FEDERAL COURT OF AUSTRALIA

The Owners – Strata Plan No 87231 v 3A Composites GmbH (No 6) [2023] FCA 188

ORDERS

THE COURT ORDERS THAT:

1.    The applicant’s application for an order requiring the second respondent to produce the documents identified in the draft minute of order that the applicant provided to the Court on 6 February 2023 be dismissed.

2.    The applicant pay the second respondent’s costs of and associated with the application for production of those documents.

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

REASONS FOR JUDGMENT

(Revised from transcript)

WIGNEY J:

1    This judgment addresses an issue that has arisen in the case management of a representative proceeding commenced by The Owners – Strata Plan No 87231 against 3A Composites GmbH and Halifax Vogel Group Pty Limited. A description of the nature of the proceeding and the background facts and circumstances may be found in previous judgments dealing with interlocutory issues in the matter: see in particular The Owners – Strata Plan No 87231 v 3A Composites GmbH (No 3) [2020] FCA 748.

2    Owners and the group members on whose behalf the proceedings were commenced affixed aluminium composite panels manufactured by 3A and distributed in Australia by Halifax (“Alucobond PE” and “Alucobond Plus”) as façades on buildings owned by them. Owners alleges that the panels were flammable and therefore not of merchantable quality for the purposes of, or within the meaning of that expression in, s 74D of the Trade Practices Act 1974 (Cth) and were not of acceptable quality for the purposes of, or within the meaning of that expression in, s 54 of the Australian Consumer Law, being Sch 2 of the Competition and Consumer Act 2010 (Cth). It claims that the panels will have to be removed and replaced and that it and group members in the same position as it have suffered loss and damage.

3    The proceeding is at a relatively advanced stage of preparation. While some further interlocutory steps are envisaged, it has been listed for trial to commence on 26 August 2024. It is currently anticipated that the trial will take eight weeks. In the meantime, the proceeding has been referred to a private mediator for mediation. That mediation is due to commence on 29 March 2023. The current interlocutory dispute, which is a dispute primarily between Owners and Halifax, concerns the mediation and, more specifically, the documents or information that should be exchanged between the parties for the purposes of the mediation. The dispute was first raised, in a substantive respect, at a case management hearing on 12 December 2022, though the main argument in respect of the dispute took place on 6 February 2023.

THE ISSUE

4    The issue between the parties, shortly stated, is this. Owners seeks an order, pursuant to s 23 of the Federal Court of Australia Act 1976 (Cth) (FCA Act) that Halifax produce to it the documents identified in a draft minute of order it provided to the Court on 6 February 2023 which provided as follows:

1. Pursuant to ss 23, 37P and/or 33ZF of the Federal Court of Australia Act 1976 (Cth), by [7 days from the date of this order], the Second Respondent produce to the Applicant and Sub-Group Representative in electronic form:

a. a document recording the amount (in square metres) of Alucobond PE and Alucobond Plus products sold by its “HVG Facades” business division, formerly known as Alucobond Architectural (or any other division responsible for supplying Alucobond PE and Alucobond Plus for use on facades or for architectural purposes) in the period from 14 February 2009 to 14 February 2019; and

b. an excel spreadsheet (* .xls file) comprising a version of the excel spreadsheet (* .xls file) produced by the Second Respondent pursuant to the Court’s orders dated 31 August 2020 titled “2nd Respondent_s Data List – Greentree Data” updated to include for each line item the following fields of information in additional columns:

i. Product type and SKU (stock keeping unit) i.e Alucobond PE or Alucobond Plus various colours and specifications;

ii.    Size; and

iii.    Quantity.

5    Halifax opposes the making of that order. It should be noted, however, that the parties subsequently agreed on the form of a confidentiality order that should be made if the Court ordered Halifax to produce the documents identified in the draft minute of order.

