FEDERAL COURT OF AUSTRALIA

Dennis v Chambers Investment Planners Pty Ltd [2012] FCA 63

THE COURT ORDERS THAT:

1.    The applicant’s application for particular discovery under R 20.21 of the Federal Court Rules 2011 (Cth) filed 6 December 2011 be dismissed.

2.    The applicant pay the respondent’s costs of the application to be taxed, if not agreed.

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

REASONS FOR JUDGMENT

application for further discovery

1    By interlocutory application filed 6 December 2011, the applicant seeks an order that the first respondent and the second respondent state by affidavit whether any and if so which of the following documents are or have been at any time in their possession, custody or power, and if not then in their possession, custody or power when they parted with them and what has become of them:

(1)    First respondent’s compliance manual(s) from 1999 to 2010.

(2)    A copy of a spreadsheet or other record of the commissions and trailing commissions paid to the first and second respondents as a result of the investments made on behalf of the applicant.

(3)    First respondent’s complaints register.

(4)    First respondent’s soft dollar register.

(5)    Second respondent’s authorised representative training register.

(6)    First respondent’s education requirements for advisors and ongoing supervision requirements.

(7)    Copies of audit reports conducted by the first respondent (or agent engaged by the first respondent) to assess client files and second respondent’s advice.

(8)    Financial services dealer guidelines relating to restrictions on transactions with clients.

(9)    Financial services dealer group licence specifying conditions placed upon advice.

2    The respondents oppose the application, submitting ultimately that none of the categories of documents are relevant to an issue raised by the pleadings in this proceeding.

the proceedings

3    In this proceeding the applicant seeks to recover damages or compensation in relation to advice he says he received from the respondents that he alleges was inappropriate given the applicant’s then financial circumstances and as a result of which he acquired certain securities, mainly tax effective managed scheme interests. The applicant says the advice was given in breach of obligations that the respondents owed him arising in contract, tort, in equity, under the Corporations Act 2001 (Cth) (Corporations Act) or under the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act).

4    By the pleadings, the respondents admit that some obligations are owed but do not admit they were breached. The respondents put the applicant to proof that advice given did not meet requisite standards.

5    The applicant says therefore he must prove that the advice given differed from advice expected from reasonable observance of the obligations or norms of behaviour expected of advisers in the position of the respondents.

6    The respondents also deny the damages pleaded by the applicant. However, the respondents agree that any assessment of damages that may be required will require a consideration of the residual value of the investments made and that this will necessarily involve an assessment of the actual underlying business proposition from which a return was expected.

discovery to date

7    In March 2011, in accordance with an order of the Court made under the Federal Court Rules 1979 (Cth) (the old Rules), the respondents gave discovery of documents to the applicant. The list of documents provided did not include the documents in respect of which further discovery is now sought.

8    By affidavit filed 6 December 2011, Catherine Louisa Sadleir, solicitor employed by the applicant’s solicitors, says that by reason of her experience with similar matters she believes that the first respondent’s compliance manual must exist as it is a document prepared for and retained by the holder of an Australian Financial Services Licence (AFSL) under the ASIC Act. She notes that by its defence the first respondent admits that it was at material times the holder of an AFSL (or its predecessor), engaged in conduct defined pursuant to the Corporations Act and the ASIC Act, and is responsible for the conduct of the second respondent. Ms Sadleir says that despite requests the document has not been provided.

9    Ms Sadleir further states in her affidavit that the applicant has engaged an expert financial planner for the purpose of giving opinion evidence at trial and the expert has asked to see the documents the subject of the further discovery application in order to express an opinion. Ms Sadleir says that she understands from the expert and believes these categories of documents are usually retained by financial advisors and that the Australian Security and Investments Commission (ASIC) recommends that they be kept by an AFSL holder to ensure compliance with the requirements of the ASIC Act and the Corporations Act.

10    The applicant then says that having regard to the matters in issue on the pleadings, and the request of the expert, whose opinion cannot be finalised until the documents are provided, the Court should order the discovery of these documents.

position of the respondents

11    The respondents in resisting further discovery raise a number of issues, including the lack of clarity as to which rule of the Federal Court Rules 2011 (Cth) (the Rules or new Rules) the further discovery application is made under, the fact that the statement of claim, while the subject of the foreshadowed amendment, has not been amended and that there is no requirement in giving “standard discovery” under the Rules to discover documents in the categories now identified or generally as they are not relevant to any issue.

12    The question of the state of the pleadings largely ceased to be an issue when, prior to the oral argument of the parties on the discovery issue, I allowed the applicant to amend the statement of claim in accordance with its minute of proposed amendment. However, the respondents maintain that the form of the pleading subsequent to amendment continued to raise pleading issues relevant to their discovery obligations, an issue to which I will return.

discovery and the new rules

13    The respondents say that the application for further discovery appears to be made pursuant to R 20.21 of the Rules. However, before so concluding it is appropriate to have regard to the general scheme by which discovery may occur under Div 20.2, in which division R 20.21 appears.

