FEDERAL COURT OF AUSTRALIA

Patrick v Capital Finance Pty Ltd (No 3) [2003] FCA 385

PRACTICE AND PROCEDURE – Application for further discovery relating to document discovered by fifth respondent in County Court proceeding – application opposed by respondents – implied undertaking not to use discovered document for collateral purposes – document sought to be used in this proceeding – question as to relevance of document discovered – nature of document – whether Court should inspect document

Home Office v Harman [1983] 1 AC 280 referred to

Distillers Co v Times Newspaper [1974] 3 WLR 728 referred to

Murex Diagnostics v Chiron Corporation (1995) 62 FCR 424 referred to

Trade Practices Commission v Santos (1993) 42 FCR 203 cited

Esso Australia Resources Ltd v Plowman (1995) 183 CLR 10 referred to

Finance Sector Union of Australia v Commonwealth Bank of Australia Limited [2000] FCA 1389 distinguished

Spire v Cuddles ‘N’ Mum (Franchise) Pty Ltd (No 3) [2002] FCA 1563 referred to

Esso Australia Resources v Commissioner of Taxation (1999) 201 CLR 49 referred to

Trade Practices Commission v Sterling (1979) 36 FLR 244 cited

National Crime Authority v S (1991) 29 FCR 203 cited

Grant v Downs (1976) 135 CLR 674 referred to

WILLIAM GEORGE DOUGHTY PATRICK (for himself and as representing the persons referred to in paragraph 1 of the Statement of Claim) v

CAPITAL FINANCE CORPORATION (AUSTRALASIA) PTY LIMITED

(ACN 074 692 443), CAPITAL FINANCE CORPORATION (AUSTRALASIA) PTY LIMITED (ACN 074 692 443), CAPITAL FINANCE CORPORATION (AUSTRALIA) PTY LIMITED (ACN 074 352 104), CAPITAL FINANCE CORPORATION PTY LIMITED, (ACN 064 512 385), KERROD GRANT PARK, OVERSEA-CHINESE BANKING CORPORATION LIMITED (ABN 073 598 035), CHRISTOPHER COOTE, PHILLIP EMANUEL PRODUCTIONS LIMITED (ACN 002 693 512)

V 637 of 2001

TAMBERLIN J

MELBOURNE

30 APRIL 2003

THE COURT ORDERS THAT:

The letter of 22 January 1997 referred to in paragraph 3 of the affidavit sworn by Clifford Leslie Pannam on 23 April 2003 be made available to the Court for inspection.

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

REASONS FOR JUDGMENT ON INSPECTION BY THE COURT

1                     The question addressed in this judgment is whether I should examine a letter sought to be tendered by the applicant in support of an application for further and better discovery.  The application comes at the close of evidence in a hearing which has extended over more than fifteen days.  In December 2002 the Court set aside this week for the hearing of final submissions. 

2                     The letter in question is dated 22 January 1997 and is said to have been written by Mr Lawrence of the fifth respondent (“OCBC”) to Mr Park who is the controlling person behind the first three respondents (the Capital Group).  Both Mr Park and Mr Lawrence were called as witnesses in the proceeding and have been subjected to cross-examination.  This letter and its contents were not put to them during cross-examination because the existence of it was not then known by the applicant or his representatives.

3                     It has emerged in evidence that other counsel who is appearing for a defendant (not a party to this proceeding) in proceedings in the County Court of Victoria involving OCBC was aware of this proceeding.  That counsel considered that the letter produced in discovery in the County Court proceedings might assist the applicant in the present case before me and that in turn, success in these proceedings may assist in the case he is conducting in the County Court.  When senior counsel for the applicant became aware that such a document existed, he was immediately concerned that by providing the document, there may be a breach of the implied undertaking to the County Court and a possible ethical problem by its use may arise because the letter had been disclosed during the process of discovery in the County Court.  His concern was based on the well-settled principle in Home Office v Harman [1983] 1 AC 280 to the effect that documents obtained on discovery are subject to an implied undertaking that they will not be used for a collateral purpose not connected with the action in which the documents are discovered.  Senior counsel immediately took steps to seek a ruling from the Ethics Committee of the Victorian Bar Council and duly obtained a ruling.

