Supreme Court New South Wales Medium Neutral Citation: Athena Investments Holdings LLC v AJ Lucas Group Ltd [2013] NSWSC 1837 Hearing dates: 19 November 2013 Decision date: 13 December 2013 Jurisdiction: Equity Division Before: Robb J Decision: (1)The court, subject to par (2), proposes to make orders that the defendant give discovery to the plaintiff of the documents in the categories listed in pars 1(a) to (f) and (h) of its Summons dated 21 June 2013. (2)The court directs the parties to bring in short minutes of order (which may suggest variations to the proposed orders which accord with these reasons for judgment). (3)The court directs the parties to deliver written submissions as to the costs order that should be made on the application and in respect of the provision of discovery within 7 days. Catchwords: APPLICATION FOR PRELIMINARY DISCOVERY - whether plaintiff satisfies Rule 5.3 Uniform Civil Procedure Rules 2005 - whether plaintiff satisfies requirement that it may be entitled to make claim against defendant - potential entitlement of plaintiff to sue defendant for making misleading or deceptive representations to it - whether defendant made representation it would definitely draw down the loan facility - whether representations made to related company were received by plaintiff. Legislation Cited: Australian Consumer Law Uniform Civil Procedure Rules 2005 Cases Cited: Bio Transplant Inc v Bell Potter Securities Ltd [2008] NSWSC 694 Hatfield v TCN Channel Nine Pty Ltd (2010) 77 NSWLR 506 Steffen v ANZ Banking Group [2009] NSWSC 883 Category: Interlocutory applications Parties: Athena Investments Holdings LLC (Plaintiff) AJ Lucas Group Limited (Defendant) Representation: Counsel: I Jackman SC and K Dawson (Plaintiff) J Stoljar SC and A d'Arville (Defendant) Solicitors: Corrs Chambers Westgarth (Plaintiff) King & Wood Mallesons (Defendant) File Number(s): 2013/190197 Judgment 1The plaintiff in this matter is Athena Investments Holdings LLC (Athena), which is a limited liability corporation incorporated in Delaware in the United States of America. 2The defendant, AJ Lucas Group Ltd (AJL), is a public company listed on the Australian Securities Exchange (ASX). AJL's primary business is the provision of drilling services to the coal and coal seam gas industries; engineering complex civil infrastructure and commercial development projects. 3Athena seeks an order that AJL give discovery to Athena, under Uniform Civil Procedure Rules 2005 r 5.3, of the documents in the categories listed in pars 1(a) to (f) and (h) of its summons. Athena abandoned its application in relation to par 1(g) at the hearing of the application. 4Athena is listed as the first plaintiff in the summons. The second plaintiff is Elliott Advisors (HK) Ltd (Elliott HK). Elliot HK discontinued its application on 12 September 2013. 5At the hearing AJL made a number of concessions concerning the satisfaction by Athena of the requirements of r 5.3. First, AJL accepts that Athena is for the purposes of r 5.3(1)(a), having made reasonable enquiries, unable to obtain sufficient information to decide whether or not to commence proceedings against AJL. Secondly, AJL accepts that, within r 5.3(1)(b), it may have or have had possession of a document or thing that can assist in determining whether or not Athena is entitled to make a claim for relief against it. Thirdly, under r 5.3(1)(c), AJL accepts that inspection of such a document would assist Athena to make the decision whether or not to commence proceedings. 6AJL challenged Athena's claim that it had satisfied that part of r 5.3(1)(a) that requires that Athena may be entitled to make a claim for relief from the court against AJL. 7Athena limited its claim at the hearing to a possible entitlement to sue AJL on the ground that it had made a number of misleading or deceptive representations to Athena, upon which Athena had acted to its detriment, so that Athena has a cause of action against AJL for contravention of s 18 of the Australian Consumer Law, and additionally a cause of action for breach of a number of provisions of a Facility Agreement between Athena and AJL, by which AJL warranted to Athena that information which AJL had provided was not misleading or deceptive. Athena did not rely upon a breach of contract claim that it had foreshadowed earlier. 8The essence of AJL's defence to Athena's claim is that, on the evidence, Athena has absolutely failed to prove that it had received or acted upon any misleading or deceptive representations made by AJL. AJL's position is that, if any relevant representations were made by AJL, which is not conceded, they were made to Elliott HK, and there is a total lacuna in the evidence capable of establishing that any representations made by Elliot HK were passed on to Athena, or acted upon by that company. 