FEDERAL COURT OF AUSTRALIA

Mercedes Holdings Pty Limited v Waters (No 4) [2011] FCA 666

THE COURT ORDERS THAT:

1.    The notices of motion filed by the 13th respondent on 23 May 2011 and 8th respondent on 31 May 2011 be dismissed.

2.    The time for the applicants to file evidence on the notices of motion for summary dismissal be extended to 9 June 2011.

3.    Leave be granted to the applicants for first access to inspect and uplift documents produced on subpoena to ASIC issued 16 May 2011 and leave be granted to the respondents for following access to inspect and uplift those documents.

4.    The costs be reserved.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court’s website.

REASONS FOR JUDGMENT

1    Yesterday I dismissed applications by the eighth and thirteenth respondents (‘Mr White’ and ‘Mr King’ respectively) to set aside two subpoenas issued to the Australian Securities and Investments Commission (the ‘Commission’) on 16 May 2011 by the applicants. The Commission has produced the documents sought under the two subpoenas to the Court and does not itself seek to the subpoenas aside. No other respondent, apart from Mr White and Mr King, seeks to set the subpoenas aside.

2    Mr White and Mr King do not seek to argue that the subpoenas are oppressive nor, given that the Commission has already produced the documents without objection, would this be a useful argument to pursue. Instead, the proposition advanced is that the documents sought under the subpoenas go only to establish a case which is not being pursued by the applicants and do not relate to any fact in issue between the parties.

3    Because there is no question of the Commission being oppressed by the subpoena the usual issues which would arise on applications such as the present are elided to an inquiry into whether the documents sought have ‘apparent relevance’ to the issues in the proceedings. In addressing the issue of apparent relevance the following matters are useful:

(a)    documents sought under a subpoena must be sufficiently relevant which means that they must be reasonably likely to add, in the end, in some way or other, to the relevant evidence in the case: Spender Motors Pty Ltd v LNC Industries Ltd [1982] 2 NSWLR 921 at 927 per Waddell J;

(b)    leaving aside questions of credit, the relevant evidence in a case consists of that material which is relevant within the meaning of s 55 of the Evidence Act 1995 (Cth); that is, the material sought on the subpoena must be reasonably likely to be evidence ‘that, if it were accepted, could rationally affect (directly or indirectly) the assessment of the probability of the existence of a fact in issue in the proceeding’.

(c)    the issues in the case will ordinarily be those thrown up by the pleadings but legitimate issues can arise in other ways. Thus the parties may conduct the trial on a different basis to those which are pleaded in which case it will be legitimate to seek the issue of subpoenas by reference to the actual, rather than pleaded, issues. So, too, not infrequently interlocutory disputes will generate their own issues which are just as capable of supporting, in an appropriate case, the issue of subpoenas. One common example of that proposition is the issues which may arise on applications for security for costs: cf. Bailey v Beagle Management Pty Ltd (2001) 105 FCR 136 at 144 [30].

4    The present proceeding is a class action brought against a number of entities and persons formerly involved in the affairs of the MFS Premium Income Fund (the ‘Fund’). Amongst a welter of allegations there is one which is relevant to the present application. At the risk of oversimplification, the present form of the pleading alleges that the trustee of the Fund entered into arrangements with MS Pacific Finance Limited (‘PacFin’) under which the Fund participated in six corporate loans originated by PacFin for $62.5 million. The present pleading alleges that these transactions were, putting the matter shortly, improvident and that those involved in the decision to implement them have committed numerous actionable defaults. It also alleges that the Fund drew down a $200 million facility from the Royal Bank of Scotland during the six month period ending on 31 December 2007. Mr White and Mr King are said to have been involved in the defaults relating to the PacFin transactions.

5    The documents which have been produced on subpoena from the Commission relate to similar territory. The applicants have obtained possession of a pleading filed by the Commission in proceedings in the Supreme Court of Queensland against a number of entities and people involved in the Fund prior to its collapse. That statement of claim, issued by the Commission and settled by junior counsel (with the input of senior counsel), has a very different perspective on the PacFin transactions. According to that pleading, the sum of $150 million was drawn down by the Fund from the Royal Bank of Scotland at which point $130 million of that amount was unlawfully given to a related company of the Fund’s trustee known as MFS Administration which, in turn, used at least $103 million of it to pay down a pressing facility then owing by it to another entity called Fortress. It is then alleged that documents were falsified to give the impression that the monies had been extended under the PacFin transactions. Put another way, the present pleading in this case contends that entry by the Fund into the PacFin transactions was improvident. The Commission’s pleading alleges that $150 million was misappropriated from the Fund and that the PacFin transactions never occurred but are instead merely the window dressing for a conspiracy to disguise what is, in effect, an old fashioned fraud.

