Re Sleeping Duck Pty Ltd (Appeal)
[2023] VSC 541
•13 September 2023
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2021 04359
IN THE MATTER of SLEEPING DUCK PTY LTD
BETWEEN:
| BBHF PTY LTD | Plaintiff |
| v | |
| SLEEPING DUCK PTY LTD & ORS (according to the attached Schedule) | Defendants |
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JUDGE: | Matthews J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 3 August 2023 |
DATE OF JUDGMENT: | 13 September 2023 |
CASE MAY BE CITED AS: | Re Sleeping Duck Pty Ltd (Appeal) |
MEDIUM NEUTRAL CITATION: | [2023] VSC 541 |
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APPEAL — Appeal from interlocutory determination of an Associate Justice under Supreme Court (General Civil Procedure) Rules 2015 (Vic) r 77.06 — Application to set aside subpoena — House v The King (1936) 55 CLR 499 — Oswal v Carson [2013] VSC 355, applied — Re IPO Wealth Holdings No 2 Pty Ltd (in liq); Mawhinney v Giasoumi [2022] VSC 199, applied — ACN 096 450 770 (formerly AJH Lawyers Pty Ltd) v Mathieson Nominees & Anor [2017] VSC 559 — Secretary of State for Planning, Industry and Environment v Blacktown City Council [2021] NSWCA 145 — Appeal dismissed on all grounds.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr D Porteous | Corrs Chambers Westgarth |
| For the Fourth Defendant | Mr Mukherji | Strongman & Couch |
| No appearances by the First, Second or Third Defendants |
TABLE OF CONTENTS
Introduction........................................................................................................................................ 1
Background......................................................................................................................................... 2
Relevant background regarding the proceeding...................................................................... 2
The application to set aside the Subpoena................................................................................ 3
Applicable law and principles........................................................................................................ 4
Appeals from an associate judge................................................................................................ 4
Setting aside subpoenas............................................................................................................... 6
The primary judge’s Ruling............................................................................................................. 7
Grounds of appeal........................................................................................................................... 10
The Fourth Defendant’s submissions.......................................................................................... 11
Introduction................................................................................................................................. 11
The Fourth Defendant’s submissions regarding the Disputed Finding............................. 12
Submissions upon a re-hearing of the Summons................................................................... 14
The Plaintiff’s submissions........................................................................................................... 15
Consideration.................................................................................................................................... 21
Conclusion......................................................................................................................................... 27
HER HONOUR:
Introduction
This is an appeal from an interlocutory ruling delivered by Barrett AsJ (‘primary judge’) on 26 June 2023 and orders made that day.[1]
[1]His Honour’s ruling was delivered orally and recorded in the transcript of the hearing, and is found at pages 105 to 115 of the Appeal Book filed for this appeal (‘Ruling’).
The Ruling concerned an application made by the Fourth Defendant by summons dated 31 May 2023 (‘Summons’) to set aside a subpoena issued to Westpac Banking Corporation (‘Westpac’) on 15 May 2023 at the Plaintiff’s request (‘Subpoena’), alternatively to object to inspection of the documents identified in the Subpoena.
By notice of appeal dated 4 July 2023 (‘Notice of Appeal’), the Fourth Defendant appeals the Ruling under r 77.06 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) (‘SC Rules’).
Before the primary judge:
(a) The Fourth Defendant relied upon:
(i) the affidavit of Milica Petronijevic sworn 29 May 2023 (‘Petronijevic Affidavit’). Ms Petronijevic is a solicitor with Strongman and Couch (‘S&C’), solicitors for the Fourth Defendant; and
(ii) a written outline of submissions dated 21 June 2023.
(b) The Plaintiff relied upon:
(i) the affidavit of Buster William Charles Davidson affirmed 21 June 2023 (‘Davidson Affidavit’). Mr Davidson is a solicitor with Corrs Chambers Westgarth (‘Corrs’), solicitors for the Plaintiff; and
(ii) a written outline of submissions dated 21 June 2023.
(c) Both parties also relied on oral submissions made at the hearing on 22 June 2023 before the primary judge.
For the appeal, the Fourth Defendant prepared an appeal book (‘AB’) and provided written submissions dated 24 July 2023 (‘D4’s Appeal Outline’). The Plaintiff provided written submissions dated 31 July 2023 (‘P’s Appeal Outline’).
The First Defendant, Sleeping Duck Pty Ltd (‘Company’), has filed a submitting appearance in the proceeding. The Second and Third Defendants sought to be, and were, excused from appearing at the hearing of the appeal.
For the reasons that follow, the appeal should be dismissed.
Background
Relevant background regarding the proceeding
It appears that the following matters are uncontroversial:
(a) The Plaintiff is a minority shareholder in the Company. The Plaintiff is a corporate entity wholly owned and operated by Dr Adir Shiffman.
(b) The Second and Third Defendants are corporate entities which are the majority shareholders in the Company. The Second Defendant is associated with Mr Winston Wijeyeratne, and the Third Defendant is associated with Mr Selvan Sinnappan. Mr Wijeyeratne and Mr Sinnappan are the directors of the Company and founded the Company (collectively referred to as the ‘Founders’).
(c) The Fourth Defendant is a minority shareholder in the Company.
In the proceeding, the Plaintiff alleges that the conduct of the Company’s affairs has been oppressive, unfairly prejudicial and/or unfairly discriminatory towards the Plaintiff within the meaning of s 232 of the Corporations Act 2001 (Cth).
In particular, and relevantly for the appeal, the Plaintiff alleges that:
(a) One aspect of the alleged oppressive conduct concerns the way in which the Fourth Defendant came to hold shares in the Company; in particular, how the Defendants together financed the exercise of the Fourth Defendant’s options to acquire shares in the Company. The Plaintiff alleges that in April 2021, and again in September 2021, the Second to Fourth Defendants caused the Company to declare a dividend (in which the Fourth Defendant participated), the proceeds of which were then used by the Founders to finance loans (of $1,350,000 in each of April and September 2021) to the Fourth Defendant to fund the exercise of his options to acquire shares in the Company.