9AJL made submissions to the effect that the evidence upon which Athena relied to establish the representations was inadequate to establish that the alleged representations were made, and AJL suggested one basis upon which the court should exercise its discretion not to grant the relief sought by Athena. I will return to consider these submissions after I have dealt with the relevant facts that were established by the evidence before the court on the application. 10It is appropriate to commence with a consideration of the relationship between Athena and Elliott HK and related companies, and also the persons who participated in events on behalf of those companies in their dealings with AJL. 11The evidence that was tendered for the purposes of the application under r 5.3 shows that Athena was incorporated on 5 April 2013. It is not necessary to explore the detail of the legal arrangements into which Athena entered immediately after its incorporation under the law of Delaware. Athena entered into an operating agreement with effect from 5 April 2013 with Manchester Securities Corporation, which was described as the "Managing Member". At all relevant times Manchester Securities Corporation has been the only member of Athena. Relevantly, the operating agreement nominated Mr Paul E Singer as the president of the company, as well as three persons, including Mr Elliot Greenberg, as vice presidents of the company. The Managing Member and any officer of Athena were authorised to execute any documents on behalf of the company. Mr Greenberg signed the operating agreement on behalf of both Athena and Manchester Securities Corporation. 12Mr Singer is the owner of Elliott Capital Advisors, LP, which in turn owns Elliott Management Corporation. That company and certain of its affiliates provide discretionary investment advice and other services to a number of entities that are in essence investment funds. Elliot Management Corporation together with a number of companies described as "Offshore Advisors", which include Elliott HK, through their staff, provide professional expertise and support with respect to the funds' trading strategies. 13Its solicitor, Mr Korbel, in three affidavits, gave the evidence in support of Athena's application. Mr Korbel gave evidence that Elliott HK and Athena are both part of Elliott and Affiliates, and that Elliott and Affiliates is a global private investment firm that currently has around US $22.1 billion in assets under management. The evidence does not appear to identify in any precise way which entities constitute Elliott and Affiliates. According to Mr Korbel, Mr James Nicholas Barrie Smith is the managing director of Elliott HK. Mr Smith has the responsibility for providing investment opportunities that Elliott HK recommends to other Elliott and Affiliates entities. Mr Korbel gave evidence on information and belief from Mr Smith's "that Mr Smith has been with Elliott and Affiliates since 2001". Just as the evidence does not appear to make clear which entities constitute Elliott and Affiliates, it does not make clear who is the employer of Mr Smith, or what the employer's relationship is with Elliott HK and Athena. I am satisfied, however, that for the purposes of an application under r 5.3, the evidence is sufficient to establish that Mr Smith is a relatively senior executive employed within the Elliott and Associates group of entities, and that one of his roles is to act as the managing director of Elliott HK. 14Mr Korbel also gave evidence on information and belief from Mr Smith that Mr Smith "was responsible for directing the negotiation strategy, on behalf of both Elliott HK and Athena, concerning the proposed debt and equity investment into AJL" which was the transaction which has given rise to the present application. 15Mr Korbel gave further evidence on information and belief from Mr Smith that "it was [Elliott HK] which identified, and was responsible for negotiating the terms of, the investment which is the subject of these proceedings". 16Mr Smith also informed Mr Korbel that the day-to-day negotiations on behalf of Elliott HK with AJL were conducted by Kenneth Ng, one of Elliott HK's executive directors. Mr Ng kept Mr Smith generally apprised of progress on the negotiations, and they discussed issues that arose in the negotiations as and when necessary. 17The evidence establishes that in early 2013 Elliott HK considered that AJL was in a difficult financial position. AJL's 2012 Annual Report stated that the AJL group generated a loss after income tax of $110.2 million for the year ended 30 June 2012. At 30 June 2012 the group's current liabilities exceeded its current assets by $131.0 million. Subsequent to year-end, AJL's bank, the ANZ, accelerated the maturity date of its facilities to 30 November 2012. The total amount of the facilities was $26 million. The Annual Report contained a statement that uncertainty existed in relation to the group's ability to continue as a going concern. 