FEDERAL COURT OF AUSTRALIA

King v GIO Australia Holdings Ltd [2001] FCA 1487

PRACTICE & PROCEDURE – application for leave to amend the statement of claim – where proceedings brought under Part IVA of the Federal Court of Australia Act 1976 (Cth) – where opt-out notice identified the group and the case pleaded against the respondents by reference to the existing statement of claim.

PRACTICE & PROCEDURE – notice to produce served under O 15 r10 of the Federal Court Rules – whether a document is “referred to” in the pleadings – whether correspondence from a party’s solicitor sufficient to constitute notice under O 15 r 10(2) – where documents would have been caught by earlier call for discovery.

Federal Court Rules O 15 r 10

State of Queensland & Anor v J L Holdings Pty Ltd (1996-1997) 188 CLR 146 referred to

Smith v Harris (1883) 48 LT 869 discussed

Dubai Bank Limited v Galaradie & Ors (No 2) [1990] 2 All ER 739 referred to

Global Intertrades Pty Ltd v Adelaide Festival Centre Trust [1999] FCA 162 referred to

SHANE ROBERT KING v GIO AUSTRALIA HOLDINGS LTD (ACN 054 573 401), GRANT SAMUEL & ASSOCIATES PTY LTD (ACN 050 036 372), DAVID MORTIMER, BRUCE HOGAN, STEWART STEFFEY, RONALD ASHTON, MARINA DARLING, ANDREW KALDOR, LLOYD LANCE, DAVID O’HALLORAN AND IAN POLLARD

N 955 OF 1999

MOORE J

24 OCTOBER 2001

SYDNEY

THE COURT ORDERS AND DIRECTS:

1.         the applicant be given leave to amend the statement of claim and to file the seventh further amended statement of claim annexed to the affidavit of Michael John Duffy sworn 12 October 2001.

2.         the applicant pay the respondents’ costs thrown away by reason of the amendments.

3.         the applicant provide such further and better particulars as it is in a position to provide by 26 October 2001.

4.         the respondents make any request for further and better particulars in relation to the seventh further amended statement of claim on or before 1 November 2001.

5.         the applicant provide consolidated further and better particulars to the respondents on or before 15 November 2001, which are to incorporate:

            (a)        such particulars as are still relied upon by the applicant in the:

·        consolidated further and better particulars provided by the applicant to all respondents dated March 2000;

·        additional consolidated further and better particulars provided by the applicant to all respondents dated 27 November 2000;

·        amended additional particulars provided by the applicant to the third to eleventh respondents in relation to paragraph 66 dated 2 March 2001;

(b)        the particulars yet to be provided and referred to in para 20 of the consolidated further and better particulars provided by the applicant to all respondents dated March 2000 (relating to the content and prominence that the applicant contends should have been given to the risk factors); and

(c)        the further and better particulars sought by the respondents pursuant to para 4 above.

6.         the first to eleventh respondents file and serve any cross claims on or before 7 December 2001.

7.         the matter be listed for further directions at 9.30am on 13 December 2001.

8.         the second respondent and any other party supporting the regime put forward by it (or any regime of a similar nature), which provides for disclosure of the ASIC transcripts or the substance thereof to other than the legal representatives of the parties, file and serve any affidavit and written submissions in support of that regime on or before 25 October 2001.

9.         any other party wishing to oppose the said regime to file and serve any affidavits in reply and written submissions on or before 1 November 2001.

10.              the matter be listed for argument on the issue referred to in order 8 on 8 November 2001 at 10.15am.

11.              the second respondent file and serve within 14 days a notice pursuant to Order 15 rule 10(2) in relation to the discounted cash flow valuation model referred to in par 38.2(a)(v) of the particulars to the second respondent’s defence and, so far as it is relevant, an officer of the second respondent make a statement pursuant to par (c) of that sub rule.

12.              the applicant's notice of motion filed 1 August 2001 is otherwise dismissed.

13.              costs of the notice of motion be costs in the cause.

