FEDERAL COURT OF AUSTRALIA

Hislop v Paltar Petroleum Limited [2017] FCA 1078

ORDERS

THE COURT ORDERS THAT:

1.    The notice to produce dated 29 August 2017 served by the first to fourth defendants on the plaintiff (Notice to Produce) be set aside.

2.    The defendants pay the plaintiff’s costs of the application in paragraph 1 of the plaintiff’s interlocutory process filed on 5 September 2017 to set aside the Notice to Produce.

3.    The interlocutory process filed on 5 September 2017 be otherwise dismissed.

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

REASONS FOR JUDGMENT

(REVISED FROM TRANSCRIPT)

MARKOVIC J:

1    On 11 August 2017 John Hislop commenced this proceeding by the filing of an originating process. At the time of commencement of the proceeding there were four defendants: Paltar Petroleum Ltd (Paltar), Robert Madzej, Michael Caetano and Darrel Causbrook. The proceeding was commenced on an urgent basis and orders were made for the abridgement of the time for service of, among other things, the originating process.

2    On 5 September 2017, on the application of Mr Hislop, Nation Energy (Australia) Pty Ltd (Nation Australia) was joined as the fifth defendant to the proceeding and leave was granted to Mr Hislop to file an amended originating process.

3    In his amended originating process Mr Hislop seeks an order pursuant to s 237 of the Corporations Act 2001 (Cth) (Corporations Act) that he have leave to bring proceedings against the first to fourth defendants on behalf of and in the name of Nation Australia. The nature of the claim that Mr Hislop seeks leave to bring is set out in a draft document titled “Draft Outline of Proposed Claim (Revised)” (Proposed Claim) which is annexed to the amended originating process.

4    The application before me for determination concerns a notice to produce dated 29 August 2017, issued pursuant to r 30.28 of the Federal Court Rules 2011 (Cth) and served on Mr Hislop by the defendants (Notice to Produce). By paragraph 1 of an interlocutory process filed on 5 September 2017 Mr Hislop seeks an order setting aside the Notice to Produce on the basis that it is oppressive; on the basis that it is an abuse of process because the documents sought do not relate to the facts in issue; or on the basis that it seeks documents which, on their face, will all be subject to a claim for legal professional privilege.

The proposed claim

5    Before turning to consider the application it is necessary to say something briefly about the parties and the Proposed Claim which will be brought if Mr Hislop is successful in his application pursuant to s 237 of the Corporations Act.

6    Mr Hislop and Paltar are shareholders in Nation Energy Inc (Nation Wyoming), which is a company registered in Wyoming in the United States of America (US). Nation Australia is a wholly owned subsidiary of Nation Wyoming. Marc Bruner is the majority shareholder and a director of Paltar, which is incorporated in Australia.

7    In the Proposed Claim, in summary, it is alleged that:

    in or about October 2013 Mr Bruner, Paltar, Mr Hislop and Nation Wyoming entered into an agreement that set out the parties’ rights and obligations in respect of the issuance to Paltar of 900 million earning agreement shares in Nation Wyoming. Certain terms relating to voting rights in the earning agreement shares are set out in the Proposed Claim: at [12];

    there were certain voting restrictions on the earning agreement shares held by Paltar in Nation Wyoming (Voting Restrictions): at [13];

    in or about May 2016 Paltar and Nation Australia entered into six earning agreements under which Nation Australia had valuable contingent rights to be issued with a Production Licence under the Petroleum Act 2009 (NT) in respect of six exploration permits. In turn, those permits gave it contingent rights to a potentially valuable revenue stream equating to 75% of an “overriding royalty” in petroleum produced from certain blocks. Those rights were, in effect, Nation Australia’s only valuable assets: at [14]-[16];

    resolutions were passed on 27 April 2017 by Paltar, in its capacity as a shareholder of Nation Wyoming, which resulted in increasing the Nation Wyoming board from three to seven directors and in the appointment of Messrs Madzej and Caetano, Carmen Motito and Robert Buljevic as directors of Nation Wyoming (referred to as the April Board Stacking): at [22];

    the purported majority resolution achieving the April Board Stacking was only possible if Paltar and Mr Bruner violated the Voting Restrictions: at [23];

    on 19 June 2017 there was a meeting of directors of Nation Wyoming at which resolutions were passed to the effect that Nation Wyoming would convene a special general meeting of the members of Nation Australia to consider and, if thought fit, to pass certain ordinary resolutions, including that certain people, including Mr Hislop, be removed as directors of Nation Australia; that Messrs Causbrook, Madzej and Caetano be appointed as directors of Nation Australia; and that Mr Caetano be appointed as the chair and chief executive officer of Nation Australia: at [30];

