FEDERAL COURT OF AUSTRALIA

Alstom Power Limited v Eraring Energy [2004] FCA 706

PRACTICE AND PROCEDURE - Pre-action discovery - Order 15A Rule 6 - Trade Practices Act - Commercial arbitration - Whether appropriate to order pre-action discovery when relevant dispute under the Trade Practices Act could be pursued in commercial arbitration

Trade Practices Act 1974 (Cth)

Commercial Arbitration Act 1984 (NSW)

Federal Court Rules

Hodder & Associates v National Mutual Trustees Ltd [1999] FCA 708

C7 Pty Ltd v Foxtel Management Pty Ltd [2001] FCA 1864

CGU Insurance Ltd v Malaysia International Shipping Corporation Berhad (2001) 197 ALR 279

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

Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc (No 5) & Anor (1998) 90 FCR 1

IBM Australia Ltd v National Distribution Services Ltd (1991) 22 NSWLR 466

Bond Corporation Pty Ltd v Thiess Contractors Pty Ltd (1987) 14 FCR 193

Recyclers of Australia Pty Ltd & Anor v Hettinga Equipment Inc & Anor (2000) 100 FCR 420

Timic v Hammock [2001] FCA 74

Smithkline Beecham P/c v Alphapharm Pty Ltd [2001] FCA 271

ALSTOM POWER LIMITED v ERARING ENERGY AND PACIFIC POWER (SUBSIDIARY No 1) PTY LTD

S 836 0f 2003

SELWAY J

4 JUNE 2004

ADELAIDE

THE COURT ORDERS THAT:

1          Save for any documents that have already been discovered by the first respondent to the applicant in the contractual arbitration between them, pursuant to O 15A r 6 of the Federal Court Rules the first respondent shall within 2 months of today's date discover the following documents to the applicant on oath:

(a)        all documents relating to the financing of the project to refurbish and upgrade the Burrinjuck Power Station (‘the project’) comprising financial models, budgets, feasibility studies, contingency allowances and costings including, loan applications, funding applications, recommendations and submissions to the Treasurer of New South Wales, or such other entity responsible for the financial aspects of the project;

(b)        all documents comprising any financial or policy analysis of the documents referred to in 1(a);

(c)        all anterior documents identifying the need for performing additional works and/or recommending the making of the decision to perform the additional works;

(d)        all documents relating to any consideration of the costs that might be incurred by the performance of the additional works comprising, memoranda, financial models, budgets, recommendations and submissions; and

(e)        all documents relating to the additional costs incurred or being incurred by the first applicant as a result of the additional works and/or of any delays, which documents shall include all documents relating to the decision by the respondents or others to reject the claim by the applicant for such additional costs.

2          The applicant to pay the costs of the first respondent incurred in making such discovery and in providing any inspection of the discovered documents.

3          Otherwise the question of the costs of this application be reserved for future application by the parties.

4          Liberty to apply.

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

REASONS FOR JUDGMENT

1                     This is an application seeking discovery from the first respondent pursuant to O 15A r 6 of the Federal Court Rules.  Discovery had also been sought from the second respondent, but the respective parties have reached agreement in relation to that.  The applicant also applied for third party discovery, but that has also been resolved by consent.  The remaining issue is whether the first respondent should be required to make pre-action discovery.  Order 15A Rule 6 of the Federal Court Rules provides:

‘Where:

(a)       there is reasonable cause to believe that the applicant has or may have the right to obtain relief in the Court from a person whose description has been ascertained;

(b)       after making all reasonable inquiries, the applicant has not sufficient information to enable a decision to be made whether to commence a proceeding in the Court to obtain that relief; and

(c)       there is reasonable cause to believe that that person has or is likely to have or has had or is likely to have had possession of any document relating to the question whether the applicant has the right to obtain the relief and that inspection of the document by the applicant would assist in making the decision;

the Court may order that that person shall make discovery to the applicant of any document of the kind described in paragraph (c).’

2                     The operation of O 15A r 6 has been explained in a number of decisions of this Court.  These have been usefully collected in a recent article by B Kremer & R Davies, ‘Preliminary Discovery in the Federal Court:  Order 15A of the Federal Court Rules’ (2004) 24 Australian Bar Review 235 particularly at 246-254.  The following features may be noted:

(a)                The requirement that there be ‘reasonable cause to believe that the applicant may have a right’ imposes an objective requirement.  However, it does not require that the applicant establish a prima facie case.  Whilst mere suspicion is not enough, it is sufficient if there is a factual foundation for a reasonable inference that the applicant might have a claim: see Hodder & Associates v National Mutual Trustees Ltd [1999] FCA 708 at [15]-[17]; C7 Pty Ltd v Foxtel Management Pty Ltd [2001] FCA 1864 at [12]

(b)               The power of the Court arises ‘after the applicant has made all reasonable inquiries and finds that there is insufficient information to enable a decision to be made’: CGU Insurance Ltd v Malaysia International Shipping Corporation Berhad (2001) 197 ALR 279, 286 [25] 

3                     On the basis of the affidavit material before me and the submissions of the parties I make the following findings:

(a)                The applicant performed refurbishment works to the Burrinjuck Power Station located near Yass in New South Wales.  The works were performed pursuant to a contract between the applicant and the second respondent.  The Power Station is now operated by the first respondent which is a statutory corporation established in New South Wales.