6    It is common ground that the documents sought by Owners were not discovered by Halifax. Owners also appeared to concede that the documents were not discoverable, though there was a faint suggestion that an issue may be raised about that at some later point in time. Owners also appeared to concede that the documents were not relevant to the issues for determination at the trial which is to take place in August next year. It certainly did not seek the production of the documents for use at the trial. Rather, the documents were sought for the purposes of the mediation. Specifically, the documents were sought so that Owners’ legal advisers could “prepare a ‘ball park’ estimate of the total value of all class members’ claims” and thereby “facilitate settlement discussions and [Owners’] consideration of offers at the mediation”. Owners submitted that s 23 of the FCA Act empowered the Court to require the production of the documents for the purposes of the mediation.

7    As already noted, Halifax opposed the order requiring it to produce the documents in question. While it did not concede that s 23 of the FCA Act empowered the Court to make the order, it did not submit that the Court did not have the power to make the order. Rather, its submissions proceeded on the basis that, even if the Court had power to make the order, the Court should not make the order for essentially two reasons. First, because it should not be “ordered to hand over commercially sensitive, confidential information, for the purpose of enhancing [Owners’] bargaining position at mediation”. Second, because the documents would not, in any event, facilitate the discussions and negotiations at the mediation because they would not provide a proper or reasonable basis for the estimation of the potential value of group member claims. That is because the documents would, according to Halifax, “grossly overestimate” the quantity of panels “actually relevant to the potential claims of group members”.

EVIDENCE

8    Both Owners and Halifax relied on affidavit evidence from their solicitors.

9    The evidence of Owners’ solicitor, Mr Blagoj (Bill) Petrovski, included that Owners had access to some “class action member claims data” that had been provided by those group members, or potential group members, that had taken steps to register their claims pursuant to a Court approved notice which was distributed in late 2020. Approximately 214 group members, or potential group members, had registered for participation in the proceeding. When registering their claims, some of the group members had provided information about their claims pursuant to an invitation included in the notice. That information included, in some cases, information concerning the amount of the relevant Alucobond cladding that had been used on the group member’s building and the estimated cost of rectification.

10    While Owners had some information concerning the claims of the registered group members, Mr Petrovski asserted that the “registered class [group] members are only a proportion of the total class [group] members within the open class” and that in “making and assessing any offers to resolve the class action on behalf of all class [group] members, [he] consider[ed] it important to have an indication, even on an approximate basis, as to the potential value of the claims made on behalf of the entire class”. That was also said to be potentially important if and when it came to seeking the Court’s approval of any settlement reached. It was on that basis that Mr Petrovski considered it important to obtain information from Halifax concerning the quantity of Alucobond cladding it had supplied during the period covered by the group members’ claims.

11    Mr Petrovski exhibited to his affidavit some documents that had been discovered. According to Mr Petrovski, those documents revealed that Halifax maintained a record of the amount (in square metres) of Alucobond panels it supplied to customers during the relevant period (the so-called “square metreage data”). It was also apparent to Mr Petrovski, based on his review of the documents, that the square metreage data held by Halifax appeared to be “segmented” by business division and that one of the identified business divisions was known as “HVG Façades”, formerly “Alucobond Architectural”. The point of that evidence appeared to be to indicate that Halifax would be able to search for and provide information concerning the square metreage quantities of Alucobond product it supplied for use on building façades. Mr Petrovski’s evidence was that he anticipated that he would be able to use that information to prepare a “ball park” estimate of the total value of the claims of all group members. He acknowledged that the estimate may need to be discounted for various factors, including that some of the supplied cladding may not ultimately have been used or affixed to buildings.

12    Halifax’s solicitor, Mr Wesley Rose, first became aware that Owners was seeking information concerning the quantity of Alucobond panels supplied by Halifax during the relevant period when he received an email from Owners’ solicitors on 9 December 2022. His evidence, based on what he had been told by the Chief Executive Officer of Halifax, Mr Bruce Rayment, was that Halifax had supplied Alucobond panels during the relevant period for use in at least 28 different applications other than façades, though façades was likely to be the largest single use by volume. According to Mr Rayment, while Halifax’s record keeping system held data across its five business divisions, including façades, Halifax “does not and has no way of recording where or how the product purchased by [its] transactional customers has been used”. And, while it would be possible to extract square metreage data from Halifax’s record keeping system, that data is commercially confidential and not readily accessible. Extraction of the square metreage data would require the engagement of information technology consultants.

