FEDERAL COURT OF AUSTRALIA

Echo Tasmania Pty Ltd v Imperial Chemical Industries PLC [2008] FCAFC 58

JUDGMENTS – whether primary Judge failed to give adequate reasons for making orders on application for preliminary discovery

 PRACTICE AND PROCEDURE – application for leave to appeal from orders for preliminary discovery – whether sufficient evidence to establish that the respondent had reasonable cause to believe that it may have a right to obtain relief 

Federal Court of Australia Act 1976 (Cth), s 24(1A)

Trade Practices Act 1974 (Cth), s 52

Federal Court Rules, O 15A r 6

Beale v Government Insurance Office of New South Wales (1997) 48 NSWLR 430 followed

Bourke v Beneficial Finance Corporation Ltd (1993) 47 FCR 264 discussed

Décor Corporation Pty Ltd v Dart Industries Inc (1991) 33 FCR 397 cited

St George Bank Ltd v Rabo Australia Ltd (2004) 211 ALR 147 followed

Malouf v Malouf (1999) 86 FCR 134 cited

Mount Lawley Pty Ltd v Western Australian Planning Commission [2004] WASCA 149 referred to

Paxus Services Ltd v People Bank Pty Ltd (1990) 90 ALR 728 cited

Public Service Board v Osmond (1986) 159 CLR 656 followed

ECHO TASMANIA PTY LTD v IMPERIAL CHEMICAL INDUSTRIES PLC & ANOR

NSD 2291 OF 2007

black cj, SACKVILLE & emmett jJ

11 APRIL 2008

SYDNEY

THE COURT ORDERS THAT:

1.                  The applicant be granted leave to appeal from the judgment of Graham J given on 13 November 2007.

2.                  The appeal be allowed in part.

3.                  The first respondent, within seven days, bring in short minutes of order consistent with these reasons.

4.                  If the applicant objects to the form of the short minutes of order, it should file, within a further seven days, brief written submissions outlining its grounds of opposition. 

5.                  If either party wishes to contend for costs orders otherwise than those foreshadowed in paragraph 71 of the judgment, they should file written submissions in accordance with the timetable outlined in orders 3 and 4.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT

BLACK CJ and SACKVILLE J:

APPLICATION FOR LEAVE TO APPEAL

1                     This is an application for leave to appeal from orders made by a Judge of this Court requiring the applicant for leave (‘Echo’) to make preliminary discovery of ten categories of documents identified in Schedule A to the orders.  The orders were made by the primary Judge pursuant to Federal Court Rules (‘FCR’), O 15A r 6. 

2                     Since the orders are interlocutory in character (Malouf v Malouf (1999) 86 FCR 134, at 143 [36], per curiam), leave to appeal is required: Federal Court of Australia Act 1976 (Cth) (‘Federal Court Act’), s 24(1A).  The orders made by the primary Judge have been stayed pending the hearing and determination of the application for leave to appeal and, if leave be granted, the appeal.

3                     The primary Judge made the orders against two respondents, Echo and Deloitte Growth Solutions Pty Ltd (‘Deloitte’) on the application of Imperial Chemical Industries PLC (‘ICI’).  Agreement having been reached between Deloitte and ICI, the application for leave to appeal was pursued only by Echo.  Deloitte, although named as a respondent to Echo’s application for leave to appeal, made no submissions in relation to that application.

4                     FCR, O 15A r 6 provides as follows:

‘Where –

(a)       there is reasonable cause to believe that the applicant has or may have the right to obtain relief in the Court from a person whose description has been ascertained;

(b)       after making all reasonable inquiries, the applicant has not sufficient information to enable a decision to be made whether to commence a proceeding in the Court to obtain that relief; and

(c)        there is reasonable cause to believe that that person has or is likely to have or has had or is likely to have had possession of any document relating to the question whether the applicant has the right to obtain the relief and that inspection of the document by the applicant would assist in making the decision;

the Court may order that that person shall make discovery to the applicant of any document of the kind described in paragraph (c).’

5                     ICI’s principal claim before the primary Judge was that there was reasonable cause to believe that it had the right to obtain relief against Echo by reason of Echo’s misleading and deceptive conduct in contravention of s 52 of the Trade Practices Act 1974 (Cth) (‘TP Act’) (r 6(a)).  ICI also maintained that, despite having made all reasonable enquiries, it had insufficient information to enable it to decide whether to commence proceedings (r 6(b)) and that there was reasonable cause to believe that Echo was likely to have in its possession documents relating to the question of ICI’s entitlement to relief (r 6(c)).

6                     Echo does not dispute that there was material before the primary Judge that was capable of satisfying FCR, O 15A r 6(b) and (c).  However, it submits that his Honour failed to give adequate reasons for his decision and that, in any event, ICI had not adduced evidence sufficient to satisfy the requirements of r 6(a).

7                     The principles governing the grant of leave to appeal from an interlocutory judgment are well established.  To justify the grant of leave the principal considerations are whether:

·        the decision at first instance is attended by sufficient doubt to warrant reconsideration by the Full Court; and

·        substantial injustice would result if leave were refused, supposing the decision to be wrong.

Décor Corporation Pty Ltd v Dart Industries Inc (1991) 33 FCR 397, at 398-399, per curiam.

8                     Mr Rich, who appeared for Echo, put at the forefront of his submissions what he submitted was the failure of the primary Judge to give adequate reasons.  Mr Rich contended that the absence of adequate reasons involved substantial injustice to Echo, since the orders required it to produce for inspection documents without knowing why the orders were made.  Moreover, so Mr Rich argued, although the orders were interlocutory in form, they were final in effect because Echo would lose irrevocably its right to prevent third parties examining its own documents.  It was therefore appropriate for this Court to grant leave and to address the substantive issues raised by ICI’s application to the primary Judge.

BACKGROUND

Remediation Proposal

9                     From 1948 until 1996, a subsidiary of ICI (‘TAPL’) owned and operated a titanium dioxide pigment manufacturing plant at Heybridge, on the north-west coast of Tasmania.  The plant was closed in July 1996.  TAPL then demolished the plant and undertook remediation of the site in accordance with an Environmental Decommissioning and Rehabilitation Plan (‘EDRP’) and certain Environment Protection Notices (‘EPNs’) issued by the relevant State department.

10                  By 2002, TAPL was no longer generating revenue and was entirely occupied with remediation work at the site.  In July 2002, the board of ICI approved a proposal whereby:

·        a new company was to be incorporated (‘Echo’), with Mr Hartley, a senior officer of ICI, to be the sole shareholder and director;

·        TAPL would be sold to Echo for $1 and Echo would be responsible for remediation work at the site using TAPL’s funds, which totalled about $24 million; and

·        ICI would procure a bank guarantee from Westpac Banking Corporation (‘Westpac’) to cover certain kinds of expenses and ICI’s interests would be protected by a ‘probity auditor’.

11                  On 16 August 2002, Echo was incorporated and one ordinary share was allotted to Mr Hartley.  The remainder of the proposal approved by ICI was implemented by a series of agreements, as follows:

·        a ‘Share Purchase Agreement’ between TAPL and Echo dated 1 October 2002;

·        a ‘Deed of Appointment of Probity Auditor’, between Echo and Ernst & Young, dated 1 October 2002 (‘Probity Auditor Deed’);

·        a ‘Banker’s Undertaking’, executed by Westpac in favour of Echo, dated 26 September 2002; and

·        an ‘Indemnity’ executed by ICI in favour of Westpac on 26 September 2002.

