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[2012] NSWSC 458
Supreme Court of NSW
2012-05-02
McDougall J
Original judgment source is linked above.
Judgment 1HIS HONOUR: In each matter there is an application pursuant to practice note SC Eq 11 (the practice note) for disclosure before the service of evidence. The two matters were heard together, with a third. The intention was that the operation of the practice note could be explored in differing factual circumstances, so that I could give one judgment dealing with both matters of general application and with the facts of each case. 2As it turned out, one of the three matters proved not to be ideal as a vehicle for the production of a consolidated set of reasons. It turned on circumstances which were completely distinguishable, and which in the result did nothing in reality to enable the elucidation of the practice note. It added nothing to what will follow in these reasons. 3Accordingly, these reasons now deal with two matters. I hope to illustrate the different ways in which the practice note may be applied, as well as at least some of the circumstances in which it may not apply.
The Practice Note 4The practice note represents an evolution of the court's attempts to deal with the burgeoning cost of litigation. I do not propose to deal in any detail with the way that the courts have sought to do so. It is enough to note that, as is notorious, the cost of discovery has become increasingly substantial, and a very significant contributor towards the overall cost of litigation. One of the reasons for that is, of course, the proliferation of records, particularly in the era of digital information. 5The process of discovery has been subject to attention on more than one occasion. The current position, under the Uniform Civil Procedure Rules, is that discovery is discretionary: UCPR r 21.2. If ever there was a "right" to discovery (and it will be necessary to look at this in considering submissions in one of the two cases), the structure of the rule makes it clear that there is no longer any such absolute right. 6Rule 21.2 operates by making the general approach to discovery one of discovery by categories. An order for general discovery was to be the exception rather than the rule. Nonetheless, partly because of the difficulties in agreeing on categories, and partly because, even if categories could be agreed, the expense of searching documentary databases to see what might fall within any particular category remained, in some cases, immense. Further revision of the court's approach to discovery was taken. 7The practice note represents the latest step in that process. Practice notes are made pursuant to s 15 of the Civil Procedure Act 2005 (NSW). They are, and for many years have been, a well recognised way of regulating, at least in the ordinary case, specific aspects of the court's procedures. It is clear, and uncontroversial, that one of the principal functions of practice notes is to assist in the achievement of the overriding objective of the Civil Procedure Act and of the Uniform Civil Procedure Rules, as set out in s 56 of the Act: to facilitate the just, quick and cheap resolution of the real issues in dispute in any proceedings before the court. 8Practice note 11 is brief. It applies to all new and existing proceedings in the Equity Division, with the exception of proceedings in the Commercial Arbitration List (paragraph 2). Paragraph 3 confirms that the practice note is intended to assist in achieving compliance with the overriding purpose. Paragraphs 4, 5 and 6 set out a general regime for what is now called disclosure of documents. Paragraph 7 enables the court, in an appropriate case, to limit recoverable costs incurred in respect of disclosure. I am not concerned today with, and say nothing about, paragraph 7. 9One of the matters of concern in the application of the practice note is meshing its operation with pre-trial preparation in cases that were under way when the practice note commenced, on 26 March 2012. Although paragraph 2 makes it clear that the practice note applies to such proceedings, neither it nor any other paragraph says how it is to be applied in such cases. Clearly enough, I think, that is a matter for elucidation on a case by case basis. I will say something about it later in these reasons. 10In very broad terms, the practice note applies in two separate situations. First, and as a general rule, orders for disclosure will not be made before the parties serve their evidence. There must be exceptional circumstances shown for this position not to apply (paragraph 4). Secondly, there will not in any event be an order for disclosure unless it is necessary for the resolution of the real issues in dispute (paragraph 5). In both cases, any application for an order for disclosure is to be made (presumably, on motion) supported by an affidavit (paragraph 6). 11I should state at this stage that nothing in the practice note, or for that matter in the rules, prevents parties to proceedings from agreeing and implementing, by consent and without any order of the court, a regime for or equivalent to disclosure. The practice note only applies where an order of the court is sought; but, where an order is sought, the practice note applies whether the order is sought by consent or not. That, to my mind, emphasises the role of the court in satisfying itself, at the appropriate stage, that disclosure is necessary. 