Wang v HMG Capital Pty Ltd
[2022] VSC 748
•15 December 2022
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
S ECI 2022 02068
| HUA WANG | Plaintiff |
| v | |
| HMG CAPITAL PTY LTD (ACN 651 233 297) | 1st defendant |
| AND | |
| PETER ANDREW LANG | 2nd defendant |
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JUDGE: | Elliott J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 18 November 2022 |
DATE OF JUDGMENT: | 15 December 2022 |
CASE MAY BE CITED AS: | Wang v HMG Capital Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2022] VSC 748 |
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PRACTICE AND PROCEDURE – Particular discovery – Relevance – Share sale agreement – Implied term of good faith – Overarching purpose and obligations – Application granted – Supreme Court (General Civil Procedure) Rules 2015 (Vic), r 29.08 – Civil Procedure Act 2010 (Vic), ss 7, 23, 26, 55.
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APPEARANCES: | Counsel | Solicitors |
| For the plaintiff | B Slocum | Madgwicks |
| For the defendants | A Segal | Danaher Moulton |
HIS HONOUR:
IntroductionA.
In broad terms, this proceeding concerns a share sale agreement (“the Share Sale Agreement”) entered into on 13 July 2021 by the plaintiff, Hua Wang (“Wang”), for the sale of his shares in WH Investments Group Pty Ltd (“WH Investments Group”) to the first defendant, HMG Capital Pty Ltd (“HMG Capital”). The second defendant, Peter Andrew Lang (“Lang”), is a director of HMG Capital.
In or about August 2014, Lang invited Wang to invest in his new indoor trampoline and rock climbing entertainment business, Latitude Australia Holdings Pty Ltd (“Latitude”). On 16 April 2015, WH Investments Group was incorporated by Wang for the purpose of investing in Latitude. WH Investments Group subsequently purchased a 35 percent shareholding in Latitude on 26 April 2015 for the sum of $5,599,900.
Wang deposed that in mid-2021, he decided to sell his shares in WH Investments Group to Lang, who had allegedly offered to buy Wang’s indirect interest in Latitude. The Share Sale Agreement was structured such that an initial payment of $100,000 was to be paid for the shares at the date of completion, with a deferred payment of $5,900,000 to be paid no later than 12 July 2026 (that is, 5 years after the completion date). As a condition of the sale, WH Investments Group’s share documents were to be held in escrow until the deferred purchase price had been paid. On 13 July 2021, Lang became, and Wang ceased to be, a director of WH Investments Group.
Some 7 months after the execution of the Share Sale Agreement, on or about 28 February 2022, WH Investments Group (under the effective control of HMG Capital and Lang) disposed of its shareholding in Latitude to a competitor of Latitude, Bounce Holdings Australia Pty Ltd (“Bounce”). A dispute arose between Wang and the defendants as to whether the sale of WH Investments Group’s shares in Latitude to Bounce amounted to a breach of the Share Sale Agreement. This proceeding was subsequently commenced by writ on 3 June 2022. The trial is set down for hearing on 13 February 2023.
By summons filed on 16 November 2022, Wang sought an order pursuant to rule 29.08 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) (“the Rules”) or section 26 of the Civil Procedure Act 2010 (Vic), or both, for discovery from the defendants of “any document recording, referring to or comprising any meeting or communication between … [Lang] and any employee, [agent] and/or representative of [Bounce] between 1 January 2021 and 17 August 2021”.
On 17 November 2022, Wang narrowed the scope of documents sought in the summons as follows:
An order pursuant to r 29.08 of [the Rules] and/or alternatively s 26 of the [Civil Procedure Act] for the defendants to discover and/or disclose any document not already disclosed in the proceeding which records, refers to or comprises any meeting or communication between [Lang] and any employee, agent and/or representative of [Bounce] between 1 January 2021 and 17 August 2021, which concerns or relates directly or indirectly to a sale, possible or prospective sale, dealing or other disposition of the indoor trampoline and rock climbing entertainment business known as “Latitude” (or part thereof) and any assets associated with that business, whether by way of a sale of the shares in [Latitude] or otherwise, including but not limited to:
(a)any [short message service (“SMS”)] whether transmitted via mobile service or by other electronic means including via WhatsApp or any equivalent message service;
(b)emails;
(c)letters;
(d)file notes; and
(e)diary extracts.
(“the Requested Documents”).
