Re Ninety Mile Beach Pty Ltd
[2023] VSC 765
•18 December 2023 (revised 8 July 2024)
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2021 03472
IN THE MATTER of NINETY MILE BEACH PTY LTD (ACN 618 901 572)
BETWEEN:
| PITARD KNOWLES NO. 1 PTY LTD (ACN 606 897 269) & ORS (according to the attached Schedule) | Plaintiffs/Defendants by Counterclaim |
| v | |
| SOD INVESTMENTS PTY LTD (ACN 634 294 876) | First Defendant/First Plaintiff by Counterclaim |
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JUDGE: | Gardiner AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 9 August 2023 |
DATE OF JUDGMENT: | 18 December 2023 (revised 8 July 2024) |
CASE MAY BE CITED AS: | Re Ninety Mile Beach Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2023] VSC 765 |
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CORPORATIONS – Oppression proceedings under ss 232 and 233 of the Corporations Act 2001 (Cth) – Objection by addressees to subpoenas issued to them under O 42A of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) for access to cloud-based accounting records of addressees – Subpoenas sought provision of credentials to enable access to cloud-based accounting records – Finding that subpoenas did not seek production of ‘documents’ within the meaning of O 42A – Forty Two International Pty Ltd v Barnes [2014] FCA 85 – Subpoenas also required addressees to command cloud-based accounting platform to generate a document sourced from raw data on system – Finding that subpoenas required the creation of a document not previously in existence and not susceptible to a subpoena under O 42A – Relevant paragraphs of the subpoenas set aside – Other paragraph of subpoena requiring production of documentation relevant to financial transactions occurring between the company the subject of the oppression proceedings and the addressees maintained.
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APPEARANCES: | Counsel | Solicitors |
| For the Defendant/Plaintiff by Counterclaim | Mr N Paterson of counsel | Lander & Rogers |
| For the objectors to the subpoenas, Project 179 Pty Ltd and Project 248 Pty Ltd | Mr D Porteous of counsel | Michael Trumble Legal |
TABLE OF CONTENTS
Background......................................................................................................................................... 1
The subpoenas.................................................................................................................................... 4
The objections..................................................................................................................................... 6
The evidence....................................................................................................................................... 6
179 and 248’s evidence....................................................................................................................... 8
SOD’s evidence................................................................................................................................ 10
179 and 248’s submissions as to the objections to Category 2 of the subpoenas............... 14
SOD’s submissions...................................................................................................................... 20
179 and 248’s submissions in reply.......................................................................................... 29
Consideration.................................................................................................................................... 31
Conclusion......................................................................................................................................... 37
HIS HONOUR:
On 10 May 2023, Project 179 Pty (‘179’) and Project 248 Pty Ltd (‘248’) notified the Prothonotary pursuant to r 42A.07 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) (‘Rules’) of their objections to the production of documents identified in the subpoenas issued to them on 3 May 2023 at the request of the defendant in this proceeding, SOD Investments Pty Ltd (‘SOD’).
The application raises novel questions as to, first, whether a subpoena can be issued under O 42A of the Rules which, rather than calling for the production of a physical document to the Prothonotary, requires the recipient to provide a username and password to enable access to the recipient’s cloud-based accounting records which hold such records in the form of raw data. The second and related issue is whether the recipient of a subpoena under O 42A can be obliged under its terms to generate a document not yet in existence from the cloud-based records by commanding the software to produce such records in a specified format and produce it.
For the reasons which follow, I have concluded that O 42A does not enable a party to compel the addressee of a subpoena to divulge the credentials which enable access to the addressee’s cloud-based records. Nor does the O 42A regime enable a process whereby a recipient of a subpoena can be obliged to create a document which was not in existence from raw data in cloud-based records and produce it in the format stipulated in the subpoena.
I will set aside those paragraphs of the subpoenas which required production in those terms, but uphold paragraph four of the subpoena directed to 248.
Background
In the proceeding commenced by originating process filed on 23 September 2021, the plaintiffs make application for relief against the defendants for oppressive conduct under ss 232 and 233 of the Corporations Act 2001 (Cth) (‘Act’) which allegedly arose from the defendants’ involvement in the affairs of Ninety Mile Beach Pty Ltd (‘NMB’).
The originating process, adopting the language of s 232 of the Act, seeks a declaration that the defendants’ conduct was such that they were acting and have acted ‘contrary to the interests of the members as a whole’ in a manner which was ‘oppressive and/or unfairly prejudicial to, or unfairly discriminatory against, the plaintiffs’, who are all shareholders in NMB. The originating process also seeks directions for the valuation of the shares of NMB and an order pursuant to s 233 of the Act that the plaintiffs be entitled to purchase the defendants’ shares in NMB.
On 8 March 2023, the plaintiffs applied to discontinue the proceeding against the second defendant, Alastair Williams. On 9 March 2023, Mr Williams indicated to the Court that he preferred to remain involved in the proceeding to benefit from his request, under s 198F of the Act, for access to the books of NMB.
On 10 March 2023, orders were made by Elliott J directed to the resolution of that issue. On 17 March 2023, the plaintiffs filed an interlocutory process pursuant to r 25.03 of the Rules. On 3 April 2023, consent orders were made by Elliott J discontinuing the proceeding against Mr Williams and SOD is now the sole defendant.
The plaintiffs’ Points of Claim filed on 31 August 2022 state there are 10,000 issued shares in NMB and contend that the plaintiffs are ordinary shareholders with the following holdings:
(a) first plaintiff, Pitard Knowles No.1 Pty Ltd (‘PK1’) – 469 shares;
(b) second plaintiff, Maurijay Super Pty Ltd – 2,221 shares;
(c) third plaintiff, Barrier Landing Pty Ltd – 2,302 shares;
(d) fourth plaintiff, Turnhill Pty Ltd – 2,302 shares;
(e) fifth plaintiff, Furrow Holdings Pty Ltd – 1,728 shares; and
(f) JG Funds Management Pty Ltd – 494 shares.
The defendant, SOD, holds 483 shares in NMB and Mr Williams, formerly the second defendant and a former director of SOD, holds one share. Mr Williams is the spouse of the current sole director and shareholder of SOD, Simone O’Donnell.
NMB was incorporated in May 2017 as a vehicle to invest in three property developments, including what it describes in its submissions as Project 179 and Project 248.
Except for Mr Williams, each of the shareholders invested in NMB. The Points of Claim contend each of the shareholders agreed at a meeting of shareholders on 9 May 2019 that the ordinary shares in the company would be issued in proportion to the level of their respective investments. It is contended the shareholding of SOD and the plaintiffs approximates the proportionate investment made by each of them in NMB vis-à-vis the other shareholders.
The Points of Claim allege various breaches of duty by Mr Williams as a director of NMB and went on to allege a number of grounds of oppressive conduct. Amongst those grounds is that Mr Williams, in his position as accountant for NMB, created financial records which inaccurately reflected its financial position. It is contended Mr Williams’ conduct in relation to the breaches and oppressive conduct is equally attributable to SOD by reason of SOD’s status as a shareholder and that the shares it holds in NMB are representative of Mr Williams’ investment and interest in the company. The plaintiffs seek an order that they be entitled to purchase SOD’s shares in NMB.
The Further Amended Points of Defence and Counterclaim filed by SOD on 14 April 2023 deny the substantive allegations made in the Points of Claim, in particular the allegations of oppressive conduct. In the counterclaim an order is sought, inter alia, that NMB, or alternatively the other shareholders of NMB, buy SOD’s shares at a value determined by the Court.
179 is a wholly owned subsidiary of Elsternwick Village Apartments Pty Ltd which is itself a wholly owned subsidiary of NMB. It is involved in a construction project in Glen Huntly Road, Elsternwick.
248 was incorporated to develop a property in Carnegie and is not a subsidiary of NMB. It is contended by SOD that there are loan accounts between 248 and NMB, and that 248 is a related entity by reason that it forms part of a group of companies under the banner of the Steller Property Group (‘Steller Group’), a group of companies involved in the development of residential apartments in the Melbourne suburban area. Mr Williams entered into an agreement with one of the then directors and shareholders of companies within the Steller Group, Simon Pitard. Under that agreement, Mr Williams’ company, Lime Capital Management Pty Ltd (‘Lime’), would provide accounting, compliance and business services to the Steller Group.