4                     Senior counsel was cross-examined before me and has appeared in the proceedings throughout.  He has expressed the view that the letter is one which ought to have been discovered and that it could lead to a chain of inquiry that could be important in the applicant’s case before me. 

5                     In his affidavit of 23 April 2003, he stated:

“5. … One thing seemed to me to be of central importance irrespective of how I had come to know of the existence of such a letter it was my view that it should have been discovered in this proceeding.  I formed the view that there were certainly ‘grounds for a belief’ for the purposes of Federal Court Rules Order 15 Rule 8 that such a letter existed and was discoverable by both OCBC and the Parks/Capital respondents.”

6                     Initially, senior counsel for the applicant took the view that it was appropriate for an application to be made to the County Court for leave to use the document in the Federal Court proceedings.  An application was duly made to the County Court but was subsequently withdrawn.  On further reflection he came to the view that it was not necessary to obtain the leave of the County Court to use of the letter in this application for further discovery.  He referred to the reasons for judgment of Talbot J in Distillers Co v Times Newspaper [1974] 3 WLR 728.

7                     The applicant seeks further and better discovery on the ground that the letter ought to have been discovered pursuant to OCBC’s obligations to make discovery, in accordance with O 15 of the Federal Court Rules (“FCR”).

8                     The letter has not been disclosed and the respondents’ legal representatives have expressed the view that it is not discoverable in the Federal Court proceeding.

9                     The nature and extent of the duty to make discovery under O 15 r 8 was considered in Murex Diagnostics v Chiron Corporation (1995) 62 FCR 424, where Burchett J said (at 430) that the rule:

“…should not be limited to a case of defective compliance with an earlier order.  Its rationale is not merely to plug a gap in the general discovery to which a party is entitled.  It does do that, and in that aspect its function is described … But the rule also provides a right different in kind from the right to general discovery: a right to particular discovery of a document or class of document.  It is appropriate that a narrower right of this kind should not necessarily be restricted to the case where the document or class of document is relevant to an issue arising between the party seeking discovery and the party against whom discovery is sought.  It is appropriate that this narrower right should involve a discretion in the court to require discovery where the document or class of document relates, as r 8 expresses it, ‘to any matter in question in the proceeding’ … I think the contrast between that expression in r 8 and the expression used in r 2 limiting ‘general’discovery to documents ‘relating to any matter in question between him … and the party giving the notice of discovery’ evinces a deliberate policy differentiating the scope of the one rule from that of the other.  Consistently with this differentiation r 8, although it does not contain an express statement in the terms of the High Court rule that it applies whether or not an earlier order has been made or applied for, commences without reference to the preceding rules, using language appropriate to an independent right.”  (Original emphasis)

10                  See also the discussion of the rule by Heerey J in Trade Practices Commission v Santos (1993) 42 FCR 203.

11                  The application for further discovery is opposed by the first five respondents on the basis that the letter was provided to the applicant’s legal representatives in this proceeding by other counsel who appeared in the County Court proceeding brought by OCBC against a different party.  It is contended that this is in clear breach of the implied undertaking given on discovery because the letter of 22 January was discovered in the County Court proceedings and it cannot and should not be used for purposes other than the pending County Court proceedings.  It is said that in considering the application for further discovery I should not inspect the letter.

12                  In Australia, the nature of the implied undertaking was described by Mason CJ (with whom Dawson and McHugh JJ agreed) in Esso Australia Resources Ltd v Plowman (1995) 183 CLR 10 at 32 in these terms:

“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. …”

13                  It is not necessary for me in these reasons which relate only to the question whether I should inspect the letter in question, to canvass all the detailed submissions made by the parties at this stage on the application for further discovery since the only question at this point is whether I should examine the letter of 22 January.