(b) The effect of those steps, which were not disclosed to the Plaintiff at the time, was that the Fourth Defendant obtained shares in the Company thus diluting the Plaintiff’s shares in the Company as well as its options to acquire further shares. Contemporaneously, the Plaintiff entered into a Call Option Deed with the Founders, which was premised on the Plaintiff holding 10% of the shares in the Company, with the Call Option Deed granting the Plaintiff options to acquire a further 10% of the Company’s shares from the Founders. Unbeknownst to the Plaintiff at the time of entering into that agreement, by reason of the issue of shares to the Fourth Defendant, that premise had changed.
(c) The Defendants took these steps in April and September 2021 ‘in concert and for the purpose of prejudicing [the Plaintiff’s] rights and entitlements under the Call Option Deed’.[2] These allegations are denied by each of the Second to Fourth Defendants and so are in issue in the proceeding.
[2]Statement of Claim filed 21 February 2022, [52], [63], [75] (‘SOC’).
The application to set aside the Subpoena
The documents sought by the Subpoena (‘Documents’) are described in the schedule therein as follows:
(1)All documents comprising the customer file in relation to Prateek Bandopadhayay for the period from 1 January 2021 to 30 June 2022, including but not limited to documents:
(a) Provided by Bandopadhayay in his application for finance;
(b)Recording or otherwise concerning the agreement to provide finance to Bandopadhayay in or around October 2021;
(c)Recording or otherwise concerning the mortgage instrument in respect of 17 Donna Buang Street, Camberwell VIC 3124, more particularly described in Dealing No. AU935982W; and
(d)Containing subsequent correspondence between Bandopadhayay and Westpac Banking Corporation and its employees and agents.
The application to set aside the Subpoena was heard by the primary judge on 22 June 2023. His Honour reserved his decision and then delivered his ruling and reasons orally on 26 June 2023, following which he made orders that the Summons be dismissed and that the Fourth Defendant pay the Plaintiff’s costs.
Applicable law and principles
Appeals from an associate judge
An appeal brought under r 77.06 of the SC Rules is to be conducted by way of rehearing, but it is not a de novo rehearing. This means that before appellate power can be exercised by this Court to overturn the Ruling, the Fourth Defendant must demonstrate that a factual, legal or discretionary error was made by the primary judge. As stated in Oswal v Carson (citations omitted):[3]
Such appeals are no longer by way of rehearing de novo. Instead, they are rehearings which, in the absence of further evidence or a change in the law, ordinarily require the appellant to show error on the part of the Associate Judge before appellate power may be exercised. In addition, if the orders from which an appeal is brought relate to a matter of practice and procedure … an appellate court will exercise particular caution in reviewing the decision.
[3][2013] VSC 355, [11] (Ferguson J) (‘Oswal’). This principle has been applied with approval many times: see eg, Andrianakis v Uber Technologies; Taxi Apps Pty Ltd v Uber Technologies (Appeal) [2022] VSC 643, [36] (John Dixon J).
In respect of discretionary decisions made by the primary judge, the principles stated by Elliott J in Re IPO Wealth Holdings No 2 Pty Ltd (in liq); Mawhinney v Giasoumi[4] apply. In IPO Wealth, his Honour stated:[5]
[4][2022] VSC 199 (‘IPO Wealth’).
[5]IPO Wealth, [54] – [59] (citations omitted, excepting House v the King).
54.However, before a discretionary decision of a court may be overturned, the appellant must show an error of the kind identified in House v The King.[6] In that case, it was stated:[7]
[6](1936) 55 CLR 499 (Starke, Dixon, Evatt and McTiernan JJ).
[7]Ibid, 504.9-505.4 (Dixon, Evatt and McTiernan JJ).
It is not enough that the judges composing the appellate court consider that, if they had been in the position of the primary judge, they would have taken a different course. It must appear that some error has been made in exercising the discretion. If the judge acts upon a wrong principle, if [she or] he allows extraneous or irrelevant matters to guide or affect [her or] him, if [she or] he mistakes the facts, if [she or] he does not take into account some material consideration, then [her or] his determination should be reviewed and the appellate court may exercise its own discretion in substitution for [her or] his if it has the materials for doing so. It may not appear how the primary judge has reached the result embodied in [her or] his order, but, if upon the facts it is unreasonable or plainly unjust, the appellate court may infer that in some way there has been a failure properly to exercise the discretion which the law reposes in the court of first instance.
55.In some instances, it may not be possible to identify with sufficient certainty the exact class of error made by the trial judge. Nevertheless, where the decision is so unreasonable or plainly unjust, the appellate court may infer that an error of the kind described in House v The King has occurred and that the decision should be overturned.
56.However, there is a strong presumption in favour of the correctness of a discretionary decision and the authorities make clear that the judgment the subject of rehearing should be overturned only if it is “clearly” or “plainly” wrong. In other words, an appellate court must be persuaded that the order stands outside the limits of “sound discretionary judgment” before it intervenes.
57.Indeed, insofar as the 4 classes of error identified in House v The King are concerned:
(1)Acting upon a wrong principle will only invalidate a decision where the principle is a “binding rule rather than a guideline”. A failure to apply a guideline will not, of itself, amount to error. This is because there may be instances where it is inappropriate to follow a guideline or, regardless of the failure to apply it, the overall decision is still the product of a sound discretionary judgment.
(2) A mistake of fact must be “clearly wrong”.
(3)Considering an irrelevant factor or failing to consider a relevant factor will only warrant setting aside a discretionary decision if it “really amounts to a failure to exercise the discretion actually entrusted to the court”.
58.Further, the court will be slow to overturn a discretionary decision on the grounds that the primary judge failed to give appropriate weight to various factors. The “constant emphasis” of the authorities is that an appellate court should not overturn a decision merely because it would have accorded the factors different weight. This is especially so where the assessment of weight is likely to have been affected by seeing and hearing the parties at first instance, which only the primary judge has had the opportunity to witness. Although there has been no trial in this proceeding, this principle remains relevant to the extent that her Honour observed and then took into account Mawhinney’s conduct during the previous examination hearings in arriving at the conclusions that she did on this particular issue.
59.In short, the onus borne by an appellant seeking to disturb a discretionary decision is heavy.
At the hearing, the Fourth Defendant submitted that the parties were pretty much in line with the relevant test, being whether the Documents shed light upon a matter which is in issue between the parties.
