers of KINGDOM DEVELOPMENTS 14 PTY LTD (RECEIVERS AND MANAGERS APPOINTED) (ACN 638 164 486)
First and Second Named First Plaintiffs
KINGDOM DEVELOPMENTS 14 PTY LTD (RECEIVERS AND MANAGERS APPOINTED) (ACN 638 164 486)
Second Plaintiff

Catchwords:

Practice and procedure – Leave to issue subpoena – Whether legitimate forensic purpose – Whether exceptional circumstances – Turns on own facts

Legislation:

Corporations Act 2001 (Cth), s 420A, s 424
Rules of the Supreme Court 1971 (WA), O 36B r 2(2B)(c), O 36B r 2(2D)

Result:

Leave to issue subpoena granted subject to revision of terms of subpoena

Category: B

Representation:

Counsel:

First and Second Named First Plaintiffs	:	Ms R Young SC
Second Plaintiff	:	Ms R Young SC
Interested Party	:	Ms E C Hensler

Solicitors:

First and Second Named First Plaintiffs	:	Mills Oakley
Second Plaintiff	:	Mills Oakley
Interested Party	:	Lannock Capital 2 Pty Ltd

Cases referred to in decision(s):

Hongkong Xinhe International Investment Company Ltd v Bullseye Mining Ltd [No 4] [2021] WASC 287
Mineral Resources Ltd v Destec Pty Ltd [No 2] [2021] WASC 357
Preston, in the matter of Sandalwood Properties Ltd [2018] FCA 547
Re Ansett Australia Ltd (No 3) (2002) 115 FCR 409
Sandy v Yindjibarndi Aboriginal Corp RNTBC [2019] WASC 322
Song v South Beach Management Pty Ltd (as trustee for South Beach Two Development trust) [2020] WASCA 402
Stanley v Layne Christensen Co [2004] WASCA 50
Weeks v Nationwide News Pty Ltd [No 3] [2019] WASC 268

MASTER RUSSELL:

Introduction

This proceeding was commenced by originating process filed on 5 October 2023 by the plaintiffs, Hayden Leigh White and Daniel Hillston Woodhouse, in their capacity as joint and several receivers of Kingdom Developments 14 Pty Ltd (Receivers and Managers appointed) (Company).
In the proceeding, the plaintiffs (Receivers) seek directions pursuant to s 424 of the Corporations Act 2001 (Cth) (Directions Application).
The Receivers seek leave to issue a subpoena to produce documents to interested party, Lannock Capital 2 Pty Ltd (Lannock) in terms of the draft subpoena filed with the application[1] (Leave Application). Although the Leave Application was made ex parte, Lannock was on notice of the application and sought to oppose it.
[1] The application is made by letter dated 12 March 2024 attaching the draft subpoena (Folio 19).
In support of the Leave Application, the Receivers rely on an outline of submissions filed on 4 April 2024 and an outline of responsive submissions filed on 26 April 2024. They also read and rely upon an open affidavit affirmed by Hayden Leigh White in support of the Directions Application on 5 October 2023,[2] and affidavits affirmed by Lucy Elizabeth Pye on 14 December 2023 and 15 March 2024.
[2] Mr White has also made a confidential affidavit affirmed on 5 October 2023 in support of the Directions Application. That is not relied upon for the purpose of the Leave Application.
Lannock relies on an outline of submissions filed on 16 April 2024, and read and relies upon an affidavit affirmed by Mark Anthony Slater on 11 April 2024 in opposition to the Leave Application. It also relies on an attachment to the confidential affidavit of Mr White affirmed on 5 October 2023.
For the reasons that follow, I am satisfied that, subject to the Receivers filing a revised subpoena, leave should be granted to the Receivers to issue a subpoena to Lannock for the production of some, but not all, of the categories of documents set out in the proposed subpoena. They will be required to file a revised subpoena which clearly identifies the documents to be produced, as outlined in these reasons and summarised in the conclusion.

