Auspine Ltd v H S Lawrence & Sons Pty Ltd

Federal Court of Australia|2000-10-06|Before: O'Loughlin J

REASONS FOR JUDGMENT 1 This is another chapter in the drawn out discovery battle that has plagued this piece of litigation since 12 November 1997. On that date the court ordered each party to file and serve its verified list of documents by 30 January 1998. On 21 December 1999, I published reasons for judgment. On that occasion I made certain orders requiring the applicant to make further and better discovery. Least it should be thought that that statement means that all fault lies with the applicant, I hasten to add that I identified in my reasons many of the respondents' demands that were found to be unwarranted. In those reasons for judgment I identified the parties, many of their intended witnesses and an outline of the claims and counter claims that have been made. I will not repeat that information except where it is necessary to explain an aspect of my present reasoning. 2 The orders of 21 December 1999 required the applicant to file and serve by 18 January 2000 a verified list of ten documents: see subpars 1(a) - 1(j). In addition the applicant was to serve a copy of each of the documents on the respondents by the same date. Paragraph 3 of the orders addressed the subject of lost or destroyed documents; it required the applicant to cause an affidavit to be filed explaining (should it be the case) details of any lost or destroyed documents. The order was in the following terms: "3. In respect of any of the categories of documents set out in 1(a) - (j) above where such documents have been lost or destroyed, the Applicant file and serve by 18 January 2000 an affidavit explaining with full [shall] and detailed particularity the loss or destruction of any such documents, including all documents relating to the Direct Marketing Component." 3 On 31 January 2000, the applicant caused the affidavit of Michael Anthony McGlone to be filed ("Mr McGlone's January affidavit"). Mr McGlone, who had in earlier affidavits described himself as the applicant's "Strategic Planner", now described himself as the applicant's Company Secretary. That affidavit should have been filed by 18 January but the delays by both sides in the filing of documents in this litigation has become a matter of routine. Mr McGlone's January affidavit was otherwise filed in purported compliance with the orders of 21 December 1999. The respondents were not satisfied with the information that was disclosed by Mr McGlone in his affidavit. However, they did not state their dissatisfaction until 26 April 2000 when their solicitors, Messrs Clayton Utz, wrote the applicant's solicitors, Messrs Purcell Lancione Cureton seeking further information. Messrs Purcell Lancione Cureton replied to Messrs Clayton Utz by letter dated 12 May 2000, purporting to address the concerns that had been expressed by Messrs Clayton Utz in their letter of 26 April; the information in the letter did not satisfy the respondents. They filed a notice of motion seeking orders pursuant to O 15 r 16(2). Subrules (1) and (2) of r 16 are in the following terms: "(1) Where a party does not file or serve a list of documents or affidavit or other document or does not produce any document as required by or under this Order, any other party may move the Court on notice: (a) if the party in default is an applicant - for an order that the proceeding be stayed or dismissed as to the whole or any part of the relief claimed by him in the proceeding; (b) if the party in default is a respondent - for judgment or an order against him; or (c) for an order that such document, affidavit or list of documents be filed, served or produced within the time limited in the order. (2) The Court may make an order of the kind mentioned in subrule (1) or any other order or may give such directions, and specify such consequences for non-compliance with the order, as the Court thinks fit." 4 The notice of motion and a supporting affidavit dated 11 May 2000 from Norman Lucas, a senior associate in the employ of Messrs Clayton Utz, were filed and served by leave and without objection during a directions hearing on 12 May 2000. On that occasion, orders were made giving the respondents until 19 May to file any further affidavits and the applicant until 26 May within which to file and serve its answering affidavits. A direction was thereafter issued that the respondents' application, as contained in their notice of motion, would be decided on the papers and a time table was set for the filing and serving of written submissions. 5 In an affidavit dated 29 May 2000, ("Mr McGlone's May affidavit"), Mr McGlone verified the contents of the letter dated 12 May from his company's solicitors, but the respondents remained unimpressed; they pursued the orders sought in their notice of motion; they also sought an order that the applicant pay indemnity costs. 6 As part of their submissions, the respondents raised argumentative factual issues going to the truth and reliability of some of Mr McGlone's assertions. For example, they alleged that former employees of the applicant (who are intended witnesses for the respondents) tell a different story. These allegations must await the substantive trial. I have already discussed this subject in my earlier judgment. Some attempt must be made to contain the discovery process; it would not be appropriate to investigate the competing factual assertions at this interlocutory level. 7 The orders that were made on 21 December 1999, and which have allegedly not been complied with by the applicant, were the following: "The Court orders that: 1. The applicant file and serve by 18 January 2000 a verified list of the following documents: (a) … (b) … (c) … (d) … (e) … (f) All computer print outs and particulars of all hard drive disks and floppy disks recording or evidencing any item added to the actual cost of production of each timber product sold or supplied by Timbersales during the period from 1 January 1994 to 30 December 1998; ("Additions to costs") (g) … (h) All computer print outs, hard drive disks, floppy disks and documents evidencing or recording the cancellation, alteration or amendment of any order made by Cowells on Timbersales during the period from 1 January 1995 to 30 June 1995; ("Amendments to orders placed by Cowells") (i) All order books, computer print outs, hard drive disks, floppy disks and documents recording or evidencing the orders for timber placed by Cowells with Timbersales during the period 1 January 1995 to 30 June 1995; ("Orders placed by Cowells") (j) … ."

