Federal Court of Australia

Torley v Hyundai Motor Company Australia Pty Limited (No 4) [2024] FCA 983

ORDERS

THE COURT ORDERS THAT:

1.    By 6 September 2024 the parties bring in agreed draft 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 6 September 2024 the parties bring in agreed draft 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 21 December 2023, following the publication of reasons on 7 December 2023 (Torley v Hyundai Motor Company Australia Pty Limited (No 2) [2023] FCA 1545 (Torley 2)), I made orders that the respondents in NSD 131 of 2023 (the Hyundai proceeding) and NSD 132 of 2023 (the Kia proceeding) give non-standard discovery of documents by reference to certain categories.

2    The background to the applications for discovery is summarised in Torley 2 at [4] – [9]. In essence, the applicants in each proceeding sought discovery to enable them to provide further particulars of: (a) the defect(s) they contend affected the operation of the engine’s crankshaft assembly of the vehicles the subject of their claims (the Engine Defect); and (b) the consequence of those defects in terms of their undesirable characteristics (the Engine Defect Consequences).

3    The discovery I ordered was more limited than sought by the applicants. In Torley 2, I noted (at [8]):

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.

4    A number of the categories I ordered were limited to documents from the US Production Set, being documents that had been produced by Hyundai Motor Company (HMC) in representative proceedings commenced in 2018 in the US District Court for the Central District of California involving similar claims to those brought by the applicants in the present proceedings.

5    Discovery was provided by the respondents. However, the applicants found that discovery to be wanting in that the documents that were discovered have not allowed their expert, Dr Zigler, to investigate, properly, the nature, cause, and extent of the Engine Defect and the Engine Defect Consequences, and to test and refine his hypotheses regarding alternative causes (other than those admitted by the respondents in their defences) for those consequences. The applicants contend that, while a number of relevant documents have been discovered (such as owners’ manuals and service manuals, which make up the bulk of the discovered documents), many other documents that Dr Zigler requires to properly continue his investigations have not been discovered. In short, the expectation that the US Production Set would provide, sufficiently, the documents that Dr Zigler requires has not been met.

6    In this regard, the applicants criticise the way in which the respondents propounded the utility of the US Production Set when the first application for non-standard discovery was before me. They also criticise the respondents for making statements about the capacity for interrogating their systems for warranty claims which led me to conclude that discovery in respect of warranty claims should not be permitted at that stage: Torley 2 at [33]. The applicants submit that the evidence now shows those statements to have been erroneous.

7    This has led the applicants to apply for further non-standard discovery by reference to seven categories of documents. This has also led them to propose a two-stage process with respect to four of these categories. First, by reference to a defined term—Exemplar Engines—the applicants seek documents representing the state of 12 engines, with respect to specified uniform parts grouping, as at 1 January (or as close as possible to 1 January) in each of:

(a)    the first year of the engine’s manufacture; and

(b)    the earlier of the last year of the engine’s manufacture or, if still in production, the latest year of production.

8    The applicants anticipate that, after comparing the information in the technical documents created at two different points in time, Dr Zigler will be able to identify any material differences in the engine’s specification, components, and performance. If any differences are detected, this may suggest that relevant modifications have been made in response to possible faults or defects, which can be tested against other documents in the other categories that are sought.

9    Secondly, the applicants reason that these “signpost” differences can be used to delimit and specify categories of documents to be sought in a further application for non-standard discovery. As the applicants put it, the intention of this approach is to narrow the scope of the present discovery application, and the contemplated further discovery application, in a way which enables Dr Zigler to identify the Engine Defect with precision.

10    The applicants submit that these proceedings are the largest automotive class actions brought in Australia to date, involving (in the case of the Hyundai proceeding) over 400,000 vehicles where the purchase price of the vehicles (as new) may be in excess of $12 billion, and (in the case of the Kia proceeding) over 130,000 affected vehicles where the purchase price of the vehicles (as new) may be in excess of $4 billion. The applicants argue that any potential damages awarded against the respondents may be “very substantial, potentially in the hundreds of millions of dollars or more”.

11    In light of the size and scale of the litigation, the applicants submit that this two-stage approach is an efficient way of conducting discovery that is “not disproportionate to the value of the case”. They contend that the two-stage approach is a practical solution that would permit the respondents to conduct a “reasonable search” consistent with the overarching intention of using categories for discovery to refine and narrow the range of discovery.

12    The respondents dispute the applicants’ contentions about the way in which the respondents propounded the utility of the US Production Set when the first application for non-standard discovery was before me. They also submit that the present evidence about their ability to interrogate their warranty system is the product of new information becoming available.