Mr Williams, through his involvement in Lime, was the primary accountant for the Steller Group between September 2014 to June 2019. The Steller Group encountered liquidity issues between March and June of 2019. On 1 July 2019, receivers and managers were appointed to the Steller Group.
SOD contends the valuation of the shares in NMB will be a focus of the oppression proceeding and, as 179 is a subsidiary of NMB and therefore forms part of its assets, the value and general financial position of 179 will be of relevance in the proceeding. The plaintiffs in the originating process seek an order pursuant to s 233 of the Act that they be entitled to purchase SOD’s and Mr Williams’ shares in NMB and, to that end, seek directions for the valuation of its shares. In the amended points of claim, SOD seeks, inter alia, that NMB or the other shareholders of NMB buy SOD’s shares in NMB at a fair value determined by the Court. It is also said by SOD that, because the loan accounts alleged to be owing by 248 to NMB form part of the assets of NMB, the recoverability of those loans from 248 will be material to any valuation of NMB.
The subpoenas
On 3 May 2023, SOD caused subpoenas to be issued to 179 and 248. 179 and 248 are not parties to the proceeding.
Category 1 of each subpoena sought specified bank statements of accounts respectively maintained by the addressees. The parties have reached agreement in respect of these documents.
Categories 2 and 3 of the respective subpoenas are, mutatis mutandis, in the same terms. They seek production of the following:[1]
[1]Extracted from the subpoena issued to 248.
2.‘the Xero[2] records maintained by or on behalf of Project 248 Pty Ltd (ACN 621 369 257) or in respect of its financial affairs. Recognising that these records are stored in a cloud-based system, compliance may be effected by providing access to that system by setting-up and providing a username and password for ‘Business and accounting’ that is ‘read only’ [i.e. not able to be edited] to access those records electronically, with the following criteria enabled:
[2]Xero is a cloud-based account keeping system.
(i)Sales and Purchases;
(ii)Bank accounts and balances; and
(iii)Reports.
3.Xero ‘General Ledger Detail’ report for Project 248 Pty Ltd (ACN 621 369 257) which:
(i)is provided electronically in Excel file format;
(ii)is grouped by General Ledger Account;
(iii)includes all General Ledger Account Codes;
(iv)is filtered according to the following export criteria:
(i)Accounts - All Accounts;
(ii)Date range - 1 July 2017 to 31 December 2021;
(iii)Columns – All;
(iv)Grouping/Summarising – Grouping by Account; and
(v)‘More’ filter - Accrual (with Accounting Basis, Opening and closing balances and Decimals all selected).
248 also objects to category 4 of the subpoena issued to it, which requires production of documents ‘recording or evidencing the source of $5,500,000 received by Project 248 Pty Ltd (ACN 621 369 257) in or about November 2018’.
Category 5 of the 248 subpoena sought production of written communications between 248 and two financiers, Equity One and Merricks Capital, concerning applications for finance between 1 July 2017 and 31 December 2021. Production of this category has been resolved between the parties.
The objections
In a letter of 10 May 2023, the solicitors for 179 and 248 notified the Prothonotary of the objections to the subpoenas. 179 and 248 maintain their objections to categories 2 and 3 of the subpoenas and 248 also maintains its objection to category 4.
The substance of 179 and 248’s objections in respect of categories 2 and 3 is as follows:
(a) category 2 does not seek the production of a document but, rather, log-in credentials to an online electronic database, i.e. Xero, and for that reason it is an abuse of process;
(b) category 2 is overly broad and not supported by a legitimate forensic purpose, nor can it be shown (given its breadth) that it is ‘on the cards’[3] that any responsive ‘document(s)’ would assist any party’s case; and
(c) category 3 does not seek the production of a document, but rather the creation of a document, and for that reason is an abuse of process.
[3]Woolworths Ltd v Svajcer [2013] VSCA 270, 5–7, [16] (Nettle, Ashley and Neave JJA) (‘Woolworths’) citing Alister v R (1984) 154 CLR 404, 414 (Gibbs CJ, Murphy, Wilson, Brennan and Dawson JJ).
248 objects to category 4, contending it is not supported by a legitimate forensic purpose and is otherwise oppressive.
The evidence
179 and 248 rely on the affidavits of their solicitor, Michael Trumble sworn 20 and 27 July 2023 and 7 August 2023.
SOD relies on an affidavit of its director, Simone O’Donnell, filed 25 July 2023, together with affidavits of the former second defendant, Mr Williams, sworn 27 February 2023 and 29 March 2023.
179 and 248 objected to the reliance by SOD on the affidavits of Mr Williams in this application. It was submitted those affidavits, which are respectively 812 and 119 pages long, are not in admissible form. The affidavits were filed on behalf of Mr Williams at the time he was a party to the proceeding and no notice was provided that reliance would be placed on that evidence.
179 and 248 did not contend that allowing SOD to rely on the material would, in some way, constitute denial of procedural fairness to them as they did not seek to respond to Mr William’s affidavits. Rather, it was said the affidavits have no status in the proceeding as the matters in issue are defined by the pleadings. Further, Mr Williams is no longer a party to the proceeding. Mr Porteous contended the affidavits were in the nature of hearsay and sought to give opinion evidence. Mr Porteous observed that Elliott J had noted at a directions hearing conducted in the matter that the affidavits would not stand as evidence in the proceedings because they were inadmissible.
179 and 248 also submitted that if the evidence was not excluded, SOD should bear the onus of precisely identifying which parts of the evidence were relied upon, for what purpose and how the material is admissible.
As has become common in proceedings brought under the Supreme Court (Corporations) Rules 2023 (Vic), at the early stages of the proceeding, orders were made for delivery of points of claim and defence. Ultimately, however, from a practical perspective, the matters in dispute are delineated by reference not only to the pleadings but also to the affidavit evidence which those Rules require the parties to file.[4] It seems clear SOD will be relying upon Mr Williams’ affidavits at the trial of this proceeding. Reference to those affidavits was not extensive nor, in my view at the end of the day, significant in the resolution of this application. I will permit them to be referred to.
[4]See r 2.4 of the Supreme Court (Corporations) Rules 2023 (Vic) which provides that ‘Unless the Court otherwise directs, an originating process, or interlocutory process, must be supported by an affidavit stating the facts in support of the process.’
179 and 248’s evidence
In his affidavit of 20 July 2023, Mr Trumble indicated he acts on behalf of 179, 248 and for NMB, the sixth defendant by counterclaim and the company the subject of this proceeding. Mr Trumble notified the Prothonotary in accordance with r 42A.07 of the objections to the subpoenas by two letters of 10 May 2023.
On 23 June 2023, Mr Trumble wrote to SOD’s solicitors, Lander & Rodgers, articulating the basis of 179’s objections in respect of categories 2 and 3 of the subpoena.
Mr Trumble complained that category 2 provides for no limitation as to time and no explanation as to what relevance the records have to any matter in issue in the proceeding. He stated that, as such, the category sought is impermissibly broad, lacks a legitimate forensic purpose and for those reasons is objectionable.
Mr Trumble observed that category 3 seeks a copy of the Xero ‘General Ledger Detail’ report for 179, requiring it to be produced in a particular format and grouped and filtered in a particular way. Mr Trumble stated the General Ledger of 179 for the period 1 July 2018 to 31 December 2021 had already been produced to SOD under a subpoena issued to 179 on 10 March 2023. Mr Trumble complained it is not a legitimate use of a subpoena to require that information, already in SOD’s possession, be prepared in a different format and then produced on subpoena. He concluded with an invitation for SOD to reconsider the basis and need for categories 2 and 3 of the subpoena and indicated 179 was willing to reconsider any revised categories proposed that take into account the matters of which Mr Trumble complained.
In respect to the subpoena addressed to 248, Mr Trumble made the same observations and complaints that are made in respect of categories 2 and 3 of the subpoena addressed to 179. The subpoena seeks production of the Xero records maintained by 248 in respect of its financial affairs. That category seeks all accounting records of 248, which is not a party to the proceeding. The category provides for no time limitation and no explanation is offered as to what relevance those records have to any matter in issue in the proceeding. Mr Trumble complained the category sought is impermissibly broad and oppressive, lacks a legitimate forensic purpose and for those reasons is objectionable.
As to category 3, Mr Trumble stated the General Ledger of 248 was already provided in March 2022 in the context of the queries raised by Phillip Rundle, who had been engaged to carry out a valuation of NMB in January 2022. Mr Trumble stated it was not clear why SOD now seeks a copy of that same document on subpoena and requires it to be prepared and produced by 248 in a different format. It was contended this is not a legitimate forensic purpose.