Applicable legal principles

The principles applicable to an application for leave to issue a subpoena

The Leave Application is brought under O 36B r 2(2B)(c) of the Rules of the Supreme Court 1971 (WA) (RSC). Leave is required because the issuing officer must not issue a subpoena to produce documents in a proceeding in which a defence is not required to be filed, unless the date and time for production is the date and time of the trial (in this case the final hearing of the originating process), or the Court has given leave.
Order 36B r 2(2D) RSC provides that the Court must not give leave under subrule (2B)(c) unless satisfied there are exceptional circumstances.
In Sandy v Yindjibarndi Aboriginal Corp RNTBC,[3] Le Miere J said "[t]he words 'exceptional circumstances' have their ordinary meaning. 'Exceptional' means 'out of the ordinary' or 'unusual', rather than 'unique'."
[3] Sandy v Yindjibarndi Aboriginal Corp RNTBC [2019] WASC 322 (Sandy v Yindjibarndi Aboriginal Corp) [4].
His Honour also stated, though in the context of an application for leave to issue a subpoena for production of documents for the purpose of an interlocutory hearing, that the applicant should be able to demonstrate that the documents are necessary for the applicant to fairly prepare and present its case.
The documents sought to be produced must be relevant to an issue or issues in dispute in the proceeding. There must be a legitimate forensic purpose for their production. As Le Miere J observed in Sandy v Yindjibarndi Aboriginal Corp,[4] the applicant should be able to demonstrate the precise issues in respect of which the documents are required.
[4] Sandy v Yindjibarndi Aboriginal Corp [4].
A legitimate forensic purpose for the issue of a subpoena for a particular document will be established if the document gives rise to a line of enquiry which is relevant to the issues before the trier of fact.[5] There must be a reasonable possibility that the documents sought to be produced will materially assist the claim or defence of the proceeding, or are relevant to an issue in the proceeding.[6]
[5] Song v South Beach Management Pty Ltd (as trustee for South Beach Two Development trust) [2020] WASC 402 (Song) [17] (Allanson J), citing Stanley v Layne Christensen Co [2004] WASCA 50 [9].
[6] Hongkong Xinhe International Investment Company Ltd v Bullseye Mining Ltd [No 4] [2021] WASC 287 [11(b)] (Hill J) and the authorities referred to.
If the Court is satisfied that there is a legitimate forensic purpose for a party to seek production of specified documents, the question is whether there are circumstances which are out of the ordinary or unusual which justify the Court exercising its discretion to grant leave.[7] The Receivers, as the party seeking leave to issue the subpoena, bear the onus of establishing there are exceptional circumstances.[8]
[7] Song [19].
[8] Mineral Resources Ltd v Destec Pty Ltd [No 2] [2021] WASC 357 (Mineral Resources) [15].
In considering whether there is a legitimate forensic purpose for the production of the documents sought or exceptional circumstances, it is necessary to consider the circumstances, the directions sought and the issues that arise in the Directions Application.

The nature of 'directions' on an application by a controller

There is no dispute between the Receivers and Lannock as to the principles applicable to an application for directions under s 424 of the Corporations Act. They are well established and it is not necessary for me to refer to them in any detail for the purpose of the Leave Application. I refer to and gratefully adopt Colvin J's summary of the applicable principles in Preston, in the matter of Sandalwood Properties Ltd,[9] in which his Honour considered the scope of s 424, stating, amongst other things:
47.… the 'directions' that may be provided under s 424 of the Corporations Act are a form of personal guidance or advice to the controller. They do not involve an adjudication of the claims, rights or entitlements of third parties. Rather, they articulate the approach or steps that the controller is justified in taking having regard to the facts and circumstances as known (including the nature and extent of any disputed or contentious aspects) and relevant legal principles.
…
52.… the fact that a legal question may have significant commercial consequences does not mean that it is inappropriate to give directions. In such cases the court does not give advice as to how the receiver, liquidator or administrator should act, but rather that there is legal justification in proceeding on the basis of a particular view as to the nature and extent of legal obligations in the particular circumstances.
(citations omitted).
[9] Preston, in the matter of Sandalwood Properties Ltd [2018] FCA 547 [41] - [43], [47] - [54].

