FEDERAL COURT OF AUSTRALIA

Slick v Westpac Banking Corporation (ACN 007 457 141) (No 2)
[2006] FCA 1712

PRACTICE AND PROCEDURE – Discovery – motion seeking further discovery – relevant principles –whether party failed to take appropriate steps to locate electronic documents – factors relevant to exercise of discretion – appropriate form of orders

Federal Court Rules – O 15 r 8

Allstate Life Insurance Co v ANZ Banking Group (No 15) (unreported, Lindgren J, 22 August 1995) cited

Australian Broadcasting Commission v Parish (1981) 48 FLR 292 cited

BT Australasia Pty Limited v State of New South Wales (unreported, Sackville J, 9 April 1998) referred to

Molnlycke AB v Procter & Gamble Limited (No 3) [1990] RPC 498 followed

NT Power Generation Pty Limited v Power & Water Authority [1999] FCA 1669 followed

EARL SLICK AND LEO MICHAEL SEWARD & VIRGINIA JOY SEWARD v WESTPAC BANKING CORPORATION (ACN 007 457 141) AND WESTPAC PRIVATE EQUITY PTY LTD formerly known as WESTPAC DEVELOPMENT CAPITAL PTY LTD (ACN 071 205 715)

NSD 1291 OF 2003

JACOBSON J

8 DECEMBER 2006

SYDNEY

THE COURT ORDERS THAT:

1.                  The parties are to bring in short minutes of order by no later than 13 December 2006 reflecting these reasons.

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

REASONS FOR JUDGMENT

INTRODUCTION

1                     On 13 November 2006 the applicants filed a notice of motion seeking production and forensic examination of computers and back up material, including hard drives, in the possession of the respondents.

2                     The application is urgent because the proceedings have been adjourned part heard and are due to resume in February 2007.  I heard the motion for a full day on 28 November 2006 but final written submissions were not provided to me by the applicants until 5 December 2006.

3                     The discovery process in these proceedings has been a difficult one.  Mr Hetherington’s description of it in his affidavit sworn 24 November 2006 as ‘somewhat tortuous’ is apt.  Discovery was initially ordered in February 2004 with discovery to be given by categories of documents.  The categories have been expanded principally to meet amendments to the pleadings.

4                     This application does not seek to enlarge the categories of documents that have been ordered.  The applicants are at pains to stress that the application is based on what are said to be deficiencies in the discovery that has been given.  However, for reasons set out below, even if I am satisfied that the respondents have failed to give full discovery, it does not follow that the orders which are sought should be made as a matter of course. 

5                      Rather, the exercise of the power is discretionary and involves weighing the value of the additional discovery sought against the burden to be imposed upon the respondents.  The delay in bringing the application and the applicants’ explanation for this delay are factors to be weighed in the balance.  So too is the stage of the proceedings at which the application is made.

THE PRINCIPLES

6                                 The Court has power under O 15 r 8 of the Federal Court Rules to order particular discovery where there is a defect in compliance with an earlier order.  The power conferred by O 15 r 8 is discretionary; see Australian Broadcasting Commission v Parish (1981) 48 FLR 292 at 295.

7                     The orders which are sought go beyond the power conferred by O 15 r 8.  However, it seems to me that I have power to make the orders under s 23 of the Federal Court of Australia Act 1976 (Cth) if I consider it to be appropriate.

8                     In my view, the exercise of the power is informed by similar considerations to those which underlie the power conferred by O 15 r 8.  Thus, the Court may refuse to make an order if it would be unduly oppressive to the other party.  As Mummery J said in Molnlycke AB v Procter & Gamble Limited (No 3) [1990] RPC 498 at 503:

The Court takes account of such considerations as the value of the discovery to the person seeking it and the burden imposed on the party giving it, with a view to restricting the volume of documents and the labour and expense involved to that which is necessary for fairly disposing of the issues in the case.

9                     This passage and the principle which underlies it were referred to with approval by Lindgren J in Allstate Life Insurance Co v ANZ Banking Group Limited (No 15) (unreported, Lindgren J, 22 August 1995) at pages 5-6.

10                  In BT Australasia Pty Limited v State of New South Wales (unreported, Sackville J, 9 April 1998), his Honour ordered Telstra to discover emails and attachments from back-up computer tapes for certain identified persons.  His Honour also directed Telstra to file a report setting out the steps taken to comply with that order.

11                  In deciding to make orders for additional discovery, his Honour was satisfied that Telstra had failed to fully comply with its discovery obligations.  His Honour was also satisfied that the tapes contained much material that was relevant to the issues in the proceedings.

