Federal Court of Australia Ohanse Pty Ltd v Heartwest Services Pty Ltd, in the matter of Ohanse Pty Ltd [2022] FCA 1204 File number: VID 157 of 2022 Judgment of: MCEVOY J Date of judgment: 10 October 2022 Catchwords: PRACTICE AND PROCEDURE – application for discovery by the respondents – claims for lost income –requested documents required to analyse quantum of lost income claimed and assumptions in expert report relied upon by the applicant – where certain tax returns, financial statements, invoices and referral data are relevant to the issues in dispute – orders for discovery made. Legislation: Corporations Act 2001 (Cth) s 233(j) Federal Court Rules 2011 (Cth) r 20.13 Cases cited: Re Australian International Yacht Club Pty Ltd (2021) 152 ACSR 492; [2021] NSWSC 586 Division: General Division Registry: Victoria National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Number of paragraphs: 30 Date of last submissions: 28 September 2022 Date of hearing: Determined on the papers Counsel for the applicants: Mr D Wyles KC and Mr J Wyles Solicitor for the applicants: Nicholson Ryan Lawyers Counsel for the first to third respondents: Did not appear Solicitor for the first to third respondents: Boyle Telfer & Kooblal Counsel for the fourth to twelfth respondents: Mr Peters KC, Mr Gibson and Mr Porteous Solicitor for the fourth to twelfth respondents: Davies Collinson Cave Law ORDERS VID 157 of 2022 IN THE MATTER OF OHANSE PTY LTD (ACN 100 419 341) BETWEEN: OHANSE PTY LTD (ACN 100 419 341) Applicant AND: HEARTWEST SERVICES PTY LTD (ACN 105 012 360) First Respondent HEARTWESTS INVESTMENTS PTY LTD (ACN 165 781 644) Second Respondent HEARTWEST MANAGEMENT PTY LTD (ACN 105 080 751) (and others named in the Schedule) Third Respondent AND BETWEEN: DEEPAK HAIKERWAL (and others named in the Schedule) First Cross-Claimant AND: OHANSE PTY LTD (ACN 151 419 341) (and another named in the Schedule) First Cross-Defendant order made by: MCEVOY J DATE OF ORDER: 10 October 2022 THE COURT ORDERS THAT: 1. On or before a date to be fixed at the case management hearing on 12 October 2022, the applicant give discovery pursuant to r 20.13 of the Federal Court Rules 2011 (Cth) of the following documents: (a) financial statements and tax returns for the financial years ending 30 June 2016 to 30 June 2022 for Dr Prakash Pillay; (b) tax returns for the financial years ending 30 June 2016 to 30 June 2022 for Ohanse Pty Ltd in its capacity as trustee for the 3P Trust, the 8P Trust and the CAP Services Trust; and (c) service fee invoices between Dr Prakash Pillay and Ohanse Pty Ltd in its capacity as trustee for the CAP Services Trust for the following periods: (i) 1 June 2017 to 30 June 2017; (ii) 1 January 2021 to 30 June 2021; (iii) 1 January 2022 to 31 January 2022; and (iv) 1 May 2022 to 31 August 2022. (d) Clinical Computers Office System referral data of Dr Pillay's Patient's Analysis Hospital Billings from 1 July 2015 to 31 August 2022 for Western Private Hospital, Epworth Richmond and St Vincent's Private Hospital Werribee. 2. The discovery referred to in paragraph 1 above is to be provided in an electronic format. 3. The applicant pay the fourth to twelfth respondents costs of the application. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT MCEVOY J: 1 By an interlocutory application filed 13 September 2022 the fourth to twelfth respondents (the respondents) seek discovery of particular documents from the applicant in these proceedings, and the costs of the application. The respondents rely on an affidavit of their solicitor, Craig Finlayson, sworn 12 September 2022, together with written submissions filed on 19 September 2022 and 28 September 2022. The applicant relies on written submissions filed 26 September 2022. 2 The proceeding concerns claims by the applicant, Ohanse Pty Ltd (Ohanse) as trustee for the "3P Trust" and the "8P Trust", that it has been ejected from a partnership (the Heartwest Partnership) which conducts a business of providing rooms and services (including administrative staff) to medical practitioners. 3 The applicant seeks relief in the proceeding including an order that the respondents pay compensation to it pursuant to s 233(j) of the Corporations Act 2001 (Cth) (the Act) on the basis of an allegation that, having been ejected from the Heartwest Partnership, it will no longer derive income from the referral of patients by other Heartwest practitioners to Dr Prakash Pillay. Dr Pillay is a director and 50% shareholder of the applicant. Under the terms of a services agreement between Dr Pillay and the applicant, Dr Pillay pays a service fee to the applicant in relation to some cardiology services he performs at certain hospitals. The loss of patient referrals to Dr Pillay is therefore claimed to have a direct impact on the income stream received by the applicant. 