Federal Court of Australia

IronStar Consulting Pty Ltd v Tully [2023] FCA 358

ORDERS

THE COURT NOTES THAT:

1.    For the purposes of Orders 2 and 3 below the term “Entities” is defined in Annexure A to these Orders.

THE COURT ORDERS THAT:

2.    Pursuant to r 20.13 and r 20.15 of the Federal Court Rules 2011 (Cth) the first, second and fourth respondents are to give discovery of documents in the following categories:

(a)    all communications between the first respondent and/or second respondent and/or third respondent and/or any of the Entities, in the period 1 January 2021 to date;

(b)    all quotes, tenders or requests made by the first respondent, second respondent and/or third respondent, to any of the Entities, in the period 1 January 2021 to date;

(c)    all contracts, purchase orders or agreements entered into by the first respondent, second respondent and/or third respondent, with any of the Entities, in the period 1 January 2021 to date;

(d)    all bank account statements of the first respondent into which funds from any of the Entities were deposited, in the period 1 January 2021 to date;

(e)    all invoices issued by the second respondent to any of the Entities, in the period 1 June 2021 to date; and

(f)    all financial records of the second respondent, including but not limited to bank account statements, profit and loss sheets, income and balance sheets, financial statements, and BAS reports, recording funds received from any of the Entities, in the period 1 June 2021 to date.

3.    Pursuant to r 20.13 and r 20.15 of the Rules the applicant is to give discovery of documents in the following categories:

(a)    records relating to any remuneration paid to directors including travelling and other expenses properly incurred in connection with the affairs of the applicant from 1 July 2016 to date;

(b)    records of payment by the directors of interim and final dividends from 1 July 2016 to date;

(c)    income tax returns of the applicant for the financial years ended 30 June 2017 to 30 June 2021;

(d)    financial reports of the applicant including, but not limited to, profit and loss statements and balance sheets, for the financial years ended 30 June 2017 to 30 June 2021;

(e)    draft financial reports of the applicant including, but not limited to, profit and loss statements and balance sheets, for the current financial year and the financial year ended 30 June 2022;

(f)    records of:

(i)    employment contracts in respect of any employee employed by the applicant;

(ii)    PAYG or PAYE tax paid by the applicant in respect of any employee employed by the applicant;

(iii)    superannuation paid in respect of any employee employed by the applicant;

(iv)    workers compensation premiums paid in respect of any employee employed by the applicant;

(v)    annual leave, sick leave, long service leave or any other type of leave to which an employee of the applicant was entitled;

from 1 July 2016 to date;

(g)    all records and documents including, but not limited to, records and documents described as heads of agreement, co-operation agreement, terms of consultancy, being records and documents relating to binding contractual arrangements between the applicant and any of the Entities; and

(h)    all records and documents concerning contact between the applicant (or Mr Jubian or any agent of the applicant) and any of the Entities relating to unpaid monies owing to the applicant pursuant to contractual rights or entitlements to ongoing income from 1 June 2021 to date.

4.    Discovery of the documents referred to in Orders 2 and 3 above is to be made electronically by either email or Dropbox link, pursuant to r 20.13(4) and r 20.15(2) of the Rules.

5.    Pursuant to r 1.34 of the Rules the requirement in r 20.16 and r 20.17 for the preparation and provision of a list of documents by the applicant or the first, second and fourth respondents is dispensed with.

6.    The applicant, on the one hand, and the first, second and fourth respondents, on the other, are to each give discovery by producing the documents to be discovered by the electronic means identified in Order 4 above, by 18 May 2023.

7.    Costs of the applicant’s interlocutory application filed on 31 August 2022 and costs of the first, second and fourth respondents’ interlocutory application filed on 21 September 2022 be costs in the cause.

8.    If any party wishes to vary the costs orders made in Order 7 above, they are to file and serve their application seeking an alternative order on or before 27 April 2023.

