P Dawson Nominees Pty Ltd v Brookfield Multiplex Limited

Federal Court of Australia|2010-03-04|Before: Finkelstein J

REASONS FOR JUDGMENT 1 This action was commenced in 18 December 2006. It is what is commonly referred to as a shareholder class action. The named applicants and the group they represent purchased securities in, or issued by, one or other Multiplex company. The complaint which the action seeks to vindicate is, speaking loosely, that, in breach of the ASX Listing Rules and the Corporations Act 2001 (Cth), the Multiplex companies failed to make adequate disclosure of losses suffered on the Wembley Stadium construction project, being information that was material to the value of the securities. The principal relief sought is damages or compensation. 2 For a number of reasons, including the complexity of the issues in the case and, more importantly, a challenge to the structure of the proceeding that had to be resolved by a Full Court, the action could not be set down for trial as early as it might have been. Now, with most of the problems out of the way, that position has been remedied. The trial will begin in the first week of October 2010. That gives the parties sufficient time to get ready. Nonetheless, there are still some interlocutory disputes that must be sorted out.

Discovery sought by Applicants 3 The applicants seek further discovery from the respondents. By way of background, the parties have been co-operating about discovery from the outset. While disputes have arisen from time to time, often about the extent to which the respondents were required to search for discoverable documents, those disputes have been, in the main, satisfactorily resolved. As many of the respondents' documents are stored electronically, the respondents were able to identify relevant documents by key word searches and, for the most part, the parties have been in agreement regarding categories for discovery, the key words to be used and the sources of documents to be searched. Some 19,000 documents have already been discovered by the respondents in several tranches. 4 The applicants now seek further discovery. This is partly because they contend that the respondents' discovery to date has been inadequate. It is also because the applicants have identified documents not covered by existing categories for discovery which they claim are relevant. The relevance of those documents, the applicants claim, has only recently become apparent after receiving the respondents' case summary. 5 The applicants seek discovery of 16 categories of documents. For reasons which will become apparent, I do not propose to consider each category in detail. Broadly, the categories are as follows. The first involves further electronic searches being undertaken using different key words. The second category is relevant correspondence passing between Mr Noel Henderson and Mr Andrew Roberts, a director and the chairman, respectively, of Multiplex. Several further categories relate to certain transactions colloquially described by the applicants as the 'Gibraltar transaction' and the 'Qantas Hangar Project'. Finally, there are several categories of miscellaneous documents sought, including some specific documents. 6 The applicants also seek an order that the respondents discover any document which the "Court determines is not properly the subject of a claim for privilege". The applicants complain that the respondents have incorrectly claimed privilege over a number of documents. Furthermore, the applicants argue that the respondents have waived privilege over legal advice by putting that advice in issue. 7 Multiplex asserts that it has documents containing legal advice which are protected from inspection by privilege. It has not, as yet, established this claim by evidence. 8 One part of Multiplex' defence (most likely a central part) is the proposition that Messrs Henderson and Roberts believed on reasonable grounds that any increase in the cost of the Wembley Stadium project was recoverable from the relevant subcontractors and, accordingly, the overall profitability of the Wembley Stadium project would not be affected. Hence no disclosure of losses was required to be made. The applicants claim that this part of the Multiplex defence results in an 'issue waiver' by Multiplex. 9 Multiplex reject the waiver claim. In correspondence, Multiplex' solicitors have advised that they will be leading substantial lay and expert evidence to establish the reasonableness of Mr Henderson and Mr Roberts' belief. They go on to say that "our client has not yet made a decision whether to deploy any legal advice which it had received in respect of Multiplex UK's third party claims and its defence of the proceeding (and thereby waive legal professional privilege in that advice)". 10 It seems to me that at this stage of the litigation, where the parties are well advanced in preparing for trial and must be familiar with the key documents that bear upon the issue of liability, it is not necessary to require Multiplex to carry out further searches to ascertain whether more discoverable documents exist among their files. I am sure that, between them, Multiplex and its solicitors know precisely what the key documents are. Accordingly, what I propose to do, as I foreshadowed during the course of the hearing, is to require Multiplex to discover two categories of documents being (1) all documents upon which they intend to rely at the trial; and (2) all documents which have significant probative value in relation to the issues raised in the parties' respective case summaries. 11 In relation to category 2 documents, I will not require Multiplex to undertake further searches. Rather, Multiplex' obligation to discover category 2 documents will be satisfied by an examination of the documents which the respondents have already identified as relevant, and a selection of the documents with significant probative value from that group. If, in the unlikely result, this method of discovery turns out to be insufficient, the applicants may renew their application. 12 A consequence of requiring category 1 discovery is that Multiplex must decide whether they will rely on the legal advice they received in relation to the Wembley Stadium project. If they decide to run the 'reasonable grounds' defence without tendering that advice, I will then deal with the waiver argument. 13 As regards the claim for legal privilege in respect of other documents, I will, as I indicated at the hearing, defer dealing with that issue until the respondents put on evidence in support of the claim. That evidence should be filed by 11 March 2010.