Setting aside subpoenas
Both parties (at appeal and before the principal judge) referred to the decision of Derham AsJ in ACN 096 450 770 (formerly AJH Lawyers Pty Ltd) v Mathieson Nominees & Anor,[8] where his Honour stated that the following ‘broadly stated principles’ govern an application to set aside a subpoena:[9]
[8][2017] VSC 559 (‘Mathieson Nominees’).
[9]Mathieson Nominees, [20] (citations omitted); recently applied by Irving AsJ in Smith v Trustees of the Christian Brothers; Pearce v The Corporation of the Society of the Missionaries of the Sacred Heart [2022] VSC 343, [50] (‘Smith v Trustees of the Christian Brothers’).
(a)it is necessary for the party at whose request the subpoena was issued to identify expressly and precisely the legitimate forensic purpose for which access to the documents is sought;
…
(c)however, the Court will not require production of subpoenaed documents, and will not permit access to subpoenaed documents, if the subpoena is expressed so broadly that the applicant cannot demonstrate, having identified a forensic purpose, that it is ‘on the cards’ or that there is a ‘reasonable possibility’ that the documents will materially assist the case of the party;
(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. There is no legitimate forensic purpose if the party is seeking to obtain documents to see whether they may be of relevance or of assistance in his or her case;
(f)a mere assertion of bad faith by an applicant or that something might be found demonstrating bad faith is not enough – the criteria set out in (c) must be satisfied
…
The primary judge’s Ruling
The primary judge commenced his Ruling by describing the Documents sought by the Subpoena, the affidavits relied upon, the background to the proceeding and the principal allegations made in the proceeding. In particular, his Honour described the allegations relevant to the sale and financing of the shares issued to the Fourth Defendant, the Call Option Deed, the diluting of the Plaintiff’s interest, and the Second to Fourth Defendants and the Founders acting in concert to prejudice the Plaintiff. The principal judge also summarised the positions each of the Plaintiff and Fourth Defendant took in correspondence regarding the Subpoena prior to the application to set it aside being issued.
His Honour stated that the principles in relation to an application to set aside a subpoena, generally speaking, turn on whether the Documents serve a legitimate forensic purpose and observed that the parties broadly agreed in relation to that proposition. The primary judge noted that the Fourth Defendant relied on Mathieson Nominees and he cited the passage set out above.[10] He also noted that:
the plaintiff ‘broadly agrees with the fourth defendant’ as to the applicable principles, and in particular, that the test to establish a legitimate forensic purpose is whether it is “on the cards” or there is a “reasonable possibility” that the documents will materially assist the case of the party.’
[10]See paragraph 16 above. The primary judge also referred to the other case referred to by the Fourth Defendant, being Smith v Trustees of the Christian Brothers.
The primary judge went on to refer to the Plaintiff’s reliance on Secretary of the Department for Planning, Industry and Environment v Blacktown City Council,[11] which he describes as Brereton JA discussing what the phrase set out above means:
an issuing party is not required to show that it is ‘likely’ (or ‘on the cards’) that the documents sought will materially assist its case, as distinct from that it is ‘likely’ (or ‘on the cards’) that they will add, in some way or another, to the relevant evidence in the case, and that the essential question is whether the documents called for are apparently relevant, or capable of providing a legitimate basis for cross-examination, in which case there is a legitimate forensic purpose to the issue of the subpoena. In my view, at least in civil proceedings and in the absence of any question of public interest immunity, no more is required to support the issue of a subpoena for production than that there is a reasonable basis for supposing that the material called for will likely add, in the end, in some way or another, to the relevant evidence in the case. This reflects the notions that the documents relate to, throw light on, or are sufficiently relevant to the dispute; that they ‘appear relevant in the sense that they relate to the subject matter of the proceedings’; or that they could possibly throw light on the issues in the case. Moreover, documents will add ‘in some way’ to the relevant evidence in the case if they are capable of assisting in cross-examination, or go to credit, and notwithstanding that they are inadmissible according to the rules of evidence.[12]
[11][2021] NSWCA 145 (‘Blacktown’).
[12]Blacktown, [89], citations omitted, emphasis added by the primary judge.
The primary judge stated that the Fourth Defendant submitted that Blacktown was at best a useful summary and restatement of the law, but does not take it any further or make the standard required to be reached any lesser, confirming that the test is legitimate forensic purpose.
The primary judge stated that he would proceed on the basis of the above principles, and that he did ‘not consider that any difference in the approach between the above authorities would make any material difference to the result I have reached.’[13]
[13]AB, 112.
The primary judge then went on to deal with three reasons said by the Plaintiff to give rise to a legitimate forensic purpose.
First, his Honour said that the Plaintiff refers to Dr Shiffman’s witness statement filed on 26 September 2022, in particular paragraph 155(a), where Dr Shiffman states that he did not take any steps in relation to the Fourth Defendant’s options because he ‘understood that [the Fourth Defendant] did not have the financial resources to fund the exercise of the options granted to him’. The primary judge agreed with the Fourth Defendant that this did not give rise to a legitimate forensic purpose, saying that:
I am unable to discern any legitimate forensic purpose the documents could serve, arising out of the issues raised by the statement identified by the plaintiff. It’s unclear what Dr Shiffman’s understanding is based on, and it is clear that there is no estoppel alleged against anyone who might have created that understanding.
Further, if, as appears to be the case, the purchase of the options was funded by loans from the founders, then that would be consistent with the fourth defendant not having financial resources of his own to fund the exercise of the options. If it were the case that the fourth defendant in fact had sufficient funds to purchase the options, even though he did not use such funds, then it is unclear why the fact that he had those funds becomes relevant, having regard to Dr Shiffman’s understanding that he did not have such funds.[14]
[14]AB, 113.
Second, his Honour said that the Plaintiff refers to paragraphs 212 and 213 of Mr Sinnappan’s witness statement filed on 23 December 2022, in which he discusses the decision to fund the Fourth Defendant’s option to purchase by way of loans from the Founders funded by dividends, as providing a legitimate forensic purpose. Of this, the primary judge stated:
I am also unable to discern any legitimate forensic purpose of the document[s] sought by the subpoena arising out of these statements.
