FEDERAL COURT OF AUSTRALIA

Patrick v Capital Finance Pty Ltd (No 4) [2003] FCA 436

PRACTICE and PROCEDURE – application for further discovery relating to document discovered by fifth respondent in Victorian County Court proceeding – implied undertaking not to use discovered document for collateral purposes – whether release from undertaking is required – competing public interests – frank and full discovery – administration of justice – compliance with Court orders – whether document can be used in this proceeding – nature of document – relevance – context – circumstances in which document was produced – whether Court should grant further discovery

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

Compagnie Financiere et Commerciale du Pacifique v Peruvian Guano Co (1882) 11 QBD 55 cited

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

Distillers Co v Times Newspapers [1975] QB 613 at 621 cited

Australian Securities Commission v Ampolex Ltd (1995) 38 NSWLR 504 discussed

Geneva Finance Ltd (Rec and Mgr appointed) v Boys [2001] WASC 348 cited

North Kalgurli Mines Pty Ltd & Ors v GRD Minproc Ltd [2002] WASC 275 cited

Murex Diagnostics v Chiron Corp (No 2) (1995) 62 FCR 424 cited

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

SYDNEY (HEARD IN MELBOURNE)

16 MAY 2003

THE COURT ORDERS THAT:

1.         The Notice of Motion filed by the applicant on 15 April 2003 is dismissed.

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

REASONS FOR JUDGMENT

1                     On 1 May 2003 I dismissed an application by the applicant for further and better discovery.  I now publish my reasons for that decision.

2                     The orders sought by the Notice of Motion dated 15 April 2003 are that the first five respondents should make discovery of a letter dated 22 January 1997 and any notes, files, or documents relating to it or any other documents relating to the 1997 investments referred to in that letter seeking to ensure that investors’ money was not used to purchase securities which guaranteed payments.  Leave was also sought to further cross-examine witnesses.

3                     The application arose as the consequence of the letter dated 22 January 1997 from Mr Lawrence of the fifth respondent (“OCBC”) to the fourth respondent, Mr Park, who is the controlling entity behind the first three respondents (“the Capital Group”), coming to the attention of legal representatives of the applicant.

4                     This letter was not discovered in the proceeding before me.  The letter had, however, been discovered in proceedings pending before the County Court in Victoria in which OCBC is a party. The applicant in this proceeding, Dr Patrick, is not a party to the proceedings in the County Court. 

5                     The existence of the document was drawn to the attention of Dr Pannam QC, senior counsel for the applicant on 19 March 2003 by Mr Herskope, counsel for a defendant in those County Court proceedings.  It appears that Mr Herskope considered that the letter might assist the applicant in the proceedings before me, which in turn might be advantageous to his client in the County Court proceedings.  No order had been obtained from the County Court releasing the implied undertaking which derived from the discovery process, namely that documents would not be used for any purpose other than in relation to the proceedings in which the document was discovered: see Esso Australia Resources Ltd v Plowman (1995) 183 CLR 10.

6                     When he became aware of the existence of the document, Dr Pannam considered that if counsel wished to provide him with a copy of the letter, an application to the County Court was necessary in order to release the implied undertaking for the purpose of using the document in these proceedings and he so informed Mr Herskope.  Dr Pannam understood that an application for such relief was filed the following day and was to be heard on 3 April 2003.  That application to the County Court was subsequently abandoned, apparently after some discussion between Mr Herskope and Mr Magee QC, senior counsel for the first four respondents.  Dr Pannam has given evidence before me that on further reflection, he considered it was not necessary to first obtain the approval of the County Court in order to use the letter to seek further particular discovery under O 15 r 8 of the Federal Court Rules (“FCR”) because, in his view, the document ought to have been discovered in the Federal Court proceedings.  He approached the Ethics Committee of the Victorian Bar Association for a ruling in relation to his position and obtained guidance from that committee. In Dr Pannam’s view, the letter of 22 January 1997 was not only discoverable but of critical importance to the applicant in relation to the claim against the respondents to this proceeding.

7                     The applicant seeks the order for particular and further discovery from this Court on the basis that the letter is relevant to the claims he seeks to make out in this proceeding and because it may lead to a chain of inquiry which in turn may disclose further documents that could relevantly assist in the conduct of his case: see Compagnie Financiere et Commerciale du Pacifique v Peruvian Guano Co (1882) 11 QBD 55 at 62.  The letter, it was submitted on the further discovery application, constitutes an admission that prior to its date, Messrs Park and Lawrence had grounds to be aware of or suspect that investors’ funds had been used to pay for term bonds issued by OCBC.

