QUENCHY CRUSTA SALES PTY LTD v LOGI-TECH PTY LTD & ANOR No. SCCIV-00-252 [2002] SASC 374

Supreme Court of SA|2002-11-15|Before: Doyle CJ

Judgment No. [2002] SASC 374

QUENCHY CRUSTA SALES PTY LTD v LOGI-TECH PTY LTD & ANOR

DOYLE CJ: Quenchy Crusta Sales Pty Ltd ("the plaintiff") is the plaintiff in an action in this Court. Sharp Corporation of Australia Pty Ltd ("Sharp") is the second defendant.

The plaintiff applied for an order that Sharp make further and better discovery of certain documents identified in an affidavit filed in support of the application. A Master dismissed the application. The plaintiff appeals against that order.

The appeal challenges only one of the bases upon which the Master dismissed the application.

Very briefly, there had been a previous application for an order for further and better discovery relating to the same documents. The Master dismissed that application. Later, an expert retained by Sharp, in a report provided by Sharp to the plaintiff, made use of a document summarising the effect of, or drawing from, the same documents of which the plaintiff had sought further and better discovery. The plaintiff then made a further application for further and better discovery, relying on the use made by the expert of the summary. The Master said that the expert had not used the primary documents, but only the summary. Presumably, the Master adhered to his earlier view that discovery of the documents was not required under r 58A.03 of the Supreme Court Rules. The Master dismissed the further application for further and better discovery.

The Supreme Court Rules have been amended to limit the scope of the obligation to make discovery of documents in civil proceedings and to exercise greater control over the process of discovery.

"The parties must discover in their list of documents, but discover only, the documents which are or have been in their possession, custody or power which are directly relevant to any issue arising on the pleadings."

The meaning and proper application of this Rule can only be understood in its historical context. It replaces a Rule the effect of which was to require discovery of documents if they related to any matter in question in the action. That requirement had been interpreted broadly. It extended to any document if it was reasonable to suppose that it contained information which might directly or indirectly enable the parties seeking discovery to advance that party's own case or to damage the case of the opponent, or which might fairly lead the party to a train of inquiry which might have either of those consequences: see Mulley v Manifold [1959] HCA 23; (1959) 103 CLR 341 at 345 Menzies J. The new Rule takes a different and much more restrictive approach.

Now discovery is to be made only of documents which are "directly relevant to any issue arising on the pleadings." The meaning of the expression "directly relevant" will have to be worked out over time.

I agree with the observations made by Bleby J in Southern Equities Corporation Ltd (In Liquidation) v Arthur Andersen & Co (No.5) [2001] SASC 335. The test of relevance is to be applied by reference to the issues arising on the pleadings. The obligation to make discovery is not limited to documents that are admissible in evidence. Although I do not have to decide it in this case, I am inclined to agree with Bleby J that a document is discoverable if it constitutes circumstantial evidence, tending, along with other evidence, to prove or disprove a matter in issue on the pleadings: see also Robson v R E B Engineering Pty Ltd [1997] 2 QR 102 at 105.

It is not wise to attempt to state in comprehensive terms the effect of the requirement that the document be "directly relevant." The adverb "directly" is probably intended to emphasise the requirement of relevance, and to be used in the sense of requiring that the document be directly in point, excluding as sufficient indirect relevance which might be established through another linking circumstance. That is not to say, as I have already said, that a document is not directly relevant if it is merely a piece of circumstantial evidence. The point is that a document will not be directly relevant if, rather than tending to prove an issue on the pleadings, it merely tends to prove something that may be relevant to an issue. As will appear, this point has some bearing on the outcome of the appeal before me.

The reasons for the change in the Rule are well known. Previously the obligation to make discovery was so wide that in many cases discovery had become onerous and costly. In some cases many documents were collected and catalogued and listed, although of no actual importance in the case. The cost of discovery was sometimes out of all proportion to its usefulness. There were occasions when discovery led to time-consuming and expensive processes of inspection of documents, and then in turn to the costly collation and copying of documents for trial, only to find that few if any of the discovered documents were ever used at trial.

The reason for the change is clear, and the general thrust of the change is clear. The precise effect of the change will be worked out over time.

The Court has given itself power to depart from the new Rule. Rule 58A.04(1) provides as follows:

"Parties are not to include in their list of documents any documents which are only indirectly relevant to any issue arising on the pleadings unless it is ordered by the Court where it is in the interests of justice to do so."

The plaintiff purchased from the first defendant "Notebook Computers" made by Sharp. I will confine my attention to the allegations against Sharp, as the order for discovery is sought against Sharp.