Indemnity Documentation

Banker’s Undertaking

12                  Westpac’s Banker’s Undertaking was in the following terms:

‘In consideration of [Echo] accepting this undertaking and subject to satisfaction of the conditions below, [Westpac] undertakes to pay any sum or sums which may from time to time be demanded by [Echo] up to a maximum aggregate sum of [$15 million] (the Sum)

…

Westpac agrees to pay to [Echo] the whole or any part or parts of the Sum provided the following conditions are satisfied:

(I)        Westpac receives a certificate which in Westpac’s reasonable opinion is substantially in the form annexed hereto as Schedule 1 (the Certificate); and

(ii)       The Certificate:

            (a)        is duly notarised … confirming that it has been signed by a partner…from an Australian office of Messrs Ernst & Young (or any authorised signatory of any successor Probity Auditor from time to time thereof); and

            (b)        purports to be signed by two authorised signatories of [Echo]

                        …

Westpac agrees that other than as set out above, payments claimed in accordance with this undertaking will be made to [Echo] forthwith without reference to any third party. …’

13                  Schedule 1 set out a form of ‘Payment Request’ to be executed by Echo and forwarded to Westpac.  The Payment Request to be completed by Echo was to state that the ‘Payment Amount’ had been independently determined by a third party expert and that the process of determination had been audited for probity by the Probity Auditor under the Probity Auditor Deed.  Confirmation of the Probity Auditor’s determination was to be set out in an attached notice.

14                  The notice to be provided by the Probity Auditor was to be executed by Ernst & Young and was to include a completed certification in the following form:

‘In accordance with Clause 3.5 of the [Probity] Deed, the Probity Auditor is of the opinion that the processes adopted by Echo and referred to in clause 3.4(f) have been carried out in a fair and equitable manner and conducted with due probity in respect of the following Payment Event:

(a)       [insert description of Payment Event]

(b)       [insert amount of Payment Request].’

Probity Auditor Deed

15                  The parties to the Probity Auditor Deed were Ernst & Young as ‘Probity Auditor’ and Echo.  The Probity Auditor Deed stated that Echo appointed Ernst & Young to act as Probity Auditor and that Ernst & Young accepted the appointment.

16                  The Probity Auditor Deed provided that the Probity Auditor could retire by one month’s written notice to Echo (cl 2.3(a)).  However, the Probity Auditor was not to retire unless a replacement probity auditor had been appointed and had agreed to be bound by the terms of the Deed as if named therein as the original Probity Auditor (cl 2.3(b)).  Upon receipt of a retirement notice, Echo was required in good faith to seek a replacement probity auditor (cl 2.3(c)).

17                  The pivotal provisions of the Probity Auditor Deed were contained in cl 3.  Under cl 3.3(a) Echo could at any time during the ‘Term’ give written notification to the Probity Auditor of its intention to make a ‘Payment Request’ to Westpac.  The expression ‘Payment Request’ was defined to mean a payment notification for any loss or cost arising out of a ‘Payment Event’.

18                  Clause 3.1 provided that, for the purposes of the Deed, each of the following was a ‘Payment Event’:

‘(a)      the Site has been adversely affected by fire, flood, storm, drought, natural disaster or reed death; and

(b)       Echo or the Company [TAPL] becomes aware of any actual or contingent liability of the Company which:

            (i)         was in existence as at the Completion Date; or

            (ii)        arose after the completion Date as a direct or indirect result of an act or omission by any person (including, without limitation, the Company or officers, employees, or agents of the Company) prior to the Completion Date.’

19                  ‘Term’ was relevantly defined (cl 1.1) to mean the period from the Completion Date until the earlier of the date five years from the Completion Date and the date:

‘that there is a change in the controlling shareholder of Echo.’

The expression ‘Site’ was defined to mean ‘the land the subject of the EPN as at the date of this Deed’.  The‘Completion Date’ was the date of completion of the Share Sale Agreement.

20                  Clause 3.2(a) of the Probity Auditor Deed qualified the operation of cl 3.1 by providing that Echo was not entitled to make a Payment Request in respect of an ‘Excluded Liability’.  The latter expression included (cl 3.2(a)(i)):

‘a liability arising under the EPN or any liability for works required to be undertaken to comply with the EPN or any Environmental Law with respect to the Site except when it arises directly out of an event referred to in Clause 3.1(a).’

21                  ‘EPN’ was defined to mean three specified Environmental Protection Notices relating to the Site.  The three Environmental Protection Notices were EPN 40/1, EPN 41/1 and EPN 323/1.  Each of EPN 40/1 and EPN 41/1 was concerned with the activity of ‘decommissioning and rehabilitation works’ at the Site.  EPN 323/1, which replaced earlier EPN 39/1, was concerned with the activity of ‘Environmental management of decommissioned and rehabilitated leach residue dams and landfills’ at the Site.

22                  Under cl 3.3(a), Echo, at any time during the Term, could give a written ‘Payment Notification’ to the Probity Auditor of its intention to make a Payment Request to Westpac for any loss or cost arising out of a Payment Event.  A Payment Notification had to include the following information (cl 3.3(b)):

·        an outline of the circumstances under which Echo considered that a payment event had occurred;

·        all information regarding the appointment by Echo of experts in respect of the Payment Event; and

·        all information and documentation relating to the Payment Event.

23                  Clause 3.4(a) of the Probity Auditor Deed provided that the Probity Auditor had to consider each Payment Notification and conduct an independent review of the probity of Echo’s processes for validating a Payment Event.  Echo’s processes were to include the appointment of one or more appropriate experts qualified to make reports and determinations as follows (cl 3.4(b)):

·        whether a Payment Event had occurred;

·        if the Payment Event arose under cl 3.1(a), the amount required by Echo to rectify the damage the subject of the Payment Event; and

·        if the payment event arose under cl 3.1(b), the amount required by Echo to meet the liability the subject of the Payment Event.

Echo was to provide the experts with any information reasonably required to review any request for payment under a Payment Request (cl 3.4(c)).

24                  The Probity Auditor was required to consider the expert reports and report to Echo as to whether the processes adopted by Echo to validate:

 whether a Payment Event had occurred; and

if so, the amount Echo determined was payable under the Payment Event,

were fair and equitable and conducted with due probity (cl 3.4(f)).  In making such a report, the Probity Auditor was to act as an expert and not as an arbitrator (cl 3.4(g)).

25                  If the Probity Auditor confirmed that the processes relating to the Payment Event had been fair and equitable and conducted with due probity, it had to provide Echo with a Probity Audit Notice in the form of Schedule 1 to the Deed (cl 3.5).  The form of the Probity Audit Notice was identical to the form of the certificate contained in Schedule 1 to the Banker’s Undertaking.

Subsequent Events

26                  According to Echo’s Register of Members, certain share dealings were registered on 1 April 2003.  The effect of them was that Mr Hartley became registered as the holder of nine A class shares and Mr J C Homer became registered as the holder of one A class share.

27                  On 7 March 2005, Mr Homer lodged with the Australian Securities and Investments Commission (‘ASIC’) a form stating that on 3 September 2003 Mr Hartley had transferred his nine A class shares to Mr Homer.  About two years later, on 23 April 2007, Mr Homer lodged with ASIC a ‘Request to withdraw a lodged document’.  The request gave the following details:

‘A transfer of A class shares failed to validly occur because the share transfer form was never signed by the transferor and no consideration was ever paid.  Furthermore, the share transfer form was never stamped for stamp duty purposes and no entry was made on the register of members.  Accordingly, Christopher Ian James Hartley is still the legal owner of 9 A class shares in the company.’

