FEDERAL COURT OF AUSTRALIA

Power Infrastructure Pty Limited v Downer EDI Engineering Power Pty Limited (No. 4) [2012] FCA 143

THE COURT ORDERS THAT:

1.    The parties bring in short minutes giving effect to these reasons within 7 days.

2.    Costs of the interlocutory application filed on 29 August 2011 be reserved.

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

REASONS FOR JUDGMENT

1    This is a dispute about discovery. On 29 August 2011 Power Infrastructure Pty Limited (“PI”) filed an interlocutory application. PI is the applicant in the principal proceeding and the first cross-respondent to a cross-claim filed by the respondent, Downer EDI Engineering Power Pty Limited (“DEE”). The second cross-respondent is Jason Power, the sole director of PI.

2    Discovery by categories was first ordered on 2 February 2011. The interlocutory application is limited to 13 of the 41 categories originally sought by PI. DEE objects to some of the categories in their entirety. In respect of others, DEE objects only to the breadth of the categories as framed, being willing to give discovery of a more limited class of documents. In respect of two of the categories, however, there is now no dispute at all.

3    In the principal proceeding PI alleges that the parties were involved in a joint venture by which PI supplied personnel to DEE’s transmission business until DEE wrongfully dispensed with its services. PI contends that, by agreement, it was entitled not only to be paid for the cost of the personnel it supplied, but also to a share of the profits of the DEE transmission business. Amongst other things, DEE denies that there was a joint venture agreement and any agreement that it pay PI a share of the profits of its transmission business.

4    In its cross-claim DEE pleads that in a table of salaries and on-cost invoices Mr Power and PI made representations to DEE which were misleading or deceptive or likely to be so. (“On-costs” refer to the costs of employing labour over and above the cost of salaries, such as superannuation, long service leave, workers’ compensation and living away from home allowances.) In substance, DEE alleges that PI overstated or inflated those costs. DEE claims that it relied upon the assertions in the table and the invoices. It contends that it paid PI what it asked for mistakenly believing the assertions were accurate. It seeks restitution or damages under s 82 of the Trade Practices Act 1974 (Cth) or s 68 of the Fair Trading Act 1987 (NSW).

5    The issues arising on the pleadings are multifarious. But the primary issues relevant to the current dispute concern:

    DEE’s allegation that it relied on representations it claims were misleading made by Mr Power (and through him PI);

    PI’s allegation that DEE acted in bad faith by departing from the parties’ dealings around a memorandum of understanding;

    The proper calculation of the 2009 financial year profits of DEE’s transmission business for the purpose of PI’s claim to a share of the profits of that business.

6    This last area of controversy focuses on the calculation of the earnings before interest and taxes (“EBIT”) of the DEE transmission business. In that regard the parties are at odds about whether particular projects conducted by DEE in Western Australia formed part of the transmission business and whether certain profits were undeclared in the reported EBIT for the 2009 financial year.

7    The interlocutory application is supported by an affidavit of John Tomko, the solicitor for Mr Power and PI, which consists in large part of statements in the nature of submissions, and which annexes the list of categories of documents and the relevant correspondence between the parties evidencing the dispute, the reasons for it and the attempts to resolve it.

8    DEE relied on two affidavits sworn by Nick Perrott, its General Manager, Commercial & Risk, on 21 September 2011, and Peter Tompkins, its General Counsel and Company Secretary, on 23 September 2011. Mr Perrott’s evidence discloses that Mr Power remains involved in the transmission line industry and competes with DEE for business. Mr Tompkins deposed to the difficulties and expense entailed in discovering certain documents in category 20. Because PI no longer presses those parts of that category, Mr Tompkins’s evidence is no longer relevant.

9    Argument was heard over two days, some six weeks apart. When the case resumed, PI proposed a staged approach to discovery. DEE opposed it. I have decided against it. Despite its theoretical attractions, in view of the history of this matter I apprehend that at this point in this proceeding it is likely to increase, not contain, costs.

The scope of the dispute

10    For the most part, the disputed categories are concerned with documents broadly speaking covering two subjects: documents relating to on-costs charged by DEE to other clients and documents relevant to the calculation of the earnings of DEE’s transmission business from 1 July 2008 to date. The former is said to relate to the cross-claim in that inspection of those documents may support or adversely affect DEE’s case and the latter to enable PI to properly assess the value of its case for a share of the profits of the business. By accident, design, or of necessity, there is a degree of overlap between some of the categories. For this reason a certain amount of repetition in the consideration of the categories is unavoidable.

11    Categories 2, 4, 8.2, 9 and 22 seek discovery of documents that evidence DEE’s system for setting, administering and recovering on-costs from its customers in respect of personnel deployed in the period 1 May 2008 to 31 July 2009 on transmission projects undertaken by DEE. This was the period during which PI employees worked for DEE.

