FEDERAL COURT OF AUSTRALIA

Ryan v Commercial and Residential Developments (SA) Pty Ltd [2013] FCA 656

THE COURT ORDERED ON 27 MARCH 2013 THAT:

1.    Direct that Kelly & Co provide copies of the documents in the sealed envelope to the plaintiff, subject to any redactions for legal professional privilege and an explanation for the ground for legal professional privilege, by 12 noon on 28 March 2013.

2.    Question of costs reserved.

THE COURT ORDERED ON 4 JUNE 2013 THAT:

1.    Leave be granted to the plaintiffs to amend their points of claim in terms of the document which is annexure “CH-1” to the affidavit of Christian Haebich sworn on 23 May 2013.

2.    Leave be granted to the plaintiffs to amend the subpoena directed to Kelly & Co dated 13 May 2013 to add to paragraph 5 “and in any way relating to draft versions of the documents referred to in paragraphs 2 and 3”.

3.    The plaintiffs’ costs of and incidental to their oral application to amend their points of claim be the plaintiffs’ costs in the cause.

4.    The first defendant pay the plaintiffs 50% of the costs of and incidental to the first defendant’s interlocutory application dated 17 May 2013.

5.    The plaintiffs pay Kelly & Co the reasonable loss and expense incurred by them in complying with the subpoena dated 13 May 2013.

6.    Leave is granted to Kelly & Co to uplift the documents produced pursuant to the subpoena dated 13 May 2013 and re-produce to the Court the documents in terms of the subpoena as amended on or before midday on Friday 7 June 2013.

7.    The first defendant have access to the documents produced pursuant to the subpoena as amended. Any claims for privilege in relation to the documents produced pursuant to the subpoena as amended and grounds thereof are to be notified to the plaintiffs on or before Friday 14 June 2013.

8.    The defendants file and serve Points of Defence and their evidence in chief in the form of affidavits on or before 4.00 pm on 18 June 2013.

9.    The plaintiffs file and serve their evidence in reply in the form of affidavits on or before 4.00 pm on 25 June 2013.

10.    The plaintiffs’ application be listed for hearing on 8 July 2013 at 10.15am and thereafter until completed.

11.    Liberty to apply.

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

REASONS FOR JUDGMENT

introduction

1    The plaintiffs to this proceeding are Dr Pamela Ryan and Highfield Property Investments Pty Ltd (“Highfield”). The defendants are Commercial and Residential Developments (SA) Pty Ltd (“Commercial and Residential Developments”) and Mr Anthony Phillips.

2    Commercial and Residential Developments was a company engaged in property development. It was put into administration on 30 October 2012 and Mr Phillips was appointed the administrator of the company. The plaintiffs were unsecured creditors for substantial amounts of Commercial and Residential Developments.

3    The first meeting of creditors of Commercial and Residential Developments took place on 8 November 2012. The second meeting of creditors took place on 4 December 2012, but the meeting was adjourned to 20 December 2012 to enable the creditors to consider a proposed deed of company arrangement which had been received that morning.

4    At the meeting of creditors on 20 December 2012 a resolution was passed that the company execute a deed of company arrangement. The poll results showed nine votes with a value of $9,842,176 in favour of the resolution that the company enter into the deed of company arrangement and three votes with a value of $5,415,419 against the resolution. The plaintiffs and Mr Noel Hurley, who is a director of Highfield, voted against the resolution.

5    The nine votes in favour of the resolution included the votes of three related entities of Commercial and Residential Developments. Those entities and the values for which they were admitted were as follows:

Urban Construct Pty Ltd                              $2,016,870.00

C & R Project Marketing (SA) Pty Ltd       $5,415,419.00

Cosmopolitan Car Park Properties Pty Ltd    $128,420.00

6    Prior to 14 June 2011 the name of Commercial and Residential Developments was Urban Construct (SA) Pty Ltd and the name of C & R Project Marketing (SA) Pty Ltd was Urban Construct Project Marketing (SA) Pty Ltd.

7    The plaintiffs’ solicitor put forward a schedule of the final body of creditors admitted for voting purposes with certain comments. Without necessarily accepting all the comments as accurate, the schedule is nevertheless helpful in understanding the issues in the proceeding and I set it out below:

8    In essence, under the deed of company arrangement the unrelated creditors, including the plaintiffs, would receive approximately $0.10 in the dollar in satisfaction of their debts. The related entities would not receive anything in relation to their debts, although their debts would survive the administration. Control of the company would be returned to the directors when the deed of company arrangement was executed. The proponents of the deed were directors of Commercial and Residential Developments.

