BETWEEN : STRZELECKI HOLDING PTY LTD (ACN 051 222 253)

Practice and procedure - Discovery - Application for further and better discovery - Turns on own facts

1 The plaintiff applies for further and better discovery. The application is made under O 26 r 6 and under the court's inherent jurisdiction. The plaintiff relies on an affidavit of Mr Simon England sworn 15 December 2008 to enliven the court's jurisdiction under O 26 r 6. The application was filed on 16 December 2008.

2 On 15 December 2008 the defendant's solicitors wrote to the plaintiff's solicitors enclosing an informal supplementary list of documents. The defendant relies on an affidavit of Ms Karen Hauff sworn 18 December 2008 in opposition to the application.

3 The principles relevant to an application for further and better discovery are not in dispute. They were summarised by Master Newnes in Youlden Enterprises Pty Ltd v Health Solutions (WA) Pty Ltd [2005] WASC 60 [3] - [6] as follows:

In determining whether to make an order for further discovery, the Court must have reasonable grounds for being fairly certain that there are other relevant documents which ought to have been discovered: Beecham Group Pty Ltd v Bristol Myers Co [1979] VicRp 27; [1979] VR 273. The Court must be able to infer from the nature of the document in question that it is relevant; it will not speculate as to its relevance. Relevance may either appear from the nature of the document or its contents, and if the latter then there must be a prima facie case as to the contents before an order for further discovery will be made: Astra-National Productions Ltd v Neo-Art Productions Ltd [1928] WN 218 at 219. Where an application is made in respect of a document referred to in a document already discovered (the relevance of the latter being conceded by its discovery) it is generally reasonable to assume, in the absence of a contrary indication in the document discovered, that the document referred to is relevant: see Compagnie Financiere et Commerciale du Pacifique v Peruvian Guano Co [1882] 11 QBD 55; Kent Coal Concessions Ltd v Duguid [1910] 1 KB 904 at 915 and the discussion in PDM Australia Pty Ltd v Kellogg Overseas Corporation & Ors, unreported; SCt of WA; Library No 6646; 26 March 1987 at [5-14].

In determining whether a document relates to a matter in question, and, therefore, whether it ought to have been discovered, the test is that set out in Compagnie Financiere et Commerciale du Pacifique v Peruvian Guano Co (supra) as follows:

'It seems to me that every document relates to matters in question in the action which not only would be evidence upon any issue, but also which, it is reasonable to suppose, contains information which may - not which must - either directly or indirectly enable the party requiring the affidavit either to advance his own case or to damage the case of his adversary. I have put in words "either directly or indirectly" because it seems to me, a document can properly be said to contain information which may enable the party requiring the affidavit either to advance its own case or to damage the case of its adversary, if it is a document which may fairly lead to a chain of inquiry, which may have either of those two consequences.'

The matters in issue are to be determined by reference to the pleadings: Mulley v Manifold [1959] HCA 23; (1959) 103 CLR 341 per Menzies J at 345. But regard must also be had to the conduct and admissions of the parties and the nature of the action: Schlam v WA Trustee Executor & Agency Co Ltd [1964] WAR 178 at 186.

It is also important to bear in mind that there is not a strict entitlement to an order for discovery, including an order for further discovery: Kent Coal Concessions Ltd v Duguid (supra) at 910. Moreover, amendments to the Rules in more recent times, including the introduction of O 1 r 4B and O 26 r 7, emphasise the need to have regard to the timely and cost effective disposal of the action in the exercise of the discretion to order discovery.

4 In an application based on the court's inherent jurisdiction, in seeking to displace the generally conclusive nature of the affidavit of discovery, the applicant is confined to information from the opponent's affidavit and list, the documents the opponent discloses and the opponent's admissions. The applicant may not rely upon a contentious affidavit. Limited to those materials, the court may make an order if, among other things, it has reasonable grounds for being fairly certain that there are other documents which ought to have been disclosed, or if it appears that a party has excluded documents under a misconception of the case: Mulley v Manifold [1959] HCA 23; (1959) 103 CLR 341, 343; Chandler v Water Corporation [2004] WASC 95 [17].

5 The plaintiff seeks discovery of documents in 13 categories set out in pars (a) - (m) of par 1 of the chamber summons.

6 Given that the relevance of documents is to be assessed by reference to the pleadings, I begin by outlining the pleadings in the action.

7 The plaintiff's claim is based upon an agreement (the Agreement) described as a memorandum of understanding said to have been entered into between the plaintiff and the defendant in or about November 2004. The defendant owns land. According to the plaintiff, the Agreement involved the parties agreeing for certain studies to be carried out in relation to the land and, on completion of those studies, at the plaintiff's election, for the land to be sold by the defendant to the plaintiff.