12                  In NT Power Generation Pty Limited v Power & Water Authority [1999] FCA 1669,  Mansfield J declined to limit discovery to email communications which existed in hard copy form at the time of the order.  His Honour indicated at [2] that it would impose a very substantial burden on the respondents to restore and examine the back up tapes. 

13                  However, he was not satisfied that the material which might be recoverable electronically was sufficiently insubstantial to warrant the order sought by the Respondents limiting discovery to hard copy documents.  His Honour said at [17]:

As I have indicated, I am not persuaded that the e-mail communications retained only electronically are unlikely to contain any material communications which are discoverable in these proceedings.  I have used the word “material” to indicate communications beyond those that are merely formal or insignificant.  The applicant is entitled to discovery of them.  I am not persuaded, in the interests of justice, that I should excuse the Respondents from giving discovery of that material notwithstanding the time, expense, and effort involved in doing so.

THE EVIDENCE

The applicants’ evidence in support of the motion

14                  The evidence establishes that, as one would expect, both of the respondents used email at the relevant times.  Nevertheless, very few emails have been discovered and those which have been discovered fall outside the critical time periods in the proceedings.  

15                  Most importantly, Quadrant has not discovered any emails from Mr Hadley or Mr Penklis for the whole of the year 2000 which is the most important year in the case. Nor has Quadrant discovered any emails from Mr Hadley or Mr Penklis for the first half of 2001 which is also an important time period in the proceedings.  Moreover, Quadrant was able in February 2004 to generate electronic diaries for Mr Hadley and Mr Penklis from its computer systems.

16                  Those diaries contain references to a number of important meetings but there are some significant gaps.  Both diaries contain references to the meeting of 16 August 2000 between Mr Hadley, Mr Blom and Mr Seward.  There is no reference to a meeting apparently planned on 17 or 18 September 2000 between Quadrant and Ms Addison nor is there any reference to the meeting which took place in Dallas on 25 September 2000. 

17                  Moreover, the diary printouts for the week of 24 September to 30 September are compressed in a way that is not explained.  There is a reference to a scheduled telephone call with Mr Quinton on 11 October 2000 in Mr Hadley’s diary.  There is no reference to a meeting with Ms Addison on or around 13 October 2000 in Mr Penklis’ diary but there is a note in Mr Hadley’s diary for 9 October 2000 which refers to the Slicks; this may be a reference to the meeting of 13 October 2000.

The respondents’ evidence in opposition to the motion

18                  Mr Gilman’s evidence establishes that Quadrant’s IT infrastructure was upgraded in October 2003 and that the email platform was upgraded in October 2003 and January 2006.  Mr Gilman is the Financial Controller and Company Secretary of Quadrant.  He has been responsible for Quadrant’s IT infrastructure since July 1996. 

19                  Electronic material which was on Quadrant’s system when it was upgraded was migrated across to the new system.  This evidence did not appear in Mr Gilman’s affidavit but it was elicited in his evidence in chief after the applicants’ forensic expert, Mr Daniel, pointed to this gap in Mr Gilman’s evidence.

20                  Thus, as Mr Gilman conceded in cross-examination, emails which related to the Barrington transaction which were migrated to the new system in October 2003, and which were not deleted or written over between that time and January 2006, would be on the current Quadrant system.

21                  The effect of [4] of Mr Gilman’s affidavit is that Quadrant’s back-up tapes are rotated weekly and overwritten.  Therefore, on Mr Gilman’s evidence, there are no back-up tapes which contain information that is more than seven days old.  This procedure has been in place since 1996.

22                  Mr Gilman affirmed in [5] of his affidavit that the only emails relating to the Barrington transaction that are available prior to the October 2003 and January 2006 upgrades are those that were printed out and placed on the hard copy file. 

23                  He said in cross-examination that he had not personally conducted a search to confirm this conclusion but he believes that one of his colleagues would have done so at the time.  He conceded it was possible that there are other emails on the system but the effect of his concession is that it is unlikely that those emails exist.

24                  Mr Backley, the Chief Information Officer, Enterprise Services, of Westpac, gave evidence that Westpac’s IT infrastructure is outsourced to IBM.  He gave evidence on information and belief from officers of IBM.

25                  His evidence dealt with Westpac’s email system and its document servers.

26                  The email system in use as at 2002 was known as the legacy mail application.  That system was decommissioned and replaced in about 2002-2003.  At the time when the legacy system was decommissioned, a “snapshot” back-up was taken for the sole purpose of disaster recovery.

27                  According to Mr Backley’s evidence, obtained from IBM, in order to access the back-up tapes, it would be necessary to rebuild the legacy mail environment.  A number of risks and hurdles are said to exist.  The rebuilding process is said to be time consuming and expensive.  The time estimate is at least three months and the costs may be upwards of $600,000.

