Australia Eastern Railroad Pty Ltd v Macquarie Specialised Asset Management Ltd

Supreme Court of NSW|2020-06-01|Before: Robb J

Solicitors: Quinn Emanuel Urquhart & Sullivan (plaintiff) Herbert Smith Freehills (defendants) File Number(s): 2020 / 83948

Introduction

By summons filed on 16 March 2020, the plaintiff, Australian Eastern Railroad Pty Ltd (AER), seeks preliminary discovery of the documents set out in Annexure A to the summons under rules 5.3(1) and (4) of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) against six defendants to whom I will refer collectively as the Macquarie parties.
AER seeks the preliminary discovery from the Macquarie parties in order to determine whether it should make a claim for relief against those parties in relation to their involvement in transactions that led AER on 17 September 2019 to institute proceedings in the Commercial List of the Equity Division of this Court against Genesee & Wyoming, Inc (G&W) and GWI Holdings Pty Ltd (GWI) (the G&W proceedings).
AER, formerly known as QR National West Pty Ltd, is a wholly owned subsidiary of Aurizon Holdings Ltd (Aurizon). Aurizon is listed on the ASX. The Court was told that the Aurizon group is Australia's largest rail freight operator and has operations in five states.

The Rights Agreement

In 2006, each of AER and G&W entered into a significant transaction that resulted in AER acquiring certain assets and G&W, or its related parties, acquiring certain other assets.
Significantly for the present matter, one of the agreements entered into on 1 June 2006 between G&W, GWI, and other parties, including AER, was called the SA Assets - Rights of First Refusal Agreement (Rights Agreement). It will be convenient to explain the relevant aspects of the operation of the Rights Agreement below in the context of a consideration of the G&W proceedings.

The 2010 Partnership Agreement

Before the G&W proceedings are considered, it will be necessary to note that, on 25 October 2010, companies related to G&W entered into an agreement called Limited Partnership Agreement for G&W Australia Holdings LP (2010 Partnership Agreement) which created a limited partnership called the G&W Partnership. The Court was told that, by no later than 2016, the 2010 Partnership owned, directly or indirectly, all the shares in the members of the GWA group, which included GWI and its subsidiary, G&W Australia. These circumstances are only significant to the context in which the transactions the subject of AER's complaints occurred, in that those transactions involved alterations to the structure of the limited partnership. It is to be noted that the interposition of the partnership structure between G&W and GWI did not involve G&W ceasing to control GWI. As will be seen, the transactions the subject of AER's complaints involved, so AER alleges, G&W ceasing to control GWI, in circumstances where G&W failed to comply with AER's entitlements under the Rights Agreement.

The 2016 transaction

The events that led to the G&W proceedings concerned the sale by a third party called Glencore of certain assets that were offered for sale in around October 2016. G&W apparently decided to bid for those assets, and for that purpose it secured co-investment from the Macquarie parties. G&W and the Macquarie parties bid A$1.14 billion for the Glencore assets. The Macquarie parties contributed over A$400 million in capital and a significant amount of debt funding. The form of the co-investment involved the Macquarie parties acquiring a 48.9% interest in the G&W Partnership created by the 2010 Partnership Agreement. The bid by G&W and the Macquarie parties was successful.
The evidence before the Court included an Amendment and Restatement Deed made on 30 November 2016 between G&W, four of the Macquarie parties (it appears, the first, second, fourth and fifth defendants) and another party (Amended PI Agreement). The deed was described as: "Amendment and restatement of the Partnership Investment Agreement dated 14 October 2016 as amended on 20 October 2016" (Partnership Investment Agreement). The other relevant transaction document was called Limited Partnership Agreement for G&W Australia Holdings LP (2016 Partnership Agreement) dated 1 December 2016 between GWI International Pty Ltd (as a General Partner), GWI Holding BV (as a Limited Partner) and five of the Macquarie parties. Of those five, one, being Scissor Holdings Pty Ltd, entered into the agreement as a General Partner.

The G&W proceedings - 2016 transaction

It will be convenient to return to a consideration of the G&W proceedings. Paragraph references are references to the plaintiff's contentions in the commercial list statement. I am satisfied that the terms of the various agreements referred to in the commercial list statement arguably have the effect alleged.
Relevantly, par 37 alleges that clause 4.1 of the Rights Agreement provided that, if any member of the G&W Group intended to enter into any transaction that would result in G&W ceasing to control GWI or any defined subsidiary, then G&W must, within 10 business days of the relevant intention being formed, give, or cause to be given, written notice to AER of the proposed transaction in accordance with clause 4.2 of the Rights Agreement. G&W Australia was one of the identified subsidiaries.
Control was defined to have the same meaning as given in s 50AA of the Corporations Act 2001 (Cth). Relevantly, control involved the capacity to determine the outcome of decisions about the financial and operating policies of the subject entity, where the exertion of practical influence is to be considered and any practice or pattern of behaviour is to be taken into account.
As pleaded in par 45, clause 4.2 of the Rights Agreement required that a notice given in accordance with clause 4.1 must set out, relevantly, the terms and conditions of the proposed transaction, and must contain an offer by the relevant party to enter into the proposed transaction with AER or its nominee on the same terms, subject only to clause 4.5.
As alleged in par 46, clause 4.5 of the Rights Agreement contained requirements concerning the terms on which the offer to enter into the transaction with AER was to be made.
Paragraph 50 alleged that the Rights Agreement contained implied terms formulated in slightly different ways, but to the general effect that the parties to the Rights Agreement would do all that was necessary to be done in order to enable the other parties to have the benefit of the contract.
AER alleged in par 56 that it was a term of the 2010 Partnership Agreement that a partner was entitled, without the consent of the other partners, to carry on any business or activity of the same nature as and competing with that of the Partnership.
By no later than November 2016, the G&W Partnership owned, directly or indirectly, all the shares in the members of the GWI Group which included GWI and G&W Australia: par 57.
AER alleged, in par 64, that the effect of the Partnership Investment Agreement, as amended, was that, if the bid was accepted by Glencore, then subject to certain conditions, the relevant Macquarie parties would provide a capital contribution and loan facility to the G&W Partnership, acquire relevant partnership interests, and be admitted as new general and limited partners.
In pars 86 to 93, AER alleged the terms of the 2016 Partnership agreement, being primarily clauses 6.1, 6.2, 6.9, 6.10, 6.19 and 6.20, which governed how management decisions were to be made in respect of the G&W Partnership, given that there would now be two General Partners and a number of Limited Partners. By clause 6.1, the General Partners were solely responsible for the management of the Partnership and the Partnership business. The General Partners were required to establish a Management Committee. The Management Committee was required to refer to a Strategic Plan for general guidance on how to conduct the Partnership Business, but was to have full and exclusive power and authority to manage and control the Partnership, the Partnership Property and the Partnership Business. AER referred to the detailed terms concerning how the Management Committee was to be constituted and to operate.
Importantly, par 95 alleged that the effect of clause 8.3 of the 2016 Partnership Agreement was that no decision to approve a Reserved Matter or to undertake a Reserved Matter was effective unless it had the prior approval in writing of each General Partner.
Paragraph 103 alleged that Reserved Matters were defined in Schedule 3 to the 2016 Partnership Agreement to include 16 significant aspects of the management of the G&W Partnership. As examples, Reserved Matters included the appointment and terms of employment of the Chief Executive Officer and the Chief Financial Officer (subclause (a)); the adoption of any material amendments to the Strategic Plan (subclause (b)); approval of entry into and termination or amendment of contracts involving an annual revenue or expense of $10,000,000 or more (subclause (f)); and any restructure of the capital of the Partnership or the GWA Group (subclause (h)).
AER also made allegations concerning the terms of the 2016 Partnership Agreement that regulated the entitlement of partners to compete with the Partnership.
Paragraph 100 pleaded a term that governed the circumstances in which a Partner was permitted to transfer its interest in the Partnership, which included that "Prohibited Transferee" was defined to include a person that competes with the Partnership. Paragraph 101 alleged that clause 18.1 was an undertaking that each partner will not "Compete" with the Partnership. "Compete" was defined in clause 1.1: par 102.
AER alleged in par 108 that, either at the time of entry into the Amended PI Agreement, or at the time of entry into the 2016 Partnership Agreement, particular terms of the latter agreement governed the management of the Partnership in a manner leading up to the allegation in subpar (j) that decisions about Reserved Matters was subject to the prior approval in writing of each General Partner.
That led to the allegation by AER in par 109 that, at the time the parties entered into one or the other agreement, "G&W ceased to Control GWI, further or alternatively, G&W Aust within the meaning of clause 4.1 of the Rights Agreement because, among other things, G&W no longer had the capacity to determine the outcome of decisions about GWI and G&W Aust's financial and operating policies."
AER alleged that, consequently, G&W breached clauses 4.1 and 4.2 of the Rights Agreement by failing, within 10 Business Days of forming an intention to enter into the Amended PI Agreement, or the 2016 Partnership Agreement, to issue a notice as required by those provisions: pars 112 to 114.
AER also alleged that, by reason of the terms of the 2016 Partnership agreement that prohibited the sale or transfer of any interest in the Partnership to a Prohibited Transferee, which included a transferee who was in competition with the Partnership, G&W could not have issued, or caused to be issued, a notice complying with clauses 4.1 and 4.2 of the Rights Agreement, because the effect of the 2016 Partnership Agreement would have been to require AER to transfer the interest in the Partnership to a non-defaulting Partner at a Transfer Price, being 95% of the fair market value of the interest: par 110.
Then, in par 111, AER alleged a second basis for events having triggered G&W's obligation to serve, or cause to be served, a notice on AER under clauses 4.1 and 4.2 of the Rights Agreement, being that G&W ceased to "Control" GWI, further or alternatively, G&W Aust, because the effect of the 2016 Partnership Agreement was that G&W no longer had the capacity to determine the outcome of decisions about GWI and G&W Aust's financial and operating policies, in that it was constrained as to the persons to whom it could sell the Partnership interests held by those entities, as it could not sell to a Prohibited Transferee.
In par 115, AER alleged that it had suffered loss and damage by reason of the breaches of the Rights Agreement that it pleaded. In outline, that loss was the loss of opportunity to enter into a transaction on the same or similar terms to those upon which the Macquarie parties had entered into in the 2016 Partnership Agreement; the loss of economies of scale, synergies and other advantages that AER would have achieved in relation to its other business operations; and finally the loss of value of AER's rights under the Rights Agreement.
AER also alleged, in relation to the 2016 transaction, that, by reason of the fact that AER competed with the G&W Partnership, within the meaning of clause 1.1 of the 2016 Partnership Agreement, it was not reasonably practicable or possible for AER to acquire any Partnership Interests in the Partnership; or because, if acquired, it would have been required to divest itself of those interests as a Prohibited Transferee, G&W breached the implied terms of the Rights Agreement pleaded in par 50, because G&W's inclusion of the terms in the 2016 Partnership Agreement prohibiting a Partner from competing had the effect of depriving AER of the benefit of the Rights Agreement.
AER alleged that it suffered the same loss and damage as a result of the breach of the implied terms as it suffered for breach of the express terms.