4 In the proceeding the applicant relies on an expert report of Mr Owain Stone dated 27 July 2022 (the Stone Report), which purports to quantify this lost income, primarily by reference to Dr Pillay's hospital billing records and a series of instructed assumptions, in the amount of $3.846 million to $3.978 million, for the period 28 January 2022 to 27 January 2034. 5 The respondents seek to challenge the opinions and the assumptions upon which the Stone Report is based. They note that Mr Stone was instructed to assess the income stream for services performed by Dr Pillay/Ohanse as at 27 January 2022, as well as any decline in the income stream after 27 January 2022. The information that was provided to Mr Stone in relation to these instructions was billing activity summaries of all relevant hospitals for the period calendar year 2015 to calendar year to date 2022. The respondents submit that it appears that Mr Stone has not been instructed to consider the primary documents evidencing the current and prior income of Dr Pillay and Ohanse, namely their financial statements and tax returns. Thus the respondents have sought copies of the financial statements and tax returns of the applicant and Dr Pillay for the financial years ending 30 June 2016 to 30 June 2022, together with invoices for the applicant's service fees (if any) and certain further hospital billing information in the period 1 July 2015 to 31 August 2022. 6 The applicant initially refused to provide the information sought by the respondents on the basis of relevance, and that the Stone Report contained all relevant financial information. However, since the present application was made and the respondents filed their submissions in support of it, the applicant has produced a number of the documents sought in the application. The documents which have been produced are those sought in items 2, 9 (in part) and 13 of Attachment A to the respondents' application. The applicant has produced the financial statements, but not the tax returns, requested in items 3, 4 and 5 of Attachment A. The applicant states that items 6-8 do not exist. It would seem that each of the documents which have now been produced are documents which were requested from the applicant a number of times, were initially said not to be relevant, and have now been produced by way of a further affidavit of Dr Pillay affirmed on 21 September 2022 (the Quantum affidavit). 7 The documents which the applicant continues to refuse to produce are those sought in items 1, 3-5 (in part), and 10-12 of Attachment A to the respondents' application. Those documents are: (a) financial statements and tax returns for the financial years ending 30 June 2016 to 30 June 2022 for Dr Prakash Pillay; (b) tax returns for the financial years ending 30 June 2016 to 30 June 2022 for Ohanse in its capacity as trustee for the 3P Trust, the 8P Trust and the CAP Services Trust; and (c) Clinical Computers Office System data of Dr Pillay's Patient's Analysis Hospital Billings from 1 July 2015 to 31 August 2022 for Western Private Hospital, Epworth Richmond and St Vincent's Private Hospital Werribee. 8 The respondents press their application for discovery of these documents, as well as additional service fee invoices for the periods 1 June 2017 to 30 June 2017, 1 January 2021 to 30 June 2021, 1 January 2022 to 31 January 2022 and 1 May 2022 to 31 August 2022 (from item 9) which they say have not been provided. Financial statements and tax returns of Dr Pillay (item 1) 9 As has been mentioned, the applicant seeks compensation pursuant to s 233(j) of the Act for a loss of income it receives by way of "service fees" in circumstances where under a services agreement between Dr Pillay and the applicant, Dr Pillay pays a service fee to the applicant in relation to some cardiology services performed at certain hospitals. If Dr Pillay will no longer receive referrals of patients from Heartwest practitioners, and therefore lose this income source, the applicant says that it will suffer a loss of income by reason of a reduction in service fees chargeable to Dr Pillay. 