HER HONOUR: These are proceedings to enforce loan facilities entered into between the Bank of Western Australia Limited, known as Bankwest, and Daleport Pty Ltd (in receivership). Bankwest has since been acquired by the Commonwealth Bank of Australia which, accordingly, has been substituted as the plaintiff. The second defendant, Mr Alexander Walton, was the principal of Daleport and is sued as guarantor of Daleport's liability under the loans.
The principal purpose of the loan facilities was to fund a property development at Leura, which ultimately failed. As at the date of commencement of the proceedings, Daleport's outstanding debt pursuant to the loan facilities was in the order of $14.5 million plus interest. Daleport contends that the failure of the Leura development was due to misleading and deceptive conduct on the part of Bankwest. A cross-claim for compensation under s 87 of the Trade Practices Act 1974 (Cth) was brought on that basis but was dismissed after Daleport failed to provide security for the Bank's costs, as ordered by Hislop J in Bank of Western Australia v Daleport [2010] NSWSC 1207. However, the defendants were subsequently 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: see Daleport Pty Ltd v Bank of Western Australia Ltd [2012] NSWCA 402; Commonwealth Bank of Australia v Daleport Pty Ltd [2013] NSWSC 981.
The claim by way of set-off contends that Bankwest represented to Daleport that it had sufficient funds to fund various stages of 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. The parties have referred to that allegation in the proceedings as "the funds allegation".
This judgment determines an application by Daleport for discovery of documents relating to the funds allegation.
Bankwest has already given substantial discovery in the proceedings, in various tranches (listed in the affidavit of Justin Bates sworn 8 March 2017 from par 28). However, Daleport contends that the documents the Bank has been required to discover to date are not adequate to allow a fair trial of the funds allegation. The application for further discovery was brought by notice of motion filed 13 June 2014 seeking discovery of documents identified in a letter dated 28 April 2014 (later amended, as explained below). The hearing of the motion was then deferred at the request of the parties until after the evidence in the proceedings had been served, adopting the practice of the Equity Division as stated in Practice Note SC Eq 11.
The application invokes Pt 21 of the Uniform Civil Procedure Rules 2005 (NSW). Rule 21.2(4) provides that an order for discovery may not be made in respect of a document unless the document is "relevant to a fact in issue". Rule 21.1(2) defines that term as follows:
a document or matter is to be taken to be "relevant to a fact in issue" if it could, or contains material that could, rationally affect the assessment of the probability of the existence of that fact (otherwise than by relating solely to the credibility of a witness), regardless of whether the document or matter would be admissible in evidence.
Although the proceedings are not strictly governed by Equity Division procedures, the Bank invokes the provisions of cl 5 of Practice Note SC Eq 11, which provides:
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 further relied in that context on the decision of Lindgren J in Trade Practices Commission v CC (New South Wales) Pty Ltd (1995) 58 FCR 426. That decision was concerned with the application of the Federal Court Rules, which also required the party seeking discovery to establish that the order was "necessary".
While "necessity" is not a specific requirement directly applicable in these proceedings, the application must be determined having regard to the provisions of Pt 6 of the Civil Procedure Act 2005 (NSW), in particular, the requirement to seek to give effect to the overriding purpose stated in s 56 of facilitating the just, quick and cheap resolution of the real issues in the proceedings; the obligation to act in accordance with the dictates of justice as informed by any relevant matters listed in s 58 and the objects of proportionality and the elimination of delay stated in ss 59 and 60. Those provisions plainly require the Court to undertake some evaluative assessment, as best it can, of the likely utility of the documents compared with the likely scope and cost of the exercise. If that is not a test of necessity, it is something close to it.