The G&W proceedings - 2019 transaction

AER alleged further breaches of the Rights Agreement by G&W in respect of a later transaction that occurred in 2019. The Court was told that, as a result of Brookfield Infrastructure and GIC having acquired G&W for some US$8.4 billion, a decision was made to divest G&W's remaining stake in its Australian assets, whereby two of the Macquarie parties had agreed to assume full ownership of G&W's assets concurrently with G&W's acquisition by Brookfield and GIC.
AER alleged, in par 123 of its contentions in its commercial list statement, that, on or about 4 August 2019, certain G&W parties (apparently the first, third and fifth defendants), and Brookfield Infrastructure Group LLC entered into a Partnership Interest Sale Agreement (Macquarie PISA). As alleged in par 124, the Macquarie PISA contemplated that the parties would execute a transaction whereby G&W, through its relevant related parties, would retire part of its interest in the G&W Partnership and sell another part to two of the Macquarie parties: see par 134. When the Macquarie PISA was completed, one effect would be to amend and restate the Partnership Agreement.
Relevantly, as alleged in par 131, it was a term of the Macquarie PISA that the agreement was subject to the conditions precedent in clause 2.1. AER alleged in par 132 that one of the conditions precedent was that the Australian Competition and Consumer Commission (ACCC) indicate within 6 weeks from the date of the agreement that it did not propose to intervene in relevant parts of the transaction. There was a further condition precedent that AER provide a written waiver or release of its rights under the Rights Agreement, or, at the time when all other conditions precedent were satisfied, AER did not have any right to acquire any part of the Partnership Interest that was to be sold.
Clause 2.3 of the Macquarie PISA had the effect that G&W was to issue a written notice to AER under clause 4.2 of the Rights Agreement in a form approved by the Buyer, which I take to be one of the Macquarie parties, although the identity of the Buyer is not clear from the contentions: par 133.
On or about 5 August 2019, G&W sent to AER a notice under clause 4.2 of the Rights Agreement, on the stated ground that the G&W Group intended to enter into a transaction that would result in G&W ceasing to "Control" GWI in accordance with the terms of the Rights Agreement: pars 135 and 136. It is not necessary to consider in detail, but pars 137 and 138 alleged that the notice offered to sell to AER the seller companies' interests in the Partnership for a total consideration of $627,400,000 subject to adjustments. The sale price was divided between Sale Interests and the Retirement Interests.
The notice attached a draft agreement to effectuate the sale (AER PISA): par 140. The AER PISA included a condition precedent requiring that the ACCC indicate within 6 weeks after the date of the offer made in the notice that it did not propose to intervene in the relevant parts of the transaction: par 145. This condition was different to the equivalent condition in the Macquarie PISA, which provided for the six week period to run from the date of the agreement.
AER alleged in par 151 the effect of clause 17 of the AER PISA, which was to the effect that AER would have to accede to the Partnership Agreement in accordance with its terms before any transfer to AER could be completed.
AER alleged further breaches of clauses 4.2 and 4.5 of the Rights Agreement by G&W in pars 153 to 159. It is not necessary to describe those breaches exhaustively but they include that the offer to AER was not on the same terms and conditions as the Macquarie PISA, because the time allowed to obtain ACCC approval was different, and AER could not provide an Admission Certificate agreeing to be bound by the terms of the 2016 Partnership Agreement because it operated a business in competition with the Partnership. Other somewhat obscure breaches are alleged that do not require analysis.
Further breaches were alleged by AER in pars 160 to 162, being that G&W breached clauses 4.2 and 4.5 of the Rights Agreement by permitting its related companies to enter into the Macquarie PISA before AER had determined whether to exercise its rights under clauses 4.2 and 4.6; G&W had failed to give AER the information as it reasonably required under clause 4.6(b) of the Rights Agreement; and the right of G&W and related companies to enter into and complete a relevant transaction with a third party under clause 4.7(a) had not been enlivened.
By par 163, AER alleged that it had suffered loss and damage of the same nature as it alleged in relation to the 2016 breaches, but by reason of its inability to enter into the Partnership on similar terms to the Macquarie parties.
Finally, AER alleged in pars 164 and 165 that, even if the 2019 notice was valid, such that AER's non-acceptance of the offer had enlivened the rights of G&W or the relevant member of the G&W Group under clause 4.7 of the Rights Agreement to enable the G&W parties to enter into the Macquarie PISA, the provision of the notice was in breach of the implied terms in the Rights Agreement for the reasons alleged in pars 116 to 118.

