CATCHWORDS
PRACTICE AND PROCEDURE - application to set aside subpoena to third party to produce documents for hearing on costs issue on cross claim - issues likely to arise on costs hearing - whether wholly successful cross respondents should be denied costs and should be ordered to pay costs of unsuccessful cross claimant (which procured issue of subpoena) - abuse of process - relevance - terms "too wide" - application by third party in the alternative that access be denied - no question of principle.
Waind v Hill and National Employers' Mutual General Association Ltd [1978] 1 NSWLR 372 (CA).
Spencer Motors Pty Ltd v LNC Industries Ltd [1982] 2 NSWLR 921 (NSW/Waddel J).
Ritter v Godfrey [1920] 2 KB 47 (CA).
Hedley v National Commercial Banking Corporation of Australia, unreported, NSW Court of Appeal, 31 October 1986.
LESTER NEIL POTTS v DENNIS JONES & CO PTY LTD & ORS (No 1)
No NG 882 of 1992
Lindgren J
Sydney
4 July 1995
IN THE FEDERAL COURT OF AUSTRALIA)
NEW SOUTH WALES DISTRICT REGISTRY) No NG882 of 1992
GENERAL DIVISION )
BETWEEN:
LESTER NEIL POTTS
Applicant
AND:
DENNIS JONES & CO PTY LIMITED
First Respondent
DENNIS JONES
Second Respondent
RAY SMITH
Third Respondent
NATIONAL MUTUAL PROPERTY SERVICES (AUSTRALIA) PTY LTD
Fourth Respondent
CITIBANK SAVINGS LTD
Fifth Respondent
PERMANENT TRUSTEE COMPANY LTD
Sixth Respondent
LANCE KELLY FINANCIAL MANAGEMENT PTY LTD
Seventh Respondent
CITIBANK SAVINGS LTD
Cross Claimant
DENNIS JONES & CO PTY LTD
First Cross Respondent
DENNIS JONES
Second Cross Respondent
RAY SMITH
Third Cross Respondent
CORAM: Lindgren J
PLACE: Sydney
DATE: 4 July 1995
MINUTE OF ORDERS
THE COURT:
1. ORDERS that the motion brought by American Home Assurance Company by notice of motion filed on 20 April 1995 be dismissed.
2. ORDERS that American Home Assurance Company pay one half of the costs of the cross claimant, Citibank Savings Limited, of that motion.
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) No NG882 of 1992
GENERAL DIVISION )
BETWEEN:
LESTER NEIL POTTS
Applicant
AND:
DENNIS JONES & CO PTY LIMITED
First Respondent
DENNIS JONES
Second Respondent
RAY SMITH
Third Respondent
NATIONAL MUTUAL PROPERTY SERVICES (AUSTRALIA) PTY LTD
Fourth Respondent
CITIBANK SAVINGS LTD
Fifth Respondent
PERMANENT TRUSTEE COMPANY LTD
Sixth Respondent
LANCE KELLY FINANCIAL MANAGEMENT PTY LTD
Seventh Respondent
CITIBANK SAVINGS LTD
Cross Claimant
DENNIS JONES & CO PTY LTD
First Cross Respondent
DENNIS JONES
Second Cross Respondent
RAY SMITH
Third Cross Respondent
CORAM: Lindgren J
PLACE: Sydney
DATE: 4 July 1995
REASONS FOR JUDGMENT (No 1)
(on motion by American Home Assurance Company on notice of motion filed on 20 April 1995).
NATURE OF PROCEEDINGS
American Home Assurance Company ("AHA") applies, by notice of motion filed on 20 April 1995, for the following substantive relief:
"2. An order that the subpoena issued at the request of the Fifth Respondent addressed to American Home Assurance Company and dated 4 April 1995 be set aside.
3. Alternatively an order that the parties to the proceedings not be permitted access to or to inspect the documents produced in answer to the subpoena referred to in prayer two hereof."
The subpoena dated 4 April 1995 requires AHA to produce documents described as follows:
"All files, correspondence, notes, forms, memoranda, letters, papers and documents relating to any claim for an indemnity made by Dennis Lloyd Jones (or Dennis Jones and Company Pty Ltd) in respect to a claim made against him (or it) by Lester Neil Potts during the period 1 July 1990 to 31 December 1993."
AHA is not a party to the proceedings.
THE SUBSTANTIVE PROCEEDINGS AND THE COSTS ISSUE ON CITIBANK'S CROSS CLAIM
The substantive proceedings were part heard before me over the
period 7, 9 and 10 November 1994 when they were settled save as to a cross
claim by the fifth respondent ("Citibank") against the first
respondent ("DJC") and the second respondent ("Jones") (I
will refer to DJC and Jones collectively as "the Jones interests").