Daleport's application was supported by the affidavit of Blayne Ledger sworn 17 June 2014. In order to appreciate the significance of his evidence it is necessary to know some of the relevant chronology. The Daleport facility expired on 30 June 2007. Daleport's case, in broad summary, is that representations made before and after that date led it to understand that Bankwest was committed to the completion of the Leura development and to expect that the facility would be renewed. A default notice was served in October 2007 but, according to Mr Walton, Daleport was told it was only a formality; that the loans were going to be rolled over and that he could ignore the letter. Negotiations continued but the facilities were not ultimately rolled over as expected. By early 2008, Daleport's mortgage broker was expressing the view that Bankwest wanted Daleport "gone". The relevant period specified by Daleport in respect of the funds allegation is from 1 July 2007 to 30 June 2008.
Mr Ledger stated that, from mid-June 2007 onwards, Bankwest's ultimate parent company was Halifax Bank of Scotland (HBOS). He explained that the funds allegation was based on the fact that HBOS was Bankwest's source of funding; that HBOS funding had "dried up" by about June 2007 and that Bankwest did not have sufficient funds to operate as a bank in Australia or to honour its loan agreements either as borrower or lender. Mr Ledger's affidavit attached extracts from hearings conducted by the English Parliament into banking in England including an inquiry into HBOS and "why it collapsed".
Acknowledging the obvious complexity of that issue, both parties sought to have expert evidence placed before the Court to assist in determining the appropriate scope of discovery (if any). It was initially proposed that there would be duelling experts. However, the parties later acceded to a suggestion that it would be preferable to have a single expert appointed by the Court. By consent, Mr Bruce Auty was appointed. A dispute as to the form of question to be posed for his opinion was resolved in my earlier judgment in Commonwealth Bank of Australia v Daleport Pty Ltd (in receivership) (No 2) [2015] NSWSC 1746.
The question posed for Mr Auty's opinion (letter dated 3 December 2015, MFI 1) was in the following terms:
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 Categories 2 to 6 of Annexure "C" (the "Categories") 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) whether the Categories sought by Daleport are relevant to the fact in issue set out above;
(2) whether disclosure of those documents is necessary for the resolution of the fact in issue;
(3) whether disclosure of any other documents is necessary for the resolution of the fact in issue.
Mr Auty provided his opinion to the Court in a report dated 29 April 2016 (MFI 2). In short, it was his view that most of the documents sought were relevant to the "fact in issue" identified. He also identified additional categories that would be relevant to that issue and suggested extending the time frame to 31 December 2008.
Mr Auty concluded his report with the following "summary opinion":
It is quite clear from the Bank of England report… that HBOS plc faced a shortage of funds.
It is also clear from the same report that HBOS plc sought asset reductions that were likely to be achieved by lending constraints applied by Bankwest.
Bankwest is also cited as facing depositor instability and requiring funding from HBOS plc to meet local (Australian) regulatory requirements.
Should the Court extend the time period of document discovery… to 1 July 2007 to 31 December 2008, the writer is of the view that an expanded suite of documents will be beneficial to the resolution of this matter.
Daleport revised the categories of documents sought so as to delete categories not supported by Mr Auty's report and to add the additional categories suggested by him.
Daleport's submissions in support of the application were brief. In short, it was submitted that the material annexed to Mr Ledger's affidavit establishes that the issue in support of which discovery is sought is neither theoretical nor fanciful, a conclusion which finds support in Mr Auty's report, and that the documents sought have been largely found by Mr Auty to be both relevant and necessary to the determination of that issue. To the extent that Mr Auty's report did not support Daleport's position, those categories were not pressed. In the circumstances, Daleport submitted that it should, in the interests of justice, be granted discovery in accordance with its proposed categories as amended to be consistent with Mr Auty's report.
The Bank resists giving any further discovery. It was accepted that the Court has a discretionary power to order discovery of documents that could rationally affect the assessment of the probability of the existence of a fact in issue. The Bank submitted, however, that the Court must undertake a balancing exercise between potential relevance and the likely costs involved. As already foreshadowed, I accept that submission. If authority were needed on that point, the Bank referred to the decision of Adamson J in Commonwealth Bank of Australia v Goater [2016] NSWSC 710 at [31] to [32] and my remarks in Daleport (No 2) at [17].