9    The plaintiffs brought this proceeding seeking an order that the resolution that the company enter into the deed of company arrangement, or the deed itself, be set aside and that the company be placed in liquidation. They rely on various sections in the Corporations Act 2001 (Cth) (“the Act”).

10    First, they rely on s 600A of the Act which is in the following terms:

(1)    Subsection (2) applies where, on the application of a creditor of a company or Part 5.1 body, the Court is satisfied:

(a) that a proposed resolution has been voted on at:

(i)    in the case of a company--a meeting of creditors of the company held:

(A)    under Part 5.3A or a deed of company arrangement executed by the company; or

(B)    in connection with winding up the company; or

(ii)    in the case of a Part 5.1 body--a meeting of creditors, or of a class of creditors, of the body held under Part 5.1; and

(b)    that, if the vote or votes that a particular related creditor, or particular related creditors, of the company or body cast on the proposed resolution had been disregarded for the purposes of determining whether or not the proposed resolution was passed, the proposed resolution:

(i)    if it was in fact passed--would not have been passed; or

(ii)    if in fact it was not passed--would have been passed;

or the question would have had to be decided on a casting vote; and

(c)    that the passing of the proposed resolution, or the failure to pass it, as the case requires:

(i)    is contrary to the interests of the creditors as a whole or of that class of creditors as a whole, as the case may be; or

(ii)    has prejudiced, or is reasonably likely to prejudice, the interests of the creditors who voted against the proposed resolution, or for it, as the case may be, to an extent that is unreasonable having regard to:

(A)    the benefits resulting to the related creditor, or to some or all of the related creditors, from the resolution, or from the failure to pass the proposed resolution, as the case may be; and

(B)    the nature of the relationship between the related creditor and the company or body, or of the respective relationships between the related creditors and the company or body; and

(C)    any other relevant matter.

(2)    The Court may make one or more of the following:

(a)    if the proposed resolution was passed--an order setting aside the resolution;

(b)    an order that the proposed resolution be considered and voted on at a meeting of the creditors of the company or body, or of that class of creditors, as the case may be, convened and held as specified in the order;

(c)    an order directing that the related creditor is not, or such of the related creditors as the order specifies are not, entitled to vote on:

(i) the proposed resolution; or

(ii) a resolution to amend or vary the proposed resolution;

(d) such other orders as the Court thinks necessary.

(3)    In this section:

related creditor, in relation to a company or Part 5.1 body, in relation to a vote, means a person who, when the vote was cast, was a related entity, and a creditor, of the company or body.

11    Section 447A provides as follows:

(1)    The Court may make such order as it thinks appropriate about how this Part is to operate in relation to a particular company.

(2)    For example, if the Court is satisfied that the administration of a company should end:

(a)    because the company is solvent; or

(b)    because provisions of this Part are being abused; or

(c)    for some other reason;

the Court may order under subsection (1) that the administration is to end.

(3)    An order may be made subject to conditions.

(4)    An order may be made on the application of:

(a)    the company; or

(b)    a creditor of the company; or

(c)    in the case of a company under administration--the administrator of the company; or

(d)    in the case of a company that has executed a deed of company arrangement--the deed's administrator; or

(e)    ASIC; or

(f)    any other interested person.

12    Relying on these two sections the plaintiffs seek orders that the resolution that the company execute the deed of company arrangement be set aside and the company be placed in liquidation.

13    Secondly, the plaintiffs rely on s 445D of the Act which provides as follows:

(1)    The Court may make an order terminating a deed of company arrangement if satisfied that:

(a)    information about the company's business, property, affairs or financial circumstances that:

(i)    was false or misleading; and

(ii)    can reasonably be expected to have been material to creditors of the company in deciding whether to vote in favour of the resolution that the company execute the deed;

was given to the administrator of the company or to such creditors;

or

(b)    such information was contained in a report or statement under subsection 439A(4) that accompanied a notice of the meeting at which the resolution was passed; or

(c)    there was an omission from such a report or statement and the omission can reasonably be expected to have been material to such creditors in so deciding; or

(d)    there has been a material contravention of the deed by a person bound by the deed; or

(e)    effect cannot be given to the deed without injustice or undue delay; or

(f)    the deed or a provision of it is, an act or omission done or made under the deed was, or an act or omission proposed to be so done or made would be:

(i)    oppressive or unfairly prejudicial to, or unfairly discriminatory against, one or more such creditors; or

(ii)    contrary to the interests of the creditors of the company as a whole; or

(g)    the deed should be terminated for some other reason.

