FEDERAL COURT OF AUSTRALIA

Anglo Coal (Dawson Management) Pty Ltd v Greig [2011] FCA 941

THE COURT ORDERS THAT:

The respondents make discovery to the applicant of the following documents in their possession, custody or control by producing those documents for inspection by the solicitors for the applicant within 14 days:

(a)    all correspondence, emails, file notes and memoranda created on or after 30 March 2009 referring to, or constituting, communications passing between:

(i)    the first respondent and the second respondent;

(ii)    the first or second respondent on the one hand and employees of Deloitte Touche Tohmatsu on the other;

(iii)    the first respondent, second respondent or any employee of Deloitte Touche Tohmatsu on the one hand and any officer or employee of HMP Constructions Pty Ltd (HMP) on the other;

(iv)    the first or second respondent on the one hand and a receiver and manager of HMP’s property on the other; or

(v)    the first or second respondent on the one hand and a creditor of HMP having security over a Hitachi EX5500 hydraulic excavator having serial number 18B00V00000534 (the Excavator) on the other;

and which relate to:

(vi)    the first respondent’s or second respondent’s intentions to cause HMP to make use of the Excavator;

(vii)    demobilisation of the Excavator;

(viii)    obtaining payment from the applicant of a demobilisation charge for the Excavator;

(ix)    the approach to be taken in the event the applicant did not pay the demobilisation charge;

(x)    a sale, or possible sale, of the Excavator; or

(xi)    the obtaining or taking of possession of the Excavator from the applicant;

(b)    any document having a tendency to prove or disprove the proposition that from 6 to 10 April 2009 there were reasonable grounds for the respondents to believe that HMP was ready, willing and able to demobilise the Excavator;

(c)    any document having a tendency to prove or disprove the proposition that from 6 to 10 April 2009 there were reasonable grounds for the respondents to believe that HMP would demobilise the Excavator.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

1    This is an application for pre-action discovery pursuant to O 15A r 6 of the Federal Court Rules (as they were prior to 1 August 2011).

2    Anglo Coal (Dawson Management) Pty Ltd (“the applicant”) seeks the following orders and documents:

1.    An order that the respondents make discovery to the applicant of the following documents in their possession, custody or control by producing those documents for inspection by the solicitors for the applicant within 14 days:

a.    All correspondence, emails, file notes and memoranda created on or after 30 March 2009 referring to, or constituting, communications passing between:

i.    The first respondent and the second respondent;

ii.    The first or second respondent on the one hand and employees of Deloitte Touche Tohmatsu on the other;

iii.    The first respondent, second respondent or any employee of Deloitte Touche Tohmatsu on the one hand and any officer or employee of HMP Constructions Pty Ltd (HMP) on the other

iv.    The first or second respondent on the one hand and a receiver and manager of HMP’s property on the other; or

v.    The first or second respondent on the one hand and a creditor of HMP having security over a Hitachi EX5500 hydraulic excavator having serial number 18B00V00000534 (the Excavator) on the other

and which relate to

vi.    The first respondent’s or second respondent’s intentions to cause HMP to make use of the Excavator;

vii.    Demobilisation of the Excavator

viii.    Obtaining payment from the applicant of a demobilisation charge for the Excavator

ix.    The approach to be taken in the event the applicant did not pay the demobilisation charge’

x.    A sale, or possible sale, of the Excavator; or

xi.    The obtaining or taking of possession of the Excavator from the applicant.

b.    Any document having a tendency to prove or disprove the proposition that from 6 to 10 April 2009 there were reasonable grounds for the respondents to believe that HMP was ready, willing and able to demobilise the Excavator.

c.    Any document having a tendency to prove or disprove the proposition that from 6 to 10 April 2009 there were reasonable grounds for the respondents to believe that HMP would demobilise the Excavator.

Background

3    The background facts to this application are not in dispute. I take many of the following facts from the affidavit filed 18 February 2011 of Ms Regina Allison, an employee of the applicant.

4    The applicant operates a coal mine in the Dawson Valley in central Queensland. At all material times HMP Constructions Pty Ltd (“HMP”) owned a Hitachi EX5500 Hydraulic Excavator (“the Excavator”).

5    Since 16 September 2009 the respondents have been liquidators of HMP. Prior to that date they were administrators of HMP pursuant to Pt 5.3A of the Corporations Act 2001 (Cth) (“the Corporations Act”).