28                  On 31 May 2006, Deloitte issued a Probity Audit Notice to Echo.  The Probity Audit Notice, addressed to Mr Homer, was in the following terms:

‘We refer to the Deed between Ernst and Young and Echo Tasmania Pty Limited (Echo) dated October 2002 (Deed) as amended by Deed of Appointment of Replacement “Probity Auditor” dated 27 March 2006.

…

In accordance with Clause 3.5 of the Deed, the Probity Auditor is of the opinion that the processes adopted by Echo and referred to in Clauses 3.4(f) have been carried out in a fair and equitable manner and conducted with due probity in respect of the following Payment event:

1.1       Payment Event:

Failure of reduction system giving rise to a payment event pursuant to clauses 3.1(a) and 3.1(b) of the Deed.

1.2       Payment Request:

$3,742,301

2.1 Payment Event:

Decontamination [sic] caused by leakage from a buried fuel tank, giving rise to a payment event pursuant to Clause 3.1(b) of the Deed.

2.2       Payment Request:

$321,066.’  (Emphasis added.)

29                  On 5 June 2006, Echo sent a Payment Request to Westpac, as follows:

‘We refer to the Deed between Ernst and Young and Echo Tasmania Pty Limited dated 1 October 2002 and as amended by the Deed of Appointment of the Replacement Probity Auditor dated 27 March 2006.

The sum of $4,053,367 is payable to Echo Tasmania Pty Ltd.

…

The Payment Amount has been independently determined by an expert third party and the process of that determination has been audited for the probity by the Probity Auditor under the Deed.  Conformation [sic] of the Probity Auditor’s determination is set out in the attached notice.’

30                  On 1 November 2006, Deloitte issued a second Probity Audit Notice in the same form as the first.  The Payment Event was said to be:

‘Removal of infrastructure giving rise to a payment event pursuant to clause 3.1(b) of the Deed.’  (Emphasis added.)

The Payment Request certified by Deloitte was for $1,009,111.30.  On the same day Echo forwarded its Payment Request to Westpac.

31                  On 6 November 2006, ICI wrote to Deloitte referring to the two certificates it had provided.  The letter stated that ICI had received evidence of the appointment of Ernst & Young as Probity Auditor, but had not received evidence of Deloitte’s appointment as the replacement Probity Auditor.  ICI requested confirmation that the Deed of Amendment had amended the original Deed only to the extent of substituting Deloitte for Ernst & Young.  ICI also requested confirmation that:

‘you are certain that … no event referred to in (b), (c) or (d) of the definition of “Term” in Clause 1.1 has occurred since 1 October 2002, for example in relation to the transfer of A shares from Mr Hartley to Mr Homer in September 2003.

… you have considered and excluded the possibility that any of the Payment Requests was in respect of an “Excluded Liability” as defined in clause 3.2, for example for work required to comply with the original EPN over and above what had originally been put in place, or in relation to any later EPN such as that issued to Echo Projects Pty Ltd in July 2003.’

Deloitte declined to provide the requested information, on confidentiality grounds.

32                  On 27 February 2007, ICI wrote to Echo seeking detailed information about the Payment Events.  On 5 March 2007, Echo refused to provide the information.  Echo stated that it was unaware of any matching indemnity ICI might have given to Westpac.

33                  In response to a further request by ICI for information, Echo’s solicitors noted on 26 March 2007, among other things, that Mr Hartley had had nothing to do with Echo ‘for many years’.  This observation was apparently intended to rebut ICI’s contention that Echo must have known of ICI’s matching indemnity since Mr Hartley had participated in the negotiations at a time when he was the sole director and shareholder of Echo.

34                  Further correspondence did not yield the information sought by ICI.

ICI’s Potential Claims Against Echo

35                  ICI handed up to the primary Judge a document setting out what it described as its potential claims against Echo.  Although the primary judgment does not refer to the document, it is useful to extract the portions of the document relating to ICI’s potential claims under the TP Act in respect of Echo’s alleged misleading or deceptive conduct.  The document also sets out potential claims based on Echo’s alleged breach of a duty owed to ICI to exercise reasonable care in formulating Payment Notifications to Deloitte and Payment Requests to Westpac.  However, it is not necessary to extract the foreshadowed claims founded on breaches of duty.

36                  The relevant portions of the document are the following:

‘1.        A claim that:

            (a)        Echo, by the act of submitting each Payment Notification to Deloittes (and possibly directly by its terms), made various representations to Deloittes.  Without having seen those documents it is impossible to be precise about what representations were made.  It appears the representations included representations that:

                                    (i)        it was appropriate for Echo to be submitting the notification;

                        (ii)        there had been a relevant “Payment Event”;

                       (iii)       the matter(s) the subject of the Payment Notification was not an “Excluded Liability”;

                       (iv)       the Probity Audit Deed remained in existence and had not been terminated.

            (b)       such representations were misleading and deceptive or likely to mislead or deceive and in contravention of [s] 52 of the [TP Act];

            (c)        ICI suffered loss as a result, because if Echo had not acted in contravention of that section a Payment Notification would never have been submitted, or would never have been the subject of a Probity Audit Notice, and consequentially there would never have been a Payment Request made of Westpac under the Bankers’ Undertaking or a demand made on ICI by Westpac under the Indemnity.

2.         A claim that:

            (a)       Echo, by the act of submitting each Payment Request and Probity Audit Notice to Westpac, represented to Westpac that:

                       (i)         Deloittes is a successor Probity Auditor under the Probity Audit Deed;

                       (ii)        Deloittes had independently verified the probity, fairness and equitability of the processes adopted by Echo and referred to in clause 3.4(f) of the Probity Audit Deed;

                       (iii)       the event(s) described in the Probity Audit Notice were “Payment Events” under the Probity Audit Deed;

                       (iv)       the event(s) described in the Probity Audit Notice had occurred;

                       (v)        the Payment Amount described in the Payment Request had been independently verified by a third party;

                       (vi)       the Payment Amount described in the Payment request was payable to Echo in accordance with the Probity Audit Deed;

(b)       such representations were misleading and deceptive or likely to mislead or deceive and in contravention of [s] 52 of the [TP Act];

           (c)        ICI suffered loss as a result, because if Echo had not acted in contravention of that section, there would never have been a Payment Request made of Westpac under the Bankers’ Undertaking or a demand made on ICI by Westpac under the Indemnity.’

REASONING

Adequate Reasons?

37                  It is a normal, but not universal, incident of the judicial process that reasons should be given for a judicial decision: Public Service Board v Osmond (1986) 159 CLR 656, at 667, per Gibbs CJ.  This principle applies to trial Judges exercising the judicial power of the Commonwealth: Bourke v Beneficial Finance Corporation Ltd (1993) 47 FCR 264, at 280, per curiam; Beale v Government Insurance Office of New South Wales (1997) 48 NSWLR 430, at 441, per Meagher JA.

38                  The primary justification usually given for this requirement is that the appellate process is workable only if the trial Judge has exposed his or her reasoning sufficiently to enable the appellate court to determine whether the decision is affected by appellable error.  However, there are other reasons.  As Meagher JA pointed out in Beale v GIO, at 442, these include the fact that:

‘[a] failure to provide sufficient reasons can and often does lead to a real sense of grievance that a party does not know or understand why the decision was made …  Aside from the sense of injustice which can be caused, there is a broader interest in maintaining public acceptance of judicial decisions and the judicial system.’

