Supreme Court New South Wales Medium Neutral Citation: Yes Family Pty Ltd v Sphere Healthcare Pty Ltd [2016] NSWSC 917 Hearing dates: 15 June 2016 Decision date: 04 July 2016 Jurisdiction: Equity Before: White J Decision: Plaintiff to bring in short minutes of order to give effect to these reasons. Catchwords: PRACTICE AND PROCEDURE – Preliminary discovery – whether requirements of r 5.3(1)(a) of Uniform Civil Procedure Rules are satisfied – whether plaintiff may be entitled to make a claim for relief that defendant has breached terms of commercial lease – whether plaintiff has been unable to obtain sufficient information to decide whether or not to commence proceedings – preliminary discovery ordered with respect to some categories of documents sought Legislation Cited: Conveyancing Act 1919 (NSW) Uniform Civil Procedure Rules 2005 (NSW) Cases Cited: Hatfield v TCN Channel 9 Pty Ltd [2010] NSWCA 69; (2010) 77 NSWLR 506 Morton v Nylex Ltd [2007] NSWSC 562 Category: Procedural and other rulings Parties: Yes Family Pty Ltd (Plaintiff) Sphere Healthcare Pty Ltd (Defendant) Representation: Counsel: V R Gray (Plaintiff) J Knackstredt (Defendant) Solicitors: Marsdens Law Group (Plaintiff) Kardos Scanlan (Defendant) File Number(s): 2015/326562 Judgment 1. HIS HONOUR: This is an application for preliminary discovery. The plaintiff, Yes Family Pty Ltd ("Yes Family"), is the owner of a property in Church Road, Moorebank that is subject to a lease to the defendant, Sphere Healthcare Pty Ltd ("Sphere"). It seeks preliminary discovery of documents from Sphere that it says it requires in order to decide whether or not to commence proceedings against Sphere in respect of alleged breaches of the lease. 2. The application for preliminary discovery is made pursuant to r 5.3 of the Uniform Civil Procedure Rules 2005 (NSW). That rule provides: "5.3 Discovery of documents from prospective defendant (cf Federal Court Rules, Order 15A, rules 6, 7 and 9) (1) If it appears to the court that: (a) the applicant may be entitled to make a claim for relief from the court against a person (the prospective defendant) but, having made reasonable inquiries, is unable to obtain sufficient information to decide whether or not to commence proceedings against the prospective defendant, and (b) the prospective defendant may have or have had possession of a document or thing that can assist in determining whether or not the applicant is entitled to make such a claim for relief, and (c) inspection of such a document would assist the applicant to make the decision concerned, the court may order that the prospective defendant must give discovery to the applicant of all documents that are or have been in the person's possession and that relate to the question of whether or not the applicant is entitled to make a claim for relief. (2) An order under this rule with respect to any document held by a corporation may be addressed to any officer or former officer of the corporation. (3) Unless the court orders otherwise, an application for an order under this rule: (a) must be supported by an affidavit stating the facts on which the applicant relies and specifying the kinds of documents in respect of which the order is sought, and (b) must, together with a copy of the supporting affidavit, be served personally on the person to whom it is addressed. (4) This rule applies, with any necessary modification, where the applicant, being a party to proceedings, wishes to decide whether or not to claim or cross-claim against a person who is not a party to the proceedings." 1. In Hatfield v TCN Channel 9 Pty Ltd [2010] NSWCA 69; (2010) 77 NSWLR 506 McColl JA summarised the principles relevant to an application for preliminary discovery as follows: "[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': Morton v Nylex Ltd (at [25]). [48] Secondly, while 'the mere assertion of a 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': Morton v Nylex (at [25]). [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': St George Bank Ltd v Rabo Australia Ltd [2004] FCA 1360; (2004) 211 ALR 147 at 154 [26](d), per Hely J, referring in turn to John Holland Services Pty Ltd v Terranora Group Management Pty Ltd [2004] FCA 679 at [13], [14], [17] and [73], per Emmett J. The use of the word 'may' indicates the court does not have to reach 'a firm view that there is a right to relief': Telstra Corporation Ltd v Minister for Broadband, Communications and the Digital Economy (2008) 166 FCR 64 at 79 [58]. [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': see Panasonic Australia Pty Ltd v Ngage Pty Ltd [2006] NSWSC 399; (2006) 69 IPR 595 at 598 [22] per Young CJ in Eq; Papaconstuntinos v Holmes à Court [2006] NSWSC 945 at [17] per Simpson J; Hornsby Shire Council v Valuer General of NSW [2008] NSWSC 1179 at [33], per Adams J. Nevertheless Hely J's statement in St George Bank (at 154 [26](e)) 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': St George Bank (at 154 [26](f))(emphasis in original); see also Morton v Nylex (at [33]). 