MELBOURNE COMMERCIAL COURT
ESPOSITO HOLDINGS PTY LTD (Applicant)
(ACN 079 763 303)
UDP HOLDINGS PTY LTD & ORS (Respondents)
(ACN 167 100 692)
JUDGE: Croft J
HEARING DATES: 6 & 7 May 2015
JUDGMENT DATE: 8 May 2015
MEDIUM NEUTRAL CITATION:  VSC 183
ARBITRATION – Application for issue of subpoenas – International Arbitration Act 1974 s 23 – Alinta Sales Pty Ltd v Woodside Energy Ltd  WASC 304 (17 December 2008).
PRACTICE AND PROCEDURE – Security for costs of compliance with subpoena – Supreme Court (Chapter II Arbitration Amendment) Rules 2014 r 9.06(4) – Supreme Court (General Civil Procedure) Rules 2005 r 42.11.
1 This is an application under s 23 of the International Arbitration Act 1974 (Cth) (“the Act”) for the issue of subpoenas for the purpose of an arbitration between Esposito Holdings Pty Ltd as claimant and UDP Holdings Pty Ltd, William Yan Sui Hui, and 5 Star Foods Pty Ltd, as respondents (“the Arbitration”).
2 The arbitral tribunal is Mr M.W. Shand QC, as sole arbitrator.
3 An application was made to the arbitral tribunal for permission to make the present application. A summary of the position with respect to the application appears in the Reasons for Decision of the arbitral tribunal dated 24 April 2015 (“the Reasons”). Omitting reference to a preliminary discovery issue with respect to the first and third respondents, the position is summarised in the Reasons as follows:
- By written application dated 30 March 2015, the claimant applied for leave and permission to make an application to the Supreme Court of Victoria under section 23(1) of the International Arbitration Act 1974(Cth) to issue subpoenas to:
(a) Coöperatieve Centrale Raiffeisen-Boerenleenbank BA, (RaboBank);(b) PPB Advisory, the firm of which the Receivers are members; and
(c) Nile Waters Pty Ltd trading as R Cubed, the corporate restructing and advisory firm operated by Mr Derwin as its sole director, principal and managing director.
- The hearing of the applications took place on 15 April 2015.
Summary of decision
- For reasons that follow, I have determined to grant the claimant permission to apply to the Court for the issue of the proposed subpoenas, in each case with paragraph 2(m) and the words “any Group Member” deleted. Accompanying the directions are the proposed subpoenas in amended form. I have had close regard to the constraints to which the arbitral tribunal is subject under article 17.1 of the UNCITRAL rules. In my view, the documents, the subject of the proposed subpoenas as amended have apparent relevance to the issues in the arbitration and the proposed subpoenas serve a legitimate forensic purpose. For like reasons, I have determined to refuse the application to vacate the category 1.14 directions, noting that, in any event, the first and third respondents have now purported to comply with those directions.
4 The present application relies upon the provisions of s 23 of the Act, which is in the following terms:
(1) A party to arbitral proceedings commenced in reliance on an arbitration agreement may apply to a court to issue a subpoena under subsection (3).(2) However, this may only be done with the permission of the arbitral tribunal conducting the arbitral proceedings.
(3) The court may, for the purposes of the arbitral proceedings, issue a subpoena requiring a person to do either or both of the following:
(a) to attend for examination before the arbitral tribunal;
(b) to produce to the arbitral tribunal the documents specified in the subpoena.
(4) A person must not be compelled under a subpoena issued under subsection (3) to answer any question or produce any document which that person could not be compelled to answer or produce in a proceeding before that court.
(5) The court must not issue a subpoena under subsection (3) to a person who is not a party to the arbitral proceedings unless the court is satisfied that it is reasonable in all the circumstances to issue it to the person.
(6) Nothing in this section limits Article 27 of the Model Law.
These provisions are reflected in substantially similar terms in the provisions of ss 27A and 27B of the Victorian Commercial Arbitration Act 2011, which applies to domestic, Australian, arbitral proceedings. Sub-sections 23(1) to (4) and sub-s 23(5) of the International Arbitration Act 1974 (Cth) are reflected in ss 27A and 27B(5) of the Commercial Arbitration Act 2011 respectively.