12Since it does not arise in either of the cases with which I am now concerned, I leave for another day the question of whether the court might, in particular circumstances, lend its aid to the enforcement of purely consensual regimes put in place without any order of the court. 13The use of the word "disclosure", rather than the traditional term "discovery", seems to me to suggest that the practice note wished to make it very clear that, whatever may have been the traditional approach to production of documents in litigation, as between parties, there is a totally new regime in place. True it is that the practice note cannot override (in this case) r 21.2. But, as I have said, r 21.2 is discretionary in any event. The practice note is intended to set out the general approach that the court will take to the exercise of its discretion under the rule. Of course, it cannot be suggested that the practice note sets out in any exhaustive or definitive way the discretionary considerations that may be appropriate in a particular case. 14The general position is that disclosure is not to be ordered until after he parties have served their evidence. The reason for that is of course that the service of evidence will help to identify specific issues of fact which arise on the pleadings. The philosophy is that the issues, as they arise on the pleadings (and I use this expression even though it is strictly inappropriate to proceedings in the Commercial and Technology and Constructions Lists) will be elucidated and refined through the parties' evidence. It is expected that parties will know the case that they wish to bring, as plaintiffs or cross-claimants, and the cases that they wish to make out in defence, as defendants or cross-defendants. It is expected, too, that they will know the documents in their possession that are relevant to their claim, or defence, as the case may be. Thus, the expectation is, the exchange of evidence will narrow the real issues in dispute, enable identification of the factual issues, enable identification of at least some of the documents relevant to those factual issues, and enable the process of disclosure (if it is to be undertaken) to be very closely and carefully focussed. 15In this context, I repeat what Bergin CJ in Eq said in Armstrong Strategic Management and Marketing Pty Limited & Ors v Expense Reduction Analysts Group Pty Limited & Ors [2012] NSWSC 393, in particular at [65] and [66]. 16At [65], her Honour noted that the question of necessity for disclosure was to be assessed in the ordinary case once the evidence, including relevant documents in the parties' possession, was complete. At [66], her Honour noted that the ambit of disclosure is to be confined to the real issues as defined by both the pleadings and the evidence. Thus, her Honour concluded at [66]: "However it is envisaged that the process will engender a far more disciplined analysis of the need for disclosure by reference to those real issues, compared to the carte blanche gathering in of every document the respective clients have generated in their lengthy relationship for "review" by teams of lawyers and students in the absence of any knowledge of the proposed evidence." 17The application of the practice note is to be considered bearing in mind the objectives that it is intended to serve. However, where there are existing orders for discovery in place (whether general or by category), I do not think that the practice note should be treated as operating to discharge, abrogate or vary those orders. I shall return to this later. 18There are at lest two key concepts in the practice note. One is the concept of "exceptional circumstances" found in paragraph 4. The other is the concept of "necessity" found in paragraphs 4, 5 and 6. 19The concept of "exceptional circumstances" is not unique. It appears, for example, in UCPR r 31.28 (4)(a), dealing with reliance on experts' reports that have not been disclosed as required by earlier paragraphs of that rule. The cases on that rule and its equivalents and predecessors make it clear that there can be no all-encompassing definition of "exceptional circumstances". What is required is an assessment of the particular provision that specifies the need for such circumstances, and the rationale for that provision; and a consideration of the application of the provision in the particular case. However, there are a number of cases which suggest that exceptional circumstances must be something more than circumstances regularly, routinely or normally encountered; but at the same time, they need not be unique, or very rare. (See R v Kelly [2000] 1 QB 198 at 208.) 20As a matter of language, something is exceptional if it is out of the ordinary, or unusual. To my mind, the exceptional circumstances referred to in paragraph 4 of the practice note must be circumstances that are not normal, or usual; they must be something out of the ordinary; they need not be unique; but however one characterises them they are not "exceptional" at large, but "exceptional" because they necessitate disclosure. 