39                  The primary judgment in the present case is lengthy.  It includes a detailed analysis of the principles governing the construction of FCR, O 15A r 6.  The judgment also sets out substantial extracts from the documentation to which reference has been made earlier in this judgment.  There is, however, only an oblique reference to the nature of the potential case identified by ICI in the document it provided to the primary Judge ([36] above).  The judgment does not record, even briefly, the arguments made by Echo in opposition to ICI’s application for preliminary discovery.  The substantive reasoning is limited to a single paragraph.  While brevity is not the same as a failure to give adequate reasons, the paragraph in substance asserts conclusions and does not explain the primary Judge’s reasoning process.

40                  In our view, Echo has a legitimate complaint that it cannot discern from the primary judgment why its arguments were rejected.  Echo has therefore established that his Honour did not provide adequate reasons and that he thereby erred in law.  This suggests that leave to appeal from the judgment of the primary Judge should be granted.  Moreover, while the orders made by his Honour were technically interlocutory, they effectively required Echo to produce documents for inspection that otherwise it was entitled to keep to itself. 

What Should be Done?

41                  A failure by a trial Judge to give adequate reasons does not necessarily mean that the matters should be remitted for a new trial or for the purpose of the trial Judge formulating adequate reasons for the orders.  In Bourke v Beneficial Finance, for example, the Full Court considered (at 284) that, although the trial Judge in that case had not given adequate reasons for his conclusions, the appropriate course was for the Court to analyse the documentation upon which the appellants relied and reach its own conclusions as to whether the orders made at first instance were justified.  Since the analysis showed that the appellants could not succeed in their claims for relief, the Court concluded that there was no point in sending the matter back for a new trial: see, too, Beale v GIO, at 444, per Meagher JA; Mount Lawley Pty Ltd v Western Australian Planning Commission [2004] WASCA 149, at [29], per curiam.

42                  In this case, as in Bourke v Beneficial Finance, there is no issue concerning the credit of witnesses.  The case depends entirely on the documentation and on unchallenged evidence, in particular that given by Mr Ross, Vice President Corporate Finance at ICI.  In these circumstances, in our view, the appropriate course is for us to determine whether, on the evidence before the primary Judge, his Honour was correct to make the orders he did.  To the extent that we uphold his Honour’s orders, our reasons will explain to Echo why its submissions have not been accepted.  To the extent that we do not uphold his Honour’s orders, our reasons will explain to ICI why its submissions have not been accepted.

Should the Orders Have Been Made?

Principles

43                  There was no dispute that the principles governing the proper construction of FCR O 15A r 6(a) were correctly summarised by Hely J in St George Bank Ltd v Rabo Australia Ltd (2004) 211 ALR 147, at [26], as follows:

‘(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;

(b)       each of the elements prescribed in sub-paragraphs (a), (b) and (c) of the rule must be established.  Preliminary discovery cannot itself be used to remedy deficiencies in the satisfaction of the conditions themselves;

(c)        the test for determining whether the applicant has “reasonable cause to believe”, as required by sub-paragraph (a), is an objective one.  Further, the words “or may have” cannot be ignored.  The applicant does not have to make out a prima facie case;

(d)       belief requires more than mere assertion and more than suspicion or conjecture.  Belief 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;

(e)        whilst uncertainty as to only one element of a cause of action might be compatible with the “reasonable cause to believe” required by sub-paragraph (a), uncertainty as to a number of such elements may be sufficient to undermine the reasonableness of the cause to believe;

            …

(h)       it is no answer to an application under the rule to say that the proceeding is in the nature of a “fishing expedition”.  Indeed O 15A r 5 “expressly contemplates” what once might have been castigated as “fishing”.  As Burchett J commented in Paxus Services [Ltd v People Bank Pty Ltd (1990) 90 ALR 728, at 733], the rule is:

                        “… designed to enable an applicant, in a situation where his proof can rise no higher than the level the rule describes, to ascertain whether he has a case against the prospective respondent …”’.  (Other citations omitted.)

Categories of Documents

44                  The primary Judge set out the ten categories of documents Echo was required to produce to ICI in Schedule A to the orders.  For convenience, we reproduce Schedule A as a schedule to this judgment.  We shall deal successively with each category, or each group of related categories, of documents.  In each instance, the issue is whether the evidence adduced before the primary Judge is sufficient to establish that there is reasonable cause to believe that ICI has or may have the right to obtain relief in the Court from Echo.

45                  Although Echo has not raised any issue concerning sub-paragraphs (b) or (c) of O 15A r 6, there is no dispute that it is necessary to consider each category, or each group of related categories, of documents separately.  The fact that ICI is entitled to an order for the discovery of some of the documents it seeks (if it be the fact), does not necessarily mean that ICI is entitled to all the documents it seeks.

Categories 1 and 2

46                  These categories of documents require Echo to make discovery of the Deed of Replacement Probity Auditor dated 27 March 2006 between Echo and Deloitte and every document notifying a person appointed as Probity Auditor in respect of the May and November Probity Audit Notices.

47                  ICI says that it is entitled to inspect the documents within these categories because there is reasonable cause to believe that Deloitte had not been validly appointed as replacement Probity Auditor.  The documents are needed, so ICI argues, to enable it to make a decision whether or not to commence a proceeding founded on misleading or deceptive conduct by Echo in representing that Deloitte had been validly appointed as the successor to Ernst & Young as Probity Auditor.

48                  ICI submits that the Probity Audit Notices of 31 May 2006 and 1 November 2006 show that there is reasonable cause to believe that Deloitte was not validly appointed as the successor to Ernst & Young.  This is said to flow from the reference in each of the Probity Audit Notices to the Probity Deed ‘as amended by Deed of Appointment of Replacement “Probity Auditor” dated 27 March 2006’.  According to Mr Jackman SC, who appeared with Mr Elliott for ICI, these references indicated that Deloitte may not have agreed to be bound by the terms of the Probity Deed as if named therein, as required by cl 2.3(b) of the Probity Deed.

49                  ICI does not have to establish that it has a prima facie case that Deloitte was not validly appointed as replacement Probity Auditor.  However, the evidence must rise above mere suspicion or conjecture.  As Mr Rich pointed out in argument, it is entirely consistent with the requirements of cl 2.3(b) of the Probity Deed that the appointment of a successor Probity Auditor should be expressed to operate as an amendment to the original Deed.  The terms of the letters relied on by ICI give rise, at most, to mere suspicion or conjecture.  They are not capable of satisfying the objective test laid down by FCR, O 15A r 6(a).

50                  The primary Judge erred in ordering Echo to give discovery of the documents specified in categories 1 and 2 of Schedule A to the orders.

Categories 3-7

51                  These categories identify documents provided to the Probity Auditor in relation to the events the subject of the two Probity Audit Notices, including expert reports and communications with experts.  It will be recalled that the events referred to in the Probity Audit Notices that gave rise to Payment Events were:

·        the failure of a reduction system giving rise to a Payment event pursuant to cll 3.1(a) and 3.1(b) of the Probity Deed;

·        ‘decontamination’ (sic) caused by leakage from a buried fuel tank giving rise to a Payment Event pursuant to cl 3.1(b) of the Probity Deed; and

·        removal of infrastructure giving rise to a Payment Event pursuant to cl 3.1(b) of the Probity Deed.

52                  ICI justifies an order for access to the documents identified in categories 3-7 on the ground that the evidence of Mr Ross establishes that there is reasonable cause to believe that the Site had never been adversely affected by any one of the events listed in cl 3.1(a) of the Probity Auditor Deed.  That is, Mr Ross’ evidence is said to show that there is reasonable cause to believe that the Site had not been:

‘adversely affected by fire, flood, storm, drought, natural disaster or reed death’.