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: Alphapharm Pty Ltd v Eli Lilly Australia Pty Ltd [1996] FCA 1500 at [41], per Lindgren J, referred to with approval by the Full Federal Court (French J, Weinberg J and Greenwood J) in Telstra Corporation Ltd (at 80 [60]). [52] Sixthly, as Hely J said in St George Bank (at 153 [26](a)), 'the rule is to be beneficially construed, given the fullest scope that its language will reasonably allow, with the proper brake on any excesses lying in the discretion of the court, exercised in the particular circumstances of each case'." 1. A plaintiff is not entitled to preliminary discovery unless it is lacking something reasonably necessary to make a decision whether or not to institute proceedings. An applicant may be entitled to preliminary discovery of documents relevant to available defences, but preliminary discovery cannot be used to build up a case which an applicant has already decided, or could decide to bring (Morton v Nylex Ltd [2007] NSWSC 562 at [33] and cases there cited). 2. Yes Family seeks orders that Sphere give discovery of the following documents or classes of documents: "(a) Correspondence (including electronic mail) between Sphere Healthcare and/or its shareholders as at the commencement of the lease ('Original Shareholders') to any third party relating to such third party (or any associated entity) investing funds in Sphere Healthcare by way of equity funding or convertible debt funding or under any arrangement which by any means and either conditionally or unconditionally effected a change in control of Sphere Healthcare. (b) File notes or similar records or electronic communications between or amongst the Original Shareholders, the directors and the senior management of Sphere Healthcare or any of those persons concerning any possibility, arrangement, agreement or other dealing (whether or not implemented) whereunder any third party (including the beneficiary or beneficiaries of a trust which, through its trustee or trustees, was not an Original Shareholder) would or might invest or agreed (conditionally or unconditionally) to invest funds in Sphere Healthcare by way of equity funding or convertible debt funding or under any arrangement which by any means and either conditionally or unconditionally effected a change in control of Sphere Healthcare. (c) Any trust deed, agreement, correspondence or other document constituting or evidencing the terms on which any shares issued by Sphere Healthcare since the commencement of the lease are or would be held by the registered shareholder on trust for any other person or entity. (d) Any resolutions of the director or directors of Sphere Healthcare since the commencement of the lease relating to the issue of new shares in Sphere Healthcare or relating to the persons or entities on behalf of whom such shares would be held by the registered shareholder. (e) Invoices issued during the period 1 April to 30 June 2015 for sale of infant formula manufactured or produced in the Demised Premises. (f) All architectural and engineering plans relating to alteration works carried out in the Demised Premises since the commencement of the Lease. (g) All specifications for plant and equipment for the manufacture or production of infant formula installed or located in the Demised Premises. (h) All invoices for the purchase of plant and equipment for the manufacture or production of infant formula installed or located in the Demised Premises. (i) All lease agreements for the lease of plant and equipment for the manufacture or production of infant formula installed or located in the Demised Premises." 1. Yes Family is the assignee of the reversion. It acquired the Moorebank property by a transfer dated 26 October 2011. 2. Sphere entered into a five-year lease commencing on 17 April 2008 with three options for renewal for a period of five years each with the previous owner. On 27 September 2010 the lease was varied by extending the term of the lease so as for it to expire on 16 April 2018. There are options for renewal for two further terms of five years. 3. The terms of the lease include the following: "6.1 The Lessee may only use the Premises for the use specified in item 5." 1. Item 5 provides: "Permitted use Pharmaceutical production and warehouse facility" 1. Clause 7.6(a) provides: "The Lessee must not make or permit any Proposed Work without the Lessor's Consent." 1. Clause 8.1 provides: "The Lessee may not assign, transfer, sublet or otherwise deal with or part with possession of the Premises or this Lease, any part of them or any interest in them or attempt to do so without the Lessor's Consent which consent must not be unreasonably withheld." 1. There are two clauses of 8.2. Clause 8.2 is also a covenant against assigning or subletting without the lessor's consent, which consent is not to be unreasonably withheld in certain specified events. The second clause 8.2 provides: "8.2 Corporate ownership If the Lessee is a company, other than a company whose shares are listed on any Australian Stock Exchange, any change in the shareholding of the Lessee effectively altering the control of the Lessee, apart from a change in the shareholding of the Lessee effected in order to list the Lessee on an Australian Stock Exchange, is an assignment of this Lease. In that case the Lessee must not: (a) register, record or enter in its books any transfer of any share or shares in the capital of the Lessee; (b) deal with any beneficial interest in any such share or shares; (c) issue any new share or shares; or (d) take or attempt to take any action having the effect: (i) of effectively altering the control of the Lessee; (ii) that the shareholders of the Lessee at the date of this Lease together beneficially hold or control less than 51% of the voting rights of capital in the Lessee, Until after the Lessee has complied with the conditions of Clause 8.1." 