18On 7 December 2012 AJL announced to the ASX that the ANZ had agreed to extend the maturity date of its facilities to 14 February 2013, and that AJL had received various indicative proposals from selected parties regarding refinancing the facilities. 19These matters led Elliott HK in early 2013 to consider that AJL required a comprehensive restructuring of its financial arrangements in order to support its working capital requirements, reduce its debts and improve its profitability. The acceleration of the repayment date by the ANZ, and the subsequent resetting of the maturity date to 14 February 2013, caused Elliott HK to consider that AJL was under significant pressure to arrange a restructure of its financing arrangements. 20Elliott HK began developing a financial proposal for AJL. In early February 2013 discussions took place between Elliott HK and AJL in relation to the terms of the proposal. 21On 13 February 2013 AJL issued an ASX announcement in which it stated that the company had received and was considering proposals related to a structured Finance facility of $75 million. Elliott HK's proposal was one of the proposals referred to in the announcement. 22On 28 February 2013 AJL's Interim Report for the half year ending 31 December 2012 was made available by the ASX. It recorded that for the half year ending 31 December 2012 the company generated a loss after income tax of $42.6 million. Current liabilities exceeded current assets by $63.2 million. The ANZ was reported to have reset the maturity date to 31 March 2013. Again, doubt was expressed in relation to the group's ability to continue as a going concern. 23These matters caused Elliott HK to believe that AJL was under significant pressure to conclude the bidding process and reach an agreement in principle with the selected financier for a restructure of its financing arrangements prior to 31 March 2013. 24Mr Ng was advised by AJL on about 12 March 2013 that Elliott HK had been short-listed as one of the two institutions under consideration by AJL to provide the financing. As requested Elliott HK sent a draft Term Sheet to AJL on 15 March 2013. Negotiations then took place concerning the wording of the Term Sheet. Mr Ng believed that if Elliott HK were chosen as the financier, AJL would reject the other financing proposals which had been made. 25On 19 March 2013 Elliott HK and AJL entered into a legally binding Term Sheet. The Term Sheet was subject to conditions which are not now material. It provided that "this term sheet will automatically terminate and expire at 6 pm Hong Kong time on 10 May 2013 (the "Longstop Time") and the parties will have no further obligations under or with respect to this term sheet or the Investment if before the Longstop Time not all of the conditions described in paragraph 9 of this term sheet has been satisfied or waived..." 26The term "Elliott" was defined as meaning "such entities as Elliott may determine should make the Investment". Athena is the entity that Elliott HK chose to perform the role of "Elliott" under the Term Sheet. 27The Term Sheet provided for loans in two tranches, called the "First Tranche Loan" of US $55 million, and the "Second Tranche Loan" of US $15 million. Clause 2 of the Term Sheet provided in relation to the First Tranche Loan that: "Elliott will, at Closing, make a term loan available to AJL". As to Drawdown: "The Principal Amount will be drawn down by AJL in full at Closing" (emphasis added). US $30 million "will be used by the Group to meet its payment and repayment obligations in respect of the loan facility granted to AJL by" the ANZ (emphasis added). US $25 million "will be used solely for the Group's general working capital purposes" (emphasis added). Athena relies on the words that have been emphasised in support of its case that AJL made a representation in the Term Sheet that AJL would definitely drawdown the whole of the First Tranche Loan. 28Clause 3 provided for the issue of "First Tranche Warrants" by AJL to Elliott at Closing in the terms "AJL will issue warrants to Elliott" (emphasis added) which if exercised would equal 4.75% of the total issued share capital of AJL. Athena also relies on the use of the expression "will issue" as supporting a representation that the warrants would definitely be issued. 29The Second Tranche Loan is dealt with in clause 5 in terms that expressly make it clear that "AJL will have the right but not the obligation to draw down the Second Tranche Loan". This arrangement in relation to the Second Tranche loan supports, in Athena's submission, the inference that the drawdown of the First Tranche Loan was not intended to be discretionary. 