Clause 3.1(a) is relevant only to the first Payment Event referred to in the May Probity Audit Notice (the failure of a reduction system).  The other events referred to in the Probity Audit Notices were said to give rise to Payment Events under cl 3.1(b).

53                  Mr Ross’ evidence, however, is of very limited, if any, probative value on this issue.  He is based in London.  Although he was a member of the team that worked on the sale of TAPL in 2002, he did so from London.  He was seconded by ICI to Australia for a period of about two years, but that secondment ended in 1998.  There is nothing in Mr Ross’ evidence to indicate that he had any first-hand knowledge of the Site or external events affecting the site after 2002.

54                  In relation to the first Payment Event referred to in the May Probity Audit Notice, Mr Ross merely deposes that he is:

‘not aware of there being any event of the kind described in clause 3.1(a) of the Probity Deed that could have caused this system to fail.’

As to the second event referred to in the May Probity Audit Notice (leakage from a damaged fuel tank) he merely says that he is unaware that the event created any liability of the kind described in cl 3.1(b) of the Probity Audit Deed.  Mr Ross uses a similar formula in relation to the event described in the November Probity Audit Notice.

55                  As Mr Rich pointed out in argument, on the face of the evidence there is no reason why Mr Ross could be expected to be aware of the events or liabilities identified by him, given his lack of involvement with Echo, or the Site or indeed his knowledge of circumstances in Tasmania at the relevant times.  Mr Ross does not explain why his lack of awareness should be accorded any probative weight as to the reasonableness of any belief ICI may have about the relevant matters.  Nor is the probative value of the evidence improved by Mr Ross’ statement that, so far as he is aware, no-one else within ICI is aware of the events or liabilities.  He gives no indication as to why anyone else within ICI could be expected to be aware of those matters.

56                  The evidence adduced by ICI to which we have so far referred, falls short of establishing reasonable cause to believe that ICI may have the right to obtain relief from the Court against Echo by reason of the non-occurrence of the events, or non-existence of the liabilities, referred to in the May and November Probity Audit Notices.  This evidence therefore does not justify the orders requiring Echo to give discovery of the documents specified in categories 3 to 7 of Schedule A to the orders.  That leaves open the question of whether other evidence might justify orders requiring Echo to produce some or all of the documents specified in categories 3 to 7.

Category 8

57                  Category 8 in Schedule A to the orders made by the primary Judge covers:

‘[a]ny other documents relating to the extent to which each event [referred to in the Probity Audit Notices] was a “Payment Event” falling within clause 3.1 of the Probity Deed and not excluded by clause 3.2 of the Probity Deed.’

It will be recalled that cl 3.2(a)(i) of the Probity Deed defines an ‘Excluded Liability’ to include a liability arising under this EPN or any liability for works required to be undertaken to comply with the EPN or any ‘Environmental Law’ with respect to the Site, except when it arises directly out of an event referred to in cl 3.1(a).  As Emmett J explains in his judgment, EPN 40/1, which was issued on 16 June 1998, required the Site to be decommissioned and rehabilitated in accordance with the EDRP prepared on behalf of TAPL in May 1996.

58                  The evidence adduced by ICI in support of an order for discovery of the documents in category 8 goes somewhat further than the evidence already considered.  Mr Ross says that his understanding of the reduction system, the failure of which gives rise to the first Payment Event in the May Probity Audit Notice, is that it:

‘was to be implemented in order to decontaminate the site for the purposes of complying with the EPN and relevant environmental legislation.’

Mr Ross does not state the source of his understanding.  Nonetheless, the evidence was admitted, apparently without objection, and it is open to infer that Mr Ross had sufficient familiarity with the activities that occurred on the Site prior to 2002 to have an informed understanding of the nature and purpose of the reduction system.

59                  The May Probity Audit Notice describes the Payment Event as the failure of the reduction system, but does not include any material suggesting that Deloitte adverted to the need to consider whether the failure was an ‘Excluded Liability’ within cl 3.2(a)(i) of the Probity Deed.  In particular, there is nothing to suggest that Deloitte considered whether the reduction system was set up or in operation to comply with EPN 40/1, which required the Site to be rehabilitated in accordance with the EDRP.  Nor is there anything to suggest that Deloitte considered whether the failure of the reduction system arose directly out of an event described in cl 3.1(a) of the Probity Deed.  Of course, Deloitte may have considered these matters, but the absence of any reference to them in the documentation adds some weight to ICI’s case.  In our view, the evidence adduced in these proceedings is sufficient to show that there is reasonable cause to believe that ICI may have an action against Echo because Echo had falsely represented that the failure of the reduction system was not an ‘Excluded Liability’ under the Probity Deed.

60                  It follows that ICI is entitled to discovery of documents relevant to the question of whether or not the first Payment Event described in the May Probity Audit Notice:

·        involved a liability arising out of an EPN or Environmental Law applicable to the Site; and

·        arose directly out of the Site being adversely affected by one of the events specified in cl 3.1(a) of the Probity Deed.

61                  The second Payment Event identified in the May Probity Audit Notice is the ‘[d]econtamination [sic] caused by leakage from a buried fuel tank, giving rise to a payment event pursuant to [cl] 3.1(b) of the Deed’.  The form of the Notice does not suggest that the leakage arose from the Site being adversely affected by fire or flood or any of the other events specified in cl 3.1(a) of the Probity Deed.  Rather, the form of the Notice indicates that the leakage was in existence at the Completion Date, or arose after that date as a direct or indirect result of an act or omission by a person prior to that date (cl 3.1(b)).

62                  The Completion Date was on or about 1 October 2002.  The Probity Audit Notice was given in May 2006.  The Notice contains no indication that any attention was paid to whether the leakage related to a liability of TAPL which arose as a direct or indirect result of the acts or omissions of a person prior to the Completion Date.  Nonetheless, there is nothing in Mr Ross’ evidence to indicate that the oil tank was installed on the Site after the Completion Date.  Unless it was, it is difficult to see why a leakage from the tank would not answer the description of a liability of TAPL which arose as the result of an act (installation of the tank) prior to the Completion Date.

63                  ICI has not made out a case going beyond suspicion or speculation for the production of documents relating to the second Payment Event in the May Probity Audit Notice.  It is not entitled to production of any documents relating to the second Payment Event.

64                  The Payment Event referred to in the November Probity Audit Notice is the removal of infrastructure giving rise to a Payment Event pursuant to cl 3.1(b) of the Probity Deed.  Mr Ross’ evidence is that, on his understanding, the only infrastructure on the Site following its sale to Echo:

‘was infrastructure that was put on the [Site] and was being used … by Echo for the purposes of performing work to comply with the EPN and environmental law’.

65                  For the reasons already given in relation to the first Payment Event in the May Probity Audit Notice, ICI is entitled to documents in Echo’s possession relevant to the question of whether or not the Payment Event described in the November Probity Audit Notice:

·        involved a liability arising out of an EPN or Environmental Law applicable to the Site; and

·        arose directly out of the Site being adversely affected by one of the events specified in cl 3.1(a) of the Probity Deed.

Categories 9 and 10

66                  These categories concern documents relating to whether there was a change in the controlling shareholder of Echo prior to the completion of the Probity Audit Notice.  The significance of any such documents is that Echo is entitled under the Probity Deed to give a Payment Notification at any time during the ‘Term’.  The definition of ‘Term’ suggests that Echo was not entitled to give a Payment Notification after there had been ‘a change in the controlling shareholder of Echo’.