28                  Westpac’s document servers were replaced in 2003-2004 when a new operating system was introduced.  Mr Backley’s evidence is that many of the same difficulties as with the email back-up tapes would be encountered because the legacy server environment would have to be rebuilt.  The time estimate is two to three months and the cost would be at least $500,000.

29                  Evidence in answer to Mr Gilman and Mr Backley’s affidavits was filed by the applicants in an affidavit sworn on 28 November 2006 by Mr Daniel, a senior technical consultant employed by Forensic Data Services Pty Ltd.  I will refer to this below.  The effect of Mr Daniel’s evidence is that it may not be necessary to rebuild the legacy environment.  Mr Backley conceded in cross-examination that if this is so it would follow that the risks and hurdles to which he pointed would fall away.

30                  Mr Backley also conceded that emails migrated to the new system would be accessible so long as they had not been deleted or written over.  This was similar to the concession made by Mr Gilman.

31                  As to the question of whether the respondents have made full discovery, this depends in part upon the explanations given by Mr Gilman and the affidavit of Mr Garey, sworn 27 November 2006, who is the solicitor for the respondents with the day to day conduct of the matter.  Mr Garey’s affidavit annexed a letter, dated 24 November 2006, written to the applicants’ solicitors from Mr James Beaton, Mr Garey’s supervising partner, in opposition to the orders sought in the motion.

32                  Mr Beaton stated in the letter that the “discovery already provided has involved reviewing electronic records used by a number of individuals at the relevant time”.  The letter also stated that, in relation to Quadrant, while some material was transferred from the old file server to the new file server, “that new file server has been searched and relevant material on it has been discovered”.  The letter stated that, to the extent that discoverable documents for Quadrant fall within the categories in the notice of motion, “anything that can be discovered has been discovered”.

33                  As to Westpac, the letter explained the system and the upgrades.  Mr Beaton refers to the need to rebuild the IT infrastructure to carry out the process demanded by the applicants.  The letter stated that the solicitors could not see any utility in the proposal sought by the applicants in relation to Westpac. 

The applicants’ evidence in answer to the technical difficulties

34                  As I mentioned above at [29], Mr Daniel considered that it may not be necessary to rebuild the former legacy environment.  His evidence is that Forensic Data Services has the necessary skills and resources to restore the environment without the need to rebuild it.  He says he has yet to experience any instance in dealing with the legacy media in which he has been unable to access the system in some way.

35                  Mr Daniel does not believe that many of the difficulties referred to by Mr Backley are likely to confront Forensic Data Services. He is of course prepared to sign an appropriate confidentiality undertaking.  Mr Daniel was not cross-examined.

CONSIDERATION

36                  The respective positions of Westpac and Quadrant must be considered separately.

Westpac

37                  I am not satisfied that the applicants have proved that there is anything more than a mere possibility that Westpac has failed to give discovery within the categories relied upon.

38                  It is true that the evidence discloses that Westpac used emails in the relevant period and that few have been discovered.  I think it is likely that Mr Daniel would be able to access any emails that have not been deleted or written over but the evidence as to whether that could be done more quickly and at less expense than the method proposed by IBM is equivocal.

39                  I accept that if the exercise is carried out by Mr Daniel the cost would be borne, at least in the first instance, by the applicants.  But it is plain that there would need to be substantial involvement of Westpac executive time and that the lawyers would be heavily involved in vetting the process, including considering any claims for privilege.

40                  I accept Mr Gilman’s evidence that there is no link between the Quadrant computer system and Westpac’s computer system.  I also accept his evidence that there is no ability to access documents between Quadrant’s system and Westpac’s system.

41                  The balancing exercise in relation to Westpac is therefore quite straightforward. What I have to weigh is the theoretical possibility that documents might exist against the cost and burden of either rebuilding the former electronic environment (and the risks and burdens apparently associated with this) or alternatively the cost and burden to Westpac of involvement with any forensic examination undertaken by Mr Daniel/Forensic Data Services.

42                  It is unnecessary to consider questions of delay on the applicants’ part in relation to the Westpac material because, in my opinion, the answer to the balancing exercise is straightforward.

43                  Whether or not Westpac, through IBM, were to undertake the task, or whether the forensic exercise is undertaken by Mr Daniel, the theoretical possibility that something might turn up is well and truly outweighed by the cost and burden to Westpac.

44                  In short, I am not satisfied that the exercise sought by the applicants is necessary in the interests of justice.

45                  I make this finding notwithstanding that the applicants seek to limit their relief to an order that Westpac merely hand over the back-up tapes to Forensic Data Services with a view to that company retrieving any relevant data from them.