The Directions Application and relevant background

The relevant background to the Directions Application is set out in the affidavits and submissions relied upon by the Receivers and Lannock, and is not disputed for present purposes. I do not repeat all of the evidence or submissions. What follows is a summary of the background and the context in which the Directions Application is made, in so far as it is relevant to the documents sought to be produced under the proposed subpoena.
The Company is the registered proprietor of units 1 ‑ 18, 1 Heppingstone Street, South Perth in Western Australia (Property). The Property comprises 18 individually titled apartments. Each of the individual lots make up Strata Plan 14, volume 189, folios 150A ‑ 169A.[10]
[10] Affidavit of Hayden Leigh White affirmed on 5 October 2023 (White 5 October Affidavit) [15] - [19], HLW-03, HLW-04.
The Bank of Queensland Limited (BOQ) holds a first registered mortgage over the Property as part of its security for $3,465,000 it loaned to the Company under a loan facility entered into on about 16 August 2021. The Receivers were appointed on 2 May 2023 under the terms of the loan facility and mortgage.[11]
[11] White 5 October Affidavit [20] - [23], HLW-05.
On 14 November 2022, before the Receivers were appointed, the Company entered into an exclusive selling agency agreement with Sharon Grey trading as Impel Property Group, the Property's manager, to offer the Property for sale at a listing price of offers from $5,500,000.[12]
[12] White 5 October Affidavit [68] - [70], HLW-18.
A number of offers were received to purchase the Property and, on 16 March 2023, the Company entered into a contract for sale of the Property with Napar Pty Ltd (Napar) for a purchase price of $3.85 million, with settlement scheduled for 15 June 2023 (Napar Contract). The Napar Contract was not completed. However, the Receivers are informed that Napar remains an interested purchaser of the Property.[13]
[13] White 5 October Affidavit [72] - [74].
The sale price under the Napar Contract was significantly less than the listing price and an earlier valuation of the Property of between $5.5 million and $6.2 million.[14] It was submitted that the sale price of $3.85 million was assessed having regard to a special levy of contributions raised in relation to the repayment of a loan facility to Lannock.
[14] White 5 October Affidavit [76] - [77], HLW-19.
The loan facility referred to is a facility agreement dated 10 February 2021 entered into between Lannock as the credit provider and the strata owners corporation, referred to as The Owners - SP14 (Owners),[15] as the borrower (Facility Agreement),[16] on about 9 March 2021.[17]
[15] In the proposed subpoena, the Owners are referred to as 'Strata Corporation'.
[16] White 5 October Affidavit [24] - [26]. An unexecuted copy of the Lannock Facility Agreement is attached to the affidavit of Mark Anthony Slater affirmed on 24 November 2023 (Slater Affidavit), MAS-5.
[17] White 5 October Affidavit [29] - [31], HLW-07; Slater Affidavit [9] - [11], MAS-6.
The Facility Agreement was arranged through Bradfield Advisors (Bradfield) under the terms of an engagement letter between the Company and Bradfield dated 20 October 2020.[18]
[18] White 5 October Affidavit [24] - [25], HLW-06.
Lannock advanced $1,499,800 to the Owners under the Facility Agreement (Strata Debt).
The Owners have raised a special levy of contributions pursuant to s 100(1) of the Strata Titles Act 1985 (WA) (Levy) for the repayment of the Strata Debt to Lannock. The Levy, which is an obligation that, in effect, runs with the Property, was taken into account in the sale price under the Napar Contract.
Mr White deposes to investigations undertaken by the Receivers in relation to the Strata Debt and concerns that have emerged relating to the circumstances in which the Facility Agreement was entered into, and the purpose for which the funds advanced were used. He deposes that from the investigations undertaken, the Strata Debt was advanced by Lannock to the Owners in two tranches:
(a)Tranche 1 - in the amount of $199,800 for 'Refurbishment'; and
(b)Tranche 2 - in the amount of $1,300,000 for 'Return of capital to the members of the Borrower'.
The Receivers have been unable, on the information available to them, to ascertain whether the funds advanced under Tranche 2 was an advance consistent with a strata loan and whether those funds were used for the purposes provided under the Facility Agreement. In light of the uncertainty around the Tranche 2 advance, the Receivers have concerns as to whether the Levy could or should have been raised pursuant to s 100(1) of the Strata Titles Act, and the applicable by-laws.
Concerns have also been raised with the Receivers by interested third party mortgagees. Pagondas Pty Ltd, which holds a second registered mortgage over the Property, has raised concerns about the validity of the Facility Agreement as a strata loan.[19] Roseville Aus Pty Ltd, which has also appointed receivers and managers to the Company, has expressed concerns about the purchase price under the Napar Contract, the marketing of the Property, and whether a sale at a price of $3.85 million would be at an undervalue.[20]
[19] White 5 October Affidavit [98] - [101], HLW-23.
[20] White 5 October Affidavit [102] - [105], HLW-24.
At this stage, the Receivers' position in relation to the validity of the Facility Agreement and Strata Debt is neutral. However, the Receivers' investigations have raised issues as to whether the Tranche 2 advance was for purposes permitted under the Strata Titles Act, and for what purpose it was in fact utilised. It was submitted, in effect, that these are matters that may bear on the validity of the Levy and whether it is an obligation that will pass to any new owner of the Property.
Mr White deposes that, cognisant of their obligations under s 420A of the Corporations Act to take all reasonable care to sell the Property for not less than market value, the Receivers have concerns as to:
(a)the circumstances in which the Facility Agreement was entered into;
(b)the purpose for which the funds under it were advanced and used; and
(c)how they are to treat the Facility Agreement, Strata Debt and Levy in determining the market value of the Property.
The Receivers submit that this gives rise to a legal issue of substance, which is required to be raised by them as receivers, and calls for the exercise of legal judgment.[21] It is in that context that the Receivers seek directions from the Court pursuant to s 424 of the Corporations Act that they are justified and otherwise acting reasonably by entering into and completing a contract of sale for the Property on terms and for a price that reflects the impact of the Facility Agreement and the Levy on the market value achievable for the Property.
[21] Referring to Re Ansett Australia Ltd (No 3) (2002) 115 FCR 409 [65] (Goldberg J).
The directions sought also include whether the Receivers are justified and otherwise acting reasonably by entering into and completing a contract for the sale of the Property on terms and for a price achieved through the marketing campaign conducted prior to their appointment. This is to address concerns raised as to the independence of the marketing agent, Ms Sharon Grey of Impel Property Group, who was also the manager of the Property.
Ms Grey was also a shareholder of the Company from 5 January 2020 to 15 June 2021. She signed the Facility Agreement on behalf of the Owners on 9 March 2021 and, on 23 February 2023, moved the motion for the Levy to make repayments of the Facility Agreement as a strata loan from the contributions of the Owners. Whilst this issue forms part of the Directions Application, it has not been pressed as directly relevant to the Leave Application and the documents sought to be produced under the proposed subpoena.