Category 4 seeks documents ‘recording or evidencing the source of $5,500,000 received by [248] in or about November 2018’. Mr Trumble complained there has been no explanation offered as to the relevance of this category to the matters in issue in the proceeding and that no part of this transaction or amount of $5,500,000 is referred to in the competing proposed lists of issues provided to the Court in June 2023. Mr Trumble contended this category therefore lacks a legitimate forensic purpose and is objectionable.
In his affidavit sworn 7 August 2023, Mr Trumble exhibited copies of the ASIC extracts in respect of 179 and 248. These extracts confirmed that 179 is a wholly owned subsidiary of Elsternwick Village Apartments Pty Ltd, which is itself a wholly owned subsidiary of NMB. The ASIC search of 248 confirmed that NMB holds no shares in that company. The shares in 248 are held as to 80% by Steller PF Pty Ltd, and as to 20% by James O’Donahue. The affidavit then exhibited an extract of the Xero Software Support website. That extract described the process of exporting data out of Xero and confirmed the general nature of Xero as being a system maintained on the cloud which can be accessed by those with the credentials to do so. The system is designed so that accounting information such as balance sheets, profit and loss, trial balance, payroll activity details and the like can be exported. The export can be by way of various file formats, including Excel and PDF.
SOD’s evidence
In her affidavit, Ms O’Donnell stated she was informed by Mr Williams, a certified practicing accountant and a previous director of 179 and 248, that the Xero records will contain information relevant to facts in dispute in the proceeding. The relevance of the categories sought in the subpoenas was the subject of a letter from SOD’s solicitors to the solicitor for 179 and 248. Ms O’Donnell asserted she was informed by her solicitors that examination of the Xero records was necessary in order to prepare for the trial of this proceeding, including instructing experts and preparing for cross-examination of witnesses at trial.
Ms O’Donnell stated she was not personally familiar with the use or operation of the Xero system and has never used it herself. She indicated she was informed by her solicitors that they are also generally unfamiliar with the use or operation of Xero. Consequently, she preferred that access to the Xero records be granted to Mr Williams, as he is familiar with Xero and the financial affairs of both 179 and 248, together with any experts engaged by SOD’s solicitors on its behalf. This is sought so the records can be viewed and interrogated, and so instructions can be provided to SOD’s solicitors in the further conduct of the proceeding.
Ms O’Donnell deposed she was informed by Mr Williams that the information obtained to date from 179 and 248 and the other parties to the proceedings is insufficient for that purpose. She asserted that NMB holds shares in 179 and there are loan accounts between NMB, 179 and 248. She stated there have been several competing versions of financial accounts provided by the parties to date, and that verification of the true state of affairs of NMB, 179 and 248 is required to understand the true value of NMB, its indebtedness and the level of investment of each shareholder in NMB. Ms O’Donnell complained there is an absence of information in the documents provided to date in respect of those companies as to who made changes to their accounting records and when. She believes this information will be available in the Xero records.
Ms O’Donnell stated her belief that the cause, nature and timing of such accounting changes are relevant to the following matters in the proceeding:
(a) allegations that the accounting of NMB’s affairs in respect to shareholder loans was oppressive to the interests of members of NMB, including SOD;
(b) allegations that Mr Williams, in his position as accountant for NMB, 179 and 248, created financial records which inaccurately reflect the financial position of NMB, which he is alleged to have done on behalf of SOD;
(c) SOD and/or Mr Williams unreasonably challenged the financial accounts of NMB;
(d) SOD’s entitlement to shares in NMB in circumstances where on 15 January 2021, NMB notified SOD that the directors of NMB had purported to alter the shareholding of SOD, premised on the accounting changes; and
(e) the value of SOD’s shares in NMB.
Ms O’Donnell stated she was informed by Mr Williams that:
(a) he is familiar with Xero;
(b) Xero is a cloud-based system;
(c) access to the live records of each of NMB, 179 and 248 can be easily and economically enabled by 179 and 248 in setting up remote read-only access and providing credentials for that access to SOD’s solicitors; and
(d) this would avoid the cost of physical attendance off-site to inspect records and any subsequent correspondence to request extracts of that data.
Ms O’Donnell then moved to category 3 of the subpoenas issued to 179 and 248, which respectively seek production of a General Ledger Detail report from Xero in a particular format. She stated she was informed by Mr Williams that, on the basis of his knowledge of Xero’s operation, compliance with that category would not require the creation of a new document. She deposed to her understanding from Mr Williams that exporting data from Xero is not ‘creating’ a new document, but rather ‘an efficient means of producing existing records’. In this regard, to produce an export, a user simply logs in and:
(a) selects ‘Reports’ from the Accounting menu;
(b) selects ‘General Ledger Detail’ from the Taxes and Balances group of reports;
(c) enters the appropriate date range;
(d) under the ‘More’ menu, checks the tick box for ‘Accrual’, ‘Opening and Closing Balances’ and ‘Decimals’; and
(e) selects ‘Export’ to Excel.
Ms O’Donnell then deposed as to the $5,500,000.00 transaction the subject of category 4 of the subpoena issued to 248, which seeks production of documents recording or evidencing the source of the $5.5 million received by 248 in or about November 2018.
Ms O’Donnell stated she was informed by Mr Williams that:
(a)on 13 November 2018, Maurijay Super Pty Ltd (ACN 604 657 483) (‘Maurijay Super’)[5] invested $5,500,000 into Steller Investment Notes Pty Ltd (ACN 612 314 806) (‘SIN’), an entity of the Steller group of companies;
[5]Maurijay Super is the second plaintiff in the proceeding.
(b)on 14 November 2018:
(i)SIN transferred $5,500,000 to SPF Funds Management Pty Ltd (ACN 608 312 894) (‘SPFFM’), another entity in the Steller group of companies;
(ii)SPFFM transferred $5,500,000 to Steller GA (ACN 618 820 821), another entity in the Steller group of companies;
(c) on 19 November 2018, Steller GA transferred $5,500,000 to 248; and
(d)on 29 November 2018, 248 transferred $9,850,000 to 179 (and on the same day, to the trust account of its solicitors) in respect of the settlement of NMB’s project at 233-247 Glenhuntly Road & 14 Ripon Grove, Elsternwick (Elsternwick).
Ms O’Donnell stated that she was further informed by Mr Williams that:
(a)The accounting treatment of the $5,500,000 received by 248 (as referred to in [sub paragraph 48(c) above)] has been retrospectively changed in NMB’s balance sheet between January 2021 (the James O’Donahue Balance Sheet) and April 2022 (the Simon Blair Balance Sheet) to incorrectly reflect that 248 received the funds to fund its own activities rather than receiving the funds on behalf of 179 for transfer to 179 (and subsequently, to the trust account of its solicitors) in respect of the settlement of Elsternwick (as referred to in [sub paragraph 48(d)] above);
(b) the James O’Donahue Balance Sheet shows, as at 30 June 2019, loans:
i.owed by NMB to Maurijay Super of $3,140,000;
ii.owed by 248 (denoted by its previous name, Steller 248) to NMB of $4,795,638; and
iii.owed by 179 to NMB of $5,073,269;
(c) the Simon Blair Balance Sheet shows, as at 30 June 2019, loans:
i. owed by NMB to Maurijay Super of $6,218,350;
ii. owed by NMB to 248 of $704,362.13; and
iii. owed by 179 to NMB of $13,509,819.83;
(d)the general ledger of Steller GA Pty Ltd, provided by the Administrators pursuant to a subpoena dated 3 May 2023 in this proceeding, records $2,000,000 of the $5,500,000 as ‘Loan – SPF Funds Management’ with the reference ‘CR000031 (Loan – SPFFM)’ and $3,500,000 as ‘Loan – Steller 179 / NMB’ with the same reference ‘CR000031 (Loan – SPFFM)’;
(e)according to the balance sheet of 248 produced by the Plaintiffs during the valuation process on or around 9 February 2022, records account ‘27035 - Loan – Other’ as $5,500,000 from November 2018 through to 30 June 2019;
(f)according to the general ledger of NMB provided by the Company pursuant to Justice Elliott’s 30 March 2023 Orders (filtered by ‘Account’ – ‘Loan – Maurijay Super Pty Ltd’ for convenience), Maurijay Super purportedly loaned $6,218,350 (including a partial return on 26 November 2018) to NMB in November 2018; and
(g)according to the Steller GA Report to Creditors, there are no loans owed by any of the Companies to Steller GA.