5 The approach the Court should adopt under the corresponding provisions of the domestic commercial arbitration legislation — an approach, given the international provenance of the domestic legislation, which is equally applicable to the international legislation — was an issue in ASADA v 34 Players and One Support Person, where I said:
Having regard to the international provenance of the Act, particularly the provisions of the Model Law, it is, in my view, clearly inappropriate for the Court, in an application under s 27A of the … [Commercial Arbitration Act 2011] by a party to obtain subpoenas, to embark upon a process which would, in effect, “second guess” the arbitral tribunal which has already given permission for the application to obtain a subpoena under these provisions. It is quite clear from the provenance of this legislation, internationally and domestically, that the emphasis sought to be achieved by the legislature is court assistance and support for arbitral processes, and not “heavy handed” intervention or, in effect, duplication of the functions of the arbitral tribunal. Long gone are the evils of the case stated procedure under the Victorian Arbitration Act 1958 and its equivalents in other jurisdictions. Since the Commercial Arbitration Act 1984 in Victoria, the trend in legislative developments and court decisions has been to constrain merits appeals and the consequent cost and delay that flows from duplication of the proceedings in this process. This is not to say, however, that a provision such as s 27A of the … [Commercial Arbitration Act 2011] is to be treated lightly by the courts. The sanctions for a breach of a court issued subpoena are potentially very serious indeed. Consequently, the basis upon which these powers are sought to be invoked must be established to the satisfaction of the court. Nevertheless, this process should, naturally, occur as expeditiously and cost effectively as possible; but it must be balanced against the seriousness associated with subpoenas and their possible breach. A fundamental prerequisite to invocation of powers such as those conferred by s 27A is, patently, that there must be an arbitration, an arbitral tribunal, in support of which any subpoena is issued under these provisions.
In expressing these views with respect to the principles relevant to applications of this kind, I was also assisted significantly by the statement of principles relevant to the grant of a subpoena by the court under relevantly similar provisions contained in the Commercial Arbitration Act 1985 (WA) by Beech J in Alinta Sales Pty Ltd v Woodside Energy Ltd (in the passage referred to by the arbitral tribunal in that part of the Reasons which is set out in the following paragraph, below).
- None of the parties to this arbitration were able to direct my attention to any direct authority on the provisions of s 23 of the International Arbitration Act 1974 and the task of the tribunal. Mr Harris QC for the claimant referred me to Alinta Sales Pty Ltd v Woodside Energy Ltd. In that case Beech J determined an application for leave to issue a subpoena under the Commercial Arbitration Act 1985 (WA). The scheme for the grant of leave differed from that provided for the grant of permission by the arbitral tribunal under the International Arbitration Act 1974. However the principles that Beech J identified as relevant to the application before him are of assistance in discerning the proper approach that the arbitral tribunal should adopt in the present case. Beech J stated at  and following —
 A court will only make an order for leave to issue a subpoena of documents returnable before trial if it is satisfied that the subpoena is issued for a legitimate forensic purpose: Commonwealth of Australia v Albany Port Authority; Darbyshire v Gilbert. There is a legitimate forensic purpose for the issue of a subpoena of documents in respect of a document or class of documents that is apparently relevant: Apache Northwest Pty Ltd.
 Apparent relevance is a low threshold. It is not a question of whether it appears that the party issuing the subpoena could, or could probably, tender the document in evidence. It is enough to establish apparent relevance if a document or class of documents gives rise to a line of enquiry relevant to the issues before the trier of fact, including for the purpose of meeting the opposing case by way of cross-examination: Apache Northwest Pty Ltd; Stanley v Layne Christensen Co; Commonwealth v Albany Port Authority.
 In determining relevance, the difficulty of assessing relevance prior to trial must be taken into account. The necessity for having a document in order to fairly dispose of the issues at trial might well not become apparent before trial: Apache Northwest Pty Ltd; Stanley v Layne Christensen Co; Commonwealth v Albany Port Authority.