9.    The proceeding be listed for case management hearing on 31 May 2023 at 9.30 am AEST.

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

Annexure A to the Orders

The term “Entities” is defined to mean any of the 129 companies or other entities listed in the schedule to the IronStar Discovery Application and any “related entity” or “related body corporate” thereto as defined in the Corporations Act 2001 (Cth).

REASONS FOR JUDGMENT

MARKOVIC J:

1    On 1 February 2022 IronStar Consulting Pty Ltd commenced this proceeding against Mark Tully, S.T.A.R. Procurement Pty Limited, Kabel Vafiopulous and Anabel Gomes as the first, second, third and fourth respondents respectively.

2    IronStar was incorporated in November 2013 to trade in the procurement industry. Mr Tully was a director of IronStar from 1 January 2019 to 9 July 2021 and holds 50% of its shares. Mr Vafiopulous was a sales person engaged by IronStar and Ms Gomes is Mr Tully’s wife. It is alleged that Ms Gomes was engaged by IronStar to conduct sales and other administrative and billing functions. S.T.A.R. was incorporated on 13 July 2021 and its sole shareholder, director and secretary is Mr Tully.

3    In summary, IronStar alleges that:

(1)    in 2021 Mr Tully withdrew sums of money from it, without authority;

(2)    also in 2021, prior to and at the time of their exit from IronStar, Messrs Tully and Vafiopulous and Ms Gomes engaged in conduct designed to divert former, existing and prospective customers, business partners and suppliers in the procurement industry away from IronStar and that they achieved that outcome;

(3)    S.T.A.R. was incorporated to provide the same services in the procurement industry as IronStar;

(4)    Messrs Tully and Vafiopulous and Ms Gomes provided IronStar’s confidential information to S.T.A.R.; and

(5)    Messrs Tully and Vafiopulous and Ms Gomes work for S.T.A.R. and S.T.A.R. has made profit from IronStar’s former, existing and prospective customers, business partners and suppliers.

4    Among other things, as a result of the respondents’ conduct IronStar alleges that:

(1)    Mr Tully breached his duties owed to IronStar pursuant to ss 180, 181, 182 and 183 of the Corporations Act 2001 (Cth);

(2)    Messrs Tully and Vafiopulous and Ms Gomes breached their respective duties owed to IronStar pursuant to ss 180, 181, 182, 183, 191 of the Corporations Act, their equitable and fiduciary duties and their contractual obligations owed to IronStar, or were knowingly involved in another’s breaches of such duties;

(3)    Messrs Tully and Vafiopulous breached their respective duties owed to IronStar pursuant to ss 180, 181, 182 and 183 of the Corporations Act; and

(4)    Mr Vafiopulous, S.T.A.R. and Ms Gomes were involved in the breaches of statutory duties owed by Messrs Tully and Vafiopulous and/or assisted in Mr Tully’s breaches of fiduciary duties owed to IronStar.

5    The respondents have filed their defences.

6    On 23 May 2022 orders were made including an order that IronStar and all respondents provide informal discovery, as agreed between them, by 1 July 2022.

7    On 2 August 2022 the Court made further orders about the provision of informal discovery including that: IronStar and the respondents provide informal discovery as agreed by 19 August 2022; and, in the event that the parties could not agree on further categories of discovery, granting them leave to file any interlocutory applications seeking categories of discovery by 31 August 2022.

8    On 31 August 2022 IronStar filed an interlocutory application seeking orders for discovery by Mr Tully, S.T.A.R. and Ms Gomes (Tully Parties) pursuant to r 20.13 and r 20.15 of the Federal Court Rules 2011 (Cth) in the categories set out in schedule A to that application (IronStar Discovery Application).

9    On 21 September 2022 the Tully Parties filed an interlocutory application seeking orders for discovery by IronStar pursuant to r 20.13 and r 20.15 of the Rules in 16 nominated categories (Tully Parties’ Discovery Application).

10    Orders were subsequently made for the filing and service of evidence and submissions in relation to the IronStar Discovery Application and, once filed, the Tully Parties’ Discovery Application and for both discovery applications to be dealt with on the papers.