8 Terms of the Agreement are pleaded in par 4 of the statement of claim, some of which I summarise as follows.

9 By cl 1, the defendant was to arrange a suitable person to carry out a study termed the tailings relocation study. That study would identify what government approvals would be required to relocate the tailings situated on the land, and would include a strategy for relocating and encapsulating all of the tailings situated on the land to that part of the land which would have least impact on any subsequent development of the land. The study would also identify the cost and practicality of implementing that strategy (statement of claim par 4(a)).

10 By cl 3, the plaintiff was to promptly carry out a due diligence and feasibility study in relation to the subdivision and development of the land to its highest and best use (statement of claim par 4(c)).

11 By cl 6, the plaintiff was to advise the defendant, within 14 days of completion of the plaintiff's feasibility study, whether or not the plaintiff wished to continue with negotiations for the sale and purchase of the land.

12 By cl 8, if after completion of the plaintiff's feasibility study the plaintiff advised the defendant that it wished to continue negotiations then the parties were to negotiate a contract for the sale and purchase of the land to include the following terms and conditions:

(a) the purchase price was to be $3.2 million plus GST;

(b) the plaintiff was to be responsible for all costs associated with relocating and encapsulating the tailings, which costs would be over and above the purchase price;

(c) any payment received from the State of Western Australia in relation to the resumption of any part of the land was to be divided equally between the parties; and

(d) the contract was to be in the form of the REIWA 'Contract for Sale of Land by Offer and Acceptance' with such variations as may have been agreed by the parties.

13 By cl 9, if the plaintiff and the defendant acting in good faith were unable to conclude a contract for the sale and purchase of the land between themselves within a further 30 days of the plaintiff advising the defendant of its desire to continue negotiations, or such longer period as the parties may have agreed, then the parties' dealing with each other in relation to the land would be at an end and the Agreement would cease to be of any force or effect (statement of claim par 4(f).

14 By cl 11, the defendant was not, until the Agreement was terminated, to sell the land, or to grant any interest in relation to it, or to negotiate in relation to such matters, with any other person (statement of claim par 4(h)).

15 By cl 12, the plaintiff and the defendant were, while the Agreement remained in effect, to deal at all times with each other in good faith (statement of claim par 4(i)).

16 The defendant admits in par 4 of its defence that the statement of claim summarises the clauses to which I have referred, although it apparently does not admit that the Agreement contained terms to that effect.

17 Paragraph 4(k) of the statement of claim pleads that the Agreement contained an implied term that if the preferred method of dealing with the tailings were other than to relocate and encapsulate the tailings in a different location on the land:

(i) the tailings were to be buried on another property or were to be reprocessed;

(ii) the defendant was to carry out the works associated with relocating and encapsulating the tailings in a different location on the land or any alternative method of dealing with the tailings;

(iii) the plaintiff was to be responsible for all costs associated with these works which costs would be over and above the purchase price.

18 Particulars under this paragraph state that conversations occurred between representatives of the parties at a meeting in or about early October 2004. It is not entirely clear to me how those conversations are said to constitute particulars of the alleged implied term of the Agreement apparently made in writing between the parties. It may be that the conversations are said to involve background facts known to the parties which are part of the matrix in which the Agreement is to be construed. In any event for the purposes of this application it is not necessary to say more about that question.

19 The defendant denies that the Agreement contains the implied term pleaded in par 4(k) of the statement of claim.

(a) On or about 2 December 2005 the defendant, by Bemax Resources NL (Bemax) on its behalf, purported to provide the tailings relocation study to the plaintiff (par 5);

(b) On 19 December 2005 the defendant, by Bemax, advised that it would deliver to the plaintiff an addendum to the tailings relocation study (par 7);

(c) The parties agreed to vary cl 9 of the Agreement so that the time period for negotiations would commence on the date that the defendant delivered to the plaintiff the addendum to the tailings relocation study (par 8); and

(d) On 9 February 2006 Bemax, on behalf of the defendant, delivered the addendum to the tailings relocation study and advised that the time period for negotiations had commenced (par 9).

21 The plaintiff pleads in par 10 of the statement of claim that on 24 February 2006 Bemax, on behalf of the defendant, forwarded a list of special conditions required by the defendant to be included in the contract for the sale and purchase of the land.

22 The plaintiff pleads in par 10A of the statement of claim that in providing those special conditions the defendant evinced an intention no longer to be bound by the Agreement. In particular, the plaintiff pleads that cl 4.1 to cl 4.5 of the defendant's Special Conditions evinced an intention that the defendant not be bound by the defendant's (alleged) obligation to carry out the works associated with relocating and encapsulating the tailings or any alternative method of dealing with the tailings.

