Threat Protect Group Pty Ltd v James McCrea as trustee for the J&P Trust
[2021] WASC 169
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: THREAT PROTECT GROUP PTY LTD -v- JAMES MCCREA as trustee for THE J&P TRUST [2021] WASC 169
CORAM: ARCHER J
HEARD: ON THE PAPERS
DELIVERED : 25 MAY 2021
FILE NO/S: CIV 3154 of 2019
BETWEEN: THREAT PROTECT GROUP PTY LTD
Plaintiff
AND
JAMES MCCREA as trustee for THE J&P TRUST
PAULEEN MCCREA as trustee for THE J&P TRUST
First Defendants
JASON MCCREA as trustee for THE MCCREA FAMILY TRUST
LEILANIA TARR as trustee for THE MCCREA FAMILY TRUST
Second Defendants
BARRY DAVID PEARCE
Third Defendant
JAMES HALL as trustee for THE HALL FAMILY TRUST
SUSAN HALL as trustee for THE HALL FAMILY TRUST
Fourth Defendants
JAMSUE PTY LTD as trustee for THE HALL FAMILY SUPERANNUATION FUND
Fifth Defendant
SANDERS SUPERANNUATION PTY LTD as trustee for THE SANDERS SUPERANNUATION FUND
Sixth Defendant
DANHARR PTY LTD as trustee for THE DELLA 5 FAMILY TRUST
Seventh Defendant
HARRY DELLA CIOPPA as trustee for THE DANHARR PTY LTD EMPLOYEES SUPERFUND
SHARON DELLA CIOPPA as trustee for THE DANHARR PTY LTD EMPLOYEES SUPERFUND
Eighth Defendants
SWEET NOMINEES PTY LTD as trustee for THE DAVID & ANGELA SWEET FAMILY TRUST
Ninth Defendant
ONWATCH PTY LTD
First Third Party
JAMES MCCREA
Second Third Party
JASON MCCREA
Third Third Party
JAMES HALL
Fourth Third Party
JOHN CHARLES SANDERS
Fifth Third Party
JAMES MCCREA
First Fourth Party
JASON MCCREA
Second Fourth Party
JAMES HALL
Third Fourth Party
JOHN SANDERS
Fourth Fourth Party
Catchwords:
Discovery category - Relevance to pleaded issue - Turns on its own facts
Legislation:
Rules of the Supreme Court 1971 (WA)
Result:
Application granted
Costs to be taxed if not agreed
Category: B
Representation:
Solicitors:
| Plaintiff | : | Lavan |
| First Defendants | : | K & L Gates |
| Second Defendants | : | K & L Gates |
| Third Defendant | : | K & L Gates |
| Fourth Defendants | : | K & L Gates |
| Fifth Defendant | : | K & L Gates |
| Sixth Defendant | : | K & L Gates |
| Seventh Defendant | : | K & L Gates |
| Eighth Defendants | : | K & L Gates |
| Ninth Defendant | : | Hogan Lovells (Sydney) |
| First Third Party | : | Lavan |
| Second Third Party | : | McNally & Co |
| Third Third Party | : | McNally & Co |
| Fourth Third Party | McNally & Co | |
| First Fourth Party | McNally & Co | |
| Second Fourth Party | McNally & Co | |
| Third Fourth Party | McNally & Co | |
| Fourth Fourth Party | : | McNally & Co |
Case(s) referred to in decision(s):
Roe v The State of Western Australia [2013] WASC 130
Singh v Friedman [2013] WASC 78
Youlden Enterprises Pty Ltd v Health Solutions (WA) Pty Ltd [2005] WASC 60
ARCHER J:
These reasons deal with an application by the first to eighth defendants for discovery of a category of documents in these proceedings. The ninth defendant indicated that it supported the application, but did not make submissions.
Background
In 2017, the plaintiff (Threat Protect) and Onwatch Pty Ltd (Onwatch) executed two heads of agreements, one in June and one in November. The heads of agreements related to the potential prospect that Threat Protect would purchase the entire issued share capital of Onwatch (Shares). At that time, the defendants were the registered holders of the Shares in varying proportions.
On or about 28 February 2019, Threat Protect and the defendants entered into an agreement by which Threat Protect would purchase the Shares (the Share Sale Agreement). The Share Sale Agreement was completed on either 30 April 2019 or 1 May 2019 (Completion Date).[1]
[1] Further Re-Amended Statement of Claim filed 28 January 2021 (SOC) [29] and Amended Defence of the First to Eighth Defendants filed 8 February 2021 (Defence of 1-8D) [29].
