FEDERAL COURT OF AUSTRALIA

King (Trustee), in the matter of Zetta Jet Pte Ltd v Linkage Access Limited (Discovery) [2019] FCA 1408

ORDERS

THE COURT ORDERS THAT:

1.    The amended interlocutory application filed on 26 June 2019 be dismissed with costs.

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

REASONS FOR JUDGMENT

PERRAM J:

Introduction

1    The First Applicant in the interlocutory application (‘Linkage’) applies for discovery orders against the Plaintiff, Mr King. Mr King is the Chapter 7 trustee in the United States in the bankruptcy case of Zetta Jet Pte Ltd, a Singaporean company (‘Zetta Jet’). He was appointed as the Chapter 7 trustee on 4 December 2017 by the United States Bankruptcy Court for the Central District of California, Los Angeles Division. That occurred in case number 2:17bk21386SK. On 12 September 2018 this Court recognised that proceeding as a foreign non-main proceeding pursuant to s 6 of the Cross-Border Insolvency Act 2008 (Cth): see King, in the matter of Zetta Jet Pte Ltd [2018] FCA 1932.

2    The litigation in this Court is principally concerned with a ship called the Dragon Pearl. At an earlier time in this proceeding Mr King sought freezing orders under Art 21 of the UNCITRAL Model Law for Cross-Border Insolvency (‘the Model Law’) to prevent the removal of the ship from Australian waters. Although interim freezing orders were initially granted in support of another related proceeding, after some procedural to-ing and fro-ing, Mr King’s related proceeding was summarily dismissed on 11 December 2018 when this Court granted Linkage and the other defendant, Dragon Pearl Ltd, judgment on the basis that the suit had no reasonable prospects of success: King (Trustee), in the matter of Zetta Jet Pte Ltd v Linkage Access Limited [2018] FCA 1979. Despite that, the freezing order was continued by consent to 25 February 2019 whilst the High Court determined an application for special leave from an earlier step in the litigation, whilst Mr King pursued adversary proceedings in the United States (as I describe below) and whilst Linkage considered whether to bring a recusal application. Linkage did not bring its mooted recusal application and on 15 February 2019 the special leave application was dismissed: Zetta Jet Pte Ltd v The Ship “Dragon Pearl” [2019] HCATrans 14. This proceeding was then re-listed on 18 February 2019 for review of the freezing order.

3    Whilst the proceedings in this country were making their way through various courts, Mr King filed a proceeding in the United States Bankruptcy Court for the Central District of California, Los Angeles Division, which sought relief against a number of defendants, including Linkage, which encompassed orders, inter alia, for the unwinding of the allegedly fraudulent conveyance of the Dragon Pearl to a Mr Cassidy using misappropriated funds of Zetta Jet. It is convenient to refer to this proceeding as the ‘US Adversary Proceeding’. On 23 January 2019 Mr King obtained default orders against Linkage in that proceeding.

4    As part of Linkage’s strategy to have this Court’s interim freezing orders dissolved (to the extent that the orders were in support of the US Adversary Proceeding) it sought to persuade me, at a hearing originally listed on 31 January 2019 but adjourned to 18 February 2019, that it would take over 28 months to serve the US Adversary Proceeding on all of the various defendants and a further five to six years to try that case on its merits and obtain a final and unappealable judgment. This was presumably to support a submission directed towards the issue of where the balance of convenience lay. The likely point was that a continuation of the freezing orders might last for many years and it was unfair to sterilise Linkage’s ownership of the Dragon Pearl for such a long period of time.

5    To pursue that submission Linkage filed and served two expert reports of Mr John N Tedford dated 28 January 2019 (‘the Tedford Reports’). Mr Tedford is a partner at Danning, Gill, Diamond & Kollitz LLP, a bankruptcy law firm practising in Los Angeles. There was no order or direction made by this Court of any kind which required Linkage to file or serve the Tedford Reports and, in that sense, it may be said that their filing was voluntary.

Use of the Tedford Reports

6    The first step in the present application concerns the fact that Mr King proceeded to use the Tedford Reports in the US Adversary Proceeding without first obtaining the leave of this Court. He did so in the course of resisting Linkage’s motion to set aside the default orders in that proceeding. As part of his response to that motion Mr King wished to submit that the behaviour of Linkage in the Australian proceeding had constituted a bad faith attempt to manipulate the legal system. He cited—but did not actually quote from—the Tedford Reports as part of that argument. This use occurred in a document filed on his behalf in the US Adversary Proceeding entitled ‘Omnibus Response to Linkage Access Limited’s and New Target Investment Limited’s Motions to Set Aside Entries of Default’ (‘Omnibus Response’). The relevant paragraphs were [44]-[46]:

Indeed, just 36 hours before January 31st hearing regarding the continuation of the Injunction, Linkage submitted over 150 pages of pleadings and affidavits to the Australian Court, including the Tedford Affidavits, to argue the Injunction should immediately lifted because it would take over 28 months to serve all of the Adversary Proceeding defendants, 4 to 6 years to try the merits raised in the Complaint, and cause the Debtors’ estates to expend substantial attorneys’ fees. In its submissions, Mr. Tedford assumed that the Defendants had not appointed to represent them in the Adversary Proceeding and that service had not been made.

It was only after the Defendants’ failed in their attempt to obtain a discharge of the Injunction at the January 31st hearing did New Target and Linkage authorize K&L Gates to act as their counsel in this Adversary proceeding, on February 5, 2019, and accept service on their behalf.

The above facts betray the Defendants’ bad faith motive to seek delay and drive up the costs of litigation for the Trustee, and evidence a clear desire to interfere with judicial decision-making and manipulate the legal process.

(errors in original)

7    So it is clear that the Tedford Reports must have been used in the preparation of the Omnibus Response. In addition to that use, the Omnibus Response was itself uploaded to the internet after it had been placed on the Court file. However, that does not appear to involve any more use of the Tedford Reports than had already occurred by the filing of the Omnibus Response. This is so because the Tedford Reports were not themselves set out in the Omnibus Response.

8    Linkage submits that this evidence shows that Mr King has breached the obligation not to use documents produced in litigation for extraneous purposes without first obtaining the Court’s leave. The obligation was explained in Hearne v Street [2008] HCA 36; 235 CLR 125 (‘Hearne v Street’) at 154-155 [96] per Hayne, Heydon and Crennan JJ in these terms:

Where one party to litigation is compelled, either by reason of a rule of court, or by reason of a specific order of the court, or otherwise, to disclose documents or information, the party obtaining the disclosure cannot, without the leave of the court, use it for any purpose other than that for which it was given unless it is received into evidence. The types of material disclosed to which this principle applies include documents inspected after discovery, answers to interrogatories, documents produced on subpoena, documents produced for the purposes of taxation of costs, documents produced pursuant to a direction from an arbitrator, documents seized pursuant to an Anton Piller order, witness statements served pursuant to a judicial direction and affidavits.

9    As I have already noted, there was no order of this Court which required, ordered or directed Linkage to file the Tedford Reports. This might suggest that that their filing was not the result of compulsion but is to be seen as voluntary and, therefore, falling outside the principle in Hearne v Street. Linkage, however, submitted that this was not so. It drew attention to a portion in the passage set out above in Hearne v Street where the Court referred to documents that a party was ‘compelled either by reason of a rule of court, or by reason of a specific order of the court, or otherwise’ (emphasis added). It submitted that the words ‘or otherwise’ meant that the Hearne v Street obligation could apply to material which was filed with a court even without an explicit court order requiring that filing.

10    I accept that submission. It has been held that where a party at the request of an opposing party produces a document for the purposes of a proceeding then the implied undertaking attaches to that document. In such cases, were the request to be refused the opposing party would be able to issue a notice to produce or subpoena or otherwise to compel production. It would be anomalous that a document produced in such circumstances were treated as if it had been produced other than under compulsion. As such, the principle extends not only to those cases where the document is actually compulsorily produced under a court rule or a court order but also to those situations where a document is produced in response to a request for production which is clearly made as a practical suggestion to avoid the invocation of the court’s compulsory processes. This is true as a matter of analysis for the production is not really voluntary but instead is to be seen as having been made under a species of lawful duress, namely, the lawful implied threat of compulsory production. It is also true as a matter of policy for to hold otherwise would be to create an unwholesome incentive for parties to litigation not to co-operate and instead to insist on the requesting party to issue a notice to produce or invoking some other formal means of compulsory production. In an age where the curial fashion is to encourage co-operation between parties and the efficient use of court resources, such an approach would be hard to justify. Examples of the implied undertaking being extended to situations where production is given in response to a request being made by the opposing party against a backdrop of a possible application for compulsory production include Bourns Inc v Raychem Corp [1999] 3 All ER 154 at 170 per Aldous LJ (Sir Stephen Brown P and Swinton Thomas LJ agreeing) and Helicopter Aerial Surveys Pty Ltd v Robertson [2015] NSWSC 2104 at [17] per Brereton J.

11    However, that is not what happened in this case. Mr King did not request Linkage to produce the Tedford Reports to it and, in filing them, Linkage was not behaving practically so as to avoid the invocation by Mr King of some compulsory process aimed at requiring their production. This principle therefore does not apply.

12    There is also authority for the proposition that where a party files an affidavit pursuant to a court order that any evidence relied upon by that party be filed by a certain date, then the implied undertaking applies to any affidavit so filed: Laen Pty Ltd v At the Heads Pty Ltd [2011] VSC 315 (‘Laen’) at [8] per Davies J. That reasoning is consistent with the New South Wales Court of Appeal’s decision in Akins v Abigroup Ltd (1998) 43 NSWLR 539 (‘Akins’) at 551-552 where Mason P (with whom the other members of the Court agreed) concluded that statements filed pursuant to a direction requiring their filing by a particular time were to be treated as if they had been compulsorily produced. There the question was not whether the implied undertaking applied but rather whether legal professional privilege had been waived in the statements. For myself, I have always had doubts about this aspect of Akins. An alternative view is that the decision to file was voluntary and the party’s autonomy was circumscribed only to the extent that the choice of when the statements were to be filed was regulated. Other courts, including the Full Court of this Court, have expressed some doubt about this aspect of the reasoning in Akins: Liberty Funding Pty Ltd v Phoenix Capital Ltd [2005] FCAFC 3; 218 ALR 283 (‘Liberty Funding’) at 288-289 [24]. I have similar doubts in relation to the application of this principle in the context of the implied undertaking (cf Hearne v Street at 131 [5] per Gleeson CJ).

13    However, it is not necessary to explore those doubts further. Even accepting the principle for which Laen stands, it does not assist Linkage. There is no order in this case which required it to file any evidence by any date. In fact, there was simply no order at all. Laen does not apply.

14    This forced Linkage then to argue that the principle should be extended to cover the current situation. It did so in two ways. First, it noted that ordinarily it is likely that there would have been a timetable for evidence requiring Linkage to file its evidence by a particular time. If such an order had been made then the principle in Laen would have applied and the implied undertaking would have attached to the Tedford Reports. It was only because the matter was moving along in a hurry that no such timetable had been put in place. It was anomalous that the question of whether the implied undertaking attached should be seen as a function purely of happenstance. Secondly, the situation was not really different to Laen because in that case too there was no compulsion since the party could have chosen not to file the affidavits.

15    I do not accept either of these arguments. The absence of a court order makes all the difference to the first argument. Linkage did not have to file the Tedford Reports and there was not the slightest legal obligation on it to do so. In fact, the most recent orders of 12 December 2018 had timetabled the filing of Linkage’s mooted recusal application rather than the filing of expert evidence. It cannot be said, in that circumstance, that it acted under compulsion for it did not. As the second argument, whilst I agree that Linkage’s submission underscores what appears to me to be a defect in the reasoning in Akins (and Laen), I do not accept that I should read Laen as expressing a wider principle. Any such wider principle would, in effect, be to the effect that any document filed by a party because it wishes to use it in the litigation is subject to the implied undertaking. The principle so widely stated would be contrary to the essential requirement that production be compulsory. In such a form, the concept of compulsion would be watered down to nothing.

16    The Tedford Reports were not subject to the implied undertaking having been produced voluntarily.

Use of Mr Cassidy’s affidavit

17    On 22 February 2018 in an earlier related proceeding with a file number VID1104/2017 (‘the First Maritime Proceeding’), Burley J ordered that the then defendant (the ship the Dragon Pearl) ‘file and serve the affidavit evidence in chief upon which it intends to rely by 16 March 2018’. The Dragon Pearl served (but did not file) an affidavit of Mr Cassidy sworn 13 November 2017.

18    The evidence before me establishes that the US Federal Bureau of Investigation (‘FBI’) has had access to this affidavit. Earlier this year Mr King filed an affidavit in this proceeding which annexed an affidavit by an FBI agent, Special Agent Young Oh. Special Agent Oh’s affidavit contains the statement that ‘according to an affidavit from Cassidy that was filed in the Federal Court of Australia …’. There is only one such affidavit. Consequently, I conclude that someone has given the FBI access to Mr Cassidy’s affidavit. Since the FBI is investigating the alleged frauds of Mr Cassidy it seems unlikely that he would provide them with a copy of his own affidavit. The most likely inference is that Mr King (or more likely his office) is responsible for providing Mr Cassidy’s affidavit to the FBI. I draw that inference more comfortably where neither Mr King nor anyone else on his behalf has given evidence about this.

19    Prima facie, this involved a breach of the implied undertaking. Mr King accepted that there were authorities which have held that production by a party under an order fixing the time for the filing of evidence is production under a compulsory order. The order made by Burley J was of that nature. However, Mr King submitted those the cases so holding were wrongly decided and should not be followed. These cases were Springfield Nominees Pty Ltd v Bridgelands Securities Ltd [1992] FCA 720; 38 FCR 217, State Bank of South Australia v Smoothdale (No 2) Ltd (1995) 64 SASR 224 and Laen. Whilst I have doubts about the correctness of these decisions I am not satisfied that they are plainly wrong and in that circumstance I propose to follow them. In particular, their reasoning is supported by the New South Wales Court of Appeal’s decision in Akins and, although it concerns a slightly different question, I do not think it would be appropriate to depart from that decision, despite my reservations. As French J observed in Nezovic v Minister for Immigration and Multicultural Affairs (No 2) [2003] FCA 1263; 133 FCR 190 at 206 [52], ‘[w]here questions of law … are concerned, the view that a judge who has taken one view of the law … is ‘clearly wrong’ is not lightly to be adopted having regard to the choices that so often confront the courts …’.

20    Finally, Mr King submitted that there was a reasonable relation between the providing the affidavit to the FBI and the pursuit of the proceeding before Burley J. I am not sure whether this might have involved an admission on Mr King’s part that he had provided the affidavit to the FBI, but that need not be decided in view of the conclusion I have already reached on that topic. The argument, as I apprehended it, was that the First Maritime Proceeding was concerned with restraining the Dragon Pearl so as to overcome the alleged fraud of Mr Cassidy. Providing the affidavit to the FBI eventually led to the Australian Federal Police, at the request of the FBI, successfully obtaining a criminal freezing order over the vessel. So, on this view, it was all the same venture.

21    Making the assumption in Mr King’s favour that this is sufficient to constitute a reasonable relation between the FBI’s activities and the First Maritime Proceeding, I do not accept that as a matter of law that means that there has been no breach of the implied undertaking. Mr King submitted that a ‘reasonable relation’ test was established by the decision of Middleton J in Clark v National Australia Bank [2019] FCA 933 at [17]. However, that case does not establish that proposition. It was concerned with the use of documents subject to the implied undertaking in the same proceeding and says nothing about a situation such as the present.

22    Consequently, I conclude that there is a respectable argument that Mr King provided the affidavit of Mr Cassidy to the FBI in breach of the implied undertaking.

Discovery

23    This Court granted Linkage judgment on Mr King’s claims on 11 December 2018: King (Trustee), in the matter of Zetta Jet Pte Ltd v Linkage Access Limited [2018] FCA 1979. Ostensibly the proceeding is already concluded. However, there remains extant an undetermined application for freezing orders under the Model Law. That application has been stood over to March 2020. It is presently unnecessary because the Dragon Pearl was frozen by order of the Queensland District Court on 6 February 2019. It is only if that order is dissolved that Mr King’s further application under the Model Law will have any point.

24    Such a suit would appear to be an unlikely candidate for the making of discovery orders. On the present application, Linkage submitted that the relevance of finding out whether, and if so, to what extent that Mr King had breached the implied undertaking would go to a discretionary reason for refusing any further relief under the Model Law.

25    I do not propose to permit discovery for that purpose. This is for three reasons. First, there is no issue about the Model Law freezing order at the moment and there may well never be if the Australian Federal Police eventually obtain a forfeiture order against the vessel on the basis that it constitutes the proceeds of crime. Secondly, even if that were not so, the proposed relevance of the material is insufficiently substantial to justify the kind of discovery adventure contemplated by Linkage. A breach by Mr King of the implied undertaking in doing his level best to reverse the consequences of what appears to be a significant fraud does not strike me as a particularly powerful reason for refusing relief under the Model Law, and certainly not one which would justify the deployment of the potentially expensive tools of discovery. Thirdly, although Mr King did not seek by application to be granted leave nunc pro tunc to provide Mr Cassidy’s affidavit to the FBI, it is relevant to the discretionary issues which arise on a discovery application that if he had sought leave from Burley J to provide the affidavit it is very likely that he would have been granted that leave: cf Liberty Funding at 289-290 [31].

Conclusion

26    The application for discovery is refused with costs.

Associate:

Dated:    30 August 2019