Federal Court of Australia

Commissioner of State Revenue v McCabe [2024] FCA 496

ORDERS

THE COURT ORDERS THAT:

1.    The first defendant’s notice to produce dated 12 April 2024 and issued to the plaintiff be set aside.

2.    The costs of the application to set aside the notice to produce be reserved for determination by the trial judge.

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

REASONS FOR JUDGMENT

DERRINGTON J:

Introduction

1    This is an application to set aside a notice to produce issued by the first defendant in the proceedings under r 30.28 of the Federal Court Rules 2011 (Cth) (the Rules). The notice was served on the afternoon of Friday, 12 April 2024, being the penultimate Friday prior to the trial of the action, which was due to commence on Monday, 22 April 2024.

2    The Commissioner of State Revenue (the Commissioner), the recipient of the notice and the plaintiff in the proceedings, seeks to set the notice aside on the following three grounds:

(1)    the notice was served too late;

(2)    the notice was too broad and amounted to oppressive discovery; and

(3)    the documents sought lacked relevance to the issues in dispute.

3    Following a short adjournment of the hearing of the application, the scope of the documents sought by the notice was substantially narrowed.

4    As a result, only grounds 1 and 3 remain relevant to the debate.

5    The documents now sought by the first defendant can be described as those between 5 December 2022 to 31 January 2023 of six identified officers of the Commissioner which are referrable to what is known as the “Comlek” group of companies. The first date referred to is the date on which the administration of the Comlek group of companies commenced. The latter is some 12 days after the second meeting of creditors, which had resolved that the companies should enter into a deed of company arrangement (the DOCA).

Nature of the proceedings

6    It is appropriate to refer briefly to the nature of the proceedings in which the notice has been issued. The Commissioner seeks to terminate the DOCA of the Comlek companies and, in doing so, he relies upon ss 445D(1) and 447A of the Corporations Act 2001 (Cth) (Corporations Act). In particular, he also seeks to set aside the administrators’ exercise of their casting vote which effected the passage of the resolution for the DOCA to be entered into.

7    The Commissioner advances three primary contentions as to why the DOCA should be terminated. The first is that it is in the public interest that the affairs of the Comlek companies be investigated by a liquidator. This, so it is said, is because there is evidence to suggest that the Comlek companies had avoided or did not pay their statutorily imposed payroll tax in the period between 2010 and 2022 and, in the absence of a liquidation, the companies’ directors would be shielded from scrutiny by a liquidator’s public examination. The second substantial ground was that the DOCA unfairly discriminates against the Commissioner in that, though he is the largest creditor, he will receive the smallest percentage return from the distribution of the deed fund. The third ground is that there were, allegedly, false or misleading statements in, and omissions from, the information provided to creditors, which can reasonably be expected to have been material to them in deciding whether to vote for the DOCA.

Relevant principles

8    Rule 30.28 of the Rules relevantly deals with the issuing of a notice to produce. It provides as follows:

(1)    A party may serve on another party a notice, in accordance with Form 61, requiring the party served to produce any document or thing in the party’s control:

(a)    at any trial or hearing in the proceeding; or

(b)     at any hearing before a Registrar or any examiner or other person having authority to take evidence in the proceeding.

(2)    If the document or thing required to be produced under subrule (1) is not produced, the party serving the notice may lead secondary evidence of the contents or nature of the document or thing.

(3)     If a notice under subrule (1) specifies a date for production, and is served 5 days or more before that date, the party served with the notice must produce the document or thing in accordance with the notice, without the need for a subpoena for production.

Note: A party who fails to comply with a notice under subrule (1) may be liable to pay any costs incurred because of the failure.

9    The principles applicable to the setting aside of a notice to produce were not in doubt and were set out in paragraphs 10 to 15 of the Commissioner’s written submissions as follows:

10.    A notice to produce issued under rule 30.28(1) of the Federal Court Rules 2011 (Cth) has the same effect as a subpoena and compliance is mandatory, however, it may be set aside for reasons including oppression or lack of apparent relevance to the issues in dispute in the proceeding: Fair Work Ombudsman v Foot & Thai Massage Pty Ltd (in liq) (No 7) [2023] FCA 1164 at [18] (Katzmann J).

11.     In Construction, Forestry, Mining, Maritime & Energy Union v BHP Coal Pty Ltd (No 3) [2012] FCA 61, Collier J said that (at [6]):

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

(2)     Timing of the issue and service of a Notice to Produce is a relevant factor in respect of any application to set aside the Notice.

