FEDERAL COURT OF AUSTRALIA

Clifford v Vegas Enterprises Pty Ltd [2009] FCA 1204

PRACTICE AND PROCEDURE - applications by respondents for discovery of Family Court documents - evidence provided that documents exist and are relevant to these proceedings - continuing discovery on oath ordered

Trade Practices Act 1974 (Cth) s 52, s 82, s 82(1)
Corporations Act 2001 (Cth) s 1041H
Fair Trading Act 1987 (WA) s 10
Federal Court Rules  O 15, O 15 r2(3), O 15 r 8

Harman v Secretary of State for Home Department [1983] AC 280
Geneva Finance Ltd (Receiver and Manager Appointed) v Boys [2001] WASC 348
Hearne v Street (2008) 235 CLR 125
Esso Australia Resources Ltd v Plowman (1995) 183 CLR 10
Hanneybel v Uniflex (Australia) Pty Ltd [2002] WASCA 349
British American Tobacco Services v Cowell [2003] 8 VR 573
Australian Securities and Investments Commission v Marshall Bell Hawkins Ltd [2003] FCA 833
Jarra Creek Central Packing Shed Pty Ltd v Amcor Ltd [2008] FCA 391
Holpitt Pty Ltd v Varimu Pty Ltd (1991)29 FCR 576
Griffiths v Duggan (No 2) [2008] VSC 230
Patrick v Capital Finance Pty Ltd (No 4) [2003] FCA 436
Murex Diagnostics Australia Pty Ltd v Chiron Corporation (No 2) (1995) 62 FCR 424
Mulley v Manifold (1959) 103 CLR 341

PHILIP GEORGE CLIFFORD v VEGAS ENTERPRISES PTY LTD (ACN 009 078 148), RODNEY DESMOND HART and GEOFFREY BRIAN BACKSHALL; VEGAS ENTERPRISES PTY LTD; PHILIP GEORGE CLIFFORD and LAVAN LEGAL (A FIRM)

WAD 28 of 2009

BARKER J

26 OCTOBER 2009

PERTH

THE COURT ORDERS THAT:

1.         By Friday 11 September 2009, the parties give continuing discovery on oath including:

1.1       all documents and evidence filed in the Family Court of Australia proceedings PTW 5416 of 2006 between the applicant and Ms Corsbie relating to the acquisition in December 2006 by the applicant or Sheraz Pty Ltd of shares in the first respondent (Shares) including the events leading up to the acquisition of the Shares; and

1.2       all documents and evidence filed in the Family Court of Australia proceedings PTW 5416 of 2006 between the applicant and Ms Corsbie relating to the value of the Shares.

2.         The parties to lodge a minute of proposed programming orders by Thursday 10 September 2009 at 4pm.

3.         Costs are reserved on the discovery application.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using eSearch on the Court’s website.

REASONS FOR JUDGMENT

NOTICES OF MOTION FOR DISCOVERY

1                          By notice of motion dated 17 August 2009 the first respondent (Vegas) sought an order for leave to file and serve a notice for discovery on the applicant.  The notice sought all documents and evidence filed in Family Court proceedings PTW 5416 of 2006, relating to the acquisition by the applicant (or a related company, Sheraz Pty Ltd (Sheraz)) of shares in Vegas and the value of the shares.

2                          By notice of motion dated 25 August 2009 the second and third respondents sought further and better discovery from the applicant in similar terms to that sought by Vegas. 

ORDERS MADE

3                          On 8 September 2009, the Court made the following orders in relation to the motions: 

1.       By Friday 11 September 2009, the parties give continuing discovery on oath including:

(a)     all documents and evidence filed in the Family Court of Australia proceedings PTW 5416 of 2006 between the applicant and Ms Corsbie relating to the acquisition in December 2006 by the applicant or Sheraz Pty Ltd of shares in the first respondent (Shares) including the events leading up to the acquisition of the Shares; and

(b)     all documents and evidence filed in the Family Court of Australia proceedings PTW 5416 of 2006 between the applicant and Ms Corsbie relating to the value of the Shares.

