Dresna Pty Ltd and Ors v Misu Nominees Pty Ltd and Ors [2002] VSC 408

5. By summons dated 19 February 2002, Misu Nominees Pty Ltd ("Misu") and Kandara Pty Ltd ("Kandara") sought an order that the plaintiffs' notice to produce to them dated 12 February 2002 be set aside on the grounds that it constituted an abuse of process and further and in any event that it had been served at a point too soon in the proceeding. This matter was argued before me on 22 February 2002.

9. On 18 April 2001, Franklins announced that its Hong Kong based parent company, Dairy Farm International Holdings Ltd ("DFI"), was to commence a managed sell-down of Franklins in Australia. Prior to that announcement, Franklins was one of three major national supermarket retailers, operating over 280 stores throughout Australia.

12. On 6 June 2001, Franklins and Dairy Farm Management Services Ltd ("Dairy Farm"), a subsidiary of DFI, entered into undertakings with the Australian Competition and Consumer Commission ("the ACCC") in relation to the sale of its stores. Franklins agreed not to sell any of its stores to Woolworths Ltd ("Woolworths") or Coles Myer Ltd ("Coles Myer") or any of their related companies, without the approval of the ACCC. A process known as the Joint Independent Divestiture Alliance was set up by Franklins to facilitate the sale of Franklin's stores to independent supermarket retailers. By 11 December 2001, Franklins had sold approximately 145 of its stores to independent purchasers. Approval had also been given by the ACCC for limited sales of stores to Woolworths and a smaller number to Coles Myer. Approximately 30 stores had been closed and some 26 stores were still being operated by Franklins.

15. By a lease dated 22 November 1995, Misu and Kandara had leased certain premises at 81-93 Mentone Parade, Mentone ("the Mentone supermarket"), to FMS, a wholly owned subsidiary of Franklins, for a term of 20 years commencing 27 March 1995. Clause 9 of the lease stated the lessor's consent to an assignment was not to be unreasonably withheld provided that:

"9.1.1 The Lessee proves to the reasonable satisfaction of the Lessor that the proposed assignee is a respectable, responsible and solvent person or company of sound financial standing of comparable commercial standing to the Lessee who will conduct a business in the Premises falling in accordance with the Permitted use; ..."

19. Dresna Pty Ltd ("Dresna") is one of a number of companies controlled by Mr Leo Blake and his wife Mrs Rose Blake ("the Blake Group") which owned and operated five supermarkets in the eastern suburbs of Melbourne. By a business sale agreement ("the BSA"), made on 8 August 2001, Dresna purchased the business assets of Franklins located at the Mentone supermarket for a price to be calculated in accordance with the terms of the BSA (approximately $2.3 million). Settlement was scheduled to occur on 20 September 2001. The BSA provided for the assignment of the lease of the Mentone supermarket from FMS to Dresna. The BSA was conditional on the lessor of the Mentone supermarket consenting to the assignment. It provided that both the buyer and the seller "must each use their reasonable endeavours" to satisfy that condition. Either party was entitled to terminate the BSA by not less than two business days' written notice to the other party if the consent was not obtained on or before 13 September 2001.

22. The first request by FMS to Misu and Kandara for their consent to an assignment to Dresna (and a release of FMS from its obligations under the lease) was made on 13 August 2001. By letter dated 6 September 2001, the lessors' solicitors, Arnold Bloch Leibler, informed FMS that they did not consent to that proposal. A second request was made by FMS on 14 September 2001. That request sought an assignment to Dresna and a number of other companies in the Blake Group. It was supported by a bank guarantee of 12 months' rent and personal guarantees from Mr and Mrs Blake. FMS again requested that, on assignment, it be released from its obligations under the lease. Substantial financial information about the Blake Group was attached. By letter dated 24 September 2001, the lessors informed FMS that they did not consent to the assignment. A third request was made by FMS on 8 October 2001 for consent to an assignment to the Blake Group, but this time FMS did not seek to be released from its obligations under the lease. Again, the lessors refused consent.

25. By writ issued on 16 October 2001, FMS, Dresna, seven other companies in the Blake Group and Mr and Mrs Blake commenced proceedings against Misu and Kandara. Part of the relief sought by the then plaintiffs was a declaration that the refusals by the lessors to consent to an assignment were, or any one of them was, unreasonable. The solicitors acting on behalf of the then plaintiffs, Mason Sier Turnbull, were the firm which had previously acted for the Blake Group.

28. The proceeding came before me for the initial directions hearing on 19 October 2001. The then plaintiffs sought an expedited timetable for a hearing which was refused at that stage, in essence because of the late notification to the defendants of that application and the claim by the defendants that, as a consequence, they were unable to comply with such a timetable. The affidavit in support of the application, the written submissions by counsel for the then plaintiffs and senior counsel for the then plaintiffs in argument all referred, as a ground for expedition, to the fact that either party to the BSA was at liberty to withdraw from that agreement, as the date by which consent to the assignment had to be obtained had passed.

31. On 5 November 2001, Misu and Kandara filed and served a defence and counterclaim. The counterclaim alleged that in breach of the lease, FMS had not operated the supermarket in a manner similar to the "Franklins Fresh" supermarkets in Victoria but had reduced its overall operations such that it was operating with no warehouse facilities and other necessary infrastructure. On 16 November 2001, I gave Misu and Kandara leave to file and serve an amended defence and counterclaim. This pleading expanded the breaches of the lease alleged against FMS to include failing to keep the premises in good and substantial repair and condition and to paint, whenever necessary and at least once every five years, the appropriate parts of the premises. It was made clear at that hearing that a trial of the proceeding in 2001 was an impossibility.

34. By letter dated 28 November 2001, Franklins' own solicitors, Home Wilkinson Lowry, notified the Blake Group's solicitors of termination of the BSA on seven business days' notice, due to Franklins and FMS being unable to obtain the lessor's consent to the assignment despite using their reasonable endeavours to do so.

37. It was subsequently disclosed to the Court that this proceeding had been commenced pursuant to an agreement reached between Franklins and FMS and the Blake Group, which as expressed in a subsequent proposed pleading on behalf of the members of the Blake Group, was said to be an agreement that:

"FMS and [Dresna] would commence a proceeding against the Lessor of the Franklins Mentone premises to procure the assignment of the Lease to [Dresna] in consideration of which the plaintiffs agreed to indemnify Franklins and FMS in respect of any costs incurred in the proceeding and to fund the cost of such action ('the litigation agreement')."

41. It was alleged in this pleading that, by virtue of the litigation agreement, FMS and Franklins could not terminate the BSA pending the resolution or determination of the claim against Misu and Kandara in this proceeding. There was also a claim in the proposed pleading against Misu and Kandara under the Trade Practices Act 1974 (Cth) for falsely representing that the reason for refusing consent to the assignment of the lease to Dresna was that clause 9.1.1 of the lease had not been satisfied whereas the true reason was that they had entered into an agreement with Coles Myer to lease the Mentone supermarket to it in the event that they were able to obtain a surrender of the lease.

44. On 10 December 2001, on the application of all of the then plaintiffs other than FMS, I made ex parte orders restraining FMS and Franklins from disposing of or dealing in any manner whatsoever with the Business as defined in the BSA and from disposing of or dealing in any manner whatsoever, other than in the ordinary course of business, with any of the Business Assets as defined in the BSA. I also ordered that FMS be restrained from surrendering the lease between Misu and Kandara and FMS. The applicants on that occasion were represented by new counsel and new solicitors. On 14 December 2001, I extended the injunctions until 18 December 2001. On 18 December 2001, I varied the injunctions and then extended them to 20 December 2001. On 20 December 2001, I dissolved the injunctions. Subsequently, the business assets of the Mentone supermarket were sold by Franklins to Coles Myer by a contract dated 24 December 2001. The sale was completed on 21 January 2002.

47. I made a number of other orders on 20 December 2001, which are relevant to the issues now before me. First, I ordered that FMS be removed as the firstnamed plaintiff and that the former second to eleventhnamed plaintiffs (hereinafter referred to as "the plaintiffs") have leave to add FMS and Franklins as defendants in the proceeding.

50. Secondly, I ordered that FMS and Franklins comply with the plaintiffs' notice to produce filed 17 December 2001 by producing to the plaintiffs' solicitors any documents referred to in that notice by 14 January 2002. That notice to produce, which had apparently been issued in an attempt to obtain evidence in support of the interlocutory injunction application, sought production of documents of Franklins relating to conversations or communications with any officers, agents or employees of Misu and/or Kandara and/or Coles Myer (or any related entity) concerning the assignment, transfer and/or surrender of the lease of the Mentone store between 8 August 2001 and 17 December 2001.

53. At the hearing on 20 December 2001, counsel for Franklins had objected to the short time within which to comply with the notice to produce, especially when Franklins was in the process of ceasing its operations. However, an affidavit sworn by Ms Mary Weir on 20 December 2001 was relied on by Franklins. In that affidavit, Ms Weir stated that Franklins did not have:

"any documents relating to any agreement entered into between Coles and Franklins (whether conditional or unconditional) for the sale by Franklins of the Mentone supermarket to Coles, or any negotiations in relation to the same matters between them, before the termination of the [BSA] ... on 28 November 2001, subject to two possible exceptions being: (a) a letter by Franklins on about 23 November 2001 to the ACCC requesting Franklins' release from the undertakings given to the ACCC concerning the Mentone supermarket; (b) a letter on about 28 November 2001 from Franklins' lawyers in Sydney (Gilbert & Tobin) to the lawyers for Coles (Allens) enclosing due diligence materials on a number of supermarkets, including the Mentone supermarket."

"After 28 November 2001, Franklins has some documents regarding discussions it has had with Coles since that date about the possibility of a conditional sale to it, subject to ACCC consent."

59. It seemed to me that the plaintiffs were entitled to full rather than partial compliance with the notice to produce by Franklins and FMS. The plaintiffs also wanted the opportunity to inspect the documents referred to by Ms Weir. Accordingly, I made the order referred to above. Documents in answer to that notice to produce were produced by Franklins and FMS on 24 January 2002.

62. Thirdly, I ordered that the plaintiffs prepare a proposed amended statement of claim and produce the same to the defendants by 1 February 2002 in anticipation of an application to seek leave to deliver the amended pleading. This last order was made because of the sustained attack which had been mounted by counsel for Misu and Kandara on the proposed further amended statement of claim which was before the Court on that day. In the light of that attack, counsel for the plaintiffs accepted the need for a redrafting of the claim, although they certainly did not accept all of the criticisms made.

65. I should also mention that before the Court on the hearing on 20 December 2001 were documents which Coles Myer had produced in response to a subpoena served on it. In addition, there was an affidavit sworn on 19 December 2001 by Ms Judith Wasser, a director of Misu and Kandara, in which she set out the history of her relationship with Coles Myer and exhibited several documents. The documents from those various sources revealed that in early June 2001, Coles Myer had approached Misu and Kandara indicating an interest in leasing the Mentone supermarket, if it were available. On 28 June 2001, Coles Myer reached an agreement with Misu and Kandara that, if the site became available, Coles Myer would lease it. That agreement preceded, of course, the BSA between Franklins and Dresna. On 6 September 2001, Coles Myer confirmed to Misu that there now was a binding agreement because the letter of offer of 28 June 2001 had been approved by its Board. On that same day, Misu and Kandara told FMS that Dresna did not meet the criteria for assignment. Ms Wasser denied that the response of Misu and Kandara to the three requests for assignment from FMS to the Blake Group had been influenced by "the deal" she had done with Coles Myer. She said that she had regard to the advice of her solicitor and the provisions of the lease. She believed that pursuant to the provisions of the lease, her companies were entitled to a national supermarket chain operator as a tenant. Ms Wasser also deposed that her deal with Coles Myer was expressly subject to any obligations which Misu and Kandara owed to FMS.

68. Also before the Court on 20 December 2001 was an affidavit of Mr Ian Cornell, the managing director of Franklins, which revealed that on 7 November 2001 he had been irrevocably instructed by Dairy Farm to cease operating any remaining Franklins stores on 31 January 2002. In addition, there were the documents referred to in Ms Weir's affidavit, which apparently established that before the BSA was terminated, Franklins had, on 23 November 2001, requested the ACCC to release Dairy Farm and it from the undertakings given to the ACCC concerning the Mentone supermarket, and that on the same day as the BSA was terminated, Franklins' solicitors in Sydney had, by letter headed "Project Noah (Colin) 4" sent due diligence materials in respect of a number of supermarkets, including the Mentone supermarket, to the solicitors for Coles Myer. Further, by letter dated 6 December 2001 and headed "Tranche 3", Coles Myer had written to Franklins confirming that it was carrying out due diligence on these stores for the purpose of "evaluating whether we wish to purchase these stores."

71. A further document produced by Franklins in answer to the notice to produce was relied on by the plaintiffs. This was an email between employees of Franklins dated 15 October 2001 about "Mentone-Blake." It read:

"Jo, Could you please let me know when you have managed to get Coles to call Sussan [sic] Herbert (Landlord Solicitor ...) about advising her client that Coles have no interest in this property. As advised on Friday, this looks like going full on legal if we don't quash their perceived options. thanks Alan".

"Alan, Mary has spoken to Coles. Coles have done a deal in principle here, based on vacant possession. Mary has told Coles that Franklins is going to litigate and hopefully scared them off with the threat of tortious interference, let alone jeopardising our deal with Coles on the whole. Jo".

It will be recalled that the date of this email was one day before the writ in this proceeding was issued. Counsel for the plaintiffs made much of this document as constituting evidence that there was an agreement between Franklins and Coles Myer in existence from 15 October 2001 at the latest. Counsel for Franklins strongly disputed the allegation arguing that it was based on a compete misreading of the letter. It is not necessary at this stage to choose between the competing interpretations and I say no more about them.

78. At the directions hearing on 8 February 2002, Mr Hayes, one of her Majesty's counsel, who now appeared for the plaintiffs, relied on an affidavit sworn the previous day by Mr Alan Foster, the new solicitor for the plaintiffs, in which he explained why no proposed amended statement of claim had been prepared as required by the orders made on 20 December 2001. Mr Foster said that new counsel had recently been briefed and that they had advised that further notices to produce to require the production of additional documents from both Misu and Kandara and Franklins and FMS should first be issued. Accordingly, Mr Hayes sought an order in respect of further notices to produce and "a small indulgence in terms of time for the pleading".

81. This order was not opposed by the solicitor for Misu and Kandara, but was opposed by counsel for FMS and Franklins on the basis that the plaintiffs should now plead their claim and not continue to delay advancing the matter through the interlocutory stage. Alternatively, FMS and Franklins sought a self-executing order in respect of the delivery of the amended statement of claim. I rejected these submissions and ordered that:

"Any notices to produce or application for discovery on behalf of the plaintiffs be filed and served by 4.00 p.m. on 12 February 2002 and such documents, if any, in response to the notices to be produced by 4.00 p.m. on 15 February 2002 or any application to the Court to be made returnable on 15 February 2002."

The time for compliance with the order requiring the preparation and production of the proposed amended statement of claim was extended to 22 February 2002.

87. Although it is a very long document, it is appropriate to set out in full the notice to produce addressed to FMS and Franklins. It required production of:

"1. All documents which refer to or the subject matter of which is 'Project Noah (Colin) 4' as that term is used in a letter dated 28 November 2001 by Gilbert & Tobin Lawyers addressed to Allens Arthur Robinson (copy attached - Letter 1). 2. All documents which refer to or the subject matter of which is 'Tranche 3' as that term is used in a letter dated 6 December 2001 by Coles Myer Ltd ('Coles') to Franklins Limited (copy attached - Letter 2). 3. All documents which refer to or the subject matter of which is the contract or agreement or negotiations relating to the purchase by Coles (or any subsidiary thereof) from Franklins Limited (or any parent or subsidiary thereof) of the Franklins Supermarket conducted at 81-93 Mentone Parade, Mentone, Victoria ('the Mentone Business'). 4. All documents which refer to or the subject matter of which is the contract or agreement or negotiations relating to the purchase by Coles (or any subsidiary thereof) from Franklins Limited (or any parent or subsidiary thereof) of the Franklins Supermarket conducted at:

4.1 Wangaratta, Victoria ('the Wangaratta Business');

4.2 Belmont, New South Wales ('the Belmont Business');

4.3 Auburn, New South Wales ('the Auburn Business');

4.4 Marden, South Australia ('the Marden Business');

4.5 Waurn Ponds, Victoria ('the Waurn Ponds Business');

4.6 Ingleburn, New South Wales ('the Ingleburn Business');

4.7 Hampton Park, Victoria, ('the Hampton Park Business'); and

4.8 Hillsdale, New South Wales ('the Hillsdale Business').

5. All documents passing between any director, officer or employee of Franklins Limited or Franklins Management Service Pty Ltd or Dairy Farms Management Services Limited with any director, officer or employee of Dairy Farm International Holdings Limited and/or Dairy Farm Management Services Pty Ltd which refer to or the subject matter of which is:

(a) Franklins Limited and/or Franklins Management Services Pty Ltd participating in a proceeding in the Supreme Court of Victoria against Misu Pty Ltd and/or Kandara Pty Ltd in relation to assignment of the lease of the premises at 81-93 Mentone Parade, Mentone to Dresna Pty Ltd and/or parties owned or controlled by Leo Blake and/or his wife.

(b) the proposed sale of the Mentone Business to Coles and/or any entity owned or controlled by Coles.

(c) the proposed sale to Coles of any of the businesses referred to in clauses 4 above.

(d) the timetable or proposed timetable by which Franklins Ltd and/or Franklins Management Services Pty Ltd would cease operating Franklins stores in Australia.

(e) any proposed sale to Coles of stores operated by Franklins Limited where there was a refusal or reluctance on the part of a respective landlord to accept an assignee proposed by Franklins Management Services Pty Ltd or a surrender of the lease by Franklins Management Services Pty Ltd.

6. Any documents passing between any director, officer or employee or agent of Franklins Limited or Franklins Management Services Pty Ltd which refer to or the subject matter of which is:

(a) Franklins Limited and/or Franklins Management Services Pty Ltd participating in a proceeding in the Supreme Court of Victoria against Misu Pty Ltd and/or Kandara Pty Ltd in relation to assignment of the Lease of the premises at 81-93 Mentone Parade, Mentone to Dresna Pty Ltd and/or parties owned or controlled by Leo Blake and/or his wife.

(b) the proposed sale of the Mentone Business to Coles and/or any entity owned or controlled by Coles.

(c) the proposed sale to Coles of any of the businesses referred to in clauses 4 above.

7. Any documents passing between any director, officer, employee or agent of Franklins Ltd and/or Franklins Management Services Pty Ltd with any director, officer, employee or agent of Coles and/or any subsidiary in the period 1 January 2001 to 12 February 2002 which refer to or the subject matter of which is:

(a) the timetable or postposed timetable by which Franklins Ltd and/or Franklins Management Services Pty Ltd would cease operating Franklins stores in Australia;

(b) any proposed sale to Coles of stores operated by Franklins Limited where there was a refusal or reluctance on the part of a respective landlord to accept an assignee proposed by Franklins Management Services Pty Ltd or a surrender of the lease by Franklins management Services Pty Ltd.

8. Any documents passing between Franklins Limited and/or Franklins Management Services Pty Ltd with any officer or employee of the ACCC between 1 January 2001 and 12 February 2002 which refer to or the subject matter of which is the sell down of Franklins Stores in Australia. 9. Any documents in the power control or possession of Franklins Limited or Franklins Management Services Pty Ltd, in the period 1 January 2001 to 12 February 2002, which refer to or the subject matter of which is an offer or an expression of interest by Coles to any Landlord of any premises in which Franklins Limited conducted a supermarket to either take a lease or an assignment of a lease in respect of such premises."

112. During the course of the hearing Mr Hayes made certain concessions about the width of this notice. Various drafting changes were discussed during the hearing and a more limited form of the notice was prepared by the plaintiffs following the hearing to clarify what was now being sought. However, counsel for FMS and Franklins maintained their objection, even to this more limited form of the notice to produce, which required production of:

"1. Any documents in the power, control or possession of Franklins Limited and/or Franklins Management Services Pty Ltd created after 1 April 2001:

(a) which constitute or evidence any agreement, arrangement or understanding between Franklins and Coles relating to a sale to Coles of the Franklins Mentone store (including any agreement or assignment, transfer or surrender of the lease relating to the store);

(b) which record or evidence any negotiations between Coles and Franklins after 1 April 2001 concerning any such agreement, arrangement or understanding for the sale to Coles of the Franklins Mentone store (including any agreement or assignment, transfer or surrender of the lease relating to the store);

(c) which records or evidences any discussion or communication after 1 April 2001 between Coles and Franklins in relation to the Franklins Mentone store;

(d) which records or evidences any discussions after 1 April 2001 between Franklins and Coles of any arrangement Coles has or is seeking to make with the lessor of the Franklins Mentone store.

2. Any documents in the power, control or possession of Franklins from 10 October 2001 which relate to Franklins participating in a proceeding in the Supreme Court of Victoria against Misu Pty Ltd and/or Kandara Pty Ltd in relation to assignment of the Lease of the premises at 81-93 Mentone Parade, Mentone to Dresna Pty Ltd and/or parties owned or controlled by Leo Blake and/or his wife. 3. Any documents in the power, control or possession of Franklins which:

(a) describes Project Noah (Colin) 4;

(b) describes Tranche 3;

(c) which records the parties to Project Noah (Colin) 4 or Tranche 3;

(d) which records or evidences the subject matter of Project Noah (Colin) 4 or Tranche 3; and

(e) which refers to the Franklins Mentone store in the context of Project Noah (Colin) 4 or Tranche 3.

4. Any documents in the power, control or possession of Franklins coming into existence after Dairy Farm first instructed Franklins to close down operations in Australia by 31 January 2002 (`the deadline') which records or evidences any discussions or communications:

(a) internally within Franklins and/or Dairy Farm;

(b) between Franklins and Coles;

as to how Franklins would comply with the deadline in respect of the Mentone store."

128. The notice to produce addressed to Misu and Kandara required production of:

"1. All documents dated, received or sent between 1 January 2001 and 12 February 2002, passing between any director, officer, employee or agent of the Landlords and any director, officer, employee or agent of Coles Myer Limited ('Coles') (or any subsidiary thereof) which refer to or the subject matter of which is: (a) any offer by Coles to Lease the Landlords premises at 81-93 Mentone Parade, Mentone; (b) any arrangement by which the Landlords would accept a surrender of Lease from Franklins Management Services Limited and enter into a Lease with Coles. 2. All documents passing between any director, officer or employee of the Landlords and their solicitors Arnold Bloch Leibler or Counsel retained by them, in the period 1 January 2001 and 17 October 2001 which refer to or the subject matter of which is: (a) advice given as to any arrangements or agreements to be entered into between the Landlords and Coles in relation to the Landlords premises at 81-93 Mentone Parade, Mentone. (b) advice given as to the effect or operation of clause 9 of the lease between the Landlords and Franklins Management Services Limited, dated 22 November 1994. (c) any request for any such advice in (a) and (b) above. 3. All documents dated or received or dispatched by the Landlords between 8 August 2001 and 17 October 2001 which refer to or the subject matter of which is inquiries made by the Landlords of or concerning Leo Blake, Dresna Pty Ltd or any other Plaintiff in the proceedings."

133. With that lengthy introduction, I turn now to a consideration of the submissions by the parties in respect of the notices to produce. It is convenient to deal with both applications at the same time as the submissions made by Mr Colbran, one of her Majesty's counsel, who appeared with Mr Fitzgerald of counsel on behalf of FMS and Franklins, and by Mr Nettle, one of her Majesty's counsel, who appeared with Ms Gordon of counsel on behalf of Misu and Kandara, were, although differently worded, largely to the same effect.

136. First, it was submitted by counsel for both sets of defendants that the notices to produce should be set aside because they were being improperly used by the plaintiffs to discover whether they had a case at all. It was common ground that the rules that apply to subpoenas also apply to notices to produce and I was therefore referred to the well known statement by Jordan CJ in Commissioner for Railways v Small[1] that a party:

"is no more entitled to use a subpoena duces tecum than he is summons for interrogatories for the purpose of 'fishing' that is, endeavouring not to obtain evidence to support his case but to discover whether he has a case at all."

The defendants also referred me to the decision of the Full Federal Court in Bailey v Beagle Management Pty Ltd ("Bailey")[2], where the following passage from Bray's Principles and Practice of Discovery was cited with approval:

"... The right to discovery is limited to supporting a definite case set up, and does not extend to fishing out a case from the opponent; and therefore a party cannot have discovery before he has stated his case, whether in the claim as plaintiff or the defence as defendant."

142. Secondly, the defendants submitted that the purpose of the procedure relating to notices to produce, as set out in r.35.08 of the Supreme Court Rules, was to provide a party with a means of having documents in the possession of an opposite party available to be used "on any application in or at the trial of the proceeding". The rule was not to be used where, as here, there was neither an application nor a trial.

145. Thirdly, the defendants argued that in the absence of a competent statement of claim it was not possible to determine whether the documents sought were relevant to any issue in the proceedings. The compulsive powers of the Court were only to be used to require production of documents relevant to an issue raised in the pleadings by the plaintiffs or the defendants. As was stated in the Outline of Submissions on behalf of Misu and Kandara:

"It is not, and never has been, proper for a party to proceedings to require production of any and every piece of paper which some other person (often a business rival) has in its possession in the hope that by trawling through those documents it may be able to cobble together a claim which it has not made."

Thus, it was clear that a notice to produce which seeks the production of documents that are not relevant to any question in the proceeding will be set aside. In the absence of a statement of claim there was no limit to the documents that could be sought by the plaintiffs. This was both fishing and oppressive.

150. Finally, the defendants contrasted the present unsatisfactory position with that prevailing under O. 32. Under that order it is possible to seek pre-action discovery to identify a party or to obtain information to commence a proceeding[3]. It is also possible in an existing proceeding to seek discovery to identify a party or to obtain information to add a claim[4]. But each of those procedures is conditioned upon a number of safeguards. Claims for preliminary discovery will not be allowed unless the applicant for discovery demonstrates that there is a reasonable basis for the court to believe that the applicant may have a good cause of action. And the application must be made on the basis of admissible material demonstrating not only the basis of reasonable belief but also that all reasonable enquiries have been made to obtain the information sought. If no more than "a flimsy foundation" is advanced, the application will be refused: Scarletti Pty Ltd v Millwood Printing Pty Ltd[5]; Schmidt v Won[6].

153. Mr Hayes, who appeared with Mr Martindale for the plaintiffs, objected to the applications to set aside the notices to produce on the basis that it subverted the order I had made on 8 February 2002. As he pointed out, I do not sit on appeal from myself. However, I do not consider that the applications by the defendants to set aside specific notices to produce subvert my earlier order. The defendants are not seeking to have the order of 8 February vacated. Although I should no doubt have anticipated the arguments that have subsequently been made, in my opinion, it is one thing to grant leave generally to the plaintiffs to file and serve notices to produce and another matter to deal with applications to set aside specific notices. Further, Mr Hayes subsequently conceded that if, in the light of the extensive arguments I had now had the benefit of hearing, I was of the view that the plaintiffs should deliver their proposed amended statement of claim before any further steps in the nature of discovery of documents were undertaken, then I could simply uphold the applications to set aside the notices to produce or excuse the defendants from complying with them.

156. However, Mr Hayes strenuously argued that I should not reach this conclusion. He submitted that it was a sensible course to allow the plaintiffs to find out, at an early stage, whether or not they really had a claim against the defendants. He stated that if it turned out that the plaintiffs' suspicions about the defendants' conduct were unwarranted, then they would not continue with the proceeding. Mr Hayes submitted that I had the power under the inherent jurisdiction of the Court to allow such a course and that I should prefer substance over form and avoid falling at the technical hurdles constructed by the defendants. He further submitted that a flexible approach such as he advocated was a particularly appropriate one in the Commercial List. In support of these propositions, Mr Hayes referred me to the decisions of the Court of Appeal in O'Callaghan v Generation Victoria[7] and Beach J in Equuscorp Pty Ltd v Malcolm ("Equuscorp")[8].

159. The first case was concerned with a notice to produce issued by Generation Victoria on applications seeking amendments to the pleadings in an action then reserved for judgment and leave to re-open the proceeding. The Judge at first instance ordered that the question whether the proceeding should be re-opened be determined first and made an order on the notice to produce calling on Mr O'Callaghan to produce certain of the documents. The Court of Appeal dismissed an application for leave to appeal from that decision. Strangely, counsel for the plaintiffs as well as for both sets of defendants relied on this case as supportive of their submissions. I was referred to a number of passages from the judgments of the members of the Court of Appeal. Charles JA said:

"It was submitted that this was not a proper occasion for use of the procedure under RSC r35.08, the rule being concerned with the production of documents for evidentiary purposes rather than providing some form of general discovery. ... Finally, and principally, it was submitted that most of the documents caught by the notice to produce were not relevant to the application to re-open and amend, ... ... I do not accept that the documents were relevant only on the trial of the issues raised by the amended pleadings and not as to the question whether the amendment should be granted, or indeed the antecedent question whether the case should be re-opened. Nor do I accept that this was an impermissible (though it may have been an unusual) application of r35.08."[9]

"... I reject the argument which was advanced by [counsel for Mr O'Callaghan] that the production of documents under r35.08 must be irrelevant to an application to amend a pleading, especially where the amendment is being sought after the conclusion of the trial and the whole case is under consideration awaiting judgment. I say nothing about the production of documents under r35.08 on an application to amend before trial, for that is simply not this case. In this instance the application for amendment, which was made in conjunction with the application for re-opening, was made more than 12 months after the conclusion of the trial, and I am by no means satisfied in those circumstances that the production of documents under r35.08 cannot be justified at the instance of the plaintiff, and in aid of its application to re-open and amend. ... Nor do I accept that the application for the production of these documents was tantamount to the plaintiff's seeking general discovery or simply fishing, which was the burden of much of the oral argument before us. ... It cannot be fairly be said that r35.08 was being used improperly to achieve discovery as such, or to fish. ... But [the] principal submission [of counsel for the gas producers] was that, unless and until pleaded, there was no issue about the dealings between the arbitrator and counsel, and so nothing to which the documents, even if relevant at trial, could yet be relevant. But this, I think, mistakes the basis of the order for their production. The judge was dealing with an application by the plaintiff to re-open with a view to amendment. On such an application so long after the conclusion of the trial, the plaintiff would surely have to establish, not only the significance of the amendment to the proceeding still on foot and that to allow the proceeding to be re-litigated on a fresh issue would not be unjust, but also that the plaintiff did not know, and perhaps that it did not have the means of knowing, its new case until after the trial was over."[10]

"I agree with Phillips JA and with Charles JA that these applications for leave to appeal should be dismissed. I agree, also, substantially with their reasoning, subject to the following matters. ... Thirdly, I am by no means satisfied that, in circumstances like the present, the use of a notice to produce under r35.08, and more particularly the making of an order for production under para(3) of that Rule, are ordinarily appropriate, again in proceedings in the Commercial List. To facilitate expedition in hearing and resolving disputes in that list ordinarily all evidentiary materials to be relied upon should be made available to all parties well in advance of the hearing, or at least notice given at directions hearings of any desire to seek and tender further evidence by means of subpoena or notice to produce, or otherwise. But there are exceptions to the practice, and it is a matter peculiarly for a judge in that List to resolve."[11]

167. As I understood the argument, Mr Hayes relied on the passages from the judgments of Phillips and Charles JJA as indicating that they favoured a flexible approach to the use of notices to produce. But, in my opinion, one cannot read too much into these statements. It should be remembered that in O'Callaghan v Generation Victoria[12] there was an application before the Court, the application to re-open and amend, and Phillips and Charles JJA were not persuaded that the documents sought were not relevant to that application. But that is not this case. Here, there is no application and no pleading of the claim.

170. On the other hand, counsel for both sets of defendants relied on the passage from the judgment of Ormiston JA quoted above. However, his Honour, whilst sounding a cautionary note about the use of r.35.08, was not considering the question I have to decide. Moreover, his Honour emphasised the ability of a Judge in the Commercial List to adapt orders to suit the occasion. It therefore seems to me that the Court of Appeal's decision does not provide the answer in this case.

173. The other authority relied on by Mr Hayes was Equuscorp[13]. This was also a case about notices to produce on an application for security for costs. In finding the notices to produce to be valid, Beach J said:

"... [I]n my opinion, the court has inherent jurisdiction to require a party to litigation to produce any document in his possession relevant to the litigation, including any application in the litigation, prior to the trial of the litigation or the hearing of any application in the litigation. Whilst the Rules of Court are designed to facilitate the disposal of litigation, they are not to be interpreted rigidly."[14]

177. I note that one reason given by his Honour for upholding the validity of the two notices to produce was that at a previous hearing counsel for the party seeking to set aside the notices had acknowledged that r.35.08 was applicable because there was an application for security for costs. The fact situation was similar to that in Bailey[15], where the notices to produce were also filed in connection with applications for security for costs. There were, therefore, no relevant pleadings, but the Full Court held that "for practical purposes the issues on the security application have been raised in the correspondence between the parties." The same could not be said about this case.

180. The other reason given by Beach J for upholding the validity of the notices to produce in Equuscorp[16] was, as the defendants submitted, not pursuant to r.35.08 but because the documents sought were documents in the possession of an opposite party in which both parties had a common interest at common law and they were "relevant to the litigation."[17] Once again, in the absence of a statement of claim, it is not possible to decide whether the documents sought by the notices to produce are "relevant to the litigation." It is unnecessary, therefore, to examine whether the plaintiffs "had a common interest at common law" in the documents sought.

183. Mr Hayes argued that it was well known and understood by the defendants what the plaintiffs' case was. However, this submission overlooked, in my opinion, the change in the way the case against FMS and Franklins was articulated orally by Mr Hayes during argument, from the way it had been pleaded in the proposed further amended statement of claim. Further, given that the plaintiffs had acknowledged problems with the pleading of the case against Misu and Kandara in the proposed further amended statement of claim it was not at all clear just how the plaintiffs' case against these defendants was now being put. Even though Mr Hayes had prepared a five paragraph summary of the plaintiffs' complaint about the conduct of Misu and Kandara, this still was not a properly pleaded claim.

187. After giving the matter lengthy consideration, I have decided that I should accept the defendants' submissions. Whatever might have once been thought to be the attractions of allowing the plaintiffs to seek out further documents before formulating their claim, I am now satisfied that it would be quite wrong to allow these notices to produce to stand before there is a competent statement of claim in existence. The rules and procedures of the Court have not stood the test of time without good reason, and it is now appropriate that their requirements be followed in this case. Further, without wishing to be too definite or rigid, it seems to me that even in the Commercial List one should normally follow the accepted procedure of pleadings followed by discovery. If there are exceptions to this practice, I do not consider that this proceeding is a suitable example.

190. Further, the notices to produce are clearly fishing and oppressive in the sense that, because there is no statement of claim, it is not possible to decide whether or not the documents sought are relevant to any issue in the proceeding. They are also oppressive, in my opinion, because they potentially require production of an exceedingly large number of documents, although one cannot be sure about this because of the lack of a statement of claim.

193. It is, therefore, unnecessary for me to consider the separate question of whether Misu and Kandara had waived their legal professional privilege in respect of the documents sought in paragraph 2 of the notice to produce addressed to them.

196. In the circumstances, it seems to me that the appropriate order is that the notices to produce be set aside rather than excusing the defendants from complying with the notices. This is a cleaner way of bringing this particular dispute to an end. The orders I propose are that:

1. The plaintiffs' notice to produce dated 12 February 2002 to the first and secondnamed defendants be set aside.

2. The plaintiffs' notice to produce dated 12 February 2002 to the third and fourthnamed defendants be set aside.

I will hear from the parties in respect of other orders and directions.

[1] (1938) 38 SR(NSW) 564 at 575

[2] [2001] FCA 60; (2001) 105 FCR 136 at 143-4

[5] Unreported 28 July 1994, per Phillips CJ, Crocket and Southwell JJ.

[6] [1998] 3 VR 435 at 445 per Ormiston JA.

[8] [2001] VSC 308

[13] [2001] VSC 308

[14] [2001] VSC 308 at [28]- [29]

[15] [2001] FCA 60; (2001) 105 FCR 136

[16] [2001] VSC 308

[17] [2001] VSC 308 at [25]- [28]. See also Brown v Liell (1885) 16 QBD 229 which is referred to by Beach J.