CATCHWORDS

PRACTICE AND PROCEDURE - allegations of fraud - whether failure to particularise fraud is an abuse of process

PRACTICE AND PROCEDURE - allegations of fraud - reasonable factual basis for allegations - whether sufficient material facts on which to base allegations

PRACTICE AND PROCEDURE - whether failure to serve originating process breach of Supreme Court Rules 1970 NSW Pt15 r28 - whether abuse of process

PRACTICE AND PROCEDURE - discovery - use of documents - implied undertaking to the Court not to use discovered documents other than for the purposes of the proceedings - use of discovered documents without leave of the Court, by persons originally but no longer parties to the proceedings and seeking to be joined as parties, to draft cross-claim - use of discovered documents without leave of the Court by parties to the proceedings to draft cross claim - whether breach of principle in Harman v Secretary of State for the Home Department - whether use of documents to frame cross-claim is "ulterior or collateral purpose" - discussion of "special circumstances" where leave will be granted

Supreme Court Rules 1970 NSW: Pt1 r8; Pt7 r7; Pt11 rr1,2,3,4; Pt15 rr13, 28; Pt16, r2

Federal Court of Australia Act 1976 (Cth): s22

Federal Court Rules: O5 rr1, 2, 8; O6

New South Wales Barristers' Rules 1994

Rust v Barnes [1980] 2 NSWLR 726; referred to

Chappell v Coyle [1985] 2 NSWLR 73; referred to

Dowling v The Colonial Mutual Life Assurance Society Limited (1915) 20 CLR 509; applied

King v Henderson [1898] AC 720; referred to

Williams v Spautz (1991-92) 174 CLR 509; referred to

Jago v District Court of New South Wales (1989) 186 CLR 23; referred to

Day v Victorian Railways Commissioners 52 CLR 713; referred to Walton v Gardiner (1993) 177 CLR 378; referred to

Harman v Secretary of State for the Home Department [1983] 1 AC 280; discussed

Riddick v Thames Board Mills Ltd [1977] 1 QB 881; discussed

Ainsworth v Hanrahan (1991) 25 NSWLR 155; discussed

Holpitt Pty Ltd v Varimu Pty Ltd (1991) 29 FCR 576; referred to

Springfield Nominees Pty Ltd v Bridgelands Securities Ltd (1992) 38 FCR 217; discussed

Esso Australia Resources Ltd v Plowman High Court Unreported 7 April 1995; applied

Wilden Pump & Engineering Company v Fusfeld [1985] FSR 581; referred to

Sybron Corporation v Barclays Bank PLC [1985] 1 Ch 299 referred to

Complete Technology v Toshiba (Australia) Pty Ltd (1994) 124 ALR 493 discussed

Sentry Corporation v Peat Marwick Mitchell & Co (1990) 95 ALR 11 discussed

ALLSTATE LIFE INSURANCE CO & ORS v AUSTRALIA & NEW ZEALAND BANKING GROUP LIMITED & ORS

Nos NG381 of 1994; NG259 of 1995 and NG260 of 1995

HILL J

SYDNEY

26 MAY 1995

IN THE FEDERAL COURT OF AUSTRALIA  )

                                   )

NEW SOUTH WALES DISTRICT REGISTRY  )

                                   )

GENERAL DIVISION                   )

Matter Number NG 381 of 1994

              BETWEEN:      ALLSTATE LIFE INSURANCE CO and the parties listed as applicants in Annexure A to the amended statement of claim

                                  Applicants

                  AND:      AUSTRALIA & NEW ZEALAND BANKING GROUP LIMITED and the parties listed as respondents in Annexure B to the amended statement of claim

                                  Respondents

Matter Number NG 259 of 1995

              BETWEEN:      ABN AMRO AUSTRALIA PTY LIMITED

                                  Applicant

                   AND:      LINTER GROUP LIMITED (IN LIQUIDATION) & ORS

                                  Respondents

Matter Number NG 260 of 1995

              BETWEEN:      SOCIETE GENERALE AUSTRALIA LIMITED

                                  Applicant

                  AND:      LINTER GROUP LIMITED (IN LIQUIDATION) and others according to schedule A of the Notice of Appearance for the Respondents

                                  Respondents

CORAM:    HILL J

PLACE:    SYDNEY

DATED:    26 MAY 1995

- 2 -

                      MINUTES OF ORDER

THE COURT ORDERS THAT:

1.   The motions before the Court be stood over to a date to be arranged with counsel, when argument will be heard on the question of costs and the form of orders to be made.

2.   The solicitors for the applicants in the holding writs and the proposed cross-claimants bring in draft short minutes of order to reflect these reasons.

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

IN THE FEDERAL COURT OF AUSTRALIA  )

                                   )

NEW SOUTH WALES DISTRICT REGISTRY  )

                                   )

GENERAL DIVISION                   )

Matter Number NG 381 of 1994

              BETWEEN:      ALLSTATE LIFE INSURANCE CO and the parties listed as applicants in Annexure A to the amended statement of claim

                                  Applicants

                  AND:      AUSTRALIA & NEW ZEALAND BANKING GROUP LIMITED and the parties listed as respondents in Annexure B to the amended statement of claim

                                  Respondents

Matter Number NG 259 of 1995

              BETWEEN:      ABN AMRO AUSTRALIA PTY LIMITED

                                  Applicant

                  AND:      LINTER GROUP LIMITED (IN LIQUIDATION) & ORS

                                  Respondents

Matter Number NG 260 of 1995

              BETWEEN:      SOCIETE GENERALE AUSTRALIA LIMITED

                                  Applicant

                  AND:      LINTER GROUP LIMITED (IN LIQUIDATION) and others according to schedule A of the Notice of Appearance for the Respondents

                                  Respondents

CORAM:    HILL J

PLACE:    SYDNEY

DATED:    26 MAY 1995

                    REASONS FOR JUDGMENT

The Background

          On 1 September 1991 Allstate Life Insurance Co ("Allstate") and ten other applicants commenced proceedings in this Court against Australia & New Zealand Banking Group Limited ("ANZ") and forty-five other companies as respondents.  Immediately prior to the hearing of the motions with which the present reasons for decision are concerned, there were fifty-four respondents.

          To understand the various motions before the Court it is necessary to set out shortly the claims made in the relevant proceedings.  The following account is taken from a summary given from the bar table and, at my order, transcribed.  The other parties to the motions before me have agreed that the summary is, for present purposes, sufficient.

          The main proceedings concern the Linter Group of Companies which consists of two companies, Linter Group Limited ("Linter Group") and Linter Textiles Corporation Limited ("Linter Textiles"), the latter being a wholly owned subsidiary of Linter Group.  There were also other subsidiaries which collectively form part of the Linter group of companies.  These subsidiaries carried on businesses involving textile and clothing manufacture.  All companies of the Linter group of companies are presently in liquidation.

          The creditors of the Linter group of companies fall into four broad categories.  These may be referred to as the subordinated debenture holders, the initial participant banks, seventeen other banks (fifteen of which have moved the Court for leave to file cross-claims and are referred to as the "subsequent participant banks"), and a group of trade creditors not involved in the present motions.

          It appears that, prior to October 1988 the initial participant banks had lent a sum of approximately $320,000,000 to Linter Group, which loans were guaranteed by the subsidiaries of that company.  In 1988 there was a reorganisation pursuant to which Linter Textiles sought to raise US$200,000,000 by way of a subordinated debenture issue in the United States.  Under the proposed debenture raising, the United States Trust Company of New York was to be the trustee for debenture holders under an indenture entered into on 1 October 1988.  It was a critical feature of the arrangement that the debentures to be raised in the United States would be subordinated to what is described as "senior indebtedness" as defined in an indenture trust deed between Linter Textiles and the trustee corporation.

          On 6 October 1988 Linter Textiles registered a prospectus in respect of the debenture raising in the United States.  Under the prospectus, debentures were to be subscribed and issued prior to 13 October 1988.

          Prior to the issue of the United States debentures, there had been in place certain guarantees in favour of the initial participant banks which guarantees were released by those banks shortly before the debenture issue.  The effect of the release is alleged to be shortly stated that, as at the time of the debenture issue the initial participant banks held no "senior indebtedness".