The proposed subpoena

Terms used in the proposed subpoena

The terms used in the proposed subpoena the subject of the Leave Application are:
"Document" includes but is not limited to:
(a)any record stored in electronic media which are either capable of being printed onto paper or viewed by means of a computer or other electronic device;
(b)draft or final versions of correspondence, communications (including but not limited to internal emails), reports, spreadsheets, minutes of meetings, certifications, proposals, memoranda, personal diaries, emails and file notes, whether in hard copy or electronic files; and
(c)photos or images.
"Bradfield"means Bradfield Advisors and its employees and officers.
"ESM" means ESM Strata [Pty Ltd] and its employees and officers.
"Facility Agreement" means the facility agreement between the Strata Corporation and Lannock dated on or about 10 February 2021.
"FinancialStatements" includes but is not limited to:
(a)profit and loss statements and balance sheets (audited and unaudited);
(b)depreciation schedules (audited and unaudited); and
(c)management accounts.
"Guarantor/s" means all or each of KD14, Samuel Oliver Hamrosi and Mazen Houssam Kabbara.
"KD14" means Kingdom Developments 14 Pty Ltd (Receivers and Managers Appointed) ACN 638 164 486.
"Lannock" means Lannock Capital 2 Pty Ltd ACN 153 391 283 and its employees and officers.
"Property" means 1-18, 1 Heppingstone Street, South Perth WA.
"Strata Corporation" means the Owners of Strata Plan 14.
"Tranche 2" means tranche 2 of the Facility Agreement for "Return of capital to the members of the Borrower" - $1,300,000.00.