The latest form of that cross claim is "an amended cross-claim of the fifth respondent" filed on 29 March 1994, but I will refer to it simply as "Citibank's cross claim". Citibank's cross claim was, on 10 November 1994, stood over to a date to be fixed and the parties to it were given leave to apply to have it listed for directions. Pursuant to that leave, it has been listed. Citibank seeks an order that it be dismissed. The Jones interests consent to the making of that order. There is an issue as to costs. The Jones interests say that since they will have had total success in the sense that Citibank's cross claim is to be dismissed by consent, there should be an order that Citibank pay their costs. Citibank says that costs should not follow the event because of special circumstances to which I will refer below. The costs issue is set down for hearing on 31 July 1995 and, pursuant to directions, Citibank and the Jones interests have supplied outlines of their submissions on costs. It is in connection with the hearing to take place on costs that Citibank has issued its subpoena to AHA.
BACKGROUND FACTS
The following is a brief sketch of relevant facts as pleaded by the applicant ("Potts") in his fourth amended statement of claim filed on 7 November 1994 (there have been no findings of fact).
Jones was a director and the principal executive officer of DJC. The third respondent ("Smith") was an employee of DJC. Potts was induced by DJC, through its agents Jones and Smith, to enter into an alleged tax saving arrangement ("the Arrangement"). This involved his obtaining a line of credit from Citibank to acquire units in an unlisted property trust ("the Trust") managed by the fourth respondent ("NMPS") or a company associated with it, and the borrowing of further money from NMPS for the acquisition of further units in the Trust. Potts was to mortgage his house to Citibank as security and to mortgage the units to the sixth respondent ("Permanent") which was the trustee of the Trust, as security for the further advance.
Central to Potts' claim were misrepresentations by DJC through its
agents Jones and Smith. These were that
as a result of the Arrangement Potts would get a refund of his income tax each
year; that he would lose money on the first three years, break even on the fourth
year and then proceed to make money; that at the end of ten years there would
be a profit of approximately $140,000 plus the increase in value in the
units; that there was no chance of his losing his house; that there was no
chance of anything going wrong because the units could not decrease and could
only increase in value; that the Arrangement was the best thing that Potts
could do; and that this would be seen to be so once the rent cheques from the
Trust came in.
The Arrangement disappointed Potts' expectations. By his application filed on 1 December 1992 he sought to be extricated from it. In particular, he sought to be relieved from the house mortgage to Citibank and the unit mortgage to Permanent. He applied for various orders under the Trade Practices Act 1974 (Cth) and the Fair Trading Act 1987 (NSW) as well as damages. (An amended application was filed on 8 January 1993 but the amendments made by it are not material for present purposes.)
Potts pleaded numerous "causes of action" and statutory bases for relief. These referred to various sections of the Acts already mentioned, the Contracts Review Act 1980 (NSW), and to unconscionable dealing and negligent misrepresentation and advice.
Much of the pleading was directed to establishing a basis for a holding that NMPS, Citibank, Permanent and the seventh respondent ("LKFM") were answerable for the conduct of DJC through Jones and Smith. It was pleaded that DJC, through Jones and Smith, acted in various respects as agent for NMPS, LKFM, Citibank and Permanent. DJC's alleged agency for Citibank was said to arise, not only directly, but also from the fact that LKFM was itself an agent of Citibank and, to Citibank's knowledge, engaged DJC to assist it in the promotion and marketing of Citibank's financial products.
There were numerous cross claims by which various respondents sought to make other respondents liable to them in respect of any liability which the cross claimants might be held to have to Potts. One of these was Citibank's cross claim.
RELEVANT HISTORY OF THE LITIGATION
DJC referred Potts' application to its professional indemnity insurer, AHA. AHA wrote to DJC's solicitor, Mr Le Compte (then of Walsh James) on 16 March 1993, as follows:
"We confirm we are the Professional Indemnity insurers of the agents of the National Mutual Life Association of Australia.
Following advice by your client, Dennis Jones in December 1992 of an application filed by the Plaintiff Potts in the Federal Court, New South Wales District, extensive investigations were conducted by our office into the circumstances giving rise to this action. On the basis of our findings we ascertained that Mr Jones was first made aware of Mr Potts claim in 1991 before we came on risk.
In the circumstances we advise indemnity is denied and we suggest you refer the current proceedings to the insurer at risk prior to the inception of our Policy".