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

REASONS FOR JUDGMENT

1                     This judgment concerns two matters.  The first is whether the applicant should be given leave to further amend the statement of claim.  The second concerns a notice to produce served by the applicant on the second respondent, Grant Samuel & Associates Pty Ltd.

2                     Before dealing with each matter it is convenient to set out, in a summary way, the nature of the applicant’s case as reflected in a previous version of the statement of claim.  It is a summary taken from an earlier judgment in this matter:  see King v GIO Australia Holdings Limited & Ors (2000) 100 FCR 209.  The proceedings are representative proceedings in which the applicant alleges that during the takeover of the first respondent, GIO Australia Holdings Ltd (“GIO”), the various respondents engaged in conduct which led the applicant and members of the group to retain their shares in GIO and, in the result, suffer loss.  In the earlier judgment the applicant’s pleadings (as they then stood) were summarised in the following way (at [10]):

“The pleadings contain, in summary, the following contentions about the conduct of the respondents:

(i)        That GIO and the directors and Grant Samuel engaged in misleading and deceptive conduct by impliedly representing that the Part B statement was accurate, balanced and reasonable and contained all material matters to be taken into account when deciding whether to accept or reject the varied takeover offer. 

(ii)       That GIO and the directors and Grant Samuel engaged in misleadingand deceptive conduct as to a future matter by impliedly representing that the valuation of GIO shares contained in the Part B statement was accurate and reliable and that the profit forecast for GIO for the financial year ending 30 June 1999 contained in the Part B statement was accurate and reliable. 

(iii)      Each of the respondents engaged in misleading and deceptive conduct by failing to inform the members of the group adequately or at all about the risk factors in circumstances where it was appropriate to inform them as each owed a duty to the members to exercise reasonable skill, care and diligence.  

(iv)      GIO, each director and Grant Samuel each breached a duty of care owed to the applicant and each group member by failing to give adequate advice, failing to ensure that the Part B statement was not misleading or deceptive, failing to ensure that the Part B statement was balanced by appropriate discussion of the risk factors and failing to inform the applicant and the group members of the existence and materiality of the risk factors.

(v)       GIO, Grant Samuel and each director engaged in conduct in contravention of s 52 (though depending on the meaning of financial services in s 12BA of the Australian Securities and Investments Commission Act 1989 (Cth) (“ASIC Act”), contravention of s 12DA of that Act and s 42 of the Fair Trading Act 1987 (NSW) (“FT Act”)) by publishing the Part B statement, making the representations earlier referred to and failing to inform adequately or at all about the risk factors and, as to Grant Samuel, publishing its report, and, as to each of the directors, causing the Part B statement to be sent to the applicant and group members.

(vi)      Grant Samuel was by operation of s 75B of the TP Act, s 79 of the Corporations Lawand s 61 of the FT Act involved in the relevant contraventions by GIO by aiding, abetting, counselling or procuring those contraventions, inducing those contraventions or by being directly or indirectly knowingly concerned in or party to them.

(vii)     Each of the directors was likewise involved in an accessorial role in the GIO contraventions.

(viii)    Each of the directors, Grant Samuel and GIO breached s 995 (2) of the Corporations Law.”

3                     As is apparent from this summary, a central feature of the applicant’s case is that the respondents failed to inform or advise the applicant and group members (or did not do so adequately) about risk factors attending the business of GIO.  In various versions of the statement of claim the risk factors have been identified in a schedule which, as I recall, has to this point not been amended since the proceedings commenced.

4                     The application to amend the statement of claim to bring about a seventh further amended statement of claim entails a revision of the schedule.  Counsel for the applicant submitted that the revision brings about a greater measure of particularity and does not involve any material alteration to the case originally advanced by the applicant.  The risk factors identified in the proposed schedule were comprehended, in substance, by the risk factors identified in the earlier version of the schedule.  On that basis, it was submitted, the amendments should be allowed having regard to the principles discussed by the High Court in State of Queensland & Anor v J L Holdings Pty Ltd (1997) 189 CLR 146.