For the reasons to follow, an order will be made to the substantive effect sought in paragraph 6 above.
Background B.
In this proceeding, Wang alleges that HMG Capital breached both express and implied terms of the Share Sale Agreement. It is also alleged Lang unlawfully procured a breach of the Share Sale Agreement and breached fiduciary duties he purportedly owed to Wang. Further, amongst other things, Wang alleges that HMG Capital or Lang, or both, engaged in misleading or deceptive conduct as defined under Schedule 2 of the Competition and Consumer Act 2010 (Cth) (“the Australian Consumer Law”), including by representing that the defendants would act in good faith.[1] The defendants deny these allegations.
[1]Pursuant to s 130 of the Competition and Consumer Act, “Australian Consumer Law” means Schedule 2 as applied under Subdivision A of Division 2 of Part XI of the Act.
In support of the above claims, Wang alleges that prior to the sale of WH Investments Group’s shares to HMG Capital in July 2021, in or around February or March 2021 Lang told Wang that:
(1)He wanted to acquire Wang’s interest in Latitude.
(2)Latitude’s other shareholders would not consent to a transfer of WH Investments Group’s shares in Latitude, so Lang proposed purchasing WH Investments Group.
(3)He could not pay the full purchase price for WH Investments Group’s shares (being $6 million) until he had sold Latitude to a third party.
(4)He would need 5 years to conduct the sale of Latitude to a third party.
(5)Wang’s ultimate interest in Latitude would not be sold without Lang first notifying Wang and obtaining his consent.
(6)Upon receipt of the proceeds of the sale of Latitude, Wang would immediately be paid the balance of the purchase price owing under the Share Sale Agreement (estimated to be approximately $5,900,000).
(Together, “the Pre-contractual Statements”).
Wang alleges that he relied on the Pre-contractual Statements when he sold his shares in WH Investments Group to HMG Capital, including on the agreed basis that the payment of $5,900,000 would be deferred. Further, and contrary to the Pre-contractual Statements, Wang alleges that WH Investments Group’s shares in Latitude were sold to Bounce without his consent, and HMG Capital failed to pay the outstanding purchase price upon completion of that sale.
The defendants deny that the Pre-contractual Statements were made. Naturally, whether or not the Pre-contractual Statements were made is a matter for trial.
In an affidavit filed in this proceeding on 8 June 2022 in response to an application by Wang for injunctive relief, Lang deposed that his negotiations with Bounce for the “potential sale of all of the shares” in Latitude to Bounce commenced “on or about 17 August 2021”.
In August 2022, Wang issued subpoenas to Telstra Corporation Ltd (“Telstra”), TPG Telecom Ltd, and Neville Wright and Simon McNamara (“McNamara”) of Bounce, seeking records of communications between Lang and representatives of Bounce.[2]
[2]The subpoenas were issued on Wang’s behalf by his former solicitors. On 26 October 2022, a second subpoena was issued to McNamara by Wang’s current solicitors in which the scope of production sought was narrowed in response to criticism from McNamara’s solicitors regarding the nominated date range.
On 7 October 2022, Wang received copies of Lang’s telephone records from Telstra (“the Telstra Records”) which disclosed that Lang and McNamara were in contact via mobile phone on 27 April 2021, 3, 4, 6, 19 and 26 May 2021 and 8 June 2021. The Telstra Records indicate that 3 of those communications were via SMS, however, the records do not disclose the contents of those messages.
Following their review of the Telstra Records, on 18 October 2022, Wang’s solicitors sent a letter to the defendants’ solicitors requesting copies of the 3 SMS messages identified in the Telstra Records and all correspondence between Lang and representatives or agents of Bounce prior to 17 August 2021. The request included:[3]
[3]This correspondence was in substantially the same form as the summons filed on 16 November 2022.
Attached is an extract of Mr Lang’s phone records, as produced by Telstra … This extract evidences communications from Mr Lang to [McNamara] of Bounce … between 27 April 2021 and 8 August 2021.[4]
[4]Noting that the Telstra Records only disclosed communications between Lang and McNamara for the period of 27 April 2021 to 8 June 2021, not 8 August 2021: see par 14 above.
Pursuant to Mr Lang’s obligations, as set out in the Civil Procedure Act 2010 (Vic), our client requires the urgent production of the following by Mr Lang:
1.Copies of the three SMS text messages referred to in [the Telstra Records].