It seems to be uncontroversial that the purchase of the options by the fourth defendant was in fact structured that way, and that the parties decided to proceed that way. Accordingly, it is unclear to me how documents held by Westpac in relation to the purchase of separate property would serve any legitimate forensic purpose in relation to that issue.
Third, his Honour said that the Plaintiff refers to paragraph 130 of the Second and Third Defendants’ opening submissions, in which they submit that the Fourth Defendant could have borrowed from external financiers, so it was difficult to see what prejudice was caused to Dr Shiffman by the Founders making the loans to the Fourth Defendant.
In relation to this third issue, it is necessary to set out what the primary judge said in full:[15]
The plaintiff goes on to submit that the ‘nature, extent and timing of the provision of financial or other assistance from the Founders to [the fourth defendant] forms an important part of the issue of whether the Founders and [the fourth defendant] acted in concert to materially prejudice the rights of the plaintiff and Dr Shiffman.’ The plaintiff note that the second, third and fourth defendants all deny the allegations made in the statement of claim, that they acted in concert, as pleaded in paragraphs 52, 63 and 75.
It is difficult to know precisely how the issues will develop at trial, but, as submitted by the plaintiff, ‘the hurdle facing [them] in establishing a legitimate forensic purpose is reasonably low’ (HungryPanda AU PtyLtd v Fantuan Australia Pty Ltd [2022] VSC 448, [29] (Daly AsJ)). I am satisfied that the plaintiff has established a legitimate forensic purpose in relation to this last point. In particular, I consider that the issue of whether, and in what way, the defendants acted in concert, is a live issue.
That is not to say there is significant doubt about the structure of the dividend and loan arrangement for the purposes of exercising the options, but there does appear to be some doubt about why the transaction was structured the way it was, and whether other courses of action were available, and whether the availability of other courses of action are relevant to questions of prejudice or oppression.
The financial landscape, including such information as is reasonably likely to be disclosed in the subpoenaed documents from Westpac, may well shed light on those issues and/or support inferences as to what was intended and the extent to which, if at all, the founders and the fourth defendant acted in concert to harm the plaintiff. In those circumstances, as indicated, I am satisfied the subpoena serves a legitimate forensic purpose, and the fourth defendant’s application to set aside the subpoena therefore fails.
[15]AB 114-115.
The Fourth Defendant does not disagree with the first of these two findings; in fact, he agrees with them. It is the third finding, as set out in paragraph 26 above, that the Fourth Defendant seeks to impugn in this appeal (‘Disputed Finding’).
Grounds of appeal
The Notice of Appeal lists three grounds of appeal, as follows:
1.The Associate Judge erred in concluding that the Subpoena serves a legitimate forensic purpose on the basis that any documents produced pursuant to the Subpoena “may well shed light” on “what was intended” by the second to fourth defendants “and the extent to which, if at all” those defendants “acted in concert to harm the plaintiff”.
2.The Associate Judge erred in concluding that there were documents described in the Subpoena that were relevant to issues in the proceeding.
3.The Associate Judge erred in concluding that the Subpoena should not be set aside.
The Fourth Defendant seeks orders on appeal that the Subpoena be set aside and that the Plaintiff pay his costs of and incidental to his application to set aside the Subpoena and this appeal.
The Fourth Defendant’s submissions
Introduction
After setting out some brief factual background, D4’s Appeal Outline states that an appeal under r 77.06 of the SC Rules is a rehearing and requires the Fourth Defendant to show an error on the part of the principal judge before appellate power may be exercised, referencing Oswal in this respect. D4’s Appeal Outline then sets out the three grounds of appeal contained in the Notice of Appeal. After that, however, D4’s Appeal Outline then goes into much detail about the principles regarding subpoenas and the arguments made before the primary judge.
At no stage does D4’s Appeal Outline mention, let alone grapple with and address, the principles associated with appeals from discretionary matters and House v The King, or with the statement in Oswal as to the appellate court exercising particular caution when an appeal is brought that relates to a matter of practice and procedure.
While the Fourth Defendant submits that the principal judge was wrong to conclude that the documents may well shed light on matters in issue in the proceeding, including by way of inference, much of D4’s Appeal Outline reads as the submissions that the Fourth Defendant makes on a rehearing of his application to set aside the Subpoena. It rarely traverses into submissions more pertinent to establishing error of the relevant kind, being that stipulated by House v The King.
In oral submissions, the Fourth Defendant did squarely address House v The King, contending that the alleged errors here were taking irrelevant matters into consideration and not taking relevant matters into account. It was not until the end of counsel’s reply, when asked a direct question by me, that the matters said to constitute these two errors were more clearly identified. Of the first type of error, it was said that the primary judge took into account matters which are not in issue in the proceeding, those being the nature, extent and timing of the provision of financial or other assistance from the Founders to the Fourth Defendant. Of the second type of error, it was submitted that the primary judge should have taken into account whether the Documents could shed light on the intent or purpose of the parties.
The Fourth Defendant’s submissions were not structured in a way that identifies which ground of appeal is relied upon in relation to each aspect of the submissions. However, it seems to me that Ground 1 correlates with the first type of error referred to in the preceding paragraph, and that Ground 2 correlates with the second type of error referred to in the preceding paragraph. Ground 3 is, in effect, a ‘catch-all’ ground (indeed it was described as such by the Fourth Defendant’s counsel in submissions) and does not add anything to the analysis.
The Fourth Defendant’s submissions regarding the Disputed Finding
In respect of the Disputed Finding, the Fourth Defendant acknowledges that whether he and the Founders acted in concert to materially prejudice the rights of Dr Shiffman is a matter in issue between the parties in the proceeding. He submits that, necessarily, the allegation is itself made up of two distinct aspects:
(a) the alleged acts which the Founders and he are said to have engaged in; and
(b) the alleged common purpose of the parties motivating these acts.
The Fourth Defendant submits that identifying this entire allegation as one issue that remains between the parties gives rise to the apparent error complained about in this appeal. The acts themselves (without more) are not disputed. What remains in issue between the parties is the purpose for which the Founders and the Fourth Defendant engaged in the conduct, not the acts themselves.
