LEUCADIA NATIONAL CORPORATION -v- CHICHESTER METALS PTY LTD (FORMERLY FMG CHICHESTER PTY LTD) [No 3] [2012] WASC 152 (9 May 2012)

3 Essentially, the interrogatories are administered in circumstances where the plaintiffs seek as relief (in the alternative) the equitable remedy of rectification in respect of lending transaction instruments executed in 2006. Rectification is pursued only in the event this court should decide that the proper construction of those instruments is different to that primarily contended for by the plaintiffs. (The plaintiffs' advocated construction of the instruments would constrain the first defendant from issuing further notes pursuant to the Note Deed Poll of 18 August 2006).

4 In the event of an adverse construction outcome, the plaintiffs would seek rectification of the instruments, effectively as a 'Plan B'. In that context the plaintiffs contend that it was the common intention of all parties to the lending instruments that their effect be in accord with the plaintiffs' advocated construction (i.e. delimiting the scope for any further notes to be issued by the first defendant).

5 As I observed, the defendants formally objected to answering all six interrogatories which have been administered by the plaintiffs. A number of grounds of objection were raised. The objections were delivered with a covering letter from the defendants' solicitors that contained an open communication as to the defendants' position.

6 The plaintiffs administered six interrogatories. Whilst all were objected to initially, only the requests for further answers to interrogatories 1 to 4 are now pressed. Interrogatories 1 to 4 were administered to all three defendants in these terms:

1. Say when each of the defendants, or any of them, first knew (if it is the case) that the first defendant could issue further notes under the Note Deed Poll as the defendants allege in paragraphs 13(b) [sic, 13B] and 34(a) of their Defence?
2. State who within each of the first defendant and second defendant so knew.
3. State when each of the defendants, or any of them, first believed (if it is the case) that the first defendant could issue further notes under the Note Deed Poll, as the defendants allege in paragraphs 13(b) [sic, 13B] and 34(a) of their Defence.
4. State who within each of the first and second defendants so held that belief.

7 In each case the uniform objections from all three defendants were:

[The defendant] objects to answering the interrogatory on the following grounds:

(i) The interrogatory is unnecessary, unreasonable, embarrassing, oppressive and/or relates to matters of opinion, in that (or insofar as) it requires the person interrogated to say not only when (if it is the case) that the person interrogated knew something but when (if it is the case) other defendants knew something.

(ii) The interrogatory is unnecessary, unreasonable, embarrassing, oppressive and/or relates to matters of law or opinion, in that (or insofar as) the interrogatory inquires as to when the first and second defendants first knew the matter stated in the interrogatory (if it is the case). Hence, the interrogatory impermissibly inquires as to the state of mind of corporations and invites and necessitates conclusions of law or opinions thereon to be drawn by the person interrogated.

(iii) The interrogatory is unnecessary, unreasonable, embarrassing, oppressive and/or relates to a matter of law or opinion, in that:

1. the interrogatory inquires as to knowledge that the first defendant could issue further notes under the Note Deed Poll, and thereby it assumes or is predicated upon a question of law to be determined by the Court, namely whether the first defendant is entitled to issue further notes under the Note Deed Poll;
2. the interrogatory invites and necessitates a conclusion of law or opinions thereon to be drawn by the person interrogated as to whether the first defendant is entitled to issue further notes, which matter is before the Court for determination; and/or

1. the interrogatory is unnecessary for the further reason that interrogatories 3 and 4 are directed to the matter of belief instead of knowledge.

(iv) The interrogatory is embarrassing, unreasonable and/or oppressive, in that it is unclear and equivocal as to whether it pertains to knowledge only during the period after the Note Deed Poll had been executed and took effect, or whether it pertains as well to any period prior to the execution of the Note Deed Poll.

(v) The interrogatory is embarrassing, unreasonable and/or oppressive, in that it is based on an assumed fact ('if it is the case') and/or it inquires as to whether the defendants say or allege something.