(2)    An order may be made on the application of:

(a)    a creditor of the company; or

(b)    the company; or

(ba)    ASIC; or

(c)    any other interested person.

14    Relying on this power and the power in s 447A the plaintiffs seek orders that the deed of company arrangement be terminated and the company placed in liquidation.

interlocutory RULINGS

15    A number of interlocutory matters have arisen in the course of this proceeding. I made orders in relation to these matters and these are my reasons for the various orders which I have made.

16    I begin by identifying the matters and the orders I made. I will then turn to my reasons for making the orders.

17    The plaintiff issued a subpoena to produce documents (with leave) under r 24.01 of the Federal Court Rules 2011 (Cth) directed to Kelly & Co (“the first subpoena”). By that subpoena, which was dated 15 February 2013, the plaintiffs sought the following documents:

1.    Any document recording or evidencing the terms upon which Mr Garry Winter of Kelly & Co represented Perks & Associates, Shearer & Elliss, Bernalex Pty Ltd, and Madsen Rowley at any meeting or meetings in the administration of Commercial & Residential (SA) Pty Ltd (ACN 124 779 308) (“the Company”) including any instructions as to how the debt claimed by those creditors in the administration of the Company was to be voted.

2.    Any document recording or evidencing any agreement arrangement or understanding between Kelly & Co and the Company and / or any person on the Company’s behalf as to how the debt claimed by Kelly & Co in the administration of the Company was to be satisfied, compromised or otherwise dealt with in the future.

3.    Any document recording or evidencing any agreement arrangement or understanding between Kelly & Co and the Company and /or any person on the Company’s behalf relating to the exercise of any votes attaching to any debt claimed by Kelly & Co in the administration of the Company.

4.    Any document recording or evidencing a listing of all matters in respect of which Kelly & Co has acted for the following persons or entities in the preceding five (5) years:

4.1    David Anthony Rice

4.2    Jonathan James Rice

4.3    Todd Hamish Brown

4.4    David Rice Nominees Pty Ltd

4.5    James Rice Nominees Pty Ltd

4.6    Belmont Strategies Pty Ltd

4.7    Commercial & Residential (SA) Pty Ltd

4.8    Urban Construct Pty Ltd

4.9    C & R Project Marketing (SA) Pty Ltd

4.10    Cosmopolitan Carpark Properties (SA) Pty Ltd

4.11    College Street Pty Ltd

4.12    Newport Quays Stage 2A Pty Ltd

4.13    MC Marina South Ltd

4.14    UCPA Stage 2A Pty Ltd

4.15    Any other corporation or entity for whom Kelly & Co received instructions to act from any one or more of those persons listed at 4.1, 4.2, and 4.3 herein.

5.    Any document recording or evidencing any charges rendered to any person or entity and / or raised by Kelly & Co in respect of the administration of the Company including in respect of attendance of partners and practitioners of Kelly & Co at meetings of creditors in the administration of the Company.

6.    Any document recording or evidencing usual charge out rates of partners and other practitioners in Kelly & Co as applicable for the period 1 July 2012 to 31 December 2012.

Where, in this schedule:

“documents” means all books, records, data, correspondence, letters, emails, faxes, messages, notes, memoranda or other documents, whether in paper or electronic form, whether handwritten or typed.

18    Kelly & Co produced documents to the Court in a sealed envelope. After hearing argument about whether the plaintiffs should be given access to the documents, I made the following order on 27 March 2013:

1.    Direct that Kelly & Co provide copies of the documents in the sealed envelope to the plaintiff, subject to any redactions for legal professional privilege and an explanation for the ground for legal professional privilege, by 12 noon on 28 March 2013.