Preliminary discovery by Macquarie parties

By the present application, AER seeks preliminary discovery from the Macquarie parties for the purpose of determining whether it should institute proceedings against those parties for the tort of wrongful interference with AER's contractual rights under the Rights Agreement, by reason of the Macquarie parties' involvement in the conduct of G&W, and members of the G&W Group, that AER has alleged in the G&W proceedings constitute the breaches of the Rights Agreement that have been discussed above.
Rule 5.3 of the UCPR relevantly provides as follows: (1) If it appears to the court that - (a) the applicant may be entitled to make a claim for relief from the court against a person (the prospective defendant) but, having made reasonable inquiries, is unable to obtain sufficient information to decide whether or not to commence proceedings against the prospective defendant, and (b) the prospective defendant may have or have had possession of a document or thing that can assist in determining whether or not the applicant is entitled to make such a claim for relief, and (c) inspection of such a document would assist the applicant to make the decision concerned, the court may order that the prospective defendant must give discovery to the applicant of all documents that are or have been in the person's possession and that relate to the question of whether or not the applicant is entitled to make a claim for relief. … (4) This rule applies, with any necessary modification, where the applicant, being a party to proceedings, wishes to decide whether or not to claim or cross-claim against a person who is not a party to the proceedings.
AER relies upon sub-rule (4) because, being a party to the G&W proceedings, it wishes to decide whether or not to make a claim against the Macquarie parties in those proceedings.
It is pertinent to note that the effect of rule 5.7 of the UCPR is that, if an order for preliminary discovery as sought by AER is made, the Macquarie parties will not be required to produce any privileged document that they could not be required to produce if proceedings had been commenced against them.
For the purpose of determining whether AER has satisfied the requirements of rule 5.3(1), I start by recording that the evidence upon which AER relied, including its reliance on the terms of the various agreements that are set out in its commercial list statement, satisfies me that AER has a reasonably arguable claim, as alleged, against the defendants to the G&W proceedings. The contrary was not submitted by the Macquarie parties on this application. That is of some significance, given that the claim for relief that AER contemplates making is for wrongful interference by the Macquarie parties in AER's rights under the Rights Agreement, or as it may alternatively be put, for wrongfully inducing breaches of the Rights Agreement.
AER's application has been conducted on the basis that the Macquarie parties accept that at all material times they were aware of the existence of the Rights Agreement and its terms.
That agreement is manifest in relation to the 2019 transaction given the terms of the Macquarie PISA that required that a notice under clause 4.1 of the Rights Agreement be given to AER; that required the provision by AER of a written waiver or release of its rights under the Rights Agreement; and that required that the notice be in a form approved by the "Buyer".
In Hatfield v TCN Channel Nine Pty Ltd (2010) 77 NSWLR 506; [2010] NSWCA 69, McColl JA, with whom Sackville AJA agreed, said: [46] It is convenient to set out the key principles relevant to an application for preliminary discovery. To a large part these are taken from the primary judge's exposition of the jurisprudence in this area which was accepted by all parties. Some of the principles are drawn from case law developed in relation to Federal Court Rules, O 15A, r 6. There are textual differences between the two provisions. No party suggested anything turned on those differences for the purposes of this case. [47] First, "[i]n order for it to 'appear' to the court that the applicant 'may be entitled' to make a claim for relief, it is not necessary for the applicant to show a prima facie or pleadable case": Morton v Nylex Ltd (at [25]). [48] Secondly, while "the mere assertion of a case is insufficient … [i]t will be sufficient if there is reasonable cause to believe that the applicant may have a right of action against the respondent resting on some recognised legal ground": Morton v Nylex (at [25]). [49] Thirdly, "belief requires more than mere assertion and more than suspicion or conjecture. [It] is an inclination of the mind towards assenting to, rather than rejecting a proposition. Thus it is not sufficient to point to a mere possibility. The evidence must incline the mind towards the matter or fact in question. If there is no reasonable cause to believe that one of the necessary elements of a potential cause of action exists, that would dispose of the application insofar as it is based on that cause of action": St George Bank Ltd v Rabo Australia Ltd [2004] FCA 1360; (2004) 211 ALR 147 at 154 26, per Hely J, referring in turn to John Holland Services Pty Ltd v Terranora Group Management Pty Ltd [2004] FCA 679 at [13], [14], [17] and [73], per Emmett J. The use of the word "may" indicates the court does not have to reach "a firm view that there is a right to relief": Telstra Corporation Ltd v Minister for Broadband, Communications and the Digital Economy (2008) 166 FCR 64 79 [58]. [50] Fourthly, the requirement that the matters set out in r 5.3 of the Uniform Civil Procedure Rules "appear[s]" to the court to establish an entitlement to an order under the rule may be wider than the requirement in the Federal Court Rules, O 15A, r 6 that there "is reasonable cause to believe": see Panasonic Australia Pty Ltd v Ngage Pty Ltd [2006] NSWSC 399; (2006) 69 IPR 595 at 598 [22] per Young CJ in Eq; Papaconstuntinos v Holmes à Court [2006] NSWSC 945 at [17] per Simpson J; Hornsby Shire Council v Valuer General of NSW [2008] NSWSC 1179 at [33], per Adams J. Nevertheless Hely J's statement in St George Bank Ltd (at 154 26) remains apposite, namely that "whilst uncertainty as to only one element of a cause of action might be compatible with the 'reasonable cause to believe' required by subpara (a), uncertainty as to a number of such elements may be sufficient to undermine the reasonableness of the cause to believe". [51] Fifthly, "the question posed by [r 5.3(1)(a)] … is not whether the applicant has sufficient information to decide if a cause of action is available against the prospective respondent [but] … whether the applicant has sufficient information to make a decision whether to commence proceedings in the court. Accordingly, an applicant for preliminary discovery may be entitled to discovery in order to determine what defences are available to the respondent and the possible strength of those defences": St George Bank Ltd (at 154 ) (emphasis in original); see also Morton v Nylex (at [33]). Thus application of the rule will not be precluded by the fact that the applicant already has available evidence establishing a prima facie case for the granting of relief, as there might be matters of defence which could defeat a prima facie case: Alphapharm Pty Ltd v Eli Lilly Australia Pty Ltd [1996] FCA 1500 at [41], per Lindgren J; referred to with approval by the Full Federal Court (French J, Weinberg J and Greenwood J) in Telstra Corporation Ltd (at 80 [60]). [52] Sixthly, as Hely J said in St George Bank Ltd (at 153 ), "the Rule is to be beneficially construed, given the fullest scope that its language will reasonably allow, with the proper brake on any excesses lying in the discretion of the court, exercised in the particular circumstances of each case".
I am comfortably satisfied that AER has established the requirement in r 5.3(1)(a) that it may be entitled to make a claim for relief from the court against the Macquarie parties. As McColl JA noted, it is not necessary for AER to show a prima facie or applicable case. A consideration of the Macquarie parties' involvement in the conduct of G&W with knowledge of the existence and terms of the Rights Agreement is sufficient to establish that AER may be entitled to make a claim for relief against them. AER's position involves much more than mere assertion.
As I understand the submissions made on behalf of the Macquarie parties in opposition to the proposition that the first part of rule 5.3(1)(a) is satisfied in the present case, they ask the Court to accept that, given the nature of those parties and the very substantial commercial issues involved, it is improbable that the Macquarie parties would have entered into and acted upon the Amended PI Agreement, the 2016 Partnership Agreement and the Macquarie PISA unless they had a genuine belief on reasonable grounds that their conduct would not involve a breach of duty to AER, and put them at risk of potentially immense damages payable to AER.
While, as a matter of common sense and experience the Court may accept that there is some force in this submission, it necessarily begs the question on an application for preliminary discovery such as is now before the Court. The very purpose of AER's application is to enable it to obtain documents that may permit AER to make a proper judgment as to whether or not the subject of the Macquarie parties' submission is true.
