Federal Court of Australia

Torley v Hyundai Motor Company Australia Pty Limited (No 2) [2023] FCA 1545

ORDERS

THE COURT ORDERS THAT:

1.    By 20 December 2023, the parties bring in agreed orders giving effect to these reasons.

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

ORDERS

THE COURT ORDERS THAT:

1.    By 20 December 2023, the parties bring in agreed orders giving effect to these reasons.

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

REASONS FOR JUDGMENT

YATES J:

Introduction

1    On 16 November 2023, leave was granted to the applicant in proceeding NSD 131 of 2023, and the applicants in proceeding NSD 132 of 2023, to file and rely on amended interlocutory applications seeking, amongst other relief, orders for non-standard discovery by reference to categories of documents: Federal Court Rules 2011 (Cth) r 20.15.

2    The applications for discovery were foreshadowed by Order 7 made on 5 September 2023 in each proceeding, which provided that the parties confer about the desirability of the respondents in each proceeding giving a first tranche of discovery. Subsequently, on 19 September 2023, orders were made by consent which provided for the filing of interlocutory applications seeking discovery and the steps that were to be taken to prepare the applications for hearing.

3    At the time the interlocutory applications were called on for hearing, the parties had reached a measure of agreement in relation to the categories of documents for which discovery should be given at the present time and the scope of that discovery. There remained, however, significant disagreement as to whether discovery should extend to other categories of documents and, if so, the scope of discovery that should be given in that regard.

Background

4    In each proceeding, the applicants allege that the vehicles the subject of their claims (the Affected Vehicles) were designed or manufactured with one or more defects that affect the operation of the engine’s crankshaft assembly (the Engine Defect). They allege that the Engine Defect causes the Affected Vehicles to possess the propensity to exhibit one, some, or all of a number of undesirable characteristics (collectively, the Engine Defect Consequences) such that certain express warranties and statutory guarantees given in respect of the Affected Vehicles were breached. The respective statements of claim do not identify, more particularly, the Engine Defect and its causes.

5    In their defences, the respondents have made limited admissions to the effect that some of the Affected Vehicles were manufactured in a way such that there was a risk that excessive swarf would be left in the crankshaft assembly, and that some were manufactured using brittle piston rings. Further, the respondents in NSD 131 of 2023 (the Hyundai respondents) admit that defective software was installed in some of the Affected Vehicles the subject of that proceeding.

6    The applicants emphasise that the scope of the Engine Defect they have pleaded in their amended statements of claim is broader than, and not limited to, the defects the respondents have admitted in their defences.

7    The applicants support their present applications for a first tranche of discovery on the basis that the categories of documents they seek will enable their expert, Dr Zigler, to further investigate the nature, cause(s), and extent of the Engine Defect and the Engine Defect Consequences, and to test and refine his hypotheses in that regard. The applicants submit that this will then enable them to provide further particulars of the Engine Defect and the Engine Defect Consequences and, possibly, enable them to narrow the pleading of their statements of claim to confine the issues in dispute. In short, they justify their applications as facilitating the investigation of technical matters with the object of refining the cases they seek to bring. It is against this objective that the present applications for discovery stand to be considered and determined.

8    The respondents have identified documents that they can provide in a relatively cost-effective and timely manner which, they contend, are suited to the applicants’ objective. They propose that discovery be given of these documents. They argue that such discovery should satisfy the applicants’ presently expressed need and that providing all the discovery that the applicants seek will not only be significantly more time-consuming than their proposal, but vastly more expensive. The respondents contend that the cost and burden of providing all the discovery that the applicants presently seek is not justified, especially when the applicants have foreshadowed that they are likely to seek further discovery at a later time. The respondents contend, further, that if discovery is given in accordance with their proposal, it will enable the applicants to make more informed decisions about the need for, and scope of, any further discovery.

9    The respondents also contend that, in considering and determining the remaining dispute about the categories of documents that should now be discovered, and the scope of that discovery, due regard should be had to the discovery that they are already prepared to give.

The sources of documents

10    It is appropriate that something be said about some of the repositories from which documents can be sourced.

The Global Warranty System

11    The respondents maintain records of warranty claims in a global database. Data on warranty claims are manually entered into the database by individual authorised dealers. Australian warranty claims data can be accessed from this system.