6    On 9 August 2007 the applicant and HMP entered into an Equipment Rental Agreement (“the rental agreement”) whereby the applicant leased the Excavator from HMP.

7    Clause 6 of the rental agreement provided for a demobilisation charge of $355,000 plus GST in respect of the Excavator. Clause 6 also provided that the applicant nominate the locations on the relevant site where HMP would mobilise and demobilise the Excavator.

8    Clause 18 of the rental agreement provided, inter alia, that:

The Owner shall be entitled to store the machine at a suitable and accessible all-weather location on site for a period of at least 6 months at the end of the hire period and shall also be entitled to access the machine for inspection and demobilisation purposes during this period at no cost. The Owner must provide the Hirer reasonable notice of its intention to access the site.

9    On 18 December 2008 the applicant terminated the rental agreement by a letter to HMP. On 23 December 2008 HMP accepted the applicant’s termination of the rental agreement.

10    On 28 January 2009 HMP submitted an invoice marked D018 to Anglo Coal for $735,838.52 in respect of the Excavator. The invoice claimed:

    $302,872.66 in respect of the hire of the Excavator;

    $355,000.00 in respect of “Demobilisation”;

    $11,072.45 in respect of “CPI Rises (0.795% as at 28/2/09 & 2.324% as at 28/8/08) on Demobilisation as per rental agreement”;

    $66,894.41 in respect of GST payable on the sub-total.

11    The applicant did not pay this invoice.

12    On 31 March 2009 the respondents were appointed as administrators pursuant to Pt 5.3A of the Corporations Act. At the same time different insolvency practitioners were appointed as receivers and managers of HMP’s assets by secured creditors of HMP including National Australia Bank.

13    On 6 April 2009 Mr Lovett (a manager and the company secretary of HMP) rang Mr Ulziidamba of the applicant. In that conversation Mr Lovett informed Mr Ulziidamba that HMP required urgent payment of invoice D018, and Mr Ulziidamba informed Mr Lovett that, in order to process payment quickly, HMP should deliver one invoice for the demobilisation costs and hire charges, and a separate invoice for the CPI component. On the same day Mr Lovett emailed invoices D019 and D020 to Mr Ulziidamba. In the email, Mr Lovett wrote as follows:

As discussed please find attached two invoices D019 and D020 which now replace the cancelled D018 invoice.

I have separated the CPI portion so that we can further discuss this and get it correct. D019 is for the hours and demobilisation which is correct.

Can you kindly advise when D019 can be paid as I am to advise the Administrators asap.

14    Relevantly, invoice D019 claimed the amount of $723,658.83, being:

    $302,871.66 in respect of the hire of the Excavator;

    $355,000.00 in respect of “Demobilisation”;

    $65,787.17 in respect of GST payable on the sub-total.

15    On 10 April 2009 the applicant paid invoice D019 to HMP. Ms Allison deposed in her affidavit that the applicant did this on the basis that it believed HMP would only submit an invoice for demobilising the Excavator if HMP were ready, willing and able to, and intended to, demobilise the Excavator. Ms Allison deposed that if the applicant had known that HMP was not ready, willing and able to, or did not intend to, demobilise the Excavator, the applicant would not have paid the demobilisation charge.

16    On 20 May 2009 the respondents gave a notice to the National Australia Bank to the effect that they did not intend to exercise any rights with respect to the Excavator. The applicant was not aware of the notice at that time.

17    HMP entered liquidation on 16 September 2009 and the respondents were appointed liquidators.

18    On 5 October 2009 the applicant was informed by Leighton Contractors Pty Ltd (“Leightons”) that it had purchased the Excavator from the receivers and managers of HMP. Leightons subsequently arranged for the demobilisation of the Excavator.

19    In her affidavit, Ms Allison deposed that HMP had misled the applicant by submitting an invoice for a demobilisation charge when there was no reasonable basis for supposing HMP would be carrying out that demobilisation. Ms Allison also deposed that without pre-action discovery, the applicant cannot properly assess the degree of involvement of the respondents in causing HMP to solicit payment for demobilisation of the Excavator.

20    In short, the applicant believes that the respondents have documents relevant to:

    whether the respondents had reason to believe that HMP was in a position to perform the rental agreement according to its terms by demobilising the Excavator;

    events which would have occurred if payment of the demobilisation charge had not been made; and

    the extent to which the respondents were involved in causing HMP to seek payment of the demobilisation charge from the applicant on 6 April 2009.

