Practice and procedure - Discovery from non-party - Principle to be applied - Costs of application - Approach of Court

Rules of the Supreme Court 1971, O 26A r 5 and r 7

Deposit & Investment Co Ltd (Receivers Appointed) v Peat Marwick Mitchell & Co (1996) 39 NSWLR 267

Fuel Express Ltd v L M Ericsson Pty Ltd (1987) 75 ALR 284

Mancorp Ltd v Baulderstone Pty Ltd T/as Baulderstone Hornibrook, unreported; SCt of SA (Bell J); 5 March 1993

Mulley v Manifold [1959] HCA 23; (1959) 103 CLR 341

Pyramid Building Society (In Liq) v Farrow Finance Corporation (In Liq); Ex parte Farrow, Clarke & Lawson [1995] VicRp 30; [1995] 1 VR 464

1 MASTER SANDERSON: This is an application by the plaintiff for an order for non-party discovery brought against WMC Resources Ltd ("WMC"). The application is made under the provisions of O 26A r 5. That rule is in the following terms:

(1) If there are reasonable grounds for believing that a person who is not party to an action ('the non-party') had, has, or is likely to have had or to have, possession of documents that relate to any matter in question in the action, a party to the action may apply for an order under this Rule.

(2) The application shall be supported by an affidavit and a copy of both shall be served on the non-party and the other parties to the action.

(3) On the application the Court may order the non-party to give discovery of all documents that are or have been in the non-party's possession and that relate to any matter in question in the action."

2 The facts in this case are somewhat unusual. By a contract dated 30 January 1997 the plaintiff undertook to design and construct certain tanks for WMC. These tanks were to be fitted to rail wagons and were to be used for carrying sulphuric acid. When the design and construction was complete the tanks were found to be defective. WMC made a claim against the plaintiff for defective workmanship. After some discussions between the plaintiff and WMC, the plaintiff passed the claim onto the defendant as the plaintiff's insurer. It appears that the defendants accepted liability and under their rights of subrogation have dealt directly with WMC. No proceedings have been issued by WMC in relation to the original tank design and construction.

3 In the course of dealing with WMC's claim against the plaintiff, the defendant authorised certain repairs to the tanks to be undertaken by the plaintiff. It is alleged by the plaintiff that this engagement was by way of oral contract entered into on behalf of the plaintiff by its solicitors. A dispute has arisen in relation to that contract and that dispute is the subject matter of these proceedings. What the plaintiff now wants from WMC is correspondence and other documents passing between WMC and the defendant which detail the defects in the tanks. The summons in these proceedings is not couched in those terms. It is a general claim for discovery by the plaintiff against WMC. In that regard it is, in its terms, too wide. That was acknowledged by the plaintiff's counsel. I will have more to say about this aspect of the application below.

4 Each party to this application had filed an affidavit in support of their position. In the main, these affidavits annexe the correspondence passing between the parties' solicitors. Essentially, the plaintiff's solicitors had written to WMC's solicitors seeking discovery. WMC's solicitors had responded by seeking to have the costs of providing any discovery met by the plaintiff. The plaintiff declined to guarantee WMC's costs and asserted that legal advice in relation to discovery was unnecessary and that it would be sufficient if, in the circumstances, WMC simply provided inspection of the relevant documents. I mention this correspondence only to show that the parties do not appear to have had a clear understanding of the proper approach that should be adopted in relation to applications of this kind. While not wishing to criticise either party, it would seem to me that the approach taken by the plaintiff was, with respect, unreasonable in the circumstances. Before detailing the reasons why I have reached that conclusion, it is appropriate if I outline the principles that govern an application of this kind.

5 It is generally unwise to attempt to offer firm guidelines in relation to any interlocutory matter. It is axiomatic that each application must be decided on its merits and interlocutory applications are, by their nature, diverse. But some principles are of general application.

6 First, a party who is satisfied that there are reasonable grounds for believing a non-party has documents in their possession which may relate to a matter in issue in the action should write to the non-party specifying what documents are sought and alerting the party to the possibility of an application under O 26A r 5. Following on from that, the party and the non-party should attempt to resolve the issue without recourse to the courts. This approach is, it seems to me, required by the provisions of O 59 r 9.

7 Secondly, if an application to the court is required, the chamber summons ought specify with a high degree of precision what documents are sought by way of discovery. A non-party cannot be expected to understand fully the nature of the dispute between the parties to the action. The non-party may have some knowledge of the dispute and in some cases this knowledge might be quite detailed. But the intricacies and the nuances of the dispute will almost always be beyond the knowledge of the non-party. In that sense, a general order for discovery is unlikely to be made because it might well be unfair to the non-party. If the non-party does not understand the nature of the dispute they may inadvertently fail to comply with the terms of a general order.

8 Thirdly, the phrase "relating to any matter in question" in r 5 means all documents which might throw any light at all upon the questions at issue in the proceedings: see Verdell Pty Ltd v F & G Nominees, unreported; SCt of WA; Library No 970588; 5 November 1997. It is frequently alleged by non-parties that the application is "fishing". That may well be the case. But once the documents are defined with sufficient precision then those documents which may either directly or indirectly enable the party requiring the affidavit either to advance his or her own case or to damage the case of his or her adversary are to be discovered. The test set out in Peruvian Guano applies. The documents to be discovered include those which relate to a matter in question. The actual class of documents may be limited by the order. But unless there is a further order limiting the scope of the discovery, the general rules apply.

9 Fourthly, the order when made relates to an affidavit of discovery. A party who claims privilege may do so in the usual way. If the claim for privilege is disputed or the adequacy of discovery is questioned then this can form the subject of a further application: see, generally, Todd v Novotny [1999] WASC 28.

