FEDERAL COURT OF AUSTRALIA Elsinora Global Ltd & Ors v Healthscope Ltd & Ors (No 1) [2005] FCA 1017 PRACTICE & PROCEDURE – discovery – no point of principle Income Tax Assessment Act 1936 (Cth), s 255 ELSINORA GLOBAL LTD & ORS v HEALTHSCOPE LTD & ORS NSD 96 of 2005 EDMONDS J 26 JULY 2005 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD 96 OF 2005 BETWEEN: ELSINORA GLOBAL LIMITED FIRST APPLICANT TIOGA WORLDWIDE LIMITED SECOND APPLICANT PERLETTE OVERSEAS LIMITED THIRD APPLICANT PETER ARMSTRONG FOURTH APPLICANT JONATHAN BERGER FIFTH APPLICANT EC MEDICAL INVESTMENTS NV SIXTH APPLICANT AND: HEALTHSCOPE LIMITED (ACN 006 405 152) FIRST RESPONDENT ANZ NOMINEES LIMITED (ACN 005 357 568) SECOND RESPONDENT DEPUTY COMMISSIONER OF TAXATION THIRD RESPONDENT JUDGE: EDMONDS J DATE OF ORDER: 26 JULY 2005 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The applicants shall give discovery of the classes of documents referred to in the paragraphs of the Notice for Discovery dated 15 July 2005 as amended by the alterations set out in paragraph [9] of the Reasons for Judgement. 2. The applicants file and serve any Reply and any Defence to the Amended Cross-Claim by 10 August 2005. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD 96 OF 2005 BETWEEN: ELSINORA GLOBAL LIMITED & OTHERS APPLICANTS AND: HEALTHSCOPE LIMITED (ACN 006 405 152) FIRST RESPONDENT ANZ NOMINEES LIMITED (ACN 005 357 568) SECOND RESPONDENT DEPUTY COMMISSIONER OF TAXATION THIRD RESPONDENT JUDGE: EDMONDS J DATE: 26 JULY 2005 PLACE: SYDNEY REASONS FOR JUDGMENT the proceedings 1 These proceedings concern tax liabilities said to arise out of the sale of shares in Gribbles Group Ltd ('Gribbles') by the sixth applicant ('ECMI'), a company incorporated in Belgium. The third respondent ('the Commissioner') says that ECMI (a non-resident of Australia) incurred a liability to income tax on capital gains in consequence of the sale. In order to enforce ECMI's tax liability, the Australian Taxation Office ('ATO') issued a series of notices to the first respondent ('Healthscope') and the second respondent ('ANZ') purportedly pursuant to s 255(1) of the Income Tax Assessment Act 1936 (Cth) ('ITAA'). The ATO issued the notices on the basis that Healthscope and/or ANZ held money on behalf of ECMI for the purposes of s 255(1). 2 The other five applicants ('the Elsinora applicants') are said to be the purchasers of 150,516,455 of ECMI's 194,516,455 shares in Gribbles, the other 44,000,000 having been sold to Healthscope. The applicants, who are represented by the same counsel and solicitors, seek declarations that the s 225 notices are invalid and that the sum required to be withheld by Healthscope and ANZ ('the Withholding Sum') belongs to the Elsinora applicants. DISCOVERY 3 By three separate Notices for Discovery dated 15 July 2005 the Commissioner sought discovery of various classes of documents from the applicants, from Healthscope and from ANZ. 4 At a hearing on 20 July 2005 ('the hearing'), Healthscope, through its counsel, indicated that it did not oppose discovery of the classes of documents described in the Notice addressed to it, subject to alterations to paragraphs 1.1.1, 2.1 and 3 of the Notice, which alterations the Commissioner did not oppose. I ordered that such discovery be given by 3 August 2005. 5 Towards the conclusion of the hearing the Commissioner, through his senior counsel, said that at this stage, he would not press for discovery of the classes of documents in the Notice addressed to ANZ, but reserved the right to do so after inspection of the documents discovered by the applicants. I granted the Commissioner liberty to apply in relation to any discovery it seeks against ANZ. 6 The applicants, through their counsel, opposed discovery in terms of the Notice for Discovery to them on a number of grounds. Both senior counsel for the Commissioner and counsel for the applicants agreed that paragraph 6 of the Notice could be deleted. 7 The opposition to the other paragraphs is principally grounded in a lack of relevance to the pleadings and/or that they are too broad and/or the use of the word 'evidencing', where it appears. 8 I do not propose to deal with each paragraph by reference to any or all of these grounds. I am firmly of the view that in face of my refusal to accede to the applicants' motion for an order striking out paragraphs 31A, 31B, 31D, 31E, 31F and 31G of the Commissioner's Amended Defence and Cross-Claim and the matters to which the Commissioner's senior counsel took me during the course of the hearing – I refer in particular to clause 3.3 of each share sale agreement; paragraph 11 of the affidavit of Peter Armstrong sworn 18 May 2005; and paragraph 24 of the affidavit of Colin Andrew White sworn 9 March 2005 – the applicants should give discovery of the classes of documents covered by the Notice for Discovery, although the actual terms should be modified to deal with some, if not all, of the applicants' grounds of objection. 9 I set out hereunder paragraphs corresponding with those in the Notice for Discovery, indicating the changes that should be made by underlining or interlineation mark: "1. All documents relating referring to, evidencing constituting or recording each of the following matters referred to in paragraph 12 of the affidavit of Colin Andrew White sworn 9 March 2005: 1.1 the transfer of the custodial arrangements for ECMI's shares in Gribbles from ANZ Nominees Limited to Investec Trustees (UK) Limited; 1.2 the instructions given to Piper Alderman in relation to make that transfer. 