Federal Court of Australia Enares Pty Limited v Nimble Money Limited, in the matter of Nimble Money Limited (Notice to Produce) [2021] FCA 1616 File number: NSD 1200 of 2021 Judgment of: CHEESEMAN J Date of judgment: 13 December 2021 Date of publication of reasons: 20 December 2021 Catchwords: PRACTICE AND PROCEDURE – application to set aside a notice to produce documents for inspection served under r 20.31(1) of the Federal Court Rules 2011 (Cth) – notice to produce issued in context of an application under s 247A of the Corporations Act 2001 (Cth) – whether the notice to produce is an abuse of process – whether documents the subject of the notice to produce are relevant to the substantive issues in the proceedings – Held: notice to produce set aside and compliance dispensed with. Legislation: Federal Court Rules 2011 (Cth), r 20.31(1) Cases cited: Enares Pty Limited v Nimble Money Limited, in the matter of Nimble Money Limited [2021] FCA 1596 Tyco Australia Pty Ltd v Leighton Contractors Pty Ltd [2005] FCAFC 115; (2005) 142 FCR 428 Division: General Division Registry: New South Wales National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Number of paragraphs: 21 Date of hearing: 13, 14 and 16 December 2021 Counsel for the Plaintiff: Mr D Sulan SC with Ms L Rich Solicitor for the Plaintiff: Baker McKenzie Counsel for the Defendant: Ms F Roughley with Mr T Rogan Solicitor for the Defendant: Gilbert + Tobin ORDERS NSD 1200 of 2021 IN THE MATTER OF NIMBLE MONEY LIMITED ACN 128 541 542 BETWEEN: ENARES PTY LIMITED ACN 001 060 359 Plaintiff AND: NIMBLE MONEY LIMITED ACN 128 541 542 Defendant order made by: CHEESEMAN J DATE OF ORDER: 13 DECEMBER 2021 THE COURT ORDERS THAT: 1. The plaintiff's notice to produce issued under rule 20.31(1) of the Federal Court Rules 2011 (Cth) be set aside. 2. Pursuant to rule 1.34 of the Rules, compliance by the defendant with the notice to produce issued by the plaintiff be dispensed with. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT CHEESEMAN J: Introduction 1 On 13 December 2021 I gave a procedural ruling in respect of a Notice to Produce served by Enares Pty Limited on Nimble Money Limited pursuant to r 20.31(1) of the Federal Court Rules 2011 (Cth). These are my reasons for that ruling. 2 I gave judgment in the substantive proceedings on 16 December 2021: Enares Pty Limited v Nimble Money Limited, in the matter of Nimble Money Limited [2021] FCA 1596 (Nimble (No 1)). Familiarity with that decision is assumed for the purpose of these reasons. 3 The circumstances in which the matter came to be heard before me on an urgent basis in the Corporations and Commercial duty list in the last week of the Court term are set out at Nimble (No 1) at [8] and are not repeated here. the substantive application 4 The substantive application was an application by Enares for access to the books of Nimble pursuant to s 247A of the Corporations Act 2001 (Cth). Enares sought to inspect a wide range of Nimble's documents in order to investigate its concerns relating to a debt refinance by Nimble. Enares sought access to ten broad categories of documents, a copy of the categories is included in an Annexure to the reasons in Nimble (No 1). 5 Enares is the largest of Nimble's shareholders with a stake of approximately 15%. Enares had also on a number of occasions made conditional and in principle indicative offers to underwrite equity rights issues for Nimble, which have been considered and rejected by Nimble's Board and had also failed to garner the support of some other Nimble shareholders. 6 The Nimble refinance was in respect of both the senior debt and the subordinated debt of the company. The senior debt had been provided by two Senior Lenders, Partners For Growth V LP and Alceon Group Pty Ltd (the Senior Debt Facility) and was due to expire on 18 December 2021. The subordinated debt comprised short term subordinated notes in the sum of about $4.5 million issued to Enares ($3.3 million), and the second largest shareholder with a stake of about 14%, Van Diemens Land Finance Pty Ltd through its related entity, Lempriere Pty Ltd ($1.2 million) (the Series 13 Subordinated Notes). The Series 13 Subordinated Notes are due to expire on 21 December 2021. 7 In its annual report dated 30 June 2021, Nimble disclosed that it had signed a non-binding term sheet with its Senior Lenders to refinance its existing borrowings. A condition precedent of the refinance was that Nimble had to raise $4.5 million in equity or subordinated notes to replace the Series 13 Subordinated Notes. It was common ground that the condition precedent was framed so as to permit Nimble to either raise equity or issue subordinated notes as a means of retiring the Series 13 Subordinated Notes. Senior Counsel for Enares submitted that information provided to shareholders demonstrated that the Senior Lenders were agnostic as to which means Nimble used to retire the Series 13 Subordinated Notes. The retirement of the existing Series 13 Subordinated Notes had to occur before 18 December 2021 when the Senior Debt Facility matured. 