1. On or about 16 June 2015 Yes Family served a notice under s 129 of the Conveyancing Act 1919 (NSW) on Sphere asserting that Sphere was in breach of various clauses, including clause 8 and clause 6.1. It required Sphere to remedy the alleged breaches by, relevantly: "a) Clause 8: by evicting from the demised premises all assignees, subtenants and any other persons or entities in possession of the demised premises or any part or parts thereof; b) Clause 6.1: by ceasing to use the demised premises or any part thereof for any purpose other than pharmaceutical production and warehouse facility." 1. The alleged breaches were not particularised. In a letter dated 29 July 2015 from Marsdens Law Group, who acted for Yes Family, to Kardos-Scanlan, solicitors for Sphere, the plaintiff's solicitor identified the alleged breach of 8.2 of the lease as being that: "It is a matter recorded in the ASIC records and otherwise confirmed, that a relevant third party acquired the Lessee in 2014 and has since undertaken a comprehensive financial, operational and management restructure of the business. As part of this process, a corporate entity, Sphere Healthcare (Asia) Pty Limited, under the control of such third party, made application for and obtained official approval for the use of the Demised Premises for the manufacture and processing of infant formula for consumption in China from the Certification and Accreditation Administration of the Peoples Republic of China (CNCA) after an official inspection and concurrently with approval by the Australian Quarantine Authority and NSW Department of Public Health for the blending, canning and packing of infant formula milk products for export to and consumption in China." 1. Further alleged breaches were described as follows: "Our client reasserts its allegation that the Lessee has used the whole or part of the Demised Premises for purposes other than the Permitted Use; namely for the purposes of a milk product factory blending, canning and packaging milk product for sale and export when it was only permitted to use the Demised Premises for the purpose of pharmaceutical production and warehouse facility ('Permitted Use'). Your assertion that 'infant formula is a pharmaceutical product' is denied. Our client maintains that in outright breach of the lease, your client has contravened the permitted limited use under the terms of the Lease by utilising a substantial part of the Demised Premises not for pharmaceutical production and warehouse, but as a milk product processing factory for the blending, canning and packaging of milk products. In doing so, your client has substantially altered the premises, made structural alterations, made openings in walls and altered the criteria for fire protection equipment without the approval of our client as the Lessor, (or, we might add, the relevant authorities, including the Liverpool City Council, the Water Board, the fire safety regulators, and any other authorities having jurisdiction with regard to such building work and the change of usage). Your client, the Lessee, in breach of the lease, planned and proceeded with the unapproved construction work potentially contrary to the fire requirements and without the approval of the Lessor's insurer, and without notice to the Lessor and the authorities, and then, in clear violation of the terms of the lease, changed the use to which that section of the demised premises is put." 1. On 21 August 2015 Kardos-Scanlan responded to the s 129 notice and Marsden Law Group's letter of 29 July with statements that included the following: "1. Clause 8 (Assignment) The Notice alleges that Sphere is in breach of clause 8 of the Lease. However, the Notice does not provide any details whatsoever regarding the nature of the alleged breach. Based on your 29 July Letter, it appears the assertion is that Sphere is in breach of the Lease asa aresult of a financial, operational and management restructure of the business that occurred in 2014 and the award of official certification by the CNCA to a company called Sphere Healthcare (Asia) Pty Limited (Sphere Asia). We respond to those allegations below. Sphere Asia is a wholly owned subsidiary of Sphere Healthcare Holding Company Pty Ltd, which is in turn a wholly owned subsidiary of Sphere. Mr Paul Riley is the sole director and secretary of Sphere Asia and also the sole director of Sphere. No assignment, sub-lease or licence of the Premises has been granted to Sphere Asia. We are instructed that Sphere Asia is a subsidiary of Sphere that has been incorporated to hold the CNCA licence. Sphere Asia has not manufactured any products