12    When entering warranty claims data, the authorised dealers must provide certain mandatory information, including codes for the vehicle part that caused the warranty problem, the vehicle part or parts that require replacement, and the labour involved. The database can be interrogated by these codes. However, filtering information by part code is not an effective or accurate method of searching the database because of the inconsistent way in which authorised dealers enter data. The evidence is that searching the database by part code will lead to both over- and under-inclusive results. Moreover, the database does not have keyword search functionality.

13    In the period 1 January 2011 to 15 February 2023, Hyundai Motor Company Australia Pty Limited (HA) approved approximately 2,122,239 warranty claims, excluding rejected or cancelled warranty claims. In the same period, Kia Australia Pty Ltd (KA) approved approximately 900,000 warranty claims, excluding rejected or cancelled warranty claims.

Product design, quality and manufacturing documents

14    Categories 18 – 27 and 29 (in relation to NSD 131 of 2023) and categories 13 – 22 and 24 (in relation to NSD 132 of 2023) concern technical documents relating to engine assembly components. Documents of this kind reside with the Research & Design Division (R&D Division) of Hyundai Motor Company (HMC) (the second respondent in NSD 131 of 2023) and Kia Corporation (KC) (the second respondent in NSD 132 of 2023) which HMC and KC share (the R&D Division develops engines for both Hyundai and Kia). The evidence is that although a number of the documents in these categories should be stored on a centralised server (the Centralised Repository), they cannot be bulk exported from the server. Instead, separate requests must be made for each document through HMC’s data management department.

The US Production Set

15    Representative proceedings involving similar claims to those brought by the applicants in these proceedings were commenced in 2018 in the US District Court for the Central District of California: In re Hyundai and Kia Engine Litigation II, case no. 8:18-cv-02223-JLS-JDE. HMC and KC were defendants in that litigation (the US proceeding).

16    In response to a Request for Production issued by the plaintiffs in the US proceeding, HMC agreed to produce documents that included: (a) technical drawings and specifications of certain engine components and change orders in designs or manufacturing processes for the components; (b) root cause analyses relating to connecting rod bearing failure in the class of vehicles (to the extent any were identified following a reasonable search); and (c) third-party analysis relating to connecting rod bearing failure in the class vehicles (to the extent any were identified following a reasonable search).

17    A request was also made for documents sufficient to identify any design or manufacturing changes implemented at any time that relate to any “Symptoms”, the “Rotating Assembly”, and any “Failures” in the class vehicles.

18    In the request, “Symptoms” was defined to mean “excessive oil consumption, oil sludge, Bearing wear, smoking, sluggish acceleration, engine overheating, and/or ticking or tapping noises” within the class vehicles. “Rotating Assembly” was defined to mean “the pistons, connecting rods, connecting rod caps, connecting rod bolts, connecting rod bearings, main bearings, and crankshaft”. “Failure” was defined to include “any engine failure, internal oil sludge, or premature wear or degradation of the connecting rods, connecting rod bearings, main bearings, or any other component of the Rotating Assembly or Lubrication System” subject of the US proceeding.

19    In response to that request, HMC agreed to produce technical drawings and specifications of certain engine components and change orders in designs or manufacturing processes for the components. The evidence in the present applications does not identify the “certain engine components” for which production was given, but the definition of “Rotating Assembly” certainly makes clear that the request was directed to “Symptoms” and “Failures” of componentry that included the crankshaft of the class vehicles.

20    The documents produced in the US proceeding were referred to in the present applications as the US Production Set.

The disputed categories

21    The following conclusions are made by reference to the table produced by the applicants at the hearing of the interlocutory applications. For convenience, I will refer (as the parties did) only to the categories of documents sought in NSD 131 of 2023, unless otherwise stated. I will also deal with the categories in the order in which the respondents dealt with them in oral submissions.

Categories 18 and 23 to 26: technical documents

22    These categories are among the categories of technical documents referred to above.

23    Categories 19 to 22, 27 and 29 are also technical documents. Subject to one matter to which I will return, the parties agree that these documents should be produced to the extent that they are included in the US Production Set.

24    The respondents contend that the same should apply to the documents in categories 18 and 23 to 26; discovery should be given to the extent that the documents are included in the US Production Set.