    the purported special general meeting of Nation Australia foreshadowed at the 19 June 2017 Nation Wyoming board meeting was held shortly thereafter and the foreshadowed actions were taken. Among others, Mr Hislop was removed as a director of Nation Australia and Messrs Causbrook, Madzej and Caetano were appointed instead (referred to as the June Board Stacking): at [31];

    the June Board Stacking was achieved as a result of, and could not have been achieved without, the April Board Stacking and the violation of the Voting Restrictions by Paltar. It was carried out in furtherance of what is termed the “Asset Stripping Proposal”: at [32];

    Paltar delivered a default notice pursuant to the earning agreements between Paltar and Nation Australia, which was invalid, in furtherance of the Asset Stripping Proposal. None of the individual defendants sought any legal advice in relation to the validity of the default notice or gave any attention to particular aspects of the earnings agreements and were accordingly recklessly indifferent to the validity or invalidity of the default notice: at [33]-[43]; and

    as a result of meetings of the boards of Nation Wyoming and Nation Australia on 4 and 5 August 2017 respectively, Nation Wyoming, Nation Australia, Paltar and Officer Petroleum Pty Ltd, a wholly owned subsidiary of Paltar, entered into a “Settlement Agreement and Release of All Claims” and Nation Australia and Paltar entered into six “Surrender and Cancellation of Earning Agreements” by which Nation Australia lost and surrendered to Paltar the benefit of all of its valuable rights. This was the Asset Stripping which was achieved as a result of the April Board Stacking and the June Board Stacking; the violation by Paltar and Mr Bruner of the Voting Restrictions; and as a result of having issued an invalid default notice: at [44]-[49C].

8    The Proposed Claim then sets out the duties alleged to be owed by each of the individual defendants and how they breached those duties, the claims in equitable fraud, the breaches by Paltar of ss 18 and 21 of the Australian Consumer Law and ss 12CB and 12DA of the Australian Securities and Investments Commission Act 2001 (Cth) and the relief sought.

The Notice to Produce

9    The basis for the Notice to Produce is the evidence given by Mr Hislop at [47] of his affidavit sworn on 31 August 2017 in support of the substantive relief now sought in the amended originating process. In that paragraph Mr Hislop says:

I have also instructed lawyers in the USA to take legal proceedings against Paltar and others seeking appropriate remedies for, broadly speaking, fraud on the minority, oppression, breach of directors’ duties, breach of fiduciary duties and other relevant causes of action.

10    The Notice to Produce, omitting formal parts, calls for the production of the following documents:

1.    any Document recording or constituting instructions to Mr Hislop's US lawyers in respect of anticipated proceedings against Paltar Petroleum Limited in respect of the following causes of action

a.    fraud on the minority;

b.    oppression;

c.    breach of directors' duties;

d.    breach of fiduciary duties; and

e.    other related causes of action.

2.    any Document recording or constituting advice from Mr Hislop's US lawyers in respect of anticipated proceedings against Paltar Petroleum Limited in respect of the following causes of action

a.    fraud on the minority;

b.    oppression;

c.    breach of directors' duties;

d.    breach of fiduciary duties; and

e.    other related causes of action.

3.    Any Document (whether in draft form or sealed) constituting court process for any court in the United States of America referring to the causes of action referred to in paragraphs 1 and 2 of this Notice to Produce.

For the purposes of this notice, 'Document' has the same meaning as provided by Part 1 of the Evidence Act 1995 (Cth):

document means any record of information, and includes:

(a)    anything on which there is writing; or

(b)    anything on which there are marks, figures, symbols or perforations having a meaning for persons qualified to interpret them; or

(c)    anything from which sounds, images or writings can be reproduced with or without the aid of anything else; or

(d)    a map, plan, drawing or photograph.

Evidence relied on by Mr Hislop in support of the application

11    In support of his application to set aside the Notice to Produce Mr Hislop relies on an affidavit sworn by his solicitor, Robert Guy Johnston, a partner in law firm Johnson Winter & Slattery Lawyers (JWS), on 4 September 2017. Because of this basis on which I have determined this application I do not propose to set out the evidence in Mr Johnston’s affidavit save to note that he deposes that:

    all of the documents that are responsive to paragraphs 1, 2 and 3 of the Notice to Produce are subject to a claim for legal professional privilege on the grounds that they are confidential communications between a client and their lawyer that were made for the purpose of providing legal advice or for the purpose of current or anticipated legal proceedings; and

    Mr Johnston is informed by Mr Hislop that he wishes to claim privilege over all documents that are responsive to paragraphs 1, 2 and 3 of the Notice to Produce.