30Clause 10 is entitled "Access to Information and Exclusivity". It provides in subclause (ii): "In the light of Elliott's intended expenditure of time and resources in connection with this term sheet and the fact that this term sheet is legally binding on the parties to it, from signature of this term sheet until the Longstop Time (the "Exclusivity Period"), except with the prior written consent of Elliott, AJL will not, and AJL will procure that its directors, employees, agents and advisors and any other member of the Group, and their respective directors, employees, agents and advisors will not, either directly or indirectly (whether or not in conjunction with any third party), using whatever means: (i) enter into or continue, facilitate or encourage, any discussions or negotiations with any other party relating to any debt or equity or other investment in relation to the Group and/or any of their respective assets... (all or any of the foregoing being referred to as a "Competing Offer"); or (ii) enter into any agreement or arrangement with any other party relating to a Competing Offer; or (iii) make available any information relating to the Group and/or its assets and/or its business (save to Elliott and any other person details of whom Elliott shall notify to AJL) in connection with a Competing Offer." 31Athena submits that the wording of the Term Sheet that suggests that AJL would definitely draw down the First Tranche Loan and that AJL would not deal with any other competing party during the exclusivity period, constituted representations to that effect. Athena does not seek to enforce the Term Sheet contractually, but says that the making by AJL of the contractual promises embodies representations that it will act in accordance with its promises. 32The evidence is that Mr Smith and Mr Ng understood that AJL had made these representations. The exclusivity provision in clause 10 was an important commercial protection for Elliott and Affiliates, given the significant amount of time and resources being expended on the negotiation of the financing arrangement with AJL and the significant expected investment returns. 33On 21 March 2013 AJL issued an ASX announcement in which it stated that it had signed the Term Sheet and further as to "Use of proceeds" in relation to the First Tranche Loan: "US $30 million to repay all facilities provided by the Group's senior lender" and "US $25 million for working capital". The equivalent statement in relation to the Second Tranche Loan concerning its availability was: "On 30 September 2013 at the Company's option, subject to the Company meeting certain operating targets" (emphasis added). Mr Ng read the announcement. Athena relies upon the different treatment of the two tranches in the announcement as supporting its claim that AJL represented that it would definitely draw down the First Tranche Loan. 34The announcement also stated: "It is expected that the Facility will be available for draw down by no later than mid-May 2013" and that AJL's CEO had described the facility as "the final piece in the reconstruction of Lucas' balance sheet". Athena claims that these statements support its claim that AJL was representing that it would make the drawdown and that it was not dealing with any party other than Elliott HK. 35AJL notified the ASX on 28 March 2013 that the ANZ had agreed to extend the maturity date on its facilities until 10 May 2013 to accommodate the timetable for a targeted drawdown under the Elliott HK financing in early to mid-May 2013. The notice stated that "agreement had been reached with the Hong Kong based advisor affiliate of a global private investment firm for the provision of a structured finance facility of up to US $70 million". 36Athena argues that this notice, which was read by Mr Ng, who advised Mr Smith of its contents, supports its representation case that AJL caused Elliott HK in the first instance to believe that it was only dealing with Elliott HK. 37Also on 28 March 2013, the solicitors for Elliott HK sent a first draft of the Facility Agreement to the solicitors for AJL for review. Clause 2.1 of the draft simply said in relation to both of the proposed tranches of the loan that the "Lender will make available to the Borrowers" the relevant tranche. The draft does not contain the words that are found in the various communications between the parties, and the Term Sheet, which suggest that AJL would be obliged to draw down the proposed First Tranche Loan. AJL submits that the absence of these words from the draft facility agreement has the effect that AJL was no longer representing that it would definitely draw down the First Tranche Loan, and that Elliott HK should have realised this. 38It may be that at a final hearing AJL will succeed in establishing that the effect of any earlier representation was neutralised by the terms of the first draft facility agreement. However, the wording of the draft is inconclusive, as it is possible that Athena may establish that Mr Smith and Mr Ng continued in fact to believe that AJL would act in accordance with the earlier representations, and that the absence of express words in the draft to compel AJL to draw down the First Tranche Loan simply reflected the understanding of Elliott HK that AJL was in fact committed to do so. 39It is also relevant that the first draft Facility Agreement, where it refers to the proposed Lender, does so in the following form "X LLC", where the actual name of the Lender is omitted. That suggests that the identity of the lender was not then known, but the use of "LLC" would have informed AJL that Elliott HK's solicitors had prepared a first draft Facility Agreement for a company which would be incorporated in a place that used the letters "LLC" as part of corporate names. AJL also ought to have appreciated from this aspect of the draft Facility Agreement that, as from 28 March 2013, at the latest, both the solicitors and Elliott HK were taking steps on behalf of the unidentified company. 