Legal principles

11    Division 20.2 of the Rules concerns discovery. Both discovery applications are made pursuant to r 20.13 and r 20.15 of the Rules.

12    Rule 20.11 of the Rules provides that a party must not apply for an order for discovery unless the making of the order sought will facilitate the just resolution of the proceeding as quickly, inexpensively and efficiently as possible.

13    Rule 20.13 of the Rules permits a party to apply to the Court for an order that another party to the proceeding give discovery.

14    Rule 20.15 of the Rules permits a party to apply for an order for non-standard discovery. IronStar and the Tully Parties each seek discovery in categories.

15    In Fuji Xerox Australia Pty Ltd v Whittaker (No 2) [2021] FCA 696 at [5]-[16] Colvin J set out the principles to be applied in considering an application for discovery including relevantly:

5    In this Court, discovery is not ordered as a matter of course and will only be ordered if it is demonstrated that the making of the order will facilitate the just resolution of the proceeding as quickly, inexpensively and efficiently as possible: r 20.11 of the Federal Court Rules 2011 (Cth) and s 37M of the Federal Court of Australia Act 1976 (Cth). An application for discovery must specify whether the party is seeking ‘standard discovery’ or otherwise ‘the proposed scope of discovery’: r 20.13.

6    The nature of standard discovery was summarised by Besanko J in Adelaide Brighton Cement Limited, in the matter of Concrete Supply Pty Ltd v Concrete Supply Pty Ltd (Subject to Deed of Company Arrangement) (No 3) [2018] FCA 1058 at [4]-[11]. Of particular relevance in the present instance are the following propositions:

(1)    Only documents that are directly relevant to the issues raised by the pleadings are within the scope of standard discovery.

(2)    For documents to be directly relevant they must meet at least one of the following criteria: (a) the documents are those on which the party intends to rely; (b) the documents adversely affect the party’s own case; (c) the documents support another party’s case; and (d) the documents adversely affect another party’s case.

(3)    The criterion that ‘the documents support another party’s case’ means the strengthening of a position, contributing to success, preventing failure or corroborating or substantiating a claim.

(4)    The notion of direct relevance requires that the documents in question be directly on point, in that they tend to prove or disprove the allegation in issue.

(5)    The ‘Peruvian Guano train of inquiry test’ is no longer applied in determining whether the documents in question should be discovered.

7    As Besanko J also observed at [12]:

If a party seeks an order for other than standard discovery … then the party must … identify the criteria that applies in standard discovery that should not apply on the application before the Court … The party must also identify the criteria that should apply in lieu of the criteria identified …

8    Further, as was explained by Middleton J in Babscay Pty Ltd v Pitcher Partners (a firm) [2019] FCA 480 at [94]-[95], the application of these principles involves the exercise of a broad discretion in which the Court ‘will balance the costs, time and possible oppression to the producing party against the importance and likely benefits to the applying party’.

9    To these matters may be added (a) the need, in commercial litigation, for the cost involved in providing discovery to be kept in proportion to the commercial subject matter, taking account of any broader significance that may be attached to the litigation; and (b) the need to avoid any undue delay, being delay beyond that which is reasonably necessary to ensure that each party has a fair and reasonable opportunity to present its case by reference to available documents of forensic significance.

Discovery by categories

10    It has become relatively common for parties to proceedings in commercial matters to seek orders for discovery by reference to categories rather standard discovery. That is the approach adopted by the parties in the present case. Wherever possible, it is not to be encouraged. It tends to lead to disputation about the definition of categories rather than focus upon providing discovery. It can result in parties taking inappropriately technical views as to the scope of the categories leading, as a matter of precaution, to their Byzantine expression.

11    In many instances, the preferred course is for the parties first to exchange the documents to which they expect to refer at trial. Then, once that has occurred, there can be applications for any limited further discovery informed by that disclosure. This process can be aided in its effectiveness by making an order at an appropriate stage that no party will be entitled to refer at the final hearing to a document that has not been disclosed before a specified date unless leave to do so is given. This ensures prompt disclosure of documents, including documents that may be used for the purpose of challenging the evidence of another party.