The documents sought to be produced under the proposed subpoena

The documents sought to be produced under the proposed subpoena are:
1.Originals or copies of:
(a)any Document evidencing the basis on which:
(i)Lannock;
(ii)the Strata Corporation [the Owners]; and/or;
(iii)ESM
considered, assessed and/or approved the Facility Agreement.
(b)any Document, including Financial Statements, provided to Lannock by Bradfield in relation to or arising out of the Facility Agreement.
(c)any Document evidencing Lannock:
(i)considering and/or assessing 'Tranche 2' of the Facility Agreement; and
(ii)considering and/or assessing whether Tranche 2 of the Facility Agreement should, or should not, be drawn down (to the extent this is not covered by 1(c)(i)).
(d)any Financial Statements provided to Lannock by or on behalf of the Strata Corporation and/or any of the Guarantors.
(e)any Document evidencing the Guarantors financial capacity to enter into and service the guarantee under the Facility Agreement.
(f)any Document evidencing the Strata Corporation's financial capacity to enter into and service the Facility Agreement.
(g)any Document provided to Lannock by or on behalf of the Strata Corporation and/or any of the Guarantors evidencing:
(i)when 50% of the refurbishment of the Property was deemed complete; and
(ii)when the refurbishment of the Property was considered complete.

The Receivers' submissions

As outlined, the Receivers seek directions as to whether it would be reasonable (legally justified) to enter into a contract for the sale of the Property on terms and at a price that, relevantly, takes account of the Facility Agreement and Levy. They say that does not require the Court to determine the controversy as to the validity of the Facility Agreement and Levy. However, it is submitted that to make a decision as to whether or not the Receivers would be acting justifiably and reasonably, the Court must assess and factor in arguments put by the parties as to the validity or otherwise of the Facility Agreement and the Levy.
It is submitted on behalf of the Receivers that the documents sought to be produced under the proposed subpoena are relevant and necessary to assist the Court to be able to properly consider:
(a)the propriety of the Facility Agreement as a strata loan and of the Levy;
(b)the impact, if any, they have on the market value achievable for the Property, and
(c)whether or not the directions sought ought to be made.
Specifically, they say the documents sought are relevant to, and will assist the Court to clarify, the circumstances in and the purpose for which, they were made or entered into.
In their written submissions, the Receivers submit that the documents sought in:
(a)categories 1(a) to 1(c) of the proposed subpoena will likely identify what, if any, consideration was given by Lannock, the Owners and the strata agent, ESM Strata Pty Ltd (ESM), as to whether the Facility Agreement was a strata loan prior to its entry; and
(b)categories 1(d) to 1(g) of the proposed subpoena will likely identify the Owners' ability to enter into the Facility Agreement and raise the Levy.
It is submitted that the documents sought give rise to a line of enquiry which is relevant to whether the directions sought should be made, are necessary for the Receivers to fairly prepare and present their case for the directions, and to assist the Court in its task.
In essence, it is submitted that they are documents reasonably anticipated to be in Lannock's possession relating to the purposes for which:
(a)the Facility Agreement was entered into;
(b)the facility was approved by Lannock, and authorised by the Owners; and
(c)the funds were advanced,
and which are relevant to, or may lead to a line of enquiry as to whether or not the Facility Agreement is a strata loan, and whether or not the liability of the Levy should be taken into account in determining the Property's achievable market value.
As to exceptional circumstances, the Receivers rely on the unusual circumstances of this case, where they seek directions from the Court but, in their positions as receivers, do not have access to all of the documents in the possession of the relevant parties that they need to properly prepare their case, and that will enable the Court to properly assess whether or not to give the direction sought.