13    Perhaps more significantly, Mr Rayment advised that the square metreage data, if extracted, would be “undifferentiated and when taken as a global figure, [would] necessarily include [Alucobond] products that were put to uses other than being used as part of or as an attachment to a building element”. The data held by Halifax, including invoicing and sales order data, relates to all five Halifax businesses, only one of which involved façades, but does not “separate between each business”. For that reason, Mr Rose considered that the square metreage data requested by Owners would be “misleading” and would “not assist in developing, for mediation or otherwise, a fair and reasonable estimate of the cost of removal of Alucobond products” from buildings owned by group members. Moreover, according to Mr Rayment, even if it is ultimately found that the product supplied was not suitable for use as a façade, it would not necessarily follow that all of product supplied and affixed to group member buildings would need to be removed and replaced.

14    Finally, Mr Rose’s evidence was that of the 214 persons or entities that had registered as group members, or potential group members, only 45 had completed the questionnaire that they had been invited to complete as part of the registration process. That was despite the fact that the Court approved notices had been sent to 2,863 addresses. The questionnaire requested information which would have enabled the parties to estimate the quantity of Alucobond product affixed to the group member’s building. It would seem that Halifax has only been made aware of the identity of the 45 group members who provided information in the questionnaire, though it has been ordered to provide information identifying the remaining registered group members for the purposes of the mediation. Mr Rose’s evidence was that he understood, based on correspondence received from Owners’ solicitors, that Owners already had information concerning the 214 registered group members.

POWER

15    In the relatively recent decision in Evans v Davantage Group Pty Ltd (No 2) [2020] FCA 473, Beach J concluded (at [5]) that s 23 of the FCA Act “more than adequately provide[d] the necessary express power, together with any powers necessarily implied from or associated with the exercise of jurisdiction” in the representative proceeding, to order the respondent in that proceeding to produce, among other things, insurance documents that engaged with the claims made by the applicant and group members. Those insurance documents were not relevant to the determination of any fact in issue in the representative proceeding, but were principally sought by the applicant to better inform itself as to whether it was commercially viable to prosecute the proceeding and whether it would be appropriate to settle the proceeding.

16    In Evans, Beach J acknowledged that in an earlier decision of the Court, Ryan J had held that “it is not within the power or discretion of the Court to compel disclosure” of insurance policies to the applicant in circumstances where the proceedings had been referred to mediation and the applicant sought the insurance documents to permit it to evaluate any settlement proposal at the mediation: Kirby v Centro Properties Limited [2009] FCA 695 at [28]. In Centro, Ryan had acknowledged that the insurance documents would assume significance as a matter of commercial judgment or strategy at the mediation, but reasoned that that was “not something on which the Court can intrude by exercising its coercive powers if the limits of those powers are properly understood” (at [23]). Justice Beach disagreed with Ryan J “in terms of the existence of power”, but agreed with his Honour “in terms of the exercise of power”.

17    Halifax did not seek to persuade me that Beach J in Evans was wrong, let alone plainly wrong, in finding that the Court had power under s 23 of the FCA Act to compel a party in a representative proceeding to produce documents that were not said to be relevant to the determination of a fact in issue in the proceeding, but were rather said to be relevant to commercial decisions in respect of the proceedings, including whether to settle the proceedings. I should accordingly follow Evans, notwithstanding the earlier decision in Centro. In any event, while the issue concerning power was not fully argued before me, I would be inclined to agree with Beach J that s 23 empowers the Court to order a party to produce documents which would not otherwise be discoverable but which may assist a party to consider and assess potential settlement offers, including a mediation.

18    The real question is whether the Court should, in the exercise of its discretion, exercise that power in the circumstances this case.