Quadrant

46                  The position with respect to Quadrant is different.  Mr Hadley swore the affidavit of documents.  However, he made no enquiries of Mr Gilman at any time since 2002, other than to retrieve hard copy records from archives.

47                  Moreover, Mr Gilman stated in cross-examination that Mr Hadley has not asked him to do a search of Quadrant’s computer system relating to the Barrington transaction.  And he said that Mr Hadley has not asked him to conduct an electronic search of the computer system of Quadrant for the purpose of discovery in the proceedings.

48                  Moreover, Mr Gilman has not personally undertaken a search of Quadrant’s system to confirm that the only email records are those that were printed out and placed on hard copy files.

49                  It is true that Mr Gilman believes that one of his colleagues would have conducted a search at that time.  But Mr Gilman does not actually know whether that occurred.

50                  It is also true that Mr Beaton’s letter states that the new Quadrant server has been searched and relevant materials on it have been discovered.  But this statement was based on instructions received from his client. 

51                  I have no doubt that both Mr Beaton and Mr Garey are competent and diligent solicitors and I do not doubt that they have made full and careful enquiries.  I reject the submission put by the applicants that the letter is ‘intemperate’. 

52                  Nevertheless, I am concerned that, on the evidence given by Mr Gilman, the necessary enquiries within Quadrant have not been made.

53                  Furthermore, the gaps in Mr Gilman’s personal knowledge of searches made and Mr Hadley’s failure to make enquiries of Mr Gilman support a finding that the necessary searches have not been made.  Of course, others may have done so but the evidence is not sufficiently clear for me to make that finding.  I should say, however, that I reject any suggestion that the statements made in Mr Beaton’s letter are in any way other than a full and frank explanation of his instructions and enquiries.

54                  Moreover, the absence of any emails in the critical period of the year 2000 and the first half of 2001 must be considered in light of the fact that the computer diaries of Mr Hadley and Mr Penklis were printed out on 18 February 2004, two days after my first order for discovery in the proceedings.

55                  Those diaries fail to refer to a number of important meetings which I have referred to above.

56                  The compression of the diaries for the week of 24 September 2004 is unexplained.

57                  In light of these matters, I am prepared to infer, for the purposes only of the present application, that there may be data on Quadrant’s current system which would be discoverable under the primary categories sought by the applicants.

58                  If there are, those documents may well have real utility to the applicants which would outweigh the burden imposed on Quadrant of providing further discovery.

59                  I do not consider that there has been such delay as to warrant the exercise of my discretion against the grant of relief.

60                  In my opinion, the letter from the respondents’ solicitors of 28 September 2004, annexed to Mr Hetherington’s affidavit of 10 November 2006, did not sufficiently put the applicants upon notice of the possible gaps in discovery first appreciated by Mr Hetherington in October 2006.

61                  Nevertheless, in my view, having regard to the fact that the proceedings are due to recommence in February 2007, the ambit of the orders should be strictly limited to those which I consider to be plainly necessary for fairly disposing of the issues in the proceedings. 

ORDERS

62                  The orders I will make therefore will only be for the primary categories sought by the applicants and the motion will be otherwise dismissed.  For clarity, I should state that the “primary categories” are those set forth in paragraphs 3, 4, 5, 6, 14 and 15 of Schedule A to the notice of motion, with the limitation to paragraph 3 as set out in [14] of the applicants’ written submissions.

63                  As to the question of whether the searches should be made by Quadrant or by Mr Daniel, I have come to the view, on balance, that the most expeditious and efficient way to deal with the issue that has arisen at this stage of the proceedings is to make an order for Forensic Data Services to carry out a search of Quadrant’s current system in the primary categories set forth in Schedule A.

64                  Some of the persons referred to in the list seem to have only marginal relevance to the proceedings but I do not propose to delete any of the names stipulated in the primary categories.  If the search reveals the existence of any retrievable data within these categories Forensic Data Services should be permitted to take reasonable steps to retrieve it. 

65                  The parties are to bring in short minutes of order to reflect my reasons.  Costs will be reserved. 

Postscript

66                  Finally, this motion was filed without any prior notice to the respondents, yet it must have been plain to the applicants’ solicitors from October 2006 that they intended to raise the question of missing emails.  The motion was supported with voluminous evidence which must have taken considerable time to put together.  This approach is not consistent with the ordinary professional courtesies and co-operation that should exist between legal practitioners.  If notice had been given, the matter may have been able to be disposed of in a manner more consistent with the usual way in which complex proceedings are managed by the docket, or trial, judge.

Associate:

Dated:              8 December 2006