2.       Costs are reserved on the discovery application.

4                          These are the reasons for the making of those orders.

STATE OF THE PLEADINGS

5                          The applicant seeks damages against the respondents jointly and severally in relation to conduct which it is alleged is in breach of:

·          Section 52 of the Trade Practices Act 1974 (Cth).

·          Section 1041H of the Corporations Act 2001 (Cth).

·          Section 10 of the Fair Trading Act 1987 (WA).

6                          In his statement of claim the applicant alleges that at material times he was the beneficial owner of approximately 7.8% of the shares issued in Vegas.  He alleges material facts not disclosed by Vegas at the time he acquired a large portion of that shareholding as newly issued shares in about December 2006.  He says that various representations, styled as “bank debt representations”, “product representations” and “sales representations” concerning Vegas were made to him.  He says each was false and that the second and third respondents were aware of this and so were, directly or indirectly, knowingly concerned in Vegas’ misrepresentation.

7                          The applicant claims loss or damage under each cause of action and particularises his loss or damage as the cost and expense he has incurred to 17 February 2009 in the sum of $2,713,871.47.

8                          The respondents essentially deny the representations, pleading that in fact from 19 December 2006 until January 2009, Sheraz was the owner of 641,389 ordinary shares, not the applicant, but the applicant was a director and shareholder of Sheraz.  In January 2009, pursuant to orders made by the Family Court of Australia, dated 17 December 2008, Vegas transferred 224,486 ordinary shares in the capital of Vegas from Sheraz to the applicant and from the applicant to his former wife.  Consequently, Sheraz currently holds 416,902 ordinary shares in the capital of Vegas.

9                          Vegas admits a number of primary facts including knowledge that the applicant is alleged to have had concerning the value of the shares acquired by Sheraz.  Vegas denies the bank debt representations were ever made, denies the product representations were ever made and denies the sales representations were ever made.

10                        The second and third respondents similarly deny that the various pleaded representations were made.  They say any loss or damage suffered by the applicant was suffered wholly or partly by reason of his failure to take reasonable care.

11                        It is accepted that the value of the shares Sheraz acquired in Vegas at material times is a central issue in these proceedings.

12                        It is also relevant to note that, a portion of those shares having been transferred to the former wife of the applicant, pursuant to an order of the Family Court, if the applicant were to be successful on his current application, the remedy of return of these shares acquired would not seem to be available.  Thus damages, as pleaded, would seem to be the relevant remedy, something acknowledged by the respondents.

13                        In his reply to the substituted defences the applicant says Sheraz currently holds 416,902 shares in the capital of Vegas on trust for him.  He also pleads to other factual matters concerning the alleged representations. 

EVIDENCE RELATING TO DOCUMENTS FOR WHICH DISCOVERY IS SOUGHT

14                        In these circumstances, the respondents seek discovery for materials produced at/or resulting from the Family Court proceedings involving the applicant that relate to the value of the shares in Vegas held by Sheraz.

15                        In support of their applications, the respondents filed affidavit evidence.

16                        Ms Kailee Michelle Brown, solicitor, deposed in an affidavit sworn 17 August 2009, and filed on behalf of Vegas, that through Mr Geoff Backshall, Chief Executive Officer of Vegas, she was informed and believed that Mr Backshall was subpoenaed to give evidence in the Family Court proceedings regarding the applicant's shareholding in the first respondent, that the applicant filed evidence regarding his investment in Vegas and that the Family Court made orders in respect of the applicant's shareholding in Vegas.

17                        Mr Rodney Desmond Hart, the second respondent in the proceedings and a director of Vegas, deposed in an affidavit sworn 25 August 2009 that he believed that "affidavit and other similar materials, evidence and documents in the Family Court are relevant to matters in issue in the within proceedings and are presently in or have been in the possession, custody or power of the applicant". Mr Hart deposed that the applicant gave evidence in an affidavit in the Family Court concerning the process by which he came to acquire an interest in shares in Vegas and his subsequent involvement in Vegas and dealt with issues concerning:

a)         how the applicant funded his purchase of shares in Vegas;

b)         how he paid for the shares;

c)         the due diligence he conducted and advice obtained;

d)         allegations of pre-investment representations made by Vegas;

e)         his pre-investment knowledge of the Vegas business and of the "Rusty brand" and how he obtained that knowledge;

f)          his pre-investment understanding of Vegas' ability to obtain the global master licence for the "Rusty brand" and the royalty stream associated with this licence;

g)         the valuation methodology that was applied to his share purchase in Vegas; and

h)         information in relation to Vegas' net profit, royalties and dividends for 2002 to 2006 inclusive.

