Re Sementis Ltd
[2024] VSC 88
•27 February 2024
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2022 04853
IN THE MATTER of SEMENTIS LTD (ACN 138 550 811)
BETWEEN:
| MAURICE O’SHANNASSY & ORS (according to the attached Schedule) | Plaintiffs |
| v | |
| SEMENTIS LTD (ACN 138 550 811) & ANOR (according to the attached Schedule) | Defendants |
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JUDGE: | Irving AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 20 February 2024 |
DATE OF RULING: | 27 February 2024 |
CASE MAY BE CITED AS: | Re Sementis Ltd |
MEDIUM NEUTRAL CITATION: | [2024] VSC 88 |
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PRACTICE AND PROCEDURE – Subpoena objection – Whether legitimate forensic purpose served by subpoena – Whether issue of subpoena is abuse of process – Legal professional privilege over documents – Application partially allowed.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr A di Stefano of counsel | Buster Davidson |
| No appearance for the Defendants | ||
| For the Non-Party | Mr D Lorbeer of counsel | Charlotte Thomas |
TABLE OF CONTENTS
Introduction........................................................................................................................................ 1
The test................................................................................................................................................. 2
The plaintiff’s legitimate forensic purpose.................................................................................. 3
Analysis................................................................................................................................................ 5
Privilege............................................................................................................................................... 8
HIS HONOUR:
Introduction
The plaintiffs are all shareholders in Sementis Ltd (Sementis). They have commenced a proceeding alleging that a series of share issues between June 2020 and October 2022 by Sementis have oppressively and unfairly diluted their shareholdings for an undervalue, while simultaneously increasing the shareholding of the second defendant, Fortitude Nominees Pty Ltd (Fortitude).
Michael Hickinbotham is the sole director and shareholder of Fortitude. Mr Hickinbotham was also a director of Sementis at all relevant times.
Martyn Evans was at all material times the Chairman of Sementis. Mr Evans is also the sole shareholder and director of Innovation Investors Pty Ltd (Innovation).
The plaintiffs’ statement of claim (SOC) pleads that from March 2020 to 29 March 2023 Mr Evans and Mr Hickinbotham acted in concert and not independently when acting as directors of Sementis (paragraph 10).
The plaintiffs also pleaded that:
(a) in September 2022, one month prior to the October 2022 share issue from Sementis to Fortitude, Innovation was incorporated (paragraph 56);
(b) on 10 October 2022, Fortitude transferred 58,500,000 shares in Sementis to Innovation (paragraph 60);
(c) on 18 October 2022, Sementis issued 166,600,000 shares to Fortitude at a price of $0.01 per share (paragraph 61); and
(d) by transferring the Sementis shares to Innovation, Fortitude attempted to avoid a contravention of s 606 of the Corporations Act 2001 (Cth) (Corporations Act) by having acquired the shares under the October 2022 share issue (paragraph 62).
Fortitude has filed a defence in which it denies Mr Evans and Mr Hickinbotham were acting in concert. Fortitude also pleads that its shareholdings in Sementis before and after the October 2022 share issue, even if the share transfer to Innovation did not occur, were not such as to contravene the Corporations Act.
The plaintiffs have issued a subpoena to Innovation seeking:
All documents… evidencing, referring or relating to:
(a)the incorporation of Innovation Investors Pty Ltd (Innovation Investors) on or around 1 September 2022, including communications with DMAW Lawyers;
(b)the beneficial holding of the issued share capital of Innovation Investors;
(c)The options register of Innovation Investors for the period from 1 September 2022 to present;
(d)Bank statements and statements of account for any account held by Innovation Investors for the period from 1 September 2022 to present;
(e)the transfer of 58,500,000 shares in Sementis Ltd from Fortitude Nominees Pty Ltd to Innovation Investors in or around October 2022, including communications concerning the negotiation, terms and any agreement in respect of that transfer.