          After the debenture issue new guarantees were entered into in favour of the initial participant banks with the consequence that the liability under the new guarantees fell within the definition of "senior indebtedness".  It is alleged that there was an agreement or arrangement between Linter Textiles and the initial participant banks under which the guarantees were to be reinstated shortly after the debenture issue.  The prospectus pursuant to which the debenture issue was made is said to have been deficient in not revealing the existence of such agreement or arrangement.  If the liability under the guarantees to the initial participant banks is senior indebtedness, it ranks in priority to the debenture holders.

          The subsequent banks advanced moneys later, at the end of 1988 and during 1989, and also contend that their loans rank as senior indebtedness.

          It is common ground between the parties that the Linter group of companies ultimately went into liquidation with debts of some $1.2 billion.

          The respondents to the main litigation include the Linter group of companies, various officers of those companies, the liquidator, the initial participant banks, the subsequent participant banks and Messrs Freehill Hollingdale and Page, solicitors who advised in relation to the debenture issue and, it is alleged, participated in the drafting of the prospectus.

          There are, in addition, various cross-claims including claims by the initial participant banks against Messrs Freehill Hollingdale and Page, Skadden Arps Slate Meagher & Flom, an American Law firm which is alleged also to have advised in relation to the debenture issue and participated in the drafting of the prospectus, and Messrs Price Waterhouse, chartered accountants.

          The main proceedings raised claims under the Trade Practices Act 1974 (Cth), including claims of misleading and deceptive conduct under s52 of that Act, claims under United States securities law and at common law.  These proceedings initially raised no claims against the subsequent banks although they were parties to the application.  However, on 24 June 1994 the applicants filed an amended statement of claim alleging, inter alia, intentional interference by the subsequent banks with contractual relations.  There was also a claim brought under the New York Fraudulent Conveyance Act which was ultimately either struck out or abandoned.

          There are two categories of subsequent banks.  Those who had lent to Linter Textiles (referred to hereafter as the "Group B respondents") and those who had lent to Linter Group (hereafter referred to as the "Group A respondents").  On 21 December 1994 the proceedings by the applicants against the Group B respondents were dismissed by consent, or otherwise discontinued.  The claims against the Group A respondents remain extant.

          On 30 August 1994 Beaumont J set down the substantive proceedings for trial before his Honour.  As a result of subsequent orders, the hearing on 3 July 1995 will be limited to the issues of whether the statements alleged to have been made were in fact made, whether, if they were made, they were misleading and whether there was reliance on the misleading statements, if any.  At the same time as his Honour set down the proceedings for trial, his Honour made orders for provisional discovery.  Subsequent orders were made relating to discovery from 30 September 1994 to February 1995.

          Between 22 November 1994 and 16 February 1995, three proceedings were commenced in the Supreme Court of New South Wales.  The first, in point of time, was a proceedings in which Asahi Finance (Australia) Limited, Daiwa Finance Australia Limited, Mitsubishi Bank of Australia Limited and Sumitomo Trust Finance (Australia) Limited (each of which companies was a member of the group of subsequent banks) were plaintiffs and of which the defendants were the Linter group of companies, former officers of the Linter group of companies, the initial participant banks, Skadden Arps, Messrs Freehill Hollingdale & Page and ten of the partners of Messrs Moore & Bevins, the solicitors for Sumitomo International Finance Australia Ltd ("SIFA") (the tenth respondent in the main proceedings).  That proceeding, which I will hereafter refer to as the "Mitsubishi holding writ", is presently extant in the Supreme Court and has not been cross-vested to this Court, although an application so to do has been made.

          The second proceeding was commenced on 19 January 1995 in the Supreme Court and was numbered in that Court 20032 of 1995.  The plaintiff was ABN Amro Australia Limited ("ABN Amro") and the respondents were all the parties who were respondents to the Mitsubishi holding writ, other than Middletons Moore & Bevins.  That proceeding has been cross-vested to this Court (it is now numbered NG 259 of 1995) and is hereafter referred to as the "ABN Amro holding writ".

          The third proceeding commenced in the Supreme Court was brought by Societe Generale Australia Limited as plaintiff on 16 February 1995.  The respondents to that proceedings are the same as the respondents to the ABN Amro holding writ.  That proceeding has also been cross-vested to this Court and I will refer to it as the "Societe Generale holding writ".  It is now numbered NG 260 of 1995.  The holding writs appear to have all been served on 17 March 1995.

          Each of the three proceedings in the Supreme Court of New South Wales claim, inter alia, damages in deceit alleging fraud.  Each concerns the particular loan agreement entered into by the respective plaintiffs with the Linter Group.  Each was brought immediately before what, on one view, may be the expiry of the relevant limitation period based on the cause of action arising at the time individual facilities were extended.

          It emerged ultimately in the present proceedings in cross-examination that, on 22 November 1994 a further writ was issued in the Supreme Court of Victoria.  The parties to this writ were the same as those to the Mitsubishi holding writ and the same causes of action were alleged.  This writ, which I will refer to as the "Mitsubishi Victorian writ", has never been served.

          Messrs Arthur Robinson & Hedderwicks, the solicitors for the subsequent banks, acted for the plaintiffs in each of the New South Wales holding writs and the Mitsubishi Victorian writ.  Mr Michael von Schoenberg ("Mr Schoenberg") was the partner of that firm having the overall conduct of the matter.  Mr Chan, a solicitor in that firm, was one of a number of people who assisted Mr Schoenberg.

          Before me are motions brought on behalf of certain of the defendants to the ABN Amro holding writ and the Societe Generale holding writ that these proceedings, as now cross-vested in this Court, be struck out or, alternatively, permanently stayed.  Those so moving are listed in Annexure A to these Reasons.  Certain of the parties who so move the Court do so on the grounds that the bringing of the proceedings are an abuse of process.  The respective plaintiffs to the cross-vested writs move the Court for orders, subject to the question of cross-claims to which I will later refer, that the two holding writs cross-vested in this Court be heard concurrently with the main proceedings.  Those seeking to strike out the holding writs raise also what may be described as pleading or demurrer points.  By consent of all parties, it is agreed that the pleading or demurrer points be decided separately by Beaumont J, at a later time, from what otherwise may be described as the abuse of process point.

          Before the Court is also a motion on behalf of the subsequent participant banks for leave to cross-claim against the same parties, other than Moore & Bevins, as are parties to the holding writs.  That leave is opposed by the parties listed in Annexure B to these Reasons; some of them on the ground of abuse of process.  Leave is also opposed on pleading or demurrer grounds.  Again it is agreed between the parties that the pleading and demurrer points be left for determination as a separate issue by Beaumont J.

          Although the applications for leave to cross-claim raise additional discretionary matters such as the impact of leave being granted upon the speedy resolution of the main proceedings, the substantial issue raised before me on the leave application may be described as the abuse of process point.  In essence it is similar to the abuse of process issue raised in respect of the holding writs.

          The abuse of process issue raises serious allegations against two very senior legal practitioners, Mr Schoenberg, to whom reference has already been made, and Mr Peter Hayes of Queen's Counsel ("Mr Hayes") who had, at all relevant times, advised and appeared for the subsequent participant banks in the main proceedings.  In essence it is alleged that Mr Hayes in advising on the holding writs and the proposed cross-claims and Mr Schoenberg in acting for the subsequent participant banks, or some of them (in respect of the holding writs, the proposed cross-claims and service of the holding writs) were parties to the use of discovered material without the leave of the Court, in substantiating and then in serving the holding writs and in the drafting of the cross-claims on behalf of the Group B respondents who, at the time, were not parties to the main proceedings (those proceedings having been dismissed against them).  The allegation is also made in relation to the cross-claims sought to be brought on behalf of the Group A respondents.  It should be stressed that the present proceedings are not proceedings to resolve a charge of contempt against either or both of Mr Schoenberg or Mr Hayes and indeed no proceedings for contempt have been instigated.  The allegations of contempt are but collateral.  However, if the allegations against Mr Schoenberg and Mr Hayes are made out, that would be relevant to the question whether I should, in the exercise of discretion, permit the bringing now of cross-claims and would be pertinent to the motions to strike out the holding writs.

          The second charge of impropriety made, principally against Mr Hayes but also against Mr Schoenberg in relation to his involvement with the drafting of the ABN Amro holding writ and statement of claim, is that he was party to the commencement of proceedings (the holding writs) which alleged fraud, without there being any reasonable basis for the allegation.  Both categorically deny that this was the case.  Both assert that on the material before them at the time the holding writs were issued there was a reasonable basis in fact for alleging fraud.