12    DEE does not dispute that an issue arises in the principal proceeding about the on-costs PI charged to DEE in respect of PI employees. Neither does it dispute that there is an issue about whether DEE relied on invoices submitted by PI (or Mr Power on its behalf) which purported to set out those costs. Rather, DEE says it has agreed to give discovery of documents going to its consideration of on-costs charged by PI. Several of the disputed categories, however, call for documents relating to on-costs charged by DEE to third parties in respect of DEE employees. DEE contends that the on-costs charged by DEE in respect of its employees are not relevant to an issue arising on the pleadings. It also claims that the request is oppressive, as it would require searches for, collation and production of a potentially vast array of documents across all DEE’s projects.

13    Categories 7, 35, 36, 37 and 39 seek discovery of documents relevant to the calculation of the earnings of DEE’s transmission business from 1 May 2008 to date. DEE argues that the orders sought are far too broad, given the scope of the pleadings.

General principles

14    The purpose of discovery is to facilitate proof of facts in issue and to avoid ambush or surprise and the delay and wasted costs that that entails. It can therefore be extremely valuable. But it can also be extremely expensive. It is a discretionary procedure. The Court’s discretion is broad. It must, however, be exercised in the way that best promotes the overarching purpose of the civil practice and procedure provisions of the Federal Court of Australia Act (1976) (Cth) (“FCA Act”) and the rules made under it. That purpose is to facilitate the just resolution of the proceeding according to law and as quickly, inexpensively and efficiently as possible (“the overarching purpose”): FCA Act, s 37M(3).

15    On 1 August 2011 the Federal Court Rules 2011 (Cth) (“FCR”) came into effect. They make substantial changes to the capacity of a party to obtain discovery in this Court. The clear purpose of Division 20.2, which deals with discovery, is to contain costs. To that end both the parties and the Court are given responsibilities. The context in which the Rules were made is well-known. There was widespread concern about escalating and disproportionate costs, notwithstanding the Court’s earlier attempts to deal with the problem first, by introducing a presumption against general discovery (Practice Note CM 5) and then by ordinarily limiting discovery to particular documents or classes or categories of documents (Practice Note 14). In Managing Justice: A Review of the Civil Justice System, Report No 89 (2000) at [6.67] the Australian Law Reform Commission (“ALRC”) remarked:

In almost all studies of litigation, discovery is singled out as the procedure most open to abuse, the most costly and the most in need of court supervision and control.

16    This concern sparked the ALRC’s later review of discovery in federal courts culminating in the publication in March 2011 of its final report entitled Australian Law Reform Commission, Managing Discovery: Discovery of Documents in Federal Courts, Report No 115 (2011).

17    Under the new regime a party must not give discovery without a Court order: FCR r 20.12. And a party must not apply for a discovery order unless the order the party seeks will promote the overarching purpose: r 20.11. When a party applies for an order, the application must state whether the party is seeking standard discovery and the proposed scope of the discovery. Standard discovery is described in r 20.14. It substitutes a test of direct relevance for the Peruvian Guano test (see Compagnie Financiere et Commerciale du Pacifique v Peruvian Guano Co (1882) 11 QBD 55), which was previously applied, and which required the disclosure of documents that might be relevant in the sense that they might lead to a train of inquiry. Rule 20.14 also imposes additional constraints. It relevantly provides:

(1)    If the Court orders a party to give standard discovery, the party 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.

(2)     For paragraph (1) (a), 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.

(3)     For paragraph (1) (b), in making a reasonable search, a party may take into account the following:

    (a)     the nature and complexity of the proceeding;

    (b)     the number of documents involved;

    (c)     the ease and cost of retrieving a document;

    (d)     the significance of any document likely to be found;

    (e)     any other relevant matter.

(4)     …

18    A document will be directly relevant, within the meaning of r 20.14, if it tends to prove or disprove a matter in issue, not if there is only a chance it will or if it merely tends to prove or disprove something that might be relevant to a matter in issue: cf. Scott v Johnson [2010] SASC 277 at [6] and the authorities referred to there.

19    When the new rules commenced, the Chief Justice issued a new Practice Note CM 5 on discovery. Both the terms of the new rules and the practice note reflect the overarching purpose. Clause 3 of the practice note is in the following terms:

In determining whether to make any order for discovery, the Court will have regard to the issues in the case and the order in which they are likely to be resolved, the resources and circumstances of the parties, the likely benefit of discovery and the likely cost of discovery and whether that cost is proportionate to the nature and complexity of the proceeding.

20    Here, discovery was ordered before the new rules came into effect. Still, r 1.04 provides that the new rules apply to a step in the proceeding taken afterwards unless the Court orders otherwise. No such order was sought in the present case. Rule 20.15 provides for more extensive discovery in suitable cases but PI did not invoke that rule. Rather, PI argued that the documents it seeks all satisfy the test for standard discovery set out in r 20.14. The questions, therefore, in each case are whether or not they do and whether the orders PI seeks would best promote the overarching purpose and the particular purpose of the discovery rules.

Category 2

21    PI argues that in order to test DEE’s allegations that it relied on PI’s on-cost representations and was misled by it, “it is conventional and necessary” that it have access to the records of the deliberations and communications of the relevant DEE personnel. In fact, this category does not seek the production of documents of this nature. Category 2 consists of:

documents including organisational decision matrixes, policies and procedures identifying the DEE personnel and/or other persons having authority during the period 1 October 2007 to 16 July 2009 in respect of the setting and/or recovery of:

a.    On-costs in relation to personnel engaged by DEE; or

b.    Costs including such on-costs.

22    As DEE has not previously identified which individuals were allegedly misled by PI’s representations, PI says it needs to see these documents. It contends that documents in this category will be directly relevant to: establishing the identity of the DEE personnel who had authority to approve the payment of the PI invoices, and their knowledge and understanding of the basis on which the rates for on-costs were set and claimed. This, in turn, is said to be relevant to testing DEE’s claims that it relied on PI’s representations and that the payments were made, as DEE alleges, by mistake. PI contends, therefore, that the documents fall within FCR r 20.14(2)(b), (c) and/or (d). In other words, they are documents that adversely affect PI’s own case, support DEE’s case or adversely affect DEE’s case.

23    DEE contends that the category as drawn is not directly relevant to any issue. In my view, DEE is right. The representations concern PI’s on-costs, not DEE’s. DEE offers a reformulation of the category in the following terms:

Documents identifying either Bill Eggers or Jim McKenna as having authority as at August and September 2007 in respect of the setting and/or recovery of:

a.    On-Costs in relation to personnel engaged by PI; or

b.    costing including such on-costs by PI.

24    Presumably the reference to 2007 is a typographical error. But this reformulation is based on allegations in the amended statement of claim. The stated purpose of this category of documents is to capture information relevant to DEE’s claims and DEE’s reformulation may be insufficient for that purpose.

25    PI is plainly entitled to know who within DEE’s organisation relied on the representations it made. But in my opinion, there is a more efficient and cheaper way for PI to obtain the information. In the circumstances, and to avoid unnecessary expenditure, I would order that, within 14 days, DEE inform PI of the names and positions of the individuals who had authority to approve the payment of PI’s on-cost invoices and those whom DEE alleges relied on the representations. An order of this kind would obviate the necessity for discovery of this category.

Category 4

26    Category 4 comprises:

documents relating to consideration, including without limitation, calculation, estimation, accrual, claiming, recovery and/or justification, by DEE and/or DEE Group of on-cost allowances in respect of personnel deployed between 1 May 2008 and 30 June 2009 on the projects described in:-

a.    paragraphs 14B, 14D and Schedule of the Amended Statement of Claim;

b.    paragraphs 17 and 18 of the Amended Defence to the Amended Statement of Claim

including templates, modelling, changes of modelling, rates, changes in rates, audits (internal or external), analysis, calculation.

27    PI submits that this category is directly relevant to DEE’s contentions that it relied on PI’s representations with respect to the on-costs of its employees and that it approved payment of the on-cost invoices on the faith of them. The breadth of the category is designed, I was told, to capture both documents relating to the formulation of the on-costs template the parties used and documents evidencing DEE’s consideration of the on-cost charges during and after a charge period. PI contends that the documents adversely affect its case, support DEE’s case or adversely affect DEE’s case.

28    DEE resists production, pointing to its agreement to discover the documents in category 10. Category 10 is in the following terms:

Documents relating to consideration by or for DEE of the invoices referred to in paragraph 46(a) of the Amended Defence and paragraph 7 of the Amended Cross-Claim (“the PI Invoices”) including without limitation:

a.    Guidelines, policies or directions for the receipt, approval and/or payment of invoices from suppliers to DEE in the conduct of DEE’s business;

b.    The process of receipt, approval and/or payment implemented in respect of each of the PI Invoices;

c.    Application by DEE’s personnel of such guidelines or policies in relation to the PI Invoices.

29    In my view the range of documents sought in category 4 goes beyond what would be necessary and proportionate to prove or disprove a matter in issue particularly in the light of category 10. For this reason I would not order discovery of documents in the terms of the order PI seeks. DEE accepted, however, that PI was entitled to documents evidencing its NSW on-costs at the relevant time to make good its claim that DEE told PI it should use the DEE NSW on-costs for the purpose of calculating on-costs for PI personnel. It offers discovery in accordance with an amended category, namely:

Documents evidencing the calculation of the NSW on-cost rate applied by DEE between 1 May 2008 and 30 June 2009 to charges for remuneration of personnel employed or contracted by it.

30    This was a reasonable position to take and one which conforms to the overarching purpose. I would therefore order discovery in accordance with the amended category.

Category 7

31    This category is defined as:

Documents constituting, containing or relating to the allocation, treatment and financial reporting of revenues, on costs and other costs referable to transmission and transmission projects including EBIT calculations for the periods:

a.    1 July 2008 to 30 June 2009;

b.    1 July 2009 to 30 June 2010;

c.    1 July 2010 to 30 June 2011; and

d.    1 July 2011 to date.

32    PI contends that this category is directly relevant to:

1.    the identification of projects which comprised the transmission business of DEE;

2.    the allocation of the on-costs in the PI invoices to the projects within DEE’s transmission business;

3.    the calculation of PI’s entitlement to 15% of EBIT or any profit from DEE’s transmission business; and

4.    the calculation of DEE’s alleged losses.

33    PI relies on r 20.14(2)(b), (c) and (d) but not (a). In other words, it contends that the documents adversely affect its case, support DEE’s case or adversely affect DEE’s case, but (at least for the time being) it does not intend to rely on any of the documents.

34    In substance, PI submits that DEE’s on-costs cross-claim and PI’s loss of profit-share claim are, to some extent, interrelated as losses allegedly incurred by DEE through payment of on-cost invoices would diminish DEE’s profits and, consequently, the value of PI’s share.

35    This category raises the question of the extent to which the records of the earnings of DEE’s transmission business are relevant in this case.

36    Mr Parsons, who appeared on this application for PI, argued that the documents were directly relevant to the question whether DEE suffered a loss because (in effect) DEE might have absorbed or passed on the costs that were allegedly unjustified or overstated.

37    It is common ground that the actual EBIT figure during the 2009 financial year is an issue in the principal proceeding. But I reject the submission that the documents are directly relevant to the calculation of DEE’s damages in the cross-claim. DEE’s cross-claim is limited to the extent to which it says it overpaid the on-costs plus interest. That sum is particularised at $325,779. To the extent that there may have been any ambiguity on the pleadings about whether the sum sought in restitution was the same as the sum claimed as damages for the misleading conduct, the ambiguity was removed by counsel for DEE during an earlier interlocutory dispute about particulars.

38    DEE accepts that PI is entitled to documents evidencing undeclared profit margin on the projects it alleges should have been included in the EBIT figure for the 2009 financial year. DEE has agreed to give discovery of other documents that it submits are sufficient to identify EBIT for the transmission business for each of the relevant years and to enable PI to test or make good its claim about undeclared profit margin in the 2009 financial year. But it objects to the breadth of the category, which, it justifiably contends, requires it to produce all its accounting records for its sizeable business for a period of almost four years.

39    On the pleadings, the financial performance of DEE’s transmission business is relevant in two ways.

40    First, PI contends that by reason of the alleged joint venture between the parties it is entitled to:

    a share in the profits of DEE’s transmission business for the 2009 financial year, calculated as 50% of the increase in actual EBIT over budgeted EBIT up to a maximum of 15% of actual EBIT; and

    a share in the profits of DEE’s transmission business from the 2010 financial year onwards, calculated as 15% of actual EBIT.

41    Secondly, PI contends that the actual reported EBIT for DEE’s transmission business for the 2009 financial year was understated because it failed to include an undeclared profit margin.

42    In its amended defence DEE disputes that there was such an agreement and denies these allegations.

43    To the extent that the order seeks discovery of financial records that might disclose EBIT calculations in any year other than the 2009 financial year, once again the order sought goes beyond the requirements of standard discovery. To understand why, it is necessary to go to the pleadings.

44    In paragraph 14A PI alleges that at 30 June 2009 the actual EBIT of the transmission business for the twelve months to that date was “brought to account in the sum of, and was at least $9.153 million, not including the whole of undeclared profit margin (as defined below) on projects completed or substantially completed” (emphasis added) in that year. There is another reference to the “reported EBIT” in that amount in paragraph 14E. PI relies on the fact that the emboldened words do not limit its claim to the reported $9.153 million figure. On the other hand, paragraphs 14H and 14I plead that the actual EBIT was $9.153 million, not “at least” that sum. DEE has proceeded on the assumption that PI was alleging that the actual EBIT was in fact $9.153 million. That is consistent with the claims in paragraphs 14H and 14I, which do not include the qualification that appears in paragraph 14A.

45    Paragraphs 14B to 14I of the amended statement of claim are in the following terms:

14B    In fact the Respondent’s Transmission business activities had earned and the Respondent had received or was entitled to receive income on projects undertaken and completed in the period from 1 July 2008 to 30 June 2009, but in breach of generally accepted accounting principles and, in particular, true or fair accounting for profits provision was made for expenses in excess of all reasonably anticipatable expense, so that profits were not brought to account in the calculation of EBIT of the Transmission business activities for that year but on the reduction of the provision in the financial year 2010 would then be recognised in the accounts of the Respondent (the Undeclared Profit Margin). The Undeclared Profit Margin for 2009 was $8.511 million.

[Particulars of how this amount is made up then appear.]

14C    The budgeted EBIT for the Respondent’s Transmission business activities for the year ended 30 June 2009 was $5.318 million.

Particulars

Defendant's Transmission activities budget for year ended 30 June 2009

14D    The budgeted profit in the Transmission business activities 2008-2009 budget for, and the actual profit of projects which were completed or substantially completed at 1 July 2008 but had profits included in the results to 30 June 2009, was $1.938 million and $3.150 million respectively.

[Particulars of how this amount is made up then appear.]

14E    The actual EBIT for all projects completed in the year ended 30 June 2009, including undeclared profit margin in projects completed but not taken up in EB1T calculations of the Transmission business activities at 30 June 2009, was $17.664 million.

[Particulars of how this amount is made up then appear.]

14F    The increase in actual EBIT (not including Undeclared Profit Margin on projects completed in 2009) over the budgeted EBIT for the year ended 30 June 2009, adjusted for the profit (actual and budgeted) on projects completed before 1 July 2008, was $2.623 million.

[Particulars of how this sum is made up then appear.]

14G    The increase in actual EBIT including the Undeclared Profit Margin and excluding the profit (actual and budgeted) on projects completed before 1 July 2008, was $11.134 million.

        [Particulars of how this sum is made up then appear.]

14H    By reason of the provision of work and services pursuant to the MOU and the said JVA, the Respondent is indebted to the Applicant in the sum of $2.650 million, being the lesser of 15% of adjusted actual EBIT ($17.664 million) ($2.650 million) (sic) and 50% of the difference between budgeted EBIT and actual EBIT of $11.134 million ($5.567).

14I    In the alternative, if the Undeclared Profit Margin on projects completed or substantially completed at 30 June 2009 is not included in the calculation of the increase in 2009 EBIT, the Respondent is indebted to the Applicant in the sum of $1.311 million, being 50% of the increase in adjusted EBIT ($2.622 million), which sum is less than 15% of actual EBIT, being $9.153 million × 15%, $1.373 million.

46    For completeness, and because it is relevant to this category, I note that paragraphs 14J–L read as follows:

14J    By reasons of the breach of the MOU or the refusal to proceed with the joint venture, the defendant prevented the Applicant from earning and receiving 15% of $8.511 million after the (sic) 1 July 2009.

14K    By reason of the Respondent accounting for the Undeclared Profit Margin of $8.511 million after 1 July 2009, it apportioned to itself the profit share of the Applicant on the said projects which was 15% of the said undeclared profits.

14L    The Respondent has failed to pay any amount in relation to the sum for which it is indebted.

47    In paragraphs 15 to 17 of DEE’s amended defence, DEE relevantly states:

(a)    The DEE-Tenix joint venture was not within DEE’s transmission business activities within the meaning of the alleged agreement between DEE and PI;

(b)    The EBIT of DEE’s transmission business activities within the meaning of the alleged agreement was $7.788 m, being $9.153 m less $1.365 m referable to the DEE-Tenix joint venture;

(c)    The budgeted EBIT of the transmission business within the meaning of the alleged agreement was $5.965 m (in contrast to the allegation in paragraph 14C of the amended statement of claim that it was $5.318 m in the 2009 financial year).

48    DEE denies the allegation in paragraph 14B of the amended statement of claim that certain profits were not brought to account in the calculation of the EBIT of the transmission business activities for the 2009 financial year.

49    DEE also denies the allegation in paragraph 14D and makes a number of assertions in paragraph 18 of the amended defence about the budgeted and actual profits of certain projects, including that profits reported as “WA share” were not attributable to DEE’s transmission business. And DEE asserts that the figures particularised in paragraph 14D as “actual profit” for each 2008 financial year project were in fact “gross margin” figures from which overheads and corporate costs needed to be deducted in order to derive EBIT.

50    In its statement of issues, PI asserts that the allegations in paragraphs 14B–L give rise to the following issues:

(a)    What on the application of generally accepted accounting principles and a true or fair accounting for profits was the EBIT of DEE’s transmission business in the 2009 financial year within the meaning of the alleged joint venture agreement or the representations PI alleges DEE made [14B].

(b)    Whether the application of such accounting principles resulted in additional profit to be accounted in accordance with the basis for the parties’ agreed profit share and, if so, how much [14B] [PI says $8.511m, DEE says nil].

(c)    Whether the budgeted EBIT of the DEE transmission business included $647,000 referable to two particular projects (12586 and 12588). [14C]

(d)    What was the budgeted and actual EBIT for all included projects in the DEE transmission business for the 2009 financial year? [14D]

(e)    What is the proper amount of EBIT (and hence PI’s proper share of profit), calculated in accordance with DEE’s alleged representations and/or the alleged joint venture agreement? [14F–L]

51    In my opinion this puts the issues more broadly than they are defined by the pleadings. DEE correctly points out that the complaint made in the amended statement of claim concerning the application of accounting principles relates only to “the undeclared profit margin” for the 2009 financial year. Thus, although the amount of EBIT is a matter to be proved in all the relevant years, the method of calculation is only an issue for the 2009 year. DEE accepts that PI is entitled to know what the EBIT was in each year, but argues that discovery of all the documents sought in this category is unjustified. I agree.

52    DEE has offered to provide PI with job progress reports (apparently also referred to as management reports) for the 2009, 2010 and 2011 financial years (which are apparently financial reports showing EBIT figures) subject to a confidentiality regime.

53    PI contends that there is no reason to think those reports will provide the required level of information to allow an analysis of how DEE “intervened and affected the derivation of the transmission business profit result and no evidence is adduced to suggest that the management reports would be adequate for the purpose”.

54    There is some force in this submission. I do not think that DEE should be able to pick and choose which reports it provides. There may also be policy documents or correspondence relating to the method of allocation, treatment and reporting of revenue and costs of the transmission projects that directly bear on the way revenue and costs are reported in the job progress reports. But there is also force in DEE’s complaint about the way the category is drawn. It is conceivable that discovery of the documents for the 2009 year will raise questions about the method of calculation in later years. But at present that is not an issue and whether that is so is mere speculation.

55    Consequently, I would not order discovery of documents in category 7 as currently drafted. I would, however, be prepared to order that DEE discover:

(a)    documents falling within the description of job progress (or management reports), accounting and financial reports of DEE’s transmission business for the 2009 financial year;

(b)    policy documents and correspondence relating to the method of allocation, treatment and reporting of 2009 financial year revenues and costs (including on-costs) of DEE’s transmission business.

(c)    all transmission business job progress (or management) reports for June 2010 and June 2011.

56    If a question of confidentiality arises, subject to being satisfied that a confidentiality order is appropriate, I will protect it.

57    As there is an issue about the scope of DEE’s transmission business for the purpose of the alleged profit sharing arrangement, the reference to transmission business in this proposed order should be read as incorporating all the controversial projects, namely, those PI contends (but DEE disputes) were part of the business for this purpose.

Category 8.2

58    This category calls for discovery of documents relating to payments made for living away from home allowance for employees and contractors engaged on transmission projects during the period 1 May 2008 to 31 July 2009.

59    PI submits that the documents are directly relevant to DEE’s contention that it relied on PI’s allegedly misleading conduct or on the mistaken belief that the representations were true. It explains that material relating to non-PI personnel “is relevant to the extent that discovery is sought in relation to such persons as are in an equivalent position to persons employed by PI in respect of whom payments of [living away from home allowance] are in issue to determine how that equivalent population is treated”.

60    Yet, DEE has already agreed to give discovery of category 8.1, which comprises:

“documents containing all or part of the contracting terms, internal policies, procedures and guidelines of DEE relating to the entitlement to claiming by and payment of [living away from home allowances] to employed and contract personnel engaged on transmission projects during the period 1 May 2008 to 31 July 2009”.

61    PI asserts that it needs the additional documents described in category 8.2 to enable it to test whether PI’s claims were made or treated materially differently from any other claims for living away from home allowance on DEE’s projects. It argues that, in theory, DEE might have a policy which in practice it ignores, so that discovery of category 8.1 might be insufficient for PI’s purposes and consequently – the argument continues – the just resolution of DEE’s claim would require that PI have access to the documents that show what DEE did in practice about paying living away from home allowances to all personnel on all its transmission projects. I reject the argument. In the first place, I am not satisfied that the documents are directly relevant to a matter in issue. The best PI can say is that there is a chance the documents will tend to prove or disprove DEE’s claim that it relied on PI’s representations with respect to on-costs. In the second place, it is common ground that DEE’s transmission business is a very large enterprise, turning over a lot of money and undertaking numerous and large jobs. DEE asks rhetorically how discovery and inspection of a vast number of payslips to employees across all of DEE’s projects would advance the just, quick, inexpensive and efficient resolution of the issues in the case. I must confess that I am unable to see it. In my view, discovery of documents in category 8.2 would not further the overarching purpose. I would therefore refuse to order discovery of documents in this category.

Category 9

62    The documents in this category consist of those:

containing or referring to consideration by DEE or DEE Group including their advisors and consultants of entitlements, claims or payments for [living away from home allowances] or similar payments in respect to personnel of:

a.    PI; and/or

b.    DEE; and/or

c.    Other parties

on Transmission projects between 1 May 2008 to 31 July 2009.

63    DEE agrees to discover the documents in subcategory a, but objects to discovering the documents in subcategories b and c.

64    PI’s justification for subcategories b and c is that being able to compare DEE’s treatment of PI’s claims with its treatment of other claims will “elucidate whether payments to PI were made by virtue of DEE acting in reliance upon the alleged misleading conduct of PI or as a result of mistake as DEE alleges or whether they reflect the general treatment within DEE of [living away from home allowances] and/or similar payments”. Once again, while I can see that these documents may have some indirect bearing on the issue of reliance, in my view, they are not directly relevant to an issue in the proceeding. In any event, for the reasons given above, discovery of subcategories b and c would place an unreasonable burden on DEE and I would not therefore order that they be discovered.

Category 10

65    DEE initially agreed to discover subcategories a and b but not c. Its objection to subcategory c was withdrawn in written submissions. I would therefore order that DEE give discovery of this category of documents.

Category 20

66    Category 20 consists of:

all documents comprising, containing, recording or referring to or evidencing communications that were made, sent, recorded or received in the periods:

a.    1 March 2008 to 30 April 2008;

b.    1 May 2008 to 30 August 2009; and

c.    1 September 2009 to date

by Bill Eggers, Russell Houlahan, John MacLellan, Jim McKenna, Sharon Leayr, Victoria Hawkins, Wayne Nolan, Paul Simpson, Paul Elliot, Michelle Ruddy, John Luhrs, Elaine McInerney (formerly Tsiavos), Nadia Bemadi, Cliff Britton, Nick Perott, Greg Blampey in relation to:

i.    the commercial relationship and/or the operational relationship between PI and DEE;

ii.    the nature of such relationship;

iii.    the status of such relationship;

iv.    the alteration of such relationship; and

v.    the proposed termination or termination of such relationship.

67    These documents are said to be directly relevant to PI’s claim that DEE acted in bad faith when it wrote to Mr Power on 11 June 2009 letter imposing “conditions precedent” to DEE entering into a services agreement with PI after 30 June 2009.

68    The only issue here was with the inclusion of three individuals who have since left DEE’s employment. They are Paul Elliot, John Luhrs and Wayne Nolan. Evidence was given by Mr Tompkins that the process of retrieving their emails from back-up tapes would be time-consuming and expensive. In submissions PI did not press its claim relating to these individuals.

69    I would therefore order that DEE give discovery of the documents in category 20, as amended to delete the names of Paul Elliot, John Luhrs and Wayne Nolan.

Category 22

70    Category 22 is made up of

all documents in the period 1 January 2008 to 31 July 2009 comprising, containing, recording, referring to or evidencing communications that were made, sent, recorded or received by Bill Eggers, Russell Houlahan, John MacLellan, Jim McKenna, Rick Whitbread, Sharon Leary, Victoria Hawkins, Nardia Bernadi, Jane Davies, Aneta Bryant and Monica Wright in relation to:

a.    the calculation and/or charging of on-costs [charged by PI to DEE];

b.    the calculation and/or charging by DEE of on-costs charged by DEE to third parties in relation to the Transmission projects.

71    DEE objects to the documents in subcategory b. It submits that the calculation of on-costs charged by DEE to third parties on other transmission projects is not directly relevant to any pleaded issue. I agree, for the reasons already given.

72    I would therefore order that DEE give discovery of the documents in subcategory a but not b.

Category 35

73    This category consists of DEE management, accounting and financial reports from 1 May 2008 in respect of the DEE-Tenix joint venture and/or Power Alliance WA. It purportedly goes to the issue raised in paragraph 15 of DEE’s amended defence, namely, the scope of the DEE transmission business for the purpose of calculating the EBIT for the transmission business for the 2009 financial year.

74    It will be recalled that paragraph 14A of the amended statement of claim pleads that the EBIT for the transmission business for the 2009 financial year was at least $9.153 million. Paragraph 15 of the amended defence pleads that the EBIT for the transmission business for that year was in fact $7.788 million, being $9.153 million less the EBIT attributable to the DEE-Tenix joint venture of $1.365 million.

75    Thus, the only issues raised on these paragraphs of the pleadings are: the manner of calculation and therefore the amount of EBIT for the 2009 financial year, whether the DEE-Tenix joint venture formed part of the transmission business at that time, and whether its EBIT contribution for the 2009 financial year should be included or excluded from the EBIT for the transmission business as a whole. There is no issue on the pleadings concerning the manner of calculation of the EBIT for the DEE-Tenix joint venture for any year other than the 2009 financial year.

76    DEE has already agreed to give discovery of documents directly relevant to the issue of whether the DEE-Tenix joint venture formed part of the transmission business. And it has also agreed to discover the DEE transmission job progress report for June 2009, which discloses the EBIT attributable to that joint venture in the 2009 financial year. PI, however, contends that it should have, not merely “management reports” for the year ending 30 June 2009 but all accounting and financial reports “for the period up to date (a subset of the stipulated 5 years)” referred to in the memorandum of understanding.

77    Given what DEE has already agreed to discover in relation to the DEE-Tenix joint venture, and my proposed order regarding category 7, I would not order discovery of this category as any additional documents it captures are not directly relevant to the issue to which PI claims it relates.

Categories 36 and 37

78    It is convenient to deal with these two categories together.

79    Category 36 comprises “documents referring to the transfer of the management of, resources or personnel pertaining to business conducted by DEE or DEE Group in Western Australia (WA Projects) into the PI Systems Division or Transmission business of DEE”.

80    Category 37 consists of management, accounting and financial reports concerning the WA projects after 1 May 2008.

81    PI submits that the documents are directly relevant to the issue of the composition of DEE’s transmission business.

82    There does not appear to be any dispute that the only pleaded issue to which these documents could relate are those raised by paragraph 14D of the amended statement of claim and paragraph 18 of the amended defence. PI, itself, only relies on paragraph 18 of the amended defence.

83    In paragraph 14D of the amended statement of claim PI alleges that the actual 2009 financial year profit of DEE’s transmission business for the 2009 financial year included $2 million of actual profit for “WA share”. In paragraph 18(g) of the amended defence DEE denies that allegation and notes that the $2 million particularised as “WA share” was referable to projects undertaken by the Western Australian contracting business, not the transmission business. In paragraph 18(h), DEE further asserts that the $2 million figure does not refer to actual profit but to gross margin, such that overheads and corporate charges would have to be deducted in order to derive EBIT figures.

84    PI contends that documents created by DEE, Tenix or Power Alliance WA will reveal that the WA projects were reported or managed within the transmission business after 1 July 2008 and identify resources (such as management, personnel, equipment and associated matters) transferred into the transmission business that affected the integers of the budget of that business and the calculation of its profit.

85    DEE has agreed to discover documents within category 36 limited to the 2009 financial year. In response to category 37, DEE says it has already agreed to discover the transmission job progress report for June 2009, which apparently discloses the revenue attributable to the WA projects in the calculation of EBIT. As the only pleaded issue concerning EBIT for these projects relates to the 2009 financial year, I would not order discovery of documents covering later years.

86    The leaves the question whether it is sufficient for DEE to discover the job progress report or whether it should be required to discover all the management, financial and accounting reports for the WA projects in this period. PI is suspicious that the job progress report may not reveal the true EBIT figure. It relied on evidence (contained in exhibits A–F) which, it said, supported those suspicions. The evidence is, at best, equivocal and potentially misleading. Regardless of whether there is a foundation for these suspicions, however, it seems to me that DEE should discover documents falling within the description of management, accounting and financial reports for the WA projects for the 2009 financial year. But the order I propose to make with respect to category 7 will capture all these documents.

Category 39

87    This category seeks the discovery of documents described as

Financial reporting including financial outcomes of the Transmission business including but without limitation the projects described in paragraph 14B and 14D of the Amended Statement of Claim and referred to in paragraphs 15, 16 and 18 of the Respondent's Amended Defence during the following periods:

a.    1 May 2008 to 30 June 2008;

b.    1 July 2008 to 30 June 2009;

c.    1 July 2009 to 30 June 2010;

d.    1 July 2010 to 30 June 2011; and

e.    1 July 2011 to date.

88    The projects described in paragraphs 14B are transmission projects that PI alleges were undertaken and completed by the end of the 2009 financial year but whose profits were not brought to account in the calculation of the 2009 financial year EBIT figure. The projects described in 14D are those whose profits were included in the results for the 2009 financial year, though they were completed or substantially completed in the previous financial year.

89    PI submits that the accounting principles or practices applied by DEE to the calculation of profit for the transmission business in the 2009 financial year are put squarely in issue by paragraphs 14A to 14L of the amended statement of claim and paragraphs 15 to 19 of DEE’s amended defence. PI also submits that it is necessary that DEE disclose those principles and practices and the profit for all projects within the transmission business to deal with the controversy.

90    DEE again complains about the breadth of the request. It repeats its submission that the only pleaded issue about the calculation of profit for the transmission business is the allegation about undeclared profit margin in the 2009 financial year. It also complains that the category is drawn in a “hopelessly vague and ambitious” way and that there is an obvious burden in being required to produce the documents of a sizeable business over four years.

91    There is a clear overlap between this category and category 7. It is difficult to discern any material difference, save for the addition of the first period. For the reasons I have given earlier, there is no justifiable basis for ordering discovery of documents in subcategories c, d and e. The allegations in paragraphs 14A–L relate only to the calculation of EBIT in the 2009 financial year. Nevertheless, given the allegation in paragraph 14D, which DEE denies in its defence, the issue about the calculation of EBIT in that year also raises a question about the profits of projects completed or substantially completed by the end of the 2008 financial year which were accounted for in the 2009 reports.

92    The next question is whether DEE should have to discover all the documents PI wishes to inspect for those periods.

93    As I mentioned earlier, DEE has agreed to discover end-of-year job progress reports for the 2009, 2010 and 2011 financial years, under its proposed reformulation of category 7. Again, for the reasons given in relation to category 7, I would not confine PI to those reports. In addition to the order I propose with respect to category 7, I would order that PI give discovery of documents falling within the description of job progress or management reports, accounting and financial reports concerning the projects described in paragraphs 14B and D of the amended statement of claim for the period 1 May 2008 to 30 June 2008. Should I be wrong in my assumption that category 7 encapsulates these projects and the transmission business in general for the other years, then I would be prepared to reconsider the scope of the proposed order.

Category 40

94    This category covers documents containing or referring to incentive schemes for Bill Eggers, Russell Houlahan, John MacLellan, Jim McKenna, Paul Elliot, Wayne Nolan and Geoff Knox documents for the 2007 to 2010 financial years.

95    These documents are said to be relevant to the issue of whether DEE acted in bad faith. PI argues that the just determination of this issue “requires that PI be permitted to investigate from DEE’s documents whether remuneration incentive schemes for DEE’s relevant personnel have the capacity to cause the DEE decision makers guiding the actions of DEE to favour termination of PI for reasons of personal gain, rather than the ‘public’ reasons given by DEE in its correspondence”. I reject the argument. As DEE submits, there is no allegation that any of the named individuals acted as they did because of a conflict of interest arising from an incentive scheme.

96    PI asserts (without reference to the pleadings) that:

It is clear on the known facts that DEE itself as a corporate entity had a strong incentive to jettison PI once PI had delivered and bedded down the human resources and other advantages which it contributed to DEE’s Transmission business during the year of their mutual involvement.

97    In my view the documents falling within this category are well outside the terms of r 20.14 and DEE should not be required to discover them.

Orders

98    I direct that the parties bring in orders giving effect to these reasons.

99     I reserve the question of costs. I will hear from the parties at the next directions hearing once they have had the opportunity to consider these reasons if they are unable to reach agreement as to the appropriate costs order.

Associate:

Dated:    28 February 2012