DISCRETION

19    While the Court may have the power to order a party to produce documents for the purposes of a mediation, even when those documents would not be otherwise discoverable as they are not relevant to the determination of any issue in dispute in the proceeding, in my view that is a discretionary power that should be exercised with a degree of circumspection and caution. That is because, while the Court may compel parties to attend a mediation, mediation is a procedure which is essentially consensual. While the process is guided by the mediator, it ultimately relies on the good faith of the parties and the employment of commercial common sense. The Court should accordingly be reluctant to compel a party to produce documents for the purposes of a mediation, particularly commercially confidential documents which the party is reluctant to disclose. As Perry J put it in Beneficial Finance Corporation v Price Waterhouse (1996) 68 SASR 19 at 35:

Mediation is an entirely different procedure from the trial of an action at law. While mediation may be mandated, nonetheless it is essentially a consensual procedure. It would be contrary to the proper disposal of pretrial procedures relating to proceedings in the civil jurisdiction of the court (as opposed to mediation) to confuse those procedures by taking steps which might be thought desirable if there was to be a mediation.

20    And as Lander J said, in the same case (at 58), the “matters of alternative dispute resolution or mediation are not good reasons to override a party’s right to keep its commercial documents or any of its documents confidential”.

21    It is true that, like Centro and Evans, Beneficial Finance concerned the production of insurance documents. In my view, however, the observations of both Perry J and Lander J apply equally to an application for the production of other commercial documents, not otherwise discoverable, for the purposes of a mediation.

22    The Court should be even more reluctant to exercise its discretion to compel the production of documents for the purpose of a mediation where that would “confer an asymmetric commercial advantage in favour of one party at the expense of another”, or “give rise to asymmetric bargaining positions”: cf Evans at [4] and [73]. That is generally likely to be the case where one party seeks to compel another party to produce insurance documents. That is not, however, the only category of commercial documents the production of which may give rise to asymmetric bargaining positions.

23    It may be readily accepted that the documents sought by Owners, being documents that includes the square metreage data, are sought for a bona fide purpose associated with the upcoming mediation. If offers to settle the entirety of the representative proceeding are made in the course of the mediation, Owners will no doubt have to assess whether those offers represent a reasonable compromise for the group members as a whole having regard, among other things, to Owners’ best estimate of the overall losses which are potentially recoverable by group members. That assessment may be difficult given that Owners cannot be absolutely certain that the 214 persons or entities who have registered their intention to participate in the proceeding to date necessarily comprise the entirety of the group members who may ultimately seek to participate in any settlement, or seek to recover an amount from any settlement sum. I have no doubt that Owners believes that the documents it seeks from Halifax will enable it to better estimate the overall losses suffered by group members.

24    There are, however, a number of considerations which weigh against the Court exercising its discretion to compel Halifex to produce the documents in question.

25    First, there appear to be sound reasons for doubting that the documents will in fact provide a reliable estimate of the overall recoverable damage suffered by group members. There is no reason to doubt Mr Rose’s information and belief evidence to that effect. In particular, the square metreage data that Halifax may be able to extract from its record keeping system would likely include Alucobond product that was not ultimately used as part of a façade, or was not otherwise affixed to group members’ buildings. It would also include offcuts and discarded material. Moreover, not all of the Alucobond product affixed to group members’ buildings may ultimately need to be removed, even if the product is relevantly found to be not fit for use as a façade. Much will depend on precisely where and for what reason it was affixed to the building.

26    Second, and relatedly, there are sound reasons for suspecting that the documents including the square metreage data sought by Owners would, if produced, lead Owners to overestimate the overall group member losses, even if discounted as suggested by Mr Petrovski in his evidence. That would, in a sense, give rise to asymmetric bargaining positions. It would potentially give Owners a basis upon which to propose a larger overall settlement sum based on the square metreage data. As noted earlier, I accept that Owners’ application is bona fide and that it does not seek to obtain a commercial advantage or advantageous bargaining position. The conferral of such an advantage may well, however, be the effective result if the documents may in fact materially overestimate likely group member losses.

