Supreme Court New South Wales Medium Neutral Citation: In the matter of Flow Tech Australia Pty Limited [2013] NSWSC 1226 Hearing dates: Monday 22 July 2013 Decision date: 22 July 2013 Jurisdiction: Equity Division - Corporations List Before: Brereton J Decision: 1. On the first, second and third defendants' motion filed 2 July 2013, order pursuant to UCPR r21.11 that the first defendant need not produce for inspection the documents referred to in the plaintiff's Notice to Produce of 17 May 2013 2. On the plaintiff's amended interlocutory process filed 10 July 2013, order that the defendants produce for inspection by the plaintiff and his duly authorised agents: a) by noon on 23 July 2013 a print out, photocopy, or readable electronic copy of the MYOB ledger, accounts journals, profit & loss accounts, and cash flow statements for the period 1 July 2011 to date in respect of the first defendant b) by noon 24 July 2013: i. the originals or photocopies of the first defendant's cheque book stubs or equivalent for the period 1 July 2011 to date; ii. originals or copies of statements of account for bank accounts operated by the second defendant, the third defendant, M&A Hockley Investments P/L, C&K Investments P/L & Flowtech Australia P/L for the period 1 July 2012 to date; and iii. original or copy ATO running account statements for the first defendant for the financial years ending 30 June 2011, 30 June 2012 and the current financial year, and the first defendant's Business Activity Statements for the last two quarters for the year ending 30 June 2013 3. Otherwise dismiss the Amended Interlocutory Process 4. No order as to costs to the intent that each party bear its own costs of the motions Catchwords: PRACTICE & PROCEDURE - notice to produce - production pursuant to notice incomplete - plaintiff seeks court order for production of documents - whether notice to produce was oppressive - where documents would amount to over 100,000 pages - where confidentiality asserted - evidence does not support claim for confidentiality - where documents sought significantly predate relevant conduct - CORPORATIONS - applicant seeking orders pursuant to Corporations Act, s 1303 - whether order for production of all company's books would be oppressive Legislation Cited: (NSW) Civil Procedure Act 2005, s 65, s 68 (Cth) Corporations Act 2001, s 9, s 198F, s 1303 (NSW) Uniform Civil Procedure Rules 2005, r 21.11 Category: Interlocutory applications Parties: David McGill (plaintiff) Flow Tech Australia Pty Ltd (first defendant) Christopher Peter Jaques (second defendant) Michael Shaun Hockley (third defendant) Representation: Counsel: Mr D Allen (plaintiffs) Mr M Sneddon w Mr K Tang (defendants) Solicitors: Dib Lawyers (plaintiff) McKells Solicitors (defendants) File Number(s): 2012/ 390359 Judgment (Ex tempore) 1HIS HONOUR: In the substantive proceedings the plaintiff David McGill, a former director of the first defendant Flow Tech Australia Pty Limited, seeks declaratory relief to the effect that 50 per cent of the shares in Flow Tech issued to the second defendant Chris Jaques are held upon trust for the plaintiff, and consequential orders having the effect of re-instating the plaintiff to a 50 per cent beneficial ownership of the total shareholding. He also seeks the winding up of Flow Tech on the oppression and/or just and equitable grounds, and alternatively the appointment of an expert to value the shares in Flow Tech and a compulsory purchase order, presumably also on grounds of oppression. 2The matter was listed for hearing for four days commencing on 30 July 2013. There are no pleadings, nor have I been taken to any request for particulars as such of the grounds of oppression or the matters which render it just and equitable that the company be wound up, but some general idea of the plaintiff's complaints may be gained from Mr McGill's affidavit of 14 December 2012 in which, in paragraph 4, he sets out his "concerns" which relevantly include: (b) that he has been excluded from participating in the business and from receiving any remuneration and dividends; (c) that his access to Flow Tech's online banking has been removed; (f) that in excess of $750,000 held in a separate bank account and available for distribution to shareholders by way of dividend had not been distributed; (h) that he was no longer receiving any payments from Flow Tech; (i) that in perusing bank statements at Flow Tech he had seen evidence of the third defendant, Mike Hockley, taking money to which he was not entitled. 3More or less as the service of affidavit evidence in the substantive proceedings was completed, a direction was made by the Registrar by consent on 15 April 2013, "Note parties are to give informal discovery." The proceedings were adjourned to 22 April 2013 before the Corporations List Judge and on that day were fixed for hearing. 