On 19 December 2019, Threat Protect commenced proceedings alleging various matters, including that, in entering into the Share Sale Agreement and completing the agreement, it relied on certain terms of the November heads of agreement, certain terms of the Share Sale Agreement and certain sellers' warranties. The first to eighth defendants deny this.[2]
[2] SOC [26] and Defence of 1-8D [26].
Threat Protect alleges that the defendants breached various terms of the Share Sale Agreement, and that this caused it to pay an inflated 'enterprise value'. The first to eighth defendants deny this.[3]
[3] SOC [32]-[33] and Defence of 1-8D [32]-[33].
Threat Protect further alleges, among other things, that the defendants breached various sellers' warranties, and that this caused it to suffer loss. The first to eighth defendants deny this.[4]
[4] SOC [40] and Defence of 1-8D [40].
In addition, Threat Protect alleges that various terms of the Share Sale Agreement and sellers' warranties upon which it relied were express representations (Representations). It alleges that, by making the Representations, the defendants engaged in misleading or deceptive conduct. It claims to have suffered loss as a result. The first to eighth defendants deny this.[5]
[5] SOC [49]-[51] and Defence of 1-8D [49]-[51].
By conferral, the parties largely agreed on the categories of documents to be discovered. The parties were unable to agree in relation to one category, category 28 in Schedule D. Category 28 comprises documents evidencing communications between Threat Protect and Macquarie Bank and/or First Samuel Limited and/or Soliton Capital Partners Pty Ltd regarding the banking facilities and funding arrangements of Threat Protect and/or its holding company Threat Protect Australia Limited (TPL) in the period from 1 December 2018 to 31 March 2019.
Defendants' submissions
The first to eighth defendants (Defendants) submit that, in light of the pleadings, documents suggesting that Threat Protect did not rely on the Representations, or relied on other matters in making those decisions, are relevant.
The defendants tendered a copy of TPL's Interim Financial Report for the half-year ended 31 December 2018 and two ASX announcements.
The notes to the consolidated financial statements included a section titled 'Going Concern' which stated:
…
On 12 February 2019, the Group received a letter of conditional waiver from Macquarie Bank Limited in relation to the breaches of banking covenants for the quarter ended 31 December 2018 subject to full and final repayment of all Macquarie Bank Limited facilities by 31 March 2019.
These conditions indicate a material uncertainty that may cast a significant doubt about the entity's ability to continue as a going concern and, therefore, that it may be unable to realise its assets and discharge its liabilities in the normal course of business.
Management believe that there are sufficient available funds to meet the entity's working capital requirements as at the date of this report. Subsequent to the date of this report the group expects to receive additional funding for the acquisition of cash-generating businesses.
The consolidated financial statements have been prepared on the basis that the entity is a going concern, which contemplates the continuity of normal business activity, realisation of assets and settlement of liabilities in the normal course of business for the following reasons:
…
There is an expectation that refinancing of the group's facilities with Macquarie Bank Limited prior to the prescribed refinance date of 31 March 2019 will be successful.
The successful financing and acquisition of additional cash‑generating businesses will contribute to the group's working capital position in the near term.
…
The defendants submit that the reference to 'cash-generating businesses' must surely be a reference to Onwatch.
As can be seen from the extract, one of the matters supporting the treatment of TPL as a going concern was the expectation that the group's facilities with Macquarie would be refinanced prior to 31 March 2019.
On 4 March 2019, TPL made an ASX announcement, which noted that it was a condition of the Solition Debt Facility that TPL convert all convertible notes issued to First Samuel Limited (FSL) into shares in TPL.[6] It appears that the condition was met on 30 April 2019, the day of, or the date before, the Completion Date. [7] The announcement also noted that FSL's obligation to subscribe to the notes was conditional on TPL entering into the Share Sale Agreement. [8]
[6] ASX announcement 4 March 2019 page 8.
[7] ASX announcement 1 May 2019 Appendix 3B page 3.
[8] ASX announcement 4 March 2019 page 9.
The defendants submit that it is open to infer that Threat Protect's entry into the Share Sale Agreement was 'compelled by the pressing need to (1) refinance the Macquarie Bank facilities and (2) enable the corporate group to continue as a going concern'.[9] They submit, therefore, that the documents sought in category 28 are plainly relevant.