2.    Question of costs reserved.

19    The plaintiffs issued a second subpoena to produce documents (with leave) under r 24.01 directed to Kelly & Co (“the second subpoena”). By that subpoena, which was dated 13 May 2013, the plaintiffs sought the following documents:

1.    Any document recording or evidencing the date upon which all documents entitled “Intra-group Loan Agreement” and executed by Urban Construct (SA) Pty Ltd and each of the companies named at paragraphs 1.1, 1.2 and 1.3 herein were prepared and executed.

1.1.    Urban Construct Project Marketing (SA) Pty Ltd;

1.2.    Cosmopolitan Car Park Properties Pty Ltd;

1.3.    Urban Construct Pty Ltd.

2.    Copies of all draft versions of each of the Intra-group Loan Agreement documents referred to in paragraph 1 herein.

3.    Copies of all draft versions of a Deed of Company Arrangement for execution by Commercial & Residential Developments (SA) Pty Ltd prepared over the period November 2012 and December 2012 inclusive.

4.    Any document recording or evidencing the date upon which any document referred to in paragraph 3 hereof was prepared by Kelly & Co.

5.    All documents referred to and disclosed in unredacted fashion in the schedule of costs provided by Kelly & Co to the Plaintiffs under cover of letter dated 28 March 2013.

Where, in this schedule:

“documents” means all books, records, data, correspondence, letters, emails, faxes, messages, notes, memoranda or other documents, whether in paper or electronic form, whether handwritten or typed.

20    On 17 May 2013 Commercial and Residential Developments issued an interlocutory application seeking an order pursuant to r 24.15 that the second subpoena be set aside. Rule 24.15 is in the following terms:

24.15 Setting aside or other relief

(1)    The Court may, on the application of a party or any person having a sufficient interest, set aside a subpoena in whole or in part, or grant other relief in relation to it.

(2)    An application under subrule (1) must be made on notice to the issuing party.

(3)    The Court may order that the applicant give notice of the application to any other party or to any other person having a sufficient interest.

21    When the application to set aside the second subpoena came on for argument, the plaintiffs’ counsel indicated that the plaintiffs wished to amend the Points of Claim they had previously filed and served. Although the plaintiffs’ counsel indicated that he was willing to argue the application to set aside the second subpoena before the proposed amendments to the Points of Claim were considered, I decided that it was appropriate to consider the application to amend the Points of Claim before I considered the application to set aside the second subpoena. After hearing argument on both matters, I made the following orders on 4 June 2013:

1.    Leave be granted to the plaintiffs to amend their points of claim in terms of the document which is annexure “CH-1” to the affidavit of Christian Haebich sworn on 23 May 2013.

2.    Leave be granted to the plaintiffs to amend the subpoena directed to Kelly & Co dated 13 May 2013 to add to paragraph 5 “and in any way relating to draft versions of the documents referred to in paragraphs 2 and 3”.

3.    The plaintiffs’ costs of and incidental to their oral application to amend their points of claim be the plaintiffs’ costs in the cause.

4.    The first defendant pay the plaintiffs 50% of the costs of and incidental to the first defendant’s interlocutory application dated 17 May 2013.

5.    The plaintiffs pay Kelly & Co the reasonable loss and expense incurred by them in complying with the subpoena dated 13 May 2013.

6.    Leave is granted to Kelly & Co to uplift the documents produced pursuant to the subpoena dated 13 May 2013 and re-produce to the Court the documents in terms of the subpoena as amended on or before midday on Friday 7 June 2013.

7.    The first defendant have access to the documents produced pursuant to the subpoena as amended. Any claims for privilege in relation to the documents produced pursuant to the subpoena as amended and grounds thereof are to be notified to the plaintiffs on or before Friday 14 June 2013.

The First Subpoena

22    Mr Peter Campbell is a partner of Kelly & Co. He swore an affidavit on 26 March 2013. That affidavit establishes the following:

1.    Kelly & Co answered the subpoena by forwarding a letter dated 27 February 2013 and a bundle of documents in a sealed envelope to the Registrar of the Court.

2.    A bundle of proxy forms was produced in response to paragraph 1 of the subpoena.

3.    Kelly & Co has no documents to produce in response to paragraphs 2 and 3 of the subpoena.

4.    A list of files was produced in response to paragraph 4 of the subpoena.

5.    In response to paragraph 5 Kelly & Co produced four invoices addressed to Urban Construct Pty Ltd which were said to be the only documents recording or evidencing charges rendered in respect of the administration of the company. They objected to inspection of schedules of individual items of work which were in the sealed envelope on the basis that they “are outside the scope of the request in the subpoena and are irrelevant to any issue in these proceedings”.