4On 30 April 2013, the plaintiff served on the defendants a Notice to Produce of that date, claiming production of the following documents: 1. Copy of Financial Accounts including MYOB records for the first defendant for the period 20 June 2012 to date. 2. Copy of the Company Register for the first defendant. 3. Copy of the Registers of Minutes of company and director meetings maintained by the first defendant. 4. Copy of the Share Register for the first defendant. 5. Copy of Bank Statements of the first defendant for accounts with any financial institution for the period 1 November 2012 to date. 6. Copy of all Contracts entered into between the first defendant and Thales Australia for the period 30 June 2012 to date. 7. Copy of all Business Activity Statements prepared on behalf of the first defendant for the period 30 June 2012 to date. 8. Copy of the last 3 tax returns prepared or lodged with the Australian Taxation Office for or on behalf of the first defendant. 9. Copy of all letters, correspondence, and files held in relation to instructions given to Lee, Hourigan and Brooks, Solicitors in relation to allocation, issues, withdrawals and or revocation of shares held by Savea Pananpsa Flexman and Gary Poultney. 10. Copy of Credit Card Statement held by the first defendant in relation [to] credit cards held by the second and third defendants for the period 30 June 2012. 5On 2 May 2013 the defendants' solicitors responded in the following terms: With reference to your letter of 30 April 2013 the writer will be out of the office for the next two weeks and therefore unable to supply requested documentation within the time specified in your notice to produce. A copy has been sent to our clients and we have asked them to collate all requested material. We will endeavour to get copies of the documentation to you by the end of this month. 6Documents were produced pursuant to that Notice to Produce in late June 2013. At the time of that production, there does not appear to have been any indication that the production was incomplete, nor was any claim for confidentiality advanced. 7On 10 July 2013, the plaintiff filed an interlocutory process which, as amended in Court today, claims the following relief: 1. An order that the first, second and third defendants provide for inspection by the plaintiff and his agents, by providing a print out or photocopy of the same within 1 day, the following documents: a. The MYOB ledger accounts for the first defendant for the period 1 July 2010 to date, or if the are no MYOB records, the ledgers and journals kept for the same period. b. All profit and loss statements, cash flow statements, cash flow projections and profit and loss statements for the period 30 June 2011 to date, including all end of year financial statements adopted by Flow Tech Pty Ltd during the period. c. Cheque book stubs for the period 1 July 2010 to date. d. Statement of account for accounts operated by second and third defendant, M & A Hockley Investments Pty Ltd, C & K Investments Pty Ltd and Flow Tech Australasia Pty Ltd for the period 1 July 2012 to date. e. ATO running account balance statements covering the financial years ending 30 June 2011, 30 June 2012 and the current financial year and Flow Tech Pty Ltd's BAS statements for the last 2 quarters of the financial year ending 30 June 2013. 2. An order pursuant to s 1303 of the Corporations Act that the second and third defendants make available to the plaintiff and his agents the books of the first defendant by: a. Providing a copy of the books to the first plaintiff's solicitor by 9am on 23 July 2013; and b. Permitting the plaintiff and his solicitor to inspect the books at the first defendant's premises beginning from 9am on 23 July 2013 to the conclusion of these proceedings. 8This relief is said to be sought pursuant to (NSW) Civil Procedure Act 2005, s 61. I doubt that this is an appropriate basis on which to found the relief claimed. That section is primarily concerned with directions to facilitate the speedy determination of the real issues. Specific provision is made in respect of orders for the production of documents by Civil Procedure Act, s 68, which provides that subject to the Rules of Court, the Court may by subpoena or otherwise order any person to, inter alia, produce any document or thing to the Court. If the Civil Procedure Act is to be invoked for the present purpose, then it seems to me that s 68 and not s 61 provides the relevant jurisdictional basis. As a party may procure production of documents by subpoena or Notice to Produce without recourse to s 68, it ought not be the usual basis for procuring the production of documents in aid of litigation. 