12    Another approach where discovery issues are more complex is for a registrar of this Court or an experienced independent lawyer to be appointed to supervise the provision by the parties of documents to a common electronic database and to mediate any issues that arise. …

13    In other cases, it may be preferable to provide for experts to call for documents of the kind that are required for a report or for the Court to use referees to make inquiries and report as to factual issues rather than require exhaustive documentary surveys.

14    Where, as here, one party holds many of the documents that before the dispute were accessible by all parties then there is good reason for ordering the disclosure of complete records of email accounts and relevant electronic records followed by the process I have described. ...

15    All of which is not to limit the possibilities but to emphasise that there are different approaches the suitability of which will depend upon the circumstances of each case. The process of supervised case management in this Court encourages the parties to consider practical alternatives crafted to suit the case at hand. Indeed, the lawyers involved have an obligation to ensure that the steps taken are confined to what is reasonably necessary and are undertaken as cost effectively as possible. Disputation about discovery is not only expensive for the parties, it is time consuming for the Court and consumes public resources better applied to the important public task of determining substantive disputes.

16    Nevertheless, if discovery by category is to be pursued, it is to be expected that, in the usual case, the categories will be shown to be narrower than what would be required for standard discovery (and thereby duly confined to that which will facilitate the just resolution of the proceedings) or that there is some particular reason why disclosure of the particular category is appropriate. In other words, the provision in the Rules for an application for discovery with a ‘proposed scope’ is not intended to undermine the position that (a) discovery should only be ordered where it has been shown to facilitate the just resolution of the proceedings; (b) it is direct relevance that is the guiding principle; and (c) if discovery other than standard discovery is sought then the scope must be specified (and justified).

IronStar Discovery Application

16    IronStar seeks discovery in the following categories:

1.    All communications between the first respondent and/or second respondent and/or third respondent and/or any of the Entities, in the period 1 January 2021 to date.

2.    All quotes, tenders or requests made by first respondent, second respondent and/or third respondent, to any of the Entities, in the period 1 January 2021 to date.

3.    All contracts, purchase orders or agreements entered into by the first respondent, second respondent and/or third respondent, with any of the Entities, in the period 1 January 2021 to date.

4.    All bank account statements of the first respondent into which funds from any of the Entities were deposited, in the period 1 January 2021 to date.

5.    All invoices issued by the second respondent to any of the Entities, in the period 1 January 2021 to date.

6.    All financial records of the second respondent, including but not limited to bank account statements, profit and loss sheets, income and balance sheets, financial statements, and BAS reports, recording funds received from any of the Entities, in the period 1 January 2021 to date.

For the purpose of those categories, the term “Entities” is defined to mean any of the 129 companies or other entities listed in the schedule to the IronStar Discovery Application and any “related entity” or “related body corporate” thereto as defined in the Corporations Act.

17    The parties have exchanged correspondence attempting to agree the scope of discovery:

(1)    on 22 May 2022 IronStar provided categories in which it sought informal discovery from the respondents. On 3 June 2022 the Tully Parties agreed to provide informal discovery in those categories;

(2)    on 22 June 2022 IronStar amended the categories in which it sought discovery and, in doing so, it provided a list of approximately 111 entities it described as its former, existing and prospective customers in relation to which it sought the documents in the amended categories;

(3)    on 14 July 2022 the Tully Parties provided informal discovery by producing documents limited to 10 entities which they accepted were relevant for the purposes of discovery; and

(4)    despite the exchange of further correspondence the parties have been unable to resolve the question of the categories in which discovery should be provided.

