CGU Insurance Limited v Malaysia International Shipping Corporation Berhad

Issues for determination 12 The application raises three issues. The first is whether the defendant should be given liberty to apply or leave to seek to rescind Order 2. Second, if such leave is granted the question arises whether the plaintiff had satisfied the requirement that "all reasonable inquiries" had been made prior to the granting of the order. The third question is whether the Court should exercise its discretion to set aside the earlier order granting preliminary discovery and, if so, upon what terms.

leave and liberty to apply 13 The defendant bases its application on the liberty to apply order made by Madgwick J. Reliance is also placed on the provisions of O 35 r 7 of the Federal Court Rules which provides: "7 Setting aside (1) The Court may vary or set aside a judgment or order before it has been entered. (2) The Court, where it is not exercising its appellate or related jurisdiction … may if it thinks fit vary or set aside a judgment or order after the order has been entered where: … (c) the order is interlocutory; …" Order 15A r 6 provides: "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)." (Emphasis added) 14 The plaintiffs correctly submit that the Court's power to set aside the order is to be exercised with caution: Qantas Airways Ltd v Cameron (No 2) (1996) 68 FCR 367 at 368 and 374; Autodesk Inc v Dyason (No 2) (1993) 176 CLR 300 at 302-3 and 317. Because it is an exceptional step, the plaintiffs submit that the defendant must establish that the Court acted according to some misapprehension of the facts or law, or that the order was made on a ground which was not in substance argued, such that an injustice would be done if the order was not now reconsidered. The plaintiffs further submit that the liberty to apply granted by his Honour does not absolve the defendant of having to satisfy these requirements and that the defendant should not be able to merely re-agitate arguments on preliminary discovery already considered by the Court. They contend that no error of principle was made in the making of the order for preliminary discovery which would warrant rescission and that there is no evidence of new circumstances which render the order unjust or which raise any issue of undue hardship to the defendant if Order 2 remains on foot. It is also submitted that the Court should take into account the absence of a genuine, timely or diligent attempt on the part of the defendant to comply with Order 2 and the unsatisfactory nature of the steps which the defendant has taken to identify and preserve the documents which are the subject of the order. 15 Furthermore, it is said that the defendant is easily able to comply with the orders made by his Honour and the documents were removed from the vessel at a time when the plaintiffs were seeking access to the vessel and the documents. The plaintiffs submit that these factors should, as a matter of discretion, weigh against rescission of the order. 16 While there is force in the submissions of the plaintiffs, I am satisfied from examination of the transcript, in light of the surrounding circumstances, that his Honour intended to make liberal provision for full and proper argument in relation to the orders made on 24 November 2000. The first order had been carried out on that date and the only remaining order was the order for preliminary discovery. Clearly, his Honour was concerned that the defendant had not had sufficient opportunity to fully argue this question. In those circumstances, I am satisfied that, as a matter of construction, the liberty which was intended to be reserved should be given a broad interpretation. 17 As McLelland J observed in Brimaud v Honeysett Instant Print Pty Ltd (SCNSW, 19 September 1988, unreported) the touchstone is whether the interests of justice require a reconsideration. See also Darling Harbourside (Sydney) Pty Ltd v Sanirise Pty Ltd (Beaumont, Carr and Sackville JJ, FCA, 17 May 1996, unreported). 18 In my view, the interests of justice in this matter require that the defendant should be given a proper opportunity to ventilate its case as envisaged by Madgwick J when making Order 2. Supporting considerations are that the argument sought to be raised is that the order should never have been made in the first place and that it was within the contemplation of the parties on 24 December 2000, as a consequence of his Honour's reasons, that there may be further consideration. 19 I am satisfied that under O 35 and the liberty to apply reserved by his Honour the matter should be reconsidered both as a matter of power and discretion.