14                  Among the reasons advanced by the first to fifth respondents as to why I should not look at the letter are the following:

• The document has been considered by legal representatives and the view taken is that the letter is not discoverable.  The respondents submit that this view is conclusive in ordinary circumstances as to discoverability, and that no circumstances out of the ordinary have been raised which would warrant the Court going behind the affidavit verifying discovery.  Counsel for OCBC referred to the decision of Moore J in Finance Sector Union of Australia v Commonwealth Bank of Australia Limited [2000] FCA 1389, where in considering an application to cross-examine a deponent to an affidavit of discovery, his Honour said at [31]:

“… I consider I should proceed on the basis that an affidavit verifying discovery or an affidavit supplementing the affidavit verifying discovery should ordinarily be treated as conclusive and cross-examination should be permitted only in order to do justice between the parties or to prevent an abuse of the Court’s processes.” (Emphasis added)

• The document was obtained in circumstances involving a breach of the implied undertaking to the County Court and it is that court which must be approached and leave obtained from it to use the letter in the proceedings before me.  Until this leave is obtained it is submitted that I should not inspect the letter or make any ruling on the further discovery application before me.  The County Court, it is said, both as a matter of comity and principle is the only appropriate forum to decide whether and how the document can or should be permitted to be used in proceedings in this Court.
• The importance of the undertaking and its likely breach was immediately adverted to by the legal representatives of the applicant when it first came to their knowledge and thereafter no use of it whatsoever ought to have been made without leave of the County Court.
• This Court should not exercise a power vested in the County Court in relation to the exercise of its jurisdiction in the proceedings with respect to its discovery powers in the case pending before it. 
• The applicant is a stranger to the proceedings in the County Court and as such must approach it for release of the implied undertaking.
• There has not been shown to be any commonality of questions raised in this Court with those before the County Court.

15                  It was also submitted by counsel for the respondents that the contents of the letter could only relate to questions of credit of witnesses and that documents which relates only to questions of credit of witnesses are not discoverable on the line of inquiry test.  The question whether the documents relater solely to questions of credit is by no means clear and this matter can only be properly determined having regard to the terms of the letter itself.

16                  The applicant’s submissions on the application include the following:

·        This Court should examine the letter because unless the Court is aware of the contents of the letter it cannot evaluate the relevance and importance of the letter so as to exercise its jurisdiction on this application for further discovery.

·        This proceeding has been heard by the Federal Court over a period of more than fifteen days, evidence has concluded and a time fixed for final submissions during this week. Therefore it is said that this Court is in a far better position to evaluate the relevance and importance of the letter having regard to the issues in the proceeding than a judge of the County Court on an application for leave to make use of it where the County Court would need to be fully acquainted with all the issues and developments of the complex case before this Court.

·        The document is relevant in the sense that it relates to matters in question in the Federal Court proceedings such that it could lead to an inquiry which would result in the production of further relevant documents.

·        The applicant’s case is said to depend on establishing matters to which the letter is clearly relevant, namely, the way in which investors funds were expended and the knowledge of the first five respondents of this matter.

·        Its existence is said to evidence a breach of the order made by this Court requiring the respondents to make full and proper discovery and to perform the obligation to make continuing discovery once the document was drawn to their attention.  The document is one of which the respondents are now aware and is now discoverable.

·        It is not necessary to approach the County Court for leave to use the document because the Federal Court has jurisdiction to take steps to ensure compliance with its orders where it becomes aware of potential breach of its orders by incomplete discovery.

·        Any suggestion that the Federal Court should refuse to entertain the application on the basis of comity is of no substance because this Court is not directing its attention to a breach of the undertaking.  If a breach can be established the County Court has the power to punish for contempt.  Therefore, the deterrent against breaches of implied undertakings to the County Court will not be diminished in the event that this Court proceeds to grant the application if the letter is held to relate to a question in the proceedings before me.

reasoning on THE QUESTION OF inspection by the court

17                  In deciding whether to grant the application for discovery of the letter and whether to make an order for further discovery it is necessary for this Court to weigh a number of competing considerations.

18                  Among the factors to be considered on the application for further discovery is the important public interest in protecting the integrity of the discovery process by ensuring that full and frank discovery is made on the basis that documents discovered by a party to an action will not be used in other proceedings.  It must also be kept in mind that the Court which has the power to punish in respect of breach of the undertaking is the County Court in this case and not the Federal Court.  There is some force in this submission.

19                  On the other hand, there is the competing consideration that this Court must ensure that its orders are obeyed and that full and frank discovery is made so that litigation in this Court can be conducted in a fair and just manner.  The interests of justice require that full and proper discovery be made to this Court in proceedings before it. Otherwise, parties will be disadvantaged in the litigation and the real issues may not be addressed on their merits.  When the existence of a document, which is potentially relevant, and which has not been disclosed, comes to the attention of this Court, then the Court should not ignore it or refuse to inspect but should consider its terms and effect.  This requires that the Court should examine the contents of the document in order to make a determination.  In the present case there is no doubt as to the existence of the document or as to its date or the parties between whom it has been communicated.