10 Fifthly, a party who is required to give discovery under O 26A r 5 will, as a general rule, be entitled to costs. This may cover the cost of the application itself, but will almost invariably cover the costs of taking legal advice in relation to the application and the costs of actually giving discovery. Each of these separate areas requires, perhaps, further explanation.

11 A non-party has, prima facie, no obligation to allow any other party access to documents they may hold. If the applicant, by written notice to the non-party specifies with precision the documents it seeks to have discovered, offers to pay the non-party's reasonable costs of obtaining legal advice and of providing discovery and offers the non-party a reasonable time to comply with the request then if an application to the court is still required the non-party may be denied its costs. However, if, even after written notice by a party to proceedings, the non-party expresses reluctance to provide discovery on grounds which are not wholly spurious then, even if an order for discovery is made, the non-parties' costs of the application ought be paid by the applicant. Of course, each case will depend upon its merits and this is perhaps more true in relation to costs than otherwise. But still, as a general rule, the costs of the application ought be borne by the applicant.

12 In relation to legal advice, it would be wholly unreasonable to expect a non-party who is called upon to give discovery not to consult solicitors. To do so would run the risk of failing to comply properly with any order and perhaps swearing an affidavit which was inaccurate. The reasonable costs of the non-party taking legal advice ought be paid by the applicant. The costs associated with actually giving discovery, that is compensation for time spent collating documents, assessing relevance and otherwise preparing the affidavit of discovery should also be paid by the applicant. In relation to all three of these costs aspects of the application it needs to be borne in mind that the non-party is before the court to potentially benefit the applicant in the litigation. There is no question of the non-party intruding upon the legal rights of the applicant. There is, then, no basis for allowing the non-party to suffer a pecuniary penalty consequent upon the application.

13 Finally, security for costs both of the application and of complying with any order made can be made as a precondition to the giving of discovery. This is specifically dealt with in O 26A r 7(1). If the non-party wishes to take advantage of this order then affidavit evidence as to the extent of the discovery, costs incurred up to the date of the application and an estimate of the costs likely to be incurred in complying with any order ought be put before the court. This, of course, can be the subject of challenge, at least as to amount, by the applicant. Without the provision of this evidence, the non-party runs the risk of an order being made with a costs order for which there is no security.

14 Having set out those general principles, I should emphasise again that I am in no way attempting to set down definite guidelines. It is also important that statement of general principles is seen to flow from what is contained in r 5 and r 7 and not seen as putting a gloss on the rules. There is always the potential for argument as to whether or not the applicant has reasonable grounds for believing that the non-party had, has or is likely to have had or to have possession of documents that relate to any matter in question in the action. The onus here rests on the applicant and that evidentiary onus has to be discharged by an affidavit in support of the application. My comments are directed at the way in which the court is likely to deal with any application properly made.

15 Returning then to the facts of this case, there is really no dispute that the plaintiff has reasonable grounds to believe that WMC may have in its possession documents that relate to a matter in question between the plaintiff and the defendant. What the summons does not do is identify precisely what documents the plaintiff wants discovered. Counsel for the plaintiff suggested that this emerged from the correspondence between the parties. Having read the correspondence, I am not satisfied this is the case. There is some attempt by the plaintiff to define the documents it wants discovered but in my view it has not provided anywhere near enough precision. At the conclusion of the hearing I invited counsel for the plaintiff to provide an amended chamber summons which sets out the class of documents to be discovered.

16 It also seems to me that this is a case where the applicant should pay the costs of the non-party in relation to the application, in relation to the provision of legal advice touching and concerning the application and the costs associated with giving discovery. There is nothing in the affidavit material to indicate the amount involved. I invited counsel for WMC to provide affidavit evidence in this regard and I indicated that I would then order security be provided as a precondition to any order. That seems to me to be appropriate in the circumstances of this case. There is no suggestion that at any time in the future the plaintiff will issue proceedings against WMC. There is no basis upon which it could do so. In the circumstances, I see no grounds for departing from what I would regard as the general rule with respect to costs.

17 There is one matter that I should mention which does concern the question of costs. Counsel for the plaintiff referred to the provisions of the Tank Supply Contract. A copy of the Tank Supply Contract appears as Annexure "KCS1" to the affidavit of Kevin Colin Staffa, sworn 12 April 1999. In cl 1.1 "Dispute" is defined to mean:

" ... a dispute in relation to this document or the Work and includes, without limitation, any dispute as to breach or termination of contract or any claim in tort, in equity or pursuant to any statute."

18 It was submitted by the plaintiff that there was a dispute between the plaintiff and the non-party in relation to the Tank Supply Contract. It was then submitted that under the provisions of cl 12.1(b) the plaintiff was entitled to all relevant documentation from the non-party. Clause 12.1(b) is in the following terms:

"If a Dispute arises and one party requires it to be resolved, then that party must promptly give to the other party written notice identifying adequately, and providing details of, the Dispute."

19 With respect to the plaintiff's counsel, I cannot see that the Tank Supply Contract has any relevance at all to this application. It is an open question whether a dispute has actually arisen between the plaintiff and WMC in relation to the Tank Supply Contract. The evidence, such as it is, suggests that the defendant as insurer of the plaintiff has met the claims made by WMC. There is a suggestion in the correspondence that WMC may sue the plaintiff for breach of the Tank Supply Contract, but there is no evidence that notice has been given under cl 12.1(b) of the Agreement. In the circumstances, there cannot be any obligation on WMC to provide any information to the plaintiff. In any event, if such a contractual obligation has arisen its enforcement would require an action by the plaintiff against WMC. This is an application for discovery from a non-party and it stands apart from any action that might or might not be taken by either of the parties against the other.

20 I will hear counsel as to the precise form of the orders.