8                     The applicant contends that because the letter is one which ought to have been discovered in these proceedings and since it was not discovered it is not necessary, in the circumstances, to obtain a release from the undertaking to the County Court.

9                     The application is opposed by the respondents on a number of grounds including lack of relevance, breach of the undertaking to the County Court, the absence of an order from the County Court permitting the use of the documents for a purpose other than those proceedings and on the ground of comity between this Court and the County Court.

10                  On the discovery application the applicants were represented by Mr Beaumont QC and Ms Folley of counsel.

basis of the application

11                  As stated above, the application for discovery of the letter is brought under O 15 r 8 of the FCR.  The applicant also relies on the obligation to make continuing discovery both in respect of documents which come into existence after initial discovery orders are made and of any documents which come to the attention of a party subsequent to the discovery provided by it and which ought to have been discovered: see O 15 r 7A of the FCR; Trade Practices Commission v Santos Ltd (1993) 42 FCR 203.  Rule 8 empowers the Court to make an order for further discovery where it appears from the evidence, the nature or circumstances of the case or from documents filed in the proceeding, that there are grounds for a belief that some document or class of documents relating to any matter in question in the proceedings may or may have been in the possession, custody or power of the party.

background

12                  The background and the nature of the case sought to be made out in the substantive proceeding before me are set out in the judgment on the no-case submission which was delivered on 18 December 2002.  Details of the submissions initially made on the discovery application are set out in my judgment of 30 April 2003 in relation to the question whether I should inspect the letter of 22 January 1997 for the purpose of resolving the application for further discovery.  For reasons there given, I decided it was necessary and appropriate to inspect the document in order to rule on the discovery application.

letter of 22 January 1997

13                  The letter in question is written by Mr Stephen Lawrence of OCBC to Mr Kerrod Park, both of whom have been called in this proceeding.

14                  The letter, written on the letterhead of OCBC, is addressed to Mr Park of the Capital Group of companies and relevantly reads:

“…

Dear Grant

1997 FILM FINANCE STRUCTURE

We refer to our various discussions regarding the above and confirm that the Bank has recently reviewed the current structure of the Film Finance type of transactions and from that review has decided that for 1997 it will only enter into these types of transactions of the following are satisfied

1          Save in exceptional circumstances the Bank will not lend or take assignment of loans where persons or corporations have borrowed for the purpose of investing in private offerings.  The Bank will only lend funds or take assignment of loans where persons or corporations have entered into the transaction via a public prospectus.

2          To protect itself from the risk of being regarded as a linked credit provider the Bank will not directly provide loans or take assignment of loans where the loans have been introduced or provided by financiers who directly or indirectly have shareholdings in the promoters of the Film Finance project.

            However the Bank will allow an independent financier (whom the Bank may take assignment of loans from) to incorporate its applications for finance into the projects [sic] public prospectus, subject to those forms first being approved by the Bank’s legal counsel.

3          The Bank will be insisting that each promoter enter into a formal declaration stating that the funds lent to the investors are fully outlaid for the purposes stated in the Film projects prospectus and not in or towards the acquisition of the letter of credit/term bond.

Should you have any questions regarding the above, please do not hesitate to contact us.

Yours sincerely

Stephen Lawrence

Senior Relationship Manager

Corporate Banking, Victoria”

EFFECT OF UNDERTAKING TO THE COUNTY COURT

15                  The nature of the implied undertaking which arises as a consequence of discovery in a court proceeding is described by Mason CJ (with whom Dawson and McHugh JJ agreed) in Plowman, 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 other than in relation to the litigation in which it is disclosed … Over a century ago, Bray on Discovery … stated:

‘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 a condition of granting an order.’

Because an undertaking is implied, it has not been the practice to condition the making of orders in that way.  The implied undertaking is subject to the qualification that once material is adduced in evidence in court proceedings it becomes part of the public domain, unless the court restrains publication of it.”