from the Premises nor has it distributed any products into China. The fact that Sphere Asia holds a CNCA licence in no way constitutes a breach of clause 8 of the Lease by Sphere. In relation to the restructure of the business that occurred in 2014 we are instructed that on or about 10 July 2014, 973,831,638 shares in the company were issued to Sphere's financier, AREO Sarl (AREO). This occurred as a result of AREO exercising its right to be issued with shares in Sphere as part of the company's short term refinancing. As a result of that share issue, the Fulcrum funds ceased to hold a majority of Sphere's issued share capital. However, this position was rectified on or about 3 October 2014 when all of the shares held by AREO were transferred to the Fulcrum funds. To the extent that an assignment occurred within the meaning of clause 8.2 of the Lease due to a change of control, our client sincerely regrets that this occurred without first obtaining the Landlord's consent. We note, however, that during this entire period Mr Paul Riley continued to manage the operations of the business and continued to act as sole director of Sphere. As stated above, 3 October 2014 when control of all the shares in Sphere returned to the Fulcrum funds. In any event, as noted above, any breach of clause 8 was remedied long ago, it follows that our client is not in breach of clause 8, and was not in breach of that clause at the time you issued the Notice. 2. Clause 6.1 (Use of Demised Premises) The Notice alleges that Sphere is in breach of clause 6.1 of the Lease. However, the Notice does not provide any details whatsoever regarding the nature of the alleged breach. We understand from your 29 July Letter that, your client asserts that the permitted use identified in the Lease being 'pharmaceutical production and warehouse facility' does not include the production of infant formula. Our client refutes this assertion. It maintains its position that the production of infant formula falls within the scope of permitted use for the Premises. As you are aware, the Lease does not define what is meant by 'pharmaceutical production' and our client's position is that to apply a narrow definition to that term in the way that your client asserts, would undermine the purpose of the Lease. In particular, we are instructed by our client that Sphere makes products at the Premises which comply with its TGA licence. At the time the Lease was entered into in 2008 and since that time, the Premises has [sic] been used to manufacture a range of complementary medicines and nutritional products, including dairy related powders and tablets. Our client's position is that such products fall within the meaning of the permitted use in the Lease, particularly given the circumstances of its entry. Given this, our client is surprised by the Landlord's claim that it is in breach of clause 6.1 of the Lease. We understand that your client has been well aware that infant formula has been produced at the Premises since at least 2011. We are also instructed that one of the Landlord's associated companies has even requested quotes from our client to manufacture and produce infant formula from the Premises on its behalf. We are instructed that representatives of your client's associated companies have attended meetings at which the provision of information formula to them has been discussed." Possible cause of Action for breach of clause 8.2 1. The plaintiff has adduced evidence that casts doubt on the assertion in Kardos-Scanlan's letter of 21 August 2015 that the only assignment that occurred within the meaning of clause 8.2 of the lease due to a change of control was the result of issue of shares to Sphere's financier in July 2014 which had been rectified by 3 October 2014. An Information Summary apparently published by Sphere dated May 2015 states that "Sphere is 100% owned by ROC Partners". 2. The same information memorandum stated that: "In 2014 Sphere was acquired by ROC Partners, a private equity fund that was formerly a Macquarie Bank private equity arm. Under ROC's ownership, Sphere has undertaken a comprehensive financial and operational restructure of the group." 1. The evidence of Sphere given through its solicitor, Mr David Sim, is that immediately before the restructure referred to in the letter from Kardos-Scanlan of 21 August 2015 the shareholders of Sphere were Fulcrum Capital Partners Fund No 1 GP, Fulcrum Capital Partners Fund No 1 LP, and Fulcrum Capital Partners No 1 B Pty Limited (collectively the Fulcrum Funds) and that immediately after the transfer of the shares held by AREO the shareholders of Sphere were again Fulcrum GP, Fulcrum LP and Fulcrum 1 B. He deposed to having been informed by Mr Paul Riley, the sole director of Sphere, and of each Fulcrum Entity, that ROC Partners Ltd is not a shareholder of Sphere nor is it a shareholder, unitholder or investor in the Fulcrum Funds, but is the manager of an advisor to investors in the Fulcrum Funds. 2. If this is a full statement of the facts relating to ROC Partners' role as known to Mr Sim, as is to be expected if the affidavit tells the whole truth, his evidence contradicts the statement in the document published by Sphere that it was 100 per cent owned by ROC Partners. 