First Plaintiff v Defendant

2 On 28 September 2012 a United States District Judge ordered that seven named individuals ("the proposed deponents") show cause on 7 November 2012 as to why orders should not be issued pursuant to 28 USC s 1782 of the Federal Rules of Civil Procedure and the Rules of the New York Court to the following effect:

1. Authorizing petitioners Pathway Investments Pty Ltd and Doystoy Pty Ltd ("Petitioners") to take discovery from the proposed deponents for use in the proceeding captioned Pathway Investments Pty Ltd and Doystoy Pty Ltd v National Australia Bank Limited, Court No. S CI 2010 6249 that is currently pending in the Supreme Court of Victoria at Melbourne in Australia (the "Australian Action") by issuing and serving subpoenas on each of the Proposed Deponents for examination by oral questions;
2. Directing the Proposed Deponents to comply with such subpoenas in accordance with the Federal Rules of Civil Procedure and the Rules of [the New York] Court;
3. Appointing Ralph M Stone and Susan M Davies to issue, sign and serve such subpoenas, and ordering that deposition testimony in this matter may be taken before any certified court reporter authorised to take testimony and administer oaths in the State of New York, and such court reporters are hereby authorized to take testimony in [the] matter; and
4. Providing that [the New York] Court shall retain such jurisdiction as is necessary to effectuate the terms of such subpoenas.

On 1 October 2012 Mr Varghese informed the solicitors for NAB that the plaintiffs had sought and obtained the order to show cause from the South District Court of New York and that on 7 November 2012 certain current and former employees of NAB, Ernst & Young and KPMG currently working in New York were required to show cause as to why orders should not be issued authorising the plaintiffs to take discovery from them for use in the Victorian proceeding by issuing and serving subpoenas on each of the proposed deponents for examination by oral questions.

3 NAB contends that the plaintiffs should be restrained from pursuing and participating in the proceeding in New York scheduled to commence on 7 November 2012. The plaintiffs correctly accept that the Court has jurisdiction to make orders of the kind sought by NAB but contend that the principles relevant to the exercise of that jurisdiction are governed by CSR Limited v Cigna Insurance Australia Limited[1] and that it should not be exercised on the facts of this case.

4 The reasons of the majority in CSR Limited explain that "stay orders and anti-suit injunctions are not governed by the same principles".[2] They are, to some extent, counterparts: the ability of a court to order a stay of its own proceedings being an aspect of the inherent or implied power of a court to prevent its own processes from being used to bring about injustice[3] and the grant of an anti-suit injunction being an aspect of the court's power to protect the integrity of its processes once set in motion by preventing parties from pursuing other processes in other jurisdictions.[4] Therefore, as was explained by the majority:

Although stay orders and anti-suit injunctions are not governed by the same principles, it will later become apparent that, in some cases, the power to grant anti-suit injunctions is an aspect of the power which authorises a court to stay its own proceedings. And it will also become apparent that, in other cases, the power to grant anti-suit injunctions should not be exercised without the court concerned first considering whether its own proceedings should be stayed.[5]

The majority judgment gave examples of the Court's power to prevent its processes from being abused, including what had been said by Gummow J, as a judge of the Federal Court, in National Mutual Holdings Pty Ltd v Sentry Corporation.[6] The majority made clear, however, that the inherent power to grant anti-suit injunctions was not confined to the examples given, saying:

The inherent power to grant anti-suit injunctions is not confined to the examples just given. As with other aspects of that power, it is not to be restricted to defined and closed categories. Rather, it is to be exercised when the administration of justice so demands or, in the context of anti-suit injunctions, when necessary for the protection of the court's own proceedings or processes.[7]

In that context, their Honours gave as "[o]ne well established category of case in which an injunction may be granted in the exercise of equitable jurisdiction [ ,.. ] that involving proceedings in another court, including in a foreign court, which are, according to the principles of equity, vexatious or oppressive".[8] Their Honours did not, however, limit the cases, or the principle, to that example.[9]

5 NAB maintains that the New York proceeding has a tendency to interfere with the proceeding in this Court sufficient to require the injunctions it seeks. In National Mutual Holdings Pty Ltd v Sentry Corporation,[10] a decision referred to with approval in CSR Limited,[11] Gummow J had said:

However, as their Lordships in Aerospatiale indicate, one tendency manifest in the decisions which indicate what provides sufficient equity to found the injunction, is a concern with the protection of the integrity of the processes of the domestic court. The conduct of foreign proceedings which have a tendency to interfere with the due process of the domestic court may, in the circumstances of a particular case, generate the necessary equity to enjoin those foreign proceedings as vexatious or oppressive.[12]

Senior counsel for NAB submitted that these principles had direct application to this case and that the institution of the New York proceeding, in express aid of the plaintiffs' case in this proceeding in Victoria, interfered with the due process of this Court in a way that was vexatious or oppressive. The submissions for NAB relied upon three reasons. First, that the plaintiffs in adopting the New York procedure to aid their case in this Court, had bypassed the supervision of this Court in a case managed list. Secondly, that to permit the New York proceeding to continue would materially prejudice NAB by disrupting its trial preparation and create procedural distortion in circumstances where NAB, but not the plaintiffs, is subject to the United States process. Thirdly, that there is no unfairness in restraining the plaintiffs.

6 I accept the submissions made on behalf of NAB. In general terms it may be accepted that a court does not "exercise any control over the manner in which a party obtains the evidence which [the party] needs to support [the party's] case",[13] and that it is for each party to obtain and present the evidence needed by the party's "own means, provided always that such means are lawful in the country in which they are used".[14] There is, of course, no suggestion that the plaintiffs' invoking the New York proceeding is unlawful or that it might not have been appropriate as part of the earlier process of case management for this Court to have made provision for its use as part of this Court's management of the dispute. The question is, rather, whether the plaintiffs' use of a process that is otherwise lawfully available to it, in the particular circumstances of this case, will have an impermissible tendency to interfere with the proceeding in this Court. There is, of course, no question about whether the proceeding in this Court should be stayed[15] since the continuation of the proceeding in this Court is the basis upon which the New York procedure is invoked.

7 The proceeding in this Court was commenced in November 2010. It had been preceded on 15 April 2009 by the plaintiffs' solicitors releasing a brochure entitled "NAB Class Action" indicating that they were investigating a potential class action against NAB on behalf of shareholders who purchased or acquired shares between 1 January 2008 and 24 July 2008. That was followed by media interest and a subsequent press release on 17 May 2010 by the plaintiffs' solicitors on their website stating that they were poised to launch a class action against NAB within four to six weeks in the Federal Court in Melbourne over NAB's failure to disclose its exposure to collateralised debt obligations during 2008. The proceeding was issued by the plaintiffs, at their election, in the Commercial Court of the Supreme Court in a judge managed list. The first directions was held on 20 January 2011 and a Statement of Claim was filed on 15 March 2011. Since then case management conferences have been held and detailed directions have been given for the specific, proper and efficient management of the case for a trial which has been set down for hearing to commence on 3 December 2012. The use by the plaintiffs of a procedure otherwise available to them in New York, or in any other jurisdiction for that matter, had not been the subject of any direction by this Court in its management of the case.

8 The process in the New York proceeding is unlike that ordinarily available in this jurisdiction. The taking of evidence by deposition in the New York proceeding is unlike discovery by oral examination under the rules of this Court where a party is permitted to serve interrogatories on another party with consent,[16] and unlike an order to obtain evidence by witness examination in advance of trial.[17] The deposition process sought to be used by the plaintiffs is, rather, in the nature of oral discovery. Mr Varghese explained in his declaration in support of the application the potential use of the depositions obtained from the New York procedure in the trial in Melbourne:

1. Deposition transcripts cannot as a matter of course be admitted as evidence of a witness at trial in a Victorian court. However, there are a number of uses that could potentially be made of deposition testimony in the Australian Action, subject to the rules of evidence, particularly those pertaining to hearsay. First, depending upon the nature of representations made, certain representations of persons within the scope of that person's employment or authority may be admissible as an admission of a party (Evidence Act 2008 (Vic) s 87(1)(b)). Secondly, documents containing previous representations by persons other than the witness can be shown to a witness and the witness asked whether he or she stands by the evidence given (Evidence Act 2008 (Vic) s 44). This process is maybe useful in relation to cross-examining NAB trial witnesses regarding communications that took place between the witness and the Proposed Deponents. Thirdly, written interrogatories could be administered to NAB as to the truth and accuracy of the contents of deposition transcripts (subject to such leave as is necessarily being obtained), and NAB's answers to such interrogatories could be tendered as evidence in the trial (Supreme Court (General Civil Procedure) Rules 2005 (Vic) r 30.11).
2. Finally, (and importantly) depositions of the Proposed Deponents would enable Movants to understand more fully relevant documents produced from NAB New York (such as documents containing spreadsheets and calculations relevant to valuations in the proceeding), circumstances surrounding those documents, relevant undocumented oral communications and the subjective knowledge and actions of various key players which would be of considerable assistance in cross-examining NAB witnesses even if the testimony itself were not sought or able to be adduced as evidence. This is of particular importance to Movants in circumstances where no written evidence or outlines of evidence is to be provided in advance of trial.