Order 15A rule 6 of the Federal Court Rules

21    Order 15A rule 6 provided as follows:

6 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).

The cases before me

22    In summary, the applicant submits as follows:

    On true construction of the rental agreement, the applicant was not obliged to pay the demobilisation charge to HMP if HMP was not able or prepared to demobilise the Excavator. To that extent the obligation of the applicant to pay the demobilisation charge to HMP, and the obligation of HMP to demobilise the Excavator, were interdependent obligations.

    By billing the applicant for the demobilisation charge, HMP represented to the applicant that it was able to demobilise the Excavator.

    The applicant would not have paid invoice D019 if it had known that HMP did not intend to or was not in a position to demobilise the Excavator.

    Mr Lovett’s email suggests that he was giving invoice D019 to the applicant at the direction of the respondents.

    Information received by the applicant suggests that the respondents actually received the moneys paid by the applicant on invoice D019.

    The notice given by the respondents to the National Australia Bank suggests that, as at 20 May 2009 after receiving the payment by the applicant, the respondents had no intention of demobilising the Excavator.

    The events lead the applicant to suspect that it might have a good action for damages against the respondents under s 82 of the Trade Practices Act 1974 (Cth) (“the Trade Practices Act”) for having been involved in a contravention by HMP of s 52 of the Trade Practices Act. To maintain such an action against the respondents however, the applicant needs to establish that the respondents were involved in HMP making the representation that it would demobilise the Excavator.

    The applicant wants to obtain documents which show whether one or both of the respondents had involvement in making the relevant representation by HMP, and to obtain documents which show whether HMP or one or both of the respondents had reasonable grounds for making the relevant representation. When the applicant has the opportunity to examine the documents it seeks it will be in a position to decide whether it has a good cause of action against one or both of the respondents.

    The applicant meets all requirements of O 15A r 6.

23    In turn, the respondents submit that the applicant’s argument is fundamentally flawed in at least three respects:

1.    It depends on the contention that the respective obligations of the applicant and HMP were interdependent. In fact, on a proper construction of the rental agreement the applicant was obliged, in return for the hire of the Excavator, to pay the demobilisation charge in addition to hourly use charges and an amount described as the “mobilisation charge”. Clause 18 of the rental agreement does not support the existence of a personal promise by HMP. In any event it may be inferred that the price HMP obtained for sale of the Excavator took account of the cost of dismantling and removal, and that if the applicant had not paid the demobilisation charge it would have obtained a benefit that it did not contract to receive (namely the benefit of the Excavator being removed from its mine site by Leightons at no cost at all).

2.    The applicant’s material falls far short of demonstrating a basis for the applicant having reasonable cause to believe that the respondents, who are professional men appointed initially as administrators and subsequently as liquidators of HMP, intentionally participated in an alleged contravention of the Trade Practices Act by HMP.

3.    On the material produced by the applicant, the applicant does not satisfy the elements of O 15A r 6(b) or (c).

Consideration

24    Rule 6 gives discretion to the Court to make orders requiring discovery prior to the commencement of proceedings. It has been the subject of extensive scrutiny in this Court including in the Full Court (for example Telstra Corporation Ltd v Minister for Broadband, Communications and the Digital Economy (2008) 166 FCR 64, Hooper v Kirella Pty Ltd [1999] FCA 1584, Caltex Refining Co Pty Limited v Amalgamated Metal Workers Union [1990] FCA 483). Helpful principles to assist the Court in exercising its discretion have been developed in a number of cases. In particular, I note that:

    Rule 6 permits an application for what otherwise would be termed “fishing”: Caltex per Burchett J, MacDonald v Department of Employment and Workplace Relations [2003] FCA 631 at [25], C7 Pty Ltd v Foxtel Management Pty Ltd [2001] FCA 1864 at [39].

    an applicant must satisfy each of the three conditions specified in paras (a), (b) and (c) of O 15A r 6 in order to obtain an order for information discovery: Hooper at [35].

