THE LIMITS OF RULE 7.23
38 The following observations may be made about the rule:
(1) The Court must be satisfied of each of the matters in subparas (1)(a), (b) and (c).
(2) The criteria in subpara (1)(a) and (c) have subjective and objective aspects. The prospective applicant must be shown in fact to have the beliefs there referred to. The reasonableness of the beliefs is to be assessed objectively.
(3) The "right to obtain relief" may be singular or plural in the sense that the prospective applicant may contemplate more than one cause of action, each giving rise to a discrete right to relief. There may be different degrees of certainty attaching to each of them.
(4) Much will depend on the nature and source of the right, the essential factual or legal elements to be proven and the extent to which the evidentiary material in the prospective applicant's possession is capable of demonstrating that each element is fulfilled.
(5) Whether or not there is a right to obtain relief may also turn on the existence of any substantive defences.
(6) The relief to which subpara (a) refers is the same relief referred to in subpara (b) and (c). Accordingly, the subject matter of the belief asserted for the purposes of subpara (a) necessarily defines the remaining enquiries.
(7) Subparagraph (b) requires an objective assessment to be made as to whether or not the prospective applicant has sufficient information "to decide whether to start a proceeding in the Court to obtain" the relief.
(8) On an application joining several prospective respondents, the contemplated claim against each of them must be considered separately.
(9) In such cases, it is relevant to consider the information presently available to the prospective applicant relating to the role that each prospective respondent has played in the events giving rise to the right to relief. Consistent with my analysis below, the rule may be utilised in cases where a prospective applicant is aware that a right giving rise to a claim for relief has been infringed, but unaware of the acts or omissions attributable to each prospective respondent in connection with the infringement.
(10) The power to make an order for preliminary discovery is both conferred and confined by r 7.23(2). It is significant that the documents subject to the order must be "of the kind mentioned in subparagraph (1)(c)(i)", namely, documents "directly relevant to the question whether the prospective applicant has a right to obtain the relief".
39 For BCI it is submitted that the rule may be invoked to obtain information that would assist it to ascertain matters such as the existence of a cause of action, the extent of infringement, the nature of likely defences, the prospect of the proceeding succeeding and the likely monetary outcome. BCI submits that all matters relevant to the costs and risks of the proceeding may legitimately form the basis of the enquiry under subpara (b). BCI submits that any document that may reasonably inform the decision to sue may be the subject of an order for preliminary discovery, whether or not the document relates solely to the likely monetary value of the ultimate award. BCI's submissions find support in a body of authority that (at least until recently) has not been called into question.
40 The predecessor to r 7.23 was O15A r 6 of the Federal Court Rules 1979 (Cth) (the old rule). It was expressed in the following terms:
6 Discovery from prospective respondent
Where:
(a) there is reasonable cause to believe that the applicant has or may have the right to obtain relief in the Court from a person whose description has been ascertained;
(b) after making all reasonable inquiries, the applicant has not sufficient information to enable a decision to be made whether to commence a proceeding in the Court to obtain that relief; and
(c) there is reasonable cause to believe that that person has or is likely to have or has had or is likely to have had possession of any document relating to the question whether the applicant has the right to obtain the relief and that inspection of the document by the applicant would assist in making the decision;
the Court may order that that person shall make discovery to the applicant of any document of the kind described in paragraph (c).
41 In Quanta Software International Pty Ltd v Computer Management Services Pty Ltd [2000] FCA 969; 175 ALR 536, Sackville J rejected the proposition that documents relating to quantum were necessarily irrelevant in determining whether a prospective applicant has satisfied the requirements of O 15A r 6(b). His Honour said (at [33]):
… The question posed by the subrule is not whether an applicant has sufficient information to enable it to decide if a cause of action is available against the prospective respondent. The question is whether the applicant has sufficient information to enable a decision to be made whether to commence a proceeding in the court to obtain relief from an ascertained person. The extent to which copyright has been infringed, for example, may be highly material to a decision to commence a proceeding in respect of infringement of copyright. A trivial claim may not be worth pursuing and might prove to be a waste of the time and resources not only of the applicant but of the court.
(original emphasis)
42 His Honour went on to say at [34]) that it was not to be implied that the rule can be used "as a matter of course to obtain preliminary discovery of documents relevant to the quantum of a particular claim" and that each case must depend on its own circumstances. There may be cases, his Honour said, in which an applicant, after making reasonable enquiries, has insufficient information relating to quantum to enable it to make a decision whether to start a proceeding. An insufficiency of information of that kind might in some cases satisfy the requirements of subr 6(b) of the old rule.