Senior counsel for the plaintiffs also relied in this context upon what Mr Varghese said in paragraph 15 of an affidavit affirmed by him on 19 October 2012 under the heading "Particulars and Interrogatories". In that paragraph Mr Varghese referred to the plaintiffs being put in a position where "they are unable to understand adequately the basis upon which the defendant puts its case and increases the likelihood of the plaintiffs' surprise at the initial trial" in circumstances where the plaintiffs have not been provided with an outline of evidence and NAB does not intend to call a number of potential witnesses who, on Mr Varghese's review of the defendant's discovery, would be capable of giving evidence probative of the facts in issue in the proceeding.

9 Some of the potential for interference in the proper conduct of the proceeding in Victoria can be seen from the reasons Mr Varghese advances of the benefits to the plaintiffs of the procedure in New York. I had previously made orders, upon hearing submissions from the parties, concerning the conduct of the hearing at trial and ordered that evidence was to be given viva voce and not by witness statement. NAB was, for its part, entitled to rely upon the consequences flowing from such an order and the plaintiffs, for their part, were at liberty to re-apply to vary any of the orders made for the conduct of the trial if they could establish the concerns asserted by Mr Varghese in his declaration and in paragraph 15 of his affidavit. To that extent, therefore, the basis upon which the plaintiffs justify their application to invoke the procedure otherwise available to them in New York arises directly from, and would alter, the consequence of the orders made in the management of this case in this Court.

10 Another aspect of the impact which the proposed depositions would have upon the conduct of the trial can be seen through another part of Mr Varghese's affidavit under the heading "NAB's preparation for depositions and flexible procedure". In that section of his affidavit Mr Varghese considered the need to deal with the situation created by the imminent trial date in Melbourne and the time needed for the depositions in New York to occur. The hearing on 7 November 2012 would not, of course, itself be the depositions of the proposed deponents. The depositions of the proposed deponents would necessarily occur on some future date. That would mean, therefore, that the plaintiffs, and NAB, would be involved in the task of "obtaining oral discovery", at best, immediately before, or, more likely, during the estimated period of the three month trial. Mr Varghese's solution to the inconvenience to the parties of evidence being obtained in New York during the period of the trial actually taking place in Melbourne was suggested in paragraph 24 of his affidavit when Mr Varghese said:

The trial of the Victorian Proceeding is set down to commence on 3 December 2012, running for two weeks to 13 December 2012 and then to recommence on 29 January 2012. That structure means that there is ample time in the court vacation period for the depositions to occur. The plaintiffs are content for the depositions to occur in that period.

What that suggestion would involve, however, is the unavailability to inform the Court, or to inform the parties in their preparation for the trial from the commencement of the trial, of the material which the plaintiffs seek to obtain through the depositions in New York. It is undesirable that a case commence in this Court on that basis. It is also undesirable that the parties be engaged in obtaining potentially substantial evidence in the way proposed by Mr Varghese after a full two weeks of hearing. It is no answer to say, as senior counsel for the plaintiffs did, that he anticipated that the plaintiffs' case would not be close to completion by 13 December 2012.