40Mr Ng informed Mr Korbel that from an early stage Elliott HK advised AJL that the Elliott entity that would provide the finance would likely be a US entity. AJL was advised that Athena would be that entity on about 12 April 2013, which was the date of its incorporation. 41It will be necessary to deal more fully below with AJL's submission that, even if it did arguably make representations to Elliott UK, the evidence does not establish that those representations were made to Athena. As I understand Athena's case, it is that the company was incorporated as a special purpose vehicle solely for the purpose of being the Elliott and Affiliates entity that would provide finance to AJL. As Elliott HK was the proponent of the transaction within Elliott and Affiliates, and as Mr Smith and Mr Ng were the executives who were implementing the transaction on behalf of Elliott and Affiliates, they were in fact the officers of Athena who de facto were controlling the company. As such the knowledge of the transaction that they had acquired, including the conduct by AJL that is said to constitute the representations, was effectively the knowledge of Athena as and from the time of its incorporation. 42The term of the Term Sheet, and therefore the Longstop Time, was extended three times to 17 May 2013, 24 May 2013 and 31 May 2013 to accommodate delays in the parties negotiating the necessary documentation. 43The three letters that offered extensions of the term of the Term Sheet were written on the letterhead of Elliott HK, by Mr Smith as managing director, for and on behalf of Elliott HK. On the evidence these letters were written after AJL was informed that Athena was going to be the entity that entered into the facility agreement with AJL. This evidence suggests that Mr Smith, and through him Elliott HK, were acting on behalf of Athena, even if only informally. 44Mr Ng participated in a number of telephone conversations with representatives of the ANZ, at the request of AJL. In these conversations the ANZ appeared to seek assurance that Elliott and Affiliates (being in fact Athena) would provide the facility that was being negotiated. Mr Smith formed the view that the ANZ was anxious to be repaid as soon as possible. 45In another notice to the ASX on 10 May 2013, which was read by Mr Ng, who advised Mr Smith, AJL again advised that agreement had been reached to refinance AJL's Senior Lender facility by the provision of a new structured finance facility for up to US $70 million. That in context could only be a reference to the facility to be provided by Athena. 46On 28 May 2013 the solicitors for AJL sent an email to the solicitors for Elliott HK and Athena, which attached a draft notice of the meeting of members of AJL at which necessary resolutions would be put to enable AJL to enter into the Facility Agreement with Athena. 47The documents which accompanied the draft notice of meeting included a letter from the chairman to each shareholder which stated: "I am pleased to enclose details of a proposed combined debt restructuring and share placements, implementation of which will enable AJ Lucas Group Ltd (Company) to refinance various debts owed to its existing senior lender..." A number of statements in the draft letter confirmed, so Athena argued, that AJL was representing that its negotiations with Elliott HK on behalf of Athena were exclusive, that AJL would definitely implement the proposed agreement, and that at least the First Tranche Loan would be drawn down. These statements included: "If any of Resolutions 1 to 7 are not approved, neither the Debt Restructure Proposal or the Placements will be effected. Consequently, the Company will need to seek alternative financing solutions to repay the debts owed by it to ANZ which fall due on [26] July 2013..." Further, the letter conveyed the following board recommendation to shareholders: "Having regard to the critical importance of meeting the Company's funding requirements, the Board unanimously recommend the Shareholders VOTE IN FAVOUR of each (sic) the Proposed Resolutions." 48The Explanatory Statement which accompanied the draft notice of meeting included the statements "The funds received by the Company from the Athena Facility will be applied as follows: (a) up to US $32,000,000 of the Athena First Trance will be used to repay the Existing Senior Lender Facilities..." and "The Athena First Tranche Options will be issued under a prospectus to be issued by the Company" (emphasis added). 