14    The first rule in Div 20.2 is R 20.11, which states the basic principle that a party must not apply for an order for discovery unless the making of an order will facilitate the just resolution of a proceeding quickly, inexpensively and efficiently. This principle reflects the overarching purpose of civil practice and procedure of the Court stated in s 37M of the Federal Court of Australia Act 1976 (Cth) (FCA Act). See generally Alanco Australia Pty Ltd v Higgins (No 2) [2011] FCA 1063, Coca-Cola Company v Pepsico Inc [2011] FCA 1069 and Construction, Forestry, Mining and Energy Union v BHP Coal Pty Ltd (No 2) [2011] FCA 1396.

15    The intent of the Rules to prevent unnecessary discovery is emphasised by R 20.12 which provides that a party must not give discovery unless the Court has made an order for discovery.

16    By R 20.13, a party may apply to the Court for discovery and when doing so must state whether it is seeking “standard discovery” or state “the proposed scope of the discovery”.

17    However, the new Rules did not apply when the discovery in this proceeding was ordered in February 2011, and discovery was given under the old Rules which did not provide for “standard discovery”.

18    The concept of “standard discovery” is developed in R 20.14(1) of the Rules, which provides that if a party is required to give standard discovery it must give discovery of documents:

(a)    that are directly relevant to the issues raised by the pleadings or in the affidavits; and

(b)    of which, after a reasonable search, the party is aware; and

(c)    that are, or have been, in the party’s control.

(“Control” is defined in the Sch 1 Dictionary to mean “possession, custody or power”.)

19    By R 20.14(2), “for R 20.14(1)(a)”, (that is the “directly relevant” test) the documents “must meet at least one of the following criteria”:

(a)    the documents are those on which the party intends to rely;

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

(c)    the documents support another party’s case;

(d)    the documents adversely affect another party’s case.

20    Standard discovery, being controlled by the “directly relevant” test, is intended, therefore, to be more limited in scope then discovery under the “train of inquiry” test derived from the decision of the English Court of Appeal in The Compagnie Financiere et, Commerciale du Pacifique v The Peruvian Guano Company (1882) 11 QBD 55 (Peruvian Guano).

21    In Peruvian Guano, Brett LJ considered the scope of discovery under a rule that required discovery of “a document relating to any matter in question in the action”. His Lordship expressed the view that every document relates to the matters in question in the action, which not only would be evidence upon any issue, but also which contains information “which may – not which must – either directly or indirectly enable the party… either to advance his own case or to damage the case of his adversary”. His Lordship said he used the words “either directly or indirectly” because a document can properly be said to contain information which may enable the party either to advance his or her own case or to damage the case of his or her adversary, “if it is a document which may fairly lead him to a train of inquiry, which may have either of these two consequences”.

22    The test laid down by Brett LJ, with which Baggallay LJ at 59-60 agreed – was thereafter known as the Peruvian Guano test for discovery and prevailed for many years in Australia. However, the “train of inquiry” aspect of the test gradually, over time, attracted much criticism. The basic complaint was that, particularly in complex litigation, it justified demands for discovery of great volumes of material that were only of marginal relevance to a matter in issue, at great expense to the parties, and which caused unnecessary delay in proceedings.

23    The survey and recommendations in Ch 6 “Getting to the truth earlier and easier”, of the Victorian Law Reform Commission, Civil Justice: Review Report, Report No 14 (2008), is illustrative of the modern Australian critique. At [5.1], the Commission considered that a narrower test of “direct relevance to any issue in dispute” would better focus the minds of the parties on the parameters of discovery and encourage cultural change, acknowledging however that such a test may not necessarily reduce the time and expense involved in the discovery process. This and similar suggestions for reform have been acted upon nonetheless in many Australian jurisdictions and are reflected in the discovery rules in Div 20.2 of the new Rules of this Court.

24    The scope of documents “directly relevant to the issues raised by the pleadings or in the affidavits” under R 20.14(1)(a) is not necessarily a narrow one, or not as narrow perhaps as one might instinctively think it is intended to be if it has been introduced an antidote to the Peruvian Guano “train of inquiry” test. This may be demonstrated by reference to R 58A of the Supreme Court Rules 1987 (SA) (SA Rules), as it applied at material times (see now R 136 and R 139 of the Supreme Court Civil Rules 2006 (SA)), and its subsequent interpretation by the Supreme Court of South Australia.

25    Rule 58A.03 provided:

The parties must discover in their lists of documents, but discover only, the documents which are or have been in their possession, custody or power which are directly relevant to any issue arising on the pleadings.

Unlike R 20.14(2) of the new Rules of this Court, R 58A.03 did not further provide that the documents must meet at least one of certain listed criteria.