The Bank also relied on the decision of MacDougall J in Leighton International v Hodges [2012] NSWSC 458 at [14] where his Honour remarked upon the advantage of deferring discovery until after the exchange of evidence (as contemplated by the Equity Division Practice Note), noting the expectation that the exchange of evidence will "narrow the real issues in dispute" and "enable the process of disclosure (if it is to be undertaken) to be very closely and carefully focussed" (and see Goater at [33]).
Finally, the Bank noted the remarks of Lindgren J in Trade Practices Commission v CC (New South Wales) Pty Ltd at 436 that the test of necessity in that context requires the Court to consider whether the order is necessary "in the interests of a fair trial" (citing Percy v General Motors-Holden's Pty Ltd [1975] 1 NSWLR 289 at 292E-F) or "reasonably necessary for the disposing fairly of the case" (citing Boyle v Downs [1979] 1 NSWLR 192, 205). Even when necessity can be demonstrated, the Court will not allow discovery that amounts to a "fishing expedition": Trade Practices Commission v CC (New South Wales) at 437-438.
While care must be taken not to super-impose a requirement of necessity that does not strictly apply in the present case, the considerations discussed in the authorities relied upon by the Bank find clear resonance in the provisions of the Civil Procedure Act to which I have referred.
[2]
Not a "real issue" in dispute
The Bank raised three principal objections to the application. The primary submission was that, although the pleadings raise an issue as to Bankwest's solvency and its causative effect on the dealings between the Bank and Daleport in relation to the Leura development, that is not a "real issue" in dispute. A second, related objection was that the application amounted to a "fishing exercise".
The Bank made detailed written and oral submissions on those issues based on the evidence that has now been served. The evidence relied upon as having refined this "broad contest" was summarised in the Bank's written submissions at par 20 as follows:
(a) It is common ground that Bankwest funded the Leura project from July to December 2007 [Bates affidavit at pars 12, 13];
(b) There is a factual dispute about the way a progress payment in December 2007 of $300,000 was handled, although it is common ground that the progress payment was in fact paid in two tranches - one in December 2007 and the second in January 2008 [Bates par 14];
(c) It is common ground that the bank extended and varied the facility on 1 February 2008 with additional funding to $1.45m to enable Stage 1 to be completed, and funded $539,295 of progress payments from February 2008 to May 2008 [Bates par 11(f)];
(d) It is common ground that from at least 18 February 2008 Mr Walton knew that the Bank wold not fund Stages 2 and 3, although the Bank's evidence is that it never agreed to fund those Stages (Bates par 12(c)];
(e) Mr Walton's evidence is that if he had been advised that the bank would not provide further funding to the Leura Project in the period July 2007 to February 2008, he would have taken steps to refinance the Bankwest facilities. Mr Walton also provides evidence of an unsuccessful attempt to refinance in March 2008 through Australian Unity. The evidence of Daleport's expert, Mr Gray is that refinancing would not have been available after March 2008 due to the GFC. Bankwest's evidence is that Daleport would not have been able to obtain refinancing in any event because of its poor Loan to Value Ratios (LVRs) [Bates par 20];
(f) The main chronology of events and dealings between Daleport, Mr Walton and Bankwest does not appear to be disputed, although there are disputes about what was said at particular meetings or telephone conversations.
It should be noted that Daleport contends that the matter identified in (c) above as being "common ground" is "not completely or accurately stated and is not common ground". Daleport's case is that Mr Walton signed the facility on 1 February 2008 in circumstances where he had no choice and knowing that the extension only to 28 February would not allow Daleport to finish stage 1 of the development.
In any event, on the basis of Mr Bates' evidence, the Bank submits that the real issue that will need to be resolved between the parties for the purpose of the present application is "what were the reasons for Bankwest's decisions in connection with the Daleport account in the period from July 2007 to December 2007, or alternatively from February 2008".