          In respect of the first allegation, the position taken by Mr Schoenberg is more complicated.  He says, as I understand his evidence, that the holding writs were drafted without regard to any discovered material.  However, by the time the cross-claims were prepared, discovered material had, he concedes, added substantiation in fact to the claims initially made in the holding writs and repeated in the proposed cross-claims.  This material was available to him at the time of service of the holding writs as well.  Mr Schoenberg concedes that this material was an incidental factor in the decision to serve the common law writs.

          His position, so far as the cross-claims are concerned, is that the Group A respondents were, in any event, parties to the main proceedings and so were entitled to use discovered materials in respect of cross-claims brought by them without leave of the Court.  In regard to the Group B respondents the position is different in that those respondents had been parties to the main proceedings which had been dismissed as against them by the time the proposed cross-claims were prepared.  But for one matter which is relied upon, it is accepted at least in a technical sense, that without leave of the Court, material discovered had thus been used in the preparation of the cross-claims by parties who, at the time the cross-claims were sought to be brought, were no longer parties to the proceedings.  However, in denying impropriety, reliance is placed upon the fact that the leave of the Court was necessary to bring the cross-claims and that, in consequence, leave of the Court would need to be obtained for the use of discovered materials in relation to the cross-claims.

          The hearing of the various motions occupied, excluding submissions, three and a half days, during which time there was extensive cross-examination of both Mr Schoenberg and Mr Hayes, substantially directed at their credit.

The Supreme Court Holding Writs

          As has already been noted, it is not suggested that the drafting of the Supreme Court holding writs, or the subsequent filing of them, involved the use of discovered material for a collateral purpose in contravention of the rule in Harman v Secretary of State for the Home Department [1983] 1 AC 280, discussed hereafter.  Rather, the service of these writs is said to involve an abuse of process of the Supreme Court for a number of reasons.

          First, it is submitted that the writs were not served in accordance with the Supreme Court Rules 1970 (NSW) ("the Supreme Court Rules") on the day of filing, but rather service was delayed with the intention that they not be served until a time of the client's own choosing.  This is said to involve a disregard of Pt15 r28 of the Supreme Court Rules.  Second, it is said that an abuse of process is involved because the holding writs, which alleged fraud, did not contain particulars of that fraud in breach of Pt15 r13 and Pt16 r2 of the Rules of that Court.  Finally, the writs are said to have been an abuse of process because there was not available to the pleader factual material warranting a belief on reasonable grounds that there was a proper basis for the allegation of fraud.

Failure to Serve the Supreme Court Writs

          Part 15 r28 of the Supreme Court Rules provides:

          "(1)Each party to any proceedings in the Court who files a pleading shall, on the date of filing, serve the pleading on each other party to the proceedings.

          (2)  In subrule (1) the expression `each other party' means each party to the proceedings on the originating process or on any cross-claim of whose address for service the party serving has notice but does not include any party against whom judgment has been entered or in respect of whom proceedings are stayed, dismissed or discontinued.

          (3)  Subrule (1) does not affect any other rule requiring service of any pleading on any party."

          Part 1 r8 of the Rules defines "pleading" as including a statement of claim.  The definition applies unless the context or subject matter otherwise indicates or requires.

          If it be the case that there is a requirement in the Supreme Court Rules that a statement of claim must be served upon the very day on which it is filed, the rule seems somewhat impractical.  It will often be difficult indeed for a party to effect service on a particular known day.  Service might be avoided, for example, and circumstances may arise where an order for substituted service may be necessary.  The defendant's address might be unknown or have changed.  Perhaps it was for this reason that senior counsel for SIFA, in oral submissions at least, qualified the rule, stating its effect to be that service was required to be effected on the day of filing or as soon thereafter as may be practicable.

          Senior counsel for the subsequent banks challenged the applicability of the rule.  He referred to the provisions of Pt7 r7 as being inconsistent with the submission made by SIFA and as indicating a contrary intention that Pt15 r28 applies to an originating process.  Rule 7(1) provides:

          "For the purposes of service an originating process shall be valid for two years from the date on which it is filed."

          So it is submitted that if the originating process remains valid for a period of two years there can hardly be an absolute obligation to serve it at the time of filing.  Reference was made to the decision of Master Allen in Rust v Barnes [1980] 2 NSWLR 726 and the subsequent decision of Yeldham J in Chappell v Coyle [1985] 2 NSWLR 73 at 87 in support.  These cases stand for the proposition that service, even after the expiration of the two year period, is not necessarily a nullity.  In the former, in a judgment which was approved by Nagel CJ at CL in Kiraly v Lowe (6 September 1982, unreported), the learned Master spoke of the discretion of the Court upon the application of a defendant to decide whether or not to set aside a service of a writ outside the two year period.  In coming to that conclusion, the Master referred to the provisions of s81 of the Supreme Court Act 1970 (NSW) which requires failure to comply with the requirements of that Act or the Rules made under it, to be treated as an irregularity, so as not to nullify the proceedings or any step in them.  Section 81(3) further provides that the Court is not to set aside proceedings on the ground of a failure to which the section applies, unless that application is made before an applicant has taken any fresh step after becoming aware of the irregularity.

          In my view it is certainly clear that failure to serve a statement of claim on the day of filing was, at best, an irregularity.  However, I am of the view that Pt15 r28 has no application at all to an originating process.  In addition to the inconsistency with Pt7 r7, to which reference has been made, a further reason why that is so is the reference in subr2 of Pt15 r28 to addresses for service.  When proceedings are commenced and the originating summons served, Pt11 requires the entry of an appearance (Pt11 rr1 and 2), filing of a notice of appearance (Pt11 r3), and the requirement therein to notify an address for service (Pt11 r4).  Thereafter the parties will each know the address for service of the other so that pleadings can be filed and served on the same day.  This reinforces, in my view, the interpretation that the rule requiring service of pleadings on the day of filing is a rule not concerned with originating process at all.  But whether I be correct in this or not I do not think that it is correct to say that it is an abuse of process to issue a writ at a time when, at least on one view of the matter, a limitation period is about to expire with a view to that writ not being served until a later time.

Failure to Particularise Fraud

          The second submission is likewise rejected.  It is true that the Supreme Court Rules (Pt15 r13 and Pt16 r2) make it clear that where fraud is alleged, particulars of the fraud must be given.  Part 15 r13(2) requires a plaintiff in a statement of claim to plead specifically:

          "Any matter ... which, if not pleaded specifically, may take the opposite party by surprise."

          Part 16 r2 deals with the matter more specifically when it provides:

          "A party pleading shall give particulars of any fraud ... on which he relies."

          Thus it is clear that fraud must be pleaded and proper particulars of the fraud given.  Failure so to do would, in accordance with s81 of the Supreme Court Act, again be a mere irregularity not invalidating the pleading.

          The failure to supply particulars in the pleading itself was relied upon in two ways.  First, it was relied upon as going to the credit of both Mr Schoenberg and Mr Hayes.  The question of credit is dealt with later in these reasons.  Second, it was relied upon in support of an argument that the filing of the holding writs was an abuse of process so that, after transmission to this Court, those writs should be struck out or permanently stayed.  Both Mr Schoenberg and Mr Hayes, whose evidence I accept, denied that the omission of particulars in the holding writs was deliberate.  Both said that the failure to include particulars came about because the matter was urgent and it was intended that particulars be supplied later.  Mr Hayes was of the view that particulars could be delivered separately, provided they were supplied in a timely fashion and was of the view that particulars had indeed been supplied subsequently in that the same allegations of fraud had been made in the cross-claims and been particularised in the cross-claims.  It was suggested before me that the particulars in the cross-claims themselves were inadequate.  This is not a matter upon which I have heard argument and the matter was left on the basis that in the event that leave was given to file the cross-claims, application could be made in due course to Beaumont J for further particulars to be supplied.

          To the extent to which the submissions are put on the basis that failure to supply the relevant particulars in the holding writs involves an abuse of the process of the Court, the argument, in my view, is misconceived.