179 and 248’s submissions as to the objections to category 2 of the subpoenas
179 and 248 submitted that the governing principles as to whether a party is entitled to access subpoenaed documents are well established and include:[6]
[6]Woolworths, [16].
(a) the necessity for the party at whose request the subpoena was issued to expressly and precisely identify the legitimate forensic purpose for which access to the documents is sought;
(b) the identification of such legitimate forensic purpose is to be considered by the Court without inspecting the documents sought to be produced;
(c) the applicant must also satisfy the Court that it is ‘on the cards’, or that there is a ‘real possibility’ that the documents sought under the subpoena will ‘materially assist the defence’;
(d) a ‘fishing expedition’ is not a legitimate forensic purpose and will not be permitted;
(e) the relevance of a document to the proceeding alone will not substantiate an assertion of legitimate forensic purpose, and there is no legitimate forensic purpose if the party is seeking to obtain documents to ascertain whether they may be of relevance or assistance in their defence;
(f) where a party fails to demonstrate a legitimate forensic purpose, the Court should refuse access to the documents and set aside the subpoena; and
(g) unless the party issuing the subpoena identifies to the requisite standard the legitimate purpose for which access to the documents is sought, access should be refused.[7]
[7]Matthews v SPI Electricity Pty Ltd (No 12) [2014] VSC 131, [10] (Derham AsJ).
179 and 248 submitted it is an abuse of process to use the Court’s processes for an illegitimate purpose, which arises where that predominant purpose ‘is outside the scope of a court process authorised by statute’, which is ‘conceptually separate from the effect or result of the litigant’s conduct in invoking the court’s process.’[8]
[8]Walton v ACN 004 410 833 Ltd (formerly Arrium Ltd) (In Liq) [2022] HCA 3, [130]–[131] (Edelman and Steward JJ).
179 and 248 submitted the abuse of process arises here because categories 2 and 3 respectively seek log-in credentials to a cloud-based accounting database and the creation of new documents, neither of which involve the production of ‘documents’ and are therefore not susceptible to inclusion in the ambit of the subpoena process. 179 and 248 argued this cannot be used to compel the creation of documents, reports or other things.[9] In his oral submissions Mr Porteous, counsel for 179 and 248, contended that complying with category 2 amounts to 179 and 248, as subscribers to Xero accounting software, being compelled to create a new account on their subscriptions and then providing the account number and password to enable access to 179 and 248’s documents remotely on SOD’s computer.
[9]Zaczane Holdings Pty Ltd v Lockyer Valley Regional Council [2013] QSC 41 (Atkinson J).
Category 2 of the subpoenas issued to 179 and 248 are cast in identical terms, save for the identification of the recipient. 179 and 248 contended this category is extraordinary in its breadth as it seeks all the accounting records maintained by each company, neither of whom are parties to the proceeding. There is no limitation confining the documents to particular transactions of relevance to the proceeding or to any particular date range.
It was then contended the expression ‘the Xero records’ is not apt as Xero is an online accounting system which runs in a web browser or on a mobile telephone and which, upon request, can present raw data in various ways. As such, the Xero records do not exist in any relevant physical sense and insofar as they are electronic, they are comprised of raw data.[10]
[10]Forty Two International Pty Ltd v Barnes [2014] FCA 85, [591]–[604] (Griffiths J) (‘Forty Two International’).
It was also contended that, by reason of the nature of the way the Xero records are stored, it is striking that SOD suggests compliance with the subpoena may be effected by providing access to that system by setting up and providing a ‘read only’ username and password to access those records electronically. The subpoena addressees accepted it is permissible and ordinary practice for the issuing party and an addressee to confirm compliance with the subpoena, but submitted that where that conferral fails to reach any agreement as to if and how compliance is to be effected, it is for the Court to deal with the description of the category in the terms in which it is expressed. It is not the Court’s role to re-write such description.[11]
[11]Sydney Refractive Surgery Centre Pty Ltd v Beaumont [2003] NSWC 688, [32] (Simpson J).
179 and 248 submitted that as to the terms in which the category is expressed, those terms must be read as a whole. It was said that when so read, the category does not seek the production of any documents at all, but rather the creation of a new Xero account and then the production, apparently to the issuing party and not to the Court, of log-in credentials for that new account. The subpoena addressees submitted this a wholly novel use of a subpoena and one outside the scope of what is contemplated by O 42A. Insofar as it seeks that those credentials be provided to the issuing party and not to the Court (this is unclear), it was submitted it is improper and for that reason, the category ought be set aside.[12]
[12]Hodgson v Amcor Ltd; Amcor Ltd v Barnes (No 4) [2011] VSC 269, [61] (Vickery J).
179 and 248 referred to a letter of 26 July 2023 in which SOD confirmed the intention of the category was to compel the creation of a new account and the provision to the Court of the log-in credentials for that account. This, it was said, is not a legitimate purpose and the category ought to be set aside.
179 and 248 contended this category is not saved from being set aside even if the second sentence to which reference has been made is excised or ignored. They stated that whether the category is read as seeking newly created log-in credentials or the ‘Xero records’ themselves, by operation of O 42A only a document may be the subject of a subpoena; the category does not seek the production of a ‘document’.
In this regard, 179 and 248 observed there is no definition of ‘document’ within O 42A of the Rules and it therefore takes its meaning from s 38 of the Interpretation of Legislation Act 1984 (Vic). That definition, while wide and expansive, does not contemplate the provision of access to an intangible, cloud-based electronic database of the kind under consideration here.
Reference was made to Forty Two InternationalPty Ltd v Barnes (‘Forty Two International’) where Griffiths J considered a similarly wide definition of ‘document’.[13] In Forty Two International, the issue arose when a witness relied on certain printouts produced from ‘MYOB’ and ‘Quickbooks’ software accounting systems. The printouts were created by the witness using raw financial data stored in the two electronic accounting systems for the purpose of giving evidence in the proceeding.[14] A complaint was made that those documents, which had been generated after discovery, ought to have been discovered at an earlier time. Griffiths J found that none of the applicable discovery obligations ‘required the applicants (i.e. the objectors) to generate or create a document drawing on raw data stored in either of the two electronic accounting systems’ and that the documents in question were not ‘brought into existence’ until the preparation of the witness’ affidavit. Prior to that time, the raw data was simply embedded in the relevant accounting system, described by senior counsel for the party resisting the criticism of failing to discover such documents as comprising part of a ‘vat of material’.
[13]Forty Two International, [591]–[604].
[14]Ibid, [591].
179 and 248 contended that, just as the documents in issue in Forty Two International did not exist until they were extracted in that form from the raw data contained within the accounting systems, here too the Xero records do not exist in documentary form. 179 and 248 appeared to accept that an online accounting system such as Xero is not beyond the scope of the Court’s compulsory processes and that the Xero database in its entirety is a ‘document’. However, they argued a subpoena cannot be used to compel access to that accounting system in the way that SOD attempts to do here. The Xero database exists in the cloud and cannot be produced in that form to the Prothonotary; it is not, as SOD would have it, a process akin to using a photocopier to produce a document. Mr Porteous remarked that, despite searches, no reported decisions dealing with the question of a subpoena seeking access to cloud-based documents could be found.
179 and 248 indicated that if category 2 is not an abuse of process, it is nevertheless objectionable on the basis that it lacks a legitimate forensic purpose, by reason, chiefly, of its incredible breadth. They contended it is the duty of the issuing party to identify ‘expressly and precisely the legitimate forensic purpose for which access to the documents is sought’.[15] It was said compliance with that duty becomes difficult as the scope and breadth of the documents sought expands. In this regard, 179 and 248 contended that scope and breadth is unlimited, as the category seeks all of the accounting records of the two companies.[16] They submitted that no attempt has been made to demonstrate how all of those accounting records are relevant to the issues in dispute in the proceeding (which issues are to be determined by the pleadings) nor, given the breadth of the category, how it is ‘on the cards’ that all of those records will materially assist SOD’s case in the proceeding.[17]
[15]Citing Woolworths, [16].
[16]ACN 096 450 770 (fka AJH Lawyers Pty Ltd) v Mathieson Nominees [2017] VSC 559, [20(d)] (Derham AsJ) (‘ACN 096 450 770’).
[17]Citing ACN 096 450 770, [20(d)].