16                  Although the Chief Justice made reference to the obligation of “each party”, there seems little doubt that the implied undertaking extends to and binds a stranger who is not a party to the proceeding in which the documents were discovered: see Distillers Co v Times Newspapers [1975] QB 613 at 621 and the cases discussed therein by Talbot J pp 619-620.

Mason CJ proceeded to add at p 33:

“It would be inequitable if a party were compelled by court process to produce private documents for the purposes of the litigation yet be exposed to publication of them for other purposes.  No doubt the implied obligation must yield to inconsistent statutory provisions and to the requirements of curial process in other litigation, eg discovery and inspection, but that circumstance is not a reason for denying the existence of the implied obligation.” (Emphasis added)

17                  Despite the fact that the last quoted paragraph indicates that in the event of inconsistent requirements arising from statutory compulsion or discovery the undertaking must “yield”, his Honour observed that this consequence did not mean that the implied undertaking ceases to exist or that it has no application.  This approach of Mason CJ was followed and applied in Australian Securities Commission v Ampolex Ltd (1995) 38 NSWLR 504; see also Geneva Finance Ltd (Rec and Mgr appointed) v Boys [2001] WASC 348 and North Kalgurli Mines Pty Ltd & Ors v GRD Minproc Ltd [2002] WASC 275.

18                  The importance and effect of the observations of Mason CJ in Plowman were considered by the New South Wales Court of Appeal in Ampolex.  In that case the Australian Securities Commission (“ASC”) became aware, as a result of publicity given to observations by a Supreme Court judge, in proceedings before him, of allegations of possible insider trading.  The ASC then issued a statutory notice pursuant to s 33 of the Australian Securities Commission Act 1989 (Cth) to a solicitor, Mr Vrisakis, requiring the production of all records relating to the Ampolex proceedings in the Supreme Court before the judge whose remarks had been published.  Mr Vrisakis responded by stating that it was first necessary, before producing the documents, for him to obtain a release from the undertaking to the Supreme Court directed to preventing production of confidential documents obtained on discovery and this amounted to a reasonable excuse for non-production.  The Court of Appeal held that in those circumstances, it was not necessary to first obtain leave of the court before the documents were required to be produced to the ASC, because the obligations attracted by the undertakings to the court were overridden by the obligation imposed by the statutory notice.  There was no specific statutory exception to the request that the documents must be produced.  After reviewing the authorities, Sheller JA expressed his conclusion in the following terms at 529-530:

“In my opinion the statutory requirement to produce books in answer to a written notice under s 33 over-rides the implied undertaking associated with the disclosure to parties of documents produced on a discovery or in answer to a subpoena and the confidentiality which would otherwise attach to documents by their nature; see Gurry, Breach of Confidence (1984) at 89 and following. …  The short answer in this case may be found in Mason CJ’s dictum in Esso Australia Resources Limited v Plowman.  The notice by force of the statute over-rides a private law duty of confidence.”

Kirby P reached a similar conclusion.

19                  The letter of 22 January 1997 has now been drawn to the attention of this Court and if it can be shown that the letter relates to a matter in question in this proceeding and that it ought therefore be discovered, release of the undertaking would not be required to be first obtained from the County Court before an order is made by this Court for further discovery in the present proceeding.

20                  There is a clash of two important public interest considerations in this case. First, there is the public interest in protecting the discovery process in the interest of encouraging openness and frankness in discovery made in the County Court proceeding by way of consistent and effectively enforced assurance to the party faced with compulsory discovery that the documents will not be used for any other purpose than the purpose for which they were discovered in that court.  Second, there is the competing important public interest in the due and proper administration of justice in the proceedings before this Court by ensuring compliance with its orders.  In these circumstances if the document was one which ought to have been discovered I am not persuaded either as a matter of power, discretion or comity that release of the undertaking must or should be first obtained from the County Court.

21                  With respect to the exercise of discretion in ordering further discovery the following factors ought be taken into consideration in reaching a conclusion.  First, this Court is in a far better position than the County Court, after hearing the matter for over fifteen days and having considered a detailed no-case submission, to form a clear opinion as to the use and relevance of the document to the present proceeding.  Second, the deterrent power of the County Court to punish for any breach of the implied undertaking to that court is not diminished.  Anyone who can be shown to have breached the undertaking without reasonable and proper excuse, can be duly sanctioned by the County Court.  The third factor is the delay, expense and inconvenience and disruption to the administration of justice in the particular circumstances of the proceeding before me which would necessarily be occasioned if this matter was to be adjourned at this stage and an application made to the County Court.  This is an important consideration.  Fourth, this Court has a statutory duty to ensure that discovery obligations imposed by it under a Court order should be complied with in a full and proper manner.  Fifth and most importantly, the interests of justice are best served in this case by this Court enforcing the discovery obligations of the parties before it.  Finally, in this case, there is no question of breach of comity between courts because the implied undertaking properly understood does not prevent or diminish the enforcement of discovery or the compulsion to discover documents in the proceeding before  the County Court.