"Addition to Costs" - par 1(f) of the Order dated 21 December 1999 8 Initially, the order that was sought against the applicant was that it give particular discovery of: "All documents entitled 'Direct Marketing Component' (including documents by any similar name or abbreviation), computer print outs, hard drive disks or floppy disks recording or evidencing any item added to the actual cost of production of each timber product sold or supplied by Timbersales during the period from 1 January 1994 to 30 December 1998." 9 In my December judgment, I concluded that Mr McGlone's answer in his June affidavit was inadequate. I said that his answer was limited in its content to the "Direct Marketing Component" and that it made no reference to computer print outs, hard drive disks or floppy disks. As a consequence, I made the order for discovery that appears in par 1(f) of the orders of 21 December 1999, and in par 2(f) there was an order for the production of copies of any material that was discovered pursuant to the order in par 1(f). 10 In the present application, the applicant has contended that Mr McGlone has substantially complied with the order of the Court by addressing this subject in his January affidavit. He deposed as follows: "16.1I have no documentation on the "Direct Marketing Component" ("DMC") or its application but offer the following as my understanding of the objective and the effect of its implementation:- 16.1 Auspine sawmills were to be cost (or profit) centres - depending on definition; 16.2 The Manufacturing cost (as determined by activity based costing) plus freight and plus/minus the DMC in effect became the Selling price of items from the mills to Timbersales branches. In many cases the DMC was a negative and this "cost" would be borne by the Timbersales branch; 16.3 There was no relationship between the selling price by Timbersales (which, of necessity, had to be at a market rate) and the "ex-mill" cost including DMC. The selling prices determined by all states within Timbersales were and still are determined by the market forces in play at any time; 16.4 Whether a DMC amount was recorded against a Timbersales site was immaterial to the operation of Timbersales. The only measure that was of use to Auspine was the overall margin between the cost of production plus freight and the selling price to a customer; 16.5 The DMC was only an internal reporting mechanism devised to measure the effectiveness and profitability or product distributing to various states; 16.6 The use of DMC was discontinued in 1997 as it was considered counter productive and not well understood by various levels of employees."

Understandably, this explanation did not satisfy the respondents. It made no mention, for example, of the existence or non-existence of computer print outs, hard drive disks or floppy disks. The respondents' solicitors, in their letter of 26 April 2000, wrote to the applicant's solicitors in these terms:

"By their express terms, it was abundantly clear that orders 1(f) and 2(f) were not limited to documents relating to the Direct Marketing Component or its application, but included all computer printouts or particulars of all hard drive and floppy disks recording or evidencing any item added to the actual cost of production of each timber product sold or supplied by Timbersales during the specified period. In dealing with this category of document, Mr McGlone has stated in paragraph 16 of his affidavit that he personally has "no documentation" on the "Direct Marketing Component" ("DMC") or its application" but then goes on to offer an explanation about his understanding of the Direct Marketing Component which by implication confirms that documents do exist on the subject. His affidavit does not state that the Applicant has no such documentation. He has failed to deal with the computer printouts or provide particulars of any hard drive or floppy disks recording or evidencing any item added to the actual cost of production of each timber product sold or supplied by Timbersales during the specific period. In any event he has failed to supply our clients with copies of documents relating to the Direct Marketing Component or its applications. Your client should have identified where each document within this category is recorded in its lists of documents as required by order 1(f). Your client should also have served on our clients a copy of each document within this category and provided the particulars as required by order 2(f)." 11 The applicant's solicitors attempted a further explanation in their letter of 12 May 2000. They wrote: "In relation to items added to the actual cost of production, the applicant: · refers to paragraph 16.5 of the affidavit sworn by Mr McGlone on 27 January 2000 and repeats that the DMC is an internal reporting mechanism and an accounting measure. DMC is not an actual cost of production; and · says that Timbersales was merged with Auspine Building Centres in March 1996 and thereafter ceased to exist for practical purposes as an entity in South Australia (refer paragraphs 293 to 296 of the amended statement of claim). For the period after March 1996, records were not generated by Timbersales South Australia. The applicant responds to the respondents' specific complaints as follows: 1.1 The applicant does not dispute the respondents' assertion that Mr McGlone's affidavit sworn on 27 January 2000 deals only with the DMC. The applicant provides by way of additional information:- 1.1.1 Internal purchases were receipted from a mill to Timbersales via an internally generated transfer for which a cart note was produced. That cart note would simply record the contents of a truck's load for delivery at Timbersales. The price paid by Timbersales was an arm's length market transfer price. During the period that the DMC was operational, Timbersales also picked up the DMC which may have increased or decreased the notional "cost" of individual products (refer paragraph 16, McGlone affidavit of 27/01/00); 1.1.2 External purchases were keyed in as stock receipts and a hard copy produced and filed. The applicant has been unable to locate hard copy stock receipts; and 1.1.3 Sales, order and inventory data for the period up to June 1996 was purged from the live computer system in or about September and October 1999 as part of preparations for year 2000 compliance. The purged data is stored on back up tapes and archived off site in Melbourne. The applicant will make supplementary discovery of back up tapes for that period. 1.2 The applicant says that it has been unable to locate any other documents relevant to this issue." 12 Mr McGlone in his May affidavit supplied further information on this subject of "Additions to costs". He wrote: "7. Timbersales SA was merged with Auspine Building Centres ("ABC") in March 1996 and thereafter ceased to exist as a distinct entity in South Australia. Consequently, for the period after March 1996, records were not generated by Timbersales SA. 8. Internal purchases were receipted from the applicant's saw mills to Timbersales SA via an internally generated transfer for which a cart note for proof of delivery was produced. That cart note recorded pack numbers and product information for each truck load shipped from a mill to Timbersales SA. 9. The price paid by Timbersales SA for products supplied by the applicant's saw mills was an arm's length market transfer price and was unrelated to the cost of production. Any price paid for products sold by Timbersales SA to Cowells/ABC was a market price and equivalent to the price that Cowells/ABC could have acquired that product from competitors to Timbersales SA. 10. Ad hoc sales reports may have been produced from time to time for transfers of product from the applicant's timber mills to Timbersales SA. 11. External purchases by Timbersales SA were entered in Timbersales SA's computer system as stock receipts and a hard copy produced and filed. 12. Sales, orders and inventory data, including stock transfers and stock receipts, stored on the applicant's computer system for the period up to June 1996 were purged from the applicant's live computer system in or about September and October 1999 as part of preparations for year 2000 compliance. The purged data is stored on back up tapes ("the Backup Tapes") and archived in a storage facility in Melbourne." 13 The applicant has attempted to remedy the situation; in its second further amended supplementary list of documents dated 17 July 2000, the applicant has made supplementary discovery of: · the Backup Tapes that were referred to by Mr McGlone in par 12 of his May affidavit as the applicant's discovery documents number 1322 to 1326; and · "ABC/Timbersales/Cowells Sales Analysis Y/E'96" that were referred to by Mr McGlone in par 13.3 of his May affidavit as the applicant's discovery document number 1321. 14 According to the affidavits of Mr Lancione, the solicitor for the applicant, all material other than the Backup Tapes have been made available for inspection and copies have been provided to the respondents' solicitors. 15 Mr McGlone stated in par 18 of his January affidavit that the "Backup Tapes" contained only "raw data" and were therefore "unreadable" without appropriate software and computer systems. He did not state, however, that it would not be possible for the applicant to copy the data on these tapes. Mr McGlone stated in par 17 of his May affidavit that his inquiries revealed that in order to restore and access the data on the tapes, it would be necessary to acquire a certain operating system and software at a significant cost. Once again, he did not go so far as to say that the applicant could not copy the data on the tapes. The applicant's solicitor, in his letter dated 7 August 2000 to the respondents' solicitors, said that the data on the Backup Tapes is "unable to be reproduced on hard copy or viewed" and that the tapes are "unable to be reproduced". However, the letter did not go so far as to assert expressly that the data could not be copied in electronic form. These matters may have been oversights on the part of the applicant and its solicitor. But, at this stage there is neither evidence nor submission that it is impossible for the data to be copied in an electronic form. The respondents have pushed for this line of inquiry and I am of the opinion that they are justified in this particular area. Their suggestion is that they be given a copy of the data in electronic form and they will do what is necessary to obtain the appropriate software and computer systems to render it readable. However, this proposition only emerged in their counsel's written submissions in reply and the applicant has not had an opportunity to address the Court on the proposal. There is another proposition that I advance in an attempt to bring this discovery argument to a conclusion: it is this. If the applicant claims that it cannot supply the respondents with an electronic copy and the respondents do not accept the applicant's claim, might it be feasible for the applicant to hand over the Backup Tapes to the respondent so that the respondent may conduct their own tests. 16 It is apparent, unfortunately, that I cannot conclude this matter on this occasion; it will be necessary for me to hear counsel about the ultimate treatment of the Backup Tapes. It may even be necessary for the applicant to file further affidavits.