[The defendant] objects to answering the interrogatory on the grounds of objection set out above for interrogatory 1; and on the further ground that interrogatory 2 is predicated upon interrogatory 1 which is an improper interrogatory on the grounds of objection set out above.

[The defendant] objects to answering the interrogatory on the following grounds:

(i) The interrogatory is unnecessary, unreasonable, embarrassing, oppressive and/or relates to matters of opinion, in that (or insofar as) it requires the person interrogated to say not only when (if it is the case) that the person interrogated believed something but when (if it is the case) other defendants believed something.

(ii) The interrogatory is unnecessary, unreasonable, embarrassing, oppressive and/or relates to matters of law or opinion, in that (or insofar as) the interrogatory inquires as to when the first and second defendants first believed the matter stated in the interrogatory (if it is the case). Hence, the interrogatory impermissibly inquires as to the state of mind of corporations and invites and necessitates conclusions of law or opinions thereon to be drawn by the person interrogated.

(iii) The interrogatory is embarrassing, unreasonable and/or oppressive, in that it is unclear and equivocal as to whether it pertains to belief only during the period after the Note Deed Poll had been executed and took effect, or whether it pertains as well to any period prior to the execution of the Note Deed Poll.

(iv) The interrogatory is embarrassing, unreasonable and/or oppressive, in that it is based on an assumed fact ('if it is the case') and/or it inquires as to whether the defendants say or allege something.

[The defendant] objects to answering the interrogatory on the grounds of objection set out above for interrogatory 3; and on the further ground that interrogatory 4 is predicated upon interrogatory 3 which is an improper interrogatory on the grounds of objection set out above.

8 Some preliminary matters may be observed, concerning these four interrogatories as administered to each of the three defendants.

9 First, there is an accepted error in the drafting of interrogatories 1 and 3. The reference to par 13(b) of the defendants' defence should be to par 13B. No point is taken over that by the defendants.

10 Second, interrogatories 2 and 4, in each case ask 'who', and so are tied derivatively to the validity or otherwise of preceding interrogatories 1 and 3 respectively.

11 Third, there is a strong linguistic similarity between interrogatories 1 and 3. The key distinction that is important, in the end result, is that interrogatory 1 probes as to knowledge (more correctly, first knowledge) of something in the defendants. Interrogatory 3 probes as to a distinct concept, namely the defendants' belief (more correctly, first belief). As to the distinction, see Lexis Nexis, Discovery and Interrogatories (at 28 March 2012) [21,140]:

Belief is not the same as knowledge and a party cannot truthfully swear that he or she has no belief based on information in the party's possession simply because the party does not know that the information is true.

12 Fourth, as framed, each interrogatory requires each defendant to answer for the state of knowledge or belief on behalf of itself and on behalf of the other two defendants. That requirement is one of the common grounds of objection to answering raised by the defendants.

13 The interrogation position has been clarified in subsequent communications. To the extent that it is now accepted by the plaintiffs, they seek to receive an answer from each defendant that speaks only to the state of that defendant's knowledge or belief. The clarification is proper, bearing in mind the pervasive observations of Woodward J in Aspar Autobarn Cooperative Society v Dovala Pty Ltd (1987) 16 FCR 284, 285 286, essentially to the effect that the (nowadays almost redundant) process of administering and answering interrogatories should never degenerate into a game of semantics. Acceptance of the force of Woodward J's observations does not undermine the residual need for interrogatories to be drafted with precision and care, especially when one bears in mind that interrogatories are administered to elicit admissions from a party for the eventual purpose of being tendered as evidence at trial: see RSC O 27 r 9.

14 Fifth, it will be noted that two of the three defendants interrogated are corporations. Special considerations apply to corporations, as regards the nature and scope of the proper enquiries, and answers provided by an officer or other person on behalf of a corporation: see RSC O 27 r 6(1)(c) and (3).