According to the Fourth Defendant, documents which shed light on the nature, extent and timing of the provision of financial or other assistance from the Founders to him could only be relevant to determinations regarding the acts engaged in, as opposed to any relevant purpose.
The Fourth Defendant submits that it is not sensible to suggest that documents in the possession of Westpac, in relation to a home loan application made by him, could in any way shed light on the purpose of the Founders, or the Fourth Defendant’s purpose in entering into a wholly unrelated transaction. He says there is no logical reason to suggest that he or the Company would be telling Westpac about their intentions in providing loans for a totally separate transaction.
The Fourth Defendant contends that it is useful to consider the information likely to be revealed by the Documents. He says there are only two possibilities: the Documents could show that he had other funds available to him which he chose not to use to exercise his options, or, the Documents could show that he had no funds available to him to exercise his options other than the funds received from the Founders’ loans.
The Fourth Defendant submits, rhetorically, that if he had significant funds available which would have allowed him to exercise his options without the use of the loans provided by the Founders, what is the inference that can be drawn as to the parties’ purpose? The Plaintiff would no doubt contend that an inference which could be drawn from this is that the Fourth Defendant chose to rely on the loans provided by the Founders in order to exercise his options. That inference, even if drawn, does not advance the Plaintiff’s case vis-à-vis purpose in any way. No prejudice is alleged to have been suffered by Dr Shiffman by reason of the provision of the loans. That is, moneys provided by the Founders to the Fourth Defendant for the purposes of the loans did not deprive Dr Shiffman or the Company of funds. The Documents could not therefore assist or shed light on the issue in any way, even if the Documents established that the Fourth Defendant had significant alternative funds available to him.
Similarly, the Fourth Defendant says that if the Documents show that he had no additional funds, this goes no further than the acts and matters already admitted. No inference, negative or positive, could be drawn as to the purpose of the Defendants.
The Fourth Defendant submits that, in these circumstances, the primary judge fell into error in determining that the Plaintiff had established that the Documents would shed light on, and/or support inferences as to, what was intended and the extent to which, if at all, Mr Wijeyeratne, Mr Sinnappan, and the Fourth Defendant acted in concert to harm the Plaintiff.
The Fourth Defendant refers to the Plaintiff’s contention that apart from the purpose of the Defendants’ actions, timing of the payments of the dividends remains in issue. He says that even if that is the case, the Subpoena is not directed towards communications from the Company to Westpac. He submits that it was not ‘on the cards’ or a ‘reasonable possibility’ that the Documents would add in some way or another, to the relevant evidence in the case, or materially assist the case of a party.
Submissions upon a re-hearing of the Summons
The Fourth Defendant submits that if he has succeeded in establishing an error in the Ruling then the court must also consider whether, upon a rehearing, some other factors may give rise to a basis to find that the Subpoena has a legitimate forensic purpose.
The Fourth Defendant refers to four matters said to be listed by the Plaintiff (in correspondence prior to the Summons being issued) as giving rise to a legitimate forensic purpose, being:
(a) the Fourth Defendant’s financial position;
(b) the Fourth Defendant’s arrangements concerning, and reasons for, the exercise of options to acquire shares in the Company in April and September 2021;
(c) the determination made by Mr Wijeyeratne and Mr Sinnappan to have the Company declare a dividend;
(d) credit on cross examination with respect to the Fourth Defendant, Mr Wijeyeratne and Mr Sinnappan.
He submits that what remains to be determined, from that list of matters identified by the Plaintiff as giving rise to a legitimate forensic purpose, is whether the Documents will shed light on matters of credit.
The Fourth Defendant submits that seeking documents from a third party in the hope that material which is damaging to an opponent may turn up is the very definition of impermissible fishing. It has long been established that ‘a bare unsupported assertion that on inspection something may be found that is helpful…is not enough. Mere speculation is not enough’.[16]
[16]Alister & Ors v The Queen (1984) 154 CLR 404 at [16].
In the absence of any other legitimate forensic purposes identified and dealt with above, the Fourth Defendant says that all that can remain to support the furtherance of the Subpoena is the Plaintiff’s apparent unfounded allegation of bad faith.
According to the Fourth Defendant, a mere assertion of bad faith, or that something might be found demonstrating bad faith, is not enough.
In conclusion, the Fourth Defendant submits that the primary judge’s decision should be set aside and in turn the Subpoena should be set aside, and the Plaintiff should pay his costs of the Summons and the appeal.
The Plaintiff’s submissions
The Plaintiff submits that the instant appeal is in the nature of a rehearing, which requires the appellant to show error before appellate power may be exercised.[17]
[17]Bridge and Marine Engineering Pty Ltd v Sharvine Pty Ltd [2015] VSC 127 at [47].
It says that the primary judge’s decision is in the nature of a discretionary judgment concerning a matter of procedure. Appellate review of that decision is limited to the circumstances identified in House v The King, namely that the Fourth Defendant must show the primary judge ‘acted upon a wrong principle, allowed extraneous or irrelevant matters to guide or affect [the] decision, or did not take into account some material consideration’.[18] In P’s Appeal Outline, it is submitted that the Fourth Defendant has made no attempt to frame the appeal within the scope of these limitations.
[18]Wong v Sklavos [2014] FCAFC 120, [9] (‘Wong’); Port Macquarie-Hastings Council v Mansfield [2019] NSWCCA 7, [2].
The Plaintiff says there is no allegation made that the primary judge made any error of law. To the contrary, the Ruling and D4’s Appeal Outline identify that the applicable principles were largely agreed by the parties.
The Plaintiff contends that the only error alleged in D4’s Appeal Outline is that the primary judge was wrong to conclude that the information responsive to the subpoena ‘may well shed light on’ matters in issue in the proceeding, including by way of inference. That allegation falls outside of the scope of an appeal governed by the principles identified in House v The King.
Counsel for the Plaintiff addressed the Fourth Defendant’s framing of the alleged error in his oral submissions. He characterised the alleged error as taking into account irrelevant matters and failing to take into account relevant matters because the primary judge reached a different conclusion to the one posited by the Fourth Defendant. The Plaintiff says this is not error in the requisite sense, as taking into account irrelevant considerations in the sense of House v The King is not making a determination of apparent relevance that a different judge on appeal might disagree with. The Plaintiff says that what is meant by irrelevant considerations in the exercise of discretion, is taking into account a matter that the statute or the discretion very properly does not permit. It is said that what has been undertaken here is an exercise of a completely different nature, which is to say putting yourself in the position existing now, can you see a relationship between matters in issue and the Documents? That is a discretionary consideration and there is no suggestion of any legal principle that has been misapplied.