21The related concept of "necessity" was considered by Ward J in the matter of Gerard Cassegrain & Co Pty Ltd [2011] NSWSC 241 at [20] and following. That case was concerned with the administration of interrogatories; something closely connected, at least historically, with discovery (both were obtained, before the Judicature Act system came into place, through bills in Chancery). At [22], her Honour noted that the concept of necessity should not be pitched so high as meaning "essential", but should be considered as referring to what was reasonably required to the achievement of a fair trial. At [23], her Honour said that "the accepted test of necessity is what is reasonably necessary for the disposing fairly of the matter or necessary in the interests of a fair trial." 22In the context of the practice note, the disclosure (either pre-evidence or at all) must be shown to be reasonably necessary for disposing of the matter fairly or in the interests of a fair trial. 23As I have indicated, the concept of necessity is focussed on resolution of the need for disclosure. It is not something to be answered by reference to wider concepts. Having said that, however, once the power to order disclosure is enlivened (because the test of necessity is satisfied), it may well be that there are wider considerations that are capable of bearing on the order to be made, in a particular case. Again, it is unnecessary to express any concluded view on this. 24I said that I would return to the application of the practice note. In so far as it applies to existing proceedings, there are at least three different categories that seem relevant. The first is proceedings where there is a regime in place for discovery, and where that regime is working out. As I have said, I do not understand that the practice note was intended to abrogate or discharge any such regime put in place pursuant to earlier orders of the court. Further, in this context, if the regime is working its way through but for some reason or other the parties have run into problems, I think that the court retains its power to assist the parties by putting the regime back on track, without going to the following paragraphs of the practice note. For example, where discovery has been given in existing proceedings, it seems to me that the court may still make orders, in an appropriate case, for further or particular discovery without having to conside, under paragraphs 4 to 6, the tests posed by those paragraphs. 25The second category is a case where a regime for discovery has been put in place by orders of the court, but which has been in effect overtaken by events or abandoned. In other words, the regime that was put in place has, one way or another, in substance lapsed. In such a case, it seems to me, it may be appropriate to try to get the regime working again; or it may be appropriate to abandon it and to move into the territory covered by the practice note. Again, that judgment will depend on the particular facts. 26A third category of case is where there was no discovery regime put in place before 26 March 2012. In those circumstances, it seems to me, there can be no real argument as to the application of the practice note. 27I turn now to the two cases, in respect of which that exceedingly lengthy introduction has been given.
Leighton v Hodges 28This is a dispute between parties who were in a relationship of employment (or who are said to have been in such a relationship). The plaintiffs say that one or other of them employed the defendant, Mr Hodges, and that in the course of that employment he acted in breach of express and implied terms of his contract of employment, and in breach of his fiduciary duties, in various ways. 29In short compass, the plaintiffs say that Mr Hodges was employed to supervise the construction of a barge to be used by one of the plaintiffs (or one of their associated companies) for the execution of a major contract in India. It is said that, in doing so, Mr Hodges acted in various ways, both by preferring in some respects his own interests to those of his employer, and by diverting resources (money and steel) from his employer's work to other projects in which he was interested. 30What is proposed in that case is that there be discovery before evidence of some 16 separate categories of documents, identified in a schedule to the notice of motion. 31It was submitted in that case, among other things, that there was a "right" to discovery. The submissions relied on the decision of the High Court of Australia in Commonwealth v Miller (1910) 10 CLR 472. Whilst I would not wish to be thought to be criticising anything said by the court in that case, it is sufficient to note that if ever there was an absolute "right" to discovery, that time has long passed. Rule 21.2 makes this clear. In any event, as it made clear in, for example, Bray's Law of Discovery (1885, rep. Legal Books 1981), the "right" was so hedged around with distinctions and fine technicalities, to the point where, in practical terms, it may be doubted whether there ever was an absolute right. 