Di Maggio v Westpac Banking Corporation Ltd trading as St George Bank Ltd

THAWLEY J: 1 By originating process filed on 7 May 2018, the applicant sought an order under r 7.23 of the Federal Court Rules 2011 (Cth) (FCR) for pre-suit discovery of a contract between the prospective respondent (Westpac) and Finance & Systems Technology Pty Ltd (FAST). 2 The applicant said he reasonably believed that he may have the right to obtain relief from the Court for misleading and deceptive conduct by Westpac contrary to s 18 of the Australian Consumer Law (ACL), as set out in sch 2 to the Competition and Consumer Act 2010 (Cth).

BACKGROUND 3 The applicant was a mortgage broker. Under an Individual Credit Representative Deed entered into on 9 April 2015, the applicant was a 'credit representative' of BLSSA Pty Ltd. FAST is an agent for BLSSA that provides aggregation services for mortgage brokers. The applicant was accredited by various panel lenders through FAST and BLSSA for the purposes of brokering mortgages. Westpac, as a FAST panel lender, had accredited the applicant. 4 The applicant was accredited by Westpac up until 2 December 2015. By letter dated 2 December 2015 (Termination Letter), St George Bank Ltd (a division of Westpac) terminated the applicant's accreditation. The Termination letter included: We advise that we hereby terminate the accreditation of Adam Di Maggio. This is pursuant to clause 8.4 of our agreement [the contract]. This is effective immediately. Please note this will not effect [sic] any loan applications presently being processed. However we will not accept any further applications from the date of this letter. 5 By letter dated 15 December 2015 (Separation Letter), FAST terminated its association with the applicant. The Separation Letter included: I would like to advise that Adam Di Maggio will no longer be associated with FAST with effect from 16 December 2015 and is free to transfer current lender accreditations. 6 The applicant submits that: (1) it is standard in the industry for a broker (such as the applicant) leaving an aggregator (such as FAST) to be given a separation letter that will state that the broker has "no adverse conduct" in circumstances where the broker has complied with their agreement and presumably has not been guilty of relevant misconduct; (2) without words in a separation letter indicating that the broker has "no adverse conduct", the broker will effectively be unable to transfer lender accreditations to new aggregators, with the consequence that this effectively prevents the broker from working in the industry. 7 The applicant submits that FAST relied on the absence of a "no adverse conduct" notation in the Termination Letter from Westpac in not providing a similar notation in its Separation Letter. Alternatively, the applicant's case is that FAST understood from the Termination Letter and the circumstances in which it was issued that Westpac considered the applicant had been guilty of relevant misconduct and that was the reason for Westpac terminating the applicant's accreditation. 8 An affidavit of Mr Beaux Leeson filed on behalf of Westpac included: 7. When Westpac terminates the accreditation of a broker who holds accreditation with Westpac through an aggregator, Westpac does not have a practice or custom of providing brokers or aggregators with a letter that either: a) includes a notation which states that the broker has engaged in "no adverse conduct", or b) does not include that notation. 8. There are not two versions of the termination letter that Westpac could issue … 9 This does not directly deal with one of the applicant's points, which is that aggregators include the notation, not necessarily the panel banks. Even if Westpac, as a panel bank, does not include such notations, the applicant says that aggregators do. He gives evidence to that effect. There is no evidence against that except to the extent one might draw an inference from Westpac's evidence as a panel banker. I would not draw that inference. 10 FAST has identified the termination by Westpac of the applicant's accreditation as the reason for withdrawing any association with the applicant. A letter written on behalf of BLSSA and FAST dated 11 April 2016 stated that the Termination Letter from Westpac did not state the reason for termination "but the circumstances of its issue indicated that the reasons for the issue related to adverse conduct". The letter also stated that neither BLSSA nor FAST would consider dealing with the applicant whilst Westpac maintained its decision to withdraw its accreditation. This comment was repeated in later correspondence. 11 The applicant has identified one basis of his possible claim for relief in the following way: relief for misleading or deceptive conduct in that "by issuing the Termination Letter to FAST without including a 'no adverse conduct' notation, Westpac falsely represented to FAST that I had engaged in disreputable conduct as a broker" - see paragraph [52] of the applicant's affidavit. 12 At paragraph [53], the applicant also says: [T]he question of what representations were made by Westpac in the Termination Letter is likely to heavily depend on the contractual context, as between Westpac and FAST, in which the letter was issued and I do not have a copy of the contract in question. If, for example, clause 8.4 of the contract (being the clause cited by Westpac) refers to termination of a broker for misconduct then there would be a clear representation to FAST that I had misconducted myself as a broker. 13 Further, the applicant also says that he would be assisted in making a decision whether to commence proceedings by examining the contract because it would enable him better to assess the strength of Westpac's claimed defence. This submission arises in the following way. 14 By a letter dated 16 March 2018, the solicitors for the applicant sent a draft statement of claim and stated that proceedings would be commenced if certain demands were not met. The solicitors for Westpac responded on 29 March 2018 stating: The proposed Claim is misconceived. Adopting the definitions used in the Claim, we make the following observations: (a) the Termination Letter did not make any of the alleged Representations pleaded; (b) the Termination Letter merely advised FAST that our client was terminating the accreditation of your client, which our client had an express contractual right to do so under its agreement with FAST; and (c) in order to be successful in the Claim as pleaded your client would need to convince the Court that a party exercising its express contractual rights (under a contract to which your client was not a party) is engaging in misleading and deceptive conduct, which with all due respect is an absurdity. Any grievance your client has in relation to the termination of the Deed by FAST is in our client's view a matter between your client and FAST and not a matter that concerns our client. 15 Rule 7.23 of the FCR, which provides for what might be referred to as "pre-suit discovery", is as follows: (1) A prospective applicant may apply to the Court for an order under subrule (2) if the prospective applicant: (a) reasonably believes that the prospective applicant may have the right to obtain relief in the Court from a prospective respondent whose description has been ascertained; and (b) after making reasonable inquiries, does not have sufficient information to decide whether to start a proceeding in the Court to obtain that relief; and (c) reasonably believes that: i. the prospective respondent has or is likely to have or has had or is likely to have had in the prospective respondent's control documents directly relevant to the question whether the prospective applicant has a right to obtain the relief; and ii. inspection of the documents by the prospective applicant would assist in making the decision. (2) If the Court is satisfied about matters mentioned in subrule (1), the Court may order the prospective respondent to give discovery to the prospective applicant of the documents of the kind mentioned in subparagraph (1)(c)(i).