Lannock's opposition to the Leave Application

Lannock opposes leave being granted to issue the subpoena to it on two bases. First, it says the proposed subpoena has no legitimate forensic purpose in that it does not seek documents relevant to an issue in the Directions Application. Second, it says the Receivers have not shown that there are exceptional circumstances to justify leave being given to issue the proposed subpoena.
Mr Slater deposes on behalf of Lannock that Lannock is not aware of any legal action having been taken to adjudicate on whether the Facility Agreement or Levy is void, invalid or otherwise unenforceable. Lannock says that the Directions Application is not an appropriate forum to adjudicate on contested matters in relation to the Facility Agreement, Strata Debt or Levy, or the consequences of the marketing campaign having been conducted by Ms Grey given her potential or perceived lack of independence.
It is submitted on behalf of Lannock, amongst other matters, that a direction under s 424 of the Corporations Act is of a nonbinding nature and the making of a direction is not an adjudication or determinative of the parties' rights. As has been noted, this is accepted by the Receivers.
Lannock submits that the documents sought by the proposed subpoena are not relevant in that they do not appear to be documents that would materially assist the Receivers in the prosecution of their case in the Directions Application.
It was submitted on behalf of Lannock that, although concerns have been raised about the Facility Agreement as a strata loan and the Levy, no action has been taken by any party to challenge their validity or enforceability. It was submitted, in effect, that whatever direction the Court may ultimately give, the Strata Debt and the Levy still exist and, while ever they do, make a difference to the price a purchaser is likely to be willing to pay for the Property.[22]
[22] By reference to the valuation report attached to the confidential affidavit of Mr White affirmed on 5 October 2023 [22], HLW-35, particularly pages 86 and 113.
It also says that the documents sought appear to amount to impermissible fishing to identify a new case, which is a basis for refusing leave.[23]
[23] Referring to Weeks v Nationwide News Pty Ltd [No 3] [2019] WASC 268 [14] - [15]; Mineral Resources [16], [60] - [66].
Lannock says there is no explanation on behalf of the Receivers as to how the documents in the categories sought will assist the Court's consideration of whether the Receivers are justified and otherwise acting reasonably by entering into and completing a contract for the sale of the Property.
It was submitted that:
(a)what consideration or assessment was made, or any documents reveal as to the purpose of the Facility Agreement, is not a matter that advances or detracts from a party's case;
(b)the Facility Agreement is either consistent with the Strata Titles Act, or it is not;
(c)the strata corporation either acted within its powers, or it did not; and
(d)what the Owners, ESM or Lannock thought is irrelevant to whether the strata corporation had the relevant power and whether or not the Facility Agreement is a valid strata loan.
Lannock says that, even if the Receivers establish a legitimate forensic purpose for one or more of the categories of documents in the proposed subpoena, the Receivers have failed to establish there are exceptional circumstances to justify a grant of leave.