22                  Therefore, in the event that the letter produced can be shown to be relevant and that it ought to have been the subject of discovery, I consider that I could and should make such an order without requiring release of the undertakings by the County Court as a precondition.

additional evidence as to the letter

23                  After judgment on the inspection aspect on 30 April 2003, additional evidence was filed on behalf of the first five respondents directed to the question whether, on all the material now before the Court, the letter could be considered to relate to any matter in question in the proceeding.

24                  This evidence was in aid of a submission that the letter, read in the context of the surrounding factual matrix, could not be reasonably said to be relevant to the substantive claim even in the Peruvian Guano sense.  An order for particular discovery under r 8 is not, of course, limited to incomplete compliance with an earlier order for discovery but confers a discretion on the Court to require discovery of a document or class of documents whether or not the documents are relevant to an issue arising between the party seeking discovery and the party against whom the discovery is sought: see the discussion in Murex Diagnostics v Chiron Corp (No 2) (1995) 62 FCR 424 (Burchett J).  The rule is intended to augment the power to order discovery so that an order can be obtained as to whether the party has in his possession or power any specific document or documents.

25                  The substance of the evidence filed by the respondents on the question of further discovery is directed to explain the circumstances in which the letter of 22 January 1997 came into existence in order to support a submission that it was not discoverable.  The evidence is summarised below.

26                  Mr Lawrence of OCBC, in his affidavit of 23 April 2003, states that the letter was sent after receiving advice from Mr Hutchings, a member of the firm of Cornwall Stodart, in relation to a number of issues arising from the collapse of the Peter Pan Stage production in September 1996.  The advice was given as a consequence of a request from the administrator of Peter Pan Management Pty Limited (one of the companies involved in the production) to one of the Capital companies on 2 October 1996.  The letter related to a failed musical production in respect of a tax driven investment scheme.  Mr Hutchings drafted a response to the administrator’s letter which was sent on 3 October 1996.  The recollection of Mr Lawrence is that the issues raised in the letter from the administrator had not previously been raised.  There was then a conference in late 1996 between Mr Hutchings and Mr Lawrence about OCBC financing films in the year 1997.  OCBC sought advice with respect to possible problems that could be faced by it when entering into film finance transactions in the light of the collapse of the Peter Pan production and consequent negative publicity surrounding that failure.  One of the issues discussed concerned the acquisition of term bonds and the purchasing of investors’ loans.  Mr Hutchings provided a written advice on 13 January 1997.  This was tendered in evidence on the discovery application.  That detailed advice refers at one point to the Peter Pan scheme but there is no reference to the “Crazy For You” or to any other named investment scheme.  Mr Lawrence states that following that advice, he sent the letter of 22 January to Mr Park.  He also testifies that he was involved in the discovery process in conjunction with a solicitor from Cornwall Stodart in relation to OCBC’s discovery obligation in this proceeding and after reviewing documents which he considered were concerned with the “Crazy For You” scheme, he sent them to the solicitor.  He did not believe that any documents which did not refer to “Crazy For You” were relevant to the proceeding.

27                  Mr Hutchings of Cornwall Stodart swore an affidavit dated 22 April 2003 in which he deposes that he received instruction on 2 October 1996 to act in relation to a demand made by the administrator of two Peter Pan companies.  On 12 December 1996 he had a meeting with Mr Lawrence who asked him to advise on a number of issues concerning the future provision of film financing.  In particular he was asked to advise on whether OCBC should be concerned to ensure that, in future lending transactions where the OCBC security included a mortgage over a letter of credit or term bond provided by a promoter, there was evidence that the letter of credit or term bond had been procured separately and without access to or the use of moneys borrowed.  He prepared the written advice dated 13 January 1997 which dealt with the issue of lending money and providing letters of credit or term bonds.  He said the advice did not relate to the “Crazy For You” investment scheme.  This is the advice which Mr Lawrence refers to as preceding the sending of the letter of 22 January to Mr Park. 