          The foundation of the law in this country on abuse of process is the decision of the High Court in Dowling v The Colonial Mutual Life Assurance Society Limited (1915) 20 CLR 509 where the decision of the Privy Council in King v Henderson [1898] AC 720 was considered and followed.  Dowling was recently approved by the High Court in Williams v Spautz (1991-92) 174 CLR 509 at 522.  Isaacs J in Dowling distinguished between a use of a process and its abuse.  His Honour said (at 521-2):

          "If the object sought to be effected by the process is within the lawful scope of the process, it is a use of the process within the meaning of the law, though it may be malicious, or even fraudulent, and in the circumstances the fraud may be an answer; if, however, the object sought to be effected by means of the process is outside the lawful scope of the process, and is fraudulent, then - both circumstances concurring - it is a case of abuse of that process, and the Court will neither enforce nor allow it to afford any protection, and will interpose, if necessary, to prevent its process being made the instrument of abuse."

          There is nothing improper in seeking to ensure that the originating process is filed before a limitation period expires.  That is the use of a process for a quite proper purpose rather than its abuse.  Although it is of fundamental importance where fraud is alleged that it be properly particularised, failure to do so does not, of itself, amount to an abuse of process.  The evidence makes it clear that the parties in the present proceedings were fighting on numerous fronts.  Although on one view Mr Hayes might be said to have had sufficient time to have prepared particulars and pleaded them in the holding writs, the evidence is clear that Mr Schoenberg and he were very busy with various aspects of the present case.  In my view, no question of abuse of process arises at all.

          In an appropriate case, and I say nothing as to whether the present case is such a case, the failure to supply particulars can be corrected by an order requiring those particulars to be supplied and, as appropriate, a cost order against the applicant or plaintiff.  Failure to supply particulars with the pleading does not, in my view, constitute a ground justifying the Court striking out the whole proceedings.  The prejudice to the applicants/plaintiffs would be totally disproportionate to the alleged impropriety.   Strike out or permanent stay will only be granted in extreme or exceptional cases.  Where any prejudice to the respondents/defendants can be remedied if need be by a cost order it would not, in my view, justify the Court striking out or staying the proceeding: cf Jago v District Court of New South Wales (1989) 168 CLR 23 at 34 per Mason CJ, at 60 per Deane J and at 76 per Gaudron J; Day v Victorian Railways Commissioners (1949) 78 CLR 62 at 92; Cox v Journeaux (No 2) (1935) 52 CLR 713 at 720; Williams v Spautz (1992) 174 CLR 509 and Walton v Gardiner (1993) 177 CLR 378.

Whether reasonable basis in fact for alleging fraud

          The next matter raised was the question of whether there was a reasonable basis in fact known to Mr Hayes at the time the pleadings were drafted to support the allegations of fraud made.

          There is an ethical rule of the New South Wales Bar, replicated in substance in the rules of other bars throughout the country, that a barrister should not draw or settle any court document alleging fraud unless the barrister believes on reasonable grounds that the factual material already available to him or her provides a proper basis for the allegation (see r36 of the New South Wales Barristers' Rules 1994).  That such a rule existed was accepted by Mr Hayes.  A reasonable basis of fact would comprehend, in addition to written material, instructions and matters of inference, as well as oral statements.  Mr Hayes, who drafted the first holding writ filed (the Mitsubishi holding writ) denied that he had breached the ethical rule.  He said, and in so far as his subjective state of mind is relevant I accept his evidence, that he believed there was such a reasonable basis.  Ordinarily, that would have been the end of the matter.

          Instead the present case took the extraordinary turn of cross-examination of Mr Hayes as to his thought processes by reference to the material available to him.  A call was made for all written material which Mr Hayes had available to him, a call that was met, at least in part.  The call was made quite late in the proceedings and it seems to be the case that in the time available Mr Hayes had not been able to satisfy himself that all relevant material was before the Court.  In these circumstances I would be slow indeed to find no reasonable basis for the allegations of fraud made having regard to what I accept to be Mr Hayes' belief that on the materials known to him at the time such a reasonable basis existed.  However, as the matter was fully debated, I will deal shortly with the allegations of fraud made and the material which Mr Hayes indicated he had available to him and which he took into account, by reference to the Mitsubishi holding writ.

          Among the parties to the Mitsubishi holding writ were the initial participant banks and partners of Freehills.  The writ alleges that Freehills had been engaged by the Linter Companies to act as solicitors and advise with respect to all matters relating to or concerning the proposed debenture issue by Linter Textiles.  It is alleged that Freehills participated, inter alia, in the preparation of the prospectus and its registration in the United States.  It is then alleged that there was a proposal put into place, at the latest by 20 September 1988, and known to Freehills and the initial participant banks, that the initial participant banks would release the Linter subsidiaries from guarantees of their obligations with respect to the debts of the Linter Group to such banks on condition that prior to the release Linter Textiles would undertake to pay the net proceeds of the debenture issue to Linter Group and Linter Group would undertake to hold those proceeds until after the issue of the debentures when Linter Textiles would guarantee Linter Group's liabilities to the initial participant banks (which liabilities were formerly guaranteed by the subsidiaries) and the subsidiaries would guarantee Linter Textiles' guarantee given to the initial participant banks.  The pleading
continues by reciting the terms of a draft prospectus, as at 20 September 1988, which had provided:

          "As at March 31 1988, after giving effect to the Reorganisation, Linter Textiles would have had no Senior Indebtedness; however, the Indenture places no limitation on the amount of indebtedness (as such term is defined in the Indenture) including Senior Indebtedness that can be incurred by the company."

          The prospectus as ultimately filed provided, so it is alleged, that after the reorganisation Linter Textiles would have no senior indebtedness and that it planned no more than $50 million senior indebtedness to cover working capital needs and A$75 million senior indebtedness to be used for capital expenditure on a stand-by basis.

          Critically, the pleading alleges that the initial participant banks and Freehills were aware of the intention of the Linter Companies that the prospectus would be relied upon by the Sumitomo syndicate (the plaintiffs to the proceedings) who were then negotiating with the Linter Companies to lend a total of A$40 million to cover working capital needs.

          The relevant allegations of fraud are then pleaded as being that each of the initial participant banks and Freehills, inter alia, knowingly participated in what is said to be the making of misstatements in the prospectus as to senior indebtedness, intending that those misstatements would
be relied upon by the members of the Sumitomo syndicate in making loans to the Linter Group.  It is alleged that as a result the members of the Sumitomo syndicate suffered loss or damage.

          When asked to identify the documents to which he had regard in drafting the statements of claim, Mr Hayes named the prospectus itself, the indenture, a priority deed, a deed of excision, advices to the Sumitomo syndicate members given by Skadden Arps and Messrs Moore & Bevins and advice given by Freehills, an information package, guarantees and negative pledges.  Each of these documents was, in due course, produced.  On their own they provide no direct evidence of participation by the initial participant banks, or any of them, in the preparation of the prospectus of indeed of knowledge of the prospectus, at least in final form.

          There seems little doubt that copies of the earlier draft of the prospectus had been made available to most, if not all, the banks or at least that Mr Hayes had been instructed to that effect.

          What Mr Hayes reiterated, in the course of cross-examination, was that the initial participant banks had all released their indebtedness the day before the prospectus was registered and that the guarantees were "reinstated" within a month, again by each of the banks on the same day.  From this, he said, he inferred that the initial participant banks had released the guarantees and taken them back after the prospectus as part of a concerted plan and that each had known what was in the prospectus.

          It is critical to the allegations of fraud against the initial participant banks that they be shown to have had knowledge of the final form of the prospectus prior to that document being registered.  Material in Mr Hayes' hands showed that SIFA had the prospectus, at the very latest, by 23 November 1988 but not directly that it had it at an earlier point of time.  However, evidence also suggested that the initial participant banks had copies of the draft prospectus of 20 September 1988 around the time that document was prepared.  Mr Hayes said it was reasonable to infer that they would have had copies of the final form of the prospectus.

          As far as the allegations against Freehills were concerned, there is no doubt that security documents were prepared by, or in consultation with, Freehills who were involved in many aspects of the transaction including drawing and reviewing the prospectus.  The firm had a role, it is clear, in the drawing or settling of the documents of release and reinstatement.

          Counsel for SIFA and counsel for Freehills were critical of the explanation given by Mr Hayes, as was counsel for Chase.