(b)               During the course of the performance of the contract the applicant was subject to increased costs.  Those costs related primarily to additional works required or undertaken under the contract and additional costs arising from factors such as delay. 

(c)                Whilst incurring those increased costs the applicant informed the first respondent (or its precursor) from time to time of its intention to recover those increased costs.  The first respondent did not inform the applicant that the first respondent was of the view that those costs were not recoverable.

(d)               During the course of the extra works officers of the first respondent informed officers of the applicant that ‘the budgeted contingent amount for the contract has 'hit the wall' and requests for work will have to be very carefully scrutinised.’

(e)                After the completion of the relevant works the applicant claimed for those increased costs.  The claims were significant.  The first respondent has disputed the claims and denied any liability under the contract to meet the extra costs.

(f)                 Those claims have been referred to arbitration in accordance with the contract.  That arbitration is continuing.

(g)                Presently the arbitration does not involve any issues arising under the Trade Practices Act 1974 (Cth) (‘the TPA’). 

(h)                There has been discovery in relation to the contractual disputes that are before the arbitrator.  The applicant has been concerned that the material that has been discovered cannot be used by it for the purposes of considering whether or not to institute proceedings in this Court under the TPA: see Esso Australia Resources Ltd v Plowman (1995) 183 CLR 10.  It sought the agreement of the first respondent to use the discovered information for that purpose.  That agreement was not forthcoming.  The applicant also sought informal pre-action discovery from the first respondent for the purpose of considering whether to take action under the TPA in this Court.  The first respondent denied that request.  Instead the first respondent took the position that the applicant was obliged to bring any claim under the TPA in the arbitration.

4                     The applicant says that the actions of the first and second respondents may have been in breach of the TPA.  In particular, the applicant says that if the actions of the first respondent (or for which the first respondent is responsible) involved letting the contract knowing that the works specified in the contract were significantly less than would be required and knowing that there was no budget available to meet the extra costs then such behaviour could constitute misleading and deceptive conduct for the purposes of the s 52 of the TPA.  The applicant also says that the actions of the second respondent in not informing the applicant that its claims for additional moneys would be disputed if it knew that the applicant was performing additional works and incurring additional costs in the expectation that the claims would be met, could constitute misleading and deceptive conduct for the purposes of s 52 of the TPA.

5                     There is very little evidence to support these suspicions.  The first respondent says that the evidence goes no further than a mere suspicion.  I think it goes further than that.  There is the apparent fact that the specifications of the contractual works seem to have been significantly less than the work that was required to be done; there is the statement of budget difficulties and there is the silence of the first respondent whilst the applicant was undertaking the relevant works.  Notwithstanding how limited the factual material is, in my view it is nevertheless sufficient to provide a factual foundation for a reasonable inference that the applicant might have a claim in this Court.  Whether any such claim, if pursued, might ultimately be successful is, of course, another matter entirely. 

6                     However, the primary submission put by the first respondent was not directed to the inadequacy of the evidence as such but to an argument that the applicant was required to pursue any TPA claim it might have in the arbitration and could not do so in this Court.  In my view it is clear that this Court’s jurisdiction to hear a claim pursuant to s 86(1) of the TPA cannot be excluded by an arbitration agreement or by a State statute such as the Commercial Arbitration Act, 1984 (NSW): see Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc (No 5) & Anor (1998) 90 FCR 1 at 23-24, 29.  The parties have not identified any law of the Commonwealth which purports to limit the jurisdiction of this Court in these circumstances.  The result is that the applicant has a statutory entitlement to pursue its claim in this Court if it chooses to do so.  The first respondent cannot require the applicant to pursue its claim in the arbitration.  Nor is there any reason of principle why an arbitration should be given an invariable priority over the pursuit of proceedings in this Court.

7                     This is not meant to suggest that the parties to a contract cannot agree that an arbitrator can determine a dispute between them which includes rights or obligations conferred or imposed by the TPA, providing, of course, that the arbitrator is not exercising the ‘judicial power of the Commonwealth’: see IBM Australia Ltd v National Distribution Services Ltd (1991) 22 NSWLR 466 at 480-481.  However, that agreement cannot have the effect that the parties can agree to waive the jurisdiction of this Court under the TPA.