The Plaintiff submits that the Ruling is an orthodox application of the relatively low threshold test of legitimate forensic purpose applicable to a subpoena for production of documents. The Plaintiff refers to Wong, where the Full Federal Court referred to the principles applicable to subpoenas as being well-established: the party issuing the subpoena bears the onus of demonstrating that the subpoena has a legitimate forensic purpose in relation to the issues in the proceedings, and a subpoena may be set aside if it requires the production of documents which do not have apparent relevance to the issues arising on the pleadings.[19]
[19]Wong, [12].
The Plaintiff submits that the right test is not as the Fourth Defendant would have it, being whether a particular inference can be drawn that could further the Plaintiff’s case. Rather, the right test is said to be the question of apparent relevance: could the Documents shed light on some matter in issue. In this regard, and in addition to the passage cited at paragraph 19 above, the Plaintiff refers to another passage from Blacktown, where Bell P (as his Honour then was) stated:[20]
It is sufficient, in my view, to justify a subpoena as having been issued for a legitimate forensic purpose if the documents sought are “apparently relevant” or … it can be seen that the documents sought to be produced by way of subpoena will materially assist on an identified issue or there is a reasonable basis beyond speculation that it is likely the documents subpoenaed will so assist. Of course, if it can be shown that the material assistance will be to the party that issued the subpoena, the prospect of the forensic purpose of the issuing party being impugned as illegitimate will be virtually non-existent.
[20]Blacktown, [65] (emphasis in original).
The Plaintiff refers to Norbis v Norbis,[21] where Mason and Deane JJ quote the passage cited earlier from House v The King and then go on to say:[22]
The sense in which the terms “discretion” and “principle” are used in these remarks needs some explanation. “Discretion” signifies a number of different legal concepts. …: Here the order is discretionary because it depends on the application of a very general standard - what is “just and equitable” - which calls for an overall assessment in the light of the factors mentioned in s. 79(4), each of which in turn calls for an assessment of circumstances. Because these assessments call for value judgments in respect of which there is room for reasonable differences of opinion, no particular opinion being uniquely right, the making of the order involves the exercise of a judicial discretion. The contrast is with an order the making of which is dictated by the application of a fixed rule to the facts on which its operation depends.
The principles enunciated in House v. The King were fashioned with a close eye on the characteristics of a discretionary order in the sense which we have outlined. If the questions involved lend themselves to differences of opinion which, within a given range, are legitimate and reasonable answers to the questions, it would be wrong to allow a court of appeal to set aside a judgment at first instance merely because there exists just such a difference of opinion between the judges on appeal and the judge at first instance. In conformity with the dictates of principled decision-making, it would be wrong to determine the parties’ rights by reference to a mere preference for a different result over that favoured by the judge at first instance, in the absence of error on his part. According to our conception of the appellate process, the existence of an error, whether of law or fact, on the part of the court at first instance is an indispensable condition of a successful appeal.
[21](1986) 161 CLR 513.
[22]Norbis v Norbis, 518-519.
The Plaintiff submits that the Fourth Defendant’s submission that the primary judge’s error was in reaching the conclusion that the documents could shed light on purpose is not enough. It says that in order to satisfy the requirements of House v The King, the Fourth Defendant needs to demonstrate that the Ruling was not only not the preferable exercise of the discretion, but that it was entirely outside of the scope of reasonable differences of opinion. In making that determination, it is said to be important to recognise, as the primary judge did, that the determination is made at a preliminary point in the proceeding, it is not made at trial. Matters may evolve during trial and it is for that reason that the authorities recognise that the test is not one of admissibility.
The Plaintiff also submits that the Ruling is a quintessential example of a matter of practice and procedure from which appeals such as this are discouraged. The Plaintiff submits that the authorities recognise that particular caution must be exercised where orders the subject of an appeal relate to matters of practice and procedure.[23]
[23]Oswal, [11].
The Plaintiff submits that the reason for such caution on discretionary matters of practice and procedure is plain: ‘if a tight rein were not kept upon interference with the orders of Judges of first instance, the result would be disastrous to the proper administration of justice.’[24] It is for that reason that the ‘question of injustice flowing from the order appealed from will generally be a relevant and necessary consideration’.[25] The Plaintiff says that no such injustice has been identified here.
[24]Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc (1981) 148 CLR 170, 177 (‘Adam P Brown’).
[25]Adam P Brown, 177.
On this point, the Fourth Defendant submitted at the hearing of the appeal that he would be prejudiced by his private financial information being able to be scrutinised by the Plaintiff in circumstances where there is no relevance of that material to any issue between the parties or in the proceeding.
The Plaintiff submitted that the Westpac customer file is expected to contain material which may shed light, by way of inference or otherwise, on the reasons why the exercise of the Fourth Defendant’s options was financed and structured the way that it was and may accordingly shed light on the extent to which, if at all, the Defendants acted in concert to harm the Plaintiff’s interests. It says that the primary judge accepted this as a purpose of the Subpoena and that it was a legitimate forensic purpose.
The Plaintiff also submits that documents disclosed in the proceeding indicate that the Company was also involved in corresponding with Westpac as to the Fourth Defendant’s interest in the Company at the very same time as the steps the Plaintiff impugns were being undertaken in April 2021.[26] It is said that those documents too are likely to shed light on the matters in issue in the proceeding. The Plaintiff says that the Fourth Defendant’s submission that correspondence from the Company to Westpac was not the subject of the Subpoena is incorrect, as it seeks the customer file including but not limited to certain specified documents. The Plaintiff says that any letter from the Company to Westpac regarding the Fourth Defendant would be on Westpac’s customer file for him.
[26]See exhibit BWD-3 to the Davidson Affidavit, AB38-40.