Apparently on 29 June 1993 a settlement was reached between Potts and NMPS and Permanent. On 19 November 1993, pursuant to leave, Potts filed a notice of discontinuance of the proceedings as against DJC, Jones and Smith.
On 14 October 1994 DJC and Jones filed a "notice of removal as solicitor" pursuant to Order 45 r 6 (b) determining the authority of Mr Le Compte, now of Le Compte Davey, solicitors, to act as their solicitor in the proceedings.
When the proceedings were called on before me for hearing on 7 November 1994, no legal representative appeared for DJC or Jones, but Mr Jones appeared in person. In view of the fact that what then happened and its consequences may assume some significance in the determination of the costs issue, I will not deal with this matter in detail. It suffices to say that DJC and Jones took no part in the hearing and an affidavit by Mr Jones which had been filed on 15 June 1994 ("Jones' affidavit") was not read.
The hearing proceeded in substance as a dispute between what I may refer to as "the National Mutual interests" and Citibank. In the light of Potts' settlement with the National Mutual interests, his prosecution of the proceedings was, in substance, for their benefit.
ISSUES ON COSTS OF CITIBANK'S CROSS CLAIM
On 8 December 1994, Le Compte Davey, as solicitors for DJC and Jones, wrote to Holmes & Bevan as solicitors for Citibank, to the effect that DJC and Jones were prepared to consent to Citibank's discontinuing its cross claim against them on condition that Citibank pay their clients' costs assessed at $5,000.
Holmes & Bevan replied on 22 December 1994 rejecting that offer and advising that Citibank was prepared to have its cross claim dismissed on the basis that the parties pay their own costs. That offer was not accepted.
Apparently the parties' attitudes thereafter hardened. There have been several appearances, the filing of written outlines of submissions on costs, the issuing of subpoenas, the hearing of two motions to set aside subpoenas (which have both involved oral and written submissions), and there will yet be the hearing on costs itself. All this has occurred because, apparently, of the inability of Citibank and the Jones interests to resolve the difference between them of $5,000!
The nature of the issues likely to arise on the hearing on costs is relevant to the present motion by AHA to set aside the subpoena addressed to it. Identification of those issues is made easier by reason of the existence of Citibank's and the Jones interests' outlines of submissions which they will wish to make on the hearing of the costs issue.
In substance, Citibank will submit that it became Potts' target exclusively because of the conduct of Jones, and through him, of DJC, and that I should accept, for the purpose of the costs hearing, that if the substantive hearing had proceeded to completion, the result would have been an order in favour of Potts against Citibank and an order that the Jones interests indemnify Citibank in respect thereof.
Citibank will also point to the fact that on the pleadings it was common ground that DJC acted as an agent of NMPS, and that prior to 14 October 1994 the Jones interests had filed a defence to Citibank's cross claim denying that DJC was an agent of Citibank (Citibank had also denied this in its defence to the head claim by Potts). Citibank will refer to Jones' affidavit which disputed the allegations contained in Potts' evidence as to the making of the representations to him. Citibank will submit that it was not until the commencement of the hearing on 7 November 1994 that the Jones interests made it aware that they would not be pursuing their defences to the head claim and to Citibank's cross claim and that Jones' affidavit was "effectively withdrawn when the Jones interests declined to appear at the hearing".
Citibank will submit that in the light of the non-reading of Jones' affidavit, Potts' affidavit evidence showed not mere negligence but "gross dishonesty" by Jones, the absence of "any honest belief" on his part in the truth of the representations attributed to him, and "a definite intent to deceive the applicant for the financial advantage of the Jones interests".
Citibank will say that by reason of the turn of events at the beginning of the hearing, it suddenly and unexpectedly found itself in a position in which a substantial area of challenge to Potts' case evaporated.
Generally, Citibank's submission will be that by reason of all these circumstances, this is one of those rare cases where a wholly successful party should be denied his costs because, as Atkin LJ said in Ritter v Godfrey [1920] 2 KB 47 (CA), he has
"(1.) brought about the litigation, or (2.) has done something connected with the institution or conduct of the suit calculated to occasion unnecessary litigation and expense, or (3.) has done some wrongful act in the course of the transaction of which the plaintiff complains." (at 60)
(See too, Hedley v National Commercial Banking Corporation of Australia, unreported, NSW Court of Appeal, 31 October 1986 at 5-8 (per McHugh JA with whom Glass and Priestley JJA agreed)).
Citibank will seek orders that its cross claim be dismissed and that the Jones interests pay Citibank's costs of the proceedings.