8 On 10 November 2021, after various attempts at other avenues of debt refinance and capital raising had not come to fruition, Nimble notified its shareholders, including Enares, that it had executed a binding agreement with a group of new investors to subscribe for $4.5 million of subordinated notes (designated series 14 and series 15) under its existing notes issuance program (the New Investors' Subordinated Notes). The agreement was conditional on the satisfactory completion of due diligence, execution of documentation and a Follow-On Offering in respect of the series 14 and 15 notes being extended to Nimble's existing shareholders. The New Investors' Subordinated Notes issue was directed to the retirement of the existing Series 13 Subordinated Notes in accordance with the condition precedent of the refinancing of Nimble's Senior Debt Facility. 9 Enares' application under s 247A of the Act was predicated on concerns that (1) it believes that because of Nimble's financial position it would be better served by raising finance through an equity rights issue, (2) that the debt refinance is not in Nimble's best interests and prefers the interests of some shareholders over those of others (including Enares) and (3) that it has been excluded from discussions with Nimble in relation to the debt refinance. Enares is concerned to ascertain the identity of the new investors and whether they are related parties of existing shareholders or any of the directors of Nimble. Nimble has confirmed that so far as it is aware the new investors are not related parties of existing shareholders or of any of Nimble's directors. 10 Enares' stated purpose is to access Nimble's documents in order to investigate any legal right it may have to commence proceedings against Nimble, including to enjoin the refinance, and for the purpose of being informed in respect of its investment in the company. The potential legal action flagged by Enares is for relief under the Act in respect of oppressive conduct, related party dealings and/or by way of derivative action. Central to the concern of oppressive conduct is an allegation of a wrongful information asymmetry. enares' notice to produce 11 At the start of the first day of the hearing, Senior Counsel for Enares called on a Notice to Produce which was directed to the production of two documents referred to in an affidavit of Mr Mackenzie, the Chief Executive Officer of Nimble, which was read in the proceedings. The particular documents identified in the Notice to Produce were: (a) an indicative term sheet with the Senior Lenders in respect of a proposal to refinance the senior debt of Nimble; and (b) a non-binding term sheet between Nimble and the Senior Lenders in respect of the Senior Debt Facility which was referred to in an update provided to shareholders on 27 October 2021. 12 Nimble made an application for the Notice to Produce to be set aside or further or alternatively for the Court to dispense with the requirement for Nimble to comply with it. Nimble relied on two grounds. First, that the Notice to Produce was itself an abuse of process in that it sought to obtain documents that were the subject of the substantive s 247A application. Secondly, an objection was taken on the grounds of relevance. 13 Nimble relied on the decision of the Full Court in Tyco Australia Pty Ltd v Leighton Contractors Pty Ltd [2005] FCAFC 115; (2005) 142 FCR 428 (Hill, Hely and Conti JJ). In Tyco the Full Court was concerned with an appeal from a decision made in the context of notices to produce that were served in the confines of a pre-action discovery application. The Full Court held that there is power to issue, in an appropriate case, a notice to produce in a pre-action discovery application, overruling CCA Beverages (Adelaide) Ltd v Hansford (unreported, Federal Court, S G58 of 1991, O'Loughlin J, 15 November 1991). In the present case, the power to serve the Notice to Produce was not in issue. The contest concerned whether the Notice to Produce was an abuse of process and whether the documents targeted by it were of apparent relevance to the issues raised by or involved in the s 247A application. 14 As to abuse of process, Hill J observed that: 46 …An applicant who seeks to use a notice to produce, in effect, to gain access to the very documents which are the subject of the pre-action discovery will not have given the notice to produce in good faith, but rather, will have acted in a way that is an abuse of process… 15 Justice Hely added: 54 … There is no reason why the ordinary interlocutory procedures should not be available to assist in the resolution of those contestable issues of fact, subject to the overriding consideration that the invocation of those procedures does not amount to an abuse of the process of the Court: Kimberley Mineral Holdings Ltd (In Liq) v McEwan (1980) 1 NSWLR 210. Thus, at least prima facie, it would be an abuse of process for an applicant for preliminary discovery to seek to compel the production of documents by notice to produce, when the production of those documents is sought under O 15A r 6… 16 As to relevance, Conti J observed: 58 I would further observe that Order 33 rule 12(1) provides that the sole