13    It will not assist the resolution of the present application to delve into the differences between the parties on these matters, particularly when the respondents do not contest the applicants’ claim that they (the applicants) require further non-standard discovery to particularise the Engine Defect and the Engine Defect Consequences more precisely. As the respondents solicitor Mr Corkhill puts it:

… with some limited exceptions … the Respondents are generally not opposed to further non-standard discovery of the type sought by the Applicants, provided that the documents requested, (1) are genuinely likely to assist in narrowing the issues in dispute, and (2) do not over-burden the Respondents at this early stage of the proceedings, bearing in mind that the Applicants have indicated an intention to seek further standard discovery from the Respondents after seeking to amend their statements of claim.

14    However, the respondents advance a different proposal. They propose to give non-standard discovery of certain categories of documents within a period of two weeks. Three of these categories correspond, broadly, to Categories 2, 3, and 4 of the categories sought by the applicants, save that the discovery will be limited to “a sample set” in respect of one Exemplar Engine. The respondents propose that within a further three weeks, the parties confer concerning: (a) the adequacy of the “sample sets”; (b) the relevance and scope of Category 6(b) (to which I will make further reference); and (c) the search terms that should be applied for the purpose of the documents in Category 7 (to which I will also make further reference).

15    The respondents then propose that within a further period (one week) the parties submit any draft consent orders that should be made arising from this conferral. If there remain any differences between the parties, the respondents propose that the parties have leave to re-list the present interlocutory application for further argument.

16    Finally, the respondents propose that, within a period of eight weeks from the conferral, they give non-standard discovery by reference to categories based on, but more limited than, Categories 1 to 5 as proposed by the applicants.

The approach to be adopted

17    One reason advanced by the respondents for their approach is that they say that, since May 2024, the applicants have expanded the range of engine parts (to be included in the definition of Engine Assembly Components) for which they seek discovery and have sought, at late notice, additional documents, which has not allowed sufficient time for the parties to confer with a view to resolving their differences. They argue that their approach will ensure that appropriate conferral will occur while, at the same time, providing for the production of a range of material that will enable Dr Zigler to continue his work “refining the case”, which will also assist in the conferral process.

18    The respondents also submit that their approach will achieve efficiencies in cost and time. They contend that if discovery, as sought by the applicants, is ordered, they will incur costs of between (approximately) $690,000 to $1,380,000 and that discovery will take between six and 12 months. On the other hand, if their approach is adopted, their costs of discovery will be (approximately) $345,000 and be completed in approximately 3 months.

19    While I would not wish to impede the parties from engaging in sensible discussions to limit the burden of discovery at this stage, and while I am also desirous of minimising the cost of discovery to an extent that is reasonably practicable, I am not persuaded that the respondents’ approach should be adopted.

20    For whatever reason, the limited discovery I ordered on 21 December 2023 has not fulfilled the purpose for which it was intended. The parties have been in discussions about discovery for some months and have not been able to reach agreement. I accept that, over that time, there has been some limited expansion in the discovery that the applicants seek. By the same token, the respondents’ proposal to produce a “sample set” of documents was not raised until 29 July 2024. Although the applicants expressed their willingness to review such documents, and sought production of a sample set well in advance of the hearing of the present application, the respondents’ solicitors noted in a letter to the applicants’ solicitors on 12 August 2024 that, while the engineering teams were working to compile the “sample set” as quickly as possible, “it will take some time to compile” and may not be ready until “shortly after the hearing”. The “sample set” was not provided by the 19 August 2024 hearing.

21    Given that, over some months, the parties have not been able to reach agreement on the scope of further non-standard discovery for the purpose of facilitating the refinement of the applicants’ cases, I am not confident that further time for conferral will be sufficiently productive. The likelihood is that, in some weeks’ time, the Court will still be dealing with, substantially, the same application for further non-standard discovery that is presently before it. Therefore, the better course is to determine that application now.

The categories

Category 1

22    In broad terms, this category seeks discovery of the bills of materials for specified uniform parts groupings that contain Engine Assembly Components for each Exemplar Engine. As I understand it, as a result of developments announced during the course of the hearing, there is now agreement as to how this category is to be framed.

Category 2

23    In broad terms, this category seeks discovery of Design Specifications and Analysis for the oil lubrication system for each Exemplar Engine.