32Be that as it may, the categories of documents that are sought are documents going to the various activities in which, the plaintiffs say, Mr Hodges was involved. The suggestion is that the production of these documents will assist in some way in enabling the plaintiffs to prove their case. 33This is a case in which orders were made on 24 February 2012 for discovery by categories. Those orders required the parties to seek to agree on categories for discovery. They have not been able to do so. Mr Hatcher SC, who appeared with Dr Ward of counsel for the plaintiffs, said that this was because Mr Hodges had not engaged those obligations under the order. 34Mr Hatcher relied on the analogy with cases of fraud or conspiracy, submitting that discovery was commonplace in such cases. He pointed out, correctly, that Mr Hodges owed fiduciary obligations to whoever was his employer. 35However, as the evidence on the application developed, it became clear that the plaintiffs (or the Leighton Group generally) had carried out very detailed investigations of the activities of Mr Hodges of which complaint is now made. One of those was carried out internally. Two others were carried out by external consultants. It is apparent that the plaintiffs gathered a very large volume of material, including a very substantial body of documents, in the course of those investigations. 36Mr Hatcher submitted, in this case, that it was likely that the plaintiffs would wish to avail themselves of the court's power to order that evidence be taken on commission, pursuant to s 6 of the Evidence on Commission Act 1995 (NSW). That may be so; but to say that does not seem to me to answer the question of necessity. 37This seems to me to be, archetypally, a case where the plaintiffs must know what their case is. Further, it seems to me, this is a case where the plaintiffs have already obtained a substantial body of what they say is relevant documentation. To my mind, the evidence simply does not engage with the test proposed by the practice note; namely, in terms of paragraph 4, that there must be exceptional circumstances necessitating disclosure before evidence. 38In the ordinary way, those exceptional circumstances must be circumstances which make it difficult orders undesirable (I hope, a neutral term) for evidence to be put on before disclosure. In some cases, clearly enough, a plaintiff will not know precisely how it can prove its case until it has the benefit of production of documents from the defendant. But, as I have said, I do not think that the evidence of the plaintiff's solicitor, Mr Davis, in this case really engages with that problem. It may be taken to show at the most, why the disclosure of documents now would be convenient, or helpful or desirable. But it does not show why that must be done now, on the basis that it is now reasonably necessary for disposing fairly of the matter or in the interests of a fair trial. 39I accept that the question of taking evidence on commission is one that should be addressed by reference to the documents that the parties have. However, this seems to me to be a case where the complex issues arising on the pleadings should be clarified and, I hope, refined through the exchange of evidence before proper attention can be given to the question of what disclosure (if any) is "necessary" in the relevant sense. 40In this context, it seems to me, although the pleadings are detailed, nonetheless the identification of the real issues in dispute is something that will be very substantially aided by the exchange of evidence. Thus, it seems to me, if there is to be a claim for disclosure, it is one that should properly be brought, as the practice note contemplates, once the evidence is complete, subject to the question of evidence on commission. 41I accept that in some circumstances it will be necessary, if the plaintiffs otherwise can make out a case against Mr Hodges, for the plaintiffs to have access to Mr Hodges' financial records, and to the financial records of entities associated with him which may be shown to have had some involvement, as recipients or otherwise, in the conduct of which complaint is made. But again, it is by no means clear why that should be done now rather than later. 42I accept, further, as Mr Hatcher submitted, that at least some of the categories of disclosure that are proposed may not be burdensome; and that others are likely to be burdensome only if Mr Hodges has engaged in the conduct complained of. To that extent, I accept, the likelihood of the exercise being burdensome is directly related to the likelihood that Mr Hodges has engaged in some or all of the conduct complained of. But whilst that might be a discretionary consideration if the threshold test of necessity were satisfied, it does not seem to me to be something which answers the test of necessity. 43Again, it may be accepted that much of the material is peculiarly within Mr Hodges' possession. But in circumstances where the plaintiffs' evidence on this application simply does not show why the material that they have to date is inadequate to enable them to put their evidence on, it does not seem to me that speculation of the kind that I was invited to engage in has any real bearing on the outcome of the application. 44For those reasons, I order that the plaintiff's notice of motion filed on 13 April 2012 be dismissed. I will deal with the question of costs after I have dealt with the application in the next matter.