They concluded in respect of category 2 that, while the pleadings indicate the various accounting issues concerning NMB are in issue, the bare assertion in the form of a third party opinion expressing, on information and belief that there are loan accounts between NMB and the two companies, and the view that ‘verification of the true state of affairs of the company is required to understand the true value of [NMB] and its indebtedness, and the level of investment of each shareholder in [NMB]’, are especially ‘opaque’.
It was contended that bare assertion, to the extent, if any, that it is admissible, cannot justify the extraordinarily wide breadth of what is sought.
179 and 248 contended in regards to category 3 of the subpoenas, that, in a somewhat similar vein to category 2, it does not seek the production of an existing document but rather the creation and subsequent production of a new document. 179 and 248 submitted that to comply with the subpoena they would need to query the online system with a series of specific criteria and then export the result into an Excel document. Reference was made to the affidavit of Ms O’Donnell where she describes the process of logging in, selecting various menus, culminating with a command to export the data into Excel. It was said that clearly, up to that point, the document, being the Excel spreadsheet, does not exist – it is not at all akin to producing a copy of a document by a photocopier. Photocopying a document implicitly involves copying an extant document and issuing a subpoena to require this is not the appropriate process to adopt here. It was submitted that what is required by the subpoenas clearly involves the creation of a new Excel document.
Mr Porteous did not dispute the documents sought were relevant to the issues in dispute. The crux of 179 and 248’s submissions was that it is not a legitimate use of a subpoena to compel a document to be brought into existence.
As to category 4 of the 248 subpoena, 248 argued the pleadings do not identify any dispute regarding the amount of $5,500,000 received by 248 in November 2018. Accordingly, 248 contended it does not meet the threshold required by the legitimate forensic purpose test.
It was further submitted the sum in question has been split and recorded in the accounts of NMB in other ways, but that the relationship of these accounts to the issues in the proceeding is unclear.
Additionally, 248 objected to category 4 on the basis that it is oppressive, arising from the use of the phrase ‘recording or evidencing the source’ of the $5,500,000 received by NMB. It was submitted that documents recording the transaction itself are not sought here. It was further contended that the word ‘evidencing’ creates difficulty when used in a subpoena,[18] and that its ambiguous effect is only compounded by the use of the words ‘the source’. At the heart of this submission was the argument the category does not successfully identify the documents sought for production with the necessary particularity.
[18]Broadway Plaza Investments Pty Ltd v Broadway Plaza Pty Ltd [2019] NSWSC 410, [138] (Ward CJ in Eq); Marcos Accountants Pty Ltd v Nigtol Pty Ltd [2019] NSWSC 909, [71] (Ward CJ in Eq).
SOD’s submissions
SOD stated that category 2, in seeking the Xero records maintained for each of 179 and 248, contains no ambiguity; it is the complete accounting records maintained by each of the companies on the Xero platform. The balance of the text in category 2 is a proposal for a practical means by which the records might be produced to the Court and accessed by any person authorised to inspect them.
Category 3 seeks a General Ledger Detail Report which is a collation of data extracted from the Xero records and produced in Excel format under an export function contained in the Xero software.
SOD accepted these records are not physical but currently comprise data stored electronically which can be presented on computers and telephones. SOD stated there is no denial by 179 and 248 that those companies maintain that financial data and have access to it, albeit that it is stored in the cloud. It was contended that, in that sense, the devices on which such data is stored or displayed from time to time are relevantly ‘documents’.
The submissions went on to assert that nothing in either categories 2 or 3 requires the recipients of the subpoenas to create a new document. In respect of category 2, the proposed means of access simply involves the giving of log-in details to and the setting of parameters for access by the Court to a document, that being the entire collection of data maintained as a financial record by each of the companies.
I enquired of Mr Paterson whether it was accepted that, if what was involved to comply with category 3 required the creation of a document, 179 and 248 could not be required to do so in response to a subpoena. In response he accepted this to be the position as a matter of principle, but submitted the factual circumstances here did not require this. SOD likened the process to be undertaken here to an action no different in principle to using a photocopier to copy a physical document.
As to category 2 of the 179 subpoena, SOD contended the financial accounting records of 179 are directly relevant to the facts in issue in the proceeding as they will go towards determining the following:
(a) the verification of the true state of 179’s financial affairs and its indebtedness, which is pertinent to the value of the shares NMB owns in it;
(b) whether shareholder loans have affected the accounting of NMB’s affairs in a manner that is oppressive to the interests of the members of NMB;
(c) whether Mr Williams, as the accountant for NMB and its subsidiaries, created inaccurate financial records;
(d) whether SOD or Mr Williams unreasonably challenged NMB’s financial accounts and those of its subsidiaries; and
(e) the level of investment of each shareholder in NMB.
SOD contended the ‘read only’ format of the Xero records sought will allow SOD to interrogate the changes made to any accounts and the circumstances of those changes through the analysis of metadata in the form of what is described as an ‘electronic stamp’. SOD contended the lack of a timeframe arises by reason of the format requested as it is not possible to place a time limit on electronic Xero access. SOD further stated the Xero records will allow it to identify any further witnesses and determine whether those witnesses should be cross-examined.
In respect to category 3 of the 179 subpoena, SOD contended the General Ledger Detail report required to be produced was not previously provided, as a new timeframe, that being 1 July 2017 to 31 December 2021, has been sought.
As to category 2 of the 248 subpoena, its relevance was contended to be materially the same as category 2 of the 179 subpoena as outlined above. In particular, the specific question of the indebtedness of NMB to 248 in the amount of $5,632,672 arises.
SOD contended that in respect to category 3 of the 248 subpoena, only specific parts of the complete General Ledger were previously provided.[19] The complete General Ledger is sought by SOD to review its complete data supporting the balance sheets of 248, and more particularly, to review matters relating to NMB’s valuation, the alleged quantum of NMB’s indebtedness to 248 and any interest owed by 248 to NMB.
[19]Bearing the filenames ‘Pitard_248_Pty_Ltd_-_Payable_Invoice_Detail’ and ‘Pitard_248_Pty_Ltd_-_Account_Transactions’
In regards to category 3, the export of part of the document to an Excel format is merely an extract of part of the relevant document in category 2; it does not, save in a technical sense of creating an electronic file, involve the creation of a separate document. In this way, it was contended to be akin to photocopying part of a physical record.
It was contended the assertion to the contrary in Mr Trumble’s affidavit is merely that, and that Ms O’Donnell’s affidavit sets out the process by which the export of data for category 3 could be achieved in order to provide access to it. It was said to be a simple process.
SOD referred to the decision of Kaye J in Newnham v Davis,[20] in which the Court found that r 42A(1) specifically provides that the rule applies where a party seeks to require a person, not a party, to produce any document ‘for evidence’ before the hearing of an interlocutory or other application in the proceeding, or before the trial of the proceeding. Thus, by its express terms, the rule only authorises the issue of such a subpoena where the document the subject of the subpoena may potentially be admissible as evidence in the proceeding. The Court also found that for a document to be admissible, the document of which production is sought must have some potential relevance to the issues in dispute.[21]
[20][2010] VSC 13 (Kaye J).
[21]Ibid, [6].
Equally, in making submissions as to the principles to be applied in assessing the relevance of documents to a proceeding, SOD referred to Campaign Master (UK) Ltd v Forty Two International Pty Ltd (No 4), in which Yates J referred to previous authorities on the subject:[22]
Beaumont J in Arnotts derived relevance from the connection between the legitimate forensic purpose of the subpoena and the adjectival (as distinct from substantive) relevance of the documents sought to the issues in the proceeding. Waddell J in Spencer Motors Pty Ltd v LNC Industries Ltd characterised relevance as the material being ‘reasonably likely to add, in the end, in some way or other, to the relevant evidence in the case’, and Collier J in Tamawood Ltd v Habitare Developments Pty Ltd asked whether it appears to be ‘on the cards’ that the document sought will materially assist the party on whose request the subpoena has been issued.
[22](2010) 269 ALR 76, [39] (Yates J) citing Trade Practices Commission v Arnotts Ltd (1990) 93 ALR 657 (Beaumont J); Spencer Motors Pty Ltd v LNC Industries Ltd [2982] 2 NSWLR 921 (Waddell J); Tamawood Ltd v Habitare Developments Pty Ltd (admin apptd) (recs and mgrs apptd) (No 3) [2013] FCA 410 (Collier J).