The plaintiff alleges that it purchased the Notebook Computers for use by its delivery truck drivers. The plaintiff alleges that it intended to use the computers for a particular purpose and they had to be "suitable for mobile use by the drivers in and out of the truck cabins, rear of the trucks and to and from points of sale." Sharp denies this allegation. The plaintiff alleges that Sharp represented that the Notebook Computers "were suitable for mobile use." It is not clear whether that allegation is intended to be an abbreviated reference to the intended use by the plaintiff of the Notebook Computers. Sharp admits this allegation. Sharp alleges that the Notebook Computers are suitable for mobile use.

The plaintiff alleges that this representation amounted to misleading and deceptive conduct, because the Notebook Computers are "unsuitable for mobile use due to a defect of design or manufacture which renders them prone to frequent breakdown." Sharp denies these allegations. It alleges that the Notebook Computers are suitable for mobile use, are not defective in design or manufacture, and are not prone to frequent breakdowns.

The plaintiff alleges that Sharp warranted the Notebook Computers against faults in materials and manufacture for three years. Sharp admits that allegation. The plaintiff alleges that Sharp is in breach of this warranty, because the Notebook Computers have a fault or defect in workmanship or manufacture which renders them prone to unacceptable rates and frequency of breakdown. Sharp denies those allegations.

The plaintiff alleges an implied warranty that the Notebook Computers are of merchantable quality. Sharp admits that allegation. The plaintiff alleges that the Notebook Computers are not of merchantable quality, for the reasons already given. Sharp denies that allegation.

The plaintiff also alleges negligent misrepresentation by Sharp. The plaintiff alleges that Sharp:

"knew or ought to have known that potential purchasers such as the plaintiff might rely on information in brochures or on the Internet."

None of this information is identified. The plaintiff alleges that Sharp should have foreseen that if Sharp did not "appropriately qualify" the information, purchasers such as the plaintiff might choose "inappropriate goods." The plaintiff alleges that Sharp was in breach of a duty of care in this respect. Sharp denies these allegations.

The plaintiff alleges that because the Notebook Computers have broken down, the plaintiff has suffered substantial loss, in excess of $600,000.

In the light of these pleadings, the following issues arise. I confine my attention to issues relevant to the application for discovery. First, whether the Notebook Computers are suitable "for mobile use", whatever precisely that might mean. Secondly, whether the Notebook Computers were made with faults in design, materials or manufacture. Third, whether the computers were "unsuitable for mobile use due to a defect of design or manufacture which renders them prone to frequent breakdown." Fourth, whether Sharp was in breach of its warranty that there were no faults in materials and manufactures. Fifth, whether the Notebook Computers were of merchantable quality. That in turn again raises the issue of whether the computers were made with a "defect of design or manufacture which renders them prone to breakdown upon" mobile use. There is also an issue as to whether the goods were not suitable for mobile use or for use by drivers getting in and out of trucks, with the result that Sharp was in breach of a duty of care in making statements (at this stage unidentified) in brochures or on the Internet about the Notebook Computers.

I add that Sharp has pleaded that the Notebook Computers were of merchantable quality, and that if the plaintiff:

"has encountered high rates and frequency of breakdowns as alleged such breakdowns are due to the use and operating conditions to which the Notebook Computers have been subjected by or on behalf of the plaintiff."

I agree with Mr Nicholson, counsel for Sharp, that the Statement of Claim pleads the allegations at a high level of generality. No particular defect in the design or manufacture of the Notebook Computers, or in the materials used is identified. In effect, the plaintiff does not more than repeatedly assert that the Notebook Computers were prone to breakdown frequently, at an unacceptable rate, and that for this reason they were not reasonably suitable for mobile use or for the intended use, were not of merchantable quality and were made with faults in design, materials or manufacture.

Trying to be a little more specific, the factual issues appear to be the manner in which the plaintiff used the Notebook Computers, the breakdowns that occurred, the effect of those breakdowns on the use of the Notebook Computers, the cause of the breakdowns (manner of use or design or method of manufacture), and whether the breakdowns and the reasons for the breakdowns indicate that the Notebook Computers are unsuitable for mobile use or for the proposed use, or indicate that the Notebook Computers are not of merchantable quality.

Sharp has provided to the plaintiff an expert report prepared by Mr Garde, a consultant engineer.

Mr Garde states that he was given a four page document summarising the "Service Record" of identical Notebook Computers purchased by other purchasers over what appears to be about a two-year period. The summary is annexed to his report. The summary does not identify the purchasers (other than by reference to a number), the circumstances in which the Notebook Computer was being used, or the reason why service or a repair was requested. On its face it enables one to tell nothing more than that a claim was made by a customer for service of a Notebook Computer during the period covered, and (by inference) that some kind of service or repair was carried out.