11 More significantly, however, NAB points to a substantial dislocation of its resources at a time close to the commencement of the trial. Mr Betts gave evidence for NAB on affidavit, and was cross-examined, concerning the impact on trial preparation of the continuation of the New York proceeding. Mr Betts is a partner in the litigation group of the defendant's solicitors and has the carriage of the proceeding on behalf of NAB together with one of his partners. He has conducted, or assisted in the conduct of, the defence of numerous class actions including eight complex shareholder class action proceedings. In his affidavit of 17 October 2012 Mr Betts described the dislocation that continuation of the New York proceeding is likely to create. The 'show cause' order was directed to seven proposed deponents of whom four were past or present employees of NAB. The three others were two KPMG advisors and an Ernst & Young advisor (although senior counsel for the plaintiffs informed the Court that the latter would no longer be the subject of depositions as he had returned to Australia and was no longer within the jurisdiction of the New York Court). The deposition process in New York for the remaining six proposed deponents would require legal advisors to assist the proposed deponents and, in view of the time, it would not be practical for new lawyers to be brought in. That would necessarily involve a diversion of resources currently allocated to the preparation of the trial due to start in Victoria in December. Mr Betts has given detailed and careful calculations of the amount of time he would expect to be taken in the process of the depositions in New York. His evidence distinguishes between the proposed deponents who were employees of NAB at the relevant time and those employed by Ernst & Young or KPMG. In total he estimated that some 380 hours would be involved in the process for preparation and attendances at the depositions of the NAB proposed deponents. That he estimated to include some 76 hours for document review, 144 hours for preparatory sessions, 56 hours for attendance at depositions and 104 hours in travel time for two persons making the return journey to New York. His estimate for the preparation for the depositions of the KPMG deponents would involve approximately 36 hours of junior solicitor time to review and collate documents and approximately 8 hours for a partner or junior counsel to prepare for the KPMG depositions. There would, in addition, be some 14 hours for attendance at the deposition hearings.

12 Senior counsel for the plaintiffs submitted that these estimates were bona fide but extravagant and that I should not accept them. I do not accept that the estimates are extravagant or that they should not be accepted as a proper estimate made by a responsible practitioner in the discharge of his duties to the Court under the Civil Procedure Act 2010 (Vic) and as an officer of the Court. I have no reason to reject the estimates and their calculation and the basis of explanation does not show them to be extravagant. The impact which the New York process is likely to have upon NAB's preparation and conduct of the trial is something which I consider to be an oppressive interference. A similar conclusion was reached in Allstate Life Insurance Co v Australia and New Zealand Banking Group Ltd (No 4)[18] where Lindgren J granted an injunction to prevent a party to litigation from taking oral deposition or participating in the taking of an oral deposition of a named individual in the United States pursuant to an order for discovery given by the United States District Court under 28 USC s 1782. The decision was referred to, without criticism, in Johnson Tiles Pty Ltd v Esso Australia Ltd (No 3)[19] where the judge in that case observed, as Lindgren J had said in Allstate, that whether conduct is to be regarded as vexatious or oppressive in a particular case is "always a question of fact".[20] In this case the facts satisfy me that the degree of interference of the proposed procedure in New York on the process of this Court in this case occasioned at this time in the context of a case managed by the Court is vexatious and oppressive.

13 It is unnecessary for me to consider other arguments which were raised in the application and it may be undesirable to go beyond the reasons which I have given as having persuaded me in favour of NAB's summons. Amongst the issues which I have not dealt with expressly, for example, is NAB's reliance upon the second aspect of oppressive conduct which found favour with Lindgren J in Allstate. In that case his Honour regarded it as a distinct aspect of oppressive conduct that there was a "disparity in the curial procedures available to the parties which would intrude in the proceedings" before him if the deposition was to proceed.[21] His Honour's observations on this aspect of the matter before him did not deal with the more general freedom of a party to secure evidence as it may "provided always that such means are lawful in the country in which they are used".[22] It may be, therefore, appropriate in many cases for a party to be permitted to rely upon curial proceedings available in another jurisdiction notwithstanding the disparity that may exist between the position of the different parties. If so, it is a step which would ordinarily be the subject of directions at an appropriate time in a judge managed case in this jurisdiction.

14 Another matter which I need not decide is the submission put by NAB concerning the relevance to the proceeding of the material which the plaintiffs seek to obtain by deposition. The point made by senior counsel for NAB was that the material was directed more to the value of the conduit notes and to NAB's knowledge or awareness of their value, rather than to what he called the provisioning allegations which were central to the pleading against NAB. It is, I think, undesirable to express a view about the issues raised by the pleadings if it is not necessary for the disposition of the case at this stage. To do so might conceivably put a party at an unnecessary disadvantage in respect of an issue which, if significant, should be the subject of full argument at trial. It may be sufficient to say for present purposes that I have assumed the point against NAB's submission and in favour of the plaintiffs, namely, that the material sought through the deposition process in New York was relevant to the plaintiffs' pleaded case.