(3)     A Notice to Produce cannot be used as an alternative to an application for discovery or further and better discovery.

(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 … .

(5)     A Notice to Produce cannot be used for the purposes of “fishing” or for the purpose of determining a preliminary question as to whether a party has a supportable case.

(6)     A Notice to Produce may be set aside on the basis that it is unduly burdensome if the width of the categories requested is too broad or the categories are not described with adequate specificity.

12.    The threshold test is relevance, which the party issuing the notice to produce bears. As Collier J said in BHP Coal, the requirement is one of apparent relevance, being “whether the documents are reasonably likely to add, in the end, in some way or other, to the relevant evidence in the case” (at [6(4)]).

13.    In Hewson v TCN Channel Nine Pty Ltd [2021] FCA 389, Wigney J explained that a subpoena will be set aside “if it is shown to amount to little more than an attempt to “fish” for documents which might somehow assist the party who has issued the subpoena; that is, the documents are sought not to support the case as pleaded, but to discover whether there may be some other plea or defence available” (at [20]).

14.     The timing of the issuing of a notice to produce is relevant to considering whether to set it aside, as Collier J said, in BHP Coal (at [7]) that:

… service of a Notice to Produce shortly before a trial, imposing a considerable obligation and thus disruption on parties and practitioners already deeply immersed in the preparation for and conduct of the trial, may be unreasonable and vexatious. While traditionally the issue of timing was not determinative of the application to set aside the Notice to Produce and would weigh in the balance when one comes to examine the question of relevance (Tony Azzi Automobiles at [8]), in light of the case management principles discussed by the High Court in Aon Risk Services Australia Ltd v ANU … I am of the view that the potential disruption of a trial by unduly proximate service of a Notice to Produce may be a determinative factor in considering an application to set aside the Notice … . [emphasis added]

However, her Honour also said that proximity to trial may not be determinative, for example “if the documents were of considerable apparent relevance, and were documents which it was unreasonable to seek at an earlier stage” (at [8]).

15.    A notice to produce must not be used as a substitute for an application for discovery: ACCC v Shell Co of Australia Ltd (1999) 161 ALR 686 at [48]-[51] (Cooper J), and BHP Coal at [11]-[14]. Such a notice will be oppressive if it requires the party served to review many documents, especially if it is unlikely the documents will be relevant to the issues in dispute: Azzi v Volvo [2006] NSWSC 283 at [6]-[7] (Brereton J).

(Emphasis in original and footnote omitted).

Consideration

10    It is necessary to keep steadily in mind that the notice was issued by the first defendant, being the two former administrators of the Comlek group of companies and now the deed administrators. They have a relevant interest in the proceedings because the Commissioner relies on what is said to have been false or misleading information given by them to the creditors and that is, as was acknowledged during the hearing, a serious allegation. Further, the Commissioner questions the appropriateness of the manner in which they exercised their casting vote in favour of the resolution to enter into the DOCA, and that also sufficiently attracts the interest of the administrators. It was not said by counsel for the administrators that they had a relevant interest in the public interest grounds, or in the ground that the DOCA was unfairly prejudicial. Nonetheless, as they are issues raised in the proceedings and the administrators are parties, they should not be denied an entitlement, at least for the purpose of the present application, to rely upon those additional issues if necessary.

11    The documents of which the notice requires production appear to be documents which are internal to the Commissioner’s office and are likely to consist of file notes, reports, memos and the like. Nevertheless, the description could include correspondence produced by those persons as well. That said, that the revised notice seeks “all documents” of the identified individuals raises some difficulty in their characterisation. That could mean documents produced by those persons, which is probably that which was intended, but it could also mean documents possessed by those persons. For present purposes, no point was taken about that part of the description, though it is useful to observe that the description of documents in a notice to produce requires a sufficient degree of precision so that the recipient of the notice might reasonably understand what is required.

12    Here, the description of the documents as being “of” the identified individuals tends to suggest that they are documents produced by the named persons. For the purposes of these reasons they can conveniently be referred to as the “Commissioner’s internal documents”, but accepting that the documents sought may not be so limited.