The Bank identified a number of additional factual issues or sub-issues arising on the evidence filed by the parties, namely:
1. Whether Bankwest provided the funding it agreed to provide to Daleport in relation to the Leura project at all relevant times prior to May 2008 (Bates affidavit at pars 12-15);
2. Whether Bankwest's decisions in relation to Daleport were a consequence of Daeleport's conduct of the building works at Leura, its delay in completing those building works and its delay in relation to asset sales to provide equity funding for the Leura project (Bates pars 17-19);
3. Whether Daleport would or could have refinanced its Bankwest facilities on or after 1 July 2007 (Bates par 20).
The Bank submitted that the fact in issue as formulated by Daleport is not a "real issue" within the meaning of the Equity Division Practice Note (more relevantly for present purposes, within the meaning of s 56 of the Civil Procedure Act) for the following reasons:
1. the implicit premise that Bankwest was unwilling or unable to advance loan funds to Daleport is inconsistent with the evidence that the Bank continued to lend money and fund the Leura project through to May 2008;
2. the relevant time period for Mr Walton and Daleport is December 2007 or at the latest February 2008;
3. there is no evidence that the reasons for any of Bankwest's decisions in relation to Daleport include any alleged shortage of funds of Bankwest or HBOS.
The Bank submitted that the logical approach is to analyse the actual reasons by the actual decision-makers for Bankwest during the relevant period and, on that basis, that Daleport's evidence in support of the application fails to establish why disclosure of the type sought is necessary to the determination of that issue (as reformulated by the Bank).
The Bank further submitted that the application on that analysis may be seen to be no more than a fishing expedition or, adopting the metaphor I used in Daleport (No 2), involves "releasing a hare".
Ms Obrart, who appears for Daleport, submitted (in effect) that the Bank's alternative formulation of the "fact in issue" was a distraction and was apt to divert attention from the fact in issue which Daleport seeks to have determined, which she submits finds ample support in the evidence relied upon by Daleport.
To a degree, the parties' submissions on those issues passed without meeting. The Bank's submissions rested heavily on the evidence that has now been served. While that is a proper approach, I do not think I can ignore the possible inference lurking behind that evidence that looming insolvency or liquidity constraints may have informed commercial lending decisions during the relevant period; if such constraints existed, it would have been irresponsible not to bring them into account in determining future lending practices. Conversely, I do not think I can ignore the cogent evidence that has been filed by the Bank, which does tend to suggest that the funds allegation may be ambitious.
I am not persuaded that the "fact in issue" identified by Daleport can be dismissed out of hand as a real issue. However, I accept, as submitted on behalf of the Bank, that the evidence presently affords scant support for the inference Daleport will ask the Court to draw at trial. It must be acknowledged in that context that Daleport seeks to prove the state of mind of the Bank and that is a consideration which lends itself to allowing some discovery, provided it would not be oppressive. I am not persuaded that Daleport is merely "fishing".
In those circumstances, although the parties addressed the "real issue" question as a discrete question, I prefer to address it in the context of a close consideration of Mr Auty's report.
[3]
Oppression
The Bank's third objection to the application was on the grounds of oppression. It was contended that, even if the Court were persuaded that some further discovery is necessary, there are significant practical problems associated with giving any such discovery, as identified in Mr Bates' affidavit at pars 63 to 67.
Ms Obrart submitted that the matters there addressed failed to meet the onus of demonstrating that production of the documents would be oppressive. Rather, she submitted that what Mr Bates has done is simply to identify the difficulty of locating documents and the steps that would have to be taken in order to estimate the costs or result of finding the documents sought. Whilst there is some force in that complaint, the oppressiveness of the application is, to a degree, self-evident. It will be necessary to return to that issue.
[4]
Mr Auty's report
The Bank submitted that if, contrary to its primary submission, the Court accepts that the funds allegation raises a "real issue" in dispute, the expert evidence nonetheless falls short of establishing a basis for making the order sought.
The report opens, by way of "preamble", with an observation evidently directed at the adequacy of the discovery given to date (which consists primarily of regulatory documents such as BAS statements and APRA returns), expressing the view that:
It is unlikely that formal channels of regulatory reporting within Australia will reveal any systemic liquidity shortfall within Bankwest or its parent company, HBOS plc.