5                     Several respondents opposed the amendment though counsel for the fifth respondent had carriage of the argument.  He accepted that in ordinary commercial litigation it would be difficult for the respondents to resist the application to amend subject to the applicant being required to pay the respondents’ costs thrown away by the amendment.  That is plainly correct having regard to the judgment of the High Court in State of Queensland & Anor v J L Holdings Pty Ltd (supra).  However, it was submitted, as these were representative proceedings, different considerations arose.  First, the group was identified by reference to the sixth further amended statement of claim in May this year.  Secondly, potential members of the group were invited by a notice then sent out under s 33X(1)(a) to decide whether to opt out of the proceedings by reference to the group identified in this way, and also by reference to the case formulated in the sixth further amended statement of claim.  The gravamen of the submission was that those to whom the notice was sent may have made decisions about whether they were members of the group and about whether to opt out or not opt out on the basis of the case as then pleaded.

6                     In proceedings such as these, circumstances may arise where the principles discussed by the High Court in State of Queensland & Anor v J L Holdings Pty Ltd (supra) cannot be applied without qualification.  That is, the approach that an applicant should ordinarily be able to prosecute a claim formulated in the way the applicant chooses, may not be readily applied in representative proceedings. Even if it can, it may require some concurrent procedural step being taken (such as giving notice under s 33X(5)) to deal with the effect of the grant of leave to further amend the statement of claim.

7                     However, in the present proceedings I do not accept the matters raised by counsel for the fifth respondent preclude the grant of leave to amend.  First, I do not accept that there has been an alteration to the manner in which the risk factors are described which materially alters the case as formulated in the sixth amended statement of claim.  It is true that the proposed new schedule describing the risk factors involves a significant revision of the way in which they are described.  However, it is central to the applicant’s case that the respondents failed to disclose or give advice about (or failed to do so adequately) the risk factors.  The existing schedule involves, in substance, various factual assertions concerning GIO's business activities in reinsuring risk, events in 1998 which might have increased GIO's exposure as a result of these business activities, the possible negative impact of that greater exposure and the effect it may have had on GIO and its share price.

8                     The proposed revised schedule is in one sense more specific and detailed and in another sense more general.  It is more general in that matters or events referred to in the original schedule are not referred to specifically in the revised schedule.  For example, as counsel for the fifth respondent pointed out, there is no reference in the revised schedule to many of the specific events occurring in 1998 which might have adversely impacted on GIO having regard to its reinsurance activities.  Nor is there an express reference to the possibility of GIO running-off its reinsurance business to which the schedule related.  However the revised schedule does provide a greater measure of particularity about the manner in which, and the consequences of, the way GIO conducted its reinsurance business.  As a pleading, the revised schedule presently appears to describe more coherently the complaints the applicant wishes to make about the aspects of GIO's business which were not revealed or dealt with (or not revealed or dealt with adequately) during the takeover.

9                     I accept that if there was a real possibility that decisions were made by the approximately 66,000 recipients of the s 33X(1)(a) notice by reference to the existing schedule of risk factors which may have been made differently had the statement of claim contained the revised schedule, either leave to amend should not be given or leave should not be given without some procedural step being taken to ameliorate the effect of the amendment.  However, in my opinion, this possibility, which counsel for the fifth respondent relied on, is more theoretical than real. Plainly one cannot say with absolute certainty why decisions were taken by each of the recipients of the notice.  But the applicant's case has always been, and was at the time the notice was sent, that the respondents, effectively, failed to reveal the potential effect on the value of the shares of GIO of its reinsurance activities.  The proposed revision of the description of those activities and their effect does not, in my opinion, materially alter the nature of the case advanced by the applicant and it is unlikely different decisions would have been made by the recipients of the notice. Accordingly, I propose to grant the applicant leave to amend but on the basis that he pay the respondents their costs thrown away by the amendment.