Consideration

12    As I have already noted, Mr Hislop alleges that there are three bases on which the Notice to Produce should be set aside: first, because the documents sought are irrelevant to the proceeding and the Notice to Produce seems to be no more than a fishing expedition; secondly, because of the sheer volume of the documents that it captures and the time and cost that would be incurred in responding to the Notice to Produce means that it is unreasonably burdensome; and, thirdly, the documents that would be produced are prima facie privileged (a matter about which, subject to one issue, there is no dispute) and the defendants’ claim that privilege has been waived is unsustainable.

13    At the outset I note that, even if the defendants were successful in maintaining the Notice to Produce and it was not set aside on any of the grounds raised by Mr Hislop, paragraph 2 of the Notice to Produce would, in any event, be set aside. This is because the documents called for by paragraph 2 of the Notice to Produce are clearly privileged. If the defendants were successful in their argument that, by reason of [47] of his affidavit, Mr Hislop had waived privilege then that waiver could only extend to those documents that recorded instructions to his lawyers to commence the proceedings as described in [47] of his affidavit. The waiver could not extend to the documents in paragraph 2 (or for that matter paragraph 3). Waiver of legal professional privilege in the documents called for by paragraph 2 of the Notice to Produce would depend on the documents produced in answer to paragraph 1 and whether the terms of any documents so produced led to a waiver of the privilege in some or all of the documents falling within paragraph 2 of the Notice to Produce.

14    Leaving that issue to one side, in my opinion, the Notice to Produce should be set aside in its entirety. This is because the documents sought in it are not relevant to the proceeding. My reasons for reaching this conclusion follow.

15    In Construction, Forestry, Mining and Energy Union v BHP Coal Pty Ltd (No 3) [2012] FCA 61 (CFMEU v BHP) at [6] Collier J set out the principles relevant to setting aside a notice to produce. In doing so her Honour said:

(1)    The party which has issued the Notice to Produce bears the onus of establishing that the documents the subject of the Notice are sufficiently relevant to justify production.

….

(4)    It is necessary that the material sought has an apparent relevance to the issues in the principal proceedings. The test of apparent relevance in this context is whether the documents are reasonably likely to add, in the end, in some way or other, to the relevant evidence in the case.

…

(citations omitted)

16    The defendants submitted that the claim that the Notice to Produce is an abuse of process because the documents sought are irrelevant is untenable. They further submitted that whether an applicant under s 237 of the Corporations Act could obtain relief by bringing proceedings in his or her own name, without requiring the company to be brought into litigation, is relevant in considering whether to grant relief under s 237. That submission was based on the judgment in Swansson v R A Pratt Properties Pty Ltd (2002) 42 ACSR 313; [2002] NSWSC 583, where Palmer J, in addressing the requirement in s 237(2)(c) of the Corporations Act that the applicant satisfy the court that the proposed action is in the best interests of the company, set out those matters about which an applicant would normally be required to adduce evidence. In doing so his Honour said at [59]:

Third, there should be evidence enabling the court to form a conclusion whether the substance of the redress which the applicant seeks to achieve is available by a means which does not require the company to be brought into litigation against its will. So, for example, if the applicant can achieve the desired result in proceedings in his or her own name it is not in the best interests of the company to be involved in litigation at all. This was the case in Talisman Technologies in which it appeared from the evidence that the most desirable outcome for the applicant was to obtain an order for specific performance of a contract, which it could do in a suit in which the company did not need to be a party.

17    That the ability to obtain the redress that an applicant seeks to achieve is available by a means that does not involve bringing the company into litigation against its will is a relevant consideration is not in dispute. What is in dispute is whether the documents called for by the Notice to Produce would be relevant to that consideration.

18    The defendants referred to the Proposed Claim at some length. They submitted that the wrongdoing alleged by Mr Hislop commenced with the events that took place in the US. Those events related to the conduct of Nation Wyoming and, they submitted, it is the conduct of Nation Wyoming and its board that is the subject of the allegations of illegality upon which the subsequent equitable fraud, breaches of directors’ duties and other alleged breaches are said to emerge. The defendants further submitted that the foundation for the Proposed Claim is the conduct of Nation Wyoming and its directors. That, in turn, is said to be the foundation for the case that there was unlawful conduct in connection with Nation Australia.