Mr Auty notes a report of the Bank of England Prudential Regulation Authority into the failure of HBOS plc. That report stated that, on 1 October 2008, "HBOS was approaching a point at which it was no longer able to meet its liabilities as they fell due and so sought Emergency Liquidity Assistance from the Bank of England". The report said:
While the failure of the Group was directly triggered by a lack of liquidity, in large part this reflected underlying concerns about the solvency of the firm - concerns that turned out to be justified.
On that basis, Mr Auty says:
Given that a liquidity event caused HBOS plc's failure it is clear that HBOS plc faced liquidity difficulties leading up to 1 October 2008.
It is also likely in my view that documents internal to Bankwest and internal to CBA may provide definitive statements as to the reasons for the acquisition of Bankwest by CBA.
Should the rationale of a liquidity issue within Bankwest be evident from document discovery, it then remains to establish whether lending constraints were applied within Bankwest as a partial response to its possible liquidity pressures and as a result of HBOS plc's directive.
The first question posed for Mr Auty's opinion was whether the categories sought by Daleport are relevant to the fact in issue set out in the question. In Pt 5 of his report, Mr Auty expresses the opinion that most of the categories sought are "relevant to the potential issue of Bankwest's shortage of funds and its potential unwillingness and/or inability to lend to commercial borrowers". He addresses the particular categories that had been specified by Daleport as follows.
[5]
(a) Loans to Bankwest and capital raised
Mr Auty expresses the opinion that an understanding of capital raisings (rationale, timing and use of funds) would help understand Bankwest's need for capital including for the purpose of maintaining regulatory capital ratios. He says the availability of funds ("parental, long and short-term") as well as the price paid for funds relative to the term of borrowings is important. He says that deposits, similarly, "if shown over a time horizon will evidence the stability of Bankwest's depositor base and will provide a basis upon which to deduce whether, over the time period in question, depositors chose to continue to support Bankwest".
On that basis he considers this category to be relevant to "the potential issue" of Bankwest's shortage of funds and its "potential unwillingness and/or inability to lend to commercial borrowers".
[6]
(b) Loans made by Bankwest to customers of Bankwest
Mr Auty's opinion is that this category would be "informative" but "not of any constructive purpose" in determining the fact in issue.
[7]
(c) Capital adequacy
Mr Auty explains the role of capital as "a financial cushion to absorb unexpected losses" and states that, in order to be resilient against failure, banks require a large buffer of capital. He concludes "this category is relevant and will provide a formal base of evidence to establish or otherwise a potential unwillingness and/or inability to lend to commercial borrowers within Bankwest".
[8]
(d) Wholesale lending
Mr Auty states that it is important to establish whether Bankwest was facing any pressure for repayment from its parent HBOS plc and on that basis considers this category to be relevant to establishing a potential shortage of funds.
[9]
(e) Sale and proposed sale of Bankwest
Mr Auty says:
This category will potentially provide the most important insights in dealing with the issue at hand. The documents internal to Bankwest and CBA including diary notes of discussions with the Reserve Bank of Australia, Australian Prudential Regulation Authority and HBOS plc will likely provide insights into any stress being suffered at Bankwest and also at the HBOS plc level.
On that basis Mr Auty considers this category relevant to establishing both a shortage of funds and an unwillingness or inability to advance funds to commercial borrowers.
[10]
(f) Liquidity
Finally, Mr Auty proposes an additional category, being "liquidity", which he defines as "a measure of the ability and ease with which assets can be converted to cash". He identifies this category as being "critical to the identification of a shortage of funds".
In Pt 6 of his report, Mr Auty addresses the particular kinds of documents listed within those categories in Daleport's discovery request. The question he answers is "whether the disclosure of those documents listed within the categories is necessary for the resolution of the issue above" [emphasis added]. However, as noted by the Bank in its submissions on the present application, the answer Mr Auty gives in respect of each item is expressed by reference to whether the documents are "relevant" (not whether they are "necessary"). Ms Obrart submitted that Mr Auty had expressed the opinion that the production of those documents was "necessary". Although those were the terms of the question posed, the answer given appears to have qualified the question.