The documents do not have sufficient relevance

13    In the administrators’ written submissions, a reference to some of the reasons as to why the Commissioner’s internal documents were relevant to the matters in dispute was set out (at paragraph 31) as follows:

31.     Even if the court is satisfied that one of the grounds under section 455D(1) has been made out, the court retains the discretion as to whether or not to terminate the DOCA: Re Recycling Holdings Pty Ltd [2015] NSWSC 1016 at [29]. The conduct by the Commissioner at the second creditors meeting, the refusal to provide an indemnity for an adjournment of the second creditors meeting, the failure to offer to fund any liquidation and any analysis of the advantages and disadvantages of the DOCA are relevant to that issue. The Administrator contends that the Court, exercising its discretion, would not terminate the DOCA in circumstances where, for example, the Commissioner made the decision to simply remain silent at the second meeting of creditors with the intention that it would later commence proceedings.

14    The issues there raised are directed to the general discretion of the Court to set aside the DOCA if the basis for the exercise of the discretion is made out.

15    In paragraph 30 of the administrators’ written submissions, a further point was advanced in the following terms:

30.     The Commissioner seek an order of the Court terminating the DOCA as doing so is said to be in the public interest (Amended Concise Statement (ACS), para. 18). Public interest includes considerations of commercial morality and the interests of the public at large [Australian Securities and Investments Commission v Midland Hwy Pty Ltd (admin apptd) (2015) 110 ACSR 23; [2015] FCA 1360 at [68], per Beach J]. Whether the Commissioner has decided to prosecute the directors of the Comlek Companies pursuant to the Taxation Administration Act 2001 (Qld) is clearly relevant to the public interest point. The documents sought in paragraphs 2(b)(i) and 4 seek documents regarding that issue.

(Footnote reference included in text and emphasis in original).

16    There is no need to consider why the administrators are interested to defend the allegation that the DOCA impinges upon commercial morality and the interest of the public at large, though it may be that they have an entitlement to protect the veracity of the creditors’ resolution and, thereby, have a right to respond to that issue.

17    In any event, the issues raised in paragraph 30 concern objective facts and, whether or not they occurred will be the subject only of objective, and relatively uncontentious, evidence. It does not appear to be in doubt, for instance, that the Commissioner did not offer the administrators an indemnity in relation to the cost of adjourning the second meeting of creditors in a sum in excess of $400,000 or any indemnity. It also does not seem to be in doubt that the Commissioner did not agree to fund any part of the liquidation, although whether that was so or not would be the subject of easily accessible evidence. It is also not in doubt that the Commissioner, by his officers, did not, at the second creditor’s meeting, ask that the meeting be adjourned nor did they ask any questions of the chair of the meeting or of any directors present. Similarly, it is also not in doubt that correspondence referred to by the parties between the administrators and the Commissioner was not tabled at the second meeting.

18    These matters, and others associated with them, are matters of fact which, prima facie, may be relevant to the Court’s exercise of discretion. However, the Commissioner’s particular intention or motivation for his actions was not shown to be relevant to the exercise of the Court’s power. That is to say that, whilst the fact that the Commissioner did not offer the administrators an indemnity may be relevant, his reasons for not doing so are not. That being so, internal documents of the Commissioner identifying or explaining the underlying rationale for the Commissioner’s dealing with the administrators do not have a sufficient relevance to the issues to be determined by the Court in this matter. I make that observation in deference to the careful and thoughtful submissions made on behalf of the administrators in that respect.

19    As Ms Wheatley KC for the Commissioner submitted, the facts of how the Commissioner acted in relation to the DOCA are apparent on the evidence which has already been filed. The Commissioner has not called any evidence as to his motivation as to why he acted as he did and his case is largely a documentary one. On the material presently available, neither party has put the Commissioner’s intention or motivation in issue. The Court was not taken to any point raised in the concise statements which suggested that they were. The critical question concerns the DOCA itself, its terms, how it was entered into, and the manner in which it was passed at the second meeting of creditors. It is worth adding that whilst the exercise of the Court’s power to set aside a DOCA depends upon a consideration of all relevant circumstances, that does not mean that a hearing is an open inquiry about the manner in which the DOCA was passed. If a party wishes to make an issue relevant to the exercise of power it must raise it in the usual way in the pleadings or by another acceptable method.