AMENDMENTS TO ORDERS PLACEd BY COWELLS - PAR 1(h) OF THE ORDER DATED 21 DECEMBER 1999

orders placed by cowell's - par 1(i) of the order dated 21 December 1999 17 These two subjects were considered jointly in my earlier judgment and it will be convenient to continue to deal with them jointly. In his January affidavit, Mr McGlone dealt with both these subjects, explaining that the retained computer information only dealt with concluded orders; variations, whether they were by way of additions or deletions were not retained; apparently, revisions to orders "overwrote" the original data. I accept what he has said on this subject. Mr McGlone deposed to many difficulties: · orders for the period 1 January 1995 to 30 June 1995 have been stored on tape and archived and "the live system" has been purged of that data; · retrieval of that data would be a major task on a different file server; · the tapes contain only "raw data" and are unreadable without appropriate software and computer systems. 18 It is significant in my opinion that Mr McGlone, in addressing these difficulties never suggested, when the question of discovery was first argued, that the tapes were irrelevant and therefore not discoverable; nor did he then claim that the respondents' request was oppressive, such that the applicant should be relieved from making that further discovery. In this present application, the applicant faintly argued that the respondents had failed to connect their further inquiries for additional documents with a "relevant pleaded issue". If, by the use of this phrase, the applicant is seeking to assert a lack of relevance, it is now too late to raise that argument. The time for it to assert a lack of relevance was at the time when the parties presented their submissions on the issue of particular discovery. 19 The applicant has now claimed however, that the present application by the respondent is oppressive; it submitted that the inquiries that must be made by a discovering party must be reasonable, but not oppressive. The inquiries are those that are necessary in order to dispose fairly of the matters that are seriously in question in the case: Re McGorm; Ex parte the Cooperative Building Society of South Australia (1989) 20 FCR 387. The respondents rejected this submission, claiming that the applicant did not indicate in what way it is alleged to be oppressive - nor did it refer to any evidence to support the assertion. I agree. 20 The applicant having failed to establish either of these issues and having failed to raise any further issue that might relieve them of their obligation, they should take such action as is necessary to make available to the respondents either the tapes or copies of the tapes or hard copies of the material that is on the tapes. I will hear the parties on the detail of the orders that should be made. In reaching this conclusion, I have proceeded upon the premise that these tapes were different to the Backup Tapes. If that assumption on my part is incorrect, it would be appropriate for Mr McGlone to file and serve a short explanatory affidavit.