The Bank initially wished to address that issue by seeking to cross-examine Mr Auty. However, during the hearing of the application, that position was abandoned, probably at least in part in response to discouragement by me.
In my judgment appointing the expert, I said at [18]:
Whilst I accept that the question for the proper scope of discovery is ultimately one for the Court, upon analysis, I think the expert will necessarily be enjoined to undertake some evaluative assessment of the real need for documents falling into the categories proposed in Daleport's proposed orders.
As submitted by the Bank, with great respect to Mr Auty, his report does not helpfully address the relative need for discovery of any particular class of document or any question of proportionality other than at the broadest level. Indeed, rather than undertaking any narrowing exercise in respect of Daleport's ambitious application, his report expands the scope of documents that might be considered "relevant".
As noted at the outset of this judgment, there is no strict test or rule requiring Daleport to establish that the documents sought are "necessary". Accordingly, I do not accept that the expert evidence falls short of establishing a basis for making the order sought, as contended by the Bank. I would accept, however, that the report, while providing a helpful catalogue of the documents one might wish to see if money (that is, legal costs) were no object, is less helpful in assisting the Court to undertake the balancing exercise (which must be undertaken to further the overriding purpose) between the need for any particular category of documents in the resolution of the real issues in the proceedings and the likely cost and scope of that exercise.
Accordingly, it remains necessary, doing the best I can, to undertake the evaluative assessment referred to at [18] of my earlier judgment.
The principal challenge in undertaking that assessment has been the difficulty of knowing, at this stage of the proceedings, the strength of the funding allegation. Mr Castle acknowledged in oral submissions that the Court's task is not to forejudge or foreclose the outcome of the trial but simply to understand the factual course of the loan facilities and who the relevant actors were. Addressing the Court at length by reference to both Mr Walton's affidavit and the affidavit of Mr Wynne, "Chief Manager, Credit" at the relevant time, Mr Castle submitted that the evidence discloses that the Bank was continuing to fund the Leura development up until the point where it stalled for reasons "totally outside the control of the bank", namely, the lengthy process of dealing with the local council, which ultimately saw the commencement of proceedings by Daleport in the Land and Environment Court.
Mr Castle submitted on that basis that, although the Bank accepts that an issue about solvency is raised on the pleadings, the evidence now served reveals that it is not a real issue in the proceedings.
Mr Wynne's evidence is important in this context. As already noted, he was the Chief Manager, Credit in New South Wales and was responsible for the loan by Bankwest to Daleport during the period from 2004 until 2007. He addresses the solvency issue at pars 50-53 of his affidavit sworn 17 March 2017. He specifically denies that any decision taken by him or by any other relevant decision-maker in relation to Daleport was made on the basis of any concern about the solvency or cash flow available to fund any ongoing facility to Daleport or any other borrower in the period 1 July 2007 to 2 May 2008.
Mr Wynne further states that any directions or statements made in relation to the making of credit decisions would be publicised to all credit officers through HBOSA's electronic system. He states that all credit sanctioning decisions were recorded in writing and that he followed that practice in respect of the Daleport account. He denies that any of those decisions was made on the basis of any factor other than those recorded or referred to in the emails. He states that at no time did he make any credit sanctioning decision in relation to Daleport or any other borrower on the basis of a concern about the solvency or cashflow of Bankwest, HBOSA or Bank of Scotland and that he never held any such concern.
It is plain from the evidence now served that Daleport's contention to the contrary will ultimately rest on any inference that can be drawn, based on contemporaneous documents, to undermine that express evidence. It is difficult to judge the likelihood that any of the categories of document sought will establish a basis for such an inference. On the one hand, Mr Auty's report (and Mr Ledger's affidavit) provides some evidence that there were solvency issues, certainly by the second half of 2008. In this context it is relevant to bear in mind the remarks of Lindgren J in Trade Practices Commission v CC (New South Wales) Pty Ltd at 437 that, where one party and not the other is likely to have documents relating to a matter in question, it may be regarded as "prima facie" necessary that discovery be ordered (subject to "the well- established exception that discovery should not be ordered to enable a mere 'fishing expedition'"). If the prospect of insolvency did inform lending decisions at Bankwest at the relevant time, documents relating to that issue would be exclusively in the possession of the Bank. Further, in an entity the size of Bankwest, it is not beyond contemplation that the existence of factual support for the funds allegation might be unknown to the persons who regarded themselves as the relevant decision-makers.