18    Mr Tully gives evidence about the Entities as defined in the IronStar Discovery Application to the extent they are additional to the initial list of 111 entities provided earlier by IronStar (see [17(2)] above). It is not necessary to set that evidence out. In relation to the initial list of 111 entities, Mr Tully deposes that:

(1)    his records reveal that he has had no contact with 52 of those entities and says that none of them are known to him;

(2)    he “liked” LinkedIn posts in respect of three of the entities and added commentary;

(3)    he communicated with various personnel at 24 of the entities through LinkedIn;

(4)    he made contact both of a social and work related nature with six of the entities but that has not led to any income producing work;

(5)    personnel at 17 of the entities informed him that they had been unable to make contact with anyone at IronStar or that, if they had, they were nevertheless not receiving any procurement consultancy services; and

(6)    the remaining entities consist of suppliers which he has used in tenders to possible clients, entities for which he may have done some work at no charge in the hope that it might lead to a contractual arrangement, entities he has done work for in the past and is currently doing work for, such as Hungry Jacks, or entities such as CSR Building Products Limited with whom S.T.A.R. has been working since 6 October 2021 because, although it attempted to do so, CSR was unable to obtain services from IronStar.

Submissions

19    IronStar submitted that discovery in the categories it seeks is necessary to facilitate the just resolution of the proceeding because the documents sought will assist it to understand whether (and the extent to which) S.T.A.R. has contacted the named entities, what it has represented to those entities, whether it has performed work for those entities, and whether it has received income from the provision of services. It contended that, when viewed against its pleaded case, such documents are clearly relevant and will inform the Court of whether the assertions by the Tully Parties are made out. By way of example, IronStar said that in the absence of financial documents the Court cannot be satisfied that S.T.A.R. in fact did not receive any income from work it says it has performed. Mere denial of receipt of income by Mr Tully is a matter IronStar is entitled to test by discovery.

20    The Tully Parties oppose the IronStar Discovery Application. They submitted that, subject to one matter (see below), they have sufficiently addressed the categories of discovery in the informal discovery process and that the IronStar Discovery Application should be dismissed or, in the alternative, it should be limited by entity name to those where the Tully Parties have received payment and as to timeframe.

21    The exception identified by the Tully Parties is that, as at 14 July 2022 when they responded to the request for informal discovery, they omitted to include material in relation to four of the named entities: Axi, Ecolab, Hoyts and Roll’d. They propose to provide that material by reference to the informal discovery categories, to the extent it exists.

22    As to timeframe, the Tully Parties submitted that the date range for documents to be discovered should be limited so that it commences as at June 2021 because the earliest pleaded allegation of misconduct is 9 June 2021 and S.T.A.R. was not incorporated until 13 July 2021.

23    The Tully Parties submitted that as they have, by Mr Tully’s evidence, addressed the status of the 129 entities in relation to which discovery is now sought, it logically follows that IronStar is seeking compulsive orders that will result in either the production of no documents or a small compilation of material that serves very limited relevance. They said that merely because there may exist material that evidences contact between the Tully Parties and one or more of the named entities is not a basis for the production of material when there is sworn evidence that demonstrates that revenue was not derived from that exercise.

24    The Tully Parties submitted that they have provided S.T.A.R.’s bank records to IronStar and they represent a true picture of S.T.A.R.’s financial performance and demonstrate which entities have paid it and finalises the exercise of the Court to determine whether those entities were IronStar’s clients and, if so, whether in breach of obligations of confidence the Tully Parties are liable to repay monies derived from such a breach. They contended that financial material beyond bank statements will not fulfil the goal sought by IronStar, namely evidence of payment and identity of payer.

Consideration

25    I am satisfied that, subject to an amendment to the date range in which some of the categories of documents are sought, the IronStar Discovery Application is necessary for the just resolution of the proceeding and should be allowed.

26    The categories sought are relevant to the issues in the proceeding. They are communications, quotes, tenders, contracts, bank statements, invoices and financial records as between the Tully Parties and the named entities which IronStar asserts are former, existing or prospective clients or suppliers. IronStar is entitled to test its assertion that S.T.A.R. is providing the same services as it provided to those entities before Mr Tully’s departure.