26    In Channel Seven Adelaide Pty Ltd v Lane & Hurley [2004] SASC 177 (Channel Seven Adelaide), the Full Court of the Supreme Court of South Australia had occasion to reflect on the effect of R 58A.03. Justice Duggan (with whom Mullighan and Nyland JJ agreed) approved a number of first instance observations made by other judges of the Supreme Court of South Australia concerning R 58A.03. In particular, Duggan J noted and approved the following judicial observations:

    First, what Bleby J said in Southern Equities Corporation Ltd (In Liquidation) v Arthur Andersen & Co (No 5) [2001] SASC 335 at [10], namely:

I doubt whether that qualification [that the documents must be ‘directly relevant’] effectively narrows, for the purposes of discovery, ordinary concepts of relevance for the purpose of admissibility into evidence. In my opinion, it cannot mean, if the document is not itself proof of a fact in issue but is merely a piece of circumstantial evidence tending, along with other evidence, to prove the fact in issue, that it is not discoverable. Many a case is provable and in fact proved by circumstantial evidence, including documents. I note that a similar view was expressed by Demack J in Robson v REB Engineering Pty Ltd (1997) 2 Qd R 102 at 104 - 105 in respect of a similar rule in Queensland. The Rule cannot be allowed to govern in practice the admission of documents into evidence merely because they have not been revealed in the discovery process.

What the qualification does reinforce is the notion of relevance to proof or disproof of a fact in issue, and the unquestionable abolition of the rule which required discovery of a document which might directly or indirectly lead to a train of inquiry or which might, in some other way, otherwise advance the party's case or damage that of the adversary. For example, it would seem that documents going solely to the credit of a witness, unless that witness's credit is an issue raised on the pleadings, would not be discoverable. However, it is inappropriate to attempt to define exhaustively what will and what will not be discoverable under this Rule.

    Secondly, what Doyle CJ said in Quenchy Crusta Sales Pty Ltd v Logi-Tech Pty Ltd [2002] SASC 374; (2002) 223 LSJS 266 in agreeing with Bleby J’s observations and adding at [11]:

It is not wise to attempt to state in comprehensive terms the effect of the requirement that the document be ‘directly relevant’. The adverb ‘directly’ is probably intended to emphasise the requirement of relevance, and to be used in the sense of requiring that the document be directly in point, excluding as sufficient indirect relevance which might be established through another linking circumstance. That is not to say, as I have already said, that a document is not directly relevant if it is merely a piece of circumstantial evidence. The point is that a document will not be directly relevant if, rather than tending to prove an issue on the pleadings, it merely tends to prove something that may be relevant to an issue.

    Thirdly, what Doyle CJ said in Rehn v Australian Football League and Ors [2003] SASC 159; (2003) 225 LSJS 378 (Rehn) at [24]-[26]:

However, as I commented in Quenchy Crusta, it is not possible to state precisely the effect of the adverb ‘directly’ in r58A.03. Indirect relevance to an issue is not enough for the purposes of r58A.03, but distinguishing between direct and indirect relevance is not easy.

It is consistent with the intent of r58A.03 to apply the requirement of direct relevance firmly, and to give it a relatively narrow meaning. To hold that a document is not directly relevant to an issue arising on the pleadings is not to deprive a party of access to the document. The effect of such a holding is merely that the requirement to discover the document is not imposed by r58A.03, and that the court will decide, on application to it, whether the document must be discovered. In other words, r58A.03 draws the line between an obligation to make discovery as a matter of course, and an obligation to make discovery upon application to the court and after the court has considered whether the interests of justice requires that discovery should be made.

Another point relevant to the meaning of r58A.03 is that the rule assumes that a party is able to decide, from the pleadings, what documents must be discovered. This also suggests a narrow meaning for ‘directly relevant’. It would be counter-productive if a party was expected to discover documents because they might be relevant, depending on how the other party's case was put at trial. r58A.03 assumes that a party can determine that party's obligation to make discovery by reference to the pleadings.

27    In Channel Seven Adelaide the question before the Full Court was whether in a defamation action over publicity given to a property valuation certain documents should be produced. The defendant required the production of superannuation, credit card and bank statements that were said to be relevant to the adequacy of a valuation which was at the centre of the alleged defamation. Financial statements were said to be relevant as they could provide an indication of what purchases and sales of assets had occurred which would in turn assist in establishing what was in the house at the time of the valuation. However, at [28], Duggan J said that documents in this category did no more than satisfy the Peruvian Guano test and were not directly relevant to an issue arising on the pleadings.

28    Similarly, at [29], Duggan J said that movements of funds in and out of bank accounts or superannuation funds would establish no more than the fact of those transactions, although in certain circumstances they might constitute an item of circumstantial evidence sufficient to establish that an item was purchased at a particular time.

29    At [31], Duggan J thought credit card statements might go further in tending to establish that an item was purchased on a particular occasion. However, his Honour considered it was not apparent on the material available how the mere purchase of an item could establish that it was present in the house at the time of valuation.

30    Ultimately, the appeal against the refusal of the primary judge to order discovery on the directly relevant issues was dismissed.