10                  This leads to a consideration of the second issue which concerns the notice to produce.  On 22 June 2001 the applicant’s solicitors served a notice to produce on the second respondent.  The notice was served under O 15 r 10 of the Federal Court Rules.  That rule provides:

“(1)     Where a pleading or affidavit filed by a party refers to a document, any other party may, by notice to produce served on him require him to produce the document for inspection.

(2)       Where a notice to produce a document is served on a party under sub-rule (1), he shall, within 4 days after that service, serve on the party requiring production a notice –

(a)       appointing a time within 7 days after service of the notice under this sub-rule when, and a place where, the document may be inspected;

(b)       claiming that the document is privileged from production and sufficiently stating the grounds of the privilege; or

(c)        stating that the document is not in his possession, custody or power and stating to the best of his knowledge information and belief where the document is and in whose possession, custody or power it is.”

11                  One of the matters alleged against the second respondent in the applicant’s statement of claim is that it did not have reasonable grounds for making representations of the type summarised in [2] above.  In its defence, the second respondent has pleaded:

“38.     In relation to paragraph 38:

            38.1     save as pleaded in paragraph 36.1 of this Defence denies that Grant Samuel made any of the representations alleged in paragraph 36;

            38.2     says that Grant Samuel had reasonable grounds for making the statements made by it in the Grant Samuel Report, such reasonable grounds being based upon the information provided by GIO, advice provided by PricewaterhouseCoopers and its related entities and its own analysis, enquiry and review as set out in the Grant Samuel Report, including the matters particularised.

PARTICULARS

(a)       Grant Samuel obtained financial and other information provided by GIO including:

(i)        historical financial information in the form of audited accounts for GIO Insurance Limited for the years ending 1994, 1995, 1996, 1997 and 1998;

(ii)       forecasts and budgets of future revenues, expenditures and profits prepared by management of GIO Re and reviewed by PricewaterhouseCoopers Securities Pty Limited; [Category 1]

(iii)      the opinions and judgement of management of GIO Re;  [Category 2]

(iv)      provisioning models for GIO Re for the financial years ending 1997 and 1998; [Category 3]

(v)       a discounted cash flow valuation model prepared by GIO Re management. [Category 4]

(b)       PricewaterhouseCoopers had been GIO’s auditors for many years and had audited its annual accounts for 1992-1998 and reviewed its provisioning including for the financial years ending 1997 and 1998. [Category 5]

(c)        PricewaterhouseCoopers Securities Pty Limited had been retained to conduct a review and did conduct a review of the GIO profit forecasts for the year ending 30 June 1999, including the forecasts for the GIO reinsurance business. [Category 6]

(d)       Grant Samuel retained PricewaterhouseCoopers Actuarial Services Pty Limited to review and it did review the valuation model provided by GIO Re management and advised on the key assumptions of that model by reference to its experience in the reinsurance industry generally and GIO’s reinsurance business in particular, including advice as to whether the assumptions regarding loss ratios for the year ending 30 June 1999 contained in that model were consistent with GIO Re’s recent loss experience. [Category 7]

(e)        Grant Samuel reasonably relied on such information and advice provided by GIO and PricewaterhouseCoopers and its associated entities.

(f)        Grant Samuel conducted its own analysis, enquiry and review and applied its own methodology and judgement to the assessment of the value of GIO Re and its opinion as to whether the varied takeover offers were fair and/or reasonable. [Category 8]”

The bold italicised notation refers to categories of documents referred to in the correspondence between the solicitors.

12                  It can be seen from O 15 r 10(1) that a notice may be served under that rule creating an obligation to respond when, relevantly, "a pleading … refers to a document" .  In relation to categories 1, 2, 5, 6, 7 and 8 there is an issue concerning whether the pleading "refers" to a document. 