There is an apparent difference between the parties concerning the essential nature of the principles that govern the commission of the tort of inducement of breach of contract. AER relies primarily on the decision of the Court of Appeal in Fightvision Pty Ltd v Onisforou (1999) 47 NSWLR 473; [1999] NSWCA 323 at [164] and [251]. It will be convenient to extract the following parts of their Honours' reasons: [163] In Northern Territory v Mengel (1995) 185 CLR 307 at 342, in a joint judgment, five members of the High Court said that the first development of significance in the emergence of "economic torts" in the second half of the last century: "... was the recognition, in Lumley v Gye (1853) 2 El & Bl 216 at 229-230, 233-234 and 238; 118 ER 749 at 754, 756, 757, of the tort of intentional interference with contractual rights. Subsequent developments in the United Kingdom have, to some extent, impinged upon the intentional element of that tort. Liability does not depend on whether there is a predominant intention to injure (see, eg, Lonrho Ltd v Fayed [1990] 2 QB 479 at 488-489, 491-492 and 494 and the cases cited therein) and it has been held that constructive knowledge of the terms of a contract is sufficient, so that a defendant may be liable if he or she recklessly disregards the means of ascertaining those terms; Emerald Construction Co Ltd v Lowthian [1966] 1 WLR 691 at 700-701. But it is still accurate to describe the tort as one that depends on an intention to harm for that is necessarily involved if a person knowingly interferes with the enjoyment by another of a positive legal right, whether such knowledge is actual or constructive." [164] In Allstate Life Insurance Company v Australia and New Zealand Banking Group Ltd (1995) 58 FCR 26, the Full Federal Court reviewed the elements of tortious inducement of breach of contract. Lindgren J, with whose judgment Lockhart J and Tamberlin J agreed, made the preliminary observation (at 37) that references to "knowledge" and "intention" in this area of discourse have been a source of confusion: "… It is undisputed that the alleged tortfeasor must have 'knowledge of the contract'. All the authorities seem to speak of 'knowledge' in this context. … Linguistic confusion can arise in respect of the alleged tortfeasor's state of mind with respect to breach of the contract. Both 'intention' and 'knowledge' have been used in this context. But a person's 'knowledge' that what he is inducing will constitute a breach of contract and his 'intention' to induce a breach of contract by what he is doing refer to one and the same thing. After all, ex hypothesi, the alleged tortfeasor's acts are intentional, a breach of contract occurs, and the acts induce the breach. Against that background, 'knowledge' and 'intention' that the breach will result from the acts do not signify any relevant distinction." [165] Lindgren J (at 37) also drew attention to an important distinction between the essential elements of a cause of action and the evidence by which these elements may be proved. His Honour said: "… Although 'reckless indifference' and 'wilful blindness' are not synonymous with 'intention' or 'knowledge' (cf Richardson & Wrench (Holdings) Pty Ltd v Ligon No 174 Pty Ltd (1994) 123 ALR 681 at 693-694 per Burchett J), they may, in the matrix of facts of a particular case, contribute to [or] give rise to a finding of intention or knowledge. … But this does not signify that such terminology may be substituted for that of 'intention' if 'intention' is a necessary element of the tort." [166] Having examined Short v City Bank of Sydney, and in particular the judgments of Barton and O'Connor JJ, the judgments in the Full Court of the Supreme Court of New South Wales which Barton and O'Connor JJ adopted to dismiss the appeal, and the decision in Independent Oil Industries Ltd v Shell Co of Australia Ltd together with English cases going back to Lumley v Gye and Australian cases including Northern Territory v Mengel, at 43 Lindgren J said: "In my opinion, the authorities establish conclusively that the gravamen of the tort is intention. Although the requirement of knowledge of the contract is sometimes discussed as if it was a separate ingredient of the tort, it is in fact an aspect of intention. The requirement that the alleged tortfeasor have 'sufficient knowledge of the contract' is a requirement he have sufficient knowledge to ground an intention to interfere with contractual rights. Both this intention to interfere with contractual rights and the necessary supporting knowledge of the contract refer to the 'actual' or 'subjective' state of mind of the alleged tortfeasor." … [171] The position may be stated, we think, as follows. The plaintiff must prove that the defendant intentionally procured the breach. The requirement that the defendant have sufficient knowledge of the contract is a requirement that he have sufficient knowledge to ground an intention to interfere with contractual rights. Ignorance of the existence of the contract or of its terms born of inadvertence or negligence is not enough. On the other hand, reckless indifference or wilful blindness to the truth may lead to a finding of the necessary intention.
As I understand AER's submission, it focused on the Court of Appeal's extract in [164], which it repeated at [251], from the judgment of Lindgren J in Allstate Life Insurance Co v Australia and New Zealand Banking Group Ltd (1995) 58 FCR 26 at 37, where his Honour focused on the words "intention" and "knowledge", and said: "… But a person's 'knowledge' that what he is inducing will constitute a breach of contract and his 'intention' to induce a breach of contract by what he is doing refer to one and the same thing…" As AER puts it, it will be sufficient if it can prove that the Macquarie parties entered into one of the relevant agreements knowing that the circumstances in which the agreement was entered into constituted a breach by G&W of the Rights Agreement.
On the other hand, the Macquarie parties submitted that the Court must have regard to the aspect of the tort that involves inducement of the breach of contract. So, regard may be had to the observation of the members of the High Court referred to by the Court of Appeal at [163], where the statement was made: "… But it is still accurate to describe the tort as one that depends on an intention to harm for that is necessarily involved if a person knowingly interferes with the enjoyment by another of a positive legal right, whether such knowledge is actual or constructive". Later, at [171], the Court of Appeal said: "… The plaintiff must prove that the defendant intentionally procured the breach".
The thrust of the Macquarie parties' submission emerges from their assertion that they would ultimately prove that some of the terms complained of by AER were promoted by G&W rather than themselves. Thus, they will in due course attempt to establish that the term of the 2016 Partnership Agreement that prohibited Partners from competing with the Partnership was inserted at the insistence of G&W. That aspiration shows that the Macquarie parties contend that, in so far as wrongful inducement of breach of contract is an intentional tort, more than knowledge of the breach is required, and rather there must be some element of intention to procure it.
As the issue before the Court is only whether AER may be entitled to make a claim for relief against the Macquarie parties, it would not be appropriate for the Court to decide the application on the basis of any view as to which of the parties' contentions is the correct one. Not only has the Court not had the benefit of full argument on the point, its resolution may not be entirely theoretical and may be influenced by the subtleties in the evidence concerning the involvement of the Macquarie parties in the breaches by G&W - if they are established - and the precise quality of the Macquarie parties' knowledge.
The existence of the dispute as to the true principle to be applied is a positive reason for granting the application for preliminary discovery, so that AER will not be required to make its decision as to whether or not to seek relief against the Macquarie parties until it has a more complete understanding of their conduct and a basis for making more accurate assessments of their knowledge and intention.
The question then becomes whether, as required by the second part of rule 5.3(1)(a) of the UCPR, AER, having made reasonable inquiries, is unable to obtain sufficient information to decide whether or not to commence proceedings against the Macquarie parties.
As I understand the Macquarie parties' position, they do not submit that AER now has sufficient information to make the decision, without the need for the preliminary discovery that it seeks from them. The Macquarie parties do submit that, having regard to the information available to AER, the categories of documents included in Annexure A go far beyond the additional information that is necessary. That, however, is a different question. The Macquarie parties' contention is that AER's application for preliminary discovery should be dismissed because the inquiries that it has made are not reasonable ones.
The Macquarie parties' argument is not put on the basis that there are other reasonably convenient sources of information available to AER of which it has not taken advantage, but which would have been more convenient means for AER to have obtained the information necessary to enable it to decide whether or not to commence proceedings against the Macquarie parties, than for the Macquarie parties to be required to give the preliminary discovery sought by AER. Unusually, the Macquarie parties responded to AER's initial request to be provided with categories of documents by suggesting an entirely alternative means of providing AER with the information necessary to make the decision. But, notwithstanding lengthy negotiations to reach agreement concerning the alternative means of discovery, AER ultimately declined to accept that discovery subject to the conditions imposed by the Macquarie parties. The essence of those parties' submission is that the present application is premature, because the making of reasonable inquiries on the part of AER would have led it in the first instance to accept the alternative mode of preliminary discovery offered by the Macquarie parties, notwithstanding the conditions imposed by those parties.