49The documents contained other statements to similar effect. Athena argued that these statements confirmed the representations that it alleges. The use of Athena's name shows that AJL must have understood that the statements made in the documents were being made to Athena, as well as to others. 50The Facility Agreement was executed on 31 May 2013. It contained in clause 2.1(a) the expression "will make available" which was contained in the first draft of the Facility Agreement, and did not expressly oblige AJL to draw down the First Tranche Loan. Clause 5.1 provided: "The Borrower may utilise the facility..." (Emphasis added). Mr Greenberg executed the document on behalf of Athena. 51Athena relies upon the provisions of clauses 13.2(b), 16.7(d) and 16.32 of the Facility Agreement as being, in effect, warranties that any representations made to Athena were correct and any statements of intention were fair and based on reasonable grounds. 52Clause 30.2 of the Facility Agreement gave the address of Elliott HK as the address of Athena's "agent" for service of notices on Athena. 53Mr Korbel gave evidence on information and belief from Mr Smith and Mr Ng that each of them believed, on the basis of the circumstances outlined above, that AJL had not acted contrary to the exclusivity agreement in clause 10(ii) of that Term Sheet, and that AJL would at least draw down the First Tranche Loan to meet its repayment obligation to the ANZ. They further say that, had they learnt before the facility agreement was entered into that AJL was not acting in accordance with the exclusivity agreement, and did not intend to draw down the First Tranche Loan, they would have "advised" Athena not to enter into the Facility Agreement, but instead would have negotiated amended or additional terms to ensure a favourable outcome for Athena. These terms may have included an express requirement that AJL draw down the First Tranche Loan, a prohibition on AJL issuing any shares until the draw down had occurred, and a requirement that AJL pay a significant sum by way of a break fee, in addition to any commitment fee, in the event that the First Tranche Loan was not drawn down. 54On 13 June 2013 AJL issued an announcement to the ASX that it had launched what it called the Balance Sheet Recapitalisation Plan that involved an institutional equity placement and pro-rata non-renounceable entitlement offer which was to raise up to A$148.8 million. It is not necessary to set out the details of the plan. It is sufficient to note that it operated as a complete alternative to AJL proceeding with the Facility Agreement, and AJL did not draw down any loans under that agreement. 55The announcement of the Balance Sheet Recapitalisation Plan came as a complete surprise to Mr Smith. 56Mr Korbel in par 65 of his 4 July 2013 affidavit lists on information and belief from Mr Smith 11 significant steps that Mr Smith believes AJL would have needed to implement before it was able to announce the Balance Sheet Recapitalisation Plan. It is not necessary to set out those steps in detail. The point Mr Smith makes is that it would appear to be entirely improbable that AJL could have implemented those steps between the time the Facility Agreement was signed on 31 May 2013 and 13 June 2013. It is self-evident that there is at least a considerable likelihood that AJL must have implemented some, if not many, of those steps during the course of the exclusivity period. AJL did not put before the court evidence to show that all of the steps were implemented after 31 May 2013. 57The claim that Athena submitted it "may be entitled to make" for the purposes of UCPR r 5.3(1)(a) is that it acted in reliance upon the representations discussed above, and entered into the Facility Agreement, without seeking to negotiate any of the additional advantages, also discussed above, which would give it some protection against the possibility that its endeavours would be wasted because AJL may elect to do business with a competitor rather than Athena. It accepts that it could not establish as a matter of certainty that AJL would have agreed to enter into a Facility Agreement on more advantageous terms, or even the nature of the particular terms that would have been agreed. It points to the fact that the ANZ had accelerated the date for repayment of its facility, and had given short-term extensions. It was commercially essential for AJL to secure a facility to repay the ANZ, or risk the ANZ exercising its security rights. The very fact that AJL was negotiating with Elliott HK initially, and then with Athena, under a contractual exclusivity agreement, even if that was only in fact a fallback position from AJL's point of view, suggests that if Elliott HK and then Athena had known the true position, each