15 Sixth, as I foreshadowed, on 19 October 2011 the defendants, through their solicitors, delivered a covering communication with the formal objections to the six interrogatories. The communication raises considerations for proper case flow management as regards the answers still pressed by the plaintiffs. The defendants' solicitors wrote:

We consider that each of the interrogatories is objectionable for the reasons set out in those documents.

However, having regard to your stated purpose in administering the interrogatories, and notwithstanding their objectionable nature, we advise that we are instructed by the defendants that they first believed, on or about 15 July 2006 and prior to execution of the Subscription Agreement, that the terms of the then proposed Subscription Agreement and Note Deed Poll provided for the potential issue of further notes by the first defendant.

(my emphasis in bold)

16 In light of that 'on the record' response, is there now a sufficient residual utility in the plaintiffs pressing for sworn answers on behalf of the two corporate defendants and by Mr Forrest personally?

17 Seventh, it will be seen the defendants' solicitors essentially addressed interrogatory 3 by the 19 October 2011 communication. The defendants' communication responded by reference to the terms of a 'then proposed Subscription Agreement and Note Deed Poll' and by reference to a date, 15 July 2006. The chronological sequence as regards the lending instruments in 2006 is important, as I explain later.

18 Eighth, in the plaintiffs' statement of claim of 22 October 2010, it is said that the Subscription Agreement was entered into on 15 July 2006 (par 11) and the Note Deed Poll executed on 18 August 2006 (par 27). The statement of claim (par 12(a)(2)) suggests the Subscription Agreement of 15 July 2006 annexed the text of what were then the proposed terms and conditions of the Note Deed Poll. The Note Deed Poll was not operative until it was finalised upon it being executed a month later, on 18 August 2006.

19 I am of the view that interrogatory 1 (and derivatively, interrogatory 2), insofar as interrogatory 1 probes the issue of (first) knowledge, is impermissible as against all defendants. The plenary objection by the defendants to interrogatory 1 is raised on the basis that it seeks to interrogate over what is essentially an issue of law, rather than an issue of fact. That objection is correctly taken.

20 The parties' underlying differing contractual constructions as regards the Subscription Agreement and Note Deed Poll generate this dispute between the plaintiffs and the defendants. On the plaintiffs' case, the proper construction of the Subscription Agreement and Note Deed Poll is that the terms of issue for a note subscribed for by the first defendant at the issue price of US$100 million were such that no further notes could be issued by the first defendant under that Note Deed Poll. The plaintiffs say to do so would effectively dilute the plaintiffs' entitlement to 'interest' on that note. The dilution argument of the plaintiffs is better appreciated once it is understood that the 'interest' on the note was to be rendered at a rate of 4% of gross sale proceeds received on sale of iron ore from a new Cloudbreak and Christmas Creek iron ore resource project (par 6(a) statement of claim) that in 2006 was being promoted to the plaintiffs by the defendants (par 10(b) statement of claim).

21 The contention of the plaintiffs is that the net pool of gross sale proceeds from the new iron ore project must not be diminished. Issues of further notes to other parties under the Note Deed Poll, thereby enabling newcomers to share in the (finite) 4% profit pool would carry that result.

22 The defendants fundamentally dispute that construction of the Subscription Agreement and Note Deed Poll. They contend that there was no express or implied limit to the number of further notes that could be issued by the first defendant.

23 That issue of construction is the steppingoff point for the fierce and complex disputation that arises in the action. It is clear the precipitating issue of disputed construction of the applicable 2006 contractual instruments raises at its essence a question of law, not fact. That characterisation as an issue of law is important because, insofar as interrogatory 1 seeks to probe as to the defendants' state of knowledge about when they (first) knew something could be done, it seeks to probe upon a legal issue of interpretation, yet to be determined. It is the first issue ultimately to be resolved in the action. It may be for instance, upon a resolution of the construction arguments at trial, I reach a view that further notes could not be issued under the instruments. In that case, a question about knowledge upon the issue as is now probed could not have been known in 2006. It may, at best, have only been (erroneously) believed to have been the case.