Reasonableness of AER's inquiries

The correspondence between the parties concerning the alternative approach to preliminary discovery is extensive, and it will only be necessary to note the principal aspects of the correspondence that are relevant to the position ultimately reached by the parties, and the reasonableness of AER's decision to reject the Macquarie parties' conditional offer, and to commence the conventional application for preliminary discovery involved in these proceedings.
On 17 September 2019, the solicitors for AER first wrote to four of the Macquarie parties. The letter attached the summons and commercial list statement which AER had filed in the G&W proceedings on 17 September 2019. The letter asserted that the Macquarie parties were aware of the Rights Agreement, and, by reference to aspects of the 2016 Partnership Agreement, suggested in par 11 that the Macquarie parties may have drafted and agreed to certain nominated clauses "with the knowledge and intent that they would prevent AER from becoming a partner in the future, thereby preventing AER from obtaining the benefit of its rights under the Rights Agreement, causing loss and damage to AER as a result". The solicitors suggested in par 12 that the Macquarie parties may have engaged in the tort of interference with contractual relations causing loss and damage to AER.
The letter then said: 13. However, it is not presently known to AER: a) what level of knowledge each of the Macquarie Parties had at different points in time in relation to the Rights Agreement and its terms; b) what the state of mind was for each of the Macquarie Parties in entering into the 2016 and 2019 transaction documents; and c) whether there was an innocent motivation or justification for each of the Macquarie Parties in entering into the 2016 and 2019 transaction documents on the terms above, or engaging in the relevant conduct.
The solicitors noted in par 14 that these matters were within the knowledge of the Macquarie parties, and invited those parties to respond "to provide information to AER in relation to the matters not known by it". AER sought from the Macquarie parties a copy of the documents listed in Annexure A to the letter. That annexure was in similar but not the same terms as Annexure A to the summons.
On 25 September 2019, the Macquarie parties' then solicitors (a different firm to the solicitors acting in these proceedings) responded to the 17 September 2019 letter. They denied, on behalf of the Macquarie parties, the potential claims asserted by AER's solicitors. In particular, the solicitors said in response to the allegation that the Macquarie parties may have acted with the knowledge and intent to prevent AER from becoming a partner in the future: "The allegation is pure speculation or suspicion and goes no higher than a suggested possibility. The mere assertion of one of the necessary elements of the potential cause of action of tortious interference with contractual relations is an insufficient basis to entitle your client to preliminary discovery."
The letter asserted that the "extensive categories set out in Annexure A of your letter" did not "constitute 'reasonable inquiries' for the purposes of Rule 5.3(1)(a) of the Uniform Civil Procedure Rules". The letter referred to some of the categories to support the assertion that they involved "a request for full discovery which may be expected in substantive proceedings".
Although the letter gave reasons why some of the categories were too wide, the letter did not make any positive suggestions as to how the categories could safely be narrowed by AER in a manner that would make them less burdensome to the Macquarie parties.
The letter included the following response: Notwithstanding the above, and without prejudice to their position that your client is not entitled to preliminary discovery, in order to avoid the time, cost and distraction of a contested preliminary discovery application the Macquarie Parties may consider providing a limited set of documents of narrow scope if your client identifies those documents with precision. Accordingly, we invite your client to significantly narrow the Production Categories, at which point our clients will give further consideration to the request including matters of timeframe and cost.
By letter dated 3 October 2019, AER's solicitors provided a revised Annexure A to the Macquarie parties' solicitors. The revised document deleted some categories of documents and reduced some of the time ranges for which documents were sought.
On 10 October 2019, the Macquarie parties' present solicitors advised ERA's solicitors of their retainer and requested time to obtain instructions.
On 16 October 2019, ERA's solicitors requested the Macquarie parties' solicitors' advice as to when a substantive response would be received.
That response was made by letter dated 17 October 2017. It referred to the background and made an argument as to why AER had not identified any basis for a preliminary discovery order.
However, it also said: We are instructed that the Macquarie Parties: (a) were aware of the Rights Agreement and its terms prior to entering into the 2016 Partnership Agreement; and (b) entered into the 2016 Partnership Agreement in the honest belief that that transaction would not result in a breach of the Rights Agreement. As to the second matter, it is obvious why the 2010 G&W Partnership Agreement did not contain non-complete provisions and the 2016 Partnership Agreement did. The 2010 G&W Partnership Agreement was between related parties, the 2016 Partnership Agreement was not. Non-complete provisions are not necessary as between related parties and are standard in joint venture arrangements between non-related parties. We are instructed that: (a) the terms of the 2016 Partnership Agreement, including the non-complete provisions, were proposed to the Macquarie parties by the GWI parties; (b) the Macquarie parties considered the non-complete provisions to be standard provisions in a joint venture agreement; (c) the Macquarie parties did not draft and agreed to the non-complete provisions with the knowledge and intent of preventing AER from obtaining the benefit of the rights under the Rights Agreement; and (d) the 2016 Partnership Agreement has been a matter of public record since 2016. Given the clear and obvious distinction noted above between a shareholders' agreement between related parties and the joint venture agreement between non-related parties, there is no basis for the very serious allegation that the Macquarie parties knowingly acted in concert with GWI Intl and GWI with the deliberate intent of depriving AER of its rights under the Rights Agreement. No such implication could properly be made. To the extent to which your 17 September letter advances that implication by your client, our clients invite your clients to withdraw it.
The letter then gave reasons why the documents requested on behalf of AER went beyond the asserted potential cause of action.
The letter invited AER "to make a further request for documents for the genuine purpose of confirming the matters set out in this letter…"
AER's solicitors replied on 23 October 2019. The letter debated the views expressed on behalf of the Macquarie parties concerning AER's satisfaction of the entitlement to preliminary discovery.
The letter referred to the statements made concerning the belief and intention of the Macquarie parties, noted at par 18 that the statements were "conclusory and general in nature"; and stated in par 14 that a "number of questions of fact necessarily arise in respect of the "honest belief", which may involve matters of degree and judgment, including as to which officer or officers within the Macquarie Parties held a particular belief or intention, when they held that belief or intention, and the basis on which that belief or intention was held…" The letter asserted that there was an issue as to whether any belief was held reasonably.
The letter attached the revised Annexure A, noted that AER had not been advised that production of the documents requested would in any way be oppressive or burdensome, and invited the Macquarie parties to reassess their opposition to the request for production of documents.
The Macquarie parties' solicitors' 29 October 2019 response offered further arguments as to why AER had not established a basis for preliminary discovery. It asserted that the document request went beyond the asserted potential cause of action. It did not claim that the categories of documents sought were unduly oppressive. Again, it did not offer any positive suggestion as to how the information sought by AER could be provided in a more convenient manner than a full response to Annexure A.
However, the letter did offer the following alternative response by the Macquarie parties: 4 Macquarie parties will provide access to documents establishing no claim At paragraph 13 of your 23 October letter you suggest that your client is unwilling to rely on what you characterise as "bare statements" that our clients held an honest belief that the transaction would not result in a breach of the Rights Agreement. We are instructed that our clients would be willing to allow inspection of the document that establishes the reasonable basis for that belief (on terms that preserve the confidential nature of that document). … As to the very serious allegation in paragraph 11 of your 17 September letter that the Macquarie parties drafted and agreed certain provisions of the 2016 Partnership Agreement with the knowledge and intent of preventing AER from obtaining the benefit of its rights under the Rights Agreement, we are instructed that our clients would be willing to allow inspection of transaction documents that establish that the Macquarie parties were not the originators nor the authors of the provisions to which you refer (again on terms that preserve the confidential nature of those documents)…
