FEDERAL COURT OF AUSTRALIA

Archer Capital 4A Ltd as trustee for the Archer Capital Trust 4A v The Sage Group plc [2012] FCA 1476

THE COURT ORDERS THAT:

1.    The Applicants produce for inspection to the Respondent all documents constituting or recording any third party valuation of any vendor loan notes offered as part of the consideration for the shares held by the Applicants in MYOB Cayman Holdings Limited including documents recording any statement by the valuer of the information and assumptions relied upon for any such valuation.

2.    The First Applicant, Second Applicant, Third Applicant, Fourth Applicant, Seventh Applicant and Eighth Applicant produce to the Respondent for inspection all documents which fall within the following categories:

(a)    documents which record the amount of interest received in cash in respect of the vendor loan notes issued by MYOB Group Pty Limited (formerly “Bain Capital Abacus Parent Pty Limited”) and the date when that interest was received; and

(b)    documents which record any transfer of the vendor loan notes issued by MYOB Group Pty Limited (formerly “Bain Capital Abacus Parent Pty Limited”) or any consideration received in respect of any such transfer..

3.    Documents for inspection should be produced in an electronic and Ringtail-compatible format.

4.    The subpoenas addressed to:

(a)    Ernst & Young (a partnership) dated 9 November 2012; and

(b)    Ernst & Young Law Pty Ltd dated 27 November 2012,

are set aside.

5.    There be no order as to costs in relation to the hearing of the Interlocutory Applications filed on 27 November 2012 and 4 December 2012.

6.    The Applicants are to produce the documents referred to in orders 1 and 2 by 1 February 2013.

7.    The time for the Respondent to file and serve its expert evidence is extended to 22 February 2013.

8.    The directions hearing listed on Friday, 1 March 2013 is vacated.

9.    The proceeding is stood over for further directions at 9.30am on Thursday, 28 February 2013.

Note:    Entry of orders is dealt with in r 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

1    By application dated 30 October 2012, the respondent sought interlocutory orders pursuant to rules 20.13 and 20.15 of the Federal Court Rules 2011 (Cth) for non-standard discovery of certain categories of documents. The application was supported by an affidavit of Mr Robert Tang filed 30 October 2012.

2    By a further application dated 4 December 2012, the applicants sought orders setting aside subpoenas issued on 9 November 2012 to Ernst & Young (a partnership) and on 27 November 2012 to Ernst & Young Law Pty Limited. That application was supported by an affidavit of Mr Christopher Michael Prestwich filed 4 December 2012.

3    The issue which gave rise to the respondent’s request for discovery and the issue of the subpoenas arose out of consideration by the forensic accounting expert engaged by the respondent, Mr Samuel of Sapere Research Group, of the “Offer Valuation Report” prepared by Mr Michael Potter, the expert engaged by the applicants. Each expert was retained to provide expert evidence in relation to the quantum of damages which might arise on the ultimate determination of the issues in this case.

4    For convenience I note that at the conclusion of the hearing of argument on these applications on 13 December 2012, the respondent indicated that it was content to obtain any documents sought in its application by way of an order for production from a party. The applicants indicated that they also considered that this was the preferable course.

Tax Information – paragraph 1(a) and subpoenas

5    In his letter of 21 September 2012 exhibited to the Mr Tang’s affidavit of 30 October 2012, Mr Samuel noted that:

There are two issues from which tax implications might arise:

(a)    The tax implications of the alleged contract between Sage and the Applicants being entered into in Australia as distinct from the contract ultimately entered into by the Applicants with Bain in the Cayman Islands; and

(b)    The tax implications for the Bain Loan Note Holders (and which would also apply to the KKR note holders).

In relation to (a) above, I understand that the alleged contract between Sage and the Applicants was entered into in Australia. However, I understand that the transaction between Bain and the Applicants was actually completed in the Cayman Islands. It is unclear to me whether the Applicants received taxation advantages from the actual contract with Bain that would not have arisen under the alleged contract with Sage. Any such benefits would reduce the damages arising from breach of contract.

In relation to (b) above, there may be tax implications for the holders of the Bain loan notes (or KKR Vendor Notes) which would not have existed had the intended transaction between Sage and the Applicants been completed.    

6    Mr Samuel lastly says:

Please note that I am not a tax expert. The consequences of these issues may require advice from a tax expert.

7    In paragraph 1(a)(i) of the application for discovery, the applicants sought discovery in respect of:

tax returns prepared or lodged by, or on behalf of, the Applicants in respect of the period or any part of the period 29 September 2011 to 24 October 2012.