 In Australian Gas Light Co v Australian Competition & Consumer Commission French J said as follows:
It is not appropriate to be overly prescriptive in setting out criteria for the grant of leave to issue a subpoena. Plainly, the documents sought must have at least some apparent potential relevance to the matters in issue in the litigation. The assistance that the requesting party may derive from the production of such documents must be taken into account. Case management considerations are also relevant. A wide-ranging subpoena, seeking documents of doubtful relevance at great inconvenience to, or that risk compromising the commercial privacy of, a third party, may not readily attract the grant of leave. Where the issue of such a subpoena is likely to delay progress to trial because of the legitimate interests of a party in resisting its issue, that may also be a practical factor to be weighed.
This passage was cited with approval in Darbyshire and Commonwealth v Albany Port Authority. Apparent relevance is to be assessed by reference to the issues in the arbitration, taking into account the competing contentions of the parties: Queensland Power Trading Corporation v Xstrata Queensland Ltd.
- In Hancock Prospecting Pty Ltd v Hancock, Pritchard J adopted the summary of principles formulated by Beech J.
7 Although the question whether the arbitral tribunal should or should not grant permission to a party to apply to the Court for the issue of a subpoena under s 23 of the Act (or the corresponding provisions of the domestic commercial arbitration legislation) is not necessarily to be answered by applying the principles which the Court applies in deciding whether to issue a subpoena under these provisions, I agree with the approach adopted by the arbitral tribunal in this respect. Clearly, there is every reason why an arbitral tribunal should not grant permission in circumstances where it is reasonably clear that the court will, in applying these principles, not issue the subpoena.
- The present application is not the first application for permission in this arbitration that the arbitral tribunal has heard. At the first directions hearing, on 18 December 2014, the claimant applied for permission to apply to the Court for the issue of a subpoena to produce the information memorandum relating to the first respondent and the other companies in the group (category 1.13 of the schedule to the directions made on 24 December 2014[)].
- In my reasons for dismissing that application, I discussed the question of the task before the tribunal and stated at  —
The provisions of s 23(2) of the Act would seem intended, in the context of this arbitration and the application of the UNCITRAL Rules, to respect the role of the arbitral tribunal to conduct the arbitration in such manner as it considers appropriate, subject to article 17, and to be satisfied that the making of any application to the court to issue a subpoena would not operate so as to frustrate or impede the conduct of the arbitral proceedings in a manner inconsistent with the provisions of the rules including article 17. In that sense the reasonableness of the party making the application and of the Court issuing a subpoena may well be a relevant consideration. However the arbitral tribunal is not in my view to determine an application for permission by seeking to prejudge the prospects of success of the application before the Court.
- I am not persuaded that there is any duty on the arbitral tribunal, as the first and third respondents contended in their written submissions, to identify all the relevant circumstances that make it reasonable for the Court to issue a subpoena. In my view, the determination of an application for permission is not to be treated as a de facto hearing of the application to the Court for the issue of a subpoena. Parliament has given that role to the Court not to the arbitral tribunal. I see no support in the language of s 23 for any conclusion that the application to the court proceeds in the nature of a merits review of the decision of the tribunal. In discussion, Mr Scott did not take his submission this far and did not contend that the arbitral tribunal was required to form a view about whether it was reasonable in all the circumstances for a subpoena to be issued. (T82.20).
- I do however accept, as Mr Scott QC contended, that in deciding whether or not to grant permission, I must make an informed evaluation, honouring the duty imposed by article 17.1 on the tribunal to “conduct the proceedings so as to avoid unnecessary delay and expense and to provide a fair and efficient process for resolving the parties’ dispute”.
- In my view, that informed evaluation must involve an examination of the issues put in dispute by the statements of claim and defence and whether the documents the subject of the proposed subpoenas have apparent relevance to the issues, the subject of the arbitration and whether therefore the proposed subpoenas serve a legitimate forensic purpose.
9 In my view, the position as stated by the arbitral tribunal, as set out in that part of the Reasons to which reference has just been made, is correct and appropriate on the basis of the matters discussed previously in these reasons and the authorities to which reference has been made. I particularly endorse the view of the arbitral tribunal that:
In my view, the determination of an application for permission is not to be treated as a de facto hearing of the application to the Court for the issue of a subpoena. Parliament has given that role to the Court not to the arbitral tribunal. I see no support in the language of s 23 for any conclusion that the application to the court proceeds in the nature of a merits review of the decision of the tribunal.
This is particularly so as neither the Act nor the Model Law countenance any merits review or appeal from decisions of an arbitral tribunal.