Discovery sought by the Respondents 14 Multiplex also seek orders for discovery. In particular Multiplex asks that certain group members, the institutional investors, discover (1) litigation funding agreements and (2) certain trade information. 15 Before considering the specific documents sought by Multiplex, it is necessary to consider whether a court has power to order discovery from a group member in a class proceeding. Section 33ZF of the Federal Court Act 1976 (Cth) is a source of such power. That section permits the court to "of its own motion or on application by a party or a group member, make any order the Court thinks appropriate or necessary to ensure that justice is done in the proceeding." Multiplex also rely on O 15A r 8 of the Federal Court Rules, pursuant to which a non-party may be ordered to give discovery of a document "which relates to any question in the proceeding". I am not convinced that the orders can be made under the rule. In the instant case, the relevant proceeding concerns claims made by the named applicants against Multiplex. I do not read the rule as permitting non-party discovery in relation to 'claims' made by non-parties. If the 'proceeding' included the group members, they would not be non-parties and O 15A would have no application. 16 Although there is a power to make the orders sought under s 33ZF(1), it is another matter whether that power should be exercised. The starting point is that the class actions regime under Part IVA of the Federal Court Act is designed to require little or no active involvement by group members. A group member is a group member principally for the limited purposes of taking the benefit, or suffering the burden, of findings on common questions (ie questions that are common to the claim brought by the named applicant and claims that may be pressed by group members). In an action where money relief may be sought by a group member, the group member will generally only be required to provide specifics about the quantum of his or her claim after the common questions have been resolved and that may be in a separate action. 17 Given the intent of the class action regime, there must be some compelling reason demonstrated before a court will order group members to go beyond their otherwise essentially passive role. 18 With these principles in mind, I turn now to the categories of documents of which discovery is sought by Multiplex.

Litigation funding agreements 19 To understand why Multiplex seeks these agreements it is necessary to begin with the definition of group members. Section 33H of the Federal Court Act requires an application commencing a representative proceeding, or a document filed in support of such an application, to describe or otherwise identify the group members to whom the proceeding relates. In this action the defining characteristics of group members are, broadly, that each (1) invested in certain Multiplex securities during the period between 2 August 2004 and 30 May 2005; (2) suffered loss and damage as a result of Multiplex' alleged breaches of the Corporations Act and ASX Listing Rules; and (3) had, at the commencement of the proceeding, entered into a litigation funding agreement with International Litigation Funding Parners, Inc. These characteristics create what has come to be known as a "closed group" class action. 20 It is common ground that of the more than 100 group members, sixteen are institutional investors who, between them, account for more than 90 per cent of Multiplex securities during the relevant period. It is also common ground that many of the institutional investors acquired their securities in Multiplex as agent, trustee or custodian. Indeed the litigation funding agreement which each group member has executed asks them to state whether their securities were acquired on trust and to identify the beneficial owner. 21 Multiplex seeks discovery of the funding agreements executed by each institutional investor. They wish to ascertain whether each institutional investor executed the funding agreement on behalf of particular principals or trusts. What Multiplex may ultimately assert is that an institutional investor can only maintain a claim on behalf of a principal or beneficiary if it entered into the funding agreement on behalf of that principal or beneficiary. If it did not enter into the funding agreement in that capacity it may not, so the argument goes, prosecute a claim on behalf of a principal or beneficiary, at least without court permission. 22 The contention that an institutional investor may not be entitled to bring a claim in respect of securities purchased as agent, trustee or custodian between 2 August 2004 and 30 May 2005 is hotly disputed. Nonetheless, the applicants accept that it is a contention that should be resolved quickly. Limitation periods are due to expire and if the point is a good one it can only be cured, if at all, by an amendment before the limitation period has expired. 23 In these circumstances it is appropriate for the institutional investors to disclose copies of the sixteen litigation funding agreements. All confidential information may be redacted, provided it does not bear upon the competency argument.