at the relevant time would have had substantial bargaining power to require AJL to agree to more advantageous terms as a condition to Elliott HK and then Athena continuing to negotiate with it. Athena's claim is that had it not acted upon the misrepresentations, but known the truth, it would have acted in a different way and its loss is measured by the value of the loss of the chance to negotiate more valuable terms with AJL. 58The parties are agreed that the court is required to apply the "key principles" set out by McColl JA in Hatfield v TCN Channel Nine Pty Ltd (2010) 77 NSWLR 506 at [47] - [52] where her Honour said (omitting references to authorities and citations): "[47]. First, "[i]n order for it to 'appear' to the Court that the applicant 'may be entitled' to make a claim for relief, it is not necessary for the applicant to show a prima facie or pleadable case"... [48]. Secondly, while "the mere assertion of the case is insufficient... [i]t will be sufficient if there is reasonable cause to believe that the applicant may have a right of action against the respondent resting on some recognised legal ground"... [49]. Thirdly, "belief requires more than mere assertion and more than suspicion or conjecture. [It] is an inclination of the mind towards assenting to, rather than rejecting a proposition. Thus it is not sufficient to point to a mere possibility. The evidence must incline the mind towards the matter or fact in question. If there is no reasonable cause to believe that one of the necessary elements of a potential cause of action exists, that would dispose of the application insofar as it is based on that cause of action"... The use of the word "may" indicates the court does not have to reach "a firm view that there is a right to relief"... [50]. Fourthly, the requirement that the matters set out in r 5.3 of the Uniform Civil Procedure Rules "appear[s]" to the court to establish an entitlement to an order under the rule may be wider than the requirement in the Federal Court Rules, O 15A r 6 that there "is reasonable cause to believe"... Nevertheless Hely J's statement in St George Bank... remains apposite, namely that "whilst uncertainty as to only one element of a cause of action might be compatible with the 'reasonable cause to believe' required by subpara (a), uncertainty as to a number of such elements may be sufficient to undermine the reasonableness of the cause to believe". [51]. Fifthly, "the question posed by [r 5.3(1)(a)]... is not whether the applicant has sufficient information to decide if a cause of action is available against the prospective respondent [but]... whether the applicant has sufficient information to make a decision whether to commence proceedings in the court. Accordingly, an applicant for preliminary discovery may be entitled to discovery in order to determine what defences are available to the respondent and the possible strength of those defences"... Thus application of the rule will not be precluded by the fact that the applicant already has available evidence establishing a prima facie case for the granting of relief, as there might be matters of defence which could defeat a prima facie case... [52]. Sixthly, as Hely J said in St George Bank... "the rule is to be beneficially construed, given the fullest scope that its language will reasonably allow, with the proper break on any excesses lying in the discretion of the court, exercised in the particular circumstances of each case"." 59As I understand AJL's submissions, they are quite narrowly focused. AJL put a submission that the terms of the 28 March 2013 draft Facility Agreement neutralised the effect of any other communications or documents which may arguably have conveyed the alleged representations to Athena. I have, however, set out above my reasons in relation to that document for my conclusion that the terms in which the draft was written do not conclusively establish that the representations no longer had effect. 60AJL's principal submission was that there was simply no evidence at all that any representations which AJL may have made to Mr Smith or Mr Ng on behalf of Elliott HK were conveyed by those gentlemen, or anyone else, to Athena. AJL relied upon the evidence that Athena was a separate company within Elliott and Associates, which had the officers that have been identified above, including Mr Greenberg. There was no evidence that Mr Smith or Mr Ng were officers of Athena. There was no evidence that Elliott HK was the agent of Athena for the purposes of negotiating the Facility Agreement. There was evidence that suggested that Elliott HK's role was that of a strategic advisor to other entities within Elliott and Associates. There was even evidence, which has been referred to above, that if Mr Smith had known the truth he would have "advised" Athena to follow a different negotiating course. Mr Greenberg, and not either of Mr Smith or Mr Ng, signed the Facility Agreement. AJL's argument seems to focus on very specific aspects of the evidence in order to support an absolute submission that Elliott HK and Athena were separate companies, with separate managements, so that proof that representations had been made to Elliott HK would not prove that the same representations had been made to Athena, without there being specific and cogent evidence that the representations had been passed on from Elliott HK to Athena. 