8    In paragraph 1(b)(ii), the Applicant sought discovery in respect of:

all documents considering or otherwise relating to any actual or potential tax, financial or other benefit from:

(A)        concluding any transaction in respect of the sale of the shares held by any of the Applicants in MYOB Cayman Holdings Limited in the Cayman Islands or otherwise than in Australia; or

(B)        including vendor loan notes as part of the consideration for the sale of the shares held by the Applicants in MYOB Cayman Holdings.

9    Mr Elliot for the respondent pressed the need for these categories on the basis that, although Mr Samuel is not a tax expert, he is an experienced accountant capable of recognising these issues and the efficient resolution of the proceedings would be promoted by ordering this discovery now. He says that it will be required later when a tax expert seized with the role of providing the advice identified by Mr Samuel is retained. In support of this Mr Elliot drew my attention to the comments of Tamberlin J dealing with piecemeal discovery in Sterling Winthrop Pty Limited v The Boots Company (Australia) Pty Limited (unreported, Tamberlin J, 4 December 1995). He also drew my attention to paragraph 44 of Nicholas J’s judgment in Rivercity Motorway Finance Pty Ltd (Administrators Appointed) (Receivers and Managers Appointed) v AECOM Australia Pty Limited [2012] FCA 1304.

10    Mr Kidd on behalf of the applicants challenged the admissibility of Mr Samuel’s letter of 21 September 2012 referred to above, and his further letter of 26 October 2012 exhibited to Mr Tang’s 30 October affidavit on the basis that it is opinion evidence barred by s 76 of the Evidence Act 1995 (Cth) and is not admissible under the expert evidence exception in s 79. For the reasons which follow I do not need to decide this point.

11    I have decided not to make an order for discovery or the production of documents in respect of either paragraph 1(a)(i) or (ii) of the application for discovery at this time because I am not satisfied that to do so is necessary or that it would facilitate the efficient resolution of proceedings in accordance with r 20.11 of the Federal Court Rules 2011, the obligations imposed on the court by ss 37M and 37N of the Federal Court of Australia Act 1976 (Cth) or having regard to the matters specified in Practice Note CM5.

12    Mr Samuel may need to be satisfied as to the tax implications of the matters raised in his 21 September 2012 letter in order to perform his task. However, I consider that this is more effectively achieved by obtaining advice from a tax expert who has had the advantage of considering all relevant documents currently available to the respondent before deciding whether any further discovery is required. I am not satisfied that Mr Samuel has the requisite expertise to determine what information would be required by such a tax expert to enable him or her to adequately perform their task or that Mr Elliot is necessarily correct that all of the material covered by the subpoenas and paragraph 1(a) of the application will be required at a later time. I also do not accept the respondent’s contention that, decoupled from any tax issues, the documents sought by paragraph 1(a)(ii) of the application for discovery are necessary for the determination of the issues in this case.

13    I have also decided to set aside the subpoenas to Ernst & Young (a partnership) dated 9 November 2012 and Ernst & Young Law Pty Limited dated 27 November 2012. These subpoenas require production of:

1.    Tax returns prepared for or lodged on behalf of any of the Applicants in respect of the period 18 August 2011 to 8 November 2012.

2.    Any request for advice from you about, or advice given by you about, any actual or potential tax, financial or other benefit from:

(a)    concluding a transaction in respect of the sale of the shares held by any of the Applicants in MYOB Cayman Holdings Limited in the Cayman Islands or otherwise than in Australia; or

(b)    including vendor loan notes as part of the consideration for the sale of the shares held by the Applicants in MYOB Cayman Holdings Limited.

14    There is significant overlap between the material covered by the subpoenas and paragraph 1(a) of the application for discovery. I do not consider that the material sought is reasonably likely to add to the relevant evidence in the case at this time. Also, if I am not prepared to order the production of this material under discovery or by way of an order for production, I do not think it should be obtainable by way of a subpoena. In saying this, I have considered the issues addressed by Yates J in Becwell Legal Services Pty Ltd, in the matter of Griffin Energy Group Pty Ltd (Subject to Deed of Company Arrangement) v McMaster [2011] FCA 1501 (and in particular at paragraph 26) which was drawn to my attention by Mr Elliot.

15    I would be prepared to reconsider this issue if a suitably qualified tax expert were to form the view that some or all of the material covered by the requests in the subpoenas and the Application for discovery were required to enable him or her to perform their task after the expert has considered the information currently available to them. I should add, for clarity, that I question whether it is relevant or necessary for a suitably qualified tax expert to see the advice provided by advisors to the applicants in order to be able to perform their task adequately.