As AER pointed out in its submissions, the approach adopted by the Macquarie parties was to offer to provide access to AER on a confidential basis to one document that was said to establish the reasonable basis for the belief by the Macquarie parties that entry by them into the various agreements would not involve a breach of the Rights Agreement by G&W.
Consistently with the view taken by the Macquarie parties at the hearing that they would not commit the tort of inducing a breach of the Rights Agreement if they agreed to terms proposed by G&W, the Macquarie parties offered confidential access to documents chosen by them to establish that fact.
AER's solicitors responded on 30 October 2019. They maintained AER's requests for the production of documents, but noted the Macquarie parties' willingness to allow inspection of certain documents, which the solicitors said had been given "enigmatic descriptions". The letter observed that the Macquarie parties had failed to describe the documents, failed to articulate the basis on which the documents were said to be confidential, and had given no indication of the terms of the proposed confidentiality regime.
The Macquarie parties' solicitors' response dated 31 October 2019 asserted: "[t]he document that establishes that our clients held an honest belief that the transaction would not result in a breach of the Rights Agreement, and that that belief was reasonable … is a confidential and privileged communication."
The implication from that statement is that the single document was legal advice provided to the Macquarie parties.
The letter then stated the terms on which access to the document would be given to AER as follows: Access to inspect that document will be provided to one named representative of your client, one named representative of your firm and one named Counsel briefed by your firm on behalf of your client in respect of this matter, on the basis that: Inspection of that document is on a no-waiver basis for the limited purpose of your client considering whether or not it has a potential claim against the Macquarie parties. The relevant individuals sign a standard form confidentiality undertaking that they will not disclose the contents of that document to any other person without consent of the Macquarie parties, except as required by law.
By making this offer, the Macquarie parties had apparently elected to allow AER to have limited inspection of the legal advice upon which it had acted at some relevant time. The date of the document had not been revealed by this stage. That offered a benefit to AER, because rule 5.7 of the UCPR would have the effect that AER would not be entitled to discovery of the legal advice, absent the consent of the Macquarie parties, if a formal order for preliminary discovery were made under rule 5.3.
As to the documents that would be offered to establish that the Macquarie parties were not the originators or authors of the provisions of the 2016 Partnership Agreement that were the subject of AER's complaint, the letter asserted that "two of the three transaction documents are subject to a Confidentiality Deed". The letter offered that the documents would be disclosed to AER to the same three people on the basis of a standard confidentiality undertaking.
The letter described two of the documents in the following terms: … The two other documents are: 1 An email chain which makes clear that GWI was the originator and author of the equity term sheet that set out the proposed terms for the Partnership Agreement; and 2 An email attached to the equity term sheet provided by GWI to Macquarie parties on 10 August 2016 which contains proposed non-complete provisions.
The letter offered that the Macquarie parties would consider allowing access to the documents to further individuals proposed by AER, if they were identified in advance, and an explanation was given as to why those individuals required access to the documents in order for AER to form a conclusion as to whether or not it may have a potential claim against the Macquarie parties.
On 1 November 2019, AER's solicitors advised that they were taking instructions, and asked to be provided with a draft copy of the standard form confidentiality undertaking document.
The Macquarie parties' solicitors provided the proposed confidentiality protocol and undertaking on 4 November 2019. That document confined the use of the documents to be disclosed "in considering whether or not [Aurizon] has a potential claim against the Macquarie Parties and for no other purpose."
The confidentiality protocol required that any person to whom the documents were disclosed would sign a confidentiality undertaking to use the documents for the purpose of considering whether or not AER had a potential claim against the Macquarie parties. It would contain an acknowledgement that there was no waiver of privilege. An undertaking would be given that the documents would not be disclosed to any person without the written consent of the Macquarie parties or as required by law.
Appendix 1 to the confidentiality protocol contained a description of four documents. The first was an email chain between identified parties in the period 4 to 8 August 2016. The second was an email dated 9 August 2016 between named parties, attaching a term sheet in relation to the proposed transaction. The third was a letter dated 14 October 2016, apparently from the solicitors who acted for the Macquarie parties on the 2016 transaction to named officers of the Macquarie parties. The fourth document was described as follows: "[ ] November 2018 Confidential Note (contains privileged material)". The Court was advised at the hearing that the reference to 2018 was a typographical error, and should have been 2019.
The third document appears to be the privileged letter of advice to which the Macquarie parties' solicitors had referred in earlier correspondence. As I have recorded above, the Amended PI Agreement that was in evidence amended and restated the Partnership Investment Agreement dated 14 October 2016, which is the date of the letter of advice.
As I understand it, what was offered by means of the fourth document was some explanation as to why the other documents established that the Macquarie parties had an honest belief that the circumstances in which they entered into the 2016 Partnership Agreement did not involve them in inducing a breach of the Rights Agreement.
AER's solicitors responded on 7 November 2019 in a positive and cooperative way. They raised 10 matters which they invited the Macquarie parties to address. They said that the documents proposed to be provided "are far too narrow in scope and confined to a limited snapshot of material" (1). They queried why there could be any principled objection to the provision of some of the categories sought by AER (2). In respect of the single letter of advice offered they referred to the need for access to the instructions given (3). They required confirmation that the letter of advice was the only legal advice obtained concerning the Rights Agreement (4). They referred to the need for documents evidencing the consideration of the legal advice undertaken by the Macquarie parties (5). The letter raised other practical issues, and then the following matter: Ninth, as your clients are proposing to make available privileged advice, we seek an express assurance from your clients that, to the maximum extent possible, they would not seek to preclude any person who has access to that advice from continuing to act in respect of a preliminary discovery application (if one is filed), or in substantive proceedings against the Macquarie Parties (if such proceedings are brought), or in the substantive proceedings which are on foot against the G&W Parties.
AER made the point in submissions that it had never received confirmation that the letter dated 14 October 2016, referred to in the fourth point raised in its letter, was the only legal advice that the Macquarie parties had obtained concerning the Rights Agreement.
In the Macquarie parties' 12 November 2019 response, they said in respect of the first to fifth matters raised that the documents that would be made available for inspection would address AER's concerns.
The letter suggested that if, after inspection, AER had further genuine requests, the Macquarie parties would consider those requests.
The letter asserted that the limited set of documents was being offered for inspection "because the documents we have identified establish the two key propositions to which we have referred in earlier correspondence".
Thus, what the Macquarie parties explicitly offered was access to a limited set of documents that the Macquarie parties believed would persuade AER of the Macquarie parties' conception as to what was necessary to establish that they had not induced a breach of the Rights Agreement.
Among other responses, the Macquarie parties confirmed AER's ninth request "to the maximum extent possible".
AER's solicitors noted, in their 14 November 2019 response, that, as the G&W proceedings would soon progress beyond the pleadings, it may be necessary for AER to make an application for an order for preliminary discovery to preserve the possibility that any claim against the Macquarie parties could be made in the G&W proceedings.
However, they said that it was AER's preference to resolve the dispute through a consensual arrangement if that was possible.
