HER HONOUR: These proceedings arise out of four loan facilities entered into between the then Bank of Western Australia (subsequently acquired by the Commonwealth Bank) and Daleport Pty Limited. The second defendant, Mr Alexander Walton, was the principal of Daleport. The proceedings have a lengthy history, part of which is recorded in the earlier interlocutory judgment of Davies J in Bank of Western Australia v Daleport Pty Limited [2011] NSWSC 819, the decision of the Court of Appeal in Daleport Pty Limited v Bank of Western Australia Limited [2012] NSWCA 402 and my judgment in Commonwealth Bank of Australia v Daleport Pty Limited [2013] NSWSC 981.
For the reasons recorded in my earlier judgment, a cross claim brought by Daleport against the bank has been dismissed but the defendants have been permitted to amend their defences so as to rely upon the same contentions by way of set-off against the debt claimed by the bank, as contemplated in the judgment of the Court of Appeal. The bank's claim is in the order of $14 million while the set-off is claimed to be in the order of $87 million. Daleport's third further amended defence filed in accordance with those reasons makes the allegation (which I described in my judgment as "a big proposition") that the Bank of Western Australia represented to Daleport that it had sufficient funds to fund various stages of a property development known as the Leura development and, in doing so, engaged in misleading or deceptive conduct in that it did not in fact have sufficient funds to fund those stages of the development. That allegation has been referred to in the proceedings as "the funds allegation".
The bank contends that the funds allegation is fanciful. At its highest, it relates to a total amount of $2.75 million. It should be recorded in that context that, before leave was granted to file the defence in its final form, the bank obtained leave to serve evidence supporting its objection to the pleading of that allegation and evidencing its contention that it did not lack sufficient funds to finance the development. As noted on behalf of Daleport, the bank chose not to put such evidence before the Court.
After the defence was filed, Daleport sought discovery of a broad range of documents going to the issue of capital adequacy during the relevant period. The bank agreed to discover audited financial statements for the two relevant periods (the 12 months ending 31 December 2007 and 31 December 2008), BAS statements for those periods, all reports required to be lodged with APRA for those periods and board minutes as to risk management compliance and capital adequacy. The bank refused to discover the further documents sought by Daleport.
Daleport sought to resolve that dispute by filing a motion for discovery on 13 June 2014. The motion came before me for hearing at that time. The parties proposed at that stage to call expert evidence as to the sufficiency of the documents already discovered by the bank. At one point, it was contemplated that competing experts would be called on that issue. I indicated my view that it would be preferable, if expert evidence were necessary, for there to be a single expert appointed by the Court.
However, after some argument, the parties agreed that the more appropriate course would be to follow the procedure applicable in proceedings in the Equity Division as set out in Practice Note SC Eq 11. Clause 4 of that practice note provides that the Court will not make an order for disclosure of documents until the parties have served their evidence. The motion was accordingly adjourned for a lengthy period while the parties served their evidence.
After the parties had served their evidence, the discovery motion came back before me for further hearing. It was contemplated that the Court would appoint an expert and receive his or her report before making final discovery orders. However, the parties were in dispute both as to the identity of an appropriate expert and as to the appropriate orders. Fortunately, after some debate at the adjourned hearing, the bank agreed to the appointment of the expert nominated by Daleport, Mr Bruce Auty. Accordingly, the only outstanding issue is the appropriate terms of reference for his appointment, as to which the parties remain in dispute.
The bank's position was predicated upon the terms of the practice note SC Eq 11. Clause 5 of the practice note states:
There will be no order for disclosure in any proceedings in the Equity Division unless it is necessary for the resolution of the real issues in dispute in the proceedings.
The bank submitted that the question for the expert should be posed in terms that reflect that test. The bank formulated the question as follows:
(a) Whether [the documents already disclosed by the Bank] provide sufficient material, without the necessity for the plaintiff to provide any other material to the defendants, for the expert to conclude whether or not the plaintiff would have been in a position to agree having regard to capital adequacy requirements and any other matter that the expert considers to be relevant to provide funding to the first defendant had it decided to provide such funding in the amounts of:
(i) $120,000 to $150,000 in 1 June 2007 to 31 December 2007;
(ii) Alternatively, the total amount of $2.75 million at any time in the range of dates of 1 June 2007 to 30 June 2008.
(b) If any part of the answer to (a) is "no", what additional documents would the expert require the plaintiff to provide to enable that part of (a) to be answered yes.
Ms Obrart, who appears for Daleport, opposed an order in those terms, for two principal reasons. First, she submitted that the question whether disclosure is "necessary" for the resolution of the real issues in dispute should not be embedded within the terms of appointment of the expert but should rather be left for the determination of the Court. Ms Obrart submitted that, in accordance with r 21.2(4) of the Uniform Civil Procedure Rules 2005 (NSW), a party is entitled to have discovery of a document that is relevant to a fact in issue. It should be noted that the rule is, rather, framed as a prohibition; "an order for discovery may not be made in respect of a document unless the document is relevant to a fact in issue". There is nonetheless some force in the submission that the test of necessity should be determined by the Court rather than the expert.