lost documents 21 The respondents have also complained that the January and May affidavits of Mr McGlone were deficient because of their inadequate treatment of lost documents. Having regard to the terms of Order 3 of the orders of the Court that were made on 21 December 1999, the respondents asserted that the applicant should have filed and served an affidavit setting out the details of the inquiries that have been made on behalf of the applicant with respect to the lost or destroyed documents and the results of these inquiries. The applicant was required, according to the submissions of the respondents, to state in an affidavit: · which documents were lost or destroyed; · when each document was lost or destroyed; and · the circumstances in which each such document was lost or destroyed. 22 By reference to the contents of Mr McGlone's May affidavit, the respondents claim that the applicant has revealed four areas of discoverable documentation that had not been discovered by the applicant. They are as follows: · cart notes; · sales reports; · data and Timbersales' computer system relating to external purchases and a hard copy of such data; and · data in the applicant's computer system relating to the applicant's sales, orders and inventory, including stock transfers and stock receipts for the period up to June 1996. 23 I have had occasion, in my earlier judgment, to comment that the respondents were pursuing a state of perfection. Unfortunately, that mild admonition has fallen on deaf ears. On this occasion, the respondents seem to have overlooked that the order of the Court that they had sought and obtained was one that was limited to additions to the actual cost of production of each timber product. Cart notes deal only with delivery; they do not deal with cost. Sales reports may have an item or items of information about additional costs of production. However, this is not likely. In any event, the respondents and the Court are entitled to assume that the applicant is aware of its discovery obligations and, based on that assumption, there is a prima facie expectation that the applicant will correctly address its discovery obligations. Except for those circumstances that I discussed in my earlier judgment, the respondents should accept the applicant's verified information. In my opinion, the observations that I have just made apply with equal force to the data in the computer systems that relate to external purchases and sales. 24 As to the adequacy of the inquiries that have been made in the name of the applicant, Mr McGlone, in his May affidavit, deposed to the extent of those inquiries. He said: 13. I am informed by Purcell Lancione Cureton, and verily believe that: 13.1 On 23 March 2000, three employees of Purcell Lancione Cureton spent a half day searching for documents relevant to these proceedings at the applicant's premises at Gillman. 13.2 On 5 May 2000, two employees of Purcell Lancione Cureton and Ron Wicks, an employee of the applicant spent a further half day at the applicant's premises at Gillman searching for documents relevant to these proceedings. 13.3 The searches described in paragraphs 13.1 and 13.2 of this affidavit failed to locate any documents the subject of orders 1(f) and 2(f) made by Justice O'Loughlin on 21 December 1999, with the exception of a document titled "ABC/Timbersales/Cowells sales analysis Y/E '96". While that document does not show component items of the cost of production of each product sold or supplied by Timbersales SA and is, therefore, not within the scope of the orders made by Justice O'Loughlin on 21 December 1999, it does show cost of sales for same. Discovery will be made of that document by the applicant. 14. I am informed by Ron Wicks and verily believe that: 14.1 He has recently conducted searches of the applicant's Tarpeena archive facility and Gillman premises for, inter alia:- 14.1.1 Sales reports for sales by the applicant's Tarpeena and Kalangadoo mills to Timbersales SA for the period from 1 January 1994 to 31 March 2000. 14.1.2 Cart notes, delivery dockets or other documentary evidence of delivery of product pursuant to sales referred to in paragraph 14.1.1 of this affidavit. 14.1.3 Stock receipt advices generated by Timbersales SA for the period from 1 January 1994 to 31 March 1996. 14.2 The searches referred to in paragraph 14.1 of this affidavit have failed to produce any documents relevant to orders 1(f) and 2(f) made by Justice O'Loughlin. 15. I believe that documents the subject of orders 1(f) and 2(f) made by Justice O'Loughlin on 21 December 1999 have been lost or destroyed over the course of the last five years, with the exception of the Back up Tapes and the document described in paragraph 13.3 of this affidavit." 