10 On this basis, it is sufficient to observe that the arbitral tribunal has conducted the informed evaluation foreshadowed in the passage in the Reasons set out above for the purpose of deciding whether or not to grant permission.
11 For the preceding reasons, and having regard to the Reasons, on the basis indicated, I am satisfied that it is reasonable in all the circumstances, to issue the subpoenas sought in this application to each of the persons specified, though such person is not a party to the arbitral proceedings, in the form of each subpoena as specified by the arbitral tribunal. In this respect I should, however, add that at the hearing on 7 May 2015 the Applicant advised the Court, that for reasons of expedition in relation to the arbitration proceedings, it pressed its application only with respect to RaboBank, the Fifth Respondent.
12 In the course of this application, the Fourth and Fifth Respondent, two entities to which the proposed subpoenas were to be addressed, sought security for the costs of complying with the subpoenas. As the Fifth Respondent is now the only entity against whom a subpoena is sought it is only the Fifth Respondent now seeking such security. In this respect, reliance was placed on Rule 9.06(4) of the Supreme Court (Chapter II Arbitration Amendment) Rules 2014. It was, however, submitted that if the Court were satisfied that an order for fixing and payment of reasonable costs incurred in complying with the subpoenas should be made, the order would, most practicably, be an order for the provision of security as it would be very difficult to fix a sum having regard to the difficulty in estimating the precise extent and cost of the work involved, as is clear from the affidavit of Michael Gordon Sloan, sworn on 6 May 2015 (“the Sloan Affidavit”). Reliance was also placed on Rule 42.11(1) of the Supreme Court (General Civil Procedure) Rules 2005 in support of the power of the Court to make such an order. In response, the Applicant initially said that the estimates of the extent and cost of the work were too high as much of the work required to comply with the subpoenas has already been done in complying with discovery orders already made by the arbitral tribunal; though this criticism substantially fell away with the application being confined to the Fifth Respondent. In my view, this serves to strengthen the view that an order for security — by way of a bank guarantee — would be a more practical and desirable way to proceed rather than a fixed monetary order under Rule 9.06(4).
13 The Applicant submitted that the issues initially raised by both the Fourth and Fifth Respondent with respect to the cost of compliance with the subpoenas would be adequately addressed by an appropriate undertaking by the Applicant to meet these costs. The Fourth and Fifth Respondent, on the other hand, pointed to the request in a letter from Ashurst to K & L Gates, solicitors for the Fourth and Fifth Respondent and the Applicant, respectively, seeking information as to the Applicant’s capacity to meet these costs. There has been no response to this request — which I do not suggest is unreasonable, the request having been made the day before the hearing of this application — but, nevertheless, there is no evidence before the Court with respect to the Applicant’s financial capacity. Although the application now relates only to the Fifth Respondent, these issues remain alive and of relevance.
14 Although I accept that this application does not raise the type of issues which were before the Federal Court in Burrup Fertilisers Pty Ltd v Oswal (No 6), it does appear to me that it is appropriate on the basis of the evidence before the Court that the Fifth Respondent be afforded protection against the possibility of costs of compliance with the subpoenas not otherwise being recoverable. Rule 9.06(4) clearly contemplates this step being taken where the Court is of the view that it is appropriate. Having regard to difficulties in estimation of likely compliance costs, as indicated, I was of the opinion that a bank guarantee in favour of the Fifth Respondent would be appropriate. Having indicated my view in this respect, the parties agreed that a more expeditious and practical course would be for the position to be secured by payment of an appropriate sum of money to the Applicant’s solicitors’ trust account to be held in accordance with the Court’s orders. On the basis of the evidence as to the nature, extent and cost of the work estimated to be required to comply with the subpoena to the Fifth Respondent, as set out in the Sloan Affidavit, I determined that the sum of money required to be paid by the Applicant by way of security at $20,000. For the preceding reasons I am of the opinion that this is the appropriate course.
Conclusions and orders
15 The application for the issue of the subpoena to the Fifth Respondent in the form specified by the arbitral tribunal as settled by the Court as a result of the Applicant deciding not to proceed with its application with respect to other persons the subject of the arbitral tribunal’s permission is granted. Orders to give effect to these reasons are to be brought in by the Applicant. The question of costs is reserved.