43 In Optiver Australia Pty Ltd v Tibra Trading Pty Ltd (2008) 169 FCR 435, Heerey, Gyles and Middleton JJ concluded that the primary judge in that case had erred in concluding that an order for preliminary discovery under the old rule should be refused where the prospective applicant had sufficient information to sustain a "bare pleadable case". Their Honours said:
35 … there may be a perfectly good plaintiff's pleadable case but potential defences, such as under a contractual provision or problematic or unpredictable issues such as waiver, estoppel or unconscionable conduct. Or there may be real uncertainty as to the quantum of provable damage, such as to throw doubt on the practical wisdom of issuing proceedings. …
36 The concept of a 'bare pleadable case' is not only a gloss on the text of the rule but is fundamentally inconsistent with its purpose. The policy behind the rule is that even where there is a reasonable cause to believe that a person may have a right to relief, nevertheless that person may need information to know whether the cost and risk of litigation is worthwhile. As Hely J pointed out in St George Bank Ltd v Rabo Australia Ltd (2004) 211 ALR 147 at [26], the question does not concern the right to relief but rather 'whether to commence proceedings'. Inspection of documents in the possession of the proposed defendant may enable a properly informed decision to be made whether to commence a proceeding to obtain the relief. The 'bare pleadable case' approach diverts attention from the true purpose of the rule. A person may have a pleadable case, but still not sufficient information upon which to decide whether to embark upon litigation. …
(emphasis added)
44 It is unclear whether the passage I have emphasised went specifically to an issue concerning the construction of the old rule that the Full Court was required to decide.
45 The Full Court in Hooper v Kirella Pty Ltd (1999) 96 FCR 1 said (at [40]) that an order "may be made in favour of an applicant who already has available evidence establishing a prima facie case for the granting of relief" (citing Lindgren J in Alphapharm Pty Limited v Eli Lilly Australia Pty Limited [1996] FCA 391).
46 Authorities decided after the repeal of the old rule and the introduction of r 7.23 contain statements capable of supporting BCI's submission that documents going solely to quantum may be the subject of an order under r 7.23(2).
47 In Objectivision Pty Ltd v Visionsearch Pty Ltd [2014] FCA 1087; 108 IPR 244 Perry J said (at [30]):
Overall, in considering the application for preliminary discovery, it is important to bear in mind the policy underlying r 7.23. That policy remains the same as that of its predecessor, O 15A r 6 of the Federal Court Rules 1979 (Cth) (FCR 1979), namely that 'even where there is a reasonable cause to believe that a person may have a right to relief, nevertheless that person may need information to know whether the cost and risk of litigation is worthwhile: Optiver Australia Pty Ltd v Tibra Trading Pty Ltd (2008) 169 FCR 435; 249 ALR 495; [2008] FCAFC 133 (Optiver) at [36]; see for example AstraZeneca AB v Alphapharm Pty Ltd [2014] FCA 9 (AstraZeneca v Alphapharm) at [35] per Besanko J; EBOS Group Pty Ltd v Team Medical Supplies Pty Ltd (No 3) (2012) 199 FCR 533; [2012] FCA 48 (EBOS (No 3)) at [29] per Katzmann J. Given its beneficial purpose, it has been held that the rule 'should be given the fullest scope its language will reasonably allow. The proper brake on any excesses in its use is the discretion of the court, which is required to be exercised in the particular circumstances of each case': Optiver at [43] (quoting with approval Burchett J in Paxus Services Ltd v People Bank Pty Ltd (1990) 99 ALR 728 at 733; 20 IPR 79 at 85 (Paxus Services)).
48 See also ED Oates Pty Ltd v Edgar Edmondson Imports [2012] FCA 356 at [26], where Kenny J said that a prospective applicant "may be entitled to discovery in order to determine what defences are available to the respondent and the possible strength of those defences, or to determine the extent of the respondent's breach and the likely quantum of any damages award" (emphasis added).
49 The prospective respondents submit that the above statements no longer apply because of what the Full Court said in Pfizer Ireland Pharmaceuticals v Samsung Bioepis AU Pty Ltd (2017) 257 FCR 62 (at [107]). In that case, Perram J held that preliminary discovery was not available "where sufficient information is available to allow the commencement of a proceeding" (at [101]). His Honour went on to say (at [108]):
As I have noted already, it is not the requirement of this rule that there be a reasonable belief that there is a right to obtain relief. This is an important qualification and it colours necessarily the analysis involved in assessing the reasonableness of the belief. FCR 7.23(1) is not about giving preliminary discovery to those who believe they do have a case. Its wording unequivocally shows that it is about those who do not know that they have a case but believe that they may. In terms, it authorises what traditionally have been referred to as fishing expeditions; that is to say, evidentiary adventures in which the goal is not to find proof of a case already known to exist, but instead to ascertain whether a case exists at all.