The Plaintiff submits that the Fourth Defendant’s argument on appeal appears to turn on the proposition that it is unreasonable to expect that any document in Westpac’s possession could shed light on the question of whether the Defendants took the steps they took in concert and for the purpose of prejudicing the Plaintiff’s rights under the Call Option Deed. The Plaintiff contends that the Fourth Defendant says that none of those Documents could be revealing of the Defendants’ purpose in taking any or all of these steps.
The Plaintiff submits that that proposition was not, and should not be, accepted. It says that the Fourth Defendant’s customer file, and the communications between the Founders, himself and Westpac, are likely to add substantively to the Plaintiff’s (and the Court’s) understanding of the steps taken by the Defendants which led to the Fourth Defendant obtaining shares in the Company.
Why those steps were taken, and what other alternatives might have been available, are said by the Plaintiff to be important issues in the proceeding. As the primary judge held, the Fourth Defendant’s financial position at the time (what his Honour referred to as the ‘financial landscape’) is likely to provide a basis for inferences as to the Defendants’ purpose(s). The Plaintiff says that the primary judge precisely directed himself to the question of purpose when he said that documents regarding the financial landscape may well shed light on issues such as why the steps were taken and what other courses of action were available.
The Plaintiff submits that the Founders’ opening submissions (at paragraph 130) squarely acknowledge the relevance of the Fourth Defendant’s financial position, denying that the making of loans to the Fourth Defendant could have been prejudicial to the Plaintiff because ‘Mr Bandopadhayay [the Fourth Defendant] could have borrowed from external financiers’. The Plaintiff is entitled to test that allegation, including by way of cross-examination, and the documents likely to be responsive to the Subpoena are important in that respect. It says that a relevant line of inquiry is whether the Fourth Defendant’s financial position sheds light on whether or not he could obtain finance, and that his financial position is one integer of the relevant material that will assist in the determination of the issues in dispute. In respect of the allegation referred to in the Founders’ opening submission, the Fourth Defendant says that this is not an allegation that is pleaded and so cannot be an issue, and that the fact of the loans are not in issue. On the other hand, the Plaintiff submits that the question of whether prejudice was caused to the Plaintiff is plainly in issue.
The Plaintiff submits that it does not have to establish that it is likely that there are documents going to Westpac that expressly set out the purpose of the parties in taking the steps they did.
The Plaintiff submits that the Fourth Defendant is incorrect in saying that the only matter in issue between the parties is as to the Defendants’ purpose. The timing of the Company’s payment of the April 2021 dividend vis-à-vis the Fourth Defendant becoming a shareholder in the Company is also disputed.
The Documents, including whatever correspondence the Company sent to Westpac in around April 2021 (ie the very time in issue) concerning the Fourth Defendant’s interest in the Company,[27] are said by the Plaintiff to be likely to assist the Court in determining this issue too.
[27]See page 7 of exhibit BWD-3.
The Plaintiff submits that the primary judge was correct to find that there is a legitimate forensic purpose for the issue of the Subpoena. It says the appeal should be dismissed, with costs.
Consideration
This appeal is, as the Plaintiff submits, of a discretionary judgment concerning a matter of practice and procedure. This appeared to be accepted by the Fourth Defendant.
Therefore, the approach to be taken by this Court is dictated by House v The King, as applied and expanded upon in cases such as Oswal and IPO Wealth. It is worthwhile emphasising aspects of this.
There must be an error of the type contemplated by House v The King before a discretionary decision of a court may be overturned.[28] The authorities set a high bar in this regard:
there is a strong presumption in favour of the correctness of a discretionary decision and the authorities make clear that the judgment the subject of rehearing should be overturned only if it is “clearly” or “plainly” wrong. In other words, an appellate court must be persuaded that the order stands outside the limits of “sound discretionary judgment” before it intervenes.[29]
[28]IPO Wealth, [54].
[29]IPO Wealth, [56], citations omitted.
Of the types of errors relied on by the Fourth Defendant in this case:[30]
Considering an irrelevant factor or failing to consider a relevant factor will only warrant setting aside a discretionary decision if it “really amounts to a failure to exercise the discretion actually entrusted to the court”.
[30]IPO Wealth, [57(3)], citations omitted.
As Elliott J observed in IPO Wealth, ‘the onus borne by an appellant seeking to disturb a discretionary decision is heavy.’[31]
[31]IPO Wealth, [59].
As set out above, the Fourth Defendant alleges two types of errors, namely that the primary judge:
(a) took into account irrelevant matters, by taking into account matters which are not in issue in the proceeding being the nature, extent and timing of the provision of financial or other assistance from the Founders to the Fourth Defendant; and
(b) failed to take a relevant matter into account, being whether the Documents could shed light on the intent or purpose of the parties.
In order to determine whether the Fourth Defendant is correct in his submissions, it is necessary to consider what the authorities provide for when it comes to applications to set aside subpoenas, and then consider whether the primary judge made any error of the type alleged when determining the Summons.
Numerous cases have expressed the principles when it comes to subpoenas, in particular in describing what is required when establishing a legitimate forensic purpose. There are subtle differences between some of the cases and I do not think there is any utility in me setting out yet another possibly slightly different test. At the end of the day, all of the cases go to the same question: whether the documents sought by the subpoena have apparent relevance to issues in the proceeding, in that it is on the cards or there is a reasonable possibility that the documents may shed light on the issues in dispute or materially assist a party or add in some way to the relevant evidence in the case.
That apparent relevance is the test, as opposed to actual relevance, is apparent from cases such as Wong and Blacktown, as well as from the principles set out in Mathieson Nominees.
In this regard, Brereton JA in Blacktown stated that:[32]
the essential question is whether the documents called for are apparently relevant, or capable of providing a legitimate basis for cross-examination, in which case there is a legitimate forensic purpose for the issue of the subpoena.
[32]Blacktown, [89].
Discussing the meaning of ‘apparent relevance’, which is permitted, and contrasting it to ‘fishing’, which is not permitted, Bell P in Blacktown said:[33]
The word “apparent” admits of the possibility that the documents sought by way of subpoena may not ultimately turn out to be relevant. Their apparent relevance, however, should be able to be ascertained by an examination of the description or identification of the document or documents sought in the schedule to the subpoena in light of the issues in the case, as they present themselves on the pleadings, in particulars and/or in affidavits or witness statements if they have been filed or served at the time of the issue of the subpoena.