15 The final matter upon which I should say something concerns a submission made by senior counsel for the plaintiffs to the effect that I ought not to make the orders as a matter of discretion because to do so would be futile. The futility was said to be in the fact that any order that may be made against the plaintiffs would not prevent another person seeking to invoke the deposition process. In that regard it was submitted that any other group member in the United States would be an interested person who could proceed to obtain the deposition orders if he or she persuaded a United States court to grant the same orders as had been obtained by the plaintiffs. The submission was made in the context of discretionary considerations and the observation in CSR Limited that the exercise of the power to grant injunctions to restrain foreign proceedings should be exercised with caution because of concerns about comity.[23] In that case the majority of the High Court held that the existence of an independent right to treble damages in the United States, not being a right available in Australia, was sufficient to take the United States proceedings outside that category of case in which the co-existence of foreign proceedings is properly to be viewed as vexatious or oppressive for the purposes of equity.[24] A conscious concern and awareness of the principles of comity may require that the exercise of caution results in a court refraining from exercising jurisdiction to issue an injunction where it might otherwise be available to be exercised. However, in this case what persuades me to exercise the jurisdiction is that the plaintiffs are purporting to use the foreign process in aid of the proceeding in this Court in circumstances where their doing so interferes with the proper preparation by the other party in the proceeding which is said to be aided by the New York proceeding. It is, therefore, the evidence of the interference with the process of this Court which justifies the cautious grant of the orders sought by NAB. I should, however, add that I do not express any view about the assumption upon which senior counsel for the plaintiffs made the submission. I am not to be taken, therefore, to accept or to reject the proposition that a person interested in the proceeding in this Court could, without sanction from this Court, institute the procedure sought by the plaintiffs in New York. Nor, of course, am I expressing any view about whether such an application would be granted or rejected by a United States judge.

16 Accordingly I will make the orders sought by the defendant's summons.

[2] Ibid 390 (Dawson, Toohey, Gaudron, McHugh, Gummow, Kirby JJ).

[3] Ibid 391 (Dawson, Toohey, Gaudron, McHugh, Gummow, Kirby JJ).

[5] Ibid 390 (Dawson, Toohey, Gaudron, McHugh, Gummow, Kirby JJ).

[6] (1989) 22 FCR 209, 232.

[7] CSR Limited v Cigna Insurance Australia Limited (1997) 189 CLR 345, 392 (Dawson, Toohey, Gaudron, McHugh, Gummow, Kirby JJ) (citations omitted).

[8] Ibid 393 (Dawson, Toohey, Gaudron, McHugh, Gummow, Kirby JJ) (citations omitted).

[10] (1989) 22 FCR 209.

[11] (1997) 189 CLR, 345, 391-2 (Dawson, Toohey, Gaudron, McHugh, Gummow, Kirby JJ).

[12] National Mutual Holdings Pty Ltd v Sentry Corporation (1989) 22 FCR 209, 232.

[13] South Carolina Insurance Co v Assurantie Maatschappij "De Zeven Provincien" N.V. [1987] 1 AC 24, 41 (Lord Brandon of Oakbrook).

[14] Ibid 42 (Lord Brandon of Oakbrook).

[15] CSR Limited v Cigna Insurance Australia Limited (1997) 189 CLR 345, 390 (Dawson, Toohey, Gaudron, McHugh, Gummow, Kirby JJ).

[16] Supreme Court (General Civil Procedure) Rules 2005 (Vic) r 31.02.

[17] Supreme Court (General Civil Procedure) Rules 2005 (Vic) Order 41.

[18] (1996) 64 FCR 61.

[19] [2000] FCA 495; (2000) 98 FCR 311, 321 (Merkel J).

[20] Ibid; Allstate Life Insurance Co v Australia and New Zealand Banking Group Ltd (No 4) (1996) 64 FCR 61, 72 (Lindgren J).

[21] Allstate Life Insurance Co v Australia and New Zealand Banking Group Ltd (No 4) (1996) 64 FCR 61, 70.

[22] South Carolina Insurance Co v Assurantie Maatschappij "De Zeven Provincien" N.V. [1987] 1 AC 24, 41-42 (Lord Brandon of Oakbrook).

[23] CSR Limited v Cigna Insurance Australia Limited (1997) 189 CLR 345, 396 (Dawson, Toohey, Gaudron, McHugh, Gummow, Kirby JJ).

[24] Ibid 395 (Dawson, Toohey, Gaudron, McHugh, Gummow, Kirby JJ).