24 The defendants' objection taken against interrogatory 1, on the basis that it seeks to interrogate about what is fundamentally an issue of law, is therefore correct and must be upheld. As a correlative consequence, interrogatory 2 as to '... who within each of the first and second defendants so knew', must fall as well.

25 The question posed under interrogatory 3, as to belief (or, more correctly, first believed), is of a different character. It is possible the defendants could have held beliefs about further notes being issued under the Note Deed Poll as a permissible course, yet ultimately be shown by the curial process to be wrong as a matter of construction about the correctness of that belief. It is in principle then conceptually feasible to probe over beliefs possibly held by the defendants about the potential to issue further notes under the Note Deed Poll, if such beliefs are a relevant issue in the proceedings.

26 The objection upheld in respect of interrogatory 1 was (correctly) not raised by the defendants as regards interrogatory 3, concerning the defendants' beliefs. However, other substantive objections raised by the defendants against interrogatory 3 (and derivatively interrogatory 4) remain. They may be summarised as:

(a) As a matter of proper case flow management, answers to interrogatory 3 (and 4) from the defendants are unnecessary, bearing in mind the terms of the open letter sent on behalf of the defendants responding to the temporal questions about the defendants' (first) beliefs explicitly.

(b) It is inappropriate to interrogate a corporation (this objection not being applicable to Mr Forrest as third defendant) directly about corporate knowledge or belief in a state of affairs. Corporations are artificial creations of the law and, unlike human beings, do not have human minds. It is only by the application of a legal fiction that attitudes of mind (including beliefs) can be attributed to a corporation: see a line of authority commencing in Australia with Tooth & Co Ltd v Lane Cove Municipal Council [1968] 2 NSWR 17, 19 20 (Street J); Potts v Invercargill City Council [1985] 1 NZLR 609, 617; Flegeltaub v Telstra Super Pty Ltd [1998] VSC 144 [23] (Beach J); O'Brien v Little [2007] NSWSC 64 [20] [22] (Patten AJ). But there is a contrary line of authority, particularly see Langley v The Age Company [2001] VSC 370 [46] [63] (Gillard J) and decisions in the Land and Environment Court of New South Wales: Sumitomo Life Realty (Australia) Ltd v Grace Bros Holdings Ltd (1994) 83 LGERA 46, 49 and Parker v Auburn Council [2000] NSWLEC 127 [27]. I was also referred by the plaintiffs to Murray J's observations in Tipperary Developments Pty Ltd v State of WA [2004] WASC 179 [12] [16] and [27]. However, I do not assess Murray J's observations in Tipperary to be directed at the precise point now raised.

All parties before me accept it is permissible to interrogate a corporation about the state of mind of the corporation's particular officers (such as directors) or agents, relevant to a corporate act: see Kelly v Raymor (Illawarra) Pty Ltd [1981] 1 NSWLR 720, 722.

But the state of mind, knowledge or beliefs of particular directors or officers of the first or second defendants is not what the plaintiffs ask about by interrogatories 1 and 3.

The first and second defendants press their objections to answering interrogatory 3 on the basis that probing as to the beliefs of corporations at a particular time, at root, involves an analysis of law, raising the issue of legal attribution of human states of mind to a corporation. This arises from the required attribution of a state of mind to the corporation that is to be distilled and ultimately extracted from a potentially diverse array of corporate officers or agents.

This ground of objection, however, would not apply to the case of the third defendant who is a natural person.

The defendants also point to their solicitors' letter of 19 October 2011 and say that the issue has now been sufficiently addressed, in any event.