Secondly, Ms Obrart submitted that the question posed by the bank does not accurately articulate the fact in issue. Paragraph 93 of the defence states:
93. The Funds Representation was or became false on or about July 2007 in that from July 2007 the plaintiff did not have sufficient funds to fund the completion of States 1, 2 and 3 or alternatively Stage 1 of the Leura Development ('Lack of Funds').
Particulars:
(i) At all material times from 2005 the plaintiff funded the majority of its lending activities using loans from HBOS.
(ii) From about July 2007 to December 2007 HBOS by reason of its own shortage of funds became unable or unwilling to loan further funds to the plaintiff to fund the plaintiff's lending activities including those between the plaintiff and the first defendant.
On the strength of that pleading, Ms Obrart articulated the "fact in issue" as follows:
Whether from 1 July 2007 to 30 June 2008 Bank West by reason of its own shortage of funds and/or a shortage of funds in its parent company HBOS was unwilling and/or unable to advance or loan funds to commercial borrowers such as property developers and/or [Daleport].
Daleport proposed questions for the expert directed to a series of questions, in each case asking whether identified categories of documents would be "relevant" to the determination of the question. However, Ms Obrart indicated that Daleport was not wedded to those categories and would defer to the expert on that issue.
The scope of Daleport's request was carefully explained in the affidavit of Daleport's solicitor, Mr Blayne Ledger, sworn 17 June 2014. Mr Ledger states that the funds allegation is based on the contention that, at the relevant time (being from the middle of June 2007), the ultimate parent company of the Bank of Western Australia was Halifax Bank of Scotland, referred to as HBOS. The funds allegation is premised on the contention that the Bank of Western Australia's source of funding was HBOS; that HBOS funding had "dried up" by about June 2007 and that the Bank of Western Australia did not have sufficient funds to operate as a bank in Australia or to honour its loan agreements without the support of HBOS.
Mr Ledger sought to sustain those ambitious contentions in part by reference to material drawn from the Parliamentary Commission on Banking Standards of the English Parliament conducted during 2012. The Commission conducted hearings into banking in England including an enquiry into HBOS and the reason it collapsed. The affidavit summarised and annexed lengthy extracts from evidence given to the Commission by senior management of HBOS, Sir James Crosby (the CEO of HBOS from 2001 to June 2006) and Mr Andy Hornby, Sir James's successor from August 2006 to 2008. The purpose of adducing that evidence was to establish that there is "good reason to believe that material exists that would shed light on the fact in issue". As the proposition was expanded in Ms Obrart's careful oral submissions, it is suggested that there is a real basis for apprehending that the true financial or prudential position of the bank was not that revealed in its published financial statements and, accordingly, that the consideration of a broader range of material is necessary for the resolution of the issues raised by the funding allegation.
It is not necessary to determine the final scope of any discovery order in this judgment. The only matter determined in this judgment is the dispute between the parties as to the proper terms of reference for the court-appointed expert. It is common ground between the parties that expert evidence will assist the Court to determine the appropriate scope of discovery.
The content of Mr Ledger's affidavit has persuaded me that the opportunity to receive such assistance as the expert can provide on that issue may be missed if the expert is asked the narrow question posed on behalf of the bank. Conversely, however, a roving enquiry as to the categories of documents which could conceivably be regarded as relevant to the fact in issue raised by Daleport's defence could release a hare.
Whilst I accept that the question as to the proper scope of discovery is ultimately one for the Court, upon analysis, I think the expert will necessarily have to be enjoined to undertake some evaluative assessment of the real need for documents falling into the categories proposed in Daleport's proposed orders. Under the expert witness code of conduct, the expert has an overriding duty to assist the Court impartially. I consider it appropriate for the Court, in the orders appointing the expert, to inform him of the overriding purpose of the Civil Procedure Act 2005 (NSW) and to ask him to have regard to that purpose in providing his opinion.
For those reasons, the question I propose for the court-appointed expert is:
A fact in issue in these proceedings is whether from 1 July 2007 to 30 June 2008 the Bank of Western Australia, by reason of its own shortage of funds and/or a shortage of funds in its parent company HBOS, was unwilling and/or unable to advance or loan funds to commercial borrowers such as property developers and/or Daleport.
A dispute has arisen as to the extent of the documents the bank should be required to disclose in relation to that issue. The bank has disclosed the documents listed in Annexure "A" and the confidential documents listed in Annexure "B" to this order.
Daleport seeks the disclosure of further documents listed in Annexure "C" as being relevant to the matters specified in Annexure "D".
In determining Daleport's application for further disclosure, the Court must seek to give effect to the overriding purpose of facilitating the just, quick and cheap resolution of the real issues in the proceedings.
With that overriding purpose in mind, what is your opinion as to (1) the relevance to the fact in issue set out above of the additional documents sought by Daleport and (2) the need to see such documents in order to determine that issue.
Unless either party seeks by the end of today to be heard further, the order will be entered in those terms.
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Decision last updated: 03 December 2015