18                        Mr Anthony David Bereyne, partner of Jackson McDonald, who has the conduct of this matter on behalf of the second and third respondents, in an affidavit sworn on 7 September 2009, deposed that on 2 September 2009 the Family Court gave leave for the respondents to rely upon Family Court transcripts in these proceedings.  Mr Bereyne attached to his affidavit copies of transcript of the proceedings and minutes of proposed orders filed by the applicant in the Family Court proceedings. 

19                        In written and oral submissions the second and third respondent's took the Court to transcripts of the proceedings in the Family Court, which highlighted the existence of the applicant's trial affidavit discussed in Mr Hart's affidavit, the lengthy cross‑examination conducted in relation to the affidavit, and the existence of an expert report which the applicant obtained in relation to the capacity for shares in Vegas to be valued that he had sought, unsuccessfully, to tender in the hearing of Family Court proceedings.

APPLICANT’S GROUNDS OF OPPOSITION

20                        The applicant opposes the respondents' applications on four grounds:

·    They are premature.

·    They rely upon the respondents' current uncured breach of the rule in Harman v Secretary of State for Home Department [1983] AC 280. 

·    They do not meet the O 15, r 2(3) test.

·    They are a "fishing" expedition.

21                        I will now consider each of these points in turn.

PREMATURITY ISSUE

22                        Counsel for the applicant initially submitted that the applications are premature because the pleadings did not close until one week after these applications were filed.  He added that the further programming orders proposed in the applicant's minute of directions make provision for further discovery by all parties on the issues now drawn from the pleadings in line with the obligations of O 15 subject to the limitations contained in O 15, r 2(3).

23                        I do not accept that the applications are premature. Both parties earlier provided discovery by affidavit in April 2009 and if there are further relevant documents that should have been discovered previously they should be discovered now.  The Court may now make an order for discovery of particular documents under O 15, r 8. 

24                        Counsel for the applicant also appeared to submit that the discovery applications were premature because the respondents appeared to have, or to have access to, the documents, or some of the documents, or the information contained in documents, used in or emanating from the Family Court proceedings.  In my view, that is a speculative submission.  The allied submission, as I understood it, of counsel for the applicant that until such time as solicitors or counsel for the respondents can show they are disadvantaged by not having the primary documentation in their possession, discovery is premature, simply defies the purposes for which discovery is, when ordered, properly ordered.  In this case, if the applicant has relevant documents then they ought to be discovered and there is no well‑founded prematurity argument.

IMPLIED UNDERTAKING ISSUE

25                        The applicant also submits that the respondents' applications rely upon the respondents' current uncured breach of the rule in Harman v Secretary of State for Home Department [1983] AC 280.   In effect the applicant argued that the material that the respondents seek to rely upon is material that is subject to an implied undertaking not to use documents for a collateral purpose and therefore cannot be relied upon without the leave of the court in which the documents were filed.

26                        The respondents submit four points in reply to the applicant’s submissions:

·          Discovery and inspection are separate.

·          The public domain exception to the implied undertaking rule applies in this case.

·          This Court has the power to grant leave for the Family Court documents to be used in these proceedings.

·          Even with the existence of an implied undertaking, this Court can still order discovery of the documents.

27                        I accept the respondents’ submissions in relation to the above points, for the reasons outlined below. 

28                        The implied undertaking rule does not prevent the applicant filing an affidavit stating whether the documents or any documents of that class are in his possession, custody or power and, if they have been, when he parted with them. The respondents submit that this is all they are wanting from the applicant.  As a result the question then becomes whether there is some ground to protect that material.  I note and agree with the observations of McLure J in Geneva Finance Ltd (Receiver and Manager Appointed) v Boys & ors [2001] WASC 348 at [29] – [30]:

Wherever be the outer limits of the scope of the implied undertaking, the principle relates to the disclosure or use of the contents of the document, not to the existence of the document.  That being the case, the implied undertaking does not prevent a party from describing it (sufficiently to enable it to be identified) in the party's list of documents.  Adequate description is required of documents for which privilege or other protection from production is claimed, but not such a description as would enable the opponent to discover the contents of the documents (citation omitted). 