25 The respondents regarded these efforts as inadequate. They submitted that the applicant should have made inquiries of its officers, servants and agents, including former officers, servants and agents who were at the material time employees or agents and who were likely to have knowledge regarding the documents that are the subject of the December orders. The respondents complained that there is no evidence that the applicant made these inquiries. Counsel for the applicant responded to this submission, labelling it speculative and submitting that there was no evidence to support it. I agree. I consider that the attitude adopted by the respondents is unwarranted. To require the applicant to engage in further inquiries would be wasteful. The Court has a responsibility to ensure that cases are prepared and presented with expedition and, if possible, with minimal costs. The pursuit of excellence, which seems to be the objective of the respondents or its solicitors, is a luxury that can not always be afforded. 26 Mr McGlone's statement in his May affidavit that he believes that certain documents that were the subject of Order 1(f) were "lost or destroyed over the course of the last five years", is, admittedly vague and imprecise. However, there are two reasons why I am not inclined to pursue this matter any further at this stage. In the first place, the case involves a huge array of documentation extending over a considerable period of time and involving many employees of the applicant. I have little faith in the applicant's ability to list, seriatim, document by document, stating when its existence was last known and the identity of the person in whose possession it was last held. Secondly, although I have had occasion to be critical at times of the attitude adopted by the applicant's solicitors in the discovery process, I do not suggest that there is bad faith or an attempt by the applicant or by its solicitors to frustrate the process of the Court. If I am wrong, or if I am being overly lenient, the applicant runs a most serious risk that the inadequacies of its discovery (should they exist) will be uncovered at trial. That might have the potential to damage seriously its bona fides. Conscious that the applicant and its advisers would be aware of the obligations that it has and of the risks that it runs, I think that it is appropriate to put to one side the complaints that the respondents have made. I am prepared to give the applicant the benefit of the doubt and to proceed upon the premise that it has done the best that it can. I am also prepared to proceed upon the further premise that there is no obvious prejudice to the respondents apparent at this stage. 27 Discovery is an ongoing exercise. The manner in which I have exercised my discretionary powers on this occasion does not relieve the applicant from making further discovery at any later stage if further discoverable material comes to its notice. The time has come, however, to stop this exceptionally expensive interlocutory warfare; the time has come to list this matter for trial. The energies of the parties will be far better directed towards the proper prosecution of the substantive issues at trial. 28 Notwithstanding the fact that I have not made final orders on the Notice of Motion, it is appropriate that I should address the respondents' proposal that they should enjoy an order for indemnity costs. This has been, and continues to be, a complex and difficult matter, but much of the complexity and many of the difficulties have been occasioned by the overly zealous pursuit of the discovery process by the respondents. At a time when the Court is endeavouring to contain costs - and, in particular, the costs of discovery - the respondents have pursued the discovery process with a lack of restraint. They have had a measure of success because of the failure of the applicant to address the question of electronic copying of the tapes. However, to a substantial degree, they have failed in their attempts because they have refused to accept the verified statements that have been made on behalf of the applicant. I consider that the appropriate order will be to reserve the question of the costs of this application (including the application for an order for indemnity costs) to the trial judge. 29 Further consideration of the respondents' notice of motion is reserved with liberty to any party to bring the matter back on for hearing on seven days notice. I certify that the preceding twenty-nine (29) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice O'Loughlin.

Counsel for the Applicant on the notice of motion: Mr A S Martin SC

Solicitor for the Applicant on the notice of motion: Clayton Utz

Counsel for the Respondent on the notice of motion: Mr R D Ross-Smith

Solicitor for the Respondent on the notice of motion: Purcell Lancione Cureton

The matter was determined on written submission filed on: 1, 11 and 24 August 2000

Date of Judgment: 6 October 2000

At a glance

Court

Decision date

Before

Source

Judgment (13 paragraphs)

Parties

Cases Cited (1)

Cited By (1)