SOD also relied on provisions in legislation, the first of which being the wording of s 55 of the Evidence Act 2008 (‘Evidence Act’), which indicates that ‘the evidence that is relevant in a proceeding is evidence that, if it were accepted, could rationally affect (directly or indirectly) the assessment of the probability of the existence of the fact in issue in the proceeding.’
SOD submitted O 42A of the Rules permits a party to seek the production of a ‘document’ by non-parties; s 38 of the Interpretation of Legislation Act 1984 defines a ‘document’ as being ‘any disc, tape, sound track or other device in which sounds or other data (not being visual images) are embodied so as to be capable (with or without the aid of some other equipment) of being reproduced therefrom.’ SOD referred to the similar definition of ‘document’ found in sch 2 of the Evidence Act, that being ‘anything from which sounds, images or writings can be reproduced with or without the aid of anything else…’.
SOD concluded that s 48 of the Evidence Act specifically contemplates the production of documents by means of tendering extracts or other documents produced by devices or systems or extracts from the records kept by a business.
SOD, referring to the decision of Forty Two International in respect of the subpoenas requiring a new document to be created, summarised the Court’s view:
(a) it considered the relevant categories of discovery (documents with respect to the monthly sales activity, copies of financial and audited account reports and consolidated statements);
(b) it held that none of those categories required the party to generate or create a document drawing on raw data stored in the electronic accounting systems; and
(c) it noted that even if the material was discoverable, it could be relied upon.[23]
[23]Forty Two International, [601]–[604].
SOD contended that to the extent the reasons in Forty Two International stand for the proposition that raw data contained within the system that stores it, cloud-based or otherwise, is not a document per se, the decision is, respectfully, wrong. The reasons do not expressly say so, and can be instead distinguished on the basis that what was under consideration was whether documents of the specific nature sought to be discovered in the proceeding were in existence at the time.
By contrast, SOD stated it seeks the production of the whole database, being category 2, and of a specific extract of data from it in category 3. It asserted there was nothing in the text of category 2 that required the production of credentials to SOD directly; rather, it requires that they be produced to the Court as is appropriate for the return of any subpoena. SOD then seeks access to the documents by means of using those credentials pursuant to an order of the Court and subject to the ordinary restrictions placed on the use of documents obtained under compulsion.
As to the scope of the requests in categories 2 and 3, it was observed there was no objection made by the objectors that compliance with the subpoenas would be oppressive. It was contended that the process would be simple.
In a segment of its submissions devoted to the legitimate forensic purpose for seeking production of categories 2 and 3, SOD made reference to an affidavit sworn by Mr Williams. In that affidavit, Mr Williams exhibited balance sheets which showed loan accounts as at 30 June 2019 between NMB and 179 and 248. Mr Williams deposed as to the existence of conflicting versions of NMB’s financial statements. He deposed that sometime between January 2021 and April 2022, 179’s loan balance increased by $8,325,423 and between those two dates, the 248 loan balance purportedly decreased by $5,738,969.
The forensic purposes for categories 2 and 3 were described in the letter of 4 July 2023 from SOD’s solicitors, Lander & Rodgers, to the solicitors for 179 and 248. In that correspondence, it was said the accounting records of 179 and 248 are relevant to issues going to:
(a) the value of the shares, which is relevant to relief if oppression is found; and
(b) the allegations in the points of claim to the effect that SOD and/or Mr Williams, who was also a director of each of 179 and 248 at various times and the CFO of the Steller Group, of which they were part:
(i) created inaccurate financial records of NMB; and
(ii) unreasonably challenged the financial accounts of NMB.
In particular, it was said as to the value of NMB:
(a) the financial records of 179 as a whole are pertinent to the value of the shares NMB owns in it;
(b) the correct accounting for loans between 179 and 248 and NMB are relevant to the value of NMB and the financial status of each of those companies is pertinent to the question of the recoverability of the loans, if any, owed by them to NMB; and
(c) it is a legitimate forensic purpose for SOD to be able to review the financial records of 179 and 248, so as to:
(iii) ascertain if, how and to what extent the balance sheets of NMB accord with the financial records of those two companies in so far as they pertain to the loan accounts or the value and shares;
(iv) prepare for and provide instructions or submissions to forensic accountants or valuers in respect of the value of NMB, some of which is derived from the value of loans from those companies; and,
(v) cross-examine relevant officers of NMB as to the changes apparent in the NMB balance sheets based on the data and any changes to the data in the Xero records of the companies.
Mr Paterson submitted these matters support a conclusion that the financial records of 179 and 248 are reasonably likely to add to the relevant evidence in the case.
Mr Paterson contended parties will often comply with subpoenas by the production of photocopies and in order for that to be done, a person needs to stand at a photocopier with a physical document, press a button, produce a separate document and provide a copy of it. He contended nobody complains that having to take a photocopy actually requires the production of a new document. He further contended equally there is nothing different in principle to making a copy of a physical document and producing that, and providing a login to an electronic system that stores data. It is simply another means of accessing the same information. The log-in details do not create a document but only create access to the system that supplies the information; the data produced by means of the parameters that are asked of it.
Mr Paterson emphasised that what was sought was read-only access to the Xero system. As to the production of the Excel spreadsheet in category 3, what is sought is an excerpt from the Xero data, produced in a different format and with certain characteristics. The general ledger which is sought is in fact all of the accounting data within the system, to be produced in what he describes as a ‘slightly different format’.
Mr Paterson accepted, in response to an enquiry by me, that this still involved a transformation of data into Excel format but not, he said, a particularly onerous one according to the evidence of Ms O’Donnell. I asked Mr Paterson if it was accepted that the Xero system would not, unless it was interrogated, provide group information; for example, by reference to the general ledger account. He accepted that any display of information in Xero would have to go through the Xero software, either by appearing on screen or by exporting the raw data in the system to an Excel format.
As to category 4, SOD contended the alleged $5,500,000 goes to the value of NMB and the appropriate relief if oppression is found, and as a result, has not been specifically pleaded. SOD contended category 4 of the 248 subpoena directly relates to items 14(c) and (d) of the SOD List of Issues (these items ask, without limiting the question as to oppressive conduct and relief, what interest, if any, is owed by both 248 and 179 to NMB), and more precisely, is concerned with the alleged indebtedness of the amount of $5,632,672, of which the $5,500,000 comprises a substantial part. SOD claimed this category derives its legitimate forensic purpose from its utility in verifying whether this indebtedness affects the valuation of NMB, and reconciling discrepancies between and changes made to NMB’s financial records which were previously provided.
SOD stated there was conflicting evidence as to the loans made by the second plaintiff, Maurijay Super, to NMB and that it consequently appears the amount of $5,500,000 has been recorded twice as both an investment by Maurijay Super in NMB and as a loan to 248. That conflicting evidence is as follows:
(a) the Minutes of SOD dated 9 October 2019 refer to an investment of $2,000,000 by Maurijay Super in NMB;
(b) the Balance Sheet prepared by James O’Donahue refers to a loan owed by NMB to Maurijay Super of $3,140,000; and
(c) the Balance Sheet prepared by Simon Blair, upon which the valuation report is premised, refers to a loan owed by NMB to Maurijay Super of $6,218,350.
SOD submitted there is evidence suggesting that in November 2018, sums of $5,500,000 were invested by Maurijay Super in SIN. The funds were then transferred in a sequence, from SIN to SPFFM, then from SPFFM to Steller GA Pty Ltd (‘Steller GA’), and then from Steller GA to 248. The chain ends with 248 transferring $9,850,000 to 179.
SOD contended that some of that money was treated by NMB as comprising part of a loan to NMB by Maurijay Super. At the conclusion of the O’Donnell affidavit, a credit of $5,078,350 was referred to in the General Ledger detail report as ‘Maurijay Investment – Received…’ on 12 November 2018.
SOD also pointed to a balance sheet of 248 which refers to the sum as a non-current liability bearing the name ‘Loan-Other’, with no further description or the identity of the lender. On this basis, SOD argued the value of 248 and its ability to repay any loan to NBM is clearly affected by the existence and legitimacy of such a loan.
The legitimate forensic purpose as identified by SOD in ascertaining the source of the $5,500,000 was described as allowing it to:
(a) establish how, and to what extent, the records of NMB accord with the actual investments of Maurijay Super (noting its indirect path to 179) as disclosed by documents in the possession of 248, a recipient of that amount;
(b) prepare for and provide instructions or submissions to forensic accountants or valuers in respect of those matters pertinent to the value of NMB; and
(c) cross-examine any relevant witnesses as to those financial documents.