24 The plaintiff pleads that on 10 March 2006 the plaintiff forwarded a form of contract (referred to as the Plaintiff's Contract) by which the plaintiff offered to purchase the land from the defendant on the terms there set out.

25 The plaintiff pleads that the defendant, by Bemax, advised by letter of 16 March 2006 that the 30 day period for negotiating a contract for the sale and purchase of the land had elapsed, and that that letter was sent in breach of the defendant's obligation of good faith (par 14).

26 The plaintiff pleads that in further correspondence its solicitors called on the defendant to execute the contract forwarded on 10 March 2006 and that the defendant has failed to do so. The plaintiff alleges that the failure is a breach of the obligation of good faith (par 18).

27 The plaintiff claims specific performance of the Agreement by an order that the defendant execute the Plaintiff's Contract, alternatively damages or equitable compensation.

28 The defendant takes issue in its defence with a great many of the allegations in the statement of claim. I do not propose to canvass all of the issues which arise on the pleadings. In par 10 of its defence, the defendant pleads that by Bemax's letter of 24 February 2006 the defendant identified issues in relation to the land which it considered to be critical to reaching an agreement. These issues were that the plaintiff indemnify the defendant against any liability arising from the plaintiff's failure to remedy the land as required by any environmental law as defined in the defendant's special conditions, and that the plaintiff provide security against any liability by way of bank guarantee. The defendant pleads that the plaintiff failed to address these key issues satisfactorily or at all.

29 The plaintiff's submissions in support of this application contend that:

1. The following issues, at least, arise out of the pleadings for determination in the case.

(a) Whether the formal contract being negotiated by the parties ought have included in it guarantees and indemnities, or guarantees and indemnities of the types sought by the Defendant [SOC 10 DEF 10].

(b) Whether there is any further documentary material showing the likely methods of dealing with the tailings. What method or methods can or may be used for dealing with the tailings [SOC 4(2)(K), DEF 4].

(c) What are the likely costs of dealing with the tailings in their various ways [SOC 4 DEF 4].

(d) Whether the Defendant has engaged in discussions or negotiations with third parties for the sale of the land to those third parties [SOC 4(2)(H), DEF 4].

(e) Whether the guarantee and indemnity clauses sought by the Defendants are reasonable [SOC 10(A), DEF 10(A)].

(f) Whether the Defendant has acted in good faith in the negotiations [SOC 10(A)-17, DEF 10(A)-19. See also paragraph 2 of the Plaintiff's reply].

I do not accept that all of these issues arise on the pleadings.

30 The defendant accepts, in its submissions on this application, that the issue in par 1(a) of the plaintiff's submissions arises in the action. Another, and, I think, preferable way of expressing this may be that there is an issue whether, in insisting on the resolution of the key issues as set out in Bemax's letter of 24 February 2008, the defendant acted consistently with its obligation of good faith.

31 In my opinion, par 4(k) of the statement of claim and par 4 of the defence do not give rise to the issues asserted in par 1(b) of the plaintiff's submissions. Rather, par 4(k) of the statement of claim raises an issue as to whether there is an implied term to the effect pleaded by the statement of claim.

32 I do not accept that pars 4 of the statement of claim and defence give rise to an issue as to 'the likely costs of dealing with the tailings in their various ways'. The Agreement contained a clause by which the defendant was to obtain a study which would identify the costs of relocating the tailings. The Agreement provided for the plaintiff to be responsible for those costs. The plaintiff also alleges an implied term an element of which was that the plaintiff would be responsible for costs of any alternative method of dealing with the tailings. Those pleadings do not give rise to a general issue as to the costs of dealing with tailings in the various ways.

33 Paragraph 4(h) of the statement of claim does not raise an issue as to whether the defendant has engaged in discussions or negotiations with third parties for the sale of the land to those third parties. That paragraph simply pleads a particular term. No breach of that term is pleaded in the statement of claim.

34 Paragraph 10A of the statement of claim, and the defendant's response to it, does not raise the issue of whether the guarantee and indemnity clauses sought by the defendant are reasonable. As I have said, there is an issue as to whether the defendant's apparent insistence on the inclusion of those clauses was consistent with its obligation of good faith.

35 The summary in par 1(f) of the plaintiff's submissions is, I think, put at too high a level of generality. The issue is whether the defendant has failed to act in good faith in the respects alleged in the statement of claim. The only breaches pleaded in the statement of claim are those in pars 14 and 18, to which I have referred. I will return to this point later in these reasons.