    Rule 6(a) and r 6(c) pose an objective test, the opening words “there is” in each paragraph signifying “there exists”; but the “insufficiency test” of r 6(b) has both subjective and objective aspects. The test posed by r 6(a) is whether there is reason to believe that the applicant has or may have the right to obtain relief from the prospective respondent: Hooper at [39], Minister for Health & Aged Care v Harrington Associates Ltd [1999] FCA 549 at [28], Alphapharm Pty Limited v Eli Lilly Australia Pty Limited [1996] FCA 1500 at 41, MacDonald at [25].

    In respect of r 6(a) it is not necessary for the applicant to prove that it has a prima facie case or for the Court to come to an affirmative conclusion that an applicant is likely to succeed to warrant an order under the rule. It is sufficient to say that there is reasonable cause for the belief that the applicant may have a right to obtain relief. It is not sufficient however for the applicant to merely assert the existence of a case: WR Pateman Pty Limited v Walker Corporation Pty Limited [1990] FCA 26 at [20], St George Bank Ltd v Rabo Australia Ltd (2004) 211 ALR 147 at [26], [29], CCA Beverages (Adelaide) Ltd v Hansford (unreported O’Loughlin J, 15 November 1991), C7 Pty Ltd v Foxtel Management Pty Ltd [2001] FCA 1864 at [39], Telstra Corporation at [58].

    Rule 6(b) contemplates that after making all reasonable inquiries, the applicant has come up against a problem, namely, that it is lacking a piece of information or pieces of information reasonably necessary to enable it to decide whether to commence a proceeding: Alphapharm at 41.

    Rule 6(c) may be satisfied by the drawing of inferences as to the nature of documents that a particular entity may have in its possession. However, it must be possible to identify specific issues for which documents that a respondent may have in its possession are likely to be relevant: Benchmark Certification Pty Ltd v Standards Australia International Ltd (2004) 212 ALR 464 at [6].

    Rule 6 should be beneficially construed and given the fullest scope that its language will reasonably allow: Paxus Services Ltd v People Bank Pty Ltd (1990) 99 ALR 728 at 733, Glowatzky v Insultech Group Pty Ltd (1997) 39 IPR 215 at 220-221, Hooper at [35], C7 at [39], Aitken v Neville Jeffress Pidler Ltd (1991) 33 FCR 418 at 422.

25    The submissions of the parties do not indicate any fundamental disagreement as to the relevant principles. Rather, the parties disagree as to whether on the facts the applicant has satisfied the conditions specified in O 15A r 6(a), (b) and (c).

26    In my view, once all relevant facts are presented and principles identified, the matter can be shortly determined.

Rule 6(a)

27    The possible claim of the applicant concerns alleged conduct of the respondents, accessorial to alleged misleading or deceptive conduct of HMP in breach of s 52(1) of the Trade Practices Act. The alleged conduct of the respondents is potentially an “involvement” in a contravention of s 52(1) for which the respondents would be liable for damages pursuant to s 82(1) of the Trade Practices Act.

28    I am satisfied that the applicant has reasonable cause to believe that it has or may have the right to obtain relief in the Court from the respondents pursuant to the Trade Practices Act. The applicant’s claim in this case goes beyond mere assertion.

29    First, such evidence as is before the Court in the form of the rental agreement supports a potential claim by the applicant that it was required to pay the demobilisation charge to HMP in return for HMP actually demobilising the Excavator, and that the obligations of the parties were, as submitted by the applicant, interdependent. To that extent, in my view, the applicant has reasonable cause to believe that there has been a contravention of s 52(1) of the Trade Practices Act. While I note the submissions of the respondents as to the construction of the rental agreement and the respondents’ claim that the obligations were, in fact, not interdependent, those submissions they do not persuade me that the applicant has failed to meet the standard required by r 6(a). I am also not persuaded, on the material before me at this stage of the proceedings, that the price paid by Leightons for the Excavator was referable to the cost of demobilisation.

30    Second, the respondents take issue with any possible claims against them of accessorial liability for contravention of s 52(1) of the Trade Practices Act. However there is evidence before the Court that Mr Lovett made specific reference to the respondents in his email correspondence concerning demobilisation, and that the respondents had indicated to National Australia Bank that they did not intend to exercise any rights with respect to the Excavator. I note the respondents’ submissions concerning their professionalism and the corresponding absence of a basis for the applicant having reasonable cause to believe that the respondents intentionally participated in an alleged contravention of the Trade Practices Act by the company. However I also note the submission of the applicant that the respondents have not sought to meet its claims with any denial on oath and that as a result the Court is entitled to draw inferences adverse to the respondents. In my view it is unnecessary and decidedly premature for me to express an opinion as to the professionalism of the respondents – which potentially goes to their credit – at this stage. However, I am also of the view that this submission of the respondents does not rebut the claim of the applicant in terms of r 6(a).