29                        The respondents submit there has been no breach of an implied undertaking because the documents sought by the applications were tendered in evidence in the Family Court proceedings and the applicant was subject to extensive cross examination on the affidavit.  This indeed seems to be the case, at least in relation to the transcript of the hearing of the Family Court and relevant tendered evidentiary material that touches on the valuation of the shares issued.  Whether or not the expert accounting report referred to by Mr Bereyne, which apparently was unsuccessfully tendered by the applicant, is subject to an implied undertaking is to be doubted, given it was apparently not created pursuant to any compulsive process of the Family Court or otherwise.  Whether it is otherwise protected from ultimate disclosure is an issue not currently before me.  As a result, it seems to me the documents in question fall under the "public domain" exception to the implied undertaking rule: see Hearne v Street (2008) 235 CLR 125; Esso Australia Resources Ltd v Plowman (1995) 183 CLR 10 at 32 -33; Hanneybel v Uniflex (Australia) Pty Ltd [2002] WASCA 349 at [56]; British American Tobacco Services v Cowell [2003] 8 VR 573 at [47]; Australian Securities and Investment Commission v Marshall Bell Hawkins Ltd [2003] FCA 833. 

30                        Even without the existence of the public domain exception, this Court has the power to grant leave for the documents used in the Family Court proceedings to be used in this Court: see Jarra Creek Central Packing Shed Pty Ltd v Amcor Ltd [2008] FCA 391; Holpitt Pty Ltd v Varimu Pty Ltd (1991) 29 FCR 576; Griffiths v Duggan (No 2) [2008] VSC 230.  In Griffiths at [7] and [8], the Court noted:

Whether a document which is subject to an implied undertaking can be used by a party in subsequent proceedings is a matter that may potentially impinge upon the integrity and authority of two sets of judicial processes.  That situation is quite different from the case where the subsequent use of a document obtained with an implied undertaking restricting its use is subject only to the continuing authority of the court which first compelled its production.  In that case the party wishing to use the document can only do so if permitted by the court to which the implied undertaking is given.  That is not this case.  Nor is this a case in which the use of Mr Lin's affidavit may adversely impact upon my hearing and consideration of the issues in dispute before me: that dispute is finalised on all issues except costs.           

Whether it should be used in the second proceeding is a question which is best dealt with by the judge in the second proceeding. 

31                        Further, the implied undertaking does not prevent or diminish the enforcement of discovery or the compulsion to discover documents used in another court: see Patrick v Capital Finance Pty Ltd (No 4) [2003] FCA 436 at [21].  Unless there is something in the Federal Court Act that limits the power of this Court to order discovery in these circumstances, the power may be exercised.  As explained by Mason CJ in Esso Petroleum v Plowman at 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.  

 In Griffiths at [4] and [5] the Court also observed:

I accept that the affidavit of Mr Lin was received by the plaintiffs, and their lawyers, with an implied undertaking that it not be used for purposes other than the proceeding before me, but I am not persuaded that its use by the plaintiffs in either the winding up proceeding or the debt recovery proceeding needs them to obtain a release.  The implied undertaking does not diminish the authority or power of the court in other proceedings and 'must give way to any inconsistent statutory provision and to orders of a court in other proceedings for discovery and inspection' … The court hearing the winding up proceeding or the debt recovery proceeding has full power and authority to ensure that its decision is reached by reference to all material that is necessary and probative in the discharge of its jurisdiction and powers. 

The implied undertaking cannot restrict or fetter, and was not stated as a restriction or fetter, on a court's power in relation to its own processes in proceedings properly instituted before it.

32                        For these reasons, I reject the applicant’s submission that this Court is not empowered to or should not order the discovery of the Family Court documents sought by the respondents because of an "uncured breached" of the implied undertaking rule.  They are patently relevant to the share value issue and should be discovered.

33                        To the extent such documents are not in the “public domain” they are relevant and should be discovered.