If the documents are apparently relevant and, provided that the terms of the subpoena are not unduly vague or the ambit of the subpoena is not such that it would be oppressive to comply with it, the subpoena should not be set aside. … Where apparent relevance of the documents subpoenaed to the issues in the case or to the cross-examination of a witness or witnesses is established, this should not generally lead to the setting aside of a subpoena.
[33]Blacktown, [68]-[69].
In my view, it is clear that the primary judge had regard to the well-established principles for dealing with applications to set aside subpoenas on the grounds of no legitimate forensic purpose. His Honour set out the relevant principles which, after all, were not really in contest between the parties.
The primary judge did not, therefore, make any error in terms of applying the wrong principles in respect of determining whether the Plaintiff had a legitimate forensic purpose for the Subpoena. His Honour directed himself to whether the Documents had apparent relevance to the matters in issue between the parties that he had carefully and accurately identified.
In his submissions for the appeal, the Fourth Defendant has characterised the question in terms which are very narrow. In this regard, I refer to the way he characterises the allegation made in the statement of claim that the Founders and the Fourth Defendant acted in concert to materially prejudice the Plaintiff’s rights, as set out in paragraph 35 above. He effectively says that the first aspect of this allegation, which he describes as the alleged acts which the Founders and the Fourth Defendant are said to have engaged in, is not in dispute as the acts are admitted and so documents going to those acts can have no legitimate purpose unless they also go to the alleged common purpose of the parties motivating these acts.
Two observations can be made about this. First, if one characterises the issue in narrow terms, then it is not particularly difficult to then contend that documents sought on subpoena are unlikely to be relevant to that issue. Second, and more fundamentally, the Fourth Defendant’s submission that documents which shed light on the nature, extent and timing of the provision of financial or other assistance from the Founders to the Fourth Defendant could only be relevant to determinations regarding the acts engaged in and not to any relevant purpose cannot be accepted. I agree with the primary judge that such documents may shed light on matters such as the purpose of the parties engaging in those acts.
In my view, the Fourth Defendant’s focus on the first sentence of the Disputed Ruling, in particular his focus on this sentence constituting an appellable error by taking into account an irrelevant consideration, is misplaced. That is because it ignores the totality of the Disputed Ruling, where the primary judge goes on to explain how the Documents may shed light on why the transaction was structured the way that it was, whether other courses of action were available, and whether those are relevant to questions of oppression or prejudice. It is clear that what his Honour was particularly considering was whether the Documents may shed light on whether, and in what way, the Defendants acted in concert. It was in relation to this issue, which is clearly and undeniably an issue in dispute between the parties, that he considered the Documents may shed some light. It is clear that he was not considering just the nature, extent and timing of the provision of financial or other assistance from the Founders to the Fourth Defendant. This was a relevant consideration, since it forms part of the factual matrix when considering whether the Defendants acted in concert to harm the Plaintiff.
Therefore, the alleged error relied upon by the Fourth Defendant, as set out in paragraph 78(a) above, is not made out.
In terms of the second alleged error relied upon by the Fourth Defendant, as set out in paragraph 78(b) above, the Fourth Defendant’s submissions simply cannot be accepted. It is exceptionally clear that the primary judge expressly considered whether the Documents may shed light on the Defendants’ intent and purpose. He says that the Documents:
may well shed light on those issues [being why the transaction was structured the way it was, whether other courses of action were available, and whether the availability of other courses of action are relevant to questions of prejudice or oppression] and/or support inferences as to what was intended and the extent to which, if at all, the founders and the fourth defendant acted in concert to harm the plaintiff.[34]
[34]Emphasis added by me.
This passage goes, as I have said, expressly to purpose and the emphasised phrases do so explicitly.
The primary judge therefore asked himself the right questions when considering the Summons, the evidence before him, and the parties submissions. That the Fourth Defendant disagrees with the primary judge’s conclusion does not mean that he made an appellable error. The Fourth Defendant has not established that the primary judge made an error of the type required by House v The King.
The Fourth Defendant has not established that the Ruling was ‘plainly’ or ‘clearly’ wrong, or that it the order made as a consequence of it is outside the limits of ‘sound discretionary judgment’.
While it is not necessary for me to deal with the two matters below, as I consider it traverses into me considering what I think about the application to set aside the Subpoena rather than whether the primary judge made an error, I will do so as the parties spent some time on these matters. I think it is important that I note the below, at least to the extent that they were relied upon by the Fourth Defendant as being components of the errors said to have been made:
(a) I do not accept the Fourth Defendant’s submission that correspondence going from the Company to Westpac are not caught by the Subpoena. That ignores the plain words of the description given in the Schedule to the Subpoena, and I accept the Plaintiff’s submissions in this regard.
(b) I also do not accept the Fourth Defendant’s submissions as to what inferences may be able to be drawn from the Documents and that there is no inference that can be drawn from the fact that he either does, or does not, declare the loans from the Founders in his application to Westpac for finance. I accept the Plaintiff’s submissions as to the relevance of the Fourth Defendant’s financial position and that, given that his application to Westpac was around the very time that the transactions for the loans and exercise of his share options occurred, what he told Westpac at the same time may shed light on the intent and purpose for the structure of the relevant transactions.
Conclusion
For the reasons set out above, I am not satisfied that the primary judge made any error of the kind that would permit this Court to overturn the Ruling or disturb the orders made by the primary judge. None of the grounds of appeal have been made out.
That being the case, there is no need for me to consider the Fourth Defendant’s submissions as set out at paragraphs 44 to 49 above, since that would only be necessary if the Fourth Defendant had succeeded in establishing error, which he has not.
Accordingly, the appeal will be dismissed. I will hear from the parties as to the form of order and as to costs.
SCHEDULE OF PARTIES
| S ECI 2021 04359 | |
| BETWEEN: | |
| BBHF PTY LTD | Plaintiff |
| - v - | |
| SLEEPING DUCK PTY LTD | First Defendant |
| ENERGON SHIELD PTY LTD | Second Defendant |
| S2 ULYSSES PTY LTD | Third Defendant |
| PRATEEK BANDOPADHAYAY | Fourth Defendant |
0
8
0