27    Third, given Halifax’s opposition to the production of the documents and its belief, on apparently reasonable grounds, that the square metreage data would lead owners to significantly overestimate overall group members losses, it is somewhat doubtful that production would in any way facilitate the mediation or increase the likelihood of settlement. Halifax would almost inevitably reject, or at least view with considerable scepticism, any offer formulated on the basis of an estimate of losses derived from the square metreage data.

28    Fourth, Owners has known the identity of at least 214 group members, or potential group members, for some considerable time. It is likely to possess some information in respect of the claims of those group members, including their likely or possible losses. At the very least, it has been in a position to itself obtain information from those group members concerning the amount of Alucobond product that was used on their buildings. It may be inferred that Owners is able to arrive at a reasonable estimate of the losses allegedly suffered by the registered group members.

29    Owners’ application for the production of the square metreage data from Halifax appears to have been driven by the belief that there are many more group members than the 214 that have registered their interest or intent thus far. It is, however, far from clear whether there is a reasonable basis for that belief, particularly given the extensive distribution of notices that has occurred to date. Owners’ belief that there must be more group members than the 214 persons or entities that have thus far registered their interest in participating in the proceeding appears to stem from its belief that some of the documents that were discovered by Halifax recorded the supply of large quantities of Alucobond panels by its façade business. Halifax maintains, however, that the global figures in those documents do not provide a reliable basis for estimating group member claims. And the fact remains that, despite the extensive distribution of Court approved notices, including notices requesting potential group members to make themselves known for the purposes of the mediation, only 214 persons or entities have registered their interest thus far. Owners has not revealed whether it has any actual or concrete knowledge of the existence of any other group members.

30    Fifth, Owners’ application for production was made very late, relatively speaking. The application was first foreshadowed to Halifax on 9 December 2022 and first raised before the Court, effectively without notice, at a case management hearing on 12 December 2022. The Court heard the application as soon as it was able to. Owners provided no reasonable explanation for why the application was made at such a late stage, given that they had known for some time that the mediation would take place in late March 2023.

31    Sixth, the production by Halifax of the documents sought by Owners would by no means be a straightforward exercise. The documents sought by Owners do not presently exist, but would need to be produced by the manipulation of data within Halifax’s record keeping system. The evidence suggests that that data is not readily accessible and that Halifax would need to retain information technology consultants to assist it. A “separate manual or formulated calculation” would also be required. While perhaps not a weighty consideration in all the circumstances, the trouble and expense that would be incurred by Halifax in meeting any production order should not be ignored, particularly given the lateness of the Owners’ application.

32    It is obviously the case that the more information that parties to a mediation are able to exchange concerning their respective cases, the better the prospects of a successful mediated outcome. Parties should be encouraged by the Court to consensually exchange information to that would facilitate the mediation and enhance any settlement negotiations that may occur at it. In the present case, the parties should be encouraged to exchange information which would enable or facilitate the estimation of overall group member losses should Owners’ allegations concerning the suitability of the Alucobond products be found to be made out. In particular, once Halifax is made aware of the identity of all 214 group members and their buildings, it should consider making available to Owners such square metreage data as it is able to retrieve in respect of those buildings. The Court would consider making confidentiality orders in respect of that data if needs be.

33    For the reasons that have already been given, however, the Court should not compel Halifax, against its wishes, to produce the global square metreage data in the terms of the order sought by Owners. It is doubtful that that data as sought would provide any reasonable or reliable basis for estimating overall group member losses. Rather, production of the data may result in an overestimation of the value of group members’ claims and thereby may give rise to asymmetric bargaining positions. That is hardly likely to facilitate the mediation.

34    I am not persuaded, in all the circumstances, that this is an appropriate case for the Court to order Halifax to produce the documents sought by Owners for the purposes of the upcoming mediation. Owners’ application must accordingly be dismissed with costs.

Associate:

Dated:    8 March 2023