3. Yes Family pointed to other evidence, including email correspondence from Mr Riley to a related company of the plaintiff in relation to a proposed acquisition of Sphere, in which Mr Riley referred to requirements of ROC that would be consistent with its having more than an advisory role to the investors in the shareholders of Sphere. 4. The plaintiff submits that the evidence by Mr Sim that ROC Partners is not a shareholder of the defendant does not necessarily exclude the existence of agreements whereby ROC Partners may have beneficial ownership of shares in Sphere or may have entered into agreements that give it effective control of those shares. However, if that were the fact it could be expected to have been disclosed in the affidavit if the fact were known to Mr Sim. 5. The plaintiff thus has contradictory materials on which it must make a judgment whether to commence proceedings in relation to a possible breach of clause 8.2. 6. Yes Family submits that if clause 8.2 of the lease is given a purposive rather than a literal construction, it applies where any action is taken having the effect of altering the control of the lessee (clause 8.2(d)(i)) even if there is not a change in shareholding of the lessee. The affidavits of Mr Sim address the shareholding, but do not specifically address the wider question advanced by the plaintiff. 7. I am satisfied that the plaintiff "may be entitled to make a claim for relief" in relation to a possible breach of clause 8.2 and also that it has made reasonable inquiries. It does not appear that there has been a change of shareholding other than as described in Kardos-Scanlan's letter of 21 August 2015. No documents are required in order for the plaintiff to decide whether to bring proceedings in respect of the change of shareholding described in that letter. But Sphere says that the admitted breach has been cured. 8. On a literal construction of the first sentence of clause 8.2 it is only where there has been a change in the shareholding of the lessee that effectively alters the control of the lessee that paras (a)-(d) apply. But the contrary construction is arguable. Counsel for the plaintiff submitted that on a purely literal construction which places emphasis on the words "in that case" in the second sentence of clause 8.2 the following subparagraphs would become otiose. I accept that such a contention is arguable and that it is arguable that clause 8.2 should be given a purposive construction such that a change in the beneficial shareholding of Sphere that effectively altered the control of Sphere, or the making of agreements that gave a third party effective control of Sphere, would be a contravention of clause 8.2 if not made with the consent of the lessor. 9. In the face of the position taken by the defendant on the present application and what was said in Mr Sim's affidavits and in Kardos-Scanlan's letter of 21 August 2015, I accept that the plaintiff does not have sufficient documents in order to determine whether it is entitled to make such a claim for relief, notwithstanding the assertions in the information memorandum apparently published by Sphere that ROC Partners had acquired the ownership of Sphere. In relation to this issue I do not think that the plaintiff is seeking further documents to build up a case it has already decided to bring. 10. Sphere submitted that when Yes Family served its notice under s 129 of the Conveyancing Act it had already determined that Sphere had committed breaches of the lease. Had it not had sufficient information to decide whether or not it could institute proceedings asserting alleged breaches of the lease, it could not properly have served the notices under s 129 of the Conveyancing Act. Moreover, it had subsequently made extensive inquiries and obtained documentation by reason of which it now asserts that there were breaches of the lease. Therefore this is not a case in which the plaintiff was unable to obtain sufficient information to decide whether or not to commence proceedings. 11. I do not accept this submission insofar as it relates to the alleged breach of clause 8.2. The plaintiff has apparently contradictory information and I am satisfied it needs the documents to determine whether or not to commence proceedings. 12. The documents or classes of documents described in paras (a)-(d) are sought in order that the plaintiff can determine whether to bring proceedings in which it sought a determination that it was entitled to terminate the lease for breach of clause 8.2. 13. There was no submission that the categories of documents sought were wider than was required for the purpose of enabling the plaintiff to determine whether it may be entitled to a claim for relief in respect of a breach of clause 8.2. Nor did the plaintiff seek to widen the scope of the documents sought. I will make the order for discovery as sought in respect of the documents in (a)-(d). Alleged breach of clause 8.1 1. The second issue in respect of which the plaintiff wants preliminary discovery concerns the alleged breach of clause 8.1 that the lessee is not to sublet or otherwise deal with or part with possession of the premises. The plaintiff has alleged that Sphere has been in breach of that clause by allowing a wholly-owned subsidiary to manufacture infant formula products for export to China. 