2.Any and all correspondence between Mr Lang and Bounce, or any of its employees and[/]or representatives, prior to 17 August 2021, including but not limited to:
(a) SMS’s (sic);
(b) emails;
(c) letters;
(d) file notes; and
(e) diary extracts.
(Original emphasis.)
As may be seen, no start date was specified for the period prior to 17 August 2021, nor was any limitation placed on the subject matter of the communications identified.
On 2 November 2022, Lang’s solicitors responded by letter stating that the documents sought were not relevant to “any matter in issue in the proceeding” and that, even if the documents were relevant, the request for “any and all correspondence” between Lang and representatives or agents of Bounce was “impermissibly broad”.
Following further back-and-forth correspondence between the parties’ solicitors regarding the Requested Documents, Wang’s summons was filed.[5]
SubmissionsC.
[5]A specified date range was included in Wang’s summons filed on 16 November 2022, however, the evidence before the court suggests that the specified date range was not put to the defendants’ solicitors prior to the filing of the summons.
Wang submitted that the Requested Documents are relevant to the dispute on the current pleadings because they speak to whether the alleged breaches of the implied duty of good faith were capricious or unconscionable, including in the context of the Pre-contractual Statements. In doing so, counsel relied on the decision of the New South Wales Court of Appeal in Burger King Corporation v Hungry Jack’s Pty Ltd.[6] It was submitted that if Lang was negotiating the sale of Latitude both before and after entry into the Share Sale Agreement and is now seeking to rely on express contractual rights not to pay the deferred purchase price until 5 years after the completion date, that would be a breach of the implied term of good faith. Counsel for Wang submitted that Lang effectively entered into the Share Sale Agreement unconscionably with the knowledge that Wang was not privy to the negotiations between Lang and representatives or agents of Bounce about the sale of WH Investments Group’s shares in Latitude.
[6](2001) 69 NSWLR 558. The defendants accepted on the pleadings that the issue of whether there were implied terms of the Share Sale Agreement as alleged is a matter for trial.
Further, counsel for Wang argued that in circumstances where Bounce was a major competitor of Latitude, there was no apparent reason why Lang and McNamara would be speaking between April and June 2021, other than to discuss the possible or prospective sale of Latitude. She relied on the fact that the defendants had not put on any evidence in this regard. In short, there was no evidence before the court to suggest that Lang and McNamara had a personal relationship that might offer an alternative explanation for their communications.[7]
[7]As part of the defendants’ submissions as to why the relief sought in Wang’s summons was too wide, the defendants’ counsel stated from the bar table that both Lang and McNamara were members of the Australian Trampoline Parks Association, and the communications identified in the Telstra Records could have related to their involvement in that association.
The defendants submitted that the Requested Documents are not relevant to the issues in dispute. In doing so, they relied on the fact that no reference is made to communications between Lang and any representatives or agents of Bounce in the amended statement of claim. The defendants submitted that because the Pre-contractual Statements as alleged are between Lang and Wang, not Lang and McNamara or any other representatives or agents of Bounce, the Requested Documents are not relevant to the pleaded case.
Further, the defendants submitted that the alleged implied duty of good faith would not have been enlivened until such time as the Share Sale Agreement was entered into. Therefore, Lang’s communications with representatives or agents of Bounce before the Share Sale Agreement was executed on 13 July 2021 could not be properly characterised as any evidence connected with a breach of the implied term of good faith under the Share Sale Agreement.
At the return of the summons, counsel for the defendants informed Wang and the court that he was instructed that the 3 SMS messages identified in the Telstra Records were not in his clients’ possession.[8] In addition, the defendants’ counsel relied on the fact that Lang had deposed that negotiations with Bounce for the potential sale of WH Investments Group’s shares in Latitude had not commenced until 17 August 2021.[9] For this reason, it was argued that the order sought would not produce any material and the application under rule 29.08 of the Rules had no grounding, as the Requested Documents did not exist.
Legal principlesD.
[8]This had not been stated in the solicitors’ correspondence before the application was made.
[9]See par 12 above.