25    The applicants are prepared to accept a limitation as to source. However, they say that the source should be documents in the US Production Set and the Centralised Repository. The applicants contend that more limited discovery would be incomplete (it would provide “only a small sliver of the documents required by Dr Zigler to test his hypotheses into various failure modes”) and, for that reason, inefficient and not conducive to the cost-effective management of the proceedings. The applicants also contend that such discovery would not cover Theta II GDI engines.

26    In considering the application for discovery in respect of these categories, I note that the documents in the US Production Set are not as limited as the applicants’ submissions suggest; they are not limited, for example, to documents relating to defective connecting rods. That said, the componentry covered by the documents in the US Production Set is unclear. As I have noted at [19] above, the evidence in the present applications does not identify the “certain engine components” for which production was given. However, I assume that the respondents are not proffering discovery limited to the US Production Set as a barren exercise.

27    As to the position of the Theta II GDI engines, categories 5 to 8 (which are agreed) already include documents relating to that engine, and this fact must be taken into account. It is not, however, determinative.

28    On balance, I am persuaded that, at this stage, and having regard to the other categories of documents in respect of which discovery is agreed (including categories 2 and 10), discovery in respect of categories 18 and 23 to 26 should be given, but limited to documents in the US Production Set. I am not satisfied that wider discovery, at this stage, is necessary for the objective advanced by the applicants. I accept that wider discovery, at this stage, would be disproportionate. If it turns out that the US Production Set does not include documents relating to the crankshaft assembly then no doubt this will prompt a further application for discovery. Such an application would be considered in light of the then available information.

Categories 19 to 22, 27 and 29: technical documents

29    Although discovery in relation to these categories of documents is agreed (limited to documents in the US Production Set), the applicants seek an order that the parties confer with a view to developing a protocol for the carrying out of further searches beyond documents in the US Production Set. I am not prepared to make an order to that effect at this time. Such an order is premature. It assumes that the presently agreed discovery in respect of these categories will be insufficient. I am not prepared to make that assumption. However, my refusal to make the order that the applicants seek should not stop the parties from engaging in discussions on these matters if they are willing to do so.

Category 1: warranty claims

30    This is a broad category seeking all documents that record any warranty claims (including the rejection of warranty claims) made in respect of any of the Engine Assembly Components (a defined term for the purposes of the present applications for discovery covering 22 components or groups of components for each of 5 engine types).

31    The applicants contend that discovery by reference to this category is necessary—indeed, “critical”—to analyse the nature, cause, and extent of the Engine Defect and the Engine Defect Consequences in the Affected Vehicles. They contend that warranty claims provide a “rich source of real-world data” and that Dr Zigler has said that these documents will assist him in analysing matters such as “when and how frequently the Engine Defect Consequences manifest themselves, in which vehicles and engines, in which Engine Assembly Components, in what situations and circumstances and after what age and mileage”.

32    The respondents object to this category essentially, but not only, on the ground of burden. They contend that such discovery would be disproportionately time-consuming and costly. They point to the limitations on readily searching the database of the Global Warranty System. Further, as they put it, it is highly improbable that the applicants’ case will focus on all the 110 Engine Assembly Components. They also contend that the applicants’ stated purpose in seeking documents in this category is not limited to the objective of refining the pleading of their cases.

33    I am not persuaded that discovery, at the present time, should be ordered in respect of this category. I am persuaded that discovery according to category 1 would be costly and time-consuming. Whilst, at a later time, discovery, in some form, of warranty claims might be appropriate, I agree with the respondents’ submission that the opportunity should be taken to see whether the issues in dispute can be narrowed by reference to the discovery to be given according to the other categories of documents in respect of which discovery will be ordered.

Category 12: correspondence with NHTSA

34    This category concerns correspondence with the US National Highway Traffic Safety Administration (NHTSA) regarding safety recalls of Hyundai vehicles in the United States. The category extends to correspondence between HMC’s US subsidiary, Hyundai Motors America, and the NHTSA.

35    The respondents say that the NHTSA has published information regarding the nature of the defect that led to each recall, and that this information is publicly available. They question the need to discover correspondence that has passed between Hyundai Motors America (or Kia Motors America, now known as Kia America, Inc) and the NHTSA on the subject of the recalls. They also say that such correspondence is held by Hyundai Motors America and Kia Motors America, not HMC or KC themselves, and is under Hyundai Motors America’s and Kia Motors America’s control, although some HMC or KC personnel may hold copies of this correspondence.