On the other hand, as submitted by Mr Castle, correlation does not equal causation. [1] The fact (if it existed) of looming insolvency at the time the Daleport loans expired does not of itself prove the truth of the funds allegation. The difficult question is to know the extent to which Daleport should be permitted to explore an issue which is based on some evidence and a rational process of reasoning but which is expressly denied by the relevant decision-makers and, albeit perhaps to a lesser extent, contra-indicated by surrounding events according to the evidence served to date.
[11]
Conclusion
Doing the best I can within that difficult framework, I consider it appropriate to take a pragmatic approach that best reconciles the tension between those competing considerations.
The documents sought by Daleport fall broadly into two types. First, primary documents are sought, evidently with a view to undertaking a kind of audit or broad enquiry into Bankwest's actual financial position during the relevant period. The scope of discovery of that kind sought by Daleport is large. I will refer to such documents as "audit-type documents".
Secondly, the request seeks board papers and other reporting documents of a kind likely to record management's view of reported results and solvency and liquidity issues.
I have concluded that, to the extent that Daleport's request seeks what I have termed audit-type documents, those documents are not sufficiently necessary, and are too broad and oppressive in scope, to warrant granting the request. However, I am satisfied that a small number of board papers and related reporting documents should be discovered. I turn to address the individual documents listed within Daleport's categories by reference to those conclusions.
The documents listed in Daleport's category (a) (loans to Bankwest and capital raised) are loan agreements between Bankwest and HBOS, documents relating to capital raised by Bankwest and documents showing customer deposits (categories 1, 2 and 3). Those are audit-type documents. I am not persuaded that the bank should be required to discover them.
Category (b) (loans made by Bankwest to customers of Bankwest) was acknowledged by Mr Auty in Pt 5 of his report to be "informative, but not of any constructive purpose" in determining the fact in issue. However, as noted by Ms Obrart, there is perhaps an ambiguity in Mr Auty's opinion on this question. Part 6 of his report confirms his opinion that the documents listed in categories 4 and 5 (documents showing aggregate loans to customers and schedules of repayment dates) are not relevant. However, he states that item 6 ("all documents showing aggregate amount of impaired loans of Bankwest for the months of The Dates and otherwise all documents evidencing the same") is relevant. I am not persuaded that Mr Auty considers that category to be necessary or of sufficient helpfulness and would in any event reject it as seeking audit-type documents.
Category (c) (capital adequacy, categories 7 to 18) seeks reporting documents of a kind which, in my view, are more pertinent to the resolution of the fact in issue. However, the range of documents sought is too broad and not sufficiently necessary.
Mr Auty noted that the documents listed in item 8 (all reports required by law to be provided by Westpac to APRA during the relevant period) have mostly been provided by the bank.
Item 9 is "Bankwest's Internal Capital Adequacy Assessment Process (ICAAP) document" for the relevant months. Mr Auty noted that such documents are usually produced on an annual basis as at balance date (here, 31 December). He said the documents specified by Daleport should be those that contain the ICAAP summary statement incorporating stress-testing outcomes as at 31 December 2007 and 31 December 2008, which he considered would evidence the extent to which Bankwest and its directors anticipated any liquidity or loan quality difficulties. I am satisfied that those annual documents should be produced for those two years.
Mr Auty considered that items 7 and 10 to 18 "represent valid requests that will be helpful in determining the matter at issue" being in the nature of reporting documents to the board or executive management. Although helpfulness is not the test, I accept from their description that such reporting documents might meet the test of being prima facie discoverable, subject to the issue of oppression or proportionality. Item 7 ("all documents including internal and external reports and communications to and from APRA showing Bankwest's capital adequacy ratios for the relevant months") is relatively confined and, in my view, should be discovered.
