Lindsay-Owen v HWL Ebsworth Lawyers

1. [1]

   HIS HONOUR: The Court must deal with an issue associated with the subpoena issued at the request of the defendants in these proceedings on a third party, being the National Australia Bank.

2. [2]

   Pursuant to the Uniform Civil Procedure Rules 2005 (NSW) (“UCPR”), promulgated to overcome the mischief associated with the judgment on standing in Wran v The ABC [1984] 3 NSWLR 241, a party to the substantive proceedings is entitled to move to strike out a subpoena issued by another party in a proceedings against a third person. As a consequence, the plaintiffs have moved to strike out the subpoena issued by the defendants against the third party, the National Australia Bank (“NAB”).

3. [3]

   The NAB is and at all relevant times was the banker of the plaintiffs, at least in relation to the relevant transactions that are before the Court.

4. [4]

   It is appropriate that I deal with the some aspects of the Amended Statement of Claim and the proceedings that are substantively before the Court. The plaintiffs were indebted to the NAB for an amount of approximately $21.5 million. They were unable to service that loan.

5. [5]

   The loan was secured by a mortgage over a significant parcel of land, the value of which seems to be such that it would, without more, meet the indebtedness. I am not absolutely positive of that and of course no expert evidence is before the Court at this stage.

6. [6]

   In or about 2008, or late 2008, the plaintiffs, as I said, were unable to service the debt. NAB called in the existing debt, and notice of default was served by NAB on the plaintiffs dated 17 October 2008. That fact was known to the defendants in these proceedings.

7. [7]

   The defendants in these proceedings were, for relevant purposes, the legal advisors to the plaintiff in relation to relevant transactions, and the plaintiffs are suing, in essence, in negligence, or in associated matters, being a breach retainer or the like, arising from advice given for the formation of a joint venture agreement between the plaintiffs and a third party.

8. [8]

   During the course of the negotiation of the joint venture agreement, the defendants advised the plaintiffs. The joint venture partner was advised by Clayton Utz Solicitors. So the defendants were not advising each proposed joint venture participant.

9. [9]

   The plaintiffs’ claim pleads that the plaintiffs entered into a joint venture agreement for certain objectives. One of the key objectives of entering into a joint venture arrangement, or some similar transaction, was that the debt to the National Australia Bank would be discharged "by external loan funds", and I refer in particular to the pleading paragraph 18(a) of the Amended Statement of Claim.

10. [10]

    Further, "such funds were to be borrowed by any joint venture (or similar transaction) into which the plaintiffs entered". The plaintiffs allege that those objectives were expressed to the defendants on a number of occasions and purport to particularise that expression. The defendants deny such instructions.

11. [11]

    The joint venture agreement that was ultimately executed between the plaintiffs and the joint venture partner provided that the plaintiffs continued to be liable for the existing debt and the joint venture entity or the partner in the joint venture agreement was not contributing to the debt. It is alleged and, as I understand it denied, that the failure of the joint venture agreement to provide that the existing debt was to be met by the joint venture partners was an alteration in the draft joint venture agreement, which alteration was not brought to the attention of the plaintiffs by the defendants, or that particular partner or staff member of the defendants responsible for the negotiation of the joint venture agreement.

12. [12]

    The foregoing background is necessary in order to understand the issues in the subpoena. Further background is required.

13. [13]

    The damages claimed by the plaintiffs include or are predominantly, damages in the nature of loss of profit or opportunity damages. These damages are said to arise from the inability to proceed with a proposed development and are calculated by determining the loss of profit from the venture.

14. [14]

    Such a claim requires the plaintiffs to show how that opportunity would have been realised and the likelihood that it would have been realised in a manner that provided to the plaintiffs a profit after accounting for the costs of the development: Sellars v Adelaide Petroleum NL (1994) 179 CLR 332; [1994] HCA 4; Malec v JC Hutton Pty Ltd (1990) 169 CLR 638; [1990] HCA 20.

15. [15]

    It should have been pointed out earlier, but was not, that the joint venture agreement was for the purpose of developing the substantial land holding in question under a proposed rezoning that was to occur and which, according to the plaintiffs, would have netted a significant profit.

16. [16]

    I turn then to the issues in the subpoena. For obvious reasons, the Court does not deal with item 1 of the schedule, which merely requires, as is usual, for the recipient of the subpoena to provide a copy of the subpoena or produce it.

17. [17]

    The further documents in question require copies of all documents relating to loan accounts held individually or jointly by either one or both of the plaintiffs for a period of five years from 1 January 2005 to June 2010; copies of all documents relating to loan applications and applications for extensions to any loan accounts, again, made individually or jointly by either one or both of the plaintiffs for the same period, including application forms, notifications of approval or refusal and correspondence regarding such applications or extensions; and, in the fourth paragraph of the schedule, copies of all emails and correspondence between the first plaintiff and any staff of NAB for the period 1 January 2005 to 31 December 2010.