27    Relevantly, according to Christopher Chang, the solicitor for IronStar, a large body of valuable information to IronStar and intellectual property was stored on a database known as HubSpot which is a cloud based customer relationship management system. IronStar alleges that the respondents took that information. Mr Tully admits that on 18 June 2021 he sent a copy of a database to Ms Gomes but says that it consisted only of company names and dollar figures which were not based on any source information.

28    While Mr Tully, in responding to the IronStar Discovery Application, has given evidence in relation to the status of the Tully Parties’ interaction with the named entities, IronStar is entitled to test that evidence including by seeking the production of material pursuant to a formal order of the Court. That there may be no or only a small number of documents produced in response to the orders is no answer, not to the point and not a basis for not making the orders.

29    IronStar ought not to have to resort to the issue and service of subpoenas at this stage, as an alternative to discovery. To do so would be far more burdensome, in terms of time and cost, including for third parties to the proceeding, than requiring the Tully Parties to provide discovery in the categories sought by IronStar.

30    I turn to the issue of the period for which discovery is sought in relation to S.T.A.R.. Given the matters identified by the Tully Parties (see [22] above), insofar as the categories of discovery seek documents from S.T.A.R., the period should be amended so that it commences from 1 June 2021 rather than 1 January 2021. This amendment concerns categories 5 and 6 of the IronStar Discovery Application.

31    In order to minimise the cost of provision of any material to be discovered and to maximise the efficient disposition of the matter, IronStar seeks an order that the discovery be provided electronically and that the requirement that a list of documents be prepared in accordance with r 20.16 and r 20.17 of the Rules be dispensed with. Those orders should be made.

Tully Parties’ Discovery Application

32    By their application the Tully Parties seek discovery from IronStar of documents in categories 4 to 11, 15 to 17, 20, 21, 28, 38 and 39 of a schedule annexed to the affidavit of Robert John McCourt, their solicitor, affirmed 21 September 2022 and marked RMC-14.

33    According to IronStar’s submissions, of those categories, IronStar has now agreed to provide the documents sought in categories 4 to 7, 9 and 11 of RMC-14 leaving the documents in categories 8, 10, 15 to 17, 20, 21, 28, 38 and 39 in dispute. For ease those categories are reproduced in Schedule 1 to these reasons. The documents sought broadly fall into the following categories:

(1)    company documents relating to payments to directors and recording payment of dividends;

(2)    financial reports and statements and other financial documents such as tax returns as well as employment contracts and entitlements paid to employees;

(3)    records which show payment made to cancel one ordinary share held by Pat Thomas; and

(4)    records of attendance by Mr Jubian at meetings with Messrs Tully and Vafiopulous and documents recording contact between IronStar and Mr Jubian and suppliers and customers relating to unpaid monies owing from 1 June 2021.

Submissions

34    The Tully Parties submitted that the documents sought by them in categories 8, 10, 16, 17 and 20 go to a serious allegation in the proceeding, namely misappropriation of funds by Mr Tully. Relevantly, in response to that allegation Mr Tully says that: use of the monies was authorised by IronStar; during the life of IronStar, Mr Jubian, its current director, used and accessed IronStar’s funds without authority; and these matters touch upon the management of IronStar from incorporation under Mr Jubian’s control.

35    The Tully Parties submitted that IronStar’s management evolved from 2013 to 2021 when Mr Tully departed and the issue needs to be assessed through IronStar’s records since its inception to understand its internal practices. They submitted that as IronStar is a small company there can be no suggestion that the documents requested will be difficult to retrieve or that their retrieval would be oppressive.

36    The Tully Parties submitted that Mr Tully’s defence and evidence addresses the following topics:

(1)    Mr Jubian’s responsibility for IronStar’s financial affairs since 2013;

(2)    how monies were withdrawn from IronStar by Mr Tully;

(3)    Mr Jubian’s lack of authority when withdrawing monies from IronStar;

(4)    unexplained deposits into IronStar;

(5)    recordkeeping in relation to alleged loans between Mr Tully and IronStar;

(6)    IronStar’s failure to comply with its tax lodgement obligations from 2014 to 2017;

(7)    the overall financial position of IronStar; and

(8)    employment within IronStar given the allegations made against the respondents as former employees and IronStar’s failure to retain any further employees since Mr Tully’s departure.