31    The observations of Doyle CJ in Rehn concerning the distinction between the giving of discovery in the ordinary course pursuant to the directly relevant test and the power of the Court to order further discovery of particular documents, finds resonance in the new Rules of this Court. Following R 20.14 governing standard discovery, R 20.15 deals with non-standard and more extensive discovery. In particular, it enables a party to apply for discovery other than standard discovery but obliges the applicant to identify any criteria mentioned in R 20.14(1) and (2) that should not apply; and any other criteria that should apply. This means, generally speaking, that a party may press a case as to why some documents that are not directly relevant should be discovered, perhaps, on a train of inquiry test.

32    I noted above that R 58A.03 of the SA Rules considered in Channel Seven Adelaide is different from R 20.14, because R 20.14(2) was a feature not found in the then SA Rules. It may be considered that R 20.14(2) adds something by, in effect, defining the essential characteristics of the directly relevant test in (1)(a). This is because, whatever view one might take of the scope of the directly relevant test in (1) when read in isolation, (2) requires that a document must meet at least one of the criteria specified.

33    I digress to observe that one could enter into what would, in the end, be a barren argument as to whether or not it is necessary for a party not only to demonstrate direct relevance under (1)(a), but additionally to show that one of the criteria under (2) has been satisfied. One would tend to think that, if one of the criteria in (2) is made out, then there will be a presumption that the document is directly relevant to an issue for the purposes of (1)(a), and that there is no two-stage assessment process.

34    So far as the R 20.14(2) criteria are concerned, I would also note that ordinarily one would hope that there would not be much room for disputation between parties concerning the documents that fall within (2)(a), (b) and (d). However, the criterion in (2)(c) may perhaps be more problematic. What exactly are documents that “support another party’s case”? The Rules do not define “support”. The Shorter Oxford English Dictionary (5th ed) (OED) at [3119] defines the transitive verb “support” in ten different ways, the following perhaps being of assistance:

2b    Strengthen the position of (a person or community) by one’s assistance or     backing; uphold the rights, opinion or status of; stand by, back up.

6c     Preserve from failure, contribute to the success of (an undertaking).

8    Keep (a person, his or her mind, etc.) from failing or giving way; give confidence or strength to; encourage.

The noun “support” is defined by the OED in eight different ways including:

1c    Corroboration or substantiation (of a statement, principle, etc); advocacy (of     a proposal, motion, etc) Chiefly in support of.

(Emphasis in original).

35    One might be permitted to observe that if R 20.14 had been the operative rule in Peruvian Guano, then the plaintiff’s minute book may well have been considered a document that “supports the other party’s case” and so have been discoverable for that reason.

36    The difficulty with the criteria in R 20.14(2) is that some interpretation of documents is required by the party giving discovery. How a discovering party reads the pleadings and understands the way in which the other party is putting its case is important to an evaluation of whether a document satisfies one or other of the criteria. A document that merely goes to an inferential or circumstantial case that the other party might want to put may not be immediately apparent to the discovering party. This possibility may raise for consideration by the party applying for discovery the issue whether it should seek non-standard discovery rather than standard discovery. The format may be appropriate if disputation about the scope of standard discovery can be anticipated.

37    It is in this general discovery context that one returns to R 20.21 of the Rules, which the respondents assume is the rule under which the applicant’s further discovery application has been made here. It enables a party who claims that a document or category of documents may be or have been in another party’s control, to apply to the Court for an order that the other party file an affidavit stating whether the document or any document of that category is or has been in the other party’s control and if it has been but is no longer, when it was last in their control and what became of it. While R 20.14 and R 20.15 may generally be described as rules that provide for the giving of general discovery (whether under the directly relevant test or a court ordered broader relevance test), R 20.21 is of a different nature in that it permits a party to seek discovery of a particular document or category. This is emphasised by R 20.21(2) which requires the party seeking the order to identify the document or category of documents “as precisely as possible”. The purpose of R 20.21, on its face, is not that it be a substitute for general discovery, but rather to enable a party to ask for discovery of a particular document or category of documents. Seemingly, this request may be made before or after general discovery or, in any event, without general discovery having been given.

38    In the application now before me, where the applicant seeks discovery of particular documents, it would appear, as the respondents apprehend, that the application is made pursuant to R 20.21 and I treat it so, noting that the Court has the power in any event, under R 1.41, to make an order different from that sought. The application is not based on a complaint that discovery of the requested documents should have been given under standard discovery (noting that the old Rules applied then in any event), but rather that, following the receipt by the applicant of the advice of its expert, he considers these documents are relevant to issues arising on the proceedings and should now be discovered. It is not so much a case, then, where the party seeks particular discovery of documents it says should have been provided in general discovery, as a case where the applicant now believes he should have access to documents he believes are relevant.