reasonable inquiries 20 The plaintiffs submit that as at 24 November 2000 they had made all reasonable inquiries in the circumstances but did not have sufficient information to enable a decision to be made as to whether to commence proceedings. Notwithstanding their inquiries, the plaintiffs submit that they had no information as to the cause of the grounding nor as to important events that occurred on board the vessel before, during and after the grounding. They had no access to records made after the grounding which were under the control of the defendant. This material, it is said, was either on the vessel or in the defendant's custody and the defendant was the only party likely to be in possession of primary materials capable of shedding light on the crucial events. They point out that, having regard to the likely expense and time involved, it is necessary to consider the causes of the grounding before embarking on litigation involving numerous parties. It is said that the plaintiffs need to assess their prospects of establishing that the vessel was "unseaworthy" at the relevant time to see whether the defendant can rely on a negligent navigation or management defence. The plaintiffs say that they are entitled to preliminary discovery of documents that will enable them to assess the prospects of the case generally. 21 The authorities support the proposition that an applicant for preliminary discovery may be entitled to discovery in order to determine what defences are available and the possible strength of such defences insofar as that is relevant to the making of a decision to commence proceedings. A consideration of possible defences may be required to properly make the decision whether to commence a proceeding to obtain relief: see Global Intertrade Pty Ltd v Adelaide Festival Centre Trust [1998] FCA 1649. 22 The plaintiffs submit that it was inappropriate and unnecessary to await the outcome of inquiries or of Court proceedings before obtaining discovery of documents in the defendant's possession in the present case. This is because it could not be predicted with any certainty whether or when such proceedings might be finalised or begin to generate useful information for the purpose of deciding whether to commence proceedings. They submit that the salvage arbitration in the present case will not in fact be heard until mid-November 2001 and that any general average adjustment will not be finalised until after the salvage award is known. In such circumstances, the plaintiffs' claim would be time barred as a consequence of the application of the Hague Rules which impose a one year time limit. 23 There is a helpful analysis of the relevant considerations in relation to O 15A r 6 in the judgment of Lindgren J in Alphapharm Pty Ltd v Eli Lilly Australia Pty Ltd (FCA, 24 May 1996, unreported), at [41], where his Honour sets out a number of propositions. The first statement relevant for present purposes is that the words "all reasonable inquiries" prescribe an objective standard and that it is not a question of whether a particular applicant genuinely feels unable, because of lack of information, to decide to commence proceedings to obtain the relief sought. His Honour points out that the questions posed by the rule "are to be answered in the context of the adversary system of forensic contest in which a proposed respondent is ordinarily entitled to withhold its evidence … prior to the commencement of proceedings". Nevertheless, it is clear that the section is intended to have a beneficial effect being clearly designed to enable a properly informed choice to be made. Of particular relevance is this proposition stated by his Honour: "Paragraph 6(b) contemplates that after making all reasonable inquiries, the applicant has come up against a problem, namely, that it is lacking a piece of information or pieces of information reasonably necessary to enable it to decide whether to commence a proceeding." 24 In favour of the plaintiffs' submission in the present case is the consideration that some of the important documentation sought is in the possession of the defendant and it is unlikely that it could be obtained from other sources. 25 Although the procedure for preliminary discovery permits what has often been described as "fishing": see Burchett J in Paxus Services Ltd v People Bank Pty Ltd (1990) 99 ALR 728, it does so subject to specific preconditions. As Counsel stated in the course of argument, it may not prevent "fishing" but it is not designed to permit "trawling". In other words, it does not confer a blanket right, as a matter of course, to get discovery before action but only where the pre-condition of making "all reasonable inquiries" has been satisfied. The provision does not contemplate an order where some reasonable inquiries have been made but rather where all reasonable inquiries have been made. It appears to contemplate a reasonable exhaustion of alternative sources of information and, in any particular case, involves a pragmatic balancing of considerations. The power of the Court arises after the applicant has made all reasonable inquiries and finds that there is insufficient information to enable a decision to be made. The focus must therefore be on the question whether all reasonable inquiries were made prior to the making of Order 2. 26 One important consideration in this case is the timing of the application for preliminary discovery. The grounding of the vessel occurred on 2 November 2000 and it was freed on 14 November. As at 24 November, instructions were still being clarified. The circumstances in which the grounding occurred and the consequences of the incident were only known in the broadest outline. The solicitor for the plaintiffs indicates that he was aware from media reports and instructions from the plaintiffs that the vessel was salved on or about 14 November 2000. The report of the marine surveyor who inspected the vessel on behalf of the plaintiffs was only received in December 2000. In other words, it was not available when Order 2 was made. The first correspondence in evidence to the solicitor for the defendant was dated 22 November 2000. The earliest diary note in evidence is made by the plaintiffs' solicitor and is dated 22 November 2000. 27 Inquiries made prior to 24 November included a telephone conversation with the owner's solicitor seeking to inspect the vessel and her papers. On 23 November 2000, the plaintiffs' solicitor arranged for inquiries to be made of the Great Barrier Reef Marine Park Authority to ascertain whether it had conducted or was in the process of conducting an investigation or inquiry into the grounding. This was answered in the negative. There were some investigations on or about 22 November 2000 as to obtaining details of the various cargo interests for whom the plaintiffs acted but it was anticipated that it could take some time to obtain these details. Apart from these matters, there do not appear to have been any other inquiries made in relation to the surrounding circumstances prior to the making of Order 2. Information relating to the incident at that point could be described as beginning to filter through. 28 There are in evidence a number of press clippings and summaries obtained from the Internet which were publicly available by 24 November 2000 and which refer to the incident. The incident was one of some notoriety because of widespread concern about possible harm to the Great Barrier Reef. This information makes reference in general terms to the circumstances in which the incident occurred, attempts made to free the vessel, the possible damage to the Reef from the grounding and attempts to free her. From about 10 November, there are references to charges being considered against the Master of the ship and to charges being laid against the crew. A report on 11 November refers to a written plea of guilty having been made and the matter being set down for further consideration on 28 November 2000. There is reference to the freeing of the vessel on 14 November and references to the ship's crew having to face Court on environmental charges. Subsequent information in newspapers indicates that a $400,000 fine was imposed on the ship owners. 