Innovation has objected to the subpoena on the bases that:
(a) the plaintiffs have not identified a legitimate forensic purpose for which access to the documents is sought;
(b) the issuing of the subpoena was an abuse of process because it was issued after a discovery order had been made and before Fortitude had made discovery; and
(c) some of the documents are subject to claims of legal professional privilege.
The test
The parties are in agreement about the principles relevant to an application to set aside a subpoena.[1]
Where a subpoenaed party applies to set aside a subpoena, the issuing party must satisfy a two-part test. It must:
(a)identify precisely a legitimate forensic purpose for categories of documents sought pursuant to the subpoena, bearing in mind that both the production of documents or the absence of produced documents may assist a forensic purpose; and
(b)demonstrate that it is ‘on the cards’, or that there is a ‘reasonable possibility’, that the documents will ‘materially assist’ the issuing party’s case.
[1]Smith v Trustees of the Christian Brothers [2023] VSC 171 [13].
Relevance of a document, without more, will not substantiate a claim of legitimate forensic purpose and there is no legitimate forensic purpose if the party is seeking the documents to see whether they may be of relevance or of assistance in their case.[2]
[2]Ibid [14].
The plaintiff’s legitimate forensic purpose
The plaintiffs’ counsel submitted:
(a) the test is to be applied by reference to the plaintiffs’ pleaded case;
(b) the nature of the plaintiffs’ claim is an allegation of oppression under the Corporations Act and that the plaintiffs’ case inherently involves an analysis of facts to draw an inference about the purpose of the transactions that occurred before the relevant share issues;
(c) oppression proceedings are deliberately open textured and that the trial judge will have to look at the pleadings and transactions to form a view about whether the purpose of those transactions was to dilute the plaintiffs’ shareholdings or whether the purpose was a legitimate commercial purpose;
(d) the categories of documents sought under the subpoena are directed to showing the purpose of the transaction between Fortitude and Innovation and evidencing that Mr Hickinbotham and Mr Evans were working in concert, both of which were said to go to the overall purpose of the share issues themselves;
(e) their legitimate forensic purpose for seeking the documents was to make good the central allegations in their pleading:
(i) that Mr Evans and Mr Hickinbotham acted in concert from March 2020 to March 2023;
(ii) whether the reason(s) for Mr Evans and Mr Hickinbotham excluded themselves from voting on the October 2022 share issue supports the inference of them acting in concert; and
(iii) whether by making the share transfer to Innovation, Fortitude attempted to avoid a breach of s 606 of the Corporations Act.
In summary, counsel for Innovation submitted that:
(a) the plaintiffs seek to demonstrate their legitimate forensic purpose for seeking the documents by reference to the allegations made at paragraphs 10 and 62 of the SOC.
(b) when read as a whole the plaintiffs’ pleading in paragraphs 10 and 62 are not material to the plaintiff’s ultimate allegations of oppressive conduct;
(c) paragraph 10 is only material to the grounds of oppression pleaded in paragraphs 54 and 55 of the pleading because paragraph 55 is the only place in the SOC that refers to paragraph 10;
(d) it is not possible for a transaction that took place over 18 months after the board approved the August 2021 offer to shed light on the relationship between Mr Evans and Mr Hickinbotham at the time they joined in the resolution to approve the offer;
(e) the temporal connection between the approval of the August 2021 offer and the transfer of the shares between Fortitude and Innovation in October 2022 is so tenuous that it is not reasonably possible that documents about the share transfer could materially assist the plaintiffs’ case;
(f) on the facts alleged in the SOC, the allegation in paragraph 62 has a demonstrably false basis and is therefore not an issue in dispute;
(g) in any event the plaintiffs do not rely on paragraph 62 is to support their allegations of oppression in paragraphs 64 and 65 and so the paragraph 62 allegation is not material to the plaintiffs’ case of oppression;
(h) Fortitude made its offer of funding to Sementis (which culminated in the October 2022 issue) in June 2022 so it is nonsensical for the plaintiffs to suggest that two months later Fortitude transferred shares to Innovation for the purpose of avoiding a breach of s 606 of the Corporations Act, particularly because on the shareholdings Fortitude had and would obtain under the issue, there would never have been a breach;
(i) given the impossibility of a breach of s 606, there is no reasonable possibility that the documents sought would materially assist the plaintiff’s case on this issue; and
(j) at best paragraph 62 is a collateral issue.