20    A further point raised was that the Commissioner has neither called, nor proposed to call, officers who attended the second meeting of creditors on his behalf. While that may be true and obvious from the evidence now filed, there is nothing untoward about that. Any inference which can be drawn from the failure of the Commissioner to call those persons can properly be drawn: Jones v Dunkel (1959) 101 CLR 298: but again, the relevance of any inference is unclear given the issues between the parties.

21    It follows that the issues raised in paragraph 31 of the administrators’ written submissions do not provide any point by reference to which the documents now sought might be justified as relevant.

22    In paragraph 30 of the administrators’ written submissions, reference is made to the public interest element of the Commissioner’s attack on the DOCA. In this respect, the Commissioner alleges in his concise statement that the DOCA shields the directors of the Comlek group of companies from investigation and liquidation and from scrutiny of a public examination. On that basis, it was submitted that the Commissioner’s internal documents would demonstrate whether and how the Commissioner might use his own powers to investigate those directors. On the assumption that the Commissioner might have turned his mind to that and might indeed pursue it, it was said that such evidence might negate the justification for setting aside the DOCA. It was said that the examination of the directors could equally be undertaken by the Commissioner himself, as opposed to a public examination in the course of liquidation.

23    Whilst it can be accepted that the Commissioner has powers to investigate the companies and, perhaps, the directors in relation to their non-payment of payroll tax that could be relevant to whether the DOCA should be set aside, in my opinion, that fact exists regardless of the factors which have caused the Commissioner not to undertake investigations to date or which would prevent him from doing so in the future. That is to say, the administrators are entitled to point to the fact that an alternative avenue of investigation might exist and, of itself, that may be significant. But it is, with respect, fishing to attempt to ascertain, at present, the Commissioner’s attitude in relation to pursuing investigations under his powers.

24    It might also be said that there is a substantial and very significant difference between an investigation undertaken by a Commissioner of State Revenue using his coercive powers and the like, and a public examination of company directors in respect of their handling or management of corporate entities. The first, and perhaps most important difference, is that one is conducted privately, and the other is conducted in public. That is significant not in the least because it is well accepted that a consideration of a company’s insolvency is a matter in respect of which the public has an interest. The second is that public examinations are known for their breadth of scope. The concept of what is part of a company’s affairs is very broad. It would be most unlikely for the Commissioner’s powers of investigation to overlap completely with the powers of a liquidator under the Corporations Act in respect of the matters he might pursue. It may, therefore, be inconvenient were the two powers to be exercised differentially.

25    In any event, the Court was not taken to any relevant paragraphs in the concise statements which raised any issue about the Commissioner’s intentions or otherwise to pursue his own private investigations. It is, with respect, going too far to say that any deliberations about those matters to date could be relevant to whether or not the DOCA is set aside.

26    A further ground relied upon concerned the Commissioner’s reliance on the expert report of Mr John Park. It was said that the report is somewhat critical of the administrators, particularly in relation to the matters that they took into account in preparing their report to creditors and the matters which they referred to, or omitted referring to, in their report.

27    Whilst it is intended to adduce that report into evidence, there is a dispute about its admissibility. Nevertheless, it is fair to observe the administrators have an interest in the issues raised by Mr Park. On that basis it was submitted that any correspondence between Mr Park and the officers of the Commissioner may be relevant to the veracity of Mr Park’s report and there is, perhaps, some force in that.

28    However, on the evidence before the Court, there is no suggestion that any of the documents sought were considered by Mr Park when he prepared his report. Whilst the administrators might be interested to know whether there were any communications between Mr Park and the Commissioner’s office, there is, currently, no suggestion of it. Mr Park is to be cross-examined and he is able to give evidence as to the information on which he relied, to the extent to which it is not attached to his report or otherwise evidenced. Whilst there is some relevant link between the documents which might exist and some of those which are sought, the connection is somewhat to scant. To the extent to which they are sought to undermine Mr Park’s evidence, it is a fishing expedition.

29    Moreover, the veracity of the administrators’ report to creditors produced or other statements made by them will appear from the face of the report or the information given, and that is to be assessed on the information which the administrators had before them, or should have had before them. It is not relevant to whether false or misleading statements were made in the report or other information to know what was said between the Commissioner’s officers or what was said to Mr Park. The request for documents exceeds that which might be said to be appropriately relevant.

30    In reaching this view, it is necessary to consider the concise statement and the allegations raised. In particular, paragraphs 14(a) to (c) of the Commissioner’s concise statement identify the relevant defects and it is difficult to ascertain that anything said within the Commissioner’s office could be relevant to whether or not the report of the administrators suffers from the identified defects.