28                  A further affidavit in relation to the discovery process was read on the application for further discovery.  This was sworn on 22 April 2003 by Ms Forde of Cornwall Stodart.  She sets out the steps which she took to locate documents for discovery in the present proceeding concerning the “Crazy For You” scheme.  She did not consider the letter of 22 January 1997 to be relevant or discoverable in the proceeding before the Court.

29                  Mr Park of the Capital Group also swore an affidavit dated 24 April 2003, in which he states that he had never seen the letter of 22 January 1997 until it was sent to him on 26 March 2003.  He has no recollection of receiving it and after searching for the letter he could not locate it in any file.  He states that the letter appears to have been created shortly after the collapse of the theatrical musical production known as Peter Pan.  He refers to receipt of the letter of 2 October 1996 from the administrator of the Peter Pan companies and states that in the financial year ended 30 June 1997 Capital and OCBC were involved in funding only two prospectus-based investments.

30                  There was objection by Mr Beaumont QC to this material but I admitted it as it was directed to the context in which the letter of 22 January 1997 must be considered and it went to explain a number of references in the letter to events which, if left unexplained, might be ambiguous or give rise to a suspicion that the document adverted to particular matters.  There was no cross-examination on the additional evidence.  The consequence of the absence of any cross-examination is that the evidence as to the provenance of the letter and the context in which it falls to be considered is unchallenged.  Mr Beaumont indicated that he did not seek to cross-examine on the affidavit material because it might adversely affect the course of the trial.  I do not agree that this is a sufficient basis for not challenging the evidence in cross-examination.  The deponents were all available for cross-examination.  Furthermore, there was no material presented to contradict the evidence of the deponents.

reasoning on application

31                  On its face the letter of 22 January, does not indicate any relationship with the “Crazy For You” production or scheme which is the subject of the present proceeding.  The letter is written in late January 1997 some five months after the relevant settlements under consideration in the present case.  It is directed to policies relating to future conduct.  It does not suggest any problem in the past with respect to “Crazy For You”.  It states what is intended to be done in the future.  It says nothing about past conduct or past incidents or any specific incidents or circumstances in relation to any particular scheme.  It does not refer to any change in procedures.  It is not possible to discern any indication of past actions with respect to the application of investors’ funds relevant to the “Crazy For You” scheme. The provenance of the document and the references in it to other matters is explained in the affidavits of the four deponents who were made available for cross-examination.  There is no substance in my view in the submission that it was totally inappropriate to have any cross-examination of Mr Lawrence or Mr Park, for example, because if they were called and I formed an adverse view as to their evidence, this would infect the proper conduct of the trial.  It was submitted in the alternative that very little weight could be placed on the evidence because it was produced with the aid of lawyers. 

32                  I do not accept that it was either necessary or appropriate to refrain from cross-examination in the circumstances of this case.  The further contextual evidence is therefore unchallenged.  As a consequence I am satisfied that the letter arose in relation to and from the particular circumstances surrounding the Peter Pan production and that it has no sufficient nexus to this proceeding which would warrant discovery or use in this proceeding.

33                  The present case has expressly not been conducted as a similar fact case.  Furthermore, on the material before me there is not sufficient similarity between the circumstances in the Peter Pan production and the “Crazy For You” production as to make the letter of relevance to any question in the present proceeding.

34                  In particular I am satisfied that the matters raised by Mr Beaumont QC in written submissions for the applicant, as to the circumstances surrounding the letter, have been answered by the evidence adduced by the respondents.  The affidavit material puts in context the matters to which the letter refers, including, for example, the “recent review” of the current structure of the film finance type of transactions and the reference to “various discussions”. 

35                  Accordingly, in the present case I am not persuaded that the document is discoverable having regard to its terms and the evidence as to the circumstances in which it came into existence.  When read in context, it does not point to any chain of inquiry which might be of assistance in determining any matter in question in this proceeding.  It has not been shown to relate to any matter in question.  I therefore dismiss the application for particular or continuing discovery and for further cross-examination. I will hear from the parties as to costs when they have had an opportunity to consider these reasons.

Associate:

Dated:              16 May 2003