6.    Kelly & Co produced the schedule of rates referred to in paragraph 6 of the subpoena.

23    The effect of this evidence was that the issue in dispute related to paragraph 5 of the first subpoena. As to the schedules of individual items of work, Kelly & Co contended first, that they were outside the scope of paragraph 5 of the first subpoena, secondly, (it seems) a request for their production was fishing and therefore impermissible and finally, and in any event, the schedules of individual items of work were the subject of claims of legal professional privilege. It appeared that Kelly & Co was acting on behalf of Urban Construct Pty Ltd.

24    The matter came on for argument before me on 27 March 2013. It was clear that I could not deal with issues of legal professional privilege at that time because Kelly & Co had not identified the claims for privilege. No party had issued an application to set aside the first subpoena under r 24.15 so that on one view the only issue before me was the proper construction of the words of paragraph 5 of the subpoena. However, despite that consideration there was debate before me as to whether, if the schedules of individual items of work were within the terms of paragraph 5, the request for them was fishing and therefore impermissible.

25    The plaintiffs filed and served Points of Claim on 14 February 2013. The pleas directly involving Kelly & Co were as follows:

84.    It may be reasonably inferred that in exercising its vote in favour of acceptance of the Deed, Kelly & Co acted to protect itself from suit and/or to preserve and foster a longstanding professional and commercial relationship with the Urban Construct group and the directors of that group and/or to save the directors (or at least Messrs Rice and Rice) from disqualification to act as directors and not in the interests of the creditors as a whole. Such inference is supported by the facts that:

84.1    the professional cost of Kelly & Co’s participation in creditor meetings was significantly in excess of its likely recovery under the Deed, in that:

84.1.1    Kelly & Co was represented in its own right at a total of three meetings each of one hour in length;

84.1.2    at the first creditors meeting, Mr Garry Winter appeared by teleconference from New York City;

84.1.3    at all three meetings Kelly & Co had two representatives from that firm present (including Mr Winter by teleconference at the first meeting);

84.1.4    the total amount claimed by Kelly & Co was finally admitted for $537.90, and the total expected recovery to Kelly & Co under the Deed would amount to approximately $53.79.

84.2    there existed a longstanding commercial relationship between Kelly & Co and the Company and the Urban Construct group, evidenced by, inter alia:

84.2.1.    the pattern of payment of the accounts of Kelly & Co immediately prior to the administration including that:

84.2.1.1    on 22 August 2012 Kelly & Co rendered an invoice to the Company for a total of $537.90;

84.2.1.2    on 17 September 2012, Kelly & Co rendered an invoice to Urban Construct Pty Ltd for a total of $170,745.00;

84.2.1.3    at some time after 17 September 2012 $168,803.00 was released from funds held in trust to pay the account of Urban Construct Pty Ltd only, leaving a residual debt of $1,942.00 in that matter (which was rejected as a final proof in the administration in any event), with no payment towards the account of the Company made from 22 August 2012;

84.2.2    the fact that Kelly & Co acted for companies in the Urban Construct group in at least the preparation of the Loan Agreements and Security;

84.2.3    the fact that Kelly & Co represented the Company and College in the Highfield Proceedings;

84.3    the Administrator’s recommendation was that the Company may have rights to pursue Kelly & Co for providing negligent advice.

26    There were also “pleas” that Mr Winter of Kelly & Co represented various small creditors at meetings of creditors in the administration. Those creditors are identified in the schedule set out above (at [7]).

27    The four invoices which were produced by Kelly & Co showed no more than amounts for professional fees, disbursements and GST. They did not show the individual items of professional work carried out to which the fees related. The relationship between the invoices and the schedules of individual items of work was not entirely clear. Counsel for the plaintiffs took me to an example, which was available to the plaintiffs, where the invoice was page 1 of an 8 page document and the other 7 pages were schedules of individual items of work with a summary on page 8 showing the total amounts. Kelly & Co told me from the bar table that what the client received varied from client to client.