24    The applicants’ define Design Specifications and Analysis as: (a) “design specifications or engineering guidelines used in the design of [a] component or system”; and (b) “any engineering analysis undertaken in relation to the design of [the] component or system, including FMEAs [i.e., a failure mode and effects analysis, or similar analysis with different title] and (where relevant) temperature studies”.

25    The respondents contend that the category should omit reference to “Analysis” and that the “reasonable search” obligation under r 20.14(1)(b) of the Federal Court Rules 2011 (Cth) should be relaxed by qualifying the search as one that is “sufficient to show” the specifications or engineering guidelines for the items more particularly described in the category.

26    The respondents advance the “sufficient to show” qualification on the basis that the Court should take a “conservative approach” when ordering discovery so as to avoid “the production of large volumes of material where possible”. They support this by calling in aid their proposal concerning the provision of sample sets upon which the parties can confer. They submit that this will provide protection for the applicants because, if there is disagreement about the adequacy of the sample set, the applicants can always re-list the discovery application for further argument.

27    I am not persuaded that the “sufficient to show” qualification is appropriate. It conditions the respondents’ obligation by permitting them to give discovery of only those documents which they deem to be sufficient for the applicants’ purposes. This is an inappropriate subjective standard. It bristles with the prospect of future disputation should further documents emerge in the course of discovery that lead the applicants to consider that discovery according to the qualification has not been sufficient for their purposes. There is no reason to depart from the appropriate balance that is struck by the “reasonable search” obligation in r 20.14(1)(b) which will apply because it is not excluded: see r 20.15(1)(a).

28    Further, the safeguard that the respondents propose—the provision of sample sets—is not a process that I am persuaded to order. That said, there is no reason why the respondents cannot pursue consultation with the applicants in an endeavour to persuade them that sample sets will, in fact, be sufficient for their purposes.

29    With respect to “Analysis”, the respondents submit that Category 5—which is directed to FMEAs and DVP&Rs (design verification plans and reports or similar plans and reports with different titles)—should cover “a significant amount” of the documents sought in Category 2, and thus be “sufficient for the applicants’ stated purposes”. The respondents’ evidence is that, apart from the FMEAs and DVP&Rs, there are likely to be a great number of documents containing such analyses (they are regularly generated). These analyses are not stored in a centralised repository and a search would need to be conducted for them. The respondents contend that such a search would be unduly burdensome at this stage of the proceeding.

30    The evidence is that, in modern vehicle manufacturing, it is usually the case that a manufacturer will cause its engineers to undertake engineering analysis to determine the need for, and the efficacy of, any proposed change to an engine component prior to implementing the design change.

31    Dr Zigler has informed the applicants’ solicitors that without these analyses, he would not be able to see whether the “form” (i.e., the design) and “fit” (i.e., the parts and systems) comprising the oil lubrication systems and the positive crank case ventilation (PCV) systems in the Exemplar Engines functioned efficiently or defectively at the two points in time to which I have referred. He has informed the applicants’ solicitors that, given the nature and complexity of the engineering issues, he regards these analyses to be critical to his interrogation of the operation of the oil lubrication systems and the PCV systems in question.

32    The respondents do not dispute that such analyses exist. Their objection is whether discovery of them is warranted at the present time. I am persuaded that discovery of these documents is warranted at the present time. Moreover, on the evidence before me, I anticipate that, given their significance, such documents are likely to be held by senior members of the design teams involved in this work.

33    For these reasons, I do not accept the respondents’ proposed limitations and qualifications to this category of documents. I am satisfied that discovery should be given of the Category 2 documents as sought by the applicants.

Category 3

34    In broad terms, this category seeks discovery of Design Specifications and Analysis for the PCV system for each Exemplar Engine. The respondents contend for the same limitations and qualifications to this category as they did for Category 2. I do not accept those limitations and qualifications, for the reasons I have given. I am satisfied that discovery should be given of the Category 3 documents as sought by the applicants.

Category 4

35    In broad terms, this category seeks discovery of documents that record the crankshaft machining manufacturing process in relation to certain manufacturing steps.

36    The respondents contend that this category should be directed to: “Such process diagrams and work instructions for the relevant factories in which the engines in the Affected Vehicles were manufactured as are identified after a reasonable search concerning” the crankshaft machining manufacturing process in relation to the identified manufacturing steps.

37    The reason for this qualification is that, on the evidence before me, the documents that are sought should be in process diagrams and work instructions. However, each factory manufacturing the Exemplar Engines will have different process diagrams and work instructions because they have different plant and equipment. There is no central repository of such documents.