          Two matters are really at the heart of the criticism.  The first, it is said, is that there was no evidence to suggest that any of the initial participant banks ever possessed the prospectus in final form.  Second, it is said that there was no evidence that any of the initial participant banks or Freehills intended that any statement in it would be relied upon by the subsequent banks such as the Sumitomo syndicate.  Emphasis was placed on the differences between the draft prospectus which was made available to the initial participant banks and the final form of the prospectus.

          Although I would agree that the material before Mr Hayes, so far as that material was exposed to the Court, hardly went far in establishing the relevant knowledge and participation, I am not disposed to find that there was no evidence at all upon which the fraud claim was capable of being based.  In determining whether a reasonable basis in fact existed for the claim, matters of inference can be taken into account.  The fact that later at a hearing those inferences may be shown to have been wrongly based would not affect the fact that at the time of pleading those inferences could be drawn.

          In response to the call, three files of documents were produced by Mr Hayes, going beyond the documents enumerated in cross-examination by Mr Hayes.  These documents make it clear that, if they were accepted into evidence and no other evidence were to emerge, it was part and parcel of the arrangements leading up to the issue of the subordinated debentures that those involved in the arrangement clearly contemplated at all times that the initial participant banks would, to use the language used by counsel for the subsequent banks, have their indebtedness released and reinstated.  It was a proper inference that those involved in the preparation of the prospectus, and that includes Freehills, were aware of this.  The documentary material may properly be used to infer that the initial banks were kept closely informed of the progress of the subordinated debenture issue and even if there were no direct evidence that the initial participant banks had in their possession copies of the prospectus in final form prior to its issue it would not, in my view, be improper to infer that they were aware of the final form the prospectus was likely to take.

          No doubt it would be necessary for a claim in fraud to succeed against Freehills, as the pleading itself demonstrates, to prove that that firm knew and intended the statements in the prospectus about senior indebtedness would be relied upon by the subsequent participant banks in the facilities that those banks extended.  Certainly there is no direct evidence that this is the case.  However, it is not mere speculation to allege that Freehills, having regard to its role in the transaction, must have known that the prospectus would be relied upon by subsequent lenders or was recklessly indifferent to that fact.  An inference can indeed properly be drawn that all those involved in transactions which put in place the US bond issue must have known that the prospectus would be relied on, not only by those investing in "junk bonds", but also by those lending to the Linter companies around the same time.

          It must also be said that there is evidence in the documentary material which is capable of supporting the view that the subsequent participant banks were themselves aware, at least in general terms, of what was proposed.  However, the existence of a possible defence to the charge of fraud does not lead me to a conclusion that the material before Mr Hayes did not properly permit him to plead the allegations of fraud.

          At the initial stages of pleading a claim there will always be evidence which points in one way and the other.  An allegation of fraud is indeed a serious matter and should be the subject of anxious concern.  I am sure that in Mr Hayes' case it was.  But the pleader is not obliged to conduct in his or her mind a mini-trial to reach a conclusion that the allegation must, or indeed would on the balance of probabilities, succeed.  It is sufficient if the material known, which can include not only documentary material but also oral statements of witnesses and matters of instructions, provides a reasonable basis for the allegation if nothing else were to be proved.  The mere fact that a possible defence is open does not make it improper to allege fraud unless, on all the materials available, that defence is such that it must necessarily succeed.

          In the above comments I should not be taken as accepting the proposition that had Mr Hayes objectively breached the ethical rule, that fact alone would constitute the pleading as drafted an abuse of process justifying the writ being struck out.  Unless the writ was shown to have been issued for an ulterior purpose (and there was no suggestion here that that was the case) it is hard to see how an abuse of process is involved.  A litigant in person, for example, would not be bound by the ethical rules of the Bar.  If this be so how could a writ framed by such a litigant be struck out as an abuse of process on the grounds that the ethical rule was not complied with?  Where the litigant happens to be represented, breach of the ethical rule would, in an appropriate case, give rise to disciplinary proceedings against the barrister concerned, but should hardly be visited upon the client.

          The submissions that the allegations of fraud were not reasonably based, that fraud was not particularised and a submission that one of the common law writs had not been verified (an omission which the evidence made clear could only have been a mistake as the other two holding writs were verified) were also used in aid of a submission that the use of the discovered material was the real precipitating factor in the decision made to proceed with the common law holding writs, the service of those writs and the bringing of the cross-claims.  In turn these events raise questions of the credit of Mr Schoenberg and Mr Hayes and the submissions concerning the pleading of fraud were used in part in an attempt to attack both advisers.  It may be noted that both Mr Hayes and Mr Schoenberg, and this was not contested, were of the opinion that the discovered material provided substantiation of the allegations of fraud made in the common law holding writs and repeated in the cross-claims.

          Before turning to the general question of whether there was an improper use of discovered material, I would make the following further comments concerning the common law holding writs.

          If, as I would hold, there was nothing improper involved in drafting the common law holding writs and issuing them, it would be a rare case where service of the writs would itself involve an abuse of process.  On the facts of the present case and on the evidence I accept for the reasons hereafter given, the common law holding writs were not served immediately for commercial reasons nominated by Mr Schoenberg's clients.  Ultimately those instructions were altered for reasons which had nothing to do with the use of the discovered material.  No doubt the discovered material made the course more palatable, corroborating, as the uncontradicted evidence before me made clear, the allegations of fraud.  But since I accept the evidence that while the discovered material was not a factor totally ignored in the decision to serve the common law writs, it was a mere incidental factor; in my view in the circumstances, a strike out application should not succeed.

The cross-claims

          No attempt was made by any of the parties seeking to have the cross-claims struck out to impugn them on the basis that the allegations of fraud contained in them could not properly be made.  Presumably this was because of the fact that by the time they came to be filed, the discovered material corroborated the allegations of fraud contained in them.  Rather, the attack upon the cross-claims was limited to the use of discovered material in what was said to be a contravention of the principle in Harman v Secretary of State for the Home Department (supra).

          Before considering the law as to the use of discovered material, it is necessary to say something about the evidence, particularly so far as it affects the credit of Mr Schoenberg.

          In support of the application for leave to file the cross-claim, Mr Schoenberg filed an affidavit of 17 March 1995.  For relevant purposes that affidavit was in identical form to three other affidavits sworn the same day in support of applications made to the Supreme Court of New South Wales to cross-vest the common law proceedings to this Court.  In that affidavit Mr Schoenberg swore as follows:

          "26.Although my firm had in late 1994 advised our clients that there possibly existed cross-claims, until such time as my firm and the cross-claimants' counsel had fully examined the discovery provided by the other parties we were not in a position adequately to advise our clients as to the merits of these claims or to advise them to issue cross-claims.

          27.  For these reasons, the cross-claimants have issued proceedings in the Supreme Court of New South Wales against a number of the parties in these proceedings (`the Holding Writs')...  The Holding Writs were issued on advice of counsel to guard against the risk that limitation periods for some claims might expire shortly after the dates on which those Holding Writs were filed.

          28.  The Holding Writs were not served on any parties, on advice from counsel that they should not be served until the cross claimants were in a position to establish that the factual material substantiated the claims therein.  Now that the cross-claimants review of discovery of most of the other parties is complete, I am advised by counsel and believe that the allegations in the Holding Writs are substantiated by the material discovered."

          The affidavit proceeded to set out the dates on which discovery was received from various parties, the earliest date being 19 November 1994, and the fact that discovery was still continuing.  In par32 the affidavit continued:

          "... The work performed by my firm and the cross claimants' counsel in reviewing the discovered documents of the other parties to the proceedings confirmed my preliminary view that the cross claimants may have good claims against the parties referred to in the cross claims."

          In par38 Mr Schoenberg continued:

          "Based on the above and the fact that the documents supporting the cross claimants' claims are drawn from the discovery of the very parties against whom the cross claimants wish to bring cross claims, I believe that neither delay nor prejudice to any party will result from leave being granted to file the cross claims."

          It is apparent from a reading of these paragraphs that Mr Schoenberg was deposing to the fact that the common law holding writs were deliberately not served pending discovery to confirm the allegations contained in them and that the cross-claims were drafted with the use of discovered material.