Trading information 24 The second category of documents in respect of which discovery is sought are those which bear on the quantum of the institutional investors' claims. The respondents are seeking that each institutional investor produce documents which broadly (1) detail the institutional investor's trading in Multiplex securities, or (2) show whether the investor has entered into any arrangement which has mitigated or reduced the loss suffered on the acquisition of Multiplex securities. 25 By way of background, the applicants' solicitors have already provided considerable detail concerning all group members' trading activities, in the form of spreadsheets, prepared from instructions received from the group members. Multiplex question the accuracy the information. It is not, of course, suggested that the solicitors have not accurately summarised the material provided by the group members. Rather, the burden of the complaint is that group members have not been as careful as they should have been in providing information to the solicitors. 26 In any event, none of the information thus far provided bears on whether an institutional investor has been able to reduce its exposure to Multiplex securities by hedging strategies, securities lending agreements or the like. In the absence of this information Multiplex say, no doubt quite fairly, that it is unable to assess the value of each institutional investor's claim. Further information about the value of the claims would, Multiplex argue, put Multiplex in a better position to decide about the future conduct of their defences, including whether to settle. 27 Multiplex put a number of arguments in support of their discovery application. I am not persuaded by those arguments for reasons I will now explain. 28 Multiplex firstly argue that it is inevitable that, at some stage of the proceeding, the group members will be required to provide the information sought. As such, it is a matter of timing as to when the information is provided, and the most convenient time for the information to be provided is now. I do not accept that it is inevitable that the information will be provided. Some institutional investors may opt out of the proceeding. More importantly, if the case goes to trial findings made may preclude the group members pursuing any claim for damages. 29 Multiplex next argue that the discovery order is warranted because group members will not be prejudiced in complying with the order. The order, Multiplex asserts, is targeted at a limited number of institutional investors who would "presumably" have sophisticated document management systems in place. The applicants, however, have put on evidence that the discovery exercise would be oppressive, requiring the institutional investors to go to considerable time and expense. In the circumstances, on the basis of that evidence, discovery has the potential to be onerous, which obviously tends against making the order. 30 Multiplex' key argument is that discovery should be ordered to assist Multiplex to make an informed assessment of any settlement proposal. In this regard, I understand that the parties have been engaged in mediation for some time. Nonetheless, I reject Multiplex' argument for several reasons. 31 First, it is a common, if not an inevitable, feature of class actions that the defendant will be faced with uncertainty regarding the quantum of potential group member claims. This is partly because of the essentially passive role of group members, already discussed. In many class actions, this uncertainty will be compounded because the identity of the group members is not known. True their identity may be discovered, sometimes with a good deal of effort. But group members are under no obligation to identify themselves and the named applicant, if he does not know who they are, has no obligation to seek them out. 32 Second, a court should be cautious in becoming involved in the essentially consensual process of mediation. In civil litigation, discovery rules exist as an aid to the parties by enabling them to prosecute or defend their case, as far as may be possible, with all material information to hand. Discovery at an early stage of litigation is often warranted to allow parties to go to mediation armed with facts that will enable them to assess their respective merits. Once parties are in mediation, however, a court should be careful before making orders which interfere with private negotiations. It is unclear and perhaps doubtful that, absent s 33ZF, the court's general power to order discovery can be used to aid mediation. Under s 33ZF, at least, it may be appropriate to make orders in aid of mediation, for example where the parties face asymmetric information which may lead to an unfair settlement. But there must be good reason for doing so, particularly where the discovery is being sought from group members. 33 In determining whether to make an order under s 33ZF to aid mediation, the problem for the judge is that, for very good reason, he or she cannot be told what is happening at the mediation. This makes it difficult for the parties to explain why discovery will assist a resolution of the dispute. When discovery as to quantum was first raised some time ago, I was reluctant to make any order. I did, however, say that: "[I]f you go to mediation and the mediator thinks it's necessary, for purposes of the mediation, that more information is produced, and it can't be sorted out, then during the course of the mediation somebody can come to me, you can come to me and say 'The mediator would like this information and I need an order for that purpose'." 34 Now, while I have been told that the parties are involved in a mediation that is being conducted before a retired superior court judge, I know nothing about the progress of that mediation. In particular, I do not know whether the mediator is of opinion that lack of information about quantum of group members' claims is standing in the way of a settlement. 35 If the mediator were to be of that opinion, I would be inclined to make some kind of order requiring the provision of funding information, though not making one as burdensome as that sought. I see no reason why the mediator is not able to indicate, in a way that will not breach his obligations of confidence, that such an order would assist.

Amendment to Case Summary 36 The named applicants wish to amend their case summary. Multiplex object to two proposed amendments. 37 First, Multiplex object to amendments relating to 'April 2005 Wembley Information' and 'May 2005 Wembley Information'. These amendments are not true amendments, in that they do not propose any new wording, but simply move existing allegations to a new paragraph. Multiplex has already responded to those existing allegations. In my view, it is too late in the day to deal with what is, in substance, a strike-out application. The issues raised by the case summary to which exception is taken will be dealt with at the trial. 38 Multiplex also object to a proposed amendment which seems to keep open a claim based on reliance by group members. The applicants, if successful on the issue of liability, may seek to prove causation in a number of ways. One way is to rely on the 'efficient markets hypothesis', in which case it may be unnecessary to prove reliance. Another way is by proving reliance. The applicants' amended case summary pleads reliance. Following that plea, the applicants propose to include a note saying: (Note: for the avoidance of doubt, any particulars regarding reliance by Group Members will be provided after the trial of the Applicants' claims). 39 Multiplex complain that they are entitled to know whether group members will be pleading reliance as part of their case. At the hearing, counsel for the applicants undertook to obtain instructions from institutional investors about this. This will resolve much of the uncertainty about which Multiplex complain. 40 In light of the above, the named applicants will be given leave to amend.

Orders 41 The parties submitted short minutes of orders with certain parts to be completed. The parties will be provided with suggested minutes of orders for their comment. I certify that the preceding forty-one (41) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein.

Federal Court Act 1976(Cth)

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