As set out above, this application is made pursuant to rule 29.08 of the Rules or section 26 of the Civil Procedure Act, or both. Rule 29.08(2) of the Rules provides:
Where, at any stage of a proceeding, it appears to the Court from evidence or from the nature or circumstances of the case or from any document filed in the proceeding that there are grounds for a belief that some document or class of document relating to any question in the proceeding may be or may have been in the possession of a party, the Court may order that party to make and serve on any other party an affidavit stating—
(a)whether that document or any, and if so what, document or documents of that class is or has been in that party’s possession; and
(b)if it has been but is no longer in that party’s possession, when the party parted with it and that party’s belief as to what has become of it.
(Emphasis added.)
Orders made pursuant to rule 29.08 are discretionary and are not to be made lightly.[10] The relevance of the documents to the proceeding is a threshold requirement for an application for particular discovery.[11] Relevance is to be discerned by reference to the pleadings,[12] with an eye to the overarching purpose and obligations under the Civil Procedure Act.[13]
[10]Opti-Pharm Pty Ltd v Nature One Dairy Pty Ltd (No 2) [2018] VSC 688, [20], citing Olympic Airways SA v Alysandratos (Supreme Court of Victoria, Harper J, 26 May 1997) 8-9.
[11]UDP Holdings Pty Ltd v Esposito Holdings Pty Ltd (No 3) [2020] VSC 260, [25] (Matthews JR), citing Cargill Australia Ltd v Viterra Malt Pty Ltd (No 9) [2018] VSC 433, [40].
[12]Muchnicki v Avalanche Management Pty Ltd [2020] VSC 710, [69] (Matthews JR).
[13]Volunteer Fire Brigades Victoria v Country Fire Authority (Discovery Ruling) [2016] VSC 573, [33]-[34] (J Forrest J).
The overarching obligation under the Civil Procedure Act to disclose the existence of documents is ongoing.[14] Section 26(1) of the Civil Procedure Act states:
… a person to whom the overarching obligations apply must disclose to each party the existence of all documents that are, or have been, in that person’s possession, custody or control –
(a)of which the person is aware; and
(b)which the person considers, or ought reasonably consider, are critical to the resolution of the dispute.
(Emphasis added.)
[14]Section 26(4)(a). See also r 29.15 of the Rules.
The test for determining whether a document is a “critical” document under section 26 of the Civil Procedure Act is discussed in the explanatory memorandum to the relevant bill.[15] It was further explained by the Victorian Court of Appeal in Mullett v Nixon:[16]
[A]ppropriate content has to be given to the words “critical to the resolution of the dispute” in s 26(1). That language is in contrast to the language in r 29.01.1(3). The [r]ule uses different concepts as well as different language – concepts of reliance and whether the document affects or supports a party’s case. The [r]ule is broader in scope. Not every document which might support or adversely affect a party’s case to a slight degree on any issue, no matter the significance or otherwise of the issue, will necessarily be “critical to the resolution of the dispute”. To this extent, in our view the critical documents which are required to be disclosed under s 26 of the Civil Procedure Act are likely to be a subset of those required to be discovered by a party under r 29.01.1(3) of the Rules (those discoverable documents being documents that are relied upon or which affect or support a party’s case). The “critical” documents are those which are crucial to each party’s case and which, on this basis, if produced to the opposite party, are the most likely to lead to resolution of the dispute either by early settlement or at trial.
[15]Explanatory Memorandum, Civil Procedure Bill 2010 (Vic), 12.
[16][2022] VSCA 174, [86] (Ferguson CJ, Beach and McLeish JJA).
For completeness, section 55(1) of the Civil Procedure Act provides that a court may also make any order or give any directions in relation to discovery that it considers necessary or appropriate.
In summary, the purpose and scope of the discovery process has progressed and become more focused in recent years. The automatic imposition of a requirement that a party to a proceeding discover all documents that are strictly relevant or that may lead to a chain of enquiry is of a bygone era.[17] Generally speaking, whether or not a party is required to make discovery is to be determined based on the particular circumstances of the proceeding at the time discovery is sought, considered in the context of the overarching purpose and obligations under the Civil Procedure Act.
ConsiderationE.
[17]See, for example, Volunteer Fire Brigades Victoria v Country Fire Authority (Discovery Ruling) [2016] VSC 573, [33]-[34] (J Forrest J).
E.1 Existence of the Requested Documents
Despite the defendants’ contention, it simply does not follow that because Lang has been unable to locate the 3 SMS messages identified in the Telstra Records, they do not exist. The Telstra Records provide grounds for a belief that the documents sought may be, or may have been, in the possession of HMG Capital or Lang, or both. Further, there is no evidence before the court detailing the searches undertaken by Lang or other representatives of HMG Capital for the Requested Documents. For these reasons, the defendants’ submission regarding the existence or otherwise of the Requested Documents cannot be accepted.