28    I reached the view that the schedules of individual items of work were within the terms of paragraph 5 of the subpoena. The invoices and schedules of individual items of work go together. In practical terms, it is not possible to understand the one without the other. It is not possible to know whether the invoices relate to the administration of Commercial and Residential Developments without the schedules of individual items of work, nor is it possible to know without the schedules whether the invoices are “in respect of attendance of partners and practitioners of Kelly & Co at meetings of creditors in the administration of the Company”.

29    As to the contention that the first subpoena was fishing or impermissibly wide, as I have said, there was no application to set aside the first subpoena under r 24.15. Counsel for Commercial and Residential Developments sought to be heard on the first subpoena. There was debate before me as to whether the Company had complied with the provisions of r 24.20. I do not need to address these issues because I was satisfied having regard to the authorities, in particular, Alister and Others v The Queen (1984) 154 CLR 404 at 414 per Gibbs CJ; Carter v Hayes SM & Another (1994) 61 SASR 451 at 453, 454 and 455 per King CJ; Hunt & Boyce v Judge Russell (1995) 63 SASR 402 at 409 per Perry J; Dorajay Pty Limited v Aristocrat Leisure Limited [2005] FCA 588 at [12] – [18] per Stone J that paragraph 5 of the first subpoena was not fishing or impermissibly wide. I reached the view that it was “on the cards” that documents within paragraph 5 of the first subpoena would assist the plaintiffs’ case or that the test of adjectival relevance was satisfied because the documents within paragraph 5 had apparent relevance. I rejected the argument that paragraph 5 should be restricted to the period after 30 October 2012, being the date upon which the company went into administration. As a practical matter, the request went no further back than 26 September 2012 and I was told by Kelly & Co that the schedules of individual items of work in the sealed envelope had been restricted to those relevant to the administration.

30    It was for these reasons I made the orders I did on 27 March 2013 (at [18]).

Leave to Amend the Points of Claim and the Second Subpoena

31    Counsel for Commercial and Residential Developments submitted that paragraphs 84, 85, 86A, 87A, 88A and 89A of the proposed Amended Points of Claim should not be allowed for two reasons. First, he submitted that the paragraphs were premised on there being a legal obligation on a creditor to act in the best interests of the creditors as a whole and it was not reasonably arguable that there was such an obligation. Secondly, he submitted that the allegations in these paragraphs were not clearly linked to an identifiable ground of relief in the plaintiffs’ Amended Originating Process. I rejected both of these submissions.

32    The common thread in paragraphs 84, 85, 86A, 87A, 88A and 89A is that by reason of facts and circumstances pleaded, it should be inferred that Kelly & Co, Iles Selley, Perks and Associates, Shearer and Elliss, Bernalex Pty Ltd and Madsen Rowley preferred the interests of the company and its directors over the interests of the creditors on a whole. It is not the case that that plea is only relevant where there is a legal obligation on a creditor to vote in a way which advances the interests of the creditors as a whole. It is clear from the terms of the two substantive powers on which the plaintiffs rely i.e., ss 600A and 445D, that a wide range of matters may be relevant to the exercise of the powers in these sections and it is quite impossible to say at this stage that the matters alleged are unarguably irrelevant. Nor can I discern any “disconnect” between the Amended Originating Process and the proposed Amended Points of Claim. Paragraphs 1 and 3 of the Amended Originating Process seek to engage the provisions of ss 600A and 447A while paragraphs 2 and 4 seek to engage the provisions of ss 445D and 447A.

33    Counsel for Commercial and Residential Developments next submitted that paragraphs 84A, 85A, 86, 87, 88 and 89 should not be allowed because the allegations are not linked to a clearly identified ground of relief in the plaintiffs’ Amended Originating Process. The common thread in these pleas is that no weight should be given to the votes of Kelly & Co, Iles Selley, Perks and Associates, Shearer and Elliss, Bernalex Pty Ltd and Madsen Rowley in light of various facts pleaded. I rejected this submission for similar reasons to those I have given in relation to the first category of paragraphs challenged by Commercial and Residential Developments.

34    Finally, counsel for Commercial and Residential Developments submitted that paragraphs 89B, 89C, 89D and 89E should be allowed to stand on the basis that they are relevant only to the plea in paragraph 93.4. Paragraphs 89B, 89C, 89D and 89E allege that certain representations in the administrator’s report which was prepared under s 439A(4) of the Act were false and paragraph 93.4 is a plea in terms of s 445D(1)(a). I rejected the submission because although paragraphs 89B, 89C, 89D and 89E are clearly relevant to the plea in paragraph 93.4, I was not prepared to say at this stage that the pleas were unarguably otherwise irrelevant.