9However, I shall turn to the respective claims in claim 1 of the amended interlocutory process. The affidavit of Mr Hourigan in response to the interlocutory process makes clear that the production under paragraph 1 of the Notice to Produce of MYOB records was incomplete. He seeks to justify that, if it could be justified, on the basis that the complete accounts would constitute over 100,000 pages and possibly exceed 200,000 pages. In the context that it is commonplace to have multiple lever arch folders of documents produced, that is not in my view of itself oppressive. It is then said that the MYOB accounts contain pricings, contract costing and other material which are confidential "to the business of Flow Tech", but the evidence singularly fails to make out a basis for asserting confidentiality, particularly against a person who was a director of the company for most of the relevant period. 10The plaintiff in his affidavit says that, whereas he previously sought production only for the last financial year (namely, the period July 2012 to date), he now seeks it for the previous financial year. The order sought dates back to 1 July 2010, but a relevant basis for periods so long before the plaintiff's alleged exclusion has not, at least at this stage, been established. Such material might be relevant when it comes to valuing the company, but when all that is sought at this stage is to compare patterns of expenditure before the plaintiff's exclusion, with those after the plaintiff's exclusion, I see no relevance in documents that predate 1 July 2011. The plaintiff should have production of the MYOB ledger accounts, journals, profit and loss and cash flow statements for the period 1 July 2011 to date. That covers subparagraph (b) as well as subparagraph (a). 11As the plaintiff seeks to establish that funds have been disproportionately applied for the benefit of the defendants and to his detriment or exclusion, cheque stubs - which will evidence the payees of funds - are likely to advance or refute his contentions in that regard. Accordingly, the plaintiff should have production of cheque, book stubs for the period 1 July 2011 to date. 12Subparagraph (d) sought statements of account for bank accounts operated by the second and third defendants, companies associated with them, and a company with a similar name that has apparently been incorporated by them. While at first I doubted whether such an order was necessary, given that the expenditure of the first defendant's funds should be ascertainable from its own accounts - including whether it had made payments to the other defendants or entities associated with them - in his affidavit of 9 July, Mr McGill refers to payments identified in one of the few MYOB documents produced by the defendants of payments to "consultants, cruise ships" of which he has no knowledge but which he suggests may be the second or third defendants. In Mr Hockley's affidavit, which responds paragraph-by-paragraph to Mr McGill's affidavit, it is conspicuous that the one paragraph calling for a response that is not responded to is paragraph 21. In those circumstances it seems to me that a case for supposing that the bank accounts of the defendants and their associates might reveal or clarify whether payments have been made from the first defendant's funds to them is warranted. 13Finally, subparagraph (e) seeks the Tax Office running account balance statements for relevant years. It is not disputed that the plaintiff should have production of those documents nor could it be in the light of Mr Hockley's explanation for the expenditure of the $750,000 or so dollars referred to by Mr McGill "to payment of tax liabilities and creditors." 14Turning to claim 2 in the interlocutory process, Corporations Act, s 198F provides as follows: (2) A person who has ceased to be a director of a company may inspect the books of the company (including its financial records) at all reasonable times for the purposes of a legal proceeding: (a) to which the person is a party; or (b) that the person proposes in good faith to bring; or (c) that the person has reason to believe will be brought against them. This right continues for 7 years after the person ceased to be a director of the company. ... Company not to refuse access (4) A company must allow a person to exercise their rights to inspect or take copies of the books under this section. Interaction with other rules (5) This section does not limit any right of access to company books that a person has apart from this section. 