[9] Defendants' Submissions [7].
The defendants note that proposed category 28 is limited in both scope and time. They submit it will not be burdensome or onerous to locate responsive documents, which will exist and will be in the possession of Threat Protect.
Threat Protect's submissions
Threat Protect submits that the documents sought by proposed category 28 appear to go to its capacity to fund the purchase of the Shares. Threat Protect submits that the pleadings do not raise the issue of:
1its ability to fund the purchase of the Shares; or
2its rationale to purchase the Shares for reasons unrelated to either the terms of the Share Sale Agreement or any representations made to it by or on behalf of the vendors.
Threat Protect submits that, therefore, the documents sought are not relevant to the pleaded issues.
Legal principles[10]
[10] This section reproduces or draws upon what I have written in previous judgments.
Order 26 of the Rules of the Supreme Court 1971 (WA) sets out the rules governing discovery and inspection. The relevant principles were helpfully summarised by Allanson J in Singh v Friedman.[11] Further observations were made by Martin CJ in Roe v The State of Western Australia.[12] I consider that those cases establish the following:
[11] Singh v Friedman [2013] WASC 78 [3] ‑ [4].
[12] Roe v The State of Western Australia [2013] WASC 130 [10] ‑ [12].
1.A party does not have an entitlement to general discovery.
2.The power to order discovery is discretionary.
3.To determine whether a class of documents may be relevant, the court should consider the pleadings, the conduct and admissions of the parties and the nature of the action.[13]
4.Relevance is not, however, the only factor the court must consider in the exercise of the discretion to order discovery. Determining whether to make a discovery order involves balancing two considerations:
(a)first, the desirability of the timely and cost effective disposal of litigation, including considerations of proportionality;
(b)second, the public interest in having available, subject to the rules of privilege, all evidence relevant to the issues in litigation.
5.It is a 'balancing of the likely forensic benefit to be obtained against the risk of cost and delay …, viewed in the context of the value, importance and complexity of the subject matter of the proceedings'.[14]
6.The balance will not fall in favour of discovery unless the cost and delay involved in the provision of that discovery is proportionate to the forensic benefit likely to be obtained.
7.In determining this, the court should consider, in a qualitative sense, the forensic significance of the issue in respect of which discovery is sought and the relevance of the documents sought to that issue.
8.The ultimate test is whether the discovery is necessary for fairly disposing of the proceedings.
[13] In further support of this proposition, see also Youlden Enterprises Pty Ltd v Health Solutions (WA) Pty Ltd [2005] WASC 60 [5].
[14] Roe [13].
Analysis
In my view, the documents sought in proposed category 28 are plainly relevant.
As noted earlier, Threat Protect alleges, among other things, that, in entering into the Share Sale Agreement and completing the agreement, it relied on the Representations. It alleges that, as a result of that reliance, it suffered loss. The defendants deny this.
Accordingly, the alleged reliance is a critical issue on the pleadings.
Threat Protect may have had many reasons to enter into the agreement. Threat Protect does not have to prove that the only reason it entered into the agreement was because of the Representations. Nevertheless, if TPL was compelled to enter into the agreement in order to obtain the refinancing that it appeared to need to enable it to continue as a going concern, this would plainly be relevant to the assessment of whether Threat Protect did rely on the Representations as it claims.
Further, even if the financial pressure did not rise to the point of compelling TPL to enter into the Share Sale Agreement, any significant pressure it was under would likely still be relevant to the assessment of whether Threat Protect did rely on the Representations. Depending on the totality of the evidence, it may support an inference that Threat Protect did not.
In my view, the documents sought in category 28 may bear upon whether Threat Protect did rely on the Representations in entering into the Share Sale Agreement.
There is no suggestion that ordering discovery of category 28 would lead to delay or disproportionate costs.
There is no suggestion that providing discovery of category 28 documents would be burdensome.
The alleged reliance is a critical issue on the pleadings. The documents sought are likely to be of forensic value in relation to that issue. I consider that the resulting costs and any delay would not be disproportionate to the forensic benefit likely to be obtained. I am satisfied that discovery of the documents in category 28 is necessary to fairly dispose of the proceedings.
Conclusion
For the reasons I have given, I order that Threat Protect must give discovery of documents falling within category 28.
Further, Threat Protect is to pay the costs of the first to eighth defendants of this application, to be taxed if not agreed.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
AG
Research Associate to the Honourable Justice Archer
25 MAY 2021
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