The solicitors suggested that the Macquarie parties were proceeding on the basis of a misconception concerning the operation of UCPR rule 5.3. The Macquarie parties were proceeding upon the basis that they had no liability to AER, while the purpose of the rule was to explore that very issue.
In respect of the Macquarie parties' response to AER's ten points, its solicitors observed, in relation to points 1 to 5, that the Macquarie parties had responded in a rolled up manner, rather than by addressing each specific point. AER's solicitors specifically referred to the request in point 4 for a confirmation that the 14 October 2016 advice was the only legal advice which the Macquarie parties obtained concerning the Rights Agreement.
On 19 November 2019, the Macquarie parties' solicitors observed: "it is striking that your client is not willing to take up the opportunity to inspect documents that we have stated clearly demonstrate matters that should satisfy your client that there is no proper basis for any claim against our clients".
In AER's solicitors' 28 November 2019 response to this letter, they stated that they had instructions to take up the Macquarie parties' offer to inspect the documents held by those parties.
The letter attached an amended version of the confidentiality protocol and the confidentiality undertaking earlier provided by the Macquarie parties' solicitors, and explained the rationale for the amendments.
The letter explained that AER had formed the view that it would be necessary to engage new counsel who was not acting in the G&W proceedings. However, that would create a problem if a decision was made by AER to sue the Macquarie parties. It would be necessary for the persons who inspected the Macquarie parties' documents to disclose information to AER's legal representatives in the G&W proceedings.
For that reason, the revised attachments included a new clause 5 in each document.
That clause was in the following terms in each case: 5 In the event that, following the inspection of the Macquarie Confidential Documents and the Macquarie Confidential Information, the view is formed that there are grounds to commence proceedings against the Macquarie Parties, the obligations in clauses 2 and 4 above, and the acknowledgement in clause 3 above, cease to apply and the Individuals [in the protocol, and "I" in the confidentiality undertaking] may use and disclose such information for the purpose of commencing those proceedings.
In the confidentiality undertaking, clauses 2 to 4 were expressed to be "Subject to clause 5 below". Those clauses respectively required the information to be used only for the purpose of the consideration of whether AER had a potential claim against the Macquarie parties; there was an acknowledgement that there was no waiver of privilege; and there was an agreement not to disclose the information to any person without the consent of the Macquarie parties, or unless required by law.
This is an appropriate point in the chain of correspondence to note that in AER's solicitors' correspondence up to 1 November 2019, the solicitors expressly reserved all of AER's rights. In their letters of 7, 14 and 28 November 2019, when they were responding to the Macquarie parties' offer on the basis of the confidentiality protocol and confidentiality undertaking made on 4 November 2019, AER's solicitors reserved all of its rights "including in relation to commencing proceedings seeking orders for preliminary discovery against the Macquarie Parties". Additionally, in par 9 (a) of their 28 November 2019 letter, they expressly reserved AER's right to make further requests for discovery from the Macquarie parties, following inspection of the limited documentation the subject of the Protocol.
Although the Macquarie parties, in their solicitors' letters, asserted at all times that AER was not entitled to preliminary discovery, they nonetheless implicitly acted upon the basis of an acceptance of the reservation of rights made on behalf of AER by their solicitors.
By letter dated 5 December 2019, the Macquarie parties' solicitors provided AER's solicitors with revised drafts of the confidentiality protocol and confidentiality undertaking, on the basis that "the new clause 5 is broader than what is necessary to achieve" AER's purpose.
In the revised draft confidentiality undertaking the words "Subject to clause 5 below" were deleted from clause 3. The effect would be that the agreement that there was no waiver of privilege would be absolute. The agreement would no longer be subject to the qualification in clause 5.
The effect of the earlier version of the confidentiality undertaking prepared on behalf of AER would have been that, if AER had made a decision not to sue the Macquarie parties, the privilege would have been maintained. However, if the decision was made to sue the Macquarie parties, then any privileged document could be used and disclosed by the inspecting persons for the purpose of commencing the proceedings.
The new clause 5 was in the following terms: 5 In the event that, following the inspection of the Macquarie Confidential Documents and the Macquarie Confidential Information, the view is formed that there are grounds to commence proceedings against the Macquarie Parties claiming that the Macquarie Parties have engaged in the tort of interference with contractual relations causing loss and damage to Aurizon, I may use and disclose such information for the purpose of commencing those proceedings: a. With the written consent of the Macquarie Parties (such consent not to be unreasonably withheld), to selected legal representatives for Aurizon who are instructed in relation to those proceedings or potential proceedings; b. With the written consent of the Macquarie Parties (such consent not to be unreasonably withheld), to those individuals within Aurizon required to instruct the legal representatives identified in (a) above; and c. To an Australian Court, subject first to seeking orders protecting the confidentiality of the Macquarie Confidential Documents and the Macquarie Confidential Information as agreed with the Macquarie Parties.
The effect of the proposed amendment would be that, if, following the inspection of the documents, AER made a decision to sue the Macquarie parties, the inspecting persons could only disclose the information to the legal representatives of, and the individuals within, Aurizon with the written consent of the Macquarie parties, although that consent could not unreasonably be withheld. In the case of a dispute as to the reasonableness of the consent being withheld, then a satellite dispute would need to be resolved.
The inspecting persons could disclose the confidential information to the Court without the consent of the Macquarie parties, but only after "seeking" confidentiality orders. However, the absence of the requirement for consent in clause 5(c) would have limited effect, if the inspecting persons could not disclose the information to AER's legal representatives and the internal individuals responsible for giving instructions, without the consent of the Macquarie parties. Because of the revised clause 3, AER could not use any privileged document.
There was then a gap in the chain of correspondence until 19 February 2020. The Court was informed that, in the interval, there were commercial discussions between Aurizon and the Macquarie parties aimed at resolving the parties' differences.
On 19 February 2020, AER's solicitors wrote to the Macquarie parties solicitors. The letter rehearsed the history of the dispute, and noted that on 6 January 2020, AER had been served with a new offer under clause 4.1 of the Rights Agreement. That led the solicitors to include a new category 5A in their Annexure A containing a revised request for preliminary discovery from the Macquarie parties.
The letter advised, in par 14, that AER was of the view that to proceed on the basis of inspecting the limited documentary material being offered by the Macquarie parties would be of little utility in assisting it in determining whether to commence proceedings against those parties. The letter advised that AER maintained its requirement for disclosure of documents in accordance with the categories made in its request.
The Macquarie parties' solicitors responded on 26 February 2020. Among other things, the letter repeated "we are instructed that the documents the Macquarie parties are willing to make available for inspection will clearly demonstrate that there is no proper basis for your client to bring any claim against the Macquarie parties".
The letter reiterated the Macquarie parties' position that the documents offered for inspection would establish that the Macquarie parties had an honest and reasonable belief that their entry into the 2016 Partnership Agreement would not breach the Rights Agreement, and that the Macquarie parties were not the originators or authors of the provisions in the 2016 Partnership Agreement of which AER had complained.
The letter offered the inspection of two additional documents to establish the validity of the Macquarie parties' position, without describing the contents of the documents.
On 28 February 2020, AER's solicitors requested "a fulsome description of the two additional documents referred to" in the letter.
On 9 March 2020, the Macquarie parties' solicitors provided the descriptions requested. The additional documents were letters dated 7 January 2020 and 31 January 2020 from the solicitors that had formerly acted for the Macquarie parties to those parties and others.
As has been noted above, AER's summons seeking an order for preliminary discovery was filed on 16 March 2020.