13                  There appears to be limited authority on this question.  In Smith v Harris (1883) 48 LT 869 the pleadings spoke of "invoices, letters, bill heads, and brands on casks".  A notice was served seeking the production of those documents.  The application was resisted by the plaintiff on the basis that the rule operated only on documents which were identified in the pleadings or particularly described.  Chitty J rejected this submission (as it related to the invoices, letters and bill heads) and concluded:

“It is said, that that is only a general reference to documents, but, in my opinion, that is both a general reference and also a special reference to each and every bill head and each and every letter; because the plaintiff, instead of setting out each document separately, refers to them compendiously, but that is no reason why inspection should not be allowed.”

14                  A little over a century later a similar issue arose in Dubai Bank Limited v Galadari & Ors (No 2) [1990] 2 All ER 738.  The proceedings involved an allegation of fraud and the diversion of funds into the assets of several defendants.  One of the assets was a property in London.  An affidavit was sworn in the proceedings dealing with the acquisition of the property for the benefit of a trust.  A notice was served seeking production of documents purportedly referred to in the affidavit.  One issue in the proceedings was whether the affidavit had referred to documents. 

15                  The Court of Appeal first addressed the purpose of the rule permitting the service of a notice.  Their Lordships said:

“Rules of court substantially corresponding with Ord 24, r 10 and the rules ancillary to it have been in force for over 100 years.  Lindley LJ in Quilter v Heatly (1883) 23 Ch D 42 at 50 drew a distinction between these rules and the general rules as to the discovery of documents.  He said:

            ‘These rules were evidently intended to give the opposite party the same advantage as if the documents referred to had been fully set out in the pleadings.’

While this statement explains the general purposes of the rules, it does not explain what test is to be applied in determining whether or not an assertion in a pleading or affidavit involves a ‘reference to [a] document’ within the meaning of Ord 24, r 10.  Though the rule has existed for such a long time, there appears to be remarkably little authority on the point.”

The Court of Appeal referred to the judgment of Chitty J in Smith v Harris (supra) and then identified the problem they confronted in the following terms:

“The problem arises in applying [the approach of Lindley J] in a case where, though the assertion made in the affidavit or pleading does not specifically mention a document or class of documents, it gives the reader strong grounds, perhaps even sure grounds, for supposing that a document must exist.”

Their Lordships rejected a submission that the rule was satisfied by reference by inference and said:

“We revert to the example of the assertion ‘Blackacre was conveyed by A to B’.  We cannot accept the broad submission by counsel for the plaintiff summarised above.  It seems to us to involve reading the phrase ‘reference is made to any document’ as including reference by inference.  This we do not regard as the natural and ordinary meaning of the phrase.  To our minds, the phrase imports the making of a direct allusion’ to a document or documents.”

The Court rejected an approach that would involve inference and conjecture. 

16                  Their Lordships referred to a judgment of Lawton LJ in Marubeni Corp v Alafouzos [1986] CA Transcript 996.  In that matter an affidavit had referred to the plaintiff “obtain(ing) outside Japanese legal advice” and counsel for the plaintiff had conceded that the advice was almost certainly contained in a document.  However Lawton LJ held that there had been no reference to a document in the affidavit.  Their Lordships said:

“In our judgment, a mere opinion that on the balance of probabilities, a transaction referred to in a pleading or affidavit must have been effected by a document, does not give the court jurisdiction to make an order under Ord 24, r 10, unless the pleading or affidavit makes direct allusion to the document or class of documents in question.”

17                  It is necessary to return to the facts of this case.  Having regard to the preceding authorities, it does not appear that the rule is intended simply to enable a party to inspect a document which has, in terms, been incorporated by reference into a pleading or affidavit.  That is, it is not restricted to situations where the pleader or deponent refers to the contents of a document on the footing that the text of the document is to be treated as incorporated in the pleading or affidavit.  Nonetheless the reference cannot simply be implied. I see no reason to depart from what appears to be a comparatively settled approach adopted in the English courts concerning a rule comparable to O 15 r 10 of the Federal Court Rules.