The Jones interests will submit that the costs on Citibank's cross claim against them should follow the event in the usual way. They point out that they will have been wholly successful on Citibank's cross claim and that not only has there been no finding of fraud against Jones, but also there has been no allegation of it previously made against him. As well, the Jones interests will suggest that Citibank's submissions draw too much from their non-participation in the proceedings. They will assert that affidavit evidence to be relied on for the purpose of the hearing on the costs issue will show that Jones was willing and expected to be questioned on his affidavit and that he failed to comprehend the "technical legal effect" of my question to him at the commencement of the hearing (to which he responded positively), "And it is your intention, I understand not to seek to lead any evidence in the proceedings?"
The Jones interests seek orders which are complicated by the fact that they were without legal representation from 14 October 1994 to 10 November 1994. The orders which they will seek are set out as follows in their outline of submissions:
"(a)Citibank pay Jones' costs of the cross claim between 8 December 1993 and 14 October 1994 on a party/party basis.
(b)Citibank pay Jones' out-of-pocket costs and expenses in respect of out-of-pocket costs and expenses reasonably incurred in respect of the conduct of the litigation between 14 October 1993 [sic-1994] and 10 November 1994.
(c)Citibank pay Jones' costs from 10 November 1994 to 8 December 1994 on a party/party basis and thereafter on an indemnity basis (having regard to Citibank's rejection of Jones' offer to compromise dated 8 December 1994 ..."
REASONING ON AHA'S MOTION TO SET ASIDE THE SUBPOENA
General
AHA submits that the subpoena should be set aside for three reasons:
(1) that its issue was an abuse of process;
(2) that it orders production of documents which can have no relevance to any issue to be determined; and
(3) that it is expressed in terms that are too wide.
In relation to (1), there is no basis for saying that Citibank procured the issue of the subpoena otherwise than for the purpose of the determination of the costs issue on its cross claim. AHA submits that Citibank must have had an impermissible purpose in issuing the subpoena because the documents referred to in it can have no possible relevance to the costs issue ("A witness might argue that the documents must be sought for some undefined spurious reason, as they have no conceivable relation to the proceedings": Waind v Hill and National Employers' Mutual General Association Ltd [1978] 1 NSWLR 372 (CA) ("Waind v Hill") at 382F). I need not deal with that submission otherwise than by saying that in my opinion the documents are "sufficiently relevant" to the costs issue (see below).
In relation to (2), it must be borne in mind that the discretion in relation to costs is a wide one, and many factors may be relevant to the exercise of it. In the present case, the range of argument likely to occur is indicated by the outlines of submissions which have been filed and to which I have referred. Citibank will seek to base submissions on Jones' conduct vis-a-vis Potts as well as in relation to other respondents. AHA's claim file in relation to the Jones interests' claim for indemnity in respect of Potts' application can be expected to contain an account, including admissions, by Jones in relation to these matters. It will be recalled that on 16 March 1993 AHA advised Jones' then solicitors that it had conducted "extensive investigations ... into the circumstances giving rise to [Potts'] action".
Prima facie, the documents showing the results of those investigations are relevant to the exercise of my discretion on costs, having regard to Citibank's proposed submission that the conduct of the Jones interests exposed it to liability to Potts, and that that conduct was fraudulent. I would not be prepared to hold at this stage, prior to the hearing, that these matters are not sufficiently relevant to the exercise of my discretion on costs: on the contrary I am of the view that they are sufficiently relevant. I think that the documents are "sufficiently relevant" in the sense that their production is reasonably likely to add to the relevant evidence in relation to the discretion on costs which I will be called upon to exercise: see Waind v Hill at 383-385; Spencer Motors Pty Ltd v LNC Industries Ltd [1982] 2 NSWLR 921 (NSW/Waddell J).
As to (3), it is not submitted that the description of the documents is so wide that compliance with it would be oppressive. Indeed, AHA's submissions seem to accept, as one would in any event expect, that it has a "claim file" which encloses the documents referred to in the schedule to the subpoena. Since AHA denied indemnity, it was appropriate to describe the documents as relating to Jones' or DJC's claim for indemnity in respect of Potts' claim. No objection is taken arising from the use of the expression "relating to" in the description of the documents in the subpoena, and in my view, in the circumstances, none could be: see Spencer Motors Pty Ltd v LNC Industries Ltd, supra, at 929-930.
The description of the documents in the present case corresponds closely to that in Waind v Hill. In that case Waind sued Hill for damages for injuries all, allegedly suffered by Waind as a result of Hill's negligent driving. Hill caused a subpoena to be issued to a Workers' Compensation insurer of Goodyear Tyre & Rubber Co, the employer of Waind. The description of documents in the subpoena was as follows:
"all documents, records, statements, certificates, medical reports, x-rays and the like held by your office in connection with the Workers' Compensation claim made by the abovenamed Plaintiff, whilst employed by Goodyear Tyre & Rubber Co following the accident in which the Plaintiff was involved in [sic] on 27th June, 1974 at Penrith."