67                  The evidence is sufficient to establish reasonable cause to believe that there may have been a change in the controlling shareholder of Echo prior to 2006.  It is true, as Mr Rich contended, that the documentation suggests that the transfer of Mr Hartley’s nine A class shares to Mr Homer was never registered.  Nonetheless, in September 2003, Mr Hartley apparently signed a transfer of the shares to Mr Homer and in March 2005 lodged with ASIC a form confirming the transfer.  Mr Homer subsequently lodged with ASIC a request to withdraw the document.  However, in March 2007, Echo’s solicitors informed ICI that Mr Hartley had had nothing to do with Echo for many years.

68                  The evidence leaves the true position unclear.  It is sufficient, however, to provide reasonable cause to believe that there may have been at least a de facto change in the controlling shareholder of Echo.  That may have been enough to bring the Term to an end prior to completion and service of the Probity Audit Notices.

69                  ICI has made out its entitlement to discovery of the documents in categories 9 and 10 of Schedule A to the orders made by the primary Judge.

CONCLUSION

70                  We would grant leave to Echo to appeal from the interlocutory judgment given and orders made by the primary Judge on 13 November 2007.  The appeal should be allowed in part.  We would direct ICI within seven days to bring in short minutes of order consistent with these reasons and, if appropriate, to file brief written submissions explaining the terms of the short minutes of order.  If Echo objects to the Court making orders in accordance with the proposed short minutes, it should file brief written submissions outlining the grounds of its opposition within a further seven days.

71                  Our present view is that Echo should pay 50 per cent of ICI’s costs of the proceedings at first instance and that each party should bear its own costs of the application for leave to appeal and of the appeal.  If either party wishes to contend for different costs orders, it should file written submissions in accordance with the timetable already outlined.

Associate:

Dated:         11 April 2008

REASONS FOR JUDGMENT

EMMETT J

72                  I have had the benefit of considering the reasons for judgment of Black CJ and Sackville J in draft form.  The circumstances in which the application for leave to appeal arises are set out in appropriate detail in those reasons.  Accordingly, I will not repeat them.  I agree with their Honours’ conclusions concerning Categories 1 to 7 and 9 and 10.  However, I have reached a different conclusion concerning Category 8, which covers any other documents relating to the extent to which each event referred to in the Probity Audit Notices was a Payment Event falling within clause 3.1 of the Probity Deed and not excluded by clause 3.2 of the Probity Deed. 

CATEGORY 8

73                  Clause 3.2(a)(i) of the Deed Appointing Probity Auditor of 1 October 2002 (‘Probity Deed’) defined the term ‘Excluded Liability’ as including a liability arising under the EPN or any liability for works required to be undertaken to comply with the EPN or any Environmental Law (as defined) with respect to the Site, except when it arises directly out of an event referred to in clause 3.1(a).

74                  ‘EPN’ was defined to mean three specified Environmental Protection Notices issued by the Tasmanian Department of Primary Industries, Water and Environment and relating to the Site.  The three Environmental Protection Notices were EPN 40/1, EPN 41/1 and EPN 323/1.  Each of EPN 40/1 and EPN 41/1 was concerned with the activity of ‘decommissioning and rehabilitation works’ at the Site.  EPN 323/1, which replaced earlier EPN 39/1, was concerned with the activity of ‘Environmental management of decommissioned and rehabilitated leach residue dams and landfills’ at the Site. 

75                  EPN 40/1 related to identified parcels of land, which are assumed to constitute the Site, and required that the Site be decommissioned and rehabilitated in accordance with the EDRP.  EPN 40/1 also required that those areas of the Site required to undergo remediation in accordance with the Environmental Decommissioning and Rehabilitation Plan (‘EDRP’) and be remedied to acceptance criteria prescribed in a table attached to EPN 40/1.  Next, EPN 40/1 required, at the completion of the remediation works, that Tioxide Australia Pty Limited (‘TAPL’) carry out a program to validate that the levels of contamination remaining in soil and waters across the Site meet the acceptance criteria in the table.  Finally, EPN 40/1 required that TAPL submit a site validation report to the Director of Environmental Management (‘the Director’) describing the remediation works, how they proceeded and the outcomes of the works. 

76                  EPN Number 41/1 related to ‘the effluent outfall, excluding the diffuser, situated on the seabed in the waters of Bass Strait’ contained within specified coordinates.  It is assumed that the effluent outfall is adjacent to the Site or forms part of the Site.  EPN 41/1 required that TAPL notify the Director at least twelve months prior to works being commenced to remove part, or all, of the effluent outfall. 

77                  EPN 323/1 required that the person responsible for any environmentally relevant activity or activities to which an EPN relates must comply with the conditions contained in Schedule 2 to EPN 323/1.  The first requirement of Schedule 2 was that the person responsible must not undertake any development, disturbance or environmentally relevant activity on the Site without the prior written approval of the Director.  Schedule 2 also required that management and monitoring of the relevant land must be undertaken in accordance with the Tioxide Site Environmental Monitoring Program attached to EPN 323/1.  A further requirement of Schedule 2 was that, if an incident causing or threatening serious or material environmental harm from pollution occurs in the course of the activity or activities, the person responsible must immediately take all practicable action to minimise any adverse environmental effects, notify the Director as soon as reasonably practicable after becoming aware of the incident and provide a report to the Director no later than 24 hours after becoming aware of the incident.  Similar steps were required to be taken if a pollutant was released as the result of an emergency, accident or malfunction in relation to the relevant activity or activities.  Next, Schedule 2 required that certain effluent discharges must comply with specified limits.  Finally, the responsible person was required to undertake certain surveys outlined by TAPL in correspondence with the Director. 

78                  Under clause 3.3(a) of the Probity Deed, Echo could, at any time during the Term, give written notification to the Probity Auditor (‘Payment Notification’) of its intention to make a request to Westpac (‘Payment Request’) for any loss or cost arising out of a Payment Event.  Under clause 3.1, each of the following is a ‘Payment Event’:

‘(a)      the Site has been adversely affected by fire, flood, storm, drought, natural disaster or reed death;

(b)       Echo or [TAPL] becomes aware of any actual or contingent liability of [TAPL] which:

            (i)         was in existence as at the Completion Date; or

            (ii)        arose after the Completion Date as a direct or indirect result of an act or omission by any person (including, without limitation, [TAPL] or officers, employees, or agents of [TAPL]) prior to the Completion Date.’

79                  Clause 3.3(b) provides that a Payment Notification must include the following information:

‘(i)        an outline of the circumstances under which Echo considers that a Payment                         Event has occurred;

 (ii)       [in the case of a Payment Event under clause3.1(a)], the amount Echo                                  considers necessary to be paid … to rectify the damage or otherwise                                     necessary to enable remediation of the Site to be undertaken in accordance              with the EPN;

 (iii)      [in the case of a Payment Event under cls 3.1(b)], the amount of the liability;                       and

 (iv)      all information regarding the appointment by Echo of Expert(s) in respect of                       the Payment Event;

 (v)       all information and documentation relating to the Payment Event; and

 (vi)      any other information reasonably requested from time to time by the Probity                         Auditor to be provided in a Payment Notification’.

80                  Clause 3.4(a) of the Probity Deed provided that the Probity Auditor had to consider each Payment Notification and conduct an independent review of the probity of Echo’s processes for validating the Payment Event.  Echo’s processes were to include the appointment of one or more appropriate experts qualified to make reports and determinations as required under clause 3.4(b), namely:

‘(i)       whether a Payment Event has occurred;

 (ii)       if the Payment Event arises under Clause 3.1(a), the amount required by Echo          to rectify the damage the subject of the Payment Event or otherwise necessary       to undertake remediation of the Site in accordance with the EPN; and

 (iii)      if the Payment Event arises under Clause 3.1(b), the amount required by Echo          to meet the liability the subject of the Payment Event’

Echo was to provide the experts with any information reasonably required to review any request for payment under a Payment Request (clause 3.4(c)). 