On the subject of oppression, SOD submitted it is clear that documents recording the transaction may disclose the source of the funds, which may be of wide import. SOD further contended there was no practical difficulty indicated by the addressees in understanding or complying with the subpoena as it is phrased. Equally, SOD contended that if the only material in the possession of the companies responding to the subpoenas are the bank statements already produced, this has not been disclosed.
Mr Paterson contended the word ‘source’ is of significance connoting where the money making up the $5.5 million came from, from its inception to its end. It requires interpretation and that interpretation is to be exercised by competent solicitors and counsel.
SOD referred to both the definition of ‘source’ in the New Oxford English Dictionary, which is ‘a place, person or thing from which something comes or can be obtained’, and the Stroud’s Judicial Dictionary of Words and Phrases, which cites Hart v Sangster in defining ‘source’ as being ‘indistinguishable from the word “origin”’.[24]
[24][1956] 1 WLR 1105 (Vaisey J).
179 and 248’s submissions in reply
179 and 248 rejected SOD’s submission that production in response to category 2 of the subpoenas is analogous to ‘using a photocopier to copy a physical document’.
179 and 248 also contended SOD has not precisely identified the documents sought by the subpoenas, and submit that ‘document’ has been defined as being ‘the complete accounting records’, ‘data stored electronically’, ‘devices on which such data [is] stored, or displayed from time to time’ and ‘the entire collection of data maintained as a financial record by each of the Companies’.
179 and 248 submitted SOD must draw a distinction between the Xero database, which is unable to be exported in its entirety from the cloud and the Xero records which are the accounting records that might be displayed in various ways as a result of enquiries made of the Xero database.
However, 179 and 248 further maintained that, even in the face of such a distinction, the records that may be extracted from the cloud have not yet been, and are not currently in existence. As a result, 179 and 248 submitted that these records are not ‘documents’.
179 and 248 referred to a number of authorities in their submissions in reply. They argued the creation of new log-in credentials to access 179 and 248’s accounting systems does not constitute production of documents, and refer to the observation of Vinelott J in Derby & Co Ltd v Weldon (No 9) that:
even when relevant material is on-line and capable of being shown on screen or printed out, some means will have to be found of screening out irrelevant or privileged material. The party seeking discovery cannot be allowed simply to seat himself at his opponent’s computer console and be provided with the necessary access keys.[25]
[25]Derby & CO Ltd v Weldon (No 9) [1991] 2 All ER 901, 906 (Vinelott J).
In contending that the method of granting access to stored data is not a straightforward question, 179 and 248 referred to the observation of Tamberlin J in Sony Music Entertainment, that access to relevant records should be provided under the supervision of the owner of those records to allow for claims of privilege or confidentiality to be made.[26]
[26]Sony Music Entertainment (Australia) Ltd v University of Tasmania (2003) 198 ALR 367, 381-382 [68] (Tamberlin J).
179 and 248 also referred to Hillier v Martin (No 4),[27] in which Charlesworth J determined that a Xero database constituted a ‘document’ but the manner of production should be discussed between the parties to avoid the need for the party seeking access ‘to be provided with login details in respect of a subscription that might be held by a non-party,’[28] i.e. the proposed solution provided by SOD in regards to category 2 of the subpoena. 179 and 248 also referred to GE Capital Australia Ltd v Pertsinidis where Beazley J reversed a ruling that provided access to the plaintiff’s computer system on the basis that the order ‘ought to have provided for access to be given and taken at the plaintiff’s premises rather than remote access.’[29] At the core of the addressees’ submission on this point was that subpoenas should not be used to avoid the consideration of whether such safeguards or conditions ought to be imposed by the Court,[30] as they are required and may be fashioned in a discovery context.[31]
[27][2021] FCA 710 (Charlesworth J).
[28]Ibid, [63].
[29]GE Capital Australia Ltd v Pertsinidis [2006] SADC 55, [77] (Beazley J).
[30]See by analogy, Suzhou Haishun Investment Management Co Ltd v Yue ‘e Zhao (Ruling No 2) [2018] VSC 144, [55] (Ierodiaconou AsJ); Wollongong Coal Ltd v Gujarat NRE Properties Pty Ltd (No 2) [2019] NSWSC 758, [178] (Ward CJ in Eq).
[31]Perdaman Chemicals & Fertilisers Pty Ltd v The Griffin Coal Mining Company Pty Ltd (No 6) [2012] WASC 450, [11]–[13] (Edelman J); Santos Ltd v Pipelines Authority of South Australia (1996) 66 SASR 38, 56 (Debelle J with whom Cox and Prior JJ agreed).
179 and 248 submitted that, while some accounting records of a company may be relevant in determining the value of the shares in its parent company, this relevance cannot be extended to all of those companies’ accounting records. They also stated that such a concession is not relevant here as NMB is not the parent company of 179 and 248, and the relevance of these accounting records is predicated on allegations of loans between NMB and 248.
Consideration
Threshold questions arise in respect of categories 2 and 3 of the subpoenas. Resolution of these questions involves consideration of whether the subpoena process can be used, first, to require the addressee to provide access credentials to the addressee’s cloud-based accounting records, which are held in the form of raw data; secondly, whether the addressee of a subpoena can be obliged under its terms to command the cloud-based software to generate a document which is not then in existence in a specified format.
The subpoenas issued to 179 and 248, who are not parties to the proceeding, were issued pursuant to O 42A of the Rules. Those Rules provide, relevantly, in the present context:
42A.01 Application
(1)This Order applies where a party who has a solicitor in the proceeding seeks to require a person not a party to produce any document for evidence before—
(a)the hearing of an interlocutory or other application in the proceeding; or
(b)the trial of the proceeding.
(2)Order 42 applies so far as is practicable to a subpoena to produce under this Order.
42A.02 Issuing subpoena
A subpoena issued under this Order shall require the addressee to produce to the Prothonotary on or before a day specified by the Prothonotary in the subpoena the document identified in the subpoena.
42A.03 Form of subpoena
A subpoena under this Order shall be in Form 42AA.
…
42A.05 Compliance with subpoena
(1)The addressee shall comply with the subpoena under this Order by producing the document to the Prothonotary by delivering or sending it and, if sent, the document shall be sent so that the Prothonotary receives it on or before the day specified in the subpoena.
(2)Unless a subpoena specifically requires the production of the original, the addressee may produce a copy of any document required to be produced by the subpoena.
(3)The copy of a document may be—
(a)a photocopy;
(b)in an electronic form in any of the following electronic formats—
(i).doc and .docx—Microsoft Word documents;
(ii).pdf—Adobe Acrobat documents;
(iii).xls and .xlsx—Microsoft Excel spreadsheets;
(iv).jpg—image files;
(v).rtf—rich text format;
(vi).gif—graphics interchange format;
(vii).tif—tagged image format;
(viii)any other format agreed with the issuing party; or
(c)in any other appropriate form.
(4)Even where a subpoena specifically requires the production of the original, the addressee may, with the consent of the issuing party, produce a copy, instead of the original, of the document required to be produced.
…
42A.08 Objection by addressee or other person
If—
(a)the addressee has any objection to producing a document identified in the subpoena or to its being inspected by any one or more of the parties to the proceeding; or
(b)a person having a sufficient interest, other than a party, has any objection to the production of a document identified in the subpoena or to its being inspected by any one or more of the parties to the proceeding—
that person shall notify the Prothonotary in writing of that objection and state the grounds of that objection before the day specified in the subpoena.
42A.09 Procedure after objection
(1)Upon receiving notice under Rule 42A.07 or 42A.08, the Prothonotary shall refer the subpoena to a Judge of the Court or an Associate Judge for the hearing and determination of the objection.
(2)The Prothonotary shall notify the issuing party in writing of the objection and the grounds of that objection and the time and place at which the objection will be heard and that party shall notify the addressee and all other parties accordingly.
Notes 12 to 14 of Form 42AA provide, in the section headed ‘Production of copy instead of original’, as follows:
12.Unless the subpoena specifically requires you to produce an original, you may produce a copy of any document that the subpoena requires you to produce. Even if the subpoena required the production of the original, you may, if you have the consent of the issuing party, produce a copy, instead of the original, of the document. If you are producing copies of documents, you are encouraged to provide them in electronic form.
13.Electronic copies of documents can be provided on a memory card or stick in any of the formats referred to in paragraph 14(b) below.