39    I see no reason why a party may not apply under R 20.21 following either standard or non-standard discovery, or even (exceptionally) before general discovery, to seek particular discovery of a document or category of documents that is or are said to be relevant. In such a case it will be incumbent on the party seeking particular discovery to satisfy the Court that the document should be discovered in the circumstances of the case. The document or category of documents must be relevant, directly or indirectly. Additionally, the Court would, I think, need to be satisfied that discovery of the document will facilitate the efficient conduct of the proceedings. If, for example, one can see that the documents are likely to be relied on at trial, and if not provided during the pre-trial period would likely later result in an adjournment of the trial, then it may make good sense for the Court to require particular discovery at the pre-trial stage. That said, each application will depend on its own facts and circumstances and will be affected by the underlying policy of the new Rules to limit the scope of discovery and to advance the overarching purpose of civil procedure in the Court as stated by s 37M of the FCA Act.

compliance documents

40    The applicant says it is entitled to have the first respondent’s compliance manual or manuals from 1999 to 2010, as well its complaints register, the second respondent’s authorised representative training register, the first respondent’s education requirements for advisors and ongoing supervision requirements, its audit reports to assess client files and the second respondent’s advice and its financial services dealer guidelines relating to restrictions to transactions with clients and financial services dealer group licence specifying conditions placed on advice (being items 1, 3, 5, 6, 7, 8 and 9 of the schedule of documents attached to the interlocutory application) filed 6 December 2011. The applicant says it is entitled, as counsel put it in written submissions, at trial “to compare the advice he received against not only industry expected conduct, but conduct expected within the respondents’ organisation”.

41    The applicant has produced as an annexure to the affidavit of Ms Sadleir in support of its application for discovery a document produced by ASIC Regulatory Guide 104: Licensing: meeting general obligations, October 2007 that deals with compliance issues arising principally from s 912A(1) of the Corporations Act.

42    Save in relation to documents falling within categories 2 and 4 of the Schedule, which the applicant says are relevant to an assessment of damages in the event it succeeds in this proceeding, the applicant submits that documents falling into categories 1, 3 and 5-9 of the Schedule are all relevant to matters in issue because they enable an assessment of the quality of the advice given by the respondents to the applicant and whether or not in giving that advice the respondents met or failed to meet their contractual and tortious duties of care, pleaded in [10] and [11] of the amended statement of claim received 9 December 2011.

43    Additionally, the applicant says the documents are required as they are evidence of the ability of the respondents to comply and their actual compliance with licensing requirements, which relate to the plea in [19(2)] of the amended statement of claim received 9 December 2011, that the respondent failed to take any or any reasonable steps to ensure that the second respondent complied with the “financial services law” as defined in s 761A of the Corporations Act, a plea denied in the defence.

44    One may approach this application on the basis that in all probability the respondents, at least the first respondent, have documents that fit within the categories described in items 1, and 3-9 of the Schedule. The correspondence between the parties which has been annexed to the affidavit of Ms Sadleir suggests this. The advice of the applicant’s expert, which has largely led to the request for this further documentation, also suggests that ordinarily such documentation is maintained by an AFS licensee, which the first respondent is. Additionally, ASIC Regulatory Guide 104 itself recommends that documentation that would meet the description of these documents should be maintained by an AFS licensee.

45    The first question in this instance is whether it can be said that the documents in these particular categories are arguably relevant on the basis suggested by the applicant. If they are, the second question is whether they should be discovered in the efficient management of this proceeding.

46    In [10] of the amended statement of claim received 9 December 2011 the applicant shortly pleads that it was a term of the appointment of each of the respondents to act as the applicant’s financial advisor, that:

(a)    Mr Takla [the second respondent] as the representative of the First Respondent in providing financial services advice would advise the Applicant as to the most suitable financial investments.

(b)    Mr Takla, as the representative of the First Respondent, would exercise reasonable care and skill throughout in the provision of financial services and advice.

47    In [11] the applicant pleads further and in the alternative that Mr Takla, as the representative of the first respondent, and the first respondent were under a duty of care to the applicant in like terms to the contractual duties pleaded in [10].

48    In [12] the applicant further or alternatively pleads that the respondents owed fiduciary duties to the applicant in like terms to the contractual duties pleaded in [10].

49    As to the claimed breaches in contract and tort, and in equity, the amended statement of claim pleads what representations and advice the applicant alleges were actually given by Mr Takla at [13] and [14]. At [15] the applicant pleads he relied on the second respondent’s expertise and accepted the advice and acted on the advice representation. Further acts of reliance are pleaded in [16], [17] and [18].

50    In [19] the applicant pleads breaches of contract and negligence, as well as breach of fiduciary duty in the alternative. The breaches primarily pleaded in [19] are in the following terms:

(1)    Failing to provide financial services advice as to the most suitable financial investments.

(2)    Failing to exercise reasonable care and skill throughout in the provision of financial services and advice.

51    However paras (1) and (2) of [19] purport to particularise breaches respectively of both respondents. I will return to these “particulars” of breach.

52    Further, in [20] and [21] of the amended statement of claim, the applicant alleges that advice representations and procuring representations constituted conduct that was misleading or deceptive in contravention of s 12DA of the ASIC Act, as those representations were untrue. Particulars are then given.