38    In oral submissions, the applicants contended that the limitation proposed by the respondents left out documents that might exist at “corporate” level (as opposed to documents existing at the “factory” level) and that, for this reason, the broader formulation the applicants propose should be preferred.

39    This submission is based on speculation that documents exist at the “corporate” level but not at the “factory level”, even though it is the “factory level” at which the work is carried out. In the absence of evidence on this question, this seems to be unlikely. I am satisfied that the limitation that the respondents propose is a sensible one and should be adopted.

40    The respondents also contend for the “sufficient to show” qualification in respect of this category. For the reasons given, I do not accept that this qualification should be made to the “reasonable search” obligation.

Category 5

41    In broad terms, this category seeks discovery of FMEAs and DVP&Rs for the parts supplied for each of the Engine Assembly Components during the engine design phase (i.e., prior to the commencement of manufacture) and during each design change thereafter, for each of the Affected Vehicles.

42    The applicants’ evidence is that FMEAs and DVP&Rs are common engineering methodology tools within the automotive industry. Dr Zigler has informed the applicants’ solicitors that these documents are of “high forensic value” because they will provide a chronology of faults, failures, and design changes in the discrete parts or systems in question, which will enable him to efficiently identify affected model years. They will enable him to identify the “running changes” to the Engine Assembly Components between the Exemplar Engines, the reasons for those changes, and how the design changes were validated to address the identified issue.

43    In this connection, Dr Zigler has informed the applicants’ solicitors that it is a serious matter for a manufacturer to make engineering design changes to an engine during its production life outside the scheduled changes that might be made with model updates. This is because making and implementing such changes is costly and inconvenient. Therefore, such changes are usually made only when there is a significant reason for the change, such as to remedy a defect or fault that has been identified in the current design.

44    The respondents seek to limit this category to documents that were prepared during the engine design phase. In other words, they should not be required to give discovery of FMEAs and DVP&Rs in respect of each subsequent design change.

45    The respondents’ evidence is that there are, typically, hundreds of design changes for each engine manufactured by Hyundai and Kia over the course of the life of the engine. These design changes are not necessarily reflective of a problem with the engine. They may be part of Hyundai’s and Kia’s ongoing efforts to improve engine performance, efficiency, and durability. Further, these documents are not maintained in a central repository. The respondents contend that giving discovery of FMEAs and DVP&Rs for each design change will be time-consuming and burdensome.

46    I am persuaded that the respondents should give discovery of FMEAs and DVP&Rs in respect of each design change. I accept the possibility that these documents may not necessarily indicate a change that was, in fact, undertaken to remedy a fault or defect. The applicants should nevertheless be afforded the opportunity to test that issue. In this regard, I consider this category to be complementary to the discovery that is sought in Category 6(b), which I discuss below.

47    There is, however, one qualification to Category 5 that should be made. The respondents’ evidence is that DVP&Rs are not necessarily prepared at the “part” level; sometimes they are prepared at the “system” level. Therefore, the category description should be amended to refer to FMEA and DVP&R documents for parts or systems, the intention being that if documents for parts do not exist, but documents for systems containing the parts do exist, then the systems documents should be discovered.

Category 6(a)

48    In broad terms, this category seeks discovery of documents that record the results of any inquiry into the underlying issues associated with vehicle recalls in the United States of America (the US), specifically, internal analyses, external analyses, and internal summaries of these analyses.

49    The applicants originally drafted this category in different terms. However, the respondents informed them that there were no responsive documents.

50    The respondents’ evidence is that HMC conducted analyses regarding the engines in certain vehicles that were recalled in the US, but not regarding engines in vehicles the subject of related Australian recalls. The analyses were conducted by HMC regardless of whether the recall concerned Hyundai or Kia vehicles.

51    These analyses were: (a) internal analyses, the results of which were summarised in one or more presentations (Quality Reports) prepared by the HMC Safety Team for HMC or Kia management and which set forth conclusions (to the extent that conclusions were reached) of the root cause(s) of the underlying issues and the proposed countermeasures and potential fixes; and (b) external analyses by third parties commissioned by HMC.

52     Given this information, the applicants redrafted what is now Category 6(a) to seek discovery of these documents.

53    The respondents do not oppose discovery being ordered of the Quality Reports (i.e., the summaries but not the internal analyses by reference to which the summaries were produced) and the reports prepared by third party consultants engaged by HMC regarding the issues addressed in the US recalls. I should add that the respondents have made clear that they do not concede that the findings of any of these analyses apply to vehicles in the Australian market. They do oppose discovery being ordered of the documents underlying the Quality Reports.