10 The respondents seek to analyse the amount of income allegedly lost by the applicant, and the apparent assumption by Mr Stone that a loss of income to Dr Pillay is also a loss of income in the same amount to the applicant. They say that this is contrary to Dr Pillay's own evidence that the applicant receives 40% of fees invoiced by Dr Pillay to his patients. Additionally, the respondents submit that the services agreement gives Dr Pillay discretion whether or not to charge service fees in respect of particular hospitals at particular times. They refer in this regard to the definition of "Practice" in item 6 of schedule 1 of the services agreement, which forms part of the definition of "Gross Receipts" in annexure 1 from which the "Service Fee" is calculated. Dr Pillay's evidence is that he performs cardiology services in at least one hospital (being the Western Private Hospital) for which the applicant does not charge a service fee. The respondents also note that Dr Pillay has the ability to control the affairs of the applicant, being both a 50% shareholder and director. 11 The respondents submit that, for whatever reason, Dr Pillay has structured his affairs so as to apply part of his gross receipts, which would ordinarily form part of his own income, to service fees payable to the applicant. It follows, they contend, that the applicant's income is a product of two factors, being (i) the income generated by Dr Pillay himself, and (ii) Dr Pillay's determination as to how much of that income ought to be subject to the services agreement and payable to the applicant by way of service fees. The respondents submit that consideration of Dr Pillay's own tax returns, together with the applicant's financial information, will allow them and their independent expert to assess what income has been generated in the past and how that has been divided as between Dr Pillay and the applicant. This they say is material to the question what income (if any) the applicant has lost and may lose in the future. 12 The respondents note also that the claim that is made in the proceeding is for compensation under s 233(j) of the Act. Section 233 gives the Court a wide discretion, which is to be exercised by reference to the facts and circumstances of each case and by reference to the conduct in question "as a whole": Re Australian International Yacht Club Pty Ltd (2021) 152 ACSR 492 at 527-528 [124]-126] (Black J). 13 The respondents submit that the Court should not be called upon to assess an alleged loss of income in the context of a structure such as that set up by the services agreement without full visibility of the financial circumstances in question. They note that the applicant does not say that there is any hardship in producing these few documents, and that there is no basis for the allegation made by the applicant in its submissions that these documents are sought only to harass Dr Pillay. 14 The applicant submits that the relevant financial statements and tax returns of Dr Pillay are not relevant as he is not a plaintiff (he is a party by cross claim) and that there is no evidence that the documents are relevant to the cross claim. It is said that Dr Pillay's tax returns only include his taxable income and not the source of the income derived. It is submitted that the tax returns of Dr Pillay cannot rationally effect the probability that Ohanse has satisfied destruction of its Service Fee income, and the quantum of the loss suffered, as a result of the conduct alleged against the respondents. 15 The applicant accepts that Dr Pillay's patient billing revenue (or Gross Receipts, as it is relevantly defined) is relevant to the issue of whether the conduct of the respondents has caused a decrease in Dr Pillay's patient billings and thereby a reduction in the Service Fee income generated by Ohanse. The applicant notes that Dr Pillay's patient billings data is provided in the Stone Report and in certain annexures to the Quantum affidavit. 16 However the applicant submits that there is no evidence or reasonable explanation why a non-plaintiff's personal tax returns are rationally probative to the decline in Gross Receipts caused by the alleged conduct of the respondents to Ohanse. The applicant contends that it can only be Ohanse's income, derived by Service Fees issued to Dr Pillay for his patient billings, that is rationally probative to the issues in the proceeding. 