31    Final resolution of these issues will require presentation and consideration of further detailed evidence, which is currently neither before the Court nor required to be so. Indeed, to adopt the observation of Gyles J in C7 Pty Ltd v Foxtel Management Pty Ltd [2001] FCA 1864 at [39], which observations in my view are equally applicable in this case:

In my view, arguments of the length and elaboration on all sides on this application are not envisaged by or necessary in order to satisfy this rule. They would have done justice to a final hearing. A prima facie case does not have to be demonstrated.

Rule 6(b)

32    Next, I am satisfied that, 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 relief against the respondents.

33    Two questions arise in respect of r 6(b): first whether all reasonable inquiries were made by the applicant, and second whether the applicant does not have sufficient information to enable a decision to be made whether to commence a proceeding.

34    In respect of the first question, the respondents submit that the material before the Court does not disclose that the applicant has made reasonable inquiries, and that there is, for example, no evidence of inquiries of Mr Lovett. However, as Mr Wilkins for the applicant submitted at the hearing, there is evidence before the Court (in paragraph 21 of the affidavit of Mr Ian Bloemendal sworn 16 February 2011) that inquiries were made of Mr Lovett on 30 August 2010 by Mr Bloemendal, the solicitor for the applicant, but that no response has ever been received from Mr Lovett. Further, particulars of endeavours to obtain information from parties including the respondents themselves, their solicitors, the solicitors for the receivers and managers of HMP, and the receivers and managers themselves, are set out by Mr Bloemendal in detail in his affidavit. In my view the material before the Court does disclose that the applicant has made reasonable inquiries for the purposes of r 6(b).

35    In respect of the second question it is not in dispute that the applicant is, at this stage, undecided as to whether to commence proceedings against the respondents. Further, I accept that the description of the material sought by the applicant is such that it would assist it in making a decision.

36    In this case the respondents are liquidators of HMP, and in accordance with s 477 of the Corporations Act have authority in respect of the affairs of the company. To the extent that there is documentation in existence relating to their involvement in a possible breach by HMP of s 52(1) of the Trade Practices Act, that documentation is almost certainly to be in the respondents’ possession.

37    Further, and importantly, the documents sought by the applicant are limited by specific reference to communications between the first or second respondent and nominated parties concerning the Excavator and its demobilisation, sale, possession, or use by the respondents (paragraphs 1(a)(vi)-(xi) of the Application). In Telstra Corporation the Full Court said that r 6(b):

directs the application of the rule to documents relating to the question whether the applicant “has the right to obtain the relief”. In the ordinary course it would be expected that such documents would go to issues of liability. Even within that limitation [(b)] does not enliven the power to order preliminary discovery so that the applicant may acquire all documents in a prospective respondent's possession which are relevant to its prospective cause of action. (at [59])

38    I am satisfied that the classes of documents sought by the applicant go to issues of liability, and do not exceed the boundaries of information sufficient to enable the applicant to make a decision to commence proceedings.

Rule 6(c)

39    Finally, in my view there is reasonable cause to believe that the respondents have or are likely to have or 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. Given the authority of the respondents as liquidators (and previously, administrators) of HMP in respect of custody of company documentation, and the possibility of a claim against the respondents for involvement in a breach by HMP of s 52(1) of the Trade Practices Act, it could scarcely be in dispute that it is likely that the respondents have or have had documents necessary for the applicant to evaluate any right to relief, and that inspection would assist the applicant in making the decision to commence proceedings.

Conclusion

40    The respondents have submitted that, if an order for preliminary discovery is made in these proceedings, it should be limited to the extent of information that is necessary, but no more than that which is necessary, to overcome the insufficiency of information possessed by the applicant to enable a decision to be made whether to commence a proceeding against the them. I accept this submission – indeed it is consistent with comments of the Full Court of the Federal Court in Telstra Corporation to which I have referred earlier in this judgment. In my view the orders sought by the applicant fall within the parameters of O 15A r 6. I am prepared to make those orders.

41    I will hear submissions as to costs.

Associate:

Dated:    18 August 2011