81                  Under 3.4(f), the Probity Auditor was to consider the expert reports and report to Echo as to whether the processes adopted by Echo to validate:

‘(i)        whether a Payment Event has occurred; and

 (ii)       if such an [sic] Payment Event has occurred, the amount Echo determined                was payable under the Payment Request,

had been fair and equitable and conducted with due probity.’ 

82                  In making such a report, the Probity Auditor was to act as an expert and not as an arbitrator (clause 3.4(g)).  If the Probity Auditor confirmed that the processes relating to the Payment Event had been fair and equitable and conducted with due probity, it was required by clause 3.5 to provide Echo with a notice in the form of Schedule 1 to the Probity Deed (‘Probity Audit Notice’). 

83                  The putative right to obtain relief that is relevantly under consideration is a right against Echo.  The putative claim against Echo is that, by submitting a Payment Notification to the Probity Auditor, Echo represented, relevantly for present purposes, that:

it was appropriate for Echo to be submitting the Payment Notification; and

the matter the subject of the Payment Notification was not an Excluded Liability.

84                  It is not self evident that, merely by submitting a Payment Notification to the Probity Auditor, Echo made such representations.  The purpose of submitting a Payment Notification was to trigger the mechanism by which the Probity Auditor would validate whether a Payment Event had occurred and whether the amount that Echo determined was payable under that Payment Event, assuming a Payment Event had occurred, was payable. 

85                  It is relevant, in that regard, that clause 3 of the Probity Deed contemplated that there could be a Payment Event out of which a loss or cost arose, but Echo was precluded from making a Payment Request in respect of that loss or cost if that loss or cost was an Excluded Liability. Thus, the Probity Auditor was to validate, first, that there was a Payment Event giving rise to a loss or cost.  Next, however, the Probity Auditor would be required to validate whether that loss or cost was a liability arising under the EPN or a liability for works required to be undertaken to comply with the EPN or an Environmental Law.  If it was such a liability, the Probity Auditor would then be required to determine whether the liability arose directly out of an event referred to in clause 3.1(a), namely, the Site’s being adversely affected by fire, flood, storm, drought, natural disaster or reed death. 

86                  The duties of the Probity Auditor in relation to Excluded Liabilities are not entirely clear from the scheme summarised above.  It is at least reasonably arguable that, in order to make the report required by clause 3.4(f) of the Probity Deed, the Probity Auditor would be required to consider whether or not the amount that Echo determined was payable was in fact payable.  That would appear to include considering whether the subject of the proposed Payment Request involved any Excluded Liability. 

87                  Whether or not Echo made a representation to the Probity Auditor as to those matters, it is reasonably arguable that the Probity Auditor was under a duty to examine those matters.  That, of course, is a different question from whether there is reasonable ground to believe that ICI has a right to obtain relief from Echo.  That will depend upon whether, assuming there is reasonable cause to believe that Echo made the postulated representations to the Probity Auditor, the postulated representations were false or misleading. 

88                  ICI relies on the evidence of Mr Robert Ross, Vice President, Corporate Finance, at ICI in London.  Mr Ross gave evidence by affidavit, on which he was not challenged.  The evidence of Mr Ross was admitted without objection. 

89                  Mr Ross has an understanding of the operations of TAPL because he was seconded by ICI to Australia from 1996 to 1998, although he does not say anything about the nature of his involvement with TAPL at that time.  In particular, Mr Ross says nothing about the nature of his involvement with the physical aspects of the Site.  As Senior Taxation Manager of ICI, Mr Ross was a member of the ICI team that worked on the sale of TAPL by ATP to Echo in 2002.  He worked on the financing and taxation aspects of the sale from ICI’s headquarters in London.  In coordinating the activities of ICI’s headquarters with those in Australia Mr Ross kept in touch on a regular basis with Mr Christopher Hartley, the ICI Country Manager in Australia, who was closely involved with the relevant people in ICI’s subsidiaries in Tasmania.  Once again, Mr Ross says nothing about the nature of his involvement with the physical aspects of the Site.

90                  TAPL owns the Site and operated a titanium dioxide pigment manufacturing plant on the Site from 1948 until the closure of the plant in around July 1996.  From the date of closure of the plant until the sale by ICI of the ongoing trioxide operations in 1999, TAPL continued to trade as a sales outlet.  Environmental issues arose from the manufacturing operations at the Site and TAPL was required to prepare an EDRP to manage both the demolition of the plant and the rehabilitation of the Site.  The requirement was imposed by relevant Environmental Laws of Tasmania. 

91                  The demolition and remediation work at the Site was governed by the EDRP, a land use permit (‘the Permit’) and the three EPNs.  EPN 39/1, EPN 40/1 and EPN 41/1 are all dated 3 July 1996.  On 15 June 1998, the Acting Director of Environmental Management (‘the Acting Director’) wrote to TAPL saying that he was satisfied that TAPL had fulfilled action plans and commitments outlined in the EDRP in accordance with Condition 2 of the Permit and Condition 2 of EPN 39/1 and EPN 40/1.  The Acting Director enclosed with his letter compliance certificates dated 16 June 1998 in respect of each of EPN 39/1, EPN 40/1 and EPN 41/1.

92                  On 20 July 1998, the Acting Director wrote to TAPL again.  After referring to the letter of 15 June 1998, the Acting Directing said that he was then issuing a new EPN, namely, EPN 323/1, to replace all the environmental requirements of EPN39/1.  The Acting Director went on to say that, as the activities on the land to which the Permit and EPNs related had been completed, he deemed that TAPL was no longer undertaking a level 2 activity on the land as defined in the Environmental Management and Pollution Control Act 1994 (Tas).  EPN 323/1 was enclosed with the letter. 

93                  According to Mr Ross the remediation of the Site included implementing a system to treat the industrial waste on the Site and to ensure that discharges from the Site into nearby waterways met environmental standards.  He said that the waste treatment system incorporated natural elements, such as potatoes and reeds. 

94                  Mr Ross said that, at the time of the sale of TAPL by ATP to Echo in 2002, TAPL was no longer generating revenue and was entirely occupied with rehabilitating or remediating the Site to comply with its environmental obligations.  However, Mr Ross did not say what TAPL was actually doing at the time of the sale, and thereafter, by way of remediating the Site.

95                  Mr Ross said that, at the time of the sale of TAPL, TAPL had approximately $24 million in cash.  At the time of the sale, the management of TAPL had estimated that the total cost of the ongoing remediation work would be $23 million.  That amount was verified by independent consultants to the Tasmanian government.  There were also plans to develop a visitors’ centre at the Site and $6 million of the available funds were earmarked for construction of the visitors’ centre.  The balance, of $18 million, together with investment income arising from those funds over the 20 year project, was expected to cover all the remediation costs, in the absence of a significant catastrophic incident, particularly one in the first few years.

96                  As a result of arrangements that ICI had reached with the Tasmanian government, ICI did not have any ongoing role in the management or ownership of TAPL or Echo. Following the completion of the sale of TAPL, ICI was not involved in the remediation work at the Site. 

97                  The first Payment Event was described, in the May Probity Audit Notice, as:

‘Failure of reduction system giving rise to a Payment Event pursuant to clauses 3.1(a) and 3.1(b) of the Deed.’

Mr Ross said that, as he understood it, the reduction system was a system that was to be implemented in order to decontaminate the Site for the purposes of complying with the EPN and relevant environmental legislation. 

98                  Mr Ross said that he was not aware of there being any event, of the kind described in clause 3.1(a) of the Probity Deed, that could have caused that system to fail.  However, Mr Ross apparently resides in the United Kingdom and he gave no indication of why he would be aware of events in Tasmania of the kind referred to in clause 3.1(a). 

99                  Mr Ross also said that he was not aware of any liability of the kind described in clause 3.1(b) and that, so far as he was aware, no one else within ICI was aware of any such liability.  The Completion Date of the sale of TAPL was on or about 1 October 2002.  The May Probity Audit Notice, which was given in May 2006, contains no indication that any attention was paid to whether the failure of the reduction system related to a liability of TAPL that arose as a direct or indirect result of the acts or omissions of a person prior to the Completion Date, as contemplated by clause 3.1(b).  There is no reason why Mr Ross would have any knowledge, one way or the other, of whether a failure of the reduction system might have been the result of an act or omission prior to the Completion Date. 

100               The second Payment Event was described, in the May Probity Audit Notice, as:

‘Decontamination [sic] caused by leakage from a buried fuel tank, giving rise to a Payment Event pursuant to clause 3.1(b) of the Deed.’

Mr Ross said that he was not aware of any such liability and that, so far as he was aware, no one else within ICI was aware of any such liability.  He said that the general description of the event and, in particular, the reference to ‘decontamination’ gave him reason to believe that, if there was a liability at all, it was one that may fall within clause 3.2(a)(i) of the Probity Deed.

101               The May Probity Audit Notice contains no indication that any attention was paid to whether the failure of the leakage from the fuel tank arose as a result of the acts or omissions of a person prior to the Completion Date, as contemplated by clause 3.1(b).  There is nothing in the evidence to indicate that the fuel tank was installed on the Site after the Completion Date.  Unless it was, it is difficult to see why a leakage from the tank would not answer the description of a liability of TAPL that arose as the result of an act, being installation of the tank, prior to the Completion Date. 

102               The third Payment Event was described, in the November Probity Audit Notice, as:

‘Removal of infrastructure giving rise to a payment event pursuant to clause 3.1(b) of the Deed.’

Mr Ross said that he was not aware of any such liability and that, so far as he was aware, no one else within ICI was aware of any such liability.  Mr Ross said that, as he understood it, the only infrastructure on the Site, following the sale to Echo, was infrastructure that was put on to the Site and was being used on the Site by Echo for the purposes of performing work to comply with the EPN and Environmental Law.  He said that, for that reason, if there was a liability at all, he believed it may be an Excluded Liability under clause 3.2 of the Probity Deed.

103               No other evidence was adduced on behalf of ICI or Echo as to whether any liability that was the subject of the two Probity Audit Notices might be an Excluded Liability.  Further, Mr Ross acknowledged in his affidavit that there may be information held by Echo that demonstrates that some or all of the claims might have been legitimately made on the basis that there had been a Payment Event that was not excluded by clause 3.2 of the Probity Deed. 

104               It may be open to infer that Mr Ross had some familiarity with the activities that occurred on the Site, prior to 2002, that enabled him to form an understanding of the nature and purpose of the reduction system and the infrastructure. However, Mr Ross did not state the source of his understanding and the statements in his affidavit are little more than assertions in relation to the definition of Excluded Liability in the Probity Deed.  They should be afforded no real weight, in the absence of some further evidence to demonstrate that the liabilities in question arose under one or other of the EPNs or was for works required to be undertaken with respect to the Site, in order to comply with one or other of the three EPNs or some identified Environmental Law. 

105               It is not self evident why the matters that were the subject of the putative Payment Events satisfied that description, having regard to the terms of the three EPNs.  EPN 41/1 appears to have no present relevance.  It is simply a requirement for the giving of notice prior to commencement of certain works.   EPN 323/1 specified procedural requirements that must be satisfied in connection with the environmental management of the leach residue dams and landfills at the Site.  It is not presently apparent how any of the Payment Events constituted works required by either EPN 41/1 or EPN 323/1. 

106               On the other hand, EPN 40/1 is a requirement that the Site be decommissioned and rehabilitated, in accordance with the EDRP, to acceptance criteria prescribed in the table attached to it.  Mr Ross did not say that any of the Payment Events constituted work involved in decommissioning and rehabilitation in accordance with the EDRP.  Mr Ross’s lack of knowledge hardly constitutes reasonable cause for believing that the specified Payment Events involved works required by the EDRP. 

107               ICI has not made out a case going beyond suspicion or speculation for the production of documents relating to any Payment Event in the Probity Audit Notices.  Accordingly, it is not entitled to production of the documents described in Category 8.

CONCLUSION

108               I agree that leave should be granted to Echo to appeal from the interlocutory judgment given and the orders made by the primary judge on 13 November 2007.  The appeal should be allowed in part.  Echo should not be required to give discovery of documents other than in respect of Categories 9 and 10 of Schedule A to the orders made by the primary judge.

109               I would order that if, within, 28 days after discovery has been given, ICI commences a new proceeding against Echo on the basis that the Term ended because of a change in the controlling shareholder of Echo, 25% of ICI’s costs and 75% of Echo’s costs, of the proceeding before the primary judge, should be part of their respective costs of that new proceeding.  If no such proceeding is commenced within that time, ICI should pay Echo’s costs of the proceeding before the primary judge.  There should be no order for the costs of the application for leave to appeal or the appeal. 

Associate:

Dated:         11 April 2008

SCHEDULE

1.         The Deed of Appointment of Replacement Probity Auditor dated 27 March 2006 between the first and second respondents (‘Replacement Probity Deed’).

2.         Each and every notification given to a person appointed as ‘Probity Auditor’ under the Deed Appointing Probity Auditor, between the first respondent and Ernst & Young, dated 1 October 2002 (‘Probity Deed’) as amended by the Replacement Probity Deed, in respect of any one or more of the events the subject of:

(a)        the letter from the second respondent to Mr Julian Homer at the first respondent, dated 31 May 2006 and entitled ‘Probity Audit Notice’ (‘May Probity Audit Notice’); and

(b)       the letter from the second respondent to Mr Julian Homer at the first respondent, dated 1 November 2006 and entitled ‘Probity Audit Notice’ (‘November Probity Audit Notice’).

3.         All documents and records of information provided to a Probity Auditor in relation to any one or more of those events.

4.         All documents recording any instructions, information or documents given by the first respondent to any expert in relation to any one or more of those events.

5.         All documents recording any and all communications between the first respondent and any expert in relation to any one or more of those events.

6.         Each and every report, including any expert report, provided to the first respondent in respect of any one or more of those events.

7.         All documents recording any and all communications between the first respondent and a Probity Auditor in relation to any one or more of those events.

8.         Any other documents relating to the extent to which each event the subject of the May Probity Audit Notice and the November Probity Audit Notice was a “Payment Event” falling within clause 3.1 of the Probity Deed and not excluded by clause 3.2 of the Probity Deed.

9.         All documents regarding:

(a)        the transfer of shares in the first respondent from Christopher Ian James Hartley to Julian Charles Homer on 3 September 2003 which was notified to ASIC in the share transfer notification lodged with ASIC on 7 March 2005; and

(b)        why that share transfer notification to ASIC was withdrawn,

excluding the first respondent’s share register and documents lodged with ASIC.

10        All documents regarding the first respondent’s verification processes for determining whether there had been a change in controlling shareholder of the first respondent prior to it making each of the June claim and the November claim.