31    For similar reasons, the Commissioner’s complaint about the administrators’ exercise of the casting vote at the creditors meeting is not a sufficient hook to attract the same relevance on which the administrators might rely for the production of documents. That question turns solely on the material which the administrators had before them: Adelaide Brighton Cement Limited, in the matter of Concrete Supply Pty Ltd v Concrete Supply Pty Ltd (Subject to Deed of Company Arrangement) (No 4) [2019] FCA 1846 [1224].

32    The administrators also sought to rely on the Commissioner’s powers to ask questions of the administrators at the meeting, and the fact that no questions were asked, as a basis for seeking the documents in question. Whilst that may provide some relevant nexus, it is not an issue which is sufficiently raised on the pleadings or the material and, even if it were, the scope of the documents now sought, as I have set out below, is far too wide for that to be a sufficient nexus to justify an order that the documents be produced.

33    In this context, it is appropriate to consider the breadth of the documents which are sought. They include all documents between 5 December 2022 and 31 January 2023 of the six officers of the Commissioner, the limitation being that they be referable to the Comlek group of companies. In its form, the request is in the nature of discovery, that is to say, the request is not for specific documents but for classes of documents which are “referable to the Comlek Group of Companies.” In order to produce the documents in question, the first thing that a person would be required to do is ascertain the documents “of” the identified persons during the relevant period. They would then have to ascertain whether the documents in question expressly referred to the Comlek group of companies or whether their contents are, in fact, referable to the group of companies, despite not mentioning them by name.

34    Even though it might be said that one or two of the issues raised by the administrators might have some tangential relevance to issues to be considered in the hearing, the scope of the documents sought is far too broad to be justified by those tenuous links. Overall, none of the issues pointed to on behalf of the administrators provide a relevant nexus for the documents sought. An application of this nature is not the time nor the place for the paring down of a broadly drawn notice until it reaches a point where the remaining documents sought match an issue, or issues, in the proceedings.

The notice was issued too late

35    Even if there was a sufficient relevance to an issue or issues in the dispute, the notice to produce was issued far too late. Although the Rules provide for a five-day period for the production of documents so as to attract subrule (3), compliance with that by itself does not mean that the notice has been given within a reasonable time before the hearing. Whether the time provided in the notice for the production of documents is sufficient depends upon the circumstances of the case. A notice that seeks the production of specific documents might properly be issued close to the hearing date, and if a party wishes to gain the full benefit of the notice, then not less than five days before that date. But a notice that seeks production of more than a few specific documents might require further time. Certainly, a notice that requires the recipient to search for documents and then evaluate them against identified criteria will necessarily require further time still. These factors are especially poignant when the notice is issued close to the date set for hearing.

36    The present circumstances are a good example of the difficulties which arise when that is done. The date of the hearing of the present application was the last business day prior to the commencement of an eight-day hearing and, although the setting down of the hearing to dispute the notice so close to the hearing was not the administrators’ doing, it was the necessary result of the serving of the notice at the latest possible time. That conduct will necessarily cause significant disruption to the parties’ preparation for the hearing. It is not appropriate for the numerous counsel involved in the matter to be attending at Court on the last business day before the hearing to deal with an application to set aside the notice. Here, the relevant issues arising from the pleadings and the evidence, save for a reasonable amount of it, have been known by the parties for well over six months and any notice to produce could have been given during that time. It is not clear why none was issued, save perhaps counsel has been lately called upon to review the matter and the materials available. If that is the reason for the lateness of the issue of the notice, it is an indictment on the solicitors running the action.

37    Any such explanation is not sufficient. A better explanation is required. Certainly, the late issue of notices to produce should be strongly discouraged lest it result in the tactical delivery of such notices to disrupt an opposing party’s preparation. Therefore, even if there was some sufficient relevance shown between the scope of the documents sought and the issues in the proceeding, it ought to be set aside on the basis that it has been issued too late in the circumstances of this case.

38    In those circumstances, the appropriate orders are as follows:

(1)    The first defendant’s notice to produce dated 12 April 2024 and issued to the plaintiff be set aside.

(2)    The costs of the application to set aside the notice to produce be reserved for determination by the trial judge.

Associate:

Dated:    13 May 2024

SCHEDULE OF PARTIES