Fundamentally, interrogatories are administered to secure admissions from a party which may later be tendered by the opponent at trial: see Tipperary [12] [13]; RSC O 27 r 9. I hold a deep concern about proper transparency in what is, at root, an artificial process of legal attribution. The plaintiff seeks to secure an admission against a corporation arising out of the efforts of someone who, after making (unspecified) enquiries of a range of corporate officers or agents, ultimately purports to ascertain and commit to a position concerning the corporation's state of mind. To interrogate about the state of mind of a particular human officer or agent of a corporation is legitimate. But to roll up the enquiry process, burying, replicating or even supplanting what is in essence the court's task, is another thing all together. To alleviate those transparency concerns in what is sought to be achieved, I favour the Tooth line of authority, as it is explained by McClelland J in Kelly v Raymor.

Success on that ground of objection alleviates the first and second defendants against answering interrogatory 3 (and 4). However, that does not excuse the third defendant as a natural person from answering.

(c) The defendants also contend, insofar as interrogatory 3 is concerned, that it is unclear or equivocal. The defendants say, bearing in mind that no Note Deed Poll instrument was actually perfected until 18 August 2006, that the interrogatory is imprecise and possibly misleading, as to its timing enquiry.

Insofar as interrogatory 3 probes belief, it is framed as a question as to a (first) belief about when things 'could' be done under the Note Deed Poll. Obviously, as a matter of law, nothing could occur until there was a perfected Note Deed Poll. That only happened on 18 August 2006. The Note Deed Poll was not executed and could not have had operative effect as regards an issue of notes until 18 August 2006. But this information is of no utility in this action and is clearly not what the plaintiffs are pursuing.

The defendants invoke Hawke v Tamworth Newspaper Co Ltd [1983] 1 NSWLR 699, 707, contending that any interrogatory must be clear and unequivocal in order to produce a clear admission. My view is that this objection is validly taken for all defendants. The underlying problem is that the question drawn under interrogatory 3 lacks the requisite precision. It should have asked about a proposed Note Deed Poll. This was no mere technical grievance. It is a substantive problem of deficient precision in the question as posed.

(d) The defendants also invoke a line of authority to contend that interrogatory 3 proceeds upon the basis of hypothesis or assumption, by its use of the terminology in parenthesis, 'if it is the case'. In other words, the interrogatory is seen to proceed on a basis of an affirmative assumption as to the existence of a belief. It is possible the interrogatory could be answered on a basis of there being no such belief, thereby invalidating the premise.

In my view objection (d) cannot be sustained. In Thiess v TCN Channel Nine Pty Ltd [No 3] [1992] 1 Qd R 587, Dowsett J considered a line of authority including Konings v Naylor [1964] Qd R 235. Invoking principles espoused in Aspar Autobarn Cooperative Society v Dovala Pty Ltd, Dowsett J held that there was 'no general rule prohibiting the making of assumptions in the framing of interrogatories' (590). I respectfully adopt his Honour's analysis. A broader (potential) principle of objection, as is identified by Dowsett J, is a concern about assumptions sometimes working unfairly. Objection may be validly raised, if unfairness manifests. But a proper objection is not raised purely against the existence of an assumption in the question: see Thiess v TCN Channel Nine Pty Ltd [No 3] (590).

27 I am of the view that save for objection (d), which was not strongly pressed, the defendants' other objections were all correctly taken.

28 Furthermore, I agree, in light of the defendants' solicitors' open statement as to the defendants' belief, that further answers to interrogatory 3 (and consequently interrogatory 4) are now unnecessary and would be of little utility to the defendants.

29 The belief probed (in alignment with the temporal question about when that belief was first held, as regards each of the defendants) is tied to the event of an issue of 'further notes' under the Note Deed Poll. The defendants are correct in their objection that notes could only issue under a Note Deed Poll once that instrument was in operative existence. That could only be, at the earliest, from 18 August 2006, once the Note Deed Poll was executed. Unearthing pointless information is not a relevant or permissible enquiry.