19    The defendants contended that if, for example, Mr Hislop could bring a proceeding in the US that could attack the April Board Stacking (of the Nation Wyoming board) and declare it unlawful then the resolutions made by that impugned board could be set aside, including the resolution by Nation Wyoming to direct Nation Australia to enter into the agreements that are said to have resulted in the asset stripping. In those circumstances, the defendants contended that Mr Hislop would be in a position, depending on what causes of action and relief are available to him, to redress the wrong, so far as there is wrong, and that it is his claim to make in the US proceeding. The defendants submitted that if Mr Hislop has the opportunity to claim whatever loss he might recover as a result of the Proposed Claim through an oppression-type suit in the US via his shareholding in Nation Wyoming then he would be left in the same position. The defendants contended that whether he has such claims and the extent of them is the matter that they wish to explore through the Notice to Produce.

20    It may well be that Mr Hislop can seek some form of redress by other means. That may include redress by commencing a proceeding in the US against Nation Wyoming. But such a proceeding may not result in the same outcome or relief as the Proposed Claim, particularly given that it would be brought under US law. The Proposed Claim in the name of Nation Australia is against Paltar, an Australian company, and its three directors. It seeks damages and other relief arising out of the entry into certain agreements by Nation Australia by which it is alleged that it relinquished all of its valuable assets. Only Nation Australia can seek relief in relation to the agreements into which it entered.

21    But perhaps more fundamental and fatal to the defendants’ position is that the documents sought by the Notice to Produce are simply not relevant to the issue whether Mr Hislop can seek the redress he wishes to achieve via the Proposed Claim by other means. As Mr Hislop submitted, if the defendants wish to adduce evidence that there is a viable alternative available then the way to do that is by considering the applicable law in the US, applying it to the facts and bringing evidence in admissible form before the trial judge of any such viable alternative by which it is alleged that Mr Hislop could achieve the same redress as that sought in the Proposed Claim. The documents sought in the Notice to Produce would not inform the Court of what alternative course is available to Mr Hislop in the USA. They would do no more than show what, if any, instructions Mr Hislop had given his US lawyers, what advice was given to Mr Hislop and the drafts of any proposed claim. They would not be evidence of whether those communications and documents presented a viable alternative to the Proposed Claim. Thus, in my opinion, adopting the test in CFMEU v BHP, the documents sought by the Notice to Produce are not reasonably likely to add, in some way or other, to the relevant evidence in the case.

22    I should also briefly address the defendants’ submission that Mr Hislop must have thought that [47] of his affidavit was sufficiently relevant given that it is included in his affidavit and that, when the matter came before Foster J on 11 August 2017 on the application for an ex parte injunction, senior counsel appearing for Mr Hislop informed the Court about the proposed US proceeding. The submission made at that time to the Court was:

It looks on its face like a fraud on the minority oppression sort of case and we disclosed to your Honour that there is contemplation of proceedings being commenced by the minority shareholders against Nation Wyoming, in Wyoming, for the Wyoming equivalent of an oppression suit. But we say that these rights in these agreements relating to –

23    It does not follow that, because Mr Hislop included [47] in his affidavit or because senior counsel appearing on 11 August 2017 frankly disclosed the possibility of a US proceeding to the Court, the documents sought in the Notice to Produce are relevant to the issues to be determined. What use [47] will be put to at the final hearing is not yet known. As I have already found, the documents sought in the Notice to Produce are not relevant to proving whether there is an alternative way of achieving the redress.

24    As to the disclosure made by senior counsel on 11 August 2017, as is evident from the transcript, he did not finish his submission. Thus, it is not apparent from the transcript for what purpose the disclosure was being made. Before me, senior counsel for Mr Hislop submitted that in fact he intended to finish the submission on 11 August 2017 by making the point that, although there were proceedings in the US, his Honour did not need to be concerned by that because the Proposed Claim was a discrete set of claims which could only be propounded by Nation Australia in Australia.

25    Given the conclusion I have reached I do not propose to consider the alternative grounds raised by Mr Hislop for the setting aside of the Notice to Produce.

Conclusion

26    I will make orders setting aside the Notice to Produce and for the defendants to pay Mr Hislop’s costs of the application to set aside the Notice to Produce.

Associate:

Dated:    18 September 2017

SCHEDULE OF PARTIES