36    In response, the applicants submit that the non-public correspondence may contain greater details of alleged engine defects and engine defect consequences as well as, potentially, “admissions, denials or other information that can then be tested against the public disclosures”.

37    I am not persuaded that discovery should be ordered of the documents in this category. Such documents are not sufficiently directed to the objective for which discovery is presently sought.

38    Further, it is unlikely that such documents will contain information that deviates from the substance of the information made publicly available by the NHTSA.

39    A question was raised as to whether, if discovery of documents in this category were to be ordered, a Sabre order (see Sabre Corporation Pty Ltd v Russ Kalvin’s Hair Care Co (1993) 46 FCR 428) should be made against HMC and KC in respect of documents held by Hyundai Motors America and Kia America, Inc. It is not necessary to answer that question.

Category 12 (Kia): Kia correspondence with NHTSA

40    This category is similar to the category discussed immediately above and concerns documents held by KA and KC that were provided to the NHTSA in response to a letter sent from the NHTSA to Kia North America on 25 April 2022.

41    This category is sought, and opposed, on the basis that the documents are with a foreign non-party subsidiary and are of limited relevance. For substantially the same reasons given in [37] and [38] above, I am not persuaded that discovery should be ordered of the documents in this category.

Category 17: whistleblower documents

42    An article published in The New York Times on 16 May 2017 referred to a whistleblower (an automotive engineer previously employed by the Hyundai Motor Group in South Korea) having sent documents to “officials” in South Korea and the United States. The article refers to the Transport Ministry in South Korea recalling “12 popular Hyundai models under both its Hyundai and Kia brands” and asking prosecutors “to investigate whether the carmakers hid five defects related to the recall”, including “damaged vacuum pipes and excessive ventilation resistance in fuel vapor canisters”. This category seeks documents forming “any part of the bundle of documents provided by the Whistleblower to NHTSA”.

43    I am not persuaded that discovery should be ordered of the documents in this category, which do not appear to relate to the Engine Defect the subject of these proceedings.

Category 4 (Hyundai): the Theta I engine

44    This category seeks the plans or schematics for the Engine Assembly Components and the engine assemblies of the Theta I engine. The Affected Vehicles include vehicles fitted with Theta II engines. The applicants say that the provision of the documents sought with respect to the Theta I engine will provide “a more complete understanding of the design evolution of the engine componentry that is being examined”.

45    The Hyundai respondents have agreed to give discovery with respect to certain categories of documents relating to the Theta II engine including category 5, which is directed to a bearing lubrication analysis to confirm the design suitability of the bearing system for the Theta II engine. Dr Zigler has confirmed that these documents will permit him to compare the design evolution of the two engines.

46    Having regard to the categories of documents in respect of which discovery will be ordered, I am not persuaded that discovery in relation to category 4 is warranted at the present time. I am not satisfied that, at this stage, wider discovery in respect of the Theta I engine is necessary for the objective advanced by the applicants.

Category 30 (Hyundai): software

47    In paragraph 10 of the defence in NSD 131 of 2023, the Hyundai respondents admit that defective software was installed in some of the Affected Vehicles (identified in Schedule C to the defence). In paragraph 11 of the defence, the Hyundai respondents admit that the defective software may cause (but will not necessarily cause) an Affected Vehicle to suffer: (a) a knocking sound; and (b) excessive spark advance and premature combustion causing excessive cylinder pressure, possibly leading to engine damage or failure.

48    Category 30 seeks documents that record or refer to any investigation into the software defect.

49    In light of the admissions made in the defence, and given the objective for which discovery is presently sought, I am not persuaded that discovery should be given of documents in this category.

Disposition

50    The parties are to bring in agreed orders giving effect to these reasons.

51    Overall, the respondents have been successful in resisting the wider discovery sought by the applicants. My provisional view is that the costs of each interlocutory application should be the respondents’ costs in the cause. I will, nevertheless, hear the parties on the question of costs. The parties should provide written submissions limited to 3 pages. I will then determine that question on the papers.

Associate:

Dated:    7 December 2023