Valuation – Paragraph 1(a)(iii) and Paragraph 1(b)

16    The material covered by these paragraphs is material within Mr Samuel’s area of expertise. That is not in itself determinative of the question of whether it is necessary to the determination of the issues and whether it will facilitate a just resolution of the proceedings, quickly, inexpensively and efficiently as possible.

17    The applicants have challenged the breadth of the material which would respond to an order in the terms of paragraph (1)(a)(iii) of the application, particularly in light of the fact that there are 51 applicants. Mr Kidd has conceded that valuations by a qualified person may be relevant and Mr Elliot was open to a narrowing of the scope of the paragraph. I am satisfied that if valuation material is to be produced it will provide the greatest utility and facilitate the more efficient resolution of the issues in this case if it is supported by any statement of the information and assumptions on which a valuer has formed its view, where such a statements exist. I will make an order accordingly.

18    Paragraph 1(a)(iv) was not pressed by the respondent.

19    In relation to paragraph (1)(b)(i), the respondent has asserted that the material addressed in that paragraph is required to verify the records of the issuer of the notes (which is being provided under subpoena). I understand from Mr Kidd’s submissions that the applicants would accept a narrowing of this paragraph, recognising also that paragraph (b) is addressed to a limited number of the applicants.

20    Similarly Mr Kidd has indicated that paragraph (1)(b)(ii) would not, in his view, be unnecessarily wide if it were limited to documents which constitute a record of an “arms length” transfer of the vendor loan notes. Mr Elliot challenged the “arms length” limitation. I accept his submission that all transfers may be relevant to an expert’s consideration.

21    I do not propose to make an order for costs in this case, in view of the fact that each of the parties has been, to some degree, successful in their applications.

22    Taking into account all of the above I order that:

1.    The Applicants produce for inspection to the Respondent all documents constituting or recording any third party valuation of any vendor loan notes offered as part of the consideration for the shares held by the Applicants in MYOB Cayman Holdings Limited including documents recording any statement by the valuer of the information and assumptions relied upon for any such valuation.

2.    The First Applicant, Second Applicant, Third Applicant, Fourth Applicant, Seventh Applicant and Eighth Applicant produce to the Respondent for inspection all documents which fall within the following categories:

(a)    documents which record the amount of interest received in cash in respect of the vendor loan notes issued by MYOB Group Pty Limited (formerly “Bain Capital Abacus Parent Pty Limited”) and the date when that interest was received; and

(b)    documents which record any transfer of the vendor loan notes issued by MYOB Group Pty Limited (formerly “Bain Capital Abacus Parent Pty Limited”) or any consideration received in respect of any such transfer.

3.    Documents for inspection should be produced in an electronic and Ringtail-compatible format.

4.    The subpoenas addressed to:

(a)    Ernst & Young (a partnership) dated 9 November 2012; and

(b)    Ernst & Young Law Pty Ltd dated 27 November 2012,

are set aside.

5.    There be no order as to costs in relation to the hearing of the Interlocutory Applications filed on 27 November 2012 and 4 December 2012.

6.    The Applicants are to produce the documents referred to in orders 1 and 2 by 1 February 2013.

7.    The time for the Respondent to file and serve its expert evidence is extended to 22 February 2013.

8.    The directions hearing listed on Friday, 1 March 2013 is vacated.

9.    The proceeding is stood over for further directions at 9.30am on Thursday, 28 February 2013.

Associate:

Dated:    20 December 2012

Schedule

    No: (P)NSD1992/2011

Federal Court of Australia

District Registry: New South Wales

Division: General

Second Applicant:    ARCHER CAPITAL 4B PTY LTD AS TRUSTEE FOR THE ARCHER CAPITAL TRUST 4B

Third Applicant:    ARCHER CAPITAL 4C PTY LTD AS TRUSTEE FOR THE ARCHER CAPITAL TRUST 4C

Fourth Applicant:    HARBOURVEST PARTNERS 2007 V-DIRECT B.V.

Fifth Applicant:    HARBOURVEST INTERNATIONAL PRIVATE EQUITY PARTNERS V-DIRECT FUND L.P.

Sixth Applicant:    HARBOURVEST PARTNERS 2007 DIRECT FUND L.P.