17 I do not accept the applicant's submissions insofar as the financial statements and tax returns of Dr Pillay sought by the respondents as item 1 are concerned. As the respondents have submitted, notwithstanding Mr Stone's instructions to consider and opine "as to the loss of income to Dr Pillay/Ohanse", it appears that Mr Stone has not been instructed to consider the primary documents evidencing the current and prior income of Dr Pillay and Ohanse, namely their financial statements and tax returns. 18 In the circumstances I consider that the financial statements and tax returns of Dr Pillay are relevant to demonstrating the income in fact received by the applicant from Dr Pillay, and therefore relevant to the loss of income claimed by the applicant in the proceeding. The documents sought in item 1 of the respondents' request should be produced. They are relevant to an assessment of the accuracy or otherwise of Mr Stone's conclusions and the assumptions on which his report, asserting lost income on the part of the applicant, is based. As the respondents have submitted, it is important that the Court has available to it the primary documents relevant to the assessment of any claim for lost income. This is especially so in circumstances where the respondents submit that there are plain inconsistencies in the applicant's evidence as to: (a) whether it is alleged that the applicant's income comprised 40% of Dr Pillay's billings, as Dr Pillay's evidence suggests, or whether it comprised 100% of those billings, as its amended originating application and the Stone Report suggests; and (b) whether the applicant derived any income referable to Heartwest related referral work performed at the Western Private Hospital, which Mr Stone is instructed to assume is the case (see at 5.2.3) but which Dr Pillay's evidence says is not (see Dr Pillay's Affidavit of 8 July 2022 at [51]). Ohanse Pty Ltd's tax returns (item 3-5) 19 Similar considerations arise in relation to the tax returns of Ohanse for the financial years ending 30 June 2016 to 30 June 2022 in its capacity as trustee for the 3P Trust, the 8P Trust, and the CAP Services Trust sought by the respondents in items 3-5. As the respondents submit, it is likely to be an issue in the proceeding whether the applicant has any entitlement to the service fee income from external referrals it claims to have lost. This is because the proceeding was commenced by the applicant in its capacity as trustee for the 3P and 8P Trusts, claiming a loss of income, whereas the services agreement relied on by the applicant is between Dr Pillay and the applicant in its capacity as trustee for a different trust (the CAP Services Trust). 20 I accept that the tax returns of the applicant, in its capacity as trustee for the 3P and 8P trusts, are the primary records which evidence its income and that they are relevant to the applicant's alleged loss of income for that reason. The applicant does not say that those tax returns do not exist, or that there is any difficulty in producing them. 21 I accept also that given the services agreement relied on by the applicant is between Dr Pillay and the applicant in its capacity as trustee for the CAP Services Trust, the applicant's income as trustee for that trust is also likely to be important to determining what (if any) income the applicant has lost. The primary records evidencing that income should be produced. I do not accept the applicant's submission that the relevant tax returns are not relevant and rationally probative of the amount of income said to have been lost by the alleged conduct of the respondents. Service fee invoices (items 6-9) 22 The respondents have sought service fee invoices for the periods 1 July 2015 to 31 August 2022 between Dr Pillay and the applicant in each of its capacities as trustee for the 3P Trust, the 8P Trust and the CAP Service Trust. They seek these invoices on the basis that, if they exist, they will evidence the amount of income the applicant has derived from Dr Pillay, and also expose the capacity in which this income is received by the applicant (ie. in its own right, as trustee for the 3P Trust, the 8P Trust, the CAP Services Trust or some other trust). 23 The applicant has stated that it did not issue any service fee invoices in its own right, or in its capacity as trustee for the 3P Trust or the 8P Trust, and therefore that the documents sought by the respondents in items 6 to 8 do not exist. Additionally it says that the invoices issued in its capacity as trustee for the CAP Service Trust (item 9) between 1 July 2015 to 30 April 2022 have now been produced, and are included in the Quantum affidavit. 