ORDER 15 RULE 2(3) TEST AND "FISHING EXPEDITION"

34                        Order 15, r 2(3) of the Federal Court Rules 1979 (Cth), entitled "Discovery on notice" states:

         (3)   Without limiting rule 3 or 7, the documents required to be disclosed are any of the following documents of which the party giving discovery is, after a reasonable search, aware at the time discovery is given:

                (a)    documents on which the party relies; and

                (b)    documents that adversely affect the party’s own case; and

                (c)    documents that adversely affect another party’s case; and

                (d)    documents that support another party’s case.

35                        The applicant submits that the documents the respondents seek can do no more than "lead to a train of enquiry which may directly or indirectly enable the Respondents to advance their case and are, in any event vague and oppressive" and that this is insufficient to make them discoverable under O 15, r 2(3). The applicant also submitted that the orders sought by the respondents "at the very least is a 'fishing' exercise" and that the Court therefore should not assist the respondents by making the documents available for discovery.   

36                        The respondents submit that the present applications are for orders for discovery under O 15, r 8.  They do not apply under O 15, r 2(3).  Order 15, r 8 entitled "Order for particular discovery" states: 

Where, at any stage of the proceeding, it appears to the Court from evidence or from the nature or circumstances of the case or from any document filed in the proceeding that there are grounds for a belief that some document or class of document relating to any matter in question in the proceeding may be or may have been in the possession, custody or power of a party, the Court may order that party:

(a)     to file any affidavit stating whether that document or any document of that class is or has been in his possession, custody or power and, if it has been but is not then in his possession, custody or power, when he parted with it and what has become of it; and

(b)     to serve the affidavit on any other party.

37                        Order 15, r 8 provides a separate right of discovery from the right to general discovery, being a right to particular discovery of a document or class of document: see Murex Diagnostics Australia Pty Ltd v Chiron Corporation (No 2) (1995) 62 FCR 424 at 430.   It is also wider, given the wording "some documents or class of documents relating to any matter in question" (emphasis added).   A document which relates in some way to a matter in issue is discoverable, but it is sufficient if it would, or would lead to a train of inquiry which would, either advance a party's own case or damage that of their adversary: see Mulley v Manifold (1959) 103 CLR 341 per Menzies J at 345. 

38                        The Court considers that the documents are directly relevant to the proceedings in this Court for the following reasons:

·          The respondents deny the alleged representations leading up to the acquisition and given that the applicant's evidence in the Family Court relates to this issue it is directly relevant to these proceedings. 

·          They are relevant to the value of the shares.  Any documents that reveal that the applicant relied upon matters other than the representations in purchasing the shares are directly relevant and ought to be discovered.  As the counsel for the second and third respondents state in their written submissions, s 82(1B) of the Trade Practices Act 1974 (Cth) permits the Court to reduce the damages to be awarded under s 82 to the extent that the Court thinks just having regard to the extent of the applicant's share of responsibility for such loss and damage. 

39                        I am satisfied that the Family Court documents, in particular the affidavit evidence filed by the applicant in the Family Court proceedings,  relate to the issues in question in this case. The submission by the applicant that this is a "fishing exercise" is without merit.   In my view, the documents the subject of the discovery application, are directly relevant to a matter in issue in this proceeding.

CONCLUSION

40                        The respondents have provided evidence to suggest that the Family Court documents exist and that they are relevant to these proceedings.  The Court is therefore satisfied that continuing discovery on oath of all relevant documents should be given, including:

  (a)   all documents and evidence filed in the Family Court of Australia proceedings PTW 5416 of 2006 between the applicant and Ms Corsbie relating to the acquisition in December 2006 by the applicant or Sheraz Pty Ltd of shares in the first respondent (Shares) including the events leading up to the acquisition of the Shares; and

(b)     all documents and evidence filed in the Family Court of Australia proceedings PTW 5416 of 2006 between the applicant and Ms Corsbie relating to the value of the Shares.

41                        The question of costs in relation to both these applications is reserved. 

42                        I would also order that the parties lodge a minute of proposed programming orders by Thursday 10 September 2009 at 4pm.

Associate:

Dated:         26 October 2009