2. Sphere's subsidiary, Sphere Healthcare (Asia) Pty Ltd ("Sphere Asia") was incorporated on 17 June 2014. Mr Sim deposes that he is informed by Mr Riley, the sole director of Sphere Asia, and believes it to be true that since its incorporation, Sphere Asia has not traded and was incorporated for the sole purpose of holding a licence issued by the "Certification and Accreditation Administration of the People's Republic of China". As appears from the letter of Kardos-Scanlan of 21 August 2015 quoted above, the defendant contends that Sphere Asia has not manufactured any products from the premises and nor has it distributed any products into China. 3. Yes Family points to the terms of the "CNCA" certification and accreditation issued by the People's Republic of China which identifies Sphere Asia as being an approved manufacturer of infant formula milk powder at the processing plant at Church Road, Moorebank which is the leased premises. Sphere itself is also an accredited manufacturer of various milk powder products, including formula milk powder which may or may not compass the infant formula milk powder for which Sphere Asia is the accredited manufacturer. Yes Family points to a regulation of the People's Republic of China on registration and management of overseas producers of imported food applicable to the registration, supervision and management of overseas food-producing processing and storing firms that export food to China. The regulation provides that the CNCA organises experts or a designated institution to examine information submitted by the relevant authorities of the country where the "overseas food-producing firm" is located and despatches an assessment group to conduct onsite assessment when necessary. Yes Family submits that this, and the terms of the certificate of accreditation indicate that Sphere Asia is accredited as a manufacturer of infant formula. There is evidence that the production processes of infant formula are required to be kept separate from the production processes of pharmaceutical (or other pharmaceutical) products. 4. The evidence that only Sphere Asia and not Sphere itself has approval from the Chinese government to manufacture and export infant formula to China is sufficient to establish that the plaintiff may be entitled to make a claim for relief against Sphere that it has breached clause 8.1 of the lease in dealing with or parting with possession of the premises so as to permit Sphere Asia to conduct the manufacturing of infant formula products for export to China. Even if the manufacture were conducted under a licence that did not involve Sphere's parting with possession of the premises, it is arguable that such a licence would be a dealing with the premises that was a contravention of clause 8.1. 5. Sphere Asia was incorporated on 17 June 2014. The evidence did not establish the dates on which Sphere Asia obtained approval to manufacture and export infant formula products to China. But Sphere's information summary document dated May 2015 stated that such approval had been obtained for infant formula to be exported to China and it can be inferred that the approval was granted by that date. 6. Again, the plaintiff has contradictory information. Sphere contends that Sphere Asia has not traded but was incorporated for the sole purpose of holding a licence issued by the Certification and Accreditation Administration of the People's Republic of China. But it is at least arguable that the licence requires Sphere Asia and not Sphere to be the manufacturer of infant formula products to be exported to China. This is sufficient to establish that the plaintiff may be entitled to make a claim for relief based upon a breach of clause 8.1 of the lease. 7. I accept that the plaintiff does not have sufficient information to decide whether or not to commence proceedings against Sphere asserting such a breach. I accept that Sphere may have or may have had possession of documents that could assist in determining whether or not the plaintiff is entitled to make such a claim for relief and an inspection of such documents would assist it to make such a decision. But it does not appear to me that all of the documents sought by the plaintiffs are likely to assist in the making of such a decision. Documents sought in paragraphs (f) and (g) would throw no light on who was manufacturing infant formula products from the premises. 8. Invoices issued for the sale of infant formula manufactured or produced from the premises might establish either a claim or a defence to a claim by the plaintiff for a breach of the lease. Thus if the only invoices issued were issued not by Sphere Asia but by Sphere itself, either to a buyer in China or to Sphere Asia, that could be relevant to the existence of a defence to the plaintiff's claim. On the other hand, if Sphere Asia issued invoices for the sale of infant formula products, or if invoices for the plant and equipment used in the manufacture of infant formula products on the premises were issued by a supplier of such plant and equipment to Sphere Asia, then that could demonstrate that Sphere Asia was carrying on manufacturing processes on the premises. Likewise, if plant and equipment for the manufacture of infant formula products were leased to Sphere Asia or Sphere, that could indicate that Sphere Asia either was or was not conducting manufacturing operations on the premises. 