53    At [22] of the amended statement of claim, the applicant pleads breach of s 945A of the Corporations Act, alternatively “for the Advice dated in the period of the Pre FSR Act s 852 of the Pre FSR Act”, in providing the advice, Mr Takla and through him the first respondent:

(a)    did not determine the applicant’s relevant personal circumstances in relation to giving the advice;

(b)    did not make a reasonable inquiry in relation to those personal circumstances;

(c)    having regard to such information as was obtained from the applicant did not give such consideration to and conduct such investigation of the subject matter of the advice as was reasonable in all of the circumstances;

(d)    the advice was not appropriate to the applicant having regard to that consideration and investigation.

54    Finally, in [23] of the statement of claim, the applicant alternatively pleads breach of s 945B of the Corporations Act, alternatively “for the Advice dated in the period of the Pre FSR Act s852 of the Pre FSR Act” because the advice was based on information relating to the applicant’s relevant personal circumstances that were incomplete or inaccurate.

55    Loss and damage is claimed and particularised in [24] of the amended statement of claim.

56    As noted above, the amended statement of claim in [19] pleads breach of the pleaded contractual, tortious and fiduciary obligations. A series of “particulars” in (1) and (2) detail how the applicant also alleges how the respondents breached those obligations. For example, in “Particulars as to the Advice generally” in (1) it is said that the second respondent, and through him the first respondent “(a) Failed to investigate or properly investigate the financial circumstances of the applicant” and so on. Further “Particulars for Borrowing and Applications for Borrowing”, “Particulars for Macquarie Bank GEI Advice”, “Particulars for Agricultural Products Securities Advice” are then provided in (1) in respect of both respondents.

57    “Particulars as to the First Respondent generally” are set out in (2), including the following:

(2)    The First Respondent:

(a)    Failed to take any or any reasonable steps to ensure that its representative, Mr Takla, complied with the financial services law as defined in s 761A of the Corporations Act when providing the financial services advice provided to the Applicant.

It would appear that the applicant thereby simply intends to plead breach of or non-compliance with the financial services law as conduct breaching the contractual, tortious and fiduciary duties pleaded, namely (1) to provide financial services advice as to the most suitable financial investments and (2) to exercise reasonable care and skill throughout in the provision of financial services and advice. There is no separate claim for remedies based on breach of the financial services law.

58    In relation to the “particulars” set out in [19], the respondents raise a point. They say that under the Rules a respondent is only required to plead to material facts and that particulars do not constitute material facts. Accordingly they have no obligation to plead to those parts of [19] falling under the heading of “particulars”, referring to remarks of Barwick CJ in Turner v Bulletin Newspaper Co Pty Ltd (1974) 131 CLR 69 at 80. The respondents say that the Court, in deciding what further discovery may or may not be appropriate, should only have regard to the material facts pleaded and ignore the particulars.

59    Counsel for the respondents nonetheless agreed with the proposition put to him by the Court in the course of oral argument on the application, that if each of the subheadings within [19] commencing with the word “particulars” were to be ignored or removed then the issue raised on behalf of the respondents would disappear. Indeed, in my view, while the parts of the statement of claim in [19] following the “particulars” headings are described as particulars, they are, on any plain reading of the statement of claim, primary allegations of breach and, to avoid artificiality, should simply be read as such.

60    In short, I am not prepared to take the material facts/particulars point raised on behalf of the respondents in relation to this discovery application. There is no doubt on a fair reading of [19] of the statement of claim exactly what function the so-called “particulars” have in the pleading. They are primary pleadings as to how the applicant alleges the respondents breached the pleaded contractual, tortious and fiduciary duties.

61    Coming to the more substantive objections to further discovery, the respondents say that in respect of the first pleaded matter, that they “failed to provide financial services and advice as to the most suitable financial investments”, the Court will need to consider what, if any, advice was provided and whether that advice, if any, was to the most suitable financial investments. Both of these questions are focussed on the advice, if any, the respondents gave the applicant and not his own financial circumstances. The documents sought to be discovered are irrelevant to those questions.

62    As to the second pleaded issue, that the respondents “failed to exercise reasonable care and skill throughout in the provision of financial services and advice”, the respondents say the Court will need to confine itself to the financial services and advice, if any, provided to the applicant because the extent to which the respondents exercised care and skill in the provision of financial services and advice to other clients is irrelevant to the question of whether the respondents breached an obligation owed to the applicant. No matter what particulars the applicant supplies, the applicant cannot prove his claim by reference to a pattern of behaviour towards clients of the respondents whose financial circumstances are different from those of the applicant.

63    In particular, as to the documents in items 1, 3, 5-9, the respondents say that these relate to financial services and advice that might have been provided to any of the respondents’ clients and not just financial services and advice, if any, that might have been provided to the applicant. Accordingly to the extent that documentation relates only to other clients and, not to the applicant it is irrelevant.

64    The respondents note that the applicant does not allege that the applicant ever made a complaint that might have been recorded in the first respondent’s complaints register. It follows no order for discovery should be made of the category of documents in item 3 of the Schedule.

65    The respondents say that if the extent to which any of the documentation might relate to the applicant, the question needs to be considered just how relevant if at all, the documentation might be on the issues raised by the pleadings, bearing in mind the administration of justice and for the need to keep discovery within reasonable limits.