Thiess v Reinforced Earth 45This is a construction dispute. The plaintiffs were joint venturers for the construction of the Chatswood to Epping railway link. The construction of that link involved tunnelling. To enable the tunnelling to take place, a very large hole was dug in the ground, approximately at the mid-point of the link, and a tunnelling machine was inserted into that hole so it could begin the process of boring the tunnels in each direction. Once that was complete, the machine was extracted, arches were installed to connect the two tunnels, and the hole was then backfilled. 46The first defendant contracted to design and supply the arches. The second defendant was apparently the design engineer employed by the joint venturers with overall design supervision responsibility. The third defendant was employed by the joint venture to carry out the backfilling and other operations. The cross-defendant is an engineer joined by the second defendant (the design engineer) on the basis that the second defendant delegated the "grunt work" of checking the design of the arches to the cross-defendant. 47It is clear that the project was exceptionally large and complex. The unchallenged evidence for the plaintiffs makes it clear that their records are incomplete, including in some vital respects. 48A key issue in the proceedings is the reasons why the arches to which I have referred failed, in the sense that they proved to be inadequate for their purpose and required substantial rectification. The plaintiffs have retained an expert engineer who has had access to much documentation relating to the design of the arches. He has effectively reverse-engineered the arches, and the construction and backfilling process, in an attempt to see why it was that the problems have arisen. However, because he has not been given the detailed design documentation, including the calculations, load assumptions and the like, he has not been able directly to check the design process. 49In the application, the first defendant supported the plaintiff's application. The second defendant was neutral. The third defendant opposed the application, but put on no evidence. The cross-defendant opposed the application in so far as it was affected by it. 50It is also necessary to note that in this case orders for discovery have already been made and the plaintiff, the second defendant and the third defendant have given discovery. Thus, some (but not all) parties have complied with their obligations under orders of the court. The parties whose discovery has not been provided are the first defendant and the cross-defendant. 51It is also necessary to note that, in this case, the defendants raise proportionate liability defences. In other words, the defendants (and, I think the cross-defendant as well) say that if and to the extent that they have some responsibility, that responsibility is shared by, and ought to be apportioned to, the other defendants and the cross-defendant. Clearly enough, that is a matter of vital concern to the plaintiffs. It is, I think, clear that the plaintiffs will need discovery to enable them to understand and meet the proportionate liability defences; noting of course that those are defences pleaded against the plaintiff and not (as would have been the case in the old days) merely as cross-claim for contribution. 52To my mind, it is not immediately clear why the practice note should apply to this case at all. It seems to me to fall within the first of the three possible categories of transitional case to which I referred earlier in these reasons. That is to say, it is a case where a regime for discovery has been put in place and has substantially worked out. What the court is being asked to do, in substance, is not so much to make orders for, or put in place, a new regime; but to facilitate completion of the existing regime: to put it back on track. 53It is clear that this is not a case (and thus, it is in my view, unlike the previous one) where the regime that was put in place has been effectively overtaken by events. It is clearly a case where, in my view, it is appropriate to continue with the existing regime. 54Thus, as a matter of construction of the practice note and the application of paragraph 2, I am not at all persuaded that this is a case where an order is necessary under paragraph 4 (or, for that matter, paragraph 6). But if I were wrong in this, and if it be a case where those paragraphs of the practice note have been engaged, I would conclude that it was appropriate to order the "disclosure" that is sought. 55I would reach that conclusion because the plaintiffs' evidence satisfies me that they do not have sufficient documents to enable then to make out their case. Specifically they do not have the documents that they need to enable them to check the crucial design and construction arguments that arise in the case as against the first defendant (who designed, supplied and installed the arches), the second defendant (who had overall design responsibility) and the third defendant (who was responsibility for backfilling once the arches had been put in place). It is suggested that some of the deflections and other failures of the arches that have been observed may be due to matters such as unequal loading, which might be either design problems or construction problems or a combination of each. 56In short, if this were a case to which the practice note applied, I would come to the view that the plaintiffs' evidence readily makes good the case that there are exceptional circumstances requiring completion of the regime for disclosure of documents at this stage. 57If it were necessary to go further, and look at what other discretionary considerations may arise, I would conclude that, having regard to the issues and the stage that discovery under the existing orders has reached, there is no discretionary reason why the order, the jurisdiction to make which in my view is enlivened (or would be enlivened) should not be made. 58It follows, in this case, that there should be orders in accordance with the plaintiff's notice of motion and the first defendant's notice of motion, each filed on 13 April 2012.
Orders 59In the matter of Leighton v Hodges, the respondent to the application seeks costs. Clearly enough, there has been an event - dismissal of a notice of motion - which might enliven the general rule as to costs, r 42.1. But in my view there are two circumstances that tell against the order sought. The first is that there was an earlier order for discovery, which in effect has fallen by the wayside. The second is that this is one of (now) two cases that I selected in effect as test cases for consideration of the application of the practice note. 60In those circumstances, I think that the appropriate costs order is that the costs of the notice of motion be the defendant's costs in the proceedings and I so order. 61I list the matter for directions on 18 May 2012. 62In the matter of Thiess v Reinforced Earth, I order that the costs of the notice of motion be costs in the proceedings. 63I stand that matter over to 11 May 2012 for directions.
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 07 May 2012