(original emphasis)
50 On the basis of those passages, the prospective respondents maintain that in determining whether a prospective applicant has sufficient information to decide whether to start a proceeding, the Court is to disregard information that might assist the prospective applicant to determine whether the costs and risks of the contemplated litigation would be worthwhile, which would include information going only to the likely quantum of relief. They submit that the Full Court should be understood to have identified a difference in the operation of r 7.23 and its predecessor justifying a departure from the reasoning of the Full Court in Optiver (decided as it was under the old rule). It was submitted that the Full Court in Pfizer had impliedly overruled or disapproved of more recent cases such as Objectivision to the extent that they construed r 7.23 in a way that would authorise preliminary discovery of documents relevant only to the quantum of relief.
51 I do not accept the prospective respondents' submissions concerning the effect of the various judgments in Pfizer.
52 As Allsop CJ said (at [7]), the Explanatory Statement to the Rules did not explain the change in wording as being the result of a desire to vary the operation of the old rule. Having said that, his Honour emphasised that the words of r 7.23 were to be "attended to without paraphrase and redefinition". His Honour continued (at [8]):
It is important to approach the task with the fundamentals of the rule in mind. There have been a large number of cases now (both at first instance and Full Court) dealing with and explaining the relevant rule. Those authorities should not be utilised to form a complex matrix of sub-rules for the operation and application of a tolerably straightforward provision. Whilst there was no submission that any of these cases was wrongly decided, there does appear to have been a tendency to create an overly abstracted conceptualisation of refined states of mind which, if the words of the rule are not kept in mind, can lead in application to a misstatement of the essence of the rule, focused as it is upon what may be the position. …
(original emphasis)
53 His Honour's focus was on the issue that arose on that appeal, namely whether the primary judge had asked himself the wrong question or misapplied the rules of evidence in determining whether the prospective applicant's undisputed belief under subpara (1)(a) of the rule was reasonably held. Allsop CJ made no findings about the proper construction of subpara (1)(b) or subpara (1)(c), nor as to how the three criteria might interrelate.
54 Perram J said (at [99]):
An important part of the context in which Div 7.3 appears is the requirement of FCR 16.01 that in cases which proceed by way of a pleading, the name of the person preparing the pleading must be stated and, where that person is a lawyer, that lawyer must certify that there is a proper basis 'for each allegation in the pleading'. So too, where a case proceeds by way of an originating application accompanied by an affidavit, the affidavit must set out the material facts on which the case is based: FCR 8.05(2). In either case, the rules contemplate that a proceeding may only be commenced where a proper basis exists for the making of the allegations. Preliminary discovery is a procedure, therefore, which necessarily exists in a domain where that level of certainty has not been reached.
55 Perram J went on to identify some differences in wording between the old rule and r 7.23. His Honour said (at [103]):
It is apparent that the drafter of FCR 7.23, in an attempt to put the rule in plainer English, has reasoned that where there is a reasonable cause to believe, there must also be a person who holds that belief. Further, whilst the former rule required the belief to relate to a case which did or might exist ('has or may have the right to obtain relief') the new rule only requires the belief to relate to a claim which may exist. This was perhaps done on the basis that if the rule was simplified so that it required only a belief which related to a claim which 'may' exist, this would necessarily include within its scope that narrower class of case where the belief related to claims which did exist.
(original emphasis)
56 His Honour's reasoning formed a part of an analysis leading to a conclusion that, for the purposes of subpara (1)(a), "the prospective applicant must prove that it has a belief that it may (not does) have a right to relief" (at [120]). The reasoning is to be understood in a context in which the primary judge was said (and ultimately found) to have directed himself to apply a higher threshold than subpara (1)(a) required. His Honour's reasoning should not be read out of this context.
57 The grounds of appeal in Pfizer did not concern the proper construction of subpara (1)(b) and the Full Court drew no binding conclusions as to the matters that may permissibly be taken into account in the application of that criterion. No member of the Full Court dealt with the question of what factors ought not to be taken into account in determining whether the prospective applicant has sufficient information to decide to start a proceeding. Upon upholding the ground of appeal, the Full Court exercised the discretion under r 7.23 for itself, without any apparent controversy attending the remaining criteria. No occasion arose for the Full Court to disapprove of the statements of principle in Optiver, Quanta or Objectivision or any other earlier case to which I have referred. As Allsop CJ said, no party to the appeal in Pfizer had submitted that any of the prior authorities were wrongly decided.