15Section 1303 provides as follows: Court may compel compliance If any person in contravention of this Act refuses to permit the inspection of any book or to supply a copy of any book, the Court may by order compel an immediate inspection of the book or order the copy to be supplied. 16In an affidavit sworn 22 July 2013, Mr McGill deposes that he had a telephone conversation with Mr Jaques on 12 July at 9.05am in which he said that he wanted to come to the office and inspect the books and the records of the company, to which Mr Jaques is said to have responded, "No, you cannot get access to anything, we are going all the way, you can go through your solicitor." When Mr McGill asked, "So I cannot get access to anything so I can advise my solicitor and barrister?" Mr Jaques responded, "No you cannot get access, goodbye." 17This is said to found the application under s 1303. Relief under s 1303 is discretionary. The definition of "books" as referred to in s 198F is to be found in s 9 as follows: "books" includes: (a) a register; and (b) any other record of information; and (c) financial reports or financial records, however compiled, recorded or stored; and (d) a document; but does not include an index or recording made under Subdivision D of Division 5 of Part 6.5. 18This is a very wide definition. The terms of s 1303 contemplate refusal of access to copy of a book or record and an order for production for inspection or a copy of that book or record. It seems to me that to make an order in the terms sought, referring to all the books of the company, would be unnecessary and oppressive. It might have been otherwise had a particular book or books been identified, but that that has not been done. I will therefore not make an order under s 1303. 19On 17 May 2013, the plaintiff served a further Notice to Produce for inspection, seeking production for inspection of the following documents: Copy of all Contracts entered into between the first defendant and the following companies for the period 30 June 2012 to date: a. UGL Limited; b. BAE Systems Australia; c. Forgacs Engineering Pty Ltd; and d. Rolls Royce. 20On 5 June, the defendants' solicitors responded that the notice was onerous, that the documents sought were relevant only to valuation which would take place only if the alternative order to which I have referred were made and which was not presently in issue, and that it would take some days to assemble the relevant documents if pressed. As an alternative, a list of invoices was offered. This response was repeated on 21 June, when a motion to set aside the notice was foreshadowed if production of the list of invoices was not accepted. 21On 2 July 2013, the defendants filed a Notice of Motion seeking to have the notice set aside. When it came on for hearing before the Court today, the plaintiff indicated that the notice was not pressed in the prevailing circumstances, including that contracts in respect of another company had been produced under the first notice and inspected, and that there would be other things for which the plaintiff would require the few days remaining until trial. Nonetheless, the plaintiff never appears to have effectively responded to the defendants' complaints about the notice of 17 May which were raised at least twice, if not three times, by correspondence. 22On the first, second and third defendants' motion filed 2 July 2013 order pursuant to UCPR r21.11 that the first defendant need not produce for inspection the documents referred to in the plaintiff's Notice to Produce of 17 May 2013. 23On the plaintiff's amended interlocutory process filed 10 July 2013 order that the defendants produce for inspection by the plaintiff and his duly authorised agents: a) by noon on 23 July 2013, a print out, photocopy, or readable electronic copy of the following documents: the MYOB ledger, accounts journals, profit and loss accounts, and cash flow statements for the period 1 July 2011 to date in respect of the first defendant b) by noon 24 July 2013: i. the originals or photocopies of the first defendant's cheque book stubs or equivalent for the period 1 July 2011 to date; ii. originals or copies of statements of account for bank accounts operated by the second defendant, the third defendant, M&A Hockley Investments P/L, C&K Investments P/L & Flowtech Australia P/L for the period 1 July 2012 to date; and iii. original or copy of ATO running account statements for the first defendant for the financial years ending 30 June 2011, 30 June 2012 and the current financial year, and the first defendant's Business Activity Statements for the last two quarters for the year ending 30 June 2013. 24Otherwise dismiss the Amended Interlocutory Process 25I make no order as to costs, to the intent that each party bear its own costs of the motions. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 14 November 2013