Wrong respondent 16 Westpac's first submission is that the applicant has the wrong respondent. It submits that the applicant is seeking third party discovery and its real complaint is against FAST. It refers to what Lindgren J said in Glencore International AG v Selwyn Mines Limited [2005] FCA 801 at [11]: … the person against whom the concluding words empower the Court to make an order is the person referred to in paras (a) and (c) and, by the expression 'that relief', implicitly in para (b) as well. That is to say, the provision does not allow for third party discovery: discovery may be ordered only against the person from whom there is reasonable cause to believe that the applicant is or may be entitled to obtain relief. 17 Westpac submits that it has no contractual relationship with the applicant. However, this is not to the point. The case the applicant is considering bringing against Westpac is not based in contract. His case is that Westpac engaged in misleading or deceptive conduct, or possibly engaged in such conduct, which caused FAST to disassociate from the applicant without issuing a letter which made clear that the dissociation was unrelated to any misconduct on the part of the applicant. The applicant's case does not depend on a contractual relationship with Westpac. This is explained further below. 18 It is a matter for the applicant to decide the nature of the proceedings he wishes to bring and the parties against whom he seeks relief. The applicant evidently takes the view that it is the conduct of Westpac, or might be the conduct of Westpac, which caused FAST to take the action which it did. 19 The question is whether the applicant reasonably believes the conduct of Westpac might be misleading or deceptive and might have caused FAST to act in the way it did.