14.A copy of a document may be-
(a)a photocopy; or
(b)in an electronic form in any of the following electronic formats—
.doc and .docx – Microsoft Word documents
.pdf – Adobe Acrobat documents
.xls and .xlsx – Microsoft Excel spreadsheets
.jpg – image files
.rtf – rich text format
.gif – graphics interchange format
.tif – tagged image format
any other format agreed with the issuing party; or
(c) in any other appropriate form.
In the present context, O 42A has the following features:[32]
[32]See generally the commentary in David Bailey, LexisNexis Butterworths, Civil Procedure: Victoria, [I 42A.01.35].
(vi) the procedure is restricted to production from a person not a party[33] for production of a document, whether in writing or not, for evidence;
[33]Supreme Court (General Civil Procedure Rules) 2015 (Vic) r 42A.01(1).
(vii) production is obtained by issuing and serving a subpoena to produce in Form 42AA and production is to the Prothonotary of the court, i.e. not directly to the party who has caused the subpoena to be issued;[34]
[34]Ibid, rr 42A.02 – 42A.03.
(viii) the subpoena must identify the ‘documents’ to be produced; and
(ix)as has occurred here, the Prothonotary will refer any objection to production or inspection of a document to a Judge or an Associate Judge for hearing and determination.[35]
[35]Ibid, r 42A.09.
There is reference throughout O 42A to production to the Prothonotary of a ‘document’; ‘document’ in this context has the meaning ascribed to it in s 38 of the Interpretation of Legislation Act 1984,[36] which provides:
[36]Section 38 is in the same terms as s 3(1) of the Evidence (Miscellaneous Provisions) Act 1958 (Vic).
document includes, in addition to a document in writing—
(a)any book, map, plan, graph or drawing;
(b)any photograph;
(c)any label, marking or other writing which identifies or describes anything of which it forms part, or to which it is attached by any means whatsoever;
(d)any disc, tape, sound track or other device in which sounds or other data (not being visual images) are embodied so as to be capable (with or without the aid of some other equipment) of being reproduced therefrom;
(e)any film (including microfilm), negative, tape or other device in which one or more visual images are embodied so as to be capable (with or without the aid of some other equipment) of being reproduced therefrom; and
(f)anything whatsoever on which is marked any words, figures, letters or symbols which are capable of carrying a definite meaning to persons conversant with them;
In my view, the terms of Category 2 of the subpoenas do not involve production of any of the categories of ‘document’ mentioned above in s 38 of Interpretation of Legislation Act 1984. In this regard, I did not understand SOD to contend that the addressees were asking for 179 and 248 to produce the records sought in the electronic form described in (d), being ‘any disk, tape, soundtrack or other device in which sounds or other data (not being visual images) are embodied so as to be capable (with or without the aid of some other equipment) of being reproduced therefrom’. It is commonplace for documents to be produced , as note 13 to Form 42AA provides, by being placed, for example, on a memory stick or, of more recent times, in the various formats which note 14(b) of the notes to Form 42AA contemplates. That is not what the subpoena here requires. Rather than require production of a document in one of the identified electronic formats mentioned in r 42A.05(3)(b) (or (c) – ‘in any other appropriate form’), the addressees are asked to provide the credentials to obtain access to the addressees’ records on the remote cloud-based server.
I cannot accept the submission made by Mr Paterson that what is required under the terms of the subpoena is analogous to the provision of a photocopy and the process of photocopying a document. Note 14(a) of the Form 42AA provides that a copy of a document may be a photocopy, but the process described under the terms of category 2 of the subpoenas is not at all akin to the process of photocopying.
SOD invites compliance with the subpoenas by the method proposed, but when one has regard to the regime of O 42A, a process concerned with production by a non-party of documents by compulsion, it cannot, in my view, be achieved by resorting to the subpoena process under O 42A. This is illustrated by the fact that O 42A, by its terms, requires production to the Prothonotary. It was not explained how this would be undertaken here under the terms of the subpoenas. Is the Prothonotary to be provided with the username and password and simply pass on that information to SOD’s solicitors?
The formulation by SOD as to how production under the terms of the subpoena can be complied with is no more than that. Adoption of a means of compliance, unless it is agreed between the parties, must be referrable to a method which is in accordance with the terms of O 42A. I would set aside category 2 of each subpoena.
I would also set aside category 3 of the subpoenas directed to 179 and 248. The document sought in category 3 does not presently exist in any form, be it digital or analogue, and is required to be fashioned from raw data on the Xero system by a series of steps to be taken by a person with the electronic credentials to do so. In her affidavit, Ms O’Donnell describes the process by which the export of the necessary data could be achieved to provide the General Ledger Detail Report sought in a particular format, i.e. Excel. Ms O’Donnell describes in her affidavit a process which she asserts is not ‘creating a new document’ but rather ‘an efficient means of producing existing records’. The process she describes, and of which she is informed by Mr Williams, involves several steps which, in my view, result in a previously non-existent document being created as a result of the commands made of the Xero system. In my opinion, a subpoena under O 42A cannot require the addressee to undertake the process required if that ‘document’ does not presently exist.
I now move to category 4 of the subpoena directed to 248, requiring production of documents ‘recording or evidencing the source of $5,500,000.00 received by 248 in about November 2018’. The explanation of the relevance of this category and the forensic purpose underlying the justification for its production is explained by Ms O’Donnell in her affidavit who, in turn, relies on information provided to her by Mr Williams.[37] She states the second plaintiff, Maurijay Super, is alleged to have invested $5.5 million into SIN. She then describes a series of transfers of that amount to various entities in the Steller Group, culminating in a transfer of that sum, $5.5 million, to 248 several days later. It is then said that some ten days later, 248 transferred $9.85 million to 179.
[37]See paragraphs 47 and 48 above.
I consider the documents which relate to these various transactions to be relevant to the state of account between NMB, 179 and 248 and there is a legitimate forensic purpose for their production. It is ‘on the cards’ that such documents will be evidence as to the state of account between those entities, relevant to the value of NMB and of its shareholders’ respective holdings in NMB in an oppression proceeding scenario, which goes to the relief sought in the proceeding. There are allegations of intrigue as to the state of the records of NMB. It is said, for example, in regard to the investments of the second plaintiff, Maurijay Super, that it is ‘on the cards’ that documentation in connection with the $5.5 million investment and its path through the companies described render it susceptible to being the subject of a subpoena by SOD. I agree with Mr Paterson’s contention that the interpretation of the word ‘source’ is clear enough as to and the process of assessing what is to be produced, to be exercised by competent commercial solicitors and counsel.
Conclusion
I would strike out categories 2 and 3 of the subpoenas issued to 179 and 248. I decline to set aside paragraph 4 of the subpoena directed to 248.
At the hearing of this matter, Mr Paterson provided proposed forms of order. I will adapt them in line with my reasons, in consultation with the parties on the occasion of handing down my reasons.
On the issue of costs, 179 and 248 have had a substantial, but not a complete, success in the application. My preliminary view is that SOD should pay 65% of the costs of this application. If there are features of the costs issue that are relevant for consideration of which I have not been informed, this should be agitated by filing and exchanging short submissions not exceeding three pages. To accommodate the forthcoming long vacation, those submissions should be filed and served by 4:00pm on 30 January 2024. If my Associates have not been contacted by that time, I will make orders for costs in accordance with the preliminary view I have expressed.
SCHEDULE OF PARTIES
| S ECI 2021 03472 | |
| BETWEEN: | |
| PITARD KNOWLES NO. 1 PTY LTD (ACN 606 897 269) | First Plaintiff/First Defendant by Counterclaim |
| MAURIJAY SUPER PTY LTD (ACN 607 657 483) | Second Plaintiff/Second Defendant by Counterclaim |
| BARRIER LANDING PTY LTD (ACN 055 224 103) | Third Plaintiff/Third Defendant by Counterclaim |
| TURNHILL PTY LTD (ACN 055 224 201) | Fourth Plaintiff/Fourth Defendant by Counterclaim |
| FURROW HOLDINGS PTY LTD (ACN 005 217 336) | Fifth Plaintiff/Fifth Defendant by Counterclaim |
| NINETY MILE BEACH PTY LTD (ACN 618 901 572) | Sixth Plaintiff/Sixth Defendant by Counterclaim |
| - v - | |
| SOD INVESTMENTS PTY LTD (ACN 634 294 876) | Defendant/Plaintiff by Counterclaim |
| |
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