The issue before the Court of Appeal in that case was not whether the subpoena should be set aside as being too wide, but whether the trial judge should have allowed and should yet allow inspection. Nonetheless, some considerations relevant to the decision whether to grant access to documents produced to a court on subpoena are also relevant to the issue presently being discussed. In particular, it is noteworthy that in Waind v Hill the Court of Appeal rejected a submission that,
" ... to permit a party to look at unprivileged documents, for the purpose of making a decision whether the document or its contents can be used in connection with the litigation, such as to determine whether it supports his case and can be tendered; or by other evidence made admissible; or such as to use its contents as a basis for putting questions to a witness; or such as using its contents for the purpose of deciding whether a witness could or should be called to give oral evidence in terms of the contents, is a use of documents so produced beyond the power of the judge to permit." (at 378B)
The range of purposes connected with litigation for which it is proper to issue a subpoena to produce documents referred to support the view that the description of the documents is not "too wide". Upon analysis, AHA's submission that the terms of the subpoena are "too wide" is, in the circumstances of this case, a variant of the submission that it calls for production of documents which are irrelevant. I have already rejected that submission.
The alternative order sought in AHA's notice of motion is an order denying access. No case is made out for this alternative order in my view. It was not submitted that, for example, any of the documents subpoenaed are "confidential". The reasons which I have given above in relation to (2) and (3) support my refusal of the alternative order sought by AHA.
Costs on AHA's motion
AHA seeks an order that if its motion should be dismissed, Citibank should be ordered to pay its costs of the motion.
The subpoena was issued on 4 April 1995 and returnable on 6 April. On 6 April it was stood over to 20 April. On 12 April AHA's solicitors wrote to Citibank's solicitors advising, inter alia, that they had instructions to apply to set aside the subpoena and inviting Citibank's solicitors to confirm by mid-day on 19 April that they would not call on the subpoena on 20 April. On 18 April, Citibank's solicitors replied advising that they did not propose to "withdraw" the subpoena.
On 19 April 1995, AHA's solicitors wrote to Citibank's solicitors asking that Citibank identify the specific issues as between Citibank and Jones to which Citibank said that the documents sought related. AHA filed its notice of motion the next day, 20 April.
On 24 April, Citibank's solicitors replied advising that they did not propose to debate in correspondence the merits of AHA's motion, nor to submit to interrogation in relation to AHA's assertion that the subpoena constituted an abuse of process. Citibank's solicitors confirmed that the only outstanding claims for relief were the claims for costs orders on behalf of Citibank and the Jones interests respectively. The letter continued,
"The substantial basis for the claim made by Mr Potts consisted of the provision of allegedly negligent advice to him on the part of Mr Jones. The connection between that issue and your client's role as Mr Jones' professional negligence insurer is, in our view, self-evident.
We confirm that we will accept service of your client's Notice of Motion and affidavit in support."
It must be remembered that AHA was not a party to the litigation and did
not know the issues proposed to be raised by Citibank and the Jones interests
in relation to costs. It was only in the
course of the hearing before me that Citibank made the nature of those issues
clear to AHA, and it did so in response to a suggestion by me. It would have been reasonable for Citibank to
inform AHA, a non-party, of the nature of the
issues to which the subpoenaed documents were said to relate.
On the other hand, it was as early as 12 April that AHA's solicitors advised Citibank's solicitors that an application would be made to set aside the subpoena. Moreover, even after the issues as between Citibank and the Jones interests in relation to costs were made clear to AHA, it continued to seek the orders in its notice of motion.
I think that an appropriate exercise of discretion is to order AHA to pay one half of Citibank's costs of AHA's motion.
CONCLUSION
There will be orders that AHA's motion brought by notice of motion filed on 20 April 1995 be dismissed and that AHA pay one half of Citibank's costs of that motion.
I certify that this and the preceding 17 pages are a true copy of the Reasons for Judgment of the Honourable Justice Lindgren.
Associate:
Dated: 4 July 1995
Heard: 7 June 1995
Place: Sydney
Decision: 4 July 1995
Appearances: Mr G J Nell of counsel instructed by Ebsworth and Ebsworth appeared for the applicant on the motion, American Home Assurance Company.
Mr S R Epstein of counsel instructed by Holmes & Bevan appeared for the cross claimant, Citibank Savings Limited, as respondent to the motion.