Disposition

I accept the submissions made on behalf of the Receivers to the effect that the Receivers are not themselves challenging the validity of the Facility Agreement. In light of the concerns raised by third parties and their own investigations, they are seeking directions which, if granted, would offer them some protection if they were to proceed to enter into a contract for the sale of the Property at a price that takes into account the Strata Debt and Levy.
It is not for me to determine in the Leave Application what, if any direction ought to be given or to make any substantive determination. Nor is it for me to make any final determination as to how the documents sought to be produced may ultimately bear on the decision made, and any direction given, in the Directions Application. The question I must decide in the Leave Application is limited to whether leave should be granted to issue the proposed subpoena, applying the principles outlined.
Having considered the Receivers' and Lannock's submissions as to whether leave should be granted to issue the proposed subpoena, for the reasons that follow, I accept that there are exceptional circumstances and that there is a legitimate forensic purpose for the production of some, though not all, of the categories of documents sought. This is subject to the categories of documents being more clearly identified, as I will outline.
As to whether there are exceptional circumstances, as the authorities referred to provide, it is not necessary for the Receivers to demonstrate that the circumstances in which they seek leave to issue a subpoena are unique. It is sufficient that the circumstances be out of the ordinary or unusual.
I accept that the circumstances of this case and the nature of the direction sought are out of the ordinary. Also, the Receivers do not have access to all of the documents in the possession of the Company or other relevant parties. It is not an 'ordinary' case in which a party can obtain documents by way of discovery. The Receivers have sought to obtain documents they say are necessary for them to fairly prepare for and present their case, and which may assist them and the Court, but have been unable to obtain the documents from Lannock voluntarily.
Whilst that in itself is not necessarily unusual or out of the ordinary, I am satisfied that, in combination, the circumstances are sufficiently out of the ordinary to invoke my discretion to grant leave to issue a subpoena, if I am also satisfied there is a legitimate forensic purpose for the production of the documents sought.
I do not consider that the documents sought amount to impermissible fishing, as suggested by Lannock. In my view, there is a reasonable possibility that some, though not all, of the documents sought to be produced will materially assist the 'claim' or 'defence' of the proceeding, as well as the Court's determination as to whether or not a direction ought to be made and, if so, assist it in making the direction. This applies in particular to documents relating to the purposes for which the Facility Agreement was entered into, approved by Lannock, authorised by the Owners, and for which the funds (the Strata Debt) were advanced and utilised (together the Purposes).
I am satisfied that such documents are relevant to, or likely to lead to a line of enquiry in relation to, the direction sought. That is, whether or not the Receivers would be justified, and otherwise acting reasonably, by entering into and completing a contract for the sale of the Property on terms and for a price which reflects its achievable market value, taking into account the Facility Agreement and the Levy. The Purposes are relevant to whether or not the Facility Agreement is a strata loan, and whether or not the liability of the Levy is a matter that should properly be taken into account in determining the achievable market value of the Property.
As I raised with counsel for the Receivers, the terms of the proposed subpoena as drafted are, in my view, too broad. It is not sufficiently clear, on its face, what documents are sought to be produced and for what purpose. Counsel for the Receivers provided clarification and articulated what each of the categories is intended to capture.
The categories of documents said to include documents that go to the Purposes (as outlined in [57]), are those in 1(a), 1(b) and 1(c) of the proposed subpoena. That is not immediately apparent as those categories are presently worded. It was suggested that the Court could grant leave subject to the subpoena being reissued in terms consistent with the Court's findings as to the limits of legitimate forensic purpose.
It is not for the Court to redraft the terms of the subpoena for the Receivers. The subpoena should be sufficiently clear and directed to requiring production of such documents reasonably anticipated to be in the possession of Lannock which relate to the Purposes. To that end, I find that the terms of any revised category 1(a) would need to be limited to all documents, if any, evidencing the basis upon which:
(a)Lannock;
(b)the Owners (defined in the proposed subpoena as 'Strata Corporation'); or
(c)ESM,
considered, assessed and/or approved the Facility Agreement, and specifically the purpose or purposes for which it was entered into, authorised by the Owners and for which the funds to be advanced under it were required or were to be utilised.
In addition, for this and all categories, the time period or date range for which the documents are sought to be produced should be made clear.
I would not allow proposed category 1(b). It refers to any document, including Financial Statements,[24] provided to Lannock by Bradfield in relation to or arising out of the Facility Agreement. It is too broad and unclear. Further, to the extent that any Financial Statement reveals any of the Purposes, such would be captured by revised category 1(a).
[24] This and other capitalised terms used in this section of the reasons which are not otherwise defined are the terms defined in the proposed subpoena, as outlined in [34].
As to proposed category 1(c), as submitted on behalf of the Receivers, Tranche 2 is described as relating to 'Return of capital to members of the Borrower' (the Company). Clause 4(d)(ii) of the Facility Agreement provides for the drawdown of the Tranche 2 funds in two instalments;
(a)the first 50% when the refurbishment is deemed by Lannock to be 50% complete; and
(b)the second 50% when the refurbishment is deemed by Lannock to be complete.
As presently drafted, proposed category 1(c)(i) seeks production of any Document evidencing Lannock considering and/or assessing Tranche 2 of the Facility Agreement. It is too broad and is unclear as to what documents are sought to be produced, and at what stage. To the extent this is intended to be forward-looking, it is not clear what, if any, documents would fall within this category that would not be captured by a revised category 1(a). To the extent it is intended to address consideration of the drawdown of Tranche 2, this appears to be what is contemplated by proposed categories 1(c)(ii) and 1(g).
Proposed category 1(c)(ii) seeks production of any Document evidencing Lannock considering and/or assessing whether Tranche 2 of the Facility Agreement should, or should not, be drawn down. There appears to be some overlap between this and what is sought in proposed category 1(g). Proposed category 1(g) seeks production of any Document provided to Lannock by or on behalf of the Strata Corporation and/or the Guarantors evidencing (i) when 50% of the refurbishment of the Property was deemed complete; and (ii) when refurbishment of the Property was considered complete.
I accept that documents provided to Lannock or that evidence Lannock's consideration and/or assessment of:
(a)the purpose and quantum of the funds to be advanced under Tranche 2; and
(b)completion of the refurbishment of the Property for the purpose of the drawdown of the funds advanced under Tranche 2,
are relevant to, or lead to a line of enquiry as to, whether the Facility Agreement was a strata loan for which the Levy could validly be issued. If that is what is sought to be produced, the terms of the proposed subpoena should be revised to make this clear. Multiple categories of documents seeking the same documents should be avoided.
Proposed category 1(d) seeks production of any Financial Statements provided to Lannock by or on behalf of the Strata Corporation and/or any of the Guarantors. Proposed categories 1(e) and (f) seek production of any Documents evidencing the Guarantors' and the Strata Corporation's financial capacity to enter into and service the Facility Agreement and the guarantee. These categories are also drafted in broad terms. It is said they are intended to capture documents that go to the bona fides of the Facility Agreement and it being used for purposes consistent with a strata loan, and the propriety of the Levy.
I am not persuaded that there is a legitimate forensic purpose for requiring production of the Financial Statements provided to Lannock or documents evidencing the financial capacity of the Owners (the Strata Corporation) or the Guarantors to service the Strata Debt. As was submitted on behalf of Lannock, it is difficult to see how the financial capacity of those servicing the loan or such documents could be relevant to whether the strata corporation was acting within power or consistently with the Strata Titles Act in entering into the Facility Agreement or the Levy. Such documents, in my view, are not necessary for the Receivers to fairly prepare and present their case. Nor are they likely to materially assist the 'claim' or 'defence' of the proceeding, or the Court's determination as to whether or not a direction ought to be made, or in giving such direction.
In any event, to the extent there are any documents that go to the Purposes and the issue of whether or not the Facility Agreement was a strata loan for which the Levy could be raised, such will be encompassed within the revised categories.