Consideration

In these circumstances, the question is whether the Court should reject AER's application for preliminary discovery, on the basis that it has not established that it has made the reasonable inquiries required by rule 5.3(1)(a) of the UCPR.
I accept that there may be cases where, if the party seeking preliminary discovery is offered the inspection of a limited class of documents, without prejudice to the party's right to make a formal application for preliminary discovery, the failure of the party to accept the offer may mean that reasonable inquiries have not been made. There is no a priori restriction on what may constitute reasonable inquiries and each case will depend upon its own circumstances.
In the present case, even though the offer made by the Macquarie parties did not exclude AER's right to make a formal application if it considered that the initial discovery was not sufficient to enable it to decide whether or not to make a claim against the Macquarie parties, the offer was made on conditions. I take the conditions to be that inspection would be given on the basis of the confidentiality protocol and the confidentiality undertaking in the terms as they existed at the date of the Macquarie parties' solicitors' 5 December 2019 letter.
Consequently, if AER had accepted the Macquarie parties' offer, it would not have lost the opportunity to make a formal application for preliminary discovery, but in relation to the documents for which inspection would have been given, AER would permanently be subject to the restrictions in the confidentiality protocol and the confidentiality undertakings given by the persons who inspected the documents for AER.
Although the documents offered for inspection were few in number, they were apparently of substantial relative significance, because they were the documents that the Macquarie parties asserted proved that that they had not committed the tort of inducing the G&W parties to breach the Rights Agreement.
AER was entitled to make its own judgment about the risks of proceeding upon the limited and conditional discovery offered by the Macquarie parties.
AER was entitled to take into account a number of factors in making its decision. Those factors included making a judgment about the consequences of having its existing legal representatives and instructing persons inspecting the documents, or retaining new legal representatives and different instructing persons within Aurizon. Either route entailed risks.
Deciding to proceed with the legal representatives and instructing persons in the G&W proceedings might have the unpredictable result of those persons being conflicted out of the G&W proceedings.
As AER submitted at the hearing, the effect of Legal Profession Uniform Conduct (Barristers) Rules 2015 rule 101(a) is that a barrister must not retain a brief or instructions, if the barrister has information which is confidential to any other person in that case, the information may be material to the client's case, and the person entitled to the confidentiality has not consented to the barrister using the information as the barrister thinks fit in the case. That may have had the result, if a barrister briefed in the G&W proceedings had inspected the Macquarie parties' documents, and those parties had been joined in the G&W proceedings, the barrister would have to return his brief, absent the Macquarie parties' consent to the use of the confidential information.
Furthermore, quite apart from the strict application of the Barristers Rules, it is legitimate for a party to take into account that the exposure of its lawyers to confidential information on a restricted basis may cause serious and unexpected difficulties in the conduct of the party's case, because of professional conduct concerns experienced by the lawyers.
The alternative, of retaining new legal representatives and instructing persons from within Aurizon, would create an entirely different problem. This is because the persons charged with the task of deciding whether or not AER should sue the Macquarie parties would not have the accumulated knowledge of AER's existing representatives and instructing persons, which would likely increase the risk of an error being made in the decision whether or not to sue the Macquarie parties.
AER was also entitled to weigh the risks of accepting the limited and conditional discovery in circumstances where the Macquarie parties had clearly displayed a firm view as to the absence of their liability; expressed upon a particular legal basis that has at all times appeared to be different to the legal position adopted by AER.
Not only were the documents offered for initial discovery the result of self-selection, they were plainly limited in number and subject matter, and the offer did not extend to even limited additional categories that might satisfy AER that the impression gained from inspection of the documents offered for discovery reflected the true state of knowledge and intentions of the Macquarie parties.
In short, if AER had accepted the Macquarie parties' offer, it would have faced a real risk that it would be wrongly persuaded that it had no claim against the Macquarie parties.
In the light of these considerations, it was not unreasonable for AER, in its own genuine and considered interests, to decide not to accept the limited and conditional offer of initial preliminary discovery made by the Macquarie parties.
Although the fact that AER's solicitors meticulously reserved AER's position may not be conclusive, it should not be ignored that the whole of the negotiations were conducted on the explicit basis that AER reserved the position to decide whether it should proceed upon the basis finally offered by the Macquarie parties.
The effect of the Court declining to make the order for preliminary discovery sought by AER, on the basis that the making of reasonable inquiries required it to accept the offer made by the Macquarie parties, would, in practical terms, involve the Court obliging AER to accept that offer, with the effect that the Court would be making, on limited information, a most serious forensic decision that is, in the circumstances, the private right of AER to make. I do not think, given the complex forensic issues that have to be weighed and balanced, most of which are entirely unknown to the Court, that it would be just for the Court to override the judgment made by AER with the benefit of the advice of its legal representatives.
Consequently, I am satisfied that AER has established the requirements of rule 5.3(1)(a) of the UCPR.
As I understand it, the Macquarie parties did not dispute that the requirements of sub-rules (1)(b) and (1)(c) have been satisfied.
Consequently, the Court will make an order for preliminary discovery in favour of AER, unless there is some discretionary reason for it not to do so, or to make the order on a more limited basis than is sought by AER.
During the hearing, in the course of receiving submissions concerning the width of the categories of documents in Annexure A to the summons, I expressed some difficulties that I thought may exist in relation to determining the proper width of the preliminary discovery that should be ordered.
In response, senior counsel for AER suggested that the Court may prefer to make a ruling on whether or not AER was entitled, in principle, to an order for preliminary discovery, and then to relist the matter for the making of directions for the purpose of determining the final categories of documents for preliminary discovery that should be the subject of the order.
That is the course that I propose to take. I will now set out in outline my reasons for proceeding in this way.
Annexure A to the summons is included as an annexure to these reasons for judgment.
Senior counsel for AER advised the Court at the hearing that AER no longer seeks the Data Room Index listed as category 3.
As I understand it, AER will also accept the deletion of the words "including, but not" in the description of category 6.
In his 22 April 2020 affidavit, Mr David Grant Marjoribanks, the Macquarie parties' solicitor, has set out a comprehensive explanation of the extensive investigation and collation process that will have to be undertaken if the Macquarie parties are required to provide preliminary discovery substantially in the terms of Annexure A to the summons. Mr Marjoribanks included an explanation of his conservative estimation of the approximate costs of the exercise at $442,000, excluding GST. Mr Marjoribanks made it clear, using my language, that his estimate was an educated guess.
AER has, by its silence on the issue, effectively accepted that the process described by Mr Marjoribanks would be a proper approach to the compliance by the Macquarie parties with the order for preliminary discovery sought by AER.
Senior counsel for AER informed the Court that AER was prepared to pay the costs of the exercise, even if it was of the magnitude estimated by Mr Marjoribanks. He reserved the right on behalf of AER to seek those costs, as part of the damages recoverable from the Macquarie parties, if AER decided to sue the Macquarie parties and was successful on that action.
AER's expressed preparedness to pay the costs of the exercise was subject to the subtly expressed reservation that the cost be reasonable. As I apprehended it, the implication was that the amount estimated by Mr Marjoribanks may well be reasonable, but the reasonableness of the actual costs claimed by the Macquarie parties would have to be determined after the event.
The estimated cost of the exercise is obviously enormous. This is particularly given that a substantial amount of documents may be discovered that in fact prove to be irrelevant to AER's decision-making process, and in any event, the conclusion may be that AER decides that it should not sue the Macquarie parties.
The course being pursued is plainly pregnant with the risk that it will generate a substantial dispute concerning the costs of the preliminary discovery exercise that AER should be required to pay. Even though AER may be volens, I consider that, in this relatively extreme case, the Court is entitled to be influenced by the consideration that the avoidance of substantial economic waste is a public good.
The description of the categories in Annexure A to the summons are to varying degrees very widely drafted, and all but category 1 depends in whole or in part on the use of the expression "referring or relating" to a particular subject matter. Although those terms are not necessarily inappropriate to a discovery exercise, as opposed to the terms of a subpoena, they are inherently fraught with risk of imposing excessive and oppressive burdens on the persons who will have the task of complying with the preliminary discovery order.
Most likely, the reality is that, notwithstanding the involvement of a number of the Macquarie parties in the 2016 and 2019 transactions, a relatively small number of executives and other officers of the Macquarie parties will have had an involvement in the negotiation and implementation of the Macquarie parties' entering into the two transactions, and the persons whose knowledge and intent may be attributed to the Macquarie parties is also likely to be similarly limited.
A feature of the description of most of the categories in Annexure A to the summons is that they cast the net for discovery exhaustively over the electronic and paper databases and archives of the Macquarie parties in a manner that may have the effect that the use of the expression "referring or relating to" may catch a substantial quantity of incidental documents that have no bearing upon the issues relevant to whether AER has good reason to sue the Macquarie parties. On the other hand, that may not be the case at all. As at least most of the Macquarie parties appear to be investment vehicles, the number of persons involved in the transactions, and the extent of the relevant databases and archives, may in fact be much less extensive than may be feared.
AER freely acknowledged these difficulties. Its position is that it has conscientiously crafted the descriptions of the categories in the most confined manner of which it is capable, consistently with its entitlement to catch whatever documents might properly be necessary to enable it to make the decision contemplated by rule 5.3 of the UCPR.
The Macquarie parties made no submission to the contrary. Furthermore, the description of the categories has not been such as to readily suggest ways that the categories could be confined in a manner that would safely achieve the objectives of rule 5.3. I acknowledge that AER's legal representatives are, through their experience generally and their knowledge of the detail of the transactions, much better placed than the Court to take responsibility for drafting the categories for preliminary discovery.
It is notable that the Macquarie parties have consistently asserted that the preliminary discovery need extend no further than the limited documents that the Macquarie parties say will be sufficient to establish their innocence, on the basis of their own view as to the applicable legal principles. The Macquarie parties do not appear to date to have been prepared to participate in the exercise of defining the categories for preliminary discovery from AER's perspective, which, after all, is the only perspective that a potential claimant in AER's position can be expected to accept. AER cannot be expected to accept preliminary discovery on the basis of its opponent's understanding of the applicable legal principles rather than its own.
It should be remembered that the power of the Court under rule 5.8 of the UCPR to make orders for the costs of the process of giving preliminary discovery is discretionary. It may not follow in all cases that the Court will order the applicant for preliminary discovery to pay the whole of the costs of that exercise. It may be that the applicant will usually bear the greater risk of having to pay the whole of the costs. However, when the exercise is complete, if it appears from the nature and content of the documents that are produced that there were ways reasonably obvious to the party giving the preliminary discovery that the cost of the exercise could have been reduced, that party may find to its disappointment that it has to bear some part of the costs of the preliminary discovery.
I do not ignore the Macquarie parties' responses to AER's categories in Schedule 2 to their submissions, but those submissions generally only assert the excessive or unnecessary width of the categories, or that the production of some of the documents sought will lack utility.
I do not consider that the Macquarie parties have yet, in a positive and constructive way, provided information to AER that would be a safe basis for AER and its legal representatives to make judgments as to how it could target its categories for preliminary discovery in a manner that would reliably lead to the production of the documents relevant to the knowledge and intentions of the Macquarie parties, and any other issues that may be relevant to the determination of whether AER should sue the Macquarie parties.
It may be that the Macquarie parties prove unwilling to cooperate in the development of alternative categories for preliminary discovery that safely will provide AER with the disclosure that it needs. If so, the preliminary discovery that is likely to be ordered may be wider than it needs to be.
I would consider making preliminary discovery orders in stages, if AER is able to devise a more targeted approach to the formulation of the categories for preliminary discovery. This is on the basis that it will be open to AER to renew its application if the first tranche of disclosure reveals the need to obtain additional categories of documents.
I do not rule out the possibility that that it may be necessary to make the order for preliminary discovery substantially in accordance with Annexure A of the summons.
I do not lose sight of the fact that, if the exercise cannot be completed quickly, any opportunity to join a claim by AER against the Macquarie parties to the G&W proceedings may be lost.
I will publish these reasons for judgment and arrange for my associate to relist the matter for further directions on the basis of the parties' responses to these reasons.

Annexure A to Summons (175931, pdf) DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 12 June 2020

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (11 paragraphs)

Parties

Legislation Cited (2)

Cases Cited (16)

Cited By (1)