Federal Court of Australia

Melwani v Touch Gold Enterprises Pty Ltd (No 2) [2021] FCA 1029

ORDERS

THE COURT ORDERS THAT:

1.    By 4.00pm on 10 September 2021 the third to seventh respondents make, file and serve an affidavit pursuant to r 20.21 of the Federal Court Rules 2011 (Cth) stating whether any and if so what documents within the following categories are or have been in the possession, custody or power of any of them, and if there are documents that have been but are no longer in the possession, custody or power of any of the third to seventh respondents, when they were last within their possession, custody or power, and what has become of them.

Categories

(a)    Notices of assessment issued by the Australian Taxation Office to the first respondent for the financial years ending 30 June 2013 to date.

(b)    Notices of assessment issued by the Australian Taxation Office to the second respondent for the financial years ended 30 June 2017 to date.

(c)    Documents, such as communications between the first respondent, the second respondent and the Australian Taxation Office, relating to the audits referred to in the correspondence from the Australian Taxation Office contained in annexure “NL 1” to the affidavit of Nina Lachmann sworn 26 August 2021.

(d)    Statements of account from the Australian Taxation Office pertaining to the first respondent and second respondent of the type annexed as exhibits “NL 2” and “NL 3” to the affidavit of Nina Lachmann sworn 26 August 2021.

2.    By 4.00pm on 29 October 2021, the applicants file and serve any expert evidence.

3.    By 4:00pm on 29 November 2021, the respondents file and serve any expert evidence in reply.

4.    Costs of today and of the applicants’ application be costs in the proceeding.

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

REASONS FOR JUDGMENT

(Ex tempore)

WHEELAHAN J:

1    The claim brought by the applicants in this proceeding is for equitable relief in consequence of alleged breaches of fiduciary duty. The applicants allege that they entered into a property development joint venture agreement with several of the respondents for the development of residential property in Victoria. The applicants allege that the first respondent was incorporated for the purposes of being trustee of the joint venture assets, and that it was under the control of the third and fourth respondents. The applicants allege that the second respondent, which was also a corporation, was also under the control of the third and fourth respondents. The second respondent was wound up on 22 November 2019, and this proceeding against it is now stayed pursuant to s 471B of the Corporations Act 2001 (Cth). I have also been informed by counsel, and it appears to be common ground, that the first respondent has, since the commencement of this proceeding, been deregistered. The fifth, sixth and seventh respondents are alleged to have been directors of the first and second respondents.

2    Without going into the detail of the claims, the gravamen of the causes of action that are advanced is that the joint venture arrangements gave rise to fiduciary duties between the applicants on the one part, and several of the respondents on the other. It is alleged that the joint venture undertook a number of property development projects and, amongst other things, the respondents have not properly accounted to the applicants for the profits derived therefrom, and have diverted joint venture profits and opportunities to their own use, including through the second respondent corporation. On the applicants’ case, the nature of these claims requires the preparation of evidence from a forensic accountant in relation to the affairs of the first and second respondents for the relevant period in question. This has led to orders for discovery of a range of financial records within the possession, custody, or power of the third to seventh respondents, who remain the active respondents to the proceeding. Many records have been discovered, but the applicants are dissatisfied with the extent of discovery that has been given.

3    At the case management hearing today, counsel for the applicants applied for orders for particular discovery. The solicitor for the applicants gave notice of the orders that were sought by sending to the court and to the solicitors for the respondents a draft form of order, together with an affidavit by email after 5.00 pm last night. I was informed by counsel for the applicants that no prior notice had been given to the respondents of the proposed application for these orders. Notwithstanding the late notice, commendably, counsel for the respondents was in a position to meet the application, which the respondents opposed.

4    There have been two prior orders for discovery made in this proceeding. Orders were first made on 5 March 2020 which provided for the parties to consult in relation to categories of documents and, relevantly, for the respondents to make discovery. Subsequently, orders were made by a Registrar of the court on 28 July 2020 that the respondents make discovery in particular categories. The orders provided that the respondents give discovery in accordance with r 20.16 of the Federal Court Rules 2011 (Cth), which requires a list of documents in accordance with r 20.17 to be served on all parties to the proceeding. Relevant to the present application, a list of documents in accordance with r 20.17 must be verified by an affidavit sworn in accordance with r 20.22, and relevantly must describe within the list –

(b)    each document that has been, but is no longer in the parties’ control, a statement of when the document was last in the parties’ control and what became of it;

…

5    The orders made by the Registrar on 28 July 2020 included orders for discovery of (inter alia) –

    Any accounting records prepared and kept, by the first respondent, the second respondent, and/or any accountant engaged by them.

    Signed financial statements for the first respondent for the financial years ending 2016, 2017 and 2018, and for the second respondent for the financial years ending 2012, 2017, 2018 and 2019.

    Tax returns for the first respondent for the financial years ending 2013, 2014, 2015, 2016, 2017 and 2018, and for the second respondent for the financial years ending 2017, 2018 and 2019.