35    It was for these reasons that I granted leave to the plaintiffs to amend their Points of Claim.

36    I turn now to address the application to set aside the second subpoena.

37    The background to the documents referred to in the second subpoena was as follows. The related companies, Urban Construct Pty Ltd, C & R Project Marketing (SA) Pty Ltd and Cosmopolitan Car Park Properties Pty Ltd were allegedly creditors of Commercial and Residential Developments. There were said to be written loan agreements between each of these related companies and Commercial and Residential Developments. Each of these loan agreements which were titled a “Intra-Group Loan Agreement” bears the date of 30 June 2010 and bears the Kelly & Co logo and address details. The administrator’s report to creditors dated 27 November 2012 refers to loan agreements dated 30 June 2010.

38    The plaintiffs’ case is that the loan agreements were prepared by Kelly & Co after 10 July 2012.

39    The plaintiffs’ case as to the deed of company arrangement is that the administrator was told and he in turn told creditors in his report that the deed was drafted by Johnson Winter Slattery acting on behalf of Urban Construct and its directors whereas in fact:

84.5     Kelly & Co prepared the Deed and/or the prior drafts of the Deed.

40    On the hearing of the application to set aside the second subpoena I rejected the tender of Mr Matthew Selley’s affidavit sworn on 17 May 2013. Kelly & Co sought leave to appear on the hearing of the application and to tender three paragraphs of an affidavit sworn by Mr Peter Campbell on 29 May 2013 as follows:

9.    Urban Construct has instructed Kelly & Co. that it does not waive the privilege that may attach to any of the documents covered by the Subpoena.

10.    Category 5 of the Subpoena captures all documents “referred to and disclosed” in unredacted time entries produced under subpoena. The time entries do not disclose the content of the documents to which they refer. I am aware from my review of those time entries and discussions with Kelly & Co. practitioners including Garry Winter and Matthew Fisher that category 5 of the Subpoena captures a large volume of documents which was copied and given to Kelly & Co, or brought into existence, for the purpose of Urban Construct seeking legal advice from Kelly & Co and which is protected by legal professional privilege in favour of Urban Construct.

11.    Accordingly, privilege is maintained over the category 5 documents.

41    Counsel for Kelly & Co did not seek to tender paragraphs 1 – 8 inclusive of Mr Campbell’s affidavit. Kelly & Co’s interest it seems was to preserve the privilege in the documents of Urban Construct Pty Ltd. I did not need to determine whether Kelly & Co had standing to appear on the application because the firm’s counsel restricted his challenge to paragraph 5 of the second subpoena and the grounds of his challenge were also advanced by counsel for Commercial and Residential Developments.

42    Counsel for Commercial and Residential Developments advanced some broad arguments in favour of the proposition that the subpoena was impermissibly wide, an abuse of process and not issued for a legitimate forensic purpose. He submitted that it was an abuse of process to issue a subpoena against a person’s legal advisers without first exhausting discovery and third party discovery and it was an abuse to issue a subpoena in relation to documents where the bulk of the documents were likely to be privileged. Each case is to be judged according to its particular circumstances and although these arguments might have force in another case, I rejected them in this case where the issues are who prepared relevant commercial agreements and when they were executed.

43    Counsel’s alternative submission was that paragraphs 3 and 5 of the second subpoena were impermissibly wide. I rejected the argument in relation to paragraph 3. Having regard to the time period identified i.e., November 2012 and December 2012 inclusive, I did not think the request is impermissibly wide. I considered paragraph 5 to be impermissibly wide and it was amended in the manner indicated above (at [21]). I rejected the alternative argument advanced by both Commercial and Residential Developments and Kelly & Co that paragraph 5 was an abuse of process because it targeted privileged documents. There may be many legitimate reasons why a party seeks documents by subpoena where he or she anticipates that there will be a claim for privilege. The matter is to be judged having regard to all the circumstances and I am not aware of any general principle which supports counsel’s alternative argument.

44    It was for these reasons that I made the orders I did in relation to the second subpoena (at [21)].

Associate:

Dated:    5 July 2013