E.2 Relevance of the Requested Documents
Although, as the defendants contended, on the case as pleaded any implied duty of good faith could not have arisen until the Share Sale Agreement was entered into, I accept Wang’s submission that events prior to the execution of the Share Sale Agreement may be relevant to the issue of whether there has been a breach as alleged. If Lang was negotiating the sale of Latitude with McNamara both before and after entry into the Share Sale Agreement and is now seeking to rely on express contractual rights not to pay the deferred purchase price of $5,900,000 until 5 years after the completion date, that may be relevant and probative as to whether there has been a breach of the alleged implied term of good faith.
Further, communications between Lang and representatives or agents of Bounce regarding the sale of Latitude between 1 January 2021 and 17 August 2021 are relevant to the context in which the Pre-contractual Statements were allegedly made. Furthermore, although not argued on this basis, the documents the subject of the discovery application may be relevant to Wang’s claim of misleading or deceptive conduct under the Australian Consumer Law.
E.3 Should the order sought be made?
Once relevance has been established, the court is still required to exercise its discretion in determining whether or not orders as sought should be made. In this case, there are a number of factors that indicate that Wang’s application should succeed.
First, Lang’s evidence on this point by affidavit affirmed 8 June 2022 is very specific and considerably narrower in its terms than the class of documents sought. Thus, the defendants have not provided any evidence to date which would indicate that communications did not occur in relation to, for example, the sale of part or whole of the Latitude business, or some of the Latitude shares (rather than “all of the shares”).
Secondly, if there are or were in existence documents that establish relevant discussions before the Share Sale Agreement was entered into, this could potentially have a significant effect on a number of issues in the case.
Thirdly, there is no evidence of proper searches having been conducted for the purposes of determining whether or not the Requested Documents exist or existed (and either are or were in the possession of either of the defendants). It would appear likely that, in circumstances where the defendants were of the view that the documents were not relevant, proper enquiries have not been made.
Fourthly, the provision of an affidavit setting out the response as sought may save considerable time at trial. There can be no doubt that the issues raised in this application are likely to be the subject of cross-examination, which will probably be shorter in duration and more focused in scope in circumstances where the existence or absence of any relevant documentary evidence is known before trial.
E.4 Further observations
There are 2 additional matters that should be raised.
First, by reason of the matters set out above, it is unnecessary to determine whether or not the Requested Documents are “critical” documents for the purposes of section 26 of the Civil Procedure Act. To be clear, the conclusions set out above have been reached without any view being formed as to whether or not any documents the subject of the order sought would be “critical” documents.[18]
[18]For the avoidance of any doubt, the language in par 34 above is not intended to be determinative on this point.
Secondly, on the hearing of this application, the defendants were critical of the fact that the scope of the plaintiff’s request had changed both before and after the summons was filed and served. In response, counsel for Wang correctly submitted that under the Civil Procedure Act, parties are under an obligation to narrow the issues in dispute, and to facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute.[19] Limiting the documents sought to those not already produced in the proceeding and which relate to the possible or prospective sale of Latitude accorded with the overarching obligations set out in the Civil Procedure Act. Further, the revised temporal limit of communications between 1 January 2021 and 17 August 2021 was reasonable in circumstances where the Pre-contractual Statements were alleged to have been made in or around February or March 2021.
ConclusionF.
[19]Civil Procedure Act, ss 7, 23. See also Yara Australia Pty Ltd v Oswal (2013) 41 VR 302, 311 [26] (Redlich and Priest JJA and Macaulay AJA) for a discussion of the obligations placed on judicial officers to ensure compliance with the overarching obligations under the Civil Procedure Act.
Accordingly, orders will be made for particular discovery in accordance with rule 29.08 of the Rules, substantially in the form ultimately sought. I will hear from the parties on the precise form of order that ought to be made in light of these reasons.
I will also hear from the parties about costs, but my preliminary view is that they should be costs in the proceeding. Although Wang was successful in his application as made, the claims originally made in the summons of 16 November 2022 were far too broad. The scope of documents sought was significantly narrowed after the defendants provided cogent feedback. Had an application been maintained on the terms originally sought, it is likely to have been unsuccessful.
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