61AJL's argument focused squarely on that part of McColl JA's third point where her Honour states: "If there is no reasonable cause to believe that one of the necessary elements of a potential cause of action exists, that would dispose of the application in so far as it is based on that cause of action". The submission is that there is no reasonable cause to believe that any of the alleged representations was conveyed to Athena. 62That submission does not give due weight to the proposition in McColl JA's first point that it is not necessary for the applicant to show a prima facie or pleadable case, and also that part of the second point which states that it will be sufficient if there is a reasonable cause to believe that the applicant may have a right of action. 63The evidence establishes that Athena was incorporated as a special purpose vehicle. It seems clear that, within Elliott and Associates as a corporate group, control of the negotiations for the proposed transaction with AJL were left to Elliott HK. Mr Smith was the managing director of that company, but he was also apparently a relatively senior officer within the group. The court would readily infer, at least at the stage of an application under UCPR r 5.3, that as the officers conducting the negotiations Mr Smith and Mr Ng had implicit and de facto, if not de jure, authority to act on behalf of Athena after its incorporation. Furthermore, the evidence makes it reasonably clear that AJL was aware from an early time that a special purpose vehicle would be used as the ultimate Lender. In those circumstances the knowledge of Mr Smith and Mr Ng, as officers of Elliott HK, would probably become the knowledge of Athena immediately upon its incorporation. Additionally, clause 30.2 of the Facility Agreement provides some evidence that Elliott HK was in fact the agent of Athena. 64Whether or not the reasoning set out in the preceding paragraph will prevail at any final hearing, it is sufficient to cause my mind to incline towards assenting to, rather than rejecting, the proposition that the communications and documents that arguably made the alleged representations were received in a relevant way by Athena. 65AJL argued that, as a matter of discretion, I should reject the application because there was no evidence that AJL would have accepted any more beneficial terms than were included in the Facility Agreement that was executed, and that the lost opportunity case is so optimistic that it should simply be disregarded. I do not accept that argument, as the evidence is sufficient to establish a real probability that AJL would have felt obliged to offer more to Elliott HK, and then Athena, to persuade them both to continue with negotiations in competition with others. Furthermore, it is in the interests of commercial morality that the court assist Athena to explore whether it does have a right to relief as a result of AJL apparently acting inconsistently with its exclusivity undertaking, and the suggestions that it would definitely draw down the First Tranche Loan. 66Accordingly, I will make appropriate orders under UCPR r 5.3 that AJL give discovery to Athena of the documents in the categories listed in pars 1(a) to (f) and (h) of the Summons. 67At the hearing AJL proffered an alternative form of orders that it suggested would be more appropriate than the remaining orders sought in the summons. Counsel for Athena did not have time to consider or respond to the alternative form of orders. I agreed with the parties that I would publish my reasons for judgment and then ask the parties to confer and suggest appropriate short minutes of order to conform with these reasons. 68My provisional view is that this application for preliminary discovery was conducted by AJL in an adversarial manner and that the appropriate order should be that AJL pay Athena's costs on the ordinary basis: see Steffen v ANZ Banking Group [2009] NSWSC 883, and that this matter is distinguishable from Bio Transplant Inc v Bell Potter Securities Ltd [2008] NSWSC 694. However, I have not given the parties an opportunity to make submissions on costs, and I will decide what costs orders should be made on the basis of written submissions submitted by the parties within 7 days of the publication of my reasons for judgment. Those submissions may deal with any order for costs that may be sought in relation to the conduct of discovery by AJL, and any terms relating to securing those costs. 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: 08 January 2014