58 The prospective respondents' arguments take the reasoning of Perram J out of context and should be rejected for that reason: see also John Bridgeman Ltd v National Stock Exchange of Australia Ltd (2019) 139 ACSR 244 at [70].
59 The fundamental principle to be drawn from Pfizer is the importance of adherence to the plain words of the rule, without excessive restatement or confinement drawn from previously decided cases.
60 Turning then to the text of the provision, there is some force in the submission that r 7.23 does not include a power to compel the disclosure of every species of document that might assist a prospective applicant to decide whether to start a proceeding. More specifically, it appears doubtful that the rule was enacted for the purpose of equipping the prospective applicant with information other than that which bears directly on the question of whether there is a right to relief. What follows should be understood as my preliminary observations on that question.
61 It is helpful to consider two classes of information, both of which are capable of assisting a prospective applicant to decide whether to start a proceeding. The first class of information is that which is directly relevant to the question of whether the prospective applicant has the right to obtain the particular relief forming the subject matter of the reasonable belief mentioned in subpara (1)(a). The second class is that which is not directly relevant to the existence of that right, but which may otherwise assist the prospective applicant to make a prudent commercial assessment as to whether the cost and risk of the contemplated litigation would be worthwhile.
62 The first class of information may be disclosed in documents that tend to prove or disprove the acts or omissions that fulfil the elements of the cause of action from which the relevant right to relief would flow. It may also be disclosed in documents that tend to prove or disprove a substantive defence that would deprive the prospective applicant of the right to relief he or she might otherwise be in a position to establish. Information in this class assists in the enquiry as to whether the prospective applicant has the right to relief or not. Of its nature, that information will also bear on the strength of the applicant's claim and the strength of any defence and so will be relevant to an assessment of the risks of the contemplated proceeding.
63 The criterion in subpara (1)(b) falls to be considered in circumstances where it has already been established that the prospective applicant may have a right to relief. It operates within the domain of uncertainty to which Perram J referred in Pfizer. As his Honour said, for the purposes of subpara (1)(b), a prospective applicant would not have sufficient information to decide to commence a proceeding if he or she does not know enough about what each prospective respondent has done in order to prepare initiating documents that comply with the Court's rules as to the sufficiency of pleadings.
64 This first class of information clearly informs the decision as to whether or not to start a proceeding, but it is not concerned with the commercial worth of the claim or the likely costs of pursuing it to judgment.
65 Documents containing the second class of information may enable an assessment to be made of such thing as to the net commercial worth of the proceeding. In my view, those considerations do not bear on the question of whether the prospective applicant has a right to relief, but they are capable of informing an assessment as to whether to start a proceeding for the enforcement of the right.
66 As can be seen, both classes of information are capable of informing the question as to whether the costs and risk of the litigation are worthwhile and so fall within the text of subpara (1)(b) as construed by the Full Court in Optiver and the line of authority discussed earlier in these reasons.
67 It is accepted that the rule "should be given the fullest scope its language will reasonably allow": Optiver at [43]. However, I consider subpara (1)(c)(i) to be worded in a way that permits of only one meaning. It is concerned with information contained in documents "directly relevant to the question whether the prospective applicant has a right to obtain the relief". It is not concerned with a wider class of document that might assist the prospective applicant in making an assessment as the likely quantum of damages or the costs to be expended in obtaining it.
68 Critically, the power of this Court to make an order under r 7.23(2) is expressly confined to documents of the kind mentioned in subpara (1)(c)(i). It does not pick up all documents that might fill the gap in information of the kind that subpara (1)(b) is concerned with. On that construction it would follow that the Court is not empowered to make an order for the discovery of the documents that do not contain any information that is directly relevant to establishing the prospective applicant's right. It may be that documents ordered to be produced under r 7.23(2) incidentally contain information that is not directly relevant in the requisite sense but that otherwise inform the decision as to whether or not to commence a suit. In my view discovery of that material is not the purpose of the rule.
69 My analysis is inconsistent with Sackville J's reasoning in Quanta concerning documents going only to quantum. His Honour's reasoning has not been overruled or disapproved in any of the authorities to which the parties referred. The circumstance that Quanta was decided under the old rule does not provide a sufficient basis to distinguish it. The relevant textual components of the old rule remain intact in r 7.23. The reasoning in Quanta has been applied in at least one case decided under r 7.23 and otherwise referred to with approval since the rule was enacted. The reasoning is not plainly wrong and it is appropriate that I follow it: Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 at [135].