Analysis
Paragraph 10 of the SOC, in which it is alleged that Mr Evans and Mr Hickinbotham acted in concert, is, on its terms, limited to the period from March 2020 to March 2023. March 2023 is well after the Sementis’ board’s decision to approve the August 2021 share offer.
Paragraph 10 is explicitly referenced in paragraph 55(a), which outlines the alleged further grounds of oppression in relation to the August 2021 offer and share issue. Paragraph 55 (a) alleges, in essence, that Mr Hickinbotham, Mr Evans and Mr Wulff knew or ought to have known a number of things including that Mr Hickinbotham and Mr Evans were acting in concert and that their purpose in voting in favour of the August 2021 offer was to increase Fortitude’s holding in Sementis.
I do not accept Innovations’ counsel’s submission that this has the effect of temporally limiting the allegation in paragraph 10 to the period when Mr Hickinbotham, Mr Evans and Mr Wulff voted in favour of the August 2021 offer (which appears to be on 21 March 2021), although the allegation is certainly relevant to that approval.
In my view the allegation that Mr Evans and Mr Hickinbotham acted in concert is broader than contended by Innovation. The particulars of paragraph 10 refer to both Mr Evans and Mr Hickinbotham excluding themselves from voting on the October 2022 share offer because they may have been in a conflict. The allegation at paragraph 60, that Fortitude transferred the Sementis shares to Innovation has to be understood in the context of the allegation at paragraph 10.
I do not accept that the lapse of time between the approval of the August 2021 share offer and issue and the share transfer between Fortitude and Innovation is incapable of shedding light on the issue of whether Mr Hickinbotham and Mr Evans were acting in concert. The lapse of time alone does not as a matter of logic preclude a connection between the share transfer and their acting in concert in relation to the August 2021 share offer and issue.
Innovation argued that the allegation made at paragraph 62, that Fortitude, in making the share transfer between Fortitude and Innovation attempted to avoid contravening s 606 of the Corporations Act, could not, as a matter of simple arithmetic, be established by the matters pleaded at paragraph 59 of the statement of claim. Paragraph 59 alleges that an issue of the number of shares eventually issued to Fortitude under the October 2022 issue would have contravened s 606 of the Corporations Act.
I accept the plaintiffs’ counsel’s submission that the force of paragraph 62 is the allegation of Fortitude’s motive for the share transfer to Innovation, not whether it in fact would or wouldn’t contravene s 606. It appears to me that the documents sought are relevant to the issue of whether Fortitude was motivated to transfer shares to Innovation because of concerns about a potential breach of s 606. This is an allegation that Fortitude denies. Even if paragraph 62 is a collateral issue, it remains a material issue in dispute between the parties.
For the above reasons I am satisfied that the plaintiffs have established a legitimate forensic purpose for seeking the documents.
In my view there is a reasonable possibility that the documents sought will materially assist the plaintiffs’ case. There is a reasonable possibility that the documents will indicate the purpose for Innovations incorporation in September 2022 and the basis of the agreement between Fortitude and Innovation to transfer the Sementis shares. There is a reasonable possibility that the documents will provide either direct evidence or a basis to support an inference that Mr Evans and Mr Hickinbotham were acting in concert. This would materially assist the plaintiffs’ case because it would support an inference that the share issues were undertaken for the purpose of increasing Fortitude’s shareholding in Sementis while decreasing the holdings of the other shareholders.
I do not accept that the plaintiffs have committed an abuse of process in issuing the subpoena before Fortitude made discovery. I have reached this view because:
(a) the issue of a subpoena to a third party is a legitimate method for the plaintiffs to obtain evidence in the possession of a non-party[3];
(b) Fortitude made discovery before the plaintiffs called on the subpoena; and
(c) the subpoena seeks categories of documents in relation to the share transfer transaction which are unlikely to completely overlap with documents discovered by Fortitude.