justification for requiring, per medium of a notice to produce in that context, the production of documents is for the purpose of evidence. In Seven Network Limited v News Limited (No 5) [2005] FCA 510[; (2005) 216 ALR 147], Sackville J considered whether a notice to produce could be set aside on the basis of irrelevance. His Honour endorsed the reasons for decision of Cooper J in CCom Pty Ltd v Jiejing Pty Ltd (1992) 37 FCR 1 at 3 and of Lindgren J in Microsoft Corporation v CX Computer Pty Ltd (2002) 116 FCR 372 at 380, both of which postulated the view that a notice to produce has the same coercive effect as a subpoena duces tecum. Sackville J considered moreover that the test for relevancy was the same as that which applied in the context of applications to set aside subpoenas generally, that is, 'whether the documents sought are of "apparent relevance to the issues" in the proceedings'. A respondent to an Order 15A proceeding who engages in the service of a notice to produce must therefore address the question whether the documentary or other material minded to be sought is truly 'of apparent relevance' to issues apparently raised by or involved in the application for preliminary discovery in order to obviate the need for what might eventuate in a further layer of adjectival litigation. (emphasis in original) 17 Nimble submits that similar to a pre-action discovery application, the essence of the s 247A application is that it is a request for documents. It is an abuse of process to seek by a notice to produce in such proceedings the very documents which are sought by the underlying proceedings. Nimble submits that is what Enares seeks to do by its Notice to Produce. 18 It is not possible to form a definitive view as to whether the documents that are the subject of the Notice to Produce fall within any of the 10 categories of document that are the subject of the s 247A application but it is likely that they do. That may be illustrated by reference to categories 5 and 6, which are very broad: 5) All board minutes, director resolutions, board papers and board packs of the Company recording any consideration of, or decision regarding, the: a) Subordinated Note offer; or b) the Company's options in respect of the Existing Subordinated Notes as defined in the Letter to Investors, including but not limited to: i) Enares' equity raise offers made in October 2021 and November 2021; or ii) any other alternative proposals relating to the replacement of the Existing Subordinated Notes as defined in the Letter to Investors. 6) A copy of any other document provided to the directors, or any one or more of them, for the purposes of considering the matters set out in (a) and (b) in category 5 above. 19 In light of the relationship between the issue of the New Investors' Subordinated Notes and the terms of the refinance of the Senior Debt Facility and particularly the condition precedent requiring the retirement of the Series 13 Subordinated Notes, and noting that Nimble had communicated to shareholders that the proceeds of the New Investors' Subordinated Notes will be used to retire the Series 13 Subordinated Notes, it is likely that the indicative and/or the non-binding term sheet between Nimble and the Senior Lenders was provided to one of more directors for the purpose of considering the New Investors' Subordinated Notes or Nimble's options in respect of the Series 13 Subordinated Notes. I am satisfied that the Notice to Produce is an abuse of process in that it seeks production of documents that are likely the subject of the substantive s 247A application. 20 Further, there is a real question as to whether the documents the subject of the Notice to Produce are relevant to the issues in dispute in the substantive proceedings. That is particularly so given Enares approached the substantive application on the basis that the Senior Lenders were agnostic as to whether Nimble raised the funds necessary to retire the Series 13 Subordinated Notes through an equity issue or by a further subordinated note issue. The relevance of the documents to the issues in the s 247A application was not developed in argument. Enares relied on an assertion of forensic prejudice because the existence of the documents was referred to in Mr Mackenzie's first affidavit. Again, that was not developed in argument beyond a bare complaint. Enares' concerns were not directed to the terms of the Senior Debt Facility but rather to the means by which the retirement of the Series 13 Subordinated Notes was to be achieved. In the circumstances, and having regard to the manner in which the application was conducted in the duty list, I was not satisfied that the documents sought were relevant to the s 247A application and I did not think that it was consistent with the overarching purpose to require production and inspection thereof. 21 Accordingly, I ordered that the Notice to Produce be set aside and dispensed with the requirement for Nimble to comply with the Notice to Produce. I certify that the preceding twenty-one (21) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Cheeseman. Associate: Dated: 20 December 2021