Rule 7.23(1)(a) 20 Paragraph (a) of r 7.23(1) concerns the reasonableness of a belief that a right to relief may exist, not that it does exist: Pfizer Ireland Pharmaceuticals v Samsung Bioepis AU Pty Ltd [2017] FCAFC 193 at [8] (Allsop CJ); [119]-[120] (Perram J). 21 Perram J observed in Pfizer at [121]: In practice, to defeat a claim for preliminary discovery it will be necessary either to show that the subjectively held belief does not exist or, if it does, that there is no reasonable basis for thinking that there may be (not is) such a case. Showing that some aspect of the material on which the belief is based is contestable, or even arguably wrong, will rarely come close to making good such a contention. Many views may be held with which one disagrees, perhaps even strongly, but this does not make such a view one which is necessarily unreasonably held. Nor will it be an answer to an application for preliminary discovery to say that the belief relied upon may involve a degree of speculation. Where the language of FCR 7.23 relates to a belief that a claim may exist, a degree of speculation is unavoidable. The question is not whether the belief involves some degree of speculation (how could it not?); it is whether the belief resulting from that speculation is a reasonable one. Debate on an application will rarely be advanced, therefore, by observing that speculation is involved. 22 Westpac submits that the applicant's claim is based on untenable, irrational or baseless considerations because: (1) there is no industry practice that involves inclusion of a "no adverse conduct" notation in termination letters, as evidenced by Westpac only having a single termination letter that it sends irrespective of the reason for the termination of accreditation; and (2) any loss suffered by the applicant is the result of a misunderstanding by FAST and is not caused by any representation made by Westpac. 23 These submissions unduly narrow the scope of the applicant's belief in respect of his potential claim for relief and potentially misunderstand one aspect of the claim he is considering. In substance, the applicant's belief is: (1) the terms of the Termination Letter issued by Westpac conveyed a representation that the applicant had engaged in misconduct and that this was the reason Westpac had decided to terminate the applicant's accreditation; (2) FAST understood from the terms of the Termination Letter - which expressly mentioned clause 8.4 - that Westpac terminated the applicant's accreditation because of the applicant's misconduct; (3) because of that understanding, FAST terminated any association it had with the applicant and did so without stating in its Separation Letter that it was not doing so for reasons of misconduct; (4) the applicant had not engaged in any relevant misconduct; (5) the terms of the Termination Letter were therefore misleading or deceptive, causing FAST to act in a way which it would not otherwise have acted. 24 The potential misunderstanding, referred to in paragraph [23] above, is that it is not necessarily a part of the applicant's claim that it is industry practice that a "no adverse conduct" notation is ordinarily issued in termination letters from a panel bank to the aggregator. His case is that one is ordinarily included in a separation letter issued by an aggregator. However there is some confusion in that respect in that the applicant asserts both. 25 The letter dated 11 April 2016 written on behalf of FAST and BLSSA stated: The STG letter [Termination Letter] did not specify the reasons for that termination, but the circumstances of its issue indicated that the reason for the issue related to adverse conduct. 26 Whilst minds might differ on whether it is likely, it is not unreasonable to hold the belief that it is the terms of the letter, specifically the reference to clause 8.4, which is the circumstance or one of the circumstances which were taken by FAST to indicate adverse conduct on the part of the applicant being the reason for the termination of his accreditation. It may or may not be. Further, it may or may not be that the Termination Letter was in fact misleading or deceptive. However, that is not the question for the purposes of r 7.23(1)(a) which is focussed on the belief of the applicant and the reasonableness of that belief as to whether a right to relief may exist, rather than does exist. The applicant reasonably believes he may have a right to obtain relief from Westpac. 27 For those reasons, in my view r 7.23(1)(a) is satisfied.

Rule 7.23(1)(b) 28 Westpac, BSLLA, FAST and the applicant have engaged in correspondence over a two year period. In that time, the applicant has made a number of enquiries in relation to the Termination Letter and the reference to clause 8.4. These enquiries included requesting a copy of the contract. 29 The question of whether or not an applicant has sufficient information to make a decision whether to commence proceedings requires an objective assessment to be made: Matrix Film Investment One Pty Limited v Alameda Films LLC [2006] FCA 591 at [15] (Tamberlin J). 30 Bromwich J in Poole v Australian Pacific Touring Pty Ltd [2017] FCA 424 stated at [39(6)]: The notion that an order for preliminary discovery is no longer appropriate once a prospective applicant has sufficient information to meet the threshold of "a bare pleadable case" is fundamentally inconsistent with the purpose of the rule, which is concerned not just with reasonable belief as to the possible right to relief, but also with whether the cost and risk of litigation is worthwhile: Optiver at 443 [35]-[36]. It follows that the question posed by r 7.23(1)(b) is not whether the applicant has sufficient information to decide if a cause of action is available against the prospective respondent, but rather whether the applicant has sufficient information to make a decision whether to commence proceedings in the Court. 31 As noted above, in addition to whether or not the Termination Letter is misleading or deceptive, the contract is relevant to Westpac's proposed defence. Westpac contends it is absurd to suggest that the exercise of an express contractual right can constitute misleading or deceptive conduct. It relies on the contract as providing it a complete defence if proceedings were commenced in the form which had been proposed by the applicant. An applicant seeking an order under the rule may be entitled to discovery in order to determine whether defences are available to the prospective respondent and to examine the strength of those defences: St George Bank Ltd v Rabo Australia Ltd [2004] FCA 1360; (2004) 211 ALR 147 at [26] (Hely J), cited by the Full Court in Bonham v Iluka Resources Limited [2017] FCAFC 95 at [64]. 32 Westpac relied in particular on the decision of Lindgren J in Alphapharm Pty Ltd v Eli Lilly Australia Pty Ltd [1996] FCA 1500 at [41], [45] and [50]. At [41(2)] his Honour stated that: Although I need not explore the subjective aspect fully, it seems clear that if the evidence went so far as to show that a particular applicant was already able to decide to commence a proceeding by, for example, showing that the applicant had in fact decided to do so, para 6 (b) would not be satisfied even though the information available did not satisfy the objective aspect of the insufficiency test referred to below. 33 His Honour's comments were made in respect of the predecessor to r 7.23 - O 15A r 6 of the Federal Court Rules 1979 (Cth). Whilst not in identical terms, O 15A r 6(b) is in substantially similar terms to r 7.23(1)(b). 34 At [45], his Honour said: There is no clear evidence from any representative of Alphapharm to the effect that it is encountering a real difficulty in deciding whether to commence proceedings. 35 At [50], his Honour stated that on the facts of the particular matter before him: … it is difficult to avoid the conclusion that in seeking [p]re-action discovery, it is seeking to eliminate a possibility, rather than to obtain key information without which it is not able to decide whether to commence a proceeding. 36 Westpac submits that the applicant already has sufficient information to commence proceedings and also submits that the applicant has given instructions to commence proceedings. 37 The applicant submits that the question raised by r 7.23 is to be asked at the time of making the application. The fact that an applicant may have held a different view at an earlier time might be probative or might not be probative of the applicant's state of mind at the time of the application. I accept that an order made under r 7.23 is directed to the point in time at which the application is made or decided. The applicant has stated that, as of the date of swearing the affidavit on 4 May 2018, he does not have sufficient information to decide whether to start a proceeding of the type referred to. 38 The instructions to commence proceedings were given in relation to the statement of claim to which Westpac had asserted it had a complete defence. It was in response to the assertion by Westpac of the absurdity of the applicant's proposed case, said to arise by reason of the fact that the termination had come about under clause 8.4, that the applicant decided to seek to obtain the contract by way of pre-suit discovery rather than commencing proceedings. It is sufficiently clear that the applicant's instructions to commence proceedings changed to instructions to seek pre-suit discovery under r 7.23(1). 39 In my view, the applicant has established that, after making reasonable inquiries, he does not have sufficient information to decide whether to start a proceeding because the strength of his case involves the terms of clause 8.4 (and perhaps the contract more generally) and the contract is apparently relevant to the strength of Westpac's defence. These matters are relevant to the applicant's decision whether or not to embark upon the litigation.

Rule 7.23(1)(c)(i) 40 Westpac has or is likely to have in its control the document (namely the contract) which the applicant seeks. It is directly relevant to the question whether the applicant has a right to obtain the relief. It is apparently directly relevant to Westpac's defence. 41 Paragraph (c) requires that the applicant reasonably believes the prospective respondent is or is likely to have the document in its control. The applicant has clearly established that his belief is reasonable.

Rule 7.23(1)(c)(ii) 42 It is clear for the reasons above that the applicant reasonably believes that inspection of the contract would assist in making the decision whether to commence proceedings.

Discretion 43 There is normally little scope to refuse relief if the conditions of r 7.23 are satisfied: Optiver Australia Pty Ltd v Tibra Trading Pty Ltd [2008] FCAFC 133 at [45] (Heerey, Gyles and Middleton JJ). 44 There are no discretionary factors of sufficient weight to suggest the application should be refused, as Westpac appropriately conceded.

CONCLUSIONS 45 The Court orders that: (1) Westpac give discovery to the applicant of the contract referred to in paragraph (c) of the letter dated 29 March 2018, which is annexure ADM-22 to the affidavit of Adam Di Maggio sworn 4 May 2018. (2) Discovery under order 1 be given in the first instance to the legal representatives of the applicant only, by 5 pm on 4 September 2018. (3) Westpac propose appropriate redactions to the contract, such redactions to be communicated to the legal representatives of the applicant by 5pm on 4 September 2018. (4) The parties endeavour to reach agreement in relation to appropriate redactions by 7 September 2018 and submit if necessary a consent order reflecting their agreement. (5) Failing any agreement as contemplated by the immediately preceding order, the applicant take steps by 10 September 2018 to arrange to have the matter relisted for further argument.

costs 46 The applicant applied for costs in respect of his application under r 7.23. The applicant relied particularly on the decisions of McDougall J in Steffen v ANZ Banking Group [2009] NSWSC 883 and Perry J in ObjectiVision Pty Limited v Visionsearch Pty Limited (No 3) [2015] FCA 304. In both of those cases, their Honours considered authorities in which costs orders were made which were dependent on the initiation of the litigation and the outcome following discovery. 47 In Steffen, McDougall J expressed doubt as to the merit of such an approach and at [32] he stated he considered that "where an application for preliminary discovery is contested in an adversarial fashion, then the ordinary consequences of that decision should follow unless some good reason is shown why they should not". His Honour referred to the decision of Simpson J in Airways Corporation of New Zealand v Koenig [2002] NSWSC 521 and to the decision of Gyles J in C7 Pty Ltd v Foxtel Management Pty Ltd [2001] FCA 1864. 48 In ObjectiVision, Perry J referred to McDougall J's decision in Steffen at [21] and [22] and referred to the decision of Besanko J in Proctor v Kalivis (No 3) [2010] FCA 1194 at [17]. Besanko J there said: First, the jurisdiction to make an order for preliminary discovery is an extraordinary jurisdiction. There is a sense in which a respondent is entitled to remain passive until the applicant makes out a case for preliminary discovery: Glencore International AG v Selwyn Miners Limited (2005) 223 ALR 238 at 241 [15] per Lindgren J. Secondly, if the respondent does not take an adversarial approach to the application for preliminary discovery and in fact provides discovery then it may be appropriate to make the type of order sought by the respondents in this case [namely, a contingent costs order]. Thirdly, if the respondent does take an adversarial approach then it may be appropriate to order that it pay the costs caused by that adversarial approach: Re Steffen; Western Bulk Carriers (Australia) Pty Ltd v Cosco Bulk Carrier Co Ltd [2002] FCA 1520. 49 Perry J said at [23]: I consider that there is considerable force in the approach adopted in Proctor and Steffen in contested cases such as the present. I also consider that the exceptional nature of the jurisdiction remains a matter to be taken into account in determining costs and may lead to a closer scrutiny than might otherwise be the case of the extent to which a successful prospective applicant should receive its costs: cf Hughes at 48, 136 (Toohey J). 50 Westpac relied upon the decision of Bromwich J in Poole where his Honour made costs orders which were contingent and dependent on the institution of proceedings. His Honour did not refer to Steffen or Proctor. Although his Honour did refer to ObjectiVision, his Honour did not do so in respect of costs. 51 The applicant pointed out that the conduct of these proceedings by Westpac went beyond putting the applicant to proof of the requirements in r 7.23. The applicant submitted that the respondent adduced evidence in opposition to the application and actively sought to resist it. The applicant also pointed to the fact that at no point did the respondent provide the contract or attempt to provide information in respect of clause 8.4 or seek to provide the applicant sufficient information for him to consider whether or not to seek relief in this Court. 52 Westpac made the point that the contract was confidential. 53 In my view, the proceedings have been conducted in an adversarial manner sufficient to have the consequence that the applicant is entitled to his costs. 54 For those reasons, I order that Westpac pay the applicant's costs of the application. I certify that the preceding fifty-four (54) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Thawley.