29 Accordingly, it appears that the proceeding insofar as it relates to preliminary discovery was initiated only a matter of days after instructions were received by the solicitor for the plaintiffs. Even at that point, it is said that the instructions were coming in "dribs and drabs". It appears that requests were made for the bills of lading of the various insurers but that the first copy came into the possession of the plaintiffs' solicitor after 24 November. It was expected in November that a report of the type obtained by the Australian Transport Safety Bureau was likely to have been commissioned as a consequence of the incident and that such a report might throw some light on the question whether proceedings should be commenced. However, it could not have been predicted when such a report would be forthcoming or what the nature of its findings would be. 30 There is evidence from the defendant, given by an experienced solicitor, Mr Timothy Elsworth, as to the types of inquiry and investigation which would be carried out in the normal course of pursuing a claim such as the present one. His affidavit of 3 May 2001 refers to awaiting the results of an investigation by relevant authorities, such as environmental bodies and transport safety bodies. Although it may be that these bodies might not report for some considerable time, nevertheless some inquiry, it is suggested, could have been made as to whether such investigations would be instituted and what would be the likely time frame. This might take several weeks but, in a case such as the present, is not unreasonable in view of the one year limitation period. Such investigations or inquiries might yield some useful information. This evidence was sought to be met by evidence from the plaintiffs to the effect that such inquiries may well take an unreasonable period of time, possibly well outside the limitation period, and would probably not produce useful information as to some of the relevant circumstances because the emphasis would be on matters other than the circumstances of the vessel prior to the grounding. Nevertheless, in my view, this is not a satisfactory reason for waiting or not making those inquiries. There is an important difference between the question as to what inquiries might be considered reasonable and the question whether such inquiries would in fact actually produce useful results. In other words, it is not necessary to show that the inquiries would in fact have been fruitful but simply whether they may be reasonably considered to have been of relevance and utility at the time in question. The emphasis in the rule is on seeking to ascertain relevant information. 31 Of particular importance in the present case is the circumstance that the surveyor's report was not available until about one and a half weeks after the application for preliminary discovery was made. It appears that, as at the date of the application, there was an indication of forthcoming proceedings in relation to the incident, in the near future. However, it was decided not to await the outcome of those proceedings on the basis that they may not produce any useful information. 32 If, as in this case, some specific documents are not forthcoming from the most obvious source, then some inquiry should be made to see if such information or equivalent can be obtained from other potential sources: see W R Pateman Pty Ltd v Walker Corporation Pty Ltd (1990) ATPR 41-016. That case concerned s 52 of the Trade Practices Act 1974 (Cth). Of course, each case must be considered in regard to its own circumstances. However, the indication from that decision is that, in the context of O 15A r 6(b), some alternative inquiries should be made where there is a failure or refusal by a party to produce relevant documentation. 33 After the hearing, the plaintiffs lodged with the Court an affidavit which asserts that discovery to 19 September 2001 in the London arbitration had not disclosed any documents falling within paragraphs 2(a), (b) and (d) of the orders made by Madgwick J. This affidavit is made on information and belief. The facts asserted are not admitted by the respondent which has filed an affidavit in response. The plaintiffs contend that the affidavit filed by them supports the proposition that they were not "required" to await discovery in the salvage arbitration. This submission misstates the position. There is no question of the plaintiffs being "required" to await discovery in the London arbitration. In my view, this further inconclusive material does not assist the plaintiffs because the issue is whether all reasonable enquiries have been made prior to the making of an order and not whether such enquiries in fact would disclose relevant material. The statements are made on information and belief, they are inconclusive, and they assert general conclusions as to whether any documents fall within the terms of the order. In my opinion, the plaintiffs could have made enquiries as to when the salvage arbitration proceedings were likely to reach a stage where a determination could be made as to whether relevant documents might come to light. 34 It is essential to assign meaning and effect to the requirement to make "all reasonable inquiries". That is a pre-condition to the power. The facility of preliminary discovery is not given as of right or a matter of course for obvious reasons. In the present case, at the time the application was made, instructions were still being received or clarified and only a few days had elapsed since preliminary instructions were given. In addition, further lines of investigation ought to have been considered and followed up. It is therefore not possible in the present case to say that all reasonable inquiries had been made by the plaintiffs. The application for preliminary discovery was premature. 35 It is understandable in the present case how the order for preliminary discovery came to be made as part of the overall application which, in relation to the first order sought for inspection by a surveyor of the vessel, had a high degree of urgency. However, as mentioned earlier, there was no such urgency in relation to the orders for preliminary discovery under O 15A r 6. 36 However, I consider that Order 2 should only be set aside if the defendant is prepared to give an undertaking to the Court (which it indicates will be forthcoming) that the documents which were the subject of the order will be preserved until further order. 37 For the above reasons, in exercise of the right reserved by the liberty to apply reserved by his Honour and pursuant to O 35 r 7, if the defendant gives an undertaking to preserve the relevant documents, I order that Order 2 made by Madgwick J on 24 November 2000 be set aside. I have heard the parties on costs and consider that costs should follow the event and the plaintiffs should pay the costs of the respondent of this application to set aside Order 2. The costs of the hearing before Madgwick J should remain reserved. I certify that the preceding thirty-seven (37) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Tamberlin.

Counsel for the Plaintiffs: N C Hutley SC G K J Rich

Counsel for the Defendant: B W Rayment QC G J Nell