9. I think the documents sought in paras (e), (h) and (i) would assist the plaintiff to make a decision as to whether to make a claim that there had been a breach of clause 8.1 and should be discovered. 10. A related company of the plaintiff is a competitor of Sphere and Sphere Asia. Sphere has a legitimate concern that provision of invoices for the sale of infant formula manufactured or produced from the premises could provide the plaintiff or its related company with a competitive advantage in ascertaining the prices at which such products are sold and in identifying the persons to whom the products were sold. The identity of the particular purchasers of infant formula, the quantity of products sold and the prices at which they were sold would not be necessary to enable the plaintiff to determine whether or not proceedings asserting a breach of the lease should be brought. Other potential breaches 1. Yes Family submitted that there were two other potential breaches of the lease for which it required preliminary discovery in order to determine whether proceedings should be commenced in respect of the alleged breach. The first was whether there was a breach of clause 6.1 of the lease that the premises be used for "pharmaceutical production and warehouse facility". Yes Family asserted that Sphere was in breach of that clause by using the premises for purposes other than pharmaceutical production and warehouse facility, being the manufacture of infant formula. It contended that this was not pharmaceutical production. It submitted that it needed to know the constituents of the infant formula produced from the premises in order to determine whether it could be correctly described as a pharmaceutical product rather than as a food. 2. There are two answers to this contention. The first is that the plaintiff does not require the production of any documents in order to answer that question. It could simply buy a can of the infant formula in question and, if the statement of ingredients is insufficient for its purposes, it could have the product analysed by a chemist. The second answer is that none of the documents sought by way of preliminary discovery in the amended summons is addressed to this question. 3. The plaintiff also contends that Sphere may be in breach of the lease by having made changes to the demised premises without its consent, in breach of clause 7.6. It points to a requirement that there be a full segregation of the production processes for infant formula from pharmaceutical products. It submits that it is not sure whether the infant formula processing plant was already installed when it purchased the premises in October 2011. 4. However, the secretary of the plaintiff, Mr Yin, swore an affidavit on 5 November 2015 in which he deposed to having undertaken an inspection of the premises on 7 July 2015. He said that during the course of that inspection he noticed machinery on the factory floor, but was unsure whether the machinery was different from machinery that was on a previous occasion that he inspected the premises. In a later affidavit he deposed that at the time of that visit he had in his possession a plan of the layout of the premises as at the date the plaintiff purchased the premises on or about 8 November 2011. He deposed that he showed the plan to Mr Riley who said words to the effect, "I haven't seen most of those rooms. This map is out of date and goes back to when Bob and John Powers were involved in the business." Mr Yin deposed in his affidavit of 27 January 2016 that as a result of this conversation he understood that the premises had been modified by Sphere at some time after the plaintiff purchased them. 5. It appears to me on the basis of the plaintiff's evidence that it has sufficient information in relation to whether the premises have been altered to decide whether or not to commence proceedings insofar as it might seek to establish a breach of the covenant against alteration of the premises without the lessor's consent. 6. For these reasons the plaintiff is entitled to preliminary discovery of the documents in paras (a), (b), (c), (d), (e), (h) and (i) of para 1 of the summons subject to the redaction of the invoices the subject of para (e) of details identifying the quantity of infant formula the subject of the invoices, the prices at which infant formula was sold, and the identity of purchasers, unless the purchaser of products sold is Sphere Asia. However, the redaction should not extend to the supplier of products. The plaintiff should bring in short minutes of order to give effect to these reasons. 7. I will hear the parties on costs. Prima facie the defendant should pay the plaintiff's costs of the application. 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: 04 July 2016