20                  As noted earlier, reliance is placed by the respondents on the observations of Moore J and it is contended that those principles which apply to an application to cross-examine a deponent on the contents of an affidavit verifying discovery are applicable to this application.  However, the circumstances in the present case are out of the “ordinary” in that they raise an issue as to failure to comply with discovery obligations in this Court.  That element was not present in the case before Moore J.  I do not consider that the decision of Moore J is in point on this application.  I note the reference by his Honour to the view that an affidavit should ordinarily be treated as conclusive and that cross-examination should be permitted only in order to do justice between the parties or to prevent an abuse of the Court’s processes.  Those latter considerations arise in the present case, because the circumstances can be described as out of the ordinary and because it is contended that the letter should be looked at in order to enable this Court to administer justice between the parties and prevent an abuse of the Court’s process in the light of alleged non-compliance with the respondents’ discovery obligations.

21                  Counsel for OCBC also referred to the case of Spire v Cuddles ‘N’ Mum (Franchise) Pty Ltd (No 3) [2002] FCA 1563 which Lindgren J took it as well established that an affidavit verifying discovery will be accepted as conclusive as to the adequacy of discovery but qualified it by emphasising that this was ordinarily the case.

22                  In view of the need in the present case to carefully balance the competing interests raised in this application, in my view, it is essential and appropriate that I should look at the contents of the letter for the purposes of hearing argument on an informed basis as to its potential relevance or irrelevance to this proceeding.  The unattractive alternative is to proceed to attempt to determine relevance without addressing the terms of the document solely by resort to the limited information presently before me as to the possible contents of the letter.  This strikes me as unrealistic.

23                  The position is broadly analogous to the circumstances where the Court is asked to inspect a document in order to decide whether privilege can be properly claimed in relation to it.  This Court is not to be precluded from examining the letter in the present proceedings on the basis of an expression of opinion by legal representatives of the fifth respondent that the document is not discoverable.  In the course of the hearing of the application for further discovery, as noted above, counsel for the applicant both in oral and affidavit evidence and by his actions has indicated that he considers the document to be of “central importance” to the main proceeding.  That is not to say that this opinion must necessarily prevail but it provides support for the view that the discoverability of the letter is genuinely in issue and that therefore it is appropriate to examine the contents and consider any arguments which may be advanced as to its relevance and importance having regard to its specific terms.

24                  In Esso Australia Resources v Commissioner of Taxation (1999) 201 CLR 49, the High Court majority judgement (Gleeson CJ, Gaudron and Gummow JJ) said, at 70, in relation to the appropriateness of the Court examining the contents of a document where a claim for privilege arose:

“ A claim for privilege is not conclusively established by the use of a verbal formula.  A court has power to examine documents in cases where there is a disputed claim, and it should not be hesitant to exercise such a power.  In appropriate cases, there is also a power to allow cross-examination of a deponent of an affidavit claiming privilege.”  (Emphasis added)

25                  Their Honours referred to the Full Court decision in Trade Practices Commission v Sterling (1979) 36 FLR 244 and National Crime Authority v S (1991) 29 FCR 203.

26                  The inspection by the Court of documents the subject of a privilege claim was considered in Grant v Downs (1976) 135 CLR 674 at 689 in the joint judgment of Stephen, Mason and Murphy JJ where their Honours said:

“The court has power to examine the documents for itself, a power which has perhaps been exercised too sparingly in the past, springing possibly from a misplaced reluctance to go behind the formal claim of privilege.  It should not be forgotten that in many instances the character of the documents the subject of the claim will illuminate the purpose for which they were brought into existence.” (Emphasis added)

27                  For these reasons, and in the light of those authorities, I do not consider it appropriate as a matter of either power or discretion to ignore the contents of the letter and proceed to a determination of the application without referring to its contents and hearing submissions directed to its relevance.

28                  Accordingly, I have decided to inspect and consider the terms of the letter and I will hear any further submissions by the parties on the further discovery application which are considered appropriate in the light of this determination.

Associate:

Dated:              30 April 2003