Seventh Applicant:    LENTESCO PACKAGING PTY LIMITED IN ITS CAPACITY AS TRUSTEE OF THE MYOB UNIT TRUST

Eighth Applicant:    SQUADRON ASIA PACIFIC II NV

Ninth Applicant:    SQUADRON NE ASIA HOLDINGS II LIMITED

Tenth Applicant:    ADAM FERGUSON

Eleventh Applicant:    ALEXANDER BRUCE CAMERON IN HIS CAPACITY AS TRUSTEE OF THE HIGHLAND INVESTMENT TRUST

Twelfth Applicant:    ALLISON WATTS

Thirteenth Applicant:    AMBA DARLA HOLDINGS PTY LIMITED ACN 136 023 517 IN ITS CAPACITY AS TRUSTEE OF THE LA FAMILIA MUNOZ TRUST

Fourteenth Applicant:    ANDREW BIRCH

Fifteenth Applicant:    ANDREW BIRCH AND CHERYL SING IN THEIR CAPACITY AS TRUSTEES OF THE BIRCH SING SUPERANNUATION FUND ABN 85 093 663 531

Sixteenth Applicant:    BIGGLES ENTERPRISES PTY LTD AS TRUSTEE FOR THE KATZEFF FAMILY TRUST ABN 64 417 131 510

Seventeenth Applicant:    BIRCHSING PTY LTD ACN 075 688 934 IN ITS CAPACITY AS TRUSTEE OF THE BS3 TRUST

Eighteenth Applicant:    CHRISTOPHER TRACEY

Nineteenth Applicant:    DOMINIC O'HANLON

Twentieth Applicant:    DOMINIC O'HANLON IN HIS CAPACITY AS TRUSTEE OF THE O'HANLON SUPERANNUATION FUND

Twenty First Applicant:    ELENA GREENWELL

Twenty Second Applicant:    ESTELA RODRIGUEZ

Twenty Third Applicant:    FERGATRON CONSULTING PTY LIMITED ACN 128 273 389 IN ITS CAPACITY AS TRUSTEE OF THE FERGUSON CONSULTING FAMILY TRUST

Twenty Fourth Applicant:    GARRY JOHN DOWD & JULIE ANNE DOWD IN THEIR CAPACITY AS TRUSTEES OF THE GAJU SUPERANNUATION FUND

Twenty Fifth Applicant:    GIOVANNA MARIA OSTACCHINI

Twenty Sixth Applicant:    GJED PTY LTD ACN 125 789 111 IN ITS CAPACITY AS TRUSTEE OF THE DENT & EDMEADS SUPERANNUATION FUND

Twenty Seventh Applicant:    GRANT LINGWOOD-SMITH

Twenty Eighth Applicant:    IAN BOYLAN

Twenty Ninth Applicant:    INFOTREK INVESTMENTS PTY LIMITED ACN 136 379 336 IN ITS CAPACITY AS TRUSTEE OF THE AD STEVENSON FAMILY SUPER FUND

Thirtieth Applicant:    JEAN MULLIGAN

Thirty First Applicant:    JEMATE PTY LIMITED ACN 114 290 845 IN ITS CAPACITY AS TRUSTEE OF THE JST SUPERANNUATION FUND

Thirty Second Applicant:    JGDE PTY LIMITED ACN 136 366 393 IN ITS CAPACITY AS TRUSTEE OF THE DENT & EDMEADS FAMILY TRUST

Thirty Third Applicant:    JOHN MOSS

Thirty Fourth Applicant:    JOHN RICHARD MOSS AND ELAINE JANE MOSS AS TRUSTEES OF THE MOSS FAMILY TRUST

Thirty Fifth Applicant:    JULIE STELLA TASSONE

Thirty Sixth Applicant:    KAREN O'HANLON

Thirty Seventh Applicant:    KEVIN RAWLINGS

Thirty Eighth Applicant:    LISA BELL

Thirty Ninth Applicant:    MATTHEW MULLIGAN

Fortieth Applicant:    MATTHEW JAMES TOMLINSON

Forty First Applicant:    MYOB FINANCE 2 PTY LTD

Forty Second Applicant:    PAUL GREENWELL

Forty Third Applicant:    SCOTT GARDINER

Forty Fourth Applicant:    SHOWER INNOVATIONS PTY LIMITED ACN 093 605 228 IN ITS CAPACITY AS TRUSTEE OF THE FINNIN SUPERANNUATION FUND

Forty Fifth Applicant:    SIMON MARTIN

Forty Sixth Applicant:    SIMON RAIK-ALLEN

Forty Seventh Applicant:    SUZANNE DAMMS

Forty Eighth Applicant:    TIMOTHY MOLLOY

Forty Ninth Applicant:    TIMOTHY REED

Fiftieth Applicant:    TREVOR FAIRWEATHER AND NICOLE FAIRWEATHER IN THEIR CAPACITY AS TRUSTEES OF THE FAIRWEATHER FAMILY TRUST

Fifty First Applicant:    TREVOR FAIRWEATHER IN HIS CAPACITY AS TRUSTEE OF THE FAIRWEATHER SUPERANNUATION FUND