          After the issue of the use of discovered material contrary to the Harman principle had been raised, Mr Schoenberg swore an affidavit dated 5 April 1995 in which he sought to "clarify and, where appropriate, correct paragraphs 26 to 28" of his affidavit of 17 March.  In that affidavit he said:

          "3.  Paragraph 26 is incorrect to the extent that it suggests that my firm had advised our clients that no cross-claims could be contemplated until Counsel had fully examined the discovery provided by the other party.  The true position was that we had advised our clients that cross-claims were viable in respect of subordination issues upon a limited basis, namely in the event that the applicants were successful in their claims of wrongful conduct against the Initial Participant Banks, subordination may, subject to the outcome of the appeal from the decision of Mr Justice McLelland in the Equity Division of the NSW Supreme Court, affect the rights of the Initial Participant Banks to be treated as holders of Senior Debt.  It was not until I examined the documents obtained from the Respondents in the Federal Court Proceedings that I recognised that the Subsequent Banks may have claims directly against the Initial Participant Banks in respect to subordination issues.  The scope of the subordination issues were much wider than I had previously thought.

          ...

          5.   Prior to November 1994, in respect of subordination and in particular the theory surrounding subordination under New York Law, it was my belief that until I had, together with Counsel, fully examined the discovery provided by other parties in the Federal Court proceedings, we would not be in a position adequately to advise our client as to the merits of these wider claims.  It was in that context that I referred to cross-claims in paragraph 26 of my affidavit of 17 March 1994.

           6.   I did not intend to convey in paragraph 26 of my 17 March affidavit that I had advised our clients that there could be no consideration of cross-claims whatever until such time as we had fully examined the discovered documents - rather that there could be no consideration of these wider claims until such examination had been undertaken.  The conduct of the Initial Participant Banks in the making of the loans and obtaining Senior Indebtedness Guarantees was a critical feature to be taken into account in evaluating the application of the wider claims of equitable subordination.

           7.   I caused to be issued the Sumitomo Syndicate [sic] in the New South Wales Supreme Court Law Division [sic] in November 1994 because of my knowledge of the uplift and reinstatement transaction as obtained from non-discovered documents, my discussions with Senior Counsel, American attorneys, and because of my consideration of my firm's clients' own documents.

          8.   I had received instructions from my clients that I was to take all necessary steps to preserve any viable claims which they may wish to make.  I was aware that the Sumitomo Syndicate Loan had been made on 23 November 1989 and that on one view, the relevant limitation period in respect of parts of the claim would expire on 22 November 1994.  I believed that there was a proper basis for the issue of this proceeding, and further, that it would have been irresponsible for me not to have issued the proceeding.  Moreover I believed, and I advised my clients, that there was a proper basis for my clients to verify the contents of the Statement of Claim.  I believed that Senior Counsel shared my views.

          ...

          9.   The Sumitomo Syndicate Banks had instructed me not to serve their Statement of Claim.  The claim named a number of substantial and reputable banks as defendants to the proceeding.  There were serious allegations made in the Statement of Claim including allegations of fraud.  Before my clients committed themselves irrevocably to publicising these claims they wanted to be certain that it was appropriate commercially to proceed in this way.

          ...

          11.  In relation to paragraph 28 of the 17 March affidavit both Counsel and I had advised the Subsequent Banks that they were not required to serve the claims immediately.  I did receive advice from Counsel, as did my clients, that those proceedings were not required to be served upon issue.  I received instructions from clients that those proceedings were not to be served for the reasons set out in paragraph [9] hereof."

          The affidavit dealt further with dates of discovery and continued:

          "15.The documents referred to ... in the preceding paragraph were not read by me nor, to my knowledge, by any solicitor in my firm, or by Counsel, until after the Syndicate statement of claim was filed.  Those documents were not used to prepare the Syndicate statement of claim, nor was any information derived from them so used.  I am, and was in October and November 1994, aware of the decision in Harman v Secretary of State for the Home Department [1983] 1 AC 280 as to the proper use of documents discovered in a proceeding.  Those documents were not read for the purpose of considering or preparing claims against other parties until mid-February 1995."

          In narrating the history of the preparation of the common law holding writs, Mr Schoenberg deposed to documents made available initially to Mr Hutley of counsel to draft the statements of claim and ultimately that Mr Hutley had been unable to do so because of other commitments.  Mr Schoenberg then says that Mr Chan, an employee of his firm, had drawn the common law holding writs for filing on behalf of ABN Amro and Societe Generale Australia and arranged for Mr Hayes to settle the former.  The affidavit denies any use of discovered documents to prepare the common law holding writs.

          Not surprisingly, Mr Schoenberg was vigorously cross-examined about the discrepancy between the affidavits.  Counsel for the initial participant banks submits that I should accept that what Mr Schoenberg said in the affidavit of 17 March was the truth, and find that discovered materials were used to corroborate the material in the common law holdings writs and in the making of a decision to serve those writs, as well as in the preparation of the cross-claims.  For his part, counsel for the subsequent participant banks accepts that the discovered material was used for preparing the cross-claims but denies that to do so was a breach of the Harman principle.

          Mr Schoenberg's affidavit of 17 March was originally drafted by Mr Stewart of counsel who had previously been a solicitor employed by Mr Schoenberg and discussed with Mr Hayes.  Although Mr Schoenberg suggested certain changes, these did not affect the substance of the paragraphs to which I have made reference.  Mr Stewart had been involved in the Linter litigation for a considerable time but was not called to give evidence.  Mr Hayes played no part at all in the correcting affidavit of 5 April as by that time allegations had been made against him as well as Mr Schoenberg and he considered it proper for him to remain "independent of the matter".

          In cross-examination Mr Schoenberg conceded not merely the inaccuracy of the affidavit of 17 March in the manner which he had then sought to correct in his affidavit of 5 April, but was forced to concede that the 5 April affidavit had left par28 of the earlier affidavit substantially intact, which paragraph it will be recalled dealt with advice said to have been received that the holding writs should not be served until the factual material in them had been substantiated and that the allegations had in fact been substantiated by the discovered material.  Mr Schoenberg said that he believed that his correcting affidavit had asserted the incorrectness of par28, at least by implication.  Mr Schoenberg denied that the discovered material was any more than an incidental factor in the decision to serve the common law writs.  Mr Schoenberg also contradicted what he had originally said in the second sentence in par28, that he had not had counsel's advice that the allegations in the holding writs had been substantiated by the discovered material.

          I had the opportunity to observe Mr Schoenberg in the witness box for some considerable time.  I think that he gave his evidence truthfully in the witness box and I would not disbelieve him.  It is obvious from his evidence that he has been under considerable pressure, in respect of the whole litigation which he was supervising.  Clearly his affidavit of 17 March and, to the extent that it did not adequately deal with par28, his affidavit of 5 April, were not prepared with the care which he would ordinarily give.  Mr Schoenberg was embarrassed about this, but I do not accept the suggestion that his evidence in the witness box was a fabrication or, as senior counsel put it, "a charade".  On the basis of his oral evidence I would find as follows:

1.   Mr Schoenberg in no way used discovered materials for the purposes of drafting the common law holding writs.  This, in any event, is conceded.

2.   The instructions to serve the common law holding writs were given independently of the discovered material.  That material was "incidental".

3.   The discovered material was used in the framing of the cross-claims.  This was not denied by Mr Schoenberg.

4.   Contrary to par28 of Mr Schoenberg's affidavit of 17 March, no advice was given by counsel that the common law holding writs should not be served until the cross-claimants were in a position to establish that the factual material substantiated the claims.

          Mr Hayes was also vigorously cross-examined on credit.  I should say at the outset that I accept Mr Hayes' evidence without reservation.  He was evidently a witness of truth.  Although there are some minor discrepancies between his evidence and that of Mr Schoenberg, such discrepancies as there are, are of the kind that are inevitable when legal advisers are occupied on complex litigation on a virtually full time basis involving them moving from country to country and in proceedings on various fronts all at the one time.  For example, there was a minor discrepancy as to whether there had been a conference between Mr Schoenberg and Mr Hayes concerning the affidavit of 17 March.  While Mr Hayes agreed that he had participated in the settling of it, he did not accept, contrary to Mr Schoenberg's evidence, that there had been an actual conference.  Such a discrepancy is clearly unimportant.  Specifically, Mr Hayes said that he had not discussed with Mr Schoenberg the provisions of pars26 and 28 of the affidavit of 17 March.