66    In reliance on Imbree v McNeilly (2008) 236 CLR 510 (Imbree), especially at [1], [53]-[58], [105] and [193], the respondents say the requested documentation must be assessed on the basis that the extent of the duty of the respondents in tort to exercise reasonable care and skill in providing financial services and advice to the applicant is to be measured by reference to an objective standard, which does not vary with the particular aptitude, temperament, training or experience of, or formal licence held by the individual who provided the services and advice.

67    The respondents say that to paraphrase what was said in Imbree at [58], the fact, if it be the fact, that a person is authorised by an applicable law, and has suitable training or experience to provide financial services and advice is neither a necessary nor a sufficient characteristic of the reasonable financial service and advice provider. Holding or not holding the relevant licence, or having suitable training or experience, is irrelevant to the description or application of the relevant standard of care. The reasonable financial service advice provider is to be identified by what such a provider would do, or not do, when providing such services and advice, not by what authority, experience or training such a person would need to have in order to provide such services and advice lawfully.

68    The respondents say there is also no reason to believe, having regard to Astley v Austrust Ltd (1999) 197 CLR 1 at [44]-[48], that the obligation owed in contract to take reasonable care is any different in content from the obligation made concurrently in tort.

69    As to the misleading and deceptive conduct allegations in [21] of the amended statement of claim and the further allegation in [22] of the statement of claim, that the respondents breached s 945A of the Corporations Act, and the allegations concerning the reasonableness of such conduct, the respondents say there is no reason to believe that these allegations refer to anything other than an objective standard, to be determined without regard to the authority, experience or training of the actual individual providing the relevant service.

70    The applicant seeks to distinguish what was said in Imbree on the basis that the standard of care expected of a person such as a financial advisor who is licensed under statute and subject to various statutory obligations, is materially different from the driver of a motor vehicle, whether they are a learner driver or not.

71    Be that as it may, the applicant has pleaded a particular contractual and tortious duty of care in [10] and [11], and fiduciary obligation in [12]. These pleas have been admitted to an extent in the defence. By [11] of the defence, for example, the respondents admit that the first respondent was under a duty of care to the applicant to exercise reasonable care and skill throughout the provision of financial services and advice, but otherwise deny [11] of the applicant’s statement of claim.

72    I should note at this point that nowhere does the applicant purport to plead that the first or second respondent owed him particular duties as a result of the Corporations Act or more generally, for example, a duty on the first respondent to supervise Mr Takla, or that the loss claimed was due to the breach of any such duty.

73    The applicant does not therefore seek to plead, for example, in tort, a duty of care that he says should be defined by additional special features of the relationship between the applicant and either of the respondents. The applicant does not, for example, as suggested by Imbree at [58], seek to plead a particular duty of care on the basis that the respondents or one or other of them, profess a particular skill or has special responsibilities arising under statute.

74    Having pleaded the general duties to advise as to suitable investments and to exercise due care and skill, in [19], the applicant pleads how those duties were breached. Proceeding on the basis that the “particulars” subheadings in [19] of the amended statement of claim should be ignored, I note (1) and (2) of [19] contain pleaded breaches in detail. In my view, the pleaded breaches in (1) have no connection, on the face of it, with the compliance documents that the applicant requires. Those pleaded breaches are general in nature and are not reliant on statutory compliance obligations. For example, no plea of failure to supervise is made against the first respondent.

75    The breach pleaded in (2) of [19], however, is different. In (2), the applicant says that the first respondent:

(a)    failed to ensure that Mr Takla complied with the financial services law as defined in s 761A of the Corporations Act when providing financial services advice provided to the applicant;

(b)    failed to carry out any effective supervision of Mr Takla when providing advice;

(c)    failed to ensure or adequately ensure that Mr Takla was adequately trained or competent to provide advice;

(d)    failed to have any or any adequate risk management systems in place to prevent the provision of financial services advice provided to the applicant in the circumstances pleaded in the action;

(e)    failed to ensure that Mr Takla limited all advice that recommended borrowing money to acquiring investments to borrowed funds that did not exceed 50% of the value of the invested assets of the client or to seek confirmation for the proposed advice from another advisor where the recommendation proposed a proportion of borrowed money that exceeded the 50% limit;

(f)    failed to provide financial services advice that was appropriate;

(g)    failed to properly advise the applicant as to the most suitable financial arrangements in respect of his assets for investment;

(h)    failed to exercise reasonable care and skill throughout.

76    The last three of these pleas may be seen to repeat the primary, generalised breach pleas from earlier in [19]. The other breach pleas in (2)(a)-(e), however, apparently rely on obligations mentioned in or created by s 912A of the Corporations Act. The difficulty I have however with this pleading is that it does not, on its face, respond to, that is to say, disclose breach of the pleaded duties to advise on suitable investments and to exercise due care and skill when doing so. There is, for example, no prior plea of a duty owed by the first respondent to supervise etc (under the Corporations Act or otherwise), which was breached and which was causative of inadequate advice being given by Mr Takla to the applicant.