54    The respondents contend that the call for internal analyses is a “broad and unspecific request” which is neither a reference to an identifiable category of documents nor to a particular type of information. As the respondents put it, the call would:

… appear to capture all of the Respondents’ underlying work product relating to investigations, including emails and documents generated in the ordinary course of the Respondents’ business, which would be excessively burdensome and disproportionate for the Respondents to identify and produce at this stage of the proceedings.

55    I think that the respondents are, perhaps, making more of the difficulties in producing the internal analyses than is warranted. Nevertheless, I am not persuaded that, at this stage, it is necessary to go beyond the summaries given in the Quality Reports or the third party reports. I have no reason to think that the Quality Reports will not be informative of the specific problems with the recalled vehicles. Category 6(a) should be limited accordingly.

Category 6(b)

56    This category seeks discovery of Change Notices (i.e., notices of change of technical specifications, which the respondents call Engineering Orders or EOs).

57    The background to this category is that Dr Zigler has brought to the applicants’ attention certain EOs that were discovered by the respondents as a result of the orders for discovery made on 23 December 2023. Machine-translated versions of these documents indicate that they are instructions from the respondents’ engineering team to the manufacturing team to make design changes to the Engines during their production life. The documents contain a brief description of changes concerning parts, materials, clearances, and specifications used in the Engines.

58    I have referred to the competing evidence as to the significance of these changes when considering Category 5. I note that some of the EOs in evidence show or at least indicate that the changes were to be carried out urgently, which the applicants seize on to argue that such changes suggest the need to address a fault or defect.

59    Dr Zigler has reviewed the 135 EOs that have already been discovered. His view is that 50 to 60 of these EOs are unlikely to be relevant to his inquiries. However, 53 EOs he has reviewed suggest to him that the frequency of some changes has been high and not what would be expected in the usual course of the life cycle of a typical engine. Moreover, the EOs suggest that multiple changes were made to the same parts or components (such as connecting rod bearings), in some cases only months after the last change for the part.

60    Dr Zigler expects that analysis (including root cause analysis) was conducted prior to each EO being issued to analyse the reason for the design change, the rationale for the particular change, and whether the change was likely to be effective. He expects that quality indicators, warranty records, and dealer feedback would have been monitored to assess whether the change was, in fact, effective.

61    The EOs contain other potentially useful information, including specific references to other documents which, the applicants argue, will assist them in seeking more targeted discovery from the respondents in the future.

62    Despite the respondents’ opposition to discovery of documents in this category, based on the applicants’ assessment of the utility of such discovery, I am persuaded that the documents are sufficiently relevant, and may well be important, to the case that the applicants bring. Further, I am persuaded that they are likely to assist in providing more targeted discovery, should such further discovery be warranted. Therefore, discovery should be given of documents in this category.

Category 7

63    This category is directed to discovery of documents recording warranty claims in respect of Affected Vehicles the subject of certain recall notices. It is proposed that discovery be limited to documents that are responsive to keyword search terms to be agreed between the parties.

64    In Torley 2 at [30] – [33], I considered and rejected the applicants’ application for discovery in respect of warranty claims. The respondents objected to such discovery on the ground that it would be unduly burdensome because of limitations on readily searching the database of the respondents’ Global Warranty System. Circumstances have now changed. It now transpires that searching can be undertaken using search terms.

65    The respondents have proposed search terms. The applicants wish to confer regarding further search terms. The respondents are content to have such discussions. Order 1A proposed by the applicants provides for conferral by a date to be ordered. I am content for the parties to propose a date. I note that, in the interim, the respondents intend to produce, by way of discovery, engine-related warranty claims that respond to the respondents’ search terms.

66    The respondents seek one qualification to Category 7 as presently drafted, namely that discovery be limited to documents recording “engine-related” warranty claims. That qualification is appropriate and should be made.

Conclusion and disposition

67    The parties should bring in agreed draft orders giving effect to these reasons.

68    The respondents have estimated that if discovery is ordered as sought by the applicants, it may take between six to 12 months to complete. I am of the view that the respondents should be ordered to give discovery within six months of the date of these orders. Considerable time has now passed since I made the first orders for discovery on 21 December 2023. This warrants a shorter rather than a longer period for discovery to be given. The respondents will need to marshal the necessary legal and management resources to ensure that discovery is completed in a timely fashion. If for sound reasons, demonstrated by evidence, later events or other changed circumstances justify an extension of time, then such an application should be entertained.

69    The applicants have had substantial success on this application. The respondents should pay the applicants’ costs.

Associate:

Dated:    28 August 2024