From this document Mr Garde determined that other customers, on average, made 0.5 claims for service per computer. He comments that the plaintiff made 5.6 such claims. He observes that the difference cannot be explained by random variation, or by a bad batch of computers.

Mr Garde then discusses the "warranty claims" made by the plaintiff, makes some comments on the sort of repairs that were needed, examines the reason for the breakdowns and makes a number of comments about and refers to suggestions about the reasons for "the poor service record."

His consideration of the claims made by the plaintiff, the defects that occurred, and the suggestions made to him about the way in which the plaintiff was using the Notebook Computers, lead him to conclude that the problem lies in "rough handling" by the plaintiff, rather than in any fault or defect in the Notebook Computers. It is apparent from his report that in reaching this conclusion he relies in part on the "failure rate" experienced by other users compared with that experienced by the plaintiff. Thus, he relies in part on a conclusion drawn by him from the "Service Record" attached to his report.

Referring to the "Service Record", one cannot tell the circumstances in which the relevant Notebook Computers were used, why they broke down, or any other matter that might be relevant to the manner in which the purchaser used the Notebook Computer.

In particular, one cannot tell how the use by the purchasers compared with the use made by the plaintiff of its Notebook Computers, one cannot compare the breakdowns, one cannot tell whether use of the Notebook Computers in circumstances similar to those in which the plaintiff used them resulted in similar service claims or similar difficulties.

The plaintiff's application is for further and better discovery of the documents, which I assume will be in the form of service records, from which the "Service Record" was compiled.

I agree with the Master's conclusion that the documents in question are not "directly relevant to any issue arising on the pleadings." The relevant issues on the pleadings are the circumstances in which the plaintiff used the Notebook Computers and the breakdowns that occurred, the reasons for those breakdowns and whether, in light of that, the Notebook Computers are suitable for the proposed use, for mobile use, and are of merchantable quality.

Documents that would disclose the breakdowns which other users experienced will be relevant only if, and to the extent that, the same or similar breakdowns occurred in circumstances different from those in which the plaintiff used the Notebook Computers, and which could be said to be circumstances of normal use. If the documents show that other users of the Notebook Computers, in circumstances that could reasonably be said to be normal use, experienced similar difficulties, then those documents might tend to prove that the manner in which the plaintiff used the Notebook Computers was not the cause of the breakdowns. The fact that similar breakdowns occurred in other circumstances, if they are circumstances of normal use, might suggest that the breakdowns are due to a defect in design or manufacture.

But the documents in question as a class or category, being documents recording service claims made by other users of the Notebook Computers, in my opinion are not directly relevant to the relevant issues that arise on the pleadings. As a class or category, service records relating to other users will not tend to prove or disprove the matters that are in issue between the plaintiff and Sharp. In that sense they are not immediately or directly relevant. Some of the documents in the category might turn out to be directly relevant, but to my mind that does not make the category or class of documents directly relevant.

It is the plaintiff's use of the Notebook Computers, the difficulties experienced by the plaintiff, the conclusions to be drawn from those difficulties, and evidence about the reasons for the breakdowns that occurred, that are the matters in issue. It seems to me that claims under warranty by other users are only indirectly relevant. Such claims, depending upon all the circumstances, (circumstances of use, nature of breakdown, reason for breakdown) might or might not support the claim by the plaintiff that the breakdowns that occurred in the circumstances in which the plaintiff used the Notebook Computers indicate a defect of design or manufacture. In effect, the plaintiff wishes to examine the documents to see whether it can find evidence that other users experienced similar breakdowns in circumstances of normal or normally intended use. Documents that are sought on that basis are not, in my opinion, directly relevant to the issues on the pleadings. Another way of putting the matter is to say that as a category or class, records of warranty claims made by other users of the Notebook Computers are not directly relevant to the issues as between the plaintiff and Sharp.

Deciding the issue before me is made somewhat more difficult than it otherwise would be because of the generality of the plaintiff's pleadings. But, to the extent that that is so, the consequences of that must be suffered by the plaintiff. The defendant cannot be expected to identify the particular defects to be relied on, when the plaintiff does not do so in its pleading.

Is it in the interests of justice to order discovery?