37    The Tully Parties submitted that critically all of these matters traverse periods prior to 2017 and inform the overall business practices of IronStar, which are in sharp focus in this dispute. They submitted that the documents requested will either support or undermine their contentions about matters in respect of which Mr Tully is presently largely reliant upon his memory.

38    As to the documents sought in categories 38 and 39, the Tully Parties submitted that they address the question of IronStar’s alleged loss and IronStar’s failure to mitigate its loss which are matters that cannot be proven with any degree of precision without seeing contracts and agreements between IronStar and its suppliers. They submitted that the documents sought are plainly relevant.

39    In relation to category 15, the Tully Parties submitted that part of the relief sought by IronStar is to force a purchase of Mr Tully’s shares in it and to understand fair market value it is clearly relevant that Mr Tully be provided with information that addresses the quantum paid to the terminating shareholder. They submitted that the documents are relevant to the relief sought.

40    In relation to category 28, the Tully Parties submitted that a point of contention in the proceeding is the degree of Mr Jubian’s involvement in IronStar while Mr Tully worked there. In addition IronStar alleges in its statement of claim that Mr Jubian was excluded from its management, an allegation which is denied by the Tully Parties in their defences. The Tully Parties submitted that the documents sought are relevant to the issue of Mr Jubian’s involvement in IronStar.

41    IronStar submitted that insofar as the issues in dispute in the proceeding are concerned, all of the relevant events took place in 2021 and that in their defence, in answer to the assertion that Mr Tully misappropriated funds from IronStar’s bank account, Mr Tully and S.T.A.R. plead that an agreement was reached in 2017 about the treatment of IronStar’s money. To that end, IronStar accepts, where the Tully Parties’ discovery categories relate to the topic of IronStar’s funds, that documents from 2017 are relevant. They contend that although IronStar was set up in 2013 none of what occurred between 2013 and 2017 has any relevance to the issues in dispute.

42    Most of IronStar’s objections to the remaining categories in issue in the Tully Parties’ Discovery Application concern the date range for which documents in the various categories are sought. To the extent IronStar raises a different objection to any of those categories, it is addressed below.

Consideration

43    I turn to address the categories that remain in dispute.

44    The documents in categories 8, 10, 16, 17 and 20 are said to be relevant to the allegation by IronStar of misappropriation of its funds by Mr Tully and the Tully Parties’ allegation of poor management of IronStar by Mr Jubian.

45    IronStar’s objection to these categories is limited to the date ranges for which the documents are sought. The Tully Parties contend that production of documents going back to the time of incorporation of IronStar is required because Mr Tully’s defence and his evidence canvas issues going back that far. However, it is difficult to see how documents in the period from IronStar’s incorporation in 2013 to 30 June 2016 are relevant. Mr Tully only refers to this earlier period in a limited and very general way in his evidence. Further, a review of the pleadings shows that the issues in dispute concern the later period, commencing in about 2017 and on Mr Tully’s evidence IronStar did not trade “on its own account until in or about the 2016/2017 financial year or the 2017/2018 financial year”.

46    Accordingly categories 8, 10, 16 and 17 should be limited to the period from 1 July 2016 (or the financial year ended 30 June 2017, as applicable) to date. I note that despite the inclusion of category 20 in Ironstar’s submission, the Tully Parties only seek documents in this category for the period 1 July 2021 to 31 March 2022 and for the current financial year which, given the passing of time since the category was first sought, I take to be a request for the documents for the financial year ended 30 June 2022 and for the current financial year, assuming any are in existence. That is a sufficiently narrow period and I will allow the category.

47    By category 21 the Tully Parties seek documents relating to employment records, including records of employment contracts, PAYG or PAYE tax paid, superannuation paid, workers compensation paid and annual sick leave paid from November 2013 to date. There was also a dispute about the period in which these documents are sought. My comments set out at [45] above apply equally to this category which should be limited to the period from 1 July 2016 to date.