2. All documents 2.1 comprising, evidencing constituting or recording any contract, agreement, arrangement, direction, instruction and/or request between, to, from, by or on behalf of one or more of the following 2.1.1 the First to Sixth Applicants and each of them; the First Respondent; 2.1.2 the First Respondent; 2.1.3 the Second Respondent; 2.1.4 Carr Shepherds Crosthwaite; 2.1.5 Investec Trustees (UK) Limited, pursuant to which the payment of an amount of AU$84,872,000 was made to the First to Fifth Applicants on or about 21 January 2005 as referred to in paragraph 24 of the affidavit of Colin Andrew White sworn 9 March 2005; 2.2 evidencing or recording the payment of the said sum of AU$84,872,000 referred to in paragraph 2.1 hereof. 3. All documents 3.1 comprising, evidencing constituting or recording any contract, agreement, arrangement, direction, instruction and/or request between, to, from, by or on behalf of one or more of the following: 3.1.1 the First to Sixth Applicants and each of them; 3.1.2 the Second Respondent; 3.1.3 Carr Shepherds Crosthwaite; 3.1.4 Investec Trustees (UK) Limited, pursuant to which the payment of an amount of AU$83,924,000 was made by the First to Fifth Applicants to the Sixth Applicant on or about 26 January 2005 as referred to in paragraph 24 of the affidavit of Colin Andrew White sworn 9 March 2005; 3.2 evidencing or recording the payment of the said sum of AU$83,924,000 referred to in paragraph 3.1 hereof. 4. All documents comprising, evidencing, identifying or recording 4.1 the place or places where the negotiations for the purchase by Healthscope from ECMI of the 44,000,000 shares in Gribbles referred to in paragraph 7 of the affidavit of Colin Andrew White sworn 9 March 2005 occurred; 4.2 the place or places where the execution by Healthscope and ECMI of the Share Acquisition Agreement referred to in paragraph 7 of the affidavit of Colin Andrew White sworn 9 March 2005 occurred. 5. All documents 5.1 comprising, evidencing constituting or recording any contract, agreement, arrangement, direction, instruction and/or request between, to, from, by or on behalf of one or more of the following 5.1.1 the First to Sixth Applicants and each of them; 5.1.2 the First Respondent; 5.1.3 the Second respondent; 5.1.4 Carr Shepherds Crosthwaite; 5.1.5 Investec Trustees (UK) Limited, in relation to the method of payment in future of: (a) the amount of AU$9,953,000 as referred to in paragraph 24 of the affidavit of Colin Andre White sworn 9 March 2005, (b) the amount of the Withholding Sum as referred to in the Second Further Amended Statement of Claim dated 26 April 2005. 6. [Omitted] 7. All documents comprising, evidencing constituting or recording or relating to 7.1 any contract, agreement or arrangement entered into between ECMI its servants or agents and each of the First to Fifth Applicants respectively pursuant to or under clause 3.3 of their respective Share Sale Agreements; 7.2 any contract, agreement or arrangement entered into between ECMI its servants or agents and each of the First to Fifth Applicants respectively relating to the method of payment of the Consideration under or pursuant to the respective Share Sale Agreements. 8. All documents comprising, evidencing constituting or recording or relating to 8.1 any contract, agreement or arrangement under or pursuant to which all or any of the following: 8.1.1 the First to Fifth Applicants and each of them; 8.1.2 the Second Respondent; 8.1.3 Carr Shepherds Crosthwaite; 8.1.4 Investec Trustees (UK) Limited, was or were appointed custodian and/or sub-custodian in relation to the sale of any or all of the 194,516,455 Gribbles shares that were sold by any of the First to Sixth Applicants to Healthscope; 8.2 any directions and/or instructions and/or authorities given under or pursuant to the contracts, agreements and/or arrangements referred to in paragraph 8.1 hereof." 10 At the hearing, I made certain orders, including an order that the applicants file and serve any Reply and any Defence to the Amended Cross-Claim by 4 pm on 21 July 2005. This was done in response to a request from counsel for the applicants, however, it occurs to me that the applicants should not file a reply until after they receive the Commissioner's Amended Defence, which, on the basis of the orders I made on the same day, is not due until 3 August 2005. I therefore vary the order I made on 20 July 2005 that the applicants file and serve any Reply and any Defence to the Amended Cross-Claim by 4pm on 21 July 2005 so that it reads "by 10 August 2005". 11 I will hear the applicants at the time of delivering judgment as to the time that is required to give discovery in terms of these reasons and indicate that I will require the Commissioner to give verified discovery to the applicants in terms of the classes of documents ordered on 20 July 2005 by the same date. 12 I do not think it is appropriate that any party be ordered to pay the costs of another party in respect of the hearing. Costs will therefore be in the cause. I certify that the preceding thirteen (12) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Edmonds. Associate: Dated: 26 July 2005 Counsel for the Applicants: Mr T M Thawley Solicitors for the Applicants: Piper Alderman Counsel for the First Respondent: Mr P Richmond Solicitors for the First Respondent: Allen Arthur Robinson Counsel for the Second Respondent: Mr J A Watson Solicitors for the Second Respondent: Freehills Counsel for the Third Respondent: Mr G Davies QC with Mr P Sest Solicitors for the Third Respondent: Australian Government Solicitor Date of Hearing: 20 July 2005 Date of Judgment: 26 July 2005