          Cross-examined about his use of the discovered documents and the advice given by him, Mr Hayes readily accepted that he had used the discovered documents in settling the cross-claims.  He had in fact drafted the cross-claim for the Sumitomo syndicate as a model for use in the cross-claims to be brought by other parties.  He said that he had advised that, in respect of the banks no longer parties because they had been dismissed from the action, if they wished to bring a cross-claim based upon the discovered material, the filing of such a cross-claim required the leave of the Court to use the documents and that that, in effect, amounted to the same thing as leave to use the discovered documents for the purpose of the cross-claim.

          Mr Hayes said that in concluding that it was not necessary to serve immediately the common law holding writs, he had relied upon the advice of Mr Hutley of counsel, an experienced practitioner at the New South Wales bar.

The use of discovered documents in relation to the cross-claims

          As already noted it is conceded, on behalf of the cross-claimants, that material discovered in the main proceedings was used in framing the cross-claims, both in respect of those banks against whom the original proceedings had not been dismissed, and those banks in respect of whom the original proceedings had been dismissed.  Two answers are given by the cross-claimants.  In respect of those banks which remained parties it is said that the use of discovered materials for formulating cross-claims did not involve a breach of the Harman principle.  In respect of those banks which had ceased to be parties, it is submitted that no breach of the Harman principle arose because leave had necessarily to be obtained from the Court to file the cross-claim. Alternatively, leave was requested nunc pro tunc retrospectively to use the discovered material.  That application was made in the course of oral submissions and I shall return to it later.

          It is now a well-established principle that discovered material may not be used for a collateral or ulterior purpose without the leave of the Court or the consent of the party providing the discovery.  An undertaking to that effect is implied.  That basic principle is not here in dispute.  What is here at issue is whether use of discovered materials for the purpose of framing a cross-claim falls within the concept of collateral or ulterior purpose.

          Modern discussion of the rule usually commences with the decision of the Court of Appeal in Riddick v Thames Board Mills Ltd [1977] 1 QB 881 where it was held that an internal memorandum produced on discovery in proceedings for wrongful arrest and false imprisonment could not be used as a foundation of a subsequent suit in libel for such use was for an ulterior purpose.  The Master of the Rolls, Lord Denning, said that a party seeking discovery of documents:

          "... gets it on condition that he will make use of them only for the purposes of that action and no other purpose."

          Harman was a clear case.  There, discovered material was handed to a journalist for publication, clearly a purpose outside the contemplated purpose of discovery.  So to do constituted a civil contempt.  The difference of opinion in that case as to whether the rule had application once the documents had been actually read in the course of a public trial, has no relevance to the present case.  Similarly, the disclosure of answers to interrogatories to a person not a party to the proceedings is an abuse of process: Ainsworth v Hanrahan (1991) 25 NSWLR 155, even if on the facts of that case it was but a technical contempt.

          The rule has been accepted by Courts in this country, for example, Holpitt Pty Ltd v Varimu Pty Ltd (1991) 29 FCR 576; Springfield Nominees Pty Ltd v Bridgelands Securities Ltd (1992) 38 FCR 217; and recently by the High Court in Esso Australia Resources Ltd v Plowman (unreported, 7 April 1995).  In that case Mason CJ, with whose reasons Dawson and McHugh JJ agreed, said:

          "In relation to documents produced by one party to another in the course of discovery in proceedings in a court, there is an implied undertaking, springing from the nature of discovery, by each party not to use any document disclosed for any purpose otherwise than in relation to the litigation in which it is disclosed."

          His Honour then quoted Bray on Discovery (1st Ed (1885) at 238 in the following terms:

          "A party who has obtained access to his adversary's documents under an order for production has no right to make their contents public or communicate them to any stranger to the suit ... nor to use them or copies of them for any collateral object ... If necessary an undertaking to that effect will be made on condition of granting an order."

          In my view, it follows inexorably that use of the discovered material by such of the subsequent participant banks as had ceased to be parties, for the purpose of their coming back into the litigation and cross-claiming would be a breach of the rule, albeit that, as Mr Schoenberg said, the fact that they had been dismissed as parties had been a "mistake".  By that he clearly meant that although the application that they be dismissed had been deliberate, subsequent reflection had indicated that it was a mistake.

          The cases make it clear, however, that it will not be a collateral or ulterior purpose to use documents disclosed on discovery to add new causes of action or parties to the action in which the documents have been disclosed: Matthews & Malek Discovery 1992 Sweet & Maxwell Ch 12 at 257; Wilden Pump & Engineering Company v Fusfeld [1985] FSR 581; Sybron Corporation v Barclays Bank PLC [1985] 1 Ch 299.

          Curiously there appear to have been no cases which have considered the issue in the context of the use of discovered material for the purpose of bringing cross-claims.  If the rule be formulated broadly, as it was by Mason CJ in Esso Australia Resources Ltd in the use of the words "in relation to the litigation", such use would not contravene the undertaking.  Various formulations of the rule have been made in various contexts.  Lord Diplock in Harman distinguished between collateral or ulterior purposes on the one hand, and purposes "necessary for the proper conduct of the action" on the other.  Lord Denning MR in Riddick likewise spoke of the "purposes of the action".  Wilcox J in Springfield Nominees Pty Ltd v Bridgelands Securities Ltd spoke of the "purposes of the litigation".  In Complete Technology v Toshiba (Australia) Pty Ltd (1994) 124 ALR 493, I spoke in terms of the "purposes of the proceedings".  A like formulation was accepted by Lockhart J in Sentry Corporation v Peat Marwick Mitchell & Co (1990) 95 ALR 11 at 38, although Northrop J at first instance in that case, whose statement of principle was accepted by the parties in that case, spoke of use of documents other than for the "purposes of the case itself".

          Two rationales are given for the rule.  The first is that discovery is a coercive process involving an invasion of a private right so that the invasion should not be allowed to extend beyond that which the course of justice dictates (see Lord Denning MR in Riddick at 896).  This rationale shows that the rule is directed, at least in part, to maintaining the privacy and confidence that attaches to private documents.  The second rationale is to be found in the emphasis which the courts place upon preserving the integrity of the discovery process: see Waller LJ in Riddick at 910.  Unless a litigant is secure in the knowledge that confidential material will not be improperly used, the litigant might be less inclined to give full and frank discovery.

          The ambit of discovery is defined by the pleadings which will ordinarily have been settled by the time discovery is given.  Thus it would be possible to argue that any use beyond the case as pleaded would be in contravention of the implied undertaking.  The cases which indicate both that new parties can be added on the basis of discovery and that new claims can be added indicate that this is not the case.  The reason for these exceptions can be found in the basic philosophy of all Judicature Act systems as expressed, for example, in s22 of the Federal Court of Australia Act 1976, namely, that, so far as may be possible, all matters in controversy between the parties are to be completely and finally determined in the one set of proceedings and multiplicity of proceedings concerning the matter before the Court is to be avoided.  To this end the rules of this Court permit the adjoinder in one proceeding of multiple claims in respect of more than one cause of action Federal Court Rules (O6 r1) and the joinder of parties, particularly where common questions of law or fact arise or the relief claimed arises out of the same transaction or series of transactions: O6 r2.

          Similarly, the rules permit the bringing of cross-claims consistently with the provisions of s22 of the Federal Court of Australia Act: O5 r1.  Although a cross-claim must comprehend a claim which could have been brought in a separate proceeding if against the original applicant and which is related to or connected with the subject matter of the main proceeding if brought against some other party, once the cross-claim is brought, with or without leave as the case may be, that claim falls to be decided as part of the proceedings as a totality (cf O5 r2) and indeed the application for leave under O5 r8 is itself an interlocutory application in the main proceedings.

          It seems to me to follow that, in principle, there should be no difference between the use of discovered materials by an applicant in adding new causes of action against a respondent, on the one hand, or indeed new respondents, and an application by a respondent to the main proceedings for leave to cross-claim against a party not a party to the main proceedings or for the bringing of a cross-claim against an applicant by a respondent, on the other.  In my view the principle in Harman has no application to any of these cases.  In all of them use of discovered material is a use for the purpose of the legal proceedings and involves no contempt.

          If I be wrong in this conclusion I would, in any event, not refuse to grant leave to file the cross-claims for a number of reasons.  First, it is clear that the use of the discovered material would not be an absolute bar and the Court is left with a discretion.  Having regard to the circumstances of this case, exercise of the discretion adversely to the cross-claimants would be disproportionate to the misconduct involved, particularly where the question is ultimately not one upon which there is any authority.  Second, there is no doubt that the common law holding writs should ultimately be consolidated with the main proceeding and heard as part of it, once cross-vested to this Court.  Although the cross-claims are more detailed than the common law holding writs, applications could be made to add new causes of action to the common law holding writs and in accordance with principle, use of discovered material for this purpose would be permissible.  Third, I do not think the present is a case where the interests of the administration of justice dictate that no leave should be given.  It is in the interests of all the parties and the administration of justice that the matters in controversy between the parties be finally determined in one set of proceedings.