24 The respondents accept that the service fee invoices sought in items 6 to 8 do not exist, however they note that some invoices issued in the applicant's capacity as trustee for the CAP Services Trust for certain periods have not in fact been provided in the Quantum affidavit and press for their production. The relevant invoices are for the periods 1 June 2017 to 30 June 2017, 1 January 2021 to 30 June 2021, 1 January 2022 to 31 January 2022 and 1 May 2022 to 31 August 2022. If these invoices exist they are relevant for the reasons stated above and should be produced. Clinical Computers Office Systems data (items 10-12) 25 The final category of documents the production of which seems to be in dispute is the Clinical Computers Office System data of Dr Pillay's Patient Analysis Hospital Billings from 1 July 2015 to 31 August 2022 for Western Private Hospital, Epworth Richmond and St Vincent's Private Hospital Werribee. 26 The respondents submit that the data sought by these items is data in the same form as that provided by the applicant to Mr Stone in respect of the Cabrini Hospital, but in respect of the Western Private Hospital, Epworth Richmond and St Vincent's Private Hospital Werribee. They submit that the relevant data, which includes the identification of the referring practitioner, is critical to determining what proportions of Dr Pillay's billings were referrable to Heartwest referrals and what proportion were not, as well as determining what proportion of Heartwest referrals were performed at the Western Private Hospital (from which Dr Pillay's evidence is that the applicant derived no service fee). 27 The respondents note that in the Quantum affidavit at paragraphs [44] to [47], Dr Pillay refers to the Cabrini data as "Referral Data", and states that he obtained that data by causing the Clinical Computers Office System to generate a report including it. The applicant has not said that the same report cannot be generated for the Western Private Hospital, Epworth Richmond and St Vincent's Private Hospital, or that there would be any hardship in producing that data. 28 For the reasons identified by the respondents I consider that such referral data in respect of the Western Private Hospital, Epworth Richmond and St Vincent's Private Hospital Werribee, as was provided to Mr Stone in respect of the Cabrini Hospital, is relevant to the issues in dispute and should be produced. I accept that it would assist the respondents in identifying what proportion of Dr Pillay's billings were referrable to Heartwest referrals, and therefore in the identification of the quantum of lost income claimed by the applicant. To the extent that the applicant submits otherwise (and the applicant's position in relation to this referral data is not altogether clear) I do not accept this submission. Costs 29 In my assessment the respondents' discovery application of 13 September 2022 was reasonably made and well justified by the supporting written submissions. I do no regard it as premature, as the applicant has contended, and nor can it fairly be said to have been oppressive or harassing. In the circumstances as they have unfolded the respondents should have their costs of the application. Orders 30 The orders to be made will be as set out at the commencement of these reasons. I will hear the parties at the case management hearing on 12 October 2022 as to the date by which the relevant discovery is to be provided, if it has not by then been provided, and any other consequential matters. I certify that the preceding thirty (30) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice McEvoy. Associate: Dated: 10 October 2022 SCHEDULE OF PARTIES VID 157 of 2022 Respondents Fourth Respondent: DEEPAK HAIKERWAL Fifth Respondent: MARK KRAWCZYSZYN Sixth Respondent: JEREMY PEREIRA Seventh Respondent: RASHID BASHIR Eighth Respondent: HENMAZ PTY LTD (ACN 061 692 242) Ninth Respondent: ARMIKRAW PTY LTD (ACN 093 123 301) Tenth Respondent: JEREMY PEREIRA PTY LTD (ACN 104 629 245) Eleventh Respondent: WAH INVESTMENTS PTY LTD (ACN 164 631 403) Twelfth Respondent: A99 INVESTMENTS PTY LTD (ACN 151 028 634) CROSS CLAIM Cross-Claimant DEEPAK HAIKERWAL Second Cross-Claimant MARK KRAWCZYSZYN Third Cross-Claimant JEREMY PEREIRA Fourth Cross-Claimant RASHID BASHIR Fifth Cross-Claimant HENMAZ PTY LTD (ACN 061 692 242) Sixth Cross-Claimant ARMIKRAW PTY LTD (ACN 093 123 301) Seventh Cross-Claimant JEREMY PEREIRA PTY LTD (ACN 104 629 245) Eighth Cross-Claimant WAH INVESTMENTS PTY LTD (ACN 164 631 403) Ninth Cross-Claimant A99 INVESTMENTS PTY LTD (ACN 151 028 634) Cross Respondent OHANSE PTY LTD Second Cross Respondent PRAKASH PILLAY