The reliance placed by Mr Garde on the computer printout means that, if he is called as a witness and gives evidence to the effect of his report, the Court will be asked to act on an opinion based in part on material not available to the plaintiff and on criteria that cannot be evaluated. The comparison between the claim rate of other users and the claim rate of the plaintiff is valid only if it is known, as I understand the issues, that the other users used the Notebook Computers in circumstances that would be regarded as their normal or normally intended use. And even then, with no knowledge of those particular circumstances, it is questionable what reliance can be placed on the comparison. It is also the case that if another user, using the Notebook Computers in different circumstances from those of the plaintiff, experienced similar breakdowns, an analysis of the claim rate of such a user might be of particular significance. In short, without access to the service records, my tentative view is that the comparison of claim rates is of no value.

During the course of the argument I pointed out to counsel that Mr Garde's opinion may not be admissible in evidence at trial as things stand. It is based in part on a comparison of claim rates when matters vital to the utility of that comparison are not disclosed.

It is axiomatic that the opinion of an expert must be based on disclosed facts which enable the soundness of the conclusion to be tested. The facts on which the expert opinion is based must be proved. The nature of the service claims recorded in the document to which Mr Garde referred, and the circumstances in which the Notebook Computers were used, are not known. As was recently pointed out by the Court of Appeal of New South Wales in Makita (Australia) Pty Ltd v Sprowles [2001] NSWCA 305; (2001) 52 NSWLR 705, the fact that Mr Garde's opinion is not based on disclosed facts casts a doubt on its admissibility, as things stand.

If Mr Garde were permitted to express the opinion expressed in his report, on the basis stated in the report, my view is that fairness and the interests of justice require that Sharp provide to the plaintiff the documents on which that opinion rests in part, even though Mr Garde has not found it necessary to refer to them.

If my tentative view is correct, Mr Garde will not be permitted to give the evidence outlined in his report, unless he is prepared to and able to express the same opinion without reliance on the "Service Record." This is for the trial judge to decide. If the trial judge were to permit the evidence to be given, but to take the view that discovery of the relevant documents should be made, the trial will be disrupted. If the evidence is tendered and the trial judge rejects it, on the basis identified by me, the plaintiff will not suffer, but it seems hard on the plaintiff to leave the matter up in the air like that.

Mr Nicholson, counsel for Sharp, submits that all of these matters are for the trial judge, that Sharp will decide in due course whether to call Mr Garde and whether to persist with his evidence and the use that he makes of the "Service Record." Accordingly, he submits that it is not in the interests of justice to order further and better discovery. He also makes the point, which has some force, that the Notebook Computers are in possession of the plaintiff, that it is in a position to establish, through its own experts, any defects that may be found in the Notebook Computers, and that to some extent it is the generality of the plaintiff's pleadings that is the source of the problem. I agree with most of what he puts on that point, but while I agree that the plaintiff's pleadings are unhelpfully general, much the same issue would arise even if they were specific as to the faults of design or manufacture that were said to be the cause of the breakdowns complained of.

My view is that while Sharp reserves the right to call Mr Garde, if permitted to do so, to give evidence in terms of his report, and on the basis stated in the report, the interests of justice require an order for discovery of the documents referred to in the "Service Record." While I doubt whether Mr Garde will be permitted to give that evidence on that basis, it is not for me to decide. It is Sharp that has raised the issue of reliance on the conclusions to be drawn from the "Service Record", and that being so that factor, combined with the Court's interest in the efficient conduct of the trial (a factor relevant to the interests of justice), all lead me to that conclusion.

That being so, I propose to publish these reasons and to give Sharp an opportunity to consider its position. I gave it that opportunity during the course of the argument, but it declined to take it up then. If Sharp is prepared to give a written assurance to the solicitors for the plaintiff to the effect that if it calls Mr Garde, it will not place any reliance on the "Service Record", or on any comparison of warranty claim rates by other users of Notebook Computers based on service records, I will dismiss the appeal. I would do so because, in those circumstances, the documents from which the "Service Record" is drawn would not be directly relevant to the issues arising on the pleadings. And, that assurance having been given, the interests of justice would not make it appropriate to order further and better discovery of the documents in question.

Subject to that I would allow the appeal despite the claim that an order for further and better discovery is oppressive. The solicitor for Sharp has exhibited to an affidavit a facsimile from one of Sharp's employees, which states that locating and printing out the documents referred to in the "Service Record" would occupy four people for at least between two and three weeks. During the course of submissions I put to counsel that that suggested a cost of about $12,000 (twelve person weeks at about $1,000 each week), recognising that this was said to be a minimum, but assuming that the estimate given was a reasonable estimate. This may seem a little rough and ready, but this was the only information provided by Sharp. Bearing in mind that the claim is for an amount in excess of $600,000, my view is that it is not oppressive to order further and better discovery.

I will allow Sharp a short time in which to make its decision.

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