36 I turn to the individual categories of documents in respect of which further and better discovery is sought by the plaintiff.

37 Mr England's belief as to the likely existence of documents in these categories relates to matters occurring since November 2004 (par 10). Ms Hauff says, in par 2.1 of her affidavit, that the defendant's supplementary discovery list dated 15 December 2008 contains all of the documents in these categories from November 2004 to August 2005 in the defendant's possession, custody or control. These categories seek documents prior to 10 August 2005. In light of that, I would not make any order in relation to these categories.

(c) all drafts of the study on tailings provided by the Defendant to the Plaintiff on 2 December 2005 and all other documents pertaining to, or containing comments or notes relating to, the preparation of that study and drafts of that study;

39 In pars 12 - 14 of his affidavit, Mr England sets out the basis for his belief that there are likely to be other drafts of the study provided on 2 December 2005. However, given what is said in par 3.2 of Ms Hauff's affidavit, I am not persuaded that there are reasonable grounds for being fairly certain that additional documents in this category exist and have not been discovered.

40 Further, I am not persuaded that this class of documents relates to any matter in question in the action, given the plaintiff's pleaded case. In par 15 of his affidavit Mr England said that he believes documents in these categories may be relevant to 'the defendant's conduct and whether it has acted in good faith in its dealings with the plaintiff and the issue as to whether it was an implied term of the [Agreement] that other options for dealing with the tailings were to be considered'. I take the reference to the defendant's conduct as being an element of whether the defendant has acted in good faith, not a separate issue in itself.

41 As I have said, I do not accept that the pleadings give rise to an issue in general terms of whether the defendant has acted in good faith in its dealings with the plaintiff. The fact that the plaintiff has pleaded a term by which the defendant was obliged to act in good faith does not mean that the issues in the case include any respect or respects in which it might be said that the defendant failed to act in good faith. Rather, attention must be directed to the matters raised in the statement of claim as being breaches of the obligation to act in good faith. Thus, the issues are (relevantly) whether the defendant has failed to act in good faith in the respects pleaded in the statement of claim. Documents which might bear upon a possible breach of the obligation of good faith other than those pleaded are not thereby relevant. When the matter is approached in that way, I am not persuaded that the documents in this class are relevant to any alleged breach of the obligation to act in good faith.

42 Further, I am not persuaded that this class of document is relevant to whether there was an implied term of the Agreement that other options for dealing with the tailings were to be considered. How documents in this category would or might be relevant to whether the Agreement included such implied term was not explained in Mr England's affidavit or in the plaintiff's submissions. Documents created after the Agreement was made would not bear upon its proper construction, including whether it contains the implied term alleged: Secure Parking (WA) Pty Ltd v Wilson [2008] WASCA 268 [86]; The Bell Group Ltd (in liq) v Westpac Banking Group (No 9) [2008] WASC 239 [2667]; Corporate Systems Publishing Pty Ltd v Lingard (No 4) [2008] WASC 21 [259].

43 For these reasons I would not make any order in respect of category (c).

(d) the further study referred to in the Defendant's letter to the Plaintiff of 1 November 2005, all drafts of this further study and all other documents pertaining to, or containing comments or notes relating to, the preparation of the further study;

45 The foundation for the application in respect of category (d) is Bemax's letter of 1 November 2005 to the plaintiff's solicitors. That letter states that both studies, being the one provided pursuant to the Agreement and the further study that the defendant had had prepared on alternative options, were in Brisbane for review by the managing director. The letter states that given that the alternative study was being provided outside the Agreement a confidentiality agreement had been attached to the letter for execution by the plaintiff.

46 Ms Hauff says in her affidavit that the defendant agreed to provide an executive summary of the alternative options report (referring to certain discovered documents that are not in evidence before me). Following receipt on 2 March 2006 of the signed confidentiality agreement, Bemax on behalf of the defendant provided the executive summary to the plaintiff's solicitors on 3 March 2006. Ms Hauff says in her affidavit that the further study referred to in the letter of 1 November 2005 is a reference to the executive summary of the study provided on 3 March 2006. That does not seem to me to make sense. The letter of 1 November 2005 referred to an alternative option study. Later the defendant provided an executive summary of that study, not the whole study, to the plaintiff.

47 I am prepared to make an order for discovery of the alternative options study. The alternative options study is, I think, capable of being relevant, in the Peruvian Guano sense (Compagnie Financiere et Commerciale du Pacifique v Peruvian Guano Co (1882) 11 QBD 55), to whether the defendant acted in good faith in insisting on resolution of the key issues as set out in the letter of 24 February 2008. That study was information in the defendant's possession of direct relevance to the subject matter of the key issues.