6    The two subpoenas issued by the applicants seek the documents referred to in the particulars to the Commission’s pleading. Assuming those documents provided a proper basis for the pleading of the Commission’s case in the Supreme Court of Queensland it will most likely be contended by the applicants that the same documents, should they be granted access to them, will support a similar pleading in this case.

7    It is in that context that the current debate arises. Mr McGregor, the solicitor who appeared for the applicants, contended that the documents produced under the subpoena were relevant on two bases. First, they were directly relevant in the sense used in s 55 of the Evidence Act because if the Commission’s allegations were correct they tended to prove that the applicants’ present case must be wrong: the PacFin transactions could not have been improvident if they never happened but were instead merely a veneer covering a fraud. Secondly, the respondents had all recently filed applications for summary judgment against the applicants and on that interlocutory application an issue will arise as to whether it could be said that the applicants had no case. In that context, the subpoenaed documents directly showed that summary judgment was inappropriate and they were relevant to that issue.

8    Mr White and Mr King submitted that the applicants were engaged in a fishing expedition because the materials sought did not go to an issue in the proceeding but, at best, to an issue which might arise in the future. The correct course, so it was submitted, was to wait and see if the applicants’ pleading was amended to raise the fraud claim in the Commission’s statement of claim. Even if the documents were relevant in a s 55 sense – because they tended to disprove the applicants’ case – it was an abuse of process to seek to obtain documents on subpoena to negative one’s own case. So far as the applications for summary judgment were concerned, Mr White and Mr King were approaching that application strictly on the basis of an attack on the nature of the pleading. So viewed, no issue would arise which could make the Commission’s allegations against the two respondents relevant in these proceedings: Pharm-A-Care Laboratories Pty Ltd v Commonwealth [2009] FCA 1203 at [33]-[34], [37]-[40] per Flick J.

9    Although these submissions were advanced with care and skill by Mr Piggott of counsel and Mr Cohen, the solicitor who appeared for the eighth respondent, I have found myself unable to embrace them. The documents are directly relevant in a s 55 sense because they tend to disprove the applicants’ case. The definition of ‘relevant’ in s 55 extends, as one might naturally expect, to include documents which both disprove and prove a case. Section 55 is not confined in its operation merely to prove in a single direction. Mr Piggott submitted that even if that were so it still remained a fact that to issue a subpoena to obtain relevant documents would be an abuse of process if the purpose was to seek to put a new case. But that I cannot accept: the objection to fishing is not to the making of a new case but to the use of presently irrelevant material to do so. The making a new case from presently relevant material seems hardly objectionable.

10    It is true that Mr White and Mr King have indicated that they will confine their summary judgment application to the pleadings and will not seek to range beyond it. However, the Commission’s pleading itself ranges beyond Mr White and Mr King and includes allegations against a number of other respondents in this proceeding. There is no evidence before me that the respondents propose to take the same position. In that circumstance, I cannot be satisfied that the substantive question of whether the applicants have a case – whatever the pleadings say – does not arise: cf: Imobilari Pty Ltd v Opes Prime Stockbroking Ltd (in liq) (2008) 252 ALR 41 at 44 [6] per Finkelstein J. To the contrary, having seen what is contained in the Commission’s pleading it is tolerably plain that it is reasonably likely that the documents will be relevant to the issues arising under s 31A of the Federal Court of Australia Act 1976 (Cth). Mr Piggott argued that if that view were to be taken the best course would be to adjourn the present applications to the hearing of the s 31A applications. However, that course would almost certainly run the risk of adjourning those applications which, given the numbers of parties involved and the difficulty in finding two days which suited all parties, is not a risk which should be run.

11    It was for those reasons that I refused to set aside the subpoenas.

Associate:

Dated:    8 June 2011