    Business activity statements for the first respondent for the financial years ending 2016, 2017 and 2018, and for the second respondent for the financial years ending 2017, 2018 and 2019.

6    In response to the orders made by the Registrar on 28 July 2020, an affidavit dated 17 August 2020 was sworn on behalf of the first, third, fourth, fifth, sixth and seventh respondents by the third respondent. That affidavit was not in the form required by r 20.17, in that it did not contain a list of documents. Nonetheless, it at least purported to address the categories of documents that were the subject of the Registrar’s order. Relevantly, paragraph 12 of the affidavit stated in relation to records of the first respondent that –

    “Any accounting records prepared and kept by the first respondent and/or any accountant engaged by them are discovered”;

    “The financials for the years 2016, 2017 and 2018 were not completed due to ATO audit”;

    “Tax return 2016, 2017 and 2018 have not been done”;

    “The BAS statements after September 2017 are not done due to ATO audit, but

2016: from July 2015 to June 2016 are discovered;

2017: from July 2016 to June 2017 are discovered;

2018: from July 2017 to September 2017 are discovered”.

7    In relation to the second respondent, the affidavit stated at [13] that –

    “Any accounting records prepared and kept by the second respondent and/or any accountant engaged by them:

The accounts prepared for accounting between the applicants and respondents from 2008 to 2017 are discovered”

    “Signed financial statements for the financial years ending 2012, 2017, 2018 and 2019;

Signed financial for 2012 is discovered. Financials for 2017, 2018 and 2019 have not been completed.”

    “Copies of filed tax returns for financial years ending 2017, 2018 and 2019;

The tax returns for these years have not been completed yet.”

8    In the course of argument, counsel for the applicants abandoned a number of categories of documents that were sought by the draft orders. Ultimately the applicants sought an order for particular discovery of documents “as issued by the Australian Tax Office” from the date of registration of the first and second respondents respectively to date, insofar as the documents have not already been discovered, in the following categories –

    Notices of assessment;

    “Audit file materials”;

    “Integrated client accounts”.

9    Counsel for the applicants argued that statements of account issued by the Australian Taxation Office in respect of the first and second respondents evidenced taxation liabilities, from which it was to be inferred that income must have been declared by the first and second respondents. Counsel also submitted that it was to be inferred from the fact of communications from the Australian Taxation Office which referred to audits, that documents are likely to exist in relation to such audits. The evidence of the applicants’ solicitor in the affidavit sworn in support of this application was that the only documents produced on discovery relating to the taxation audits were the statements of account issued by the Australian Taxation Office, correspondence from the Australian Taxation Office giving notice of the audits, and otherwise documents that were obtained from the court file in the proceeding that led to the winding up of the second respondent.

10    Counsel for the respondents opposed the application on the grounds that the orders were unnecessary, and that the documents sought appeared to have been covered by the orders of the Registrar made 28 July 2020, to which I have already referred.

11    There was much force in the submission of counsel for the respondents that the discovery now sought by the applicants was already covered by the orders made by the Registrar on 28 July 2020. There was also much force in the submissions of counsel for the respondents that the applicants had not in terms ever objected to the adequacy of the affidavit that had been filed in response to those orders. However, the fact remains that the affidavit does not comply, because it does not appear to address any documents in the categories now sought by the applicants that were, but are no longer, in the possession, custody, or power of the relevant respondents. Although the lawyers acting for the applicants are to be criticised for the manner in which this application has been brought, and the terms in which it was advanced, I have concluded that I should deal with it as a matter of substance.

12    I will put aside the infelicities in language and some of the conceptual confusion that exists in the draft orders that were proposed by counsel for the applicants. Having regard to the failure of the relevant respondents’ affidavit of 17 August 2020 to comply with r 20.17, I am persuaded that the third to seventh respondents should make, file, and serve an affidavit giving particular discovery of documents pursuant to r 20.21 within the following categories –

    Notices of assessment issued by the Australian Taxation Office to the first respondent for the financial years ending 30 June 2013 to date.

    Notices of assessment issued by the Australian Taxation Office in respect of the second respondent for the financial years ended 30 June 2017 to date.

    Documents, such as communications between the first respondent, the second respondent and the Australian Taxation Office, relating to the audits referred to in the correspondence from the Australian Taxation Office contained in annexure “NL 1” to the affidavit of Nina Lachmann sworn 26 August 2021.

    Statements of account from the Australian Taxation Office pertaining to the first respondent and second respondent of the type annexed as exhibits “NL 2” and “NL 3” to the affidavit of Nina Lachmann sworn 26 August 2021.

13    I am not persuaded to extend the orders for discovery of notices of assessment of income taxation for any of the years earlier than the income tax years that were the subject of the taxation returns the subject of the orders of the Registrar on the contested application for discovery heard before him.

14    I will otherwise make orders substantially in terms proposed relating to the filing of expert evidence

Associate:

Dated:    31 August 2021

SCHEDULE OF PARTIES