18. [18]

    The fifth category is in a slightly different position. The fifth category of documents sought from the NAB are copies of "all lending guidelines applicable to any loan granted and/or extended to either one or both of the plaintiffs for the period 1 January 2005 to June 2010."

19. [19]

    The foregoing periods of time must be seen in the context of the fact that the initial loan that gave rise to the debt, to which these reasons earlier referred, was taken out on 9 December 2005 and the joint venture agreement was reached or executed in or about March 2010.

20. [20]

    There are a number of aspects that are raised by the plaintiffs to seek to strike out the subpoena. I will deal firstly with the fifth category.

21. [21]

    On the face of it, the fifth category deals with lending guidelines applicable to the loan that was granted on 9 December 2005, that being the only loan of which the Court is aware or which could be adjectivally relevant. That loan was provided to one or both of the plaintiffs. It does not seek guidelines applicable to any future loan that might be sought by a joint venture agreement, or a joint venture entity or the parties to a joint venture agreement. It is said by the defendants that category 5 goes to the likelihood of future funding for development.

22. [22]

    I do not, at present, see how that can be so, in circumstances where the only development, which is pleaded, is a development that was contingent upon external loan funds being used to satisfy the debt to NAB and to develop the property in question. The external loan funds are loan funds external to the NAB, and/or different from the loans that had already been granted to one or other or both of the plaintiffs.

23. [23]

    Likewise, categories 2, 3 and 4 go to all loan applications, all applications for extension of any loans whether relevant to the property in question or relevant to any other question, and whether relevant to or linked to, or even that which would somehow define the relationship between, the NAB, on the one hand, and the plaintiffs either jointly or either one of them.

Principles

1. [24]

   Her Honour Justice Ward, as her Honour then was, referred to the tests associated with the issue of subpoenas, which tests are well known and have existed for some period of time. I refer in particular to the passages in her Honour's judgment in One.Tel Ltd (in Liq) - SingTel Optus Pty Ltd v Weston [2010] NSWSC 1491 at [22] – [29] in particular, which are to the following effect:

2. [25]

   The Court of Appeal as her Honour recites in the judgment to which I have just referred, said in ICAP Australia Pty Ltd v BGC Partners (Australia) Pty Ltd [2009] NSWCA 307, that for a notice to produce, or a subpoena, to have a legitimate forensic purpose, it must be shown that "it is likely the documentation will materially assist on an identified issue or there is a reasonable basis beyond speculation that it is likely the documentation will."

3. [26]

   The use of the term "likely", in the principles, does not mean more probable than not. Nor does it mean some attempt by the Court to determine the use that might be made of documents that exist or that might exist. It must have, as has been often described, an adjectival relevance, that is, it must show somehow a direct relevance to a line of enquiry or, a manner in which, the documents would seem to be relevant to the issues between the parties. As Brereton J said in Portal Software v Bodsworth [2005] NSWSC 1115 at [19] – [24]:

4. [27]

   At the moment I can see no possible relevance for documents that go beyond the documents that relate to the particular loan. The defendants point to the possibility that these documents would show (or would with other documents show or lead to a line of enquiry relating to) the lack of probability that NAB would extend the loan or allow further borrowings. It is not pleaded by the plaintiffs that the loan would be altered or varied. Rather, the pleading is expressly that the relationship of lender and borrower between the NAB, on the one hand, and the plaintiffs, on the other, would cease by the provision of external loan funds, which would satisfy the existing debt, and thereafter the plaintiffs would continue on the course that they otherwise would have adopted with a joint venture partner.

5. [28]

   I hasten to add whether the plaintiffs can prove that such “external loan” funds would become available is a nice question. Whether or not the NAB would lend or whether or not the conditions of the current loan would be such to allow for lending, are not to the point. At the moment, the pleading assumes NAB would not lend to the plaintiffs.

6. [29]

   What is to the point would be the documents relating to the particular loan in question, or documents that define the capacity of the plaintiffs to borrow further money from other lenders that would move NAB to allow an extension on the repayment of the loan to facilitate the other participant in the joint venture agreement or the obtaining of external funds.

7. [30]

   But the schedules in paragraphs 2, 3, 4 and 5 in the subpoena go well beyond that. They go to issues that, on their face, do not apply to issues between the parties. It is not to the point to say that they go to the capacity of the plaintiffs to obtain future funding, in circumstances where the issue that is between the parties, defined by the pleadings, is that future funding would not be obtained from the NAB.

8. [31]

   I hasten to add that a subpoena, properly crafted and confined to the issues that are relevant or could be relevant to a line of enquiry, that issues to NAB would be a perfectly proper subpoena. But the current subpoena is not in that category and it is discharged.