Sedco Forex International Inc v Nexus Energy WA Proprietary Limited

IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION WAD 260 of 2011

JUDGE: BARKER J DATE: 13 MARCH 2013 PLACE: PERTH

OVERVIEW 1 There are two interlocutory applications before the Court: 1. The applicant's interlocutory application for further and better particulars of the defence of the first respondent (Nexus) and amendment of discovery orders dated 20 December 2012; 2. Nexus' interlocutory application for amendment of the discovery plan dated 1 February 2013. 2 While the applicant's application is in part about further and better particulars of the defence of Nexus, that issue is fundamentally tied to the question of discovery agitated by each side. 3 Having considered the parties' competing submissions the Court is satisfied orders should be made on the applicant's application and the application of Nexus should be dismissed.

particulars issue 4 Some of the background to the proceeding can be found in Sedco Forex International Inc v Nexus Energy WA Proprietary Limited [2012] FCA 351. The applicant claims damages in the sum of US$67,173,680 against both Nexus and the second respondent for repudiatory breach of a drilling contract. The applicant also claims damages for loss suffered for repudiatory breach of a co-operation agreement. The applicant additionally seeks damages against both respondents for contravention of s 52 of the Trade Practices Act 1974 (Cth), on alternative bases both as to liability and the calculation of loss and damage. 5 By [79] of its defence, Nexus pleads that the applicant was not capable of providing the rig in question in accordance with the drilling contract pleaded prior to the completion of repairs of defects as pleaded in the defence, and that the applicant was not capable of providing the rig in accordance with the contract until early July 2009 at the earliest. 6 By [80] Nexus pleads that on 19 May 2009 when it purported to accept Nexus' alleged repudiation, the applicant was itself not ready, willing and able to perform the drilling contract and accordingly the applicant was not entitled to terminate the contract or not entitled to damages or suffered no loss as a consequence of any repudiation by Nexus. 7 By [81], Nexus says that the applicant could only have delivered the rig to Nexus within the mobilisation window pleaded if it had elected not to repair the defects. 8 By [82], Nexus says that if the applicant had purported to deliver the rig to Nexus with the defects within the mobilisation window, Nexus would have been entitled to terminate the drilling contract and would have done so. 9 As a result, Nexus says that if, which is denied, the applicant was entitled to terminate the drilling contract it has not suffered any loss or damage as a result. 10 A part of the premises leading to these eventual pleas, is [70] of the defence by which it is alleged that by 18 May 2009 the rig suffered from multiple defects by reason of which it did not meet the safety and/or operational requirements for: (a) registration by the Bahamas Maritime Authority; (b) maintaining a certificate of class from the American Bureau of Shipping; or (c) complying with the terms of the drilling contract pleaded; and could not do so without sailing to port and undergoing a four to six week program of repair and rectification. 11 In relation to the plea in [70], the following particulars are provided: The Defects included the major deficiencies identified by the Bahamas Maritime Authority inspection referred to in paragraph 69 above and: (a) Elmagco brake requiring repair. (b) Haukjaw requiring repair. (c) Fuel lines requiring repair. (d) Clamp and flange on port base oil transfer line badly corroded giving rise to potential base oil spill when transferring. Further particulars of the Defects will be provided after discovery. 12 The parties agreed a discovery plan and the Court made orders for discovery that gave force to the discovery plan. 13 Nonetheless there have in recent times been differences between