Items 10 and 11 seek minutes of Bankwest board meetings referring to, mentioning or discussing the capital levels or capital adequacy ratio of Bankwest for the relevant months and all minutes referring to, mentioning or discussing repayment by Bankwest of loans from HBOS plc or any related entity for the relevant months. In my view, those documents should also be discovered.
Items 12 to 18, however, make an extremely broad series of requests for communications including letters, emails and faxes referring to, mentioning or discussing various matters. Mr Bates' affidavit, although directed at generalities rather than specifics, has persuaded me that the breadth of those requests is disproportionate and that it would be oppressive to require the Bank to undertake that task. Those categories are rejected.
Category (d) (wholesale lending, items 19 and 20) seeks audit-type documents (communications referring to "the drying up of the wholesale lending market" and documents showing the amount of wholesale lending funds on loan to Bankwest). The bank should not be required to discover those categories.
Category (e) (sale and proposed sale of Bankwest, item 21) seeks: "all documents pertaining to the sale of Bankwest, including all documents evidencing why Bankwest was sold or was to be sold, all board meetings, minutes referring or relating to the sale of Bankwest, all correspondence to and from HBOS plc and any related entity related to Bankwest".
The documents pertaining to the sale of Bankwest may be expected to be very extensive and I do not think the request is appropriately honed to the fact in issue. I would, however, allow a category confined to board minutes and board papers. More specificity is provided in Pt 7 of Mr Auty's report, to which I now turn.
In Pt 7 of his report, Mr Auty suggested additional documents under category (b) (items 22 to 27). Those documents are audit-type documents and should not be required to be discovered.
Mr Auty also proposed additional categories relating to the sale and proposed sale of Bankwest (category (e)). Some of those would fall within the determination made above (that board minutes and board papers concerning this issue should be discovered). I accept that CEO notes and Chairman's notes would also fall within a relatively small compass and should be discovered. On that basis, I would allow item 31 (papers to and minutes from board meetings that considered the offer to Bankwest's shareholder by the CBA), items 32 to 37 (CEO and Chairman's notes), item 39 (presentation papers and minutes from CBA board meetings that approved the CBA offer for Bankwest) and items 43 to 48 (CEO notes and Chairman's notes). I would otherwise disallow the additional categories proposed as being too broad.
As already noted, a new category (f) (liquidity) was added by Mr Auty. Daleport had listed no documents under any such category. Mr Auty proposed 16 new items under that category.
A number of the new items relate to liquidity in the period July, August, September and October 2008. Mr Auty reasoned "the time horizon within which documents are being sought should be expanded to cover the period 1 July 2007 to 31 December 2008 as the major stresses upon liquidity and capital for Australian banks occurred towards the latter part of 2008 and the acquisition of Bankwest by CBA also occurred in the latter part of 2008".
However, as submitted by Mr Castle, it is still necessary to make the relevant connection with the decision-makers in this case. In the absence of any such connection, consideration of Bankwest's liquidity position after June 2008 could only involve hindsight reasoning. In addition, a number of the new categories seek audit-type documents.
I accept that liquidity is potentially an important indicator of lending practices during the relevant period and on that basis, as already indicated, would accept that discovery should be given of board papers and other reporting documents of a kind likely to record management's view of liquidity issues.
On that basis, I would confine the additional categories proposed by Mr Auty to item 54 (board papers in relation to funding and liquidity) and item 60 (executive committee papers in relation to funding and liquidity).
For those reasons, I order the plaintiff to provide discovery of the documents specified in items 7, 9, 10, 11, 31-37, 39, 43-48, 54 and 60 in Mr Auty's report. I direct the parties to bring in short minutes within 3 days addressing future steps in the proceedings.
[12]
Endnote
See generally Tyler Vigen, Spurious Correlations (2015, Hachette Books)
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Decision last updated: 24 November 2017