18                  Applying that approach in the present case, it has the following consequence. In relation to category 1, there is, in my opinion, no reference to a document other than perhaps an implied reference.  It is, in terms, a reference to information in the form of forecasts and budgets of future revenues, expenditures and profits.  One would suppose that it is, in the context of the pleadings, almost certainly the case that such information would have been contained in documents provided by GIO to the second respondent.  However the pleading does not, in my opinion, involve a reference to a document in the way the authorities contemplate.  The same can be said of category 2.  Categories 5, 6, 7 and 8 are slightly different.  In each instance there is a description of a process involving action by either PricewaterhouseCoopers Securities Pty Ltd, PricewaterhouseCoopers Actuarial Services Pty Ltd or the second respondent itself.  Again one can assume that the process involved the use of documents and, indeed, so much is seemingly conceded in correspondence between the solicitors for the applicant and second respondent.  However the pre-condition to the operation of O 15 r 10 is that the pleading itself referred to a document.  It does not in any of these instances. 

19                  Category 4 is in a different position.  The second respondent appears to concede that there is a reference to a document in the pleading.  Its response, however, in correspondence from its solicitors to the applicant’s solicitors was to say that:

“Our client repeats that it does not, currently, to the best of its enquiries, have in its possession a copy of the discounted cash flow valuation model prepared by GIO Re management and referred to in paragraph 38.2(a)(v) of our client’s Defence to the Sixth Further Amended Statement of Claim which is category 4 in the Notice to Produce. Our client has instructed us that that model was previously in the possession of others including GIO and PricewaterhouseCoopers Actuarial Services.  One or both of those parties may have retained it.”

20                  The applicant submitted that this response is an insufficient response to the notice.  I agree.  The rule contemplates that a party upon whom a notice is served must, in relation to a document not “in his possession, custody or power”, serve a notice stating to the best of “his knowledge information and belief where the document is and in whose possession, custody or power it is”.  In my opinion the response of the second respondent’s solicitor does not satisfy O 15 r 10(1)(c). 

21                  First, it is not a statement by the party.  While the rule does not say so expressly, it is likely that it is intended that the statement the party must make under O 15 r 10(2), must be made by a person of the type who can, pursuant to O 15 r 9, swear the affidavit verifying particular discovery.  Secondly, it is likely that it is intended that in providing the statement, enquiries of the type required for discovery have to be made.  As Mansfield J said in Global Intertrade Pty Ltd v Adelaide Festival Centre Trust [1999] FCA 162 in relation to documents the subject of an order for discovery of particular categories of documents (at [7]):

“By reason of the order of 17 December 1998, [the party obtaining discovery] is entitled to be told by the [the party giving discovery] which documents it has had, but no longer has, in respect of the matters to which the order relates, and if there are any such documents, what has become of them.  To provide that information, the [party giving discovery] was obliged to make enquiries.  As von Doussa J said in Re McGorm; ex parte Co-operative Building Society of South Australia (1989) 20 FCR 387 at 389:

‘The obligation resting on a party obliged to give discovery requires that he make proper enquiries and efforts to identify and disclose all relevant documents that are not in his possession.  The obligation extends to making inquiries from the person in whose possession the documents now are.  …’

The [party giving discovery] enquiries should have been directed to identifying precisely what documents the subject of the discovery order had been, but are no longer, in its possession, custody or power.”

22                  Accordingly, I propose to direct that an officer of the second respondent make a statement and the statement be served within 14 days.  The officer should deal with the matters referred to in O 15 r 10(2)(c) if, as the second respondent presently says through its solicitors, the document is not in its possession, custody or control.  The document should be described with particularity.  If it proves to be that the document is in the possession, custody or power of the second respondent on further inquiry, then the second respondent should otherwise comply with O 15 r 10.  I should add, that I do not accept that the fact that this document would have been caught by an earlier order for discovery, provides an answer to a notice to produce concerning a document referred to in a pleading.  The rule that permits such a notice to be sent serves a particular purpose (and, one would assume, ordinarily sent before discovery is ordered).  The rule enables the opposing party to know of the contents of the particular document identified by reference to the pleading.

23                  The appropriate costs order is that the costs of the notice of motion be costs in the cause.

Associate:

Dated: