FEDERAL COURT OF AUSTRALIA

Watson v Schreuder Partners Lawyers [2020] FCA 1044

ORDERS

THE COURT ORDERS THAT:

1.    The application for preliminary discovery be dismissed with costs.

2.    By 21 July 2020, the prospective respondent file a document of no longer than one page identifying the costs they seek and thereafter the issue of costs will be determined on the papers.

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

REASONS FOR JUDGMENT

(Revised from Transcript)

LEE J:

A    INTRODUCTION AND NATURE OF THE APPLICATION

1    This is an unusual application for preliminary discovery. The prospective applicant (Mr Watson) has provided Mr O’Brien, of O’Brien Lawyers, with instructions to investigate the possible commencement of a proceeding pursuant to Pt IVA of the Federal Court of Australia Act 1976 (Cth) (Act) against the prospective respondent, Schreuder Partners Lawyers (Solicitors), with regard to legal costs and disbursements charged to Mr Watson by the Solicitors in relation to personal injury litigation. The documents sought in the Originating Application (Application) are the files of former and/or current clients of the Solicitors retained on or after 24 April 2014 who, relevantly, entered into a conditional costs agreement with the Solicitors in relation to motor accident claims and received one or more tax invoices from the Solicitors pursuant to the relevant conditional costs agreement.

2    The reason why the Application is unusual is because Mr Watson labours under no doubt as to the fact that he has a present entitlement to relief against the Solicitors; he does not need access to any documents to form that view.

3    Mr O’Brien has been engagingly frank in the reasons why he seeks to invoke the compulsory powers of the Court to procure documents from the Solicitors. Put simply, Mr O’Brien and, through him, Mr Watson, believe that there are others who are entitled to declaratory and compensatory relief against the Solicitors and those persons will be denied access to justice unless a class action is able to be commenced. Indeed, Mr O’Brien has made it plain that he considers that it is appropriate for the Court to encourage “self-funded” class actions and it would be inimical to the policy objectives of the class action regime to continue to encourage (or at least acquiesce in) a process whereby class actions can only be commenced with either: (a) the involvement of a litigation funder (at the cost of a substantial litigation funding fee being taken out of the amount otherwise payable to group members); or (b) requiring a firm of solicitors to pursue the class action on a speculative basis with all the attendant risks of such a mode of remuneration.

4    This core contention is made clear in the written submissions filed on behalf of Mr Watson as follows:

In many representative proceedings, litigation funding allows representative proceedings to proceed because the funder pays applicant’s lawyer from the beginning of the proceedings and the matter can proceed.

Without a funder, most representative proceedings will not get off the ground and the applicant and group members who have a valid claim will be denied access to justice.

In this case, there is no litigation funder and O’Brien Lawyers in their experience, are of the view that no funder would be prepared to take on this case because of the relatively low return to the funder compared to the exposure of the risk involved in the matter.

Further, O’Brien Lawyers are not prepared to continue in the matter on a ‘no win, no fee basis’.

The Prospective Applicant does not have the funds to provide for any order for security for costs, nor has he any funds to pay any adverse cost orders and consequently he is not able to continue the proceedings on his own behalf, nor as a representative on behalf of the group members, unless the present_ Application is allowed.

5    The Application for preliminary discovery is opposed by the Solicitors on a number of grounds, which can be placed broadly into two categories: (1) contentions as to a lack of power; and (2) contentions as to a range of discretionary considerations that militate against the granting of relief. I will make some further observations below as to the question of the Court’s power to make an order of the type sought by Mr Watson, but prior to doing so, it is necessary to say something about the bases relied upon by Mr Watson.

B    BASES FOR SEEKING PRELIMINARY DISCOVERY

6    Mr Watson seeks the Application for preliminary discovery on three bases. The first is to rely on r 7.23 of the Federal Court Rules 2011 (Cth) (FCR); the second is to rely on s 33ZF of the Act; and the third is to develop an argument that an obligation exists requiring the solicitor to obtain the information because of duties owed to group members of the type recently explained by the Full Court in Dyczynski v Gibson [2020] FCAFC 120.

I    Section 33ZF of the Act and Dyczynski

7    It is convenient initially to deal briefly with the second and third of these bases. Section 33ZF of the Act simply has no applicability. The point of departure for that section to be engaged is the existence of an extant proceeding conducted under Pt IVA of the Act. This is not such a proceeding and, therefore, a power to make an order of the type sought under that section does not arise. As to the argument based upon the Full Court’s reasoning in Dyczynski, it is similarly, with respect, misconceived. During the course of oral submissions Mr O’Brien referred to a section of the judgment in Dyczynski where I canvassed how a person becomes a group member in a class action. There (at [327]–[329]), I set out the requirements of s 33C of the Act and made a number of comments concerning the meaning of a “claim” (as that word is to be used in the statutory sense). He then placed reliance on comments made by Murphy and Colvin JJ (at [209]), where their Honours explained the nature of the obligations of a lawyer for the applicants to class members, noting that “how far those obligations extend is not settled”. The point being made in that part of the judgment, and others, is that there is an obligation for a solicitor to act towards group members in a way that is consistent with the representative authority of the applicant. It is often expressed, as it was in Dyczynski (at [379]), as an obligation “to perform the role consistently with the duty not to act contrary to the interests of those in respect of whom the lead applicant acts in a representative capacity, that is, not to take steps contrary to the interests of the group members”. However, although these duties inform the steps that solicitors are obliged to take in acting for a representative applicant, they do not ground some independent source of power to procure documents in advance of the commencement of a proceeding to identify whether or not the proceeding “stacks up” financially.

II    FCR 7.23

8    I now turn to the applicability of FCR 7.23, being the primary basis identified for the relief sought. There has been much written about this rule, some of which is somewhat difficult to reconcile. As Allsop CJ stated in Pfizer Ireland Pharmaceuticals v Samsung Bioepis AU Pty Ltd [2017] FCAFC 193; (2017) 257 FCR 62 (at 66 [8]):

There have been a large number of cases now (both at first instance and Full Court) dealing with and explaining the relevant rule. Those authorities should not be utilised to form a complex matrix of sub-rules for the operation and application of a tolerably straightforward provision. Whilst there was no submission that any of these cases was wrongly decided, there does appear to have been a tendency to create an overly abstracted conceptualisation of refined states of mind which, if the words of the rule are not kept in mind, can lead in application to a misstatement of the essence of the rule, focused as it is upon what may be the position.

(emphasis in original)

9    It seems to me that the current Application does not involve the necessity for me to closely parse the evidence that has been adduced in an attempt to satisfy the three elements of FCR 7.23, namely: (a) a reasonable belief that a prospective applicant may have a right to obtain relief against a prospective respondent; (b) after making reasonable enquiries, the prospective applicant does not have sufficient information to decide whether to commence a proceeding in the Court to obtain that relief; and (c) a reasonable belief that the prospective respondent has relevant documents that would assist (being documents “directly relevant to the question whether the prospective applicant has a right to obtain the relief”). The reason for this is that the documents that Mr Watson seeks are not directly relevant to the question of whether he has a right to obtain relief; nor are they relevant to him forming a view as to whether the group members have a right to obtain relief against the Solicitors. Rather, as Mr O’Brien frankly submits, the documents are sought for the purpose of contacting the group members in order to seek a financial contribution to the costs of the proposed class action, as well as any adverse costs orders and security for costs orders or, alternatively, considering some other form of financial contribution from them. They are not the sort of documents, it seems to me, that FCR 7.23 contemplates as being documents which are to be produced pursuant to the rule.

10    This is sufficient to dispose of the Application, but for completeness, I will make two further points concerning the applicability of FCR 7.23.

The “Threshold” Contention

11    In submissions, I was referred by counsel for the Solicitors to the decision of Kerr J in Bonham v Iluka Resources Limited [2015] FCA 713. In that judgment (at [78]), his Honour dealt with what he described as a “threshold” issue which, I am told, was not a matter the subject of later consideration by the Full Court when an appeal was granted from the orders made by his Honour. The view expressed by Kerr J was that the Court cannot have regard to the circumstances of persons other than the prospective applicant in considering the engagement of FCR 7.23 and, in particular, cannot rely upon any reasonable belief as to a possible entitlement to relief by group members in a proposed class action.

12    With respect to his Honour, I disagree. A prospective applicant in an anticipated class action is entitled, as the privy of the prospective group members, to agitate for relief based upon the common issues. As has now been explained in a number of cases following the High Court’s decision in Timbercorp Finance Pty Ltd (in liquidation) v Collins [2016] HCA 44; (2016) 259 CLR 212 and most recently by the Full Court in Dyczynski, the applicant not only has the statutory power, but also the responsibility, to advance those claims for relief based on common issues in any class action that may be commenced (in contradistinction to any individual aspects of the claims for relief of group members). Therefore, to the extent to which the documents may go to providing sufficient information to decide whether to commence a class action to obtain relief that would be sought in a representative capacity, I see no reason why FCR 7.23 could not be engaged. Put another way, I do not think the rule should be limited in such a way that a prospective applicant is somehow prohibited from relying upon any reasonable belief as to a possible entitlement to relief by group members in a proposed class action.

Discretionary Considerations

13    Even if I am wrong about the engagement of the rule, in the sense that Mr Watson could bring himself within the requirements of FCR 7.23, I would decline to make the order in the exercise of my discretion. This is for broadly two reasons.

14    First, Pt IVA has a structure which is designed to allow a class action to be commenced on behalf of class members without any need for certification and the gateway provisions are deliberately undemanding: see Dyczynski (at [331]). Although I understand the commercial position of Mr O’Brien, there is nothing stopping Mr Watson having his solicitor commence an open class representative proceeding and immediately seeking interlocutory relief by way of a communication made to group members seeking to apprise them of the financial circumstances of the case and informing them, consistent with the Court’s protective and supervisory position in relation to group members, that unless certain steps are taken, then it is likely that the proceeding would no longer continue.

15    A recent example of this can be seen in Lenthall v Westpac Banking Corporation (No 2) [2020] FCA 423, where group members were apprised with important information as to the funding arrangements of the case in circumstances where, unless a sufficient number of group members registered, it was likely that the proceeding would no longer continue. As I explained at some length in that judgment, I did not see there to be any tension between a communication of that type being sent and the ratio decidendi of BMW Australia Ltd v Brewster [2019] HCA 45; (2019) 94 ALJR 51. The availability of this mechanism, which has been adopted in one form or another in a number of class actions, seems to me to be a pointer as to why imposing pre-commencement discovery obligations for the reasons advanced by Mr Watson ought to be approached with a degree of caution.

16    Secondly, the evidence establishes that there is significant work that needs to be undertaken by the Solicitors in order to comply with any order of the type sought in the current Application. Evidence was given that, since 24 April 2020, the Solicitors have opened 2,982 new client files, of which approximately 1,800 relate to claims arising from a motor vehicle accident. Furthermore, of those 1,800 files, it is estimated that 1,300 have been completed, and of those completed files, approximately 1,150 have had tax invoices issued. In respect of those files, no doubt many have been archived and the documents sought will, most likely, contain a number privileged documents. Although I am confident that if an order was to be made a regime could have been fashioned which would have resolved any difficulties with the documents being produced and ensured that such production occurred in a cost effective manner, the fact is that it would still be, at the least, a potentially significant exercise which, although it may be required should a proceeding be commenced, is a further reason for caution in granting the orders proposed pre-commencement.

C    POWER

17    It is then necessary to return to the issue of power. Counsel for the Solicitors suggested that there is no power to require a prospective respondent to produce documents of this type on the bases identified by Mr Watson. That said, although s 33ZF of the Act and FCR 7.23 may not provide the relevant power in the current circumstances, this does not mean it cannot be found elsewhere.

18    It is beyond the scope of this judgment to trace the history of the approach of courts of equity to discovery which emerged as long ago as the 14th and 15th centuries (for those interested, comprehensive accounts may be found in Goldstein A K, ‘A Short History of Discovery’ (1981) 10 Anglo-American Law Review 257 and the early chapters of Bray E, The Principles and Practice of Discovery (Reaves & Turner, 1885)).

19    In short compass, from its earliest days, equity relied upon pleadings and compulsory examination of the parties to provide the evidence necessary for a just decision and fashioned a range of steps not available at common law to allow for the provision of both oral and documentary material to be obtained following petition. This later developed into the relatively modern form of the bill of discovery. Prior to procedural fusion, a bill of discovery needed to state the matters sufficient to satisfy the conditions upon which it could be entertained by a court of equity. A bill could be filed in aid of proceedings that not only were pending, but also were intended. Indeed, while in a bill of discovery it was necessary for the plaintiff to show a case in which a court of equity would assume jurisdiction for the purposes of compelling discovery, a bill could be brought where discovery was required in order to “ascertain what form of action to bring”: The Principles and Practice of Discovery, Ch X (at 610–2); see also Bent v Young (1838) 59 ER 327 (at 329); Angell v Angell (1822) 57 ER 33 (at 34–5). A court must have been satisfied, however, that the discovery was for more than the “mere gratification of curiosity”: Cardale v Watkins (1820) 56 ER 801.

20    The flexibility of equity in providing discovery, including prior to suit, together with the power to order interlocutory receivers, interrogatories or other orders directed to the perpetuation of testimony are all remedies which, absent statute, were not available to common law courts. In this State, this was rectified by the New South Wales Common Law Procedure Act 1857 (NSW) ss 23–4; see Heydon J D, Leeming M J and Turner P G, Meagher, Gummow & Lehane’s Equity: Doctrines & Remedies (5th ed, Butterworths, 2015) (at 31 [1-295]).

21    Although it is unnecessary to decide the point, it seems to me that any suggestion that this Court, as a court of equity (see s 5(2) of the Act), would be unable to fashion appropriate remedies to allow the production of documents to facilitate the administration of justice in the case of a prospective class action (a species of litigation which, of course, has its own equitable roots) is not compelling. For example, there may be cases, the details of which it unnecessary to speculate about, where it might be appropriate to make an order compelling documentation in order to ascertain the size or characteristics of group members prior to the commencement of a class action, in circumstances where to do so would aid the administration of justice. Of course, this would, like all equitable remedies, be discretionary and, as I have already explained above, in the exercise of my discretion, I would not grant such equitable relief in the present circumstances even if it was sought by Mr Watson, which it is not.

22    Finally, in this regard, I note that in Szymczak v Balijepall [2019] FCA 234 (at [11]) I stated, in the context of a construction argument concerning FCR 7.22, that if I was wrong as to that rule being engaged I would consider that an order granting discovery was “appropriate in the interests of justice in accordance with FCR 1.32 and, if it was necessary to do so, I would dispense with compliance with the rules and make the order in the exercise of the Court’s equitable jurisdiction”. Of course, as is the case with any exercise of power to dispense with the rules, any order made must be justified as appropriate in the interests of justice, with those interests of justice being informed by reference to basic legal or equitable principle.

D    ORDERS

23    For the above reasons, the application for preliminary discovery must be dismissed with costs with any specific order as to costs to be determined on the papers.

Associate:

Dated:    22 July 2020