[3]Oswal v Carson [2013] VSC 355 [52] (Ferguson J).
It follows that subject to resolution of the claims of legal professional privilege, Innovations objection to the subpoena will be dismissed.
Privilege
The principles relevant to claims of legal professional privilege are well established. They were conveniently summarised by Young J in AWB Limited v Cole (No 5).[4]I adopt his Honour’s summary of the principles.
[4]AWB Limited v Cole (No 5) (2006) 155 FCR 30 [44].
The party claiming privilege carries the onus of proving that the dominant purpose of a communication was a privileged purpose.[5] That onus may be discharged by reference to the nature of the communications themselves.[6] The purpose for which a communication is made or a document brought into existence is to be determined objectively.[7] Ordinarily, the fact that a client consulted an independent lawyer about a legal issue in uncontroversial circumstances is sufficient to discharge the onus of establishing legal professional privilege, absent any contrary indications.[8] What constitutes legal advice is broadly defined, extending to professional advice as to what a party should prudently or sensibly do in a relevant legal context, but does not extend to commercial advice.[9] Legal professional privilege protects the confidentiality of documents which constitute the work product of a lawyer, regardless of whether the documents concerned were provided to the client, along with documents brought into existence by the client that record or relate to the information sought by or provided to the lawyer to enable the lawyer to advise the client.[10]
[5]Ibid.
[6]Ibid.
[7]Ibid.
[8]Ibid.
[9]Ibid.
[10]Ibid.
I have examined the documents over which Innovation claims legal professional privilege.
Document 15 appears to relate to advice from Daniel Jenkinson to Julie Dixon about the process for the Sementis board to consider approving the transfer of shares from Fortitude to Innovation. The email from Daniel Jenkinson is copied to Julie Dixon, Michael Hickinbotham and Martyn Evans. Neither Julie Dixon nor Michael Hickinbotham are employees or officers of Innovation. I am not satisfied that Innovation has established that the communication constitutes legal advice to it. Even if I am wrong about that, it appears that any privilege held by Innovation has been waived.
The same applies to document 16.
Other than those two documents, I am satisfied that Innovation has made out its claims to privilege.
I will order that:
(a) Innovation’s claim of legal professional privilege in relation to documents 1, 2, 3, 7, 8 and 9 is upheld.
(b) Innovation’s claim of legal professional privilege in relation to documents 15 and 16 is dismissed.
(c) Innovation’s notice of objection to the subpoena issued to it by the plaintiffs is otherwise dismissed.
I request that Innovation and the plaintiffs confer on the question of costs of the subpoena objection. If no agreement on costs is reached within seven days of the date of this ruling, the proceeding will be relisted for oral argument on costs.
SCHEDULE OF PARTIES
| S ECI 2022 04853 | |
| BETWEEN: | |
| MAURICE O’SHANNASSY | First Plaintiff |
| GLEN BURGESS | Second Plaintiff |
| ANDREW HAYS | Third Plaintiff |
| THE TIGER FUND PTY LTD (ACN 155 595 529) | Fourth Plaintiff |
| SHAKESPEARE ENTERPRISES PTY LTD (ACN 113 685 224) | Fifth Plaintiff |
| CHICKHAD PTY LTD (ACN 058 009 788) | Sixth Plaintiff |
| THE RHUBARB FUND PTY LTD (ACN 619 633 617) | Seventh Plaintiff |
| SBD PTY LTD (ACN 104 487 229) | Eighth Plaintiff |
| STANTON NOMINEES SUPERANNUATION PTY LTD (ACN 164 631 010) | Ninth Plaintiff |
| - v - | |
| SEMENTIS LTD (ACN 138 550 811) | First Defendant |
| FORTITUDE NOMINEES PTY LTD (ACN 069 302 889) | Second Defendant |
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