48 I am not persuaded that discovery should be ordered of any draft of the study or of documents relating to it or containing comments or notes relating to its preparation. First, I am not satisfied that there are reasonable grounds for being fairly certain that a draft exists and is in the possession, custody or power of the defendant. Secondly, Mr England's affidavit contains no evidence as to the likely existence of the other documents referred to in category (d). Thirdly, such further documents or drafts would be of, at best, very peripheral relevance to any matter in question. For corresponding reasons to the reasons given in relation to category (c), these documents would not bear on the question of whether there is an implied term. If they were capable of bearing upon whether the defendant acted in good faith (in the way I have explained in relation to the alternative options report), their relevance is, in my opinion, quite remote and as a matter of discretion I would not order further discovery.

(e) all documents and files of Radiation-Wise Pty Ltd in relation to its review of the tailings situated on the Land and consideration of all methods for dealing with the tailings, including but not limited to emails, correspondence and instructions given by or on behalf of the Defendant to Radiation-Wise Pty Ltd;

(f) all correspondence, emails, studies, reports and other documents passing between the Defendant and all consultants engaged by the Defendant to investigate and consider options for dealing with the tailings;

50 Radiation-Wise Pty Ltd conducted the studies obtained by the defendant in 2005. Ms Hauff says in her affidavit that the defendant did not engage any other consultants to investigate and consider options for dealing with the tailings. That means that category (f) falls away, because it does not add to category (e).

51 I am unable to see what category (e) adds to what is in category (a). Category (a) includes 'all files of all consultants engaged by the defendant to investigate the tailings and consider options for dealing with the tailings and the remediation of the land'. Ms Hauff says in her affidavit that the defendant has discovered all of the documents in category (a) in its possession, custody or power. For that reason I would not make an order in relation to category (e).

52 Further, and in any event, I would not, as a matter of discretion, make an order in relation to category (e) for reasons corresponding to those given in relation to category (d); see the third point made at [48] of these reasons.

(g) discovery of Corrs Chambers Westgarth's file in relation to the preparation of, and negotiations relating to, the special conditions, including but not limited to all drafts of special conditions, file notes and correspondence and emails passing between Corrs Chambers Westgarth and the Defendant or passing between those parties and any third party;

(h) all correspondence, emails, advice and other documents received by or on behalf of the Defendant from Corrs Chambers Westgarth and any other consultants in relation to the indemnity and bank guarantee being 'key provisions';

54 The material before me establishes that documents in this category are very likely to exist. The defendant resists an order in terms of these categories primarily on the basis that it says that the material the subject of the category would be privileged. It also submits that nothing in the pleadings involves any issue requiring discovery of this material.

55 Beginning with the question of relevance, I am satisfied that documents in these classes are sufficiently relevant, in the Peruvian Guano sense, as to be discoverable.

56 Ordinarily, privilege is not a ground for not discovering relevant documents. Rather, the document should be discovered and privilege claimed. That course should be adopted in this case.

57 The defendant's submissions sought to refute an argument that privilege has been waived. The plaintiff's submissions do not appear to contend that privilege was waived. In any event, I am not persuaded that the defendant has acted in a manner that is inconsistent with the maintenance of the privilege (see in this regard Osland v Secretary to the Department of Justice [2008] HCA 37; (2008) 234 CLR 275 [44] - [45]). Denial of a state of mind asserted by the other party in its pleadings does not amount to conduct waiving privilege: DSE (Holdings) Pty Ltd v Intertan Inc [2003] FCA 384; (2003) 127 FCR 499.

58 For these reasons I would make an order in relation to categories (g) and (h).

59 By this category the plaintiff seeks discovery of all valuations of the land. The defendant has discovered three valuations of the land in the supplementary list. Ms Hauff says in her affidavit that the defendant does not have any other valuations in its possession, custody or control created during the period 2002 to 2005. Her affidavit does not say anything about valuations after 2005. A valuation obtained after 2005 would, in my opinion, be sufficiently relevant to be discoverable in that it would be capable of bearing on the question of damages.

60 I would order that the defendant provide further and better discovery of any valuation of the land, not already discovered, that is in its possession, custody or power.

61 Ms Hauff says that the defendant has discovered such documents in these categories as are in its possession, custody or control. See Ms Hauff's affidavit pars 9 - 12. In light of that evidence I would not make any order in relation to these categories.

62 For the reasons I have given, I would make an order for further and better discovery in respect of:

(a) the alternative option study referred to in Bemax's letter of 1 November 2005;

64 I would hear from the parties as to the precise orders to be made and as to costs.