30 Senior counsel for the plaintiffs recognised the temporal difficulty in the question. He sought to address it, seeking leave to amend interrogatory 3 (see ts 65 66), so it would effectively read:

State when each of the defendants first believed (if it is the case) that the first defendant could issue further notes under the proposed Note Deed Poll which was scheduled to the Subscription Agreement, as the defendants allege in paragraphs 13B and 34(a) of their defence.

(my emphasis in bold)

31 However, in my view, the plaintiffs should not now have leave to amend in the terms proposed, in order to rehabilitate interrogatory 3. It was not unduly technical (applying the Aspar approach) to object to the initially illogical temporal framing of this question. The need for a level of precision in the administration of interrogatories remains, notwithstanding courts will not countenance sophistry or semantics in the responses of a party required to provide answers.

32 Here, interrogatory 3 seeks to probe about a belief as regards all defendants, concerning the effect of sophisticated commercial lending instruments. However, what the defendants allege by pars 13B and 34(a) of their defence concerns the issue of further notes under a subsisting Note Deed Poll, not the terms of a proposed Note Deed Poll. The distinction may look fine. But in a high value lending transaction of this kind, clarity is important.

33 The objection being correctly taken, I do not think it appropriate for there to be leave for another attempt to rehabilitate interrogatories 3 (and 4). I reach that view not only because of the usual 'oneshot' rule, but more substantively because of the delivery of (first) belief information that the defendants have now openly provided, on 19 October 2011. That communication addressed each of the defendants' beliefs. It stipulated that they were held on or about 15 July 2006, prior to the execution of the Subscription Agreement. There can be observed a demonstrated precision in that communication, first as regards belief (not knowledge) being a permissible enquiry, and then, as regards the 'then proposed Subscription Agreement and Note Deed Poll'. The response should have prompted the plaintiffs to reconsider the appropriateness and precision of their questions 1 and 3, as administered. They did not. It is too late to countenance a change of attitude.

34 I have proceeded on the basis that the line of proposed questioning, albeit falling within a realm of marginal (alternate) relevance on the plaintiffs' case for rectification, or for misleading and deceptive conduct (by an alleged making of representations as to future matters), was open to the plaintiffs.

35 The defendants are not seeking to pursue for themselves a counterclaim seeking rectification. The present controversy looks to me to have a catalyst in the plaintiffs' expressed concerns over possible ramifications of par 39(b) of the defendants' defence:

(b) At all material times, the parties were in agreement, and it was their common intention, that their rights and obligations in relation to payment of interest and otherwise should be governed by the terms of the Subscription Agreement, Note Deed Poll and Note Conditions.

36 By that plea made against the rectification, it may be that the defendants go further than they strictly need to, by a plea as to the parties' common intention. The defendants, strictly speaking, only need to show that their own subjective belief about the 2006 security instrumentation carrying its textual meaning was different to the subjective belief held by the plaintiffs. In that case, subjective intentions would be different, not common.

37 The fact that plaintiffs can point to potential inconsistency between that par 39(b) plea and the defendants' solicitors' advice of 19 October, is not I think, ultimately so significant. The former envisages the defendants accepting whatever determination is ultimately reached by a court of construction, and the latter concerns the defendants' subjective belief at around 15 July 2006. The defendants provided that 19 October 2011 response by reason of the interrogation process. Whether such information can provide anything of admissible relevance at a trial remains to be seen. As I observed in previous reasons (see [2011] WASC 297 [20]), the defendants do not raise an affirmative rectification case of their own. The ramifications of the information which they have provided through their solicitors on 19 October 2011, measured against what is pleaded at par 39(b) of the defence in terms of a potential inconsistency, in the end, may go nowhere.

38 In all the circumstances then, the plaintiffs' application to compel further answers to interrogatories 1 to 4 must fail.

39 Costs should follow the event. I will hear the parties about that if necessary.

40 The defendants should submit a minute of agreed (or proposed) orders within seven days of the publication of these reasons.