77    To put it in terms of how the applicant’s counsel expressed the substance of the case in argument, there is no plea about the “conduct expected within the organisation within which the second respondent operated” to which the compliance document might possibly be relevant.

78    Having regard to the pleaded case, I cannot easily discern the relevance of the compliance documents to the issues raised by the pleadings.

79    I should also deal specifically with the request for the first respondent’s complaints register. It is not immediately apparent to me what direct or indirect relevance, even on the basis of a circumstantial or inferential case that the applicant might want to put, how the complaints register might be considered relevant to duties pleaded or to the material breaches of duty of obligation alleged by the applicant against either respondent. Complaints that might be noted in such a register in relation to advisers, other than the second respondent, would not seem to be relevant on any view.

80    In these circumstances, I would not make orders for particular discovery of any of items 1, 3 and 5-9 of the Schedule.

items 2 and 4 of the schedule

81    In item 2 of the Schedule, the applicant requires discovery of a copy of a spreadsheet or other record of the commissions and trailing commissions paid to the respondents as a result of investments made on behalf of the applicant.

82    Item 4 of the Schedule requests discovery of the first respondent’s “soft dollar register” – that is to say, the register of benefits the respondents may have received for recommending certain financial products.

83    The respondents contend that the request for discovery of commissions or trailing commissions or soft dollar register can only arise out of [24] particular (iv) of the statement of claim, which is headed “Particulars of fees and commissions paid to Respondents” in the following terms:

(iv)    The Applicant paid fees and commissions deducted from his investments to Mr Takla, alternatively the First Respondent, which he would not have paid but for the breaches pleaded the Applicant would not have paid the fees and commissions.

84    The respondents contend, however, that the applicant expressly pleads in that particular that he paid fees and commissions deducted from his investments.

85    The respondents say it is unlikely that the applicant in fact paid any such fees and commissions which are normally paid by the seller of the investment directly to the financial advisor or other person introducing the seller to the investor. But even assuming fees and commissions were “deducted” from the applicant’s investments in a manner that makes it valid to allege that the applicant paid them, the applicant is not entitled to damages to compensate both for any bad investment and for any fees or commissions “deducted from” any such investments.

86    The respondents submit that instead:

(1)    The payment of fees or commissions in respect of an investment, either directly or indirectly in a sense that the investor does not pay them, but that their existence is relevant to the formulation of the price of the investment, is simply part of the cost of acquiring the investment, whether good or bad.

(2)    The correct way to quantify any loss suffered by an investor who, like the applicant, has borrowed the capital required to acquire the investment is, as acknowledged in the statement of claim, by calculating the cost of borrowing the funds borrowed by the investor and then taking into account any benefit received from the investment, such as any residual value of the investment, any dividends or tax benefit received etc.

(3)    Any fees or commissions that may have been paid in respect of the acquisition of the investment, as part of the cost of acquiring the investment (which was not necessarily the same as the cost of borrowing the funds), simply do not enter into this calculation.

87    The respondents therefore submit that:

(1)    If the applicant is successful in his claim for negligence for breach of contract or breach of statutory duty, any fees or commission paid as part of the cost of acquiring the investment will not require separate assessment; or

(2)    If the applicant is successful in his claim for breach of fiduciary duty, any fees paid through the investment might be recoverable as a remedy for breach of fiduciary duty. However, given that the claim for breach of fiduciary duty is not presently properly pleaded in the respondents’ view there is insufficient grounds to justify an order for discovery of documents in these categories.

88    The applicant says that the relevant consideration arising on the pleadings concerning the question of damages is that the assessment of damages will require a consideration of the value of the assets acquired by reason of the recommended investments, which may conveniently be called the “residual value”. If part of the acquisition costs went to the advisors who promoted the securities, that cost is spent and will not reflect in the residual value of the securities. Logically then the value of the investment has to be at least “net of the fees and commissions paid to advisors who promoted the securities”. The applicant says the fees paid will assist the valuation process. I should add there is no claim along the lines of unjust enrichment whereby the applicant seeks to have the respondents disgorge benefits they have received as a consequence of their alleged breach of fiduciary duty.

89    In my view, it is by no means clear at this point how trailing commissions and soft dollar benefits will bear on the assessment of damages, and counsel for the applicant was not in a position during oral argument to demonstrate how they would.

90    I am therefore not prepared to make an order in respect of items 2 and 4 of the Schedule.

91    If, at some later point, such material can be demonstrated to be relevant to the assessment of damages, the applicant may renew its application for discovery, but at this stage there should not be an order for the sake of discovery or just because a party’s expert has asked for the information.

conclusion and orders

92    I am not satisfied that the particular discovery requested by the applicant is relevant to any issue arising out of the pleadings, either directly or indirectly, and so would dismiss the application for particular discovery.

93    The Court orders:

(1)    The applicant’s application for particular discovery under R 20.21 of the Federal Court Rules 2011 (Cth) filed 6 December 2011 be dismissed.

(2)    The applicant pay the respondent’s costs of the application to be taxed, if not agreed.

Associate:

Dated:    9 February 2012