48    By category 15 the Tully Parties seek documents relating to the cancellation of former shareholder, Thomas Pat’s, share in IronStar. IronStar objects to this category on the basis of relevance and oppression, although there does not appear to be any evidence of the latter.

49    The Tully Parties contend these documents are relevant because in its originating application, among other things, IronStar seeks an order that it purchase, at a price to be determined by the Court having regard to the account and inquiry as to damages due to it, Mr Tully’s shares in IronStar and each of its subsidiaries (see [39] above).

50    I accept that the documents sought by this category are not relevant and it should not be included in the orders to be made. That is because the prima facie date for the valuation of shares for a compulsory purchase is the date of application: see Joint v Stephens [2008] VSCA 210 at [155]. The documents relating to the cancellation of Mr Pat’s single share in IronStar are unlikely to bear on the question of valuation of Mr Tully’s shares.

51    By category 28 the Tully Parties seek records of Mr Jubian’s attendances at meetings with Messrs Tully and Vafiopulous in the period 1 January 2021 to 30 June 2021. The Tully Parties say those documents are relevant to the allegation in the statement of claim that Mr Jubian was excluded from IronStar’s management. IronStar opposes this category on the grounds of relevance.

52    At [28(e)] of the statement of claim IronStar alleges that Mr Tully, assisted by Mr Vafiopulous, among other things, excluded Mr Jubian from management and impeded Mr Jubian’s ability to properly manage its business. IronStar relies on an email from Mr Tully to Mr Vafiopulous dated 21 June 2021 “instructing [Mr Vafiopulous] to exclude [Mr Jubian] from all communications”. Documents which evidence meetings between Messrs Jubian, Tully and Vafiopulous in the six months preceding the despatch of that email cannot be relevant to that factual allegation which speaks as at June 2021. The Tully Parties are not entitled to documents in category 28.

53    By categories 38 and 39 the Tully Parties seek documents relating to contractual arrangements and contact between IronStar and Mr Jubian respectively and suppliers and/or clients. There is no dispute that these documents are relevant to the questions of loss and failure to mitigate.

54    The only issue is whether the categories should be limited to the 129 named entities in the IronStar Discovery Application. In my opinion they should be. As IronStar submitted, only contracts and other documents relating to existing or prospective clients or suppliers relating to the conduct pleaded are relevant. To the extent IronStar has generated income from other sources following Messrs Tully and Vafiopulous’ departure, those documents cannot have any bearing on the question of mitigation. That is because there is no causal connection between IronStar generating new sources of work and the conduct complained of in the statement of claim.

55    While they are not sought it is appropriate that orders that the documents to be discovered be provided electronically, without the need for the provision of a list of documents, also be made in relation to the Tully Parties’ Discovery Application.

conclusion

56    I will make orders for discovery in relation to the IronStar Discovery Application and the Tully Parties’ Discovery Application in accordance with these reasons. I will permit the parties four weeks to provide discovery and will list the proceeding for case management hearing on a date thereafter.

57    Given the relatively narrow scope of the resulting dispute in relation to the discovery applications it is unfortunate that the parties could not resolve their dispute including by requesting the Court to refer the applications to a Registrar for that purpose or indeed responding to the suggestion from my Chambers that the applications be referred to a Registrar for resolution. That approach has no doubt added to the cost and length of the proceeding and is unfortunate.

58    Each party seeks the costs of their respective application for discovery. Each has enjoyed some success in both obtaining orders for discovery and in narrowing the scope of the discovery. In the circumstances I will make orders that the costs of each of the discovery applications be costs in the cause. If either party wishes to vary the costs orders they should file their application seeking an alternative order within seven days of the making of orders and I will hear argument on the next occasion that the proceeding is listed for case management hearing before me.

59    I will make orders accordingly.

Associate:

Dated:    20 April 2023

SCHEDULE OF PARTIES