8                     Of course, in an appropriate case this Court can stay proceedings in this Court pending the finalisation of arbitration proceedings involving the same subject matter: see Bond Corporation Pty Ltd v Thiess Contractors Pty Ltd (1987) 14 FCR 193; Recyclers of Australia Pty Ltd & Anor v Hettinga Equipment Inc & Anor (2000) 100 FCR 420; Timic v Hammock [2001] FCA 74.  That power arises from the inherent jurisdiction of the Court in the management of the business of the Court so as best to achieve a sensible resolution of the dispute between the parties.  It does not involve any denial of the Court's jurisdiction. 

9                     In my view the applicant has established that there is reasonable cause to believe that the applicant may have the right to obtain relief in this Court.

10                  If the applicant is to pursue any proceedings under the TPA then the applicant will need to establish what the first respondent knew as to the refurbishment works that needed to be performed, as to the likely costs of those works, as to its capacity to meet those costs within existing budgets, as to its knowledge of what the applicant knew or understood as to its entitlements to claim for extra works, as to whether the first respondent made a positive decision not to inform the applicant of the first respondent's understanding of the contract and so on.  The information of what the first respondent (through its officers) knew at any particular point of time is information which is likely to be under the control of the first respondent.  It could be expected that that information would be contained in documents and records in the possession of the first respondent. 

11                  As already noted the applicant has made attempts to obtain access to those documents or to use the documents that have been discovered in the arbitration for the purpose of making a decision on whether to institute proceedings in this Court.  Those requests have been refused.  It would appear the primary reason for such refusal is the position taken by the first respondent that the applicant is obliged to pursue any TPA claims in the arbitration.  For the reasons already given that position is in error.  Indeed, the first respondent has accepted so much by agreeing in the course of oral submissions that the applicant can use the documents discovered in the arbitration for the purpose of forming a decision.  However, it would seem clear from the submissions made by the parties that those documents may not be sufficient by themselves to enable the applicant to make a relevant decision.

12                  In my view the applicant has established that it has made all reasonable inquiries and that it still does not have sufficient information to enable it to decide whether to commence a proceeding in this Court to obtain relief under the TPA.

13                  It was not disputed that on the facts of this case there is reasonable cause to believe that the first respondent is likely to have possession of documents relating to the question whether the applicant has the right to obtain relief under the TPA and that inspection of the documents by the applicant would assist it in making its decision whether or not to seek such relief.

14                  The only remaining question is whether it is appropriate in the exercise of the Court's discretion to make the orders sought by the applicant for pre-action discovery.  The first respondent has argued that such orders should not be made where there is an arbitration in relation to the same issues.  This puts the matter too highly.  At this stage the question in issue is whether the first respondent should be ordered to make discovery for the purpose of enabling the applicant to decide whether to institute proceedings in this Court.  The effect of such an order on an existing arbitration may be relevant in some circumstances.  If, for example, the arbitration were nearly completed and involved the TPA issues then it might well be seen as convenient not to make any order for pre-action discovery until the arbitration proceedings were complete.  However, in this case the arbitration has not yet proceeded to hearing.  The TPA issues are not raised.  There is no obvious reason why the applicant should not consider whether to issue proceedings in this Court.

15                  That does not mean that if proceedings were issued those proceedings should not then be stayed.  That is a decision that would need to be made then on the facts as they then were.

16                  In my view it is appropriate to make orders for pre-action discovery by the first respondent.  This does not mean that the orders should be as extensive as are sought by the applicant.  The purpose of pre-action discovery is only to give sufficient information to enable the applicant to determine whether it has a good cause of action - it is not to provide all information that may be relevant in proving that action: see Smithkline Beecham P/c v Alphapharm Pty Ltd [2001] FCA 271 [19].  The first thing to note is that it is not necessary to order discovery of any documents that have been discovered in the arbitration, the first respondent having conceded or agreed that the documents discovered in the arbitration may be used by the applicant for the purpose of determining whether to institute proceedings in this Court.  The second thing to note is that the information that the applicant needs to make its decision is fundamentally the ‘high level’ information upon which the first respondent made its own decisions.  Detailed ‘middle management’ or operational material which might be relevant at trial would not seem to be critical for the purpose for which pre-action discovery might be given.  The orders that I have made have been drafted on this basis.  They may still prove too wide or too narrow.  If, for example, the orders prove to be unnecessarily onerous, it may be appropriate for the first respondent to exercise the liberty to apply that is contained in the orders so that the practical operation of the orders can be reconsidered.

17                  As proceedings have not yet been instituted it is appropriate that the applicant meet the costs incurred by the first respondent in providing discovery and subsequent inspection.  If proceedings are ultimately instituted then those costs can been treated as costs in those proceedings.  On the other hand, the application that I have heard has been hotly disputed.  Nevertheless, proceedings have not been instituted and may never be.  Given the circumstances it is appropriate that the question of costs of the application itself be reserved for future consideration pending any decision by the applicant as to whether or not to proceed.

Associate:

Dated:              4 June 2004