Conclusion and orders

For these reasons, leave will be granted to the Receivers to issue a subpoena to Lannock, subject to the Receivers filing a revised subpoena in terms that clearly identify the documents to be produced, as outlined.
Unless further time is sought and granted, the revised subpoena should be filed by 5 August 2024. It should be sufficiently clear and directed to requiring production of documents reasonably anticipated to be in the possession of Lannock, limited to documents:
(a)evidencing the basis upon which Lannock, the Strata Corporation or ESM considered, assessed and/or approved the Facility Agreement, and specifically the purpose or purposes for which it was entered into, authorised by the Owners and for which the funds to be advanced under it were required, or were to be utilised; and
(b)evidencing Lannock's consideration and/or assessment as to whether or not the Tranche 2 funds may be drawn down, including but not limited to documents provided to Lannock by or on behalf of the Strata Corporation and/or any of the Guarantors evidencing when the refurbishment of the Property:
(i)was deemed 50% complete; and
(ii)was considered complete.
In addition, the time period or date range for which the documents are sought to be produced should be made clear. The revised subpoena should also state the date and time for return of the subpoena and production of the documents.
Upon filing of the revised subpoena and it sufficiently addressing the matters referred to, I will make orders pursuant to O 36B r 2(2B)(c) RSC granting the Receivers leave to issue the subpoena to Lannock.
The Receivers and Lannock are directed to confer as to any further orders to be made at this stage and as to costs and, if agreement is reached, to file an agreed minute of orders by 5 August 2024. If unable to agree, they are each to file minutes of proposed orders by that date.
Any matters relating to the copying or uplift of documents produced, to limit or otherwise restrict access to documents produced, or any variation to the standard directions that apply to a subpoena not returnable at trial, should be dealt with by separate application, in the usual course, under Consolidated Practice Direction 4.3.7.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
AP
Associate to Master Russell
30 JULY 2024