          For the same reasons I should say that if leave were necessary to validate retrospectively the use of the discovered material, I would have been prepared to grant that leave.  For more abundant caution I propose to grant such leave.

          What I have said above does not apply to such of the subsequent participant banks as had ceased to be parties at the time the discovered material was used by them.  Clearly there is a breach of the Harman principle, although that breach is not, on the facts of the present case, such as to warrant the Court refusing leave.  While, with respect, I do not agree with Mr Hayes that the appropriate course was merely to seek the leave of the Court to file the cross-claims without also seeking permission for the use of the discovered materials, the question is but one of procedure rather than of substance.  To the extent that an element of contempt of court exists, it is but a technical breach.  I say this because, in my view, having regard to the fact that these proceedings must ultimately settle the rights of the various creditor banks inter se, it is necessary, or certainly desirable, that the creditor banks all be parties.  In a real sense it was a mistake that they were dismissed.  In so saying I do not for a moment suggest that Beaumont J erred in dismissing the proceedings, ultimately by consent.  He was asked by all parties so to do and the reasons why the subsequent participant banks should have remained parties was not canvassed before him.  No doubt the desirability of all creditors being parties explains why all subsequent participant banks were parties when the proceedings were originally commenced by the applicants, notwithstanding that no relief was sought against them.

          For these reasons I would grant leave to all of the subsequent participant banks, seeking to do so, to file cross-claims.

          However, as this still leaves exposed a contempt, albeit technical, it is appropriate finally to consider the application made nunc pro tunc for approval to be given retrospectively (if retrospectivity be involved) to the use of the discovered materials for the purposes of formulating the cross-claims of the Group A banks.

          As I have already indicated, application for this purpose was made at a very late time, namely, in the course of submissions and indeed in answer to a question from the bench as to whether such an application was intended to be made.  As not all parties were represented, notice of the application was ordered to be given.

          I doubt if there is in truth a question of retrospectivity.  Until leave of the Court is given in the present case, there exists no pleading which is a cross-claim; there exists only a draft.  Thus if the Court now grants approval to the use of discovered material for the purpose of the cross-claim, it gives approval to the whole process which culminates in the Court giving leave to the putative cross-claimant to bring cross-claims.

          Whether or not this be the case, I am of the view that the present case exhibits the special circumstances of which Wilcox J spoke in Springfield Nominees.  Here the Group B banks had until recently been parties.  Although dismissed from the proceedings, they were really necessary parties to the proceedings and even without the cross-claims it would have been necessary that they again be joined.  As it is an appropriate use of discovered materials in my view to use those materials to formulate cross-claims or add parties to the litigation any breach of the Harman principle is in the
present case but technical.  The grant of approval would offend neither of the two rationales put forward.

          I would find accordingly that special circumstances do exist and grant leave to the cross-claimants to use the discovered material for the purposes of preparing and filing the cross-claims.  I will stand the present proceedings over to a date to be fixed with counsel and will then hear argument on the question of costs and the form of orders to be made.  I direct the solicitors for the applicants in the holding writs and the proposed cross-claimants to bring in draft short minutes of order to reflect these reasons.

I certify that this and the

preceding fifty-two (52) pages

are a true copy of the Reasons

for Judgment herein of his Honour

Justice Hill.

Associate:

Date:  26 May 1995

Dates of Hearing:            5, 6, 7, 10 and 26 April and

                             1 May 1995

Date Judgment Delivered:          26 May 1995

Counsel and solicitors       M Pembroke instructed by

for 1st, 7th, 8th and        Allen Allen & Hemsley

11th Respondents:

Counsel and solicitors       P Durack instructed by

for 3rd Respondent:          Clayton Utz

Counsel and solicitors       P Anastassiou instructed by

5th-6th Respondents:         Mallesons Stephens Jaques

Counsel and solicitors       T Hughes QC with R Sofroniou

for 10th Respondent:         instructed by Middletons Moore & Bevins

Counsel and solicitors       M Weinberg QC with P Santamaria

for 12th-21st, 23rd-25th,    instructed by Arthur Robinson &

27th-28th Respondents:       Hedderwicks

Counsel and solicitors       L Aitken instructed by

for 26th Respondent:         Minter Ellison

Counsel and solicitors       S Rushton instructed by

for 28th Respondent:         Clayton Utz

Counsel and solicitors       S Gageler instructed by

37th-193rd Respondents:      Dibbs Crowther & Osborne

Counsel and solicitors       P Jacobson QC and R Smith

for 195th-269th Respondents:instructed by Norton Smith & Co

Solicitors for 264th-280th   Sly & Weigall

Cross-Respondents in the

proposed cross-claims:

                                                ANNEXURE "A"

Parties to motions to strike out or permanently stay the cross vested proceedings

     1st Respondent          ANZ Banking Group Ltd

*    3rd Respondent          Barclays Bank Australia Ltd (Now named St George Partnership Banking Ltd ("Barclays))

     7th Respondent          Commonwealth Bank of Australia

     8th Respondent          Security Pacific Australia Ltd (Now named "SPAL")

     9th Respondent          State Bank of South Australia

*    10th Respondent         Sumitomo International Finance Australia Ltd ("SIFA")

     11th Respondent         Westpac Banking Corporation

     26th Respondent         Bank of New Zealand

*    28th Respondent         Chase AMP Bank Ltd (Now named Chase Manhattan Bank Australia Ltd)

     29th and 30th

     Respondents             Citibank Ltd and Citibank NA

     37th-39th, 41st-44th,

     46th, 48th, 50th-57th,

     60th-62nd, 66th, 67th,

     69th, 71st-75th, 77th,

     78th, 81st-84th,

     86th-97th, 99th-102nd,

     105th, 106th, 109th,

     112th-138th, 140th,

     141st, 143rd-148th,

     151st-153rd, 155th-161st,

     164th-169th, 179th-186th,

     188th -193rd Respondents          Partners of Skadden Arps Slate Meagher and Flom

*    195th to the

     269th Respondents            Partners of Freehill Hollingdale and Page

Parties marked with an asterisk are those parties who allege impropriety on the part of Mr P Hayes QC and Mr M von Schoenberg.

                                                ANNEXURE "B"

Parties who oppose the application for leave sought by the Subsequent Participant Banks to bring cross claims.

     19th Cross Respondent        ANZ Banking Group Ltd

     20th Cross Respondent        Bank of New Zealand

*    21st Cross Respondent        Barclays Bank Australia Ltd (Now named St George Partnership Banking Ltd ("Barclays"))

*    22nd Cross Respondent        Chase AMP Bank Ltd (Now named Chase Manhattan Bank Australia Ltd)

     23rd and 24th

     Cross Respondents            Citibank Ltd and Citibank NA

     25th Cross Respondent        Commonwealth Bank of Australia

     26th Cross Respondent        Security Pacific Australia Ltd (Now named SPAL Ltd) 27th Cross Respondent            State Bank of South Australia

*    28th Cross Respondent        Sumitomo International Finance Australia Ltd ("SIFA")

     29th Cross Respondent        Westpac Banking Corporation 

     32th-34th, 36th-39th,

     41st, 43rd,45th-52nd,

     55th-57th, 61st-62nd,

     64th, 66th-70th,

     72nd-73rd, 76th-79th,

     81st-92nd, 94th-97th,

     100th-101st, 104th,

     107th-133rd, 135th-136th,

     138th,143rd, 146th-148th,

     150th-156th, 159th-164th,

     170th-181st,183rd-187th

     Cross Respondents            Partners of Skadden Arps Slate Meagher and Flom

*    188th Cross Respondent       Freehill Hollingdale and Page

*    189th - 263rd

     Cross Respondents            Partners of Freehill Hollingdale & Page

     264th - 280th

     Cross Respondents            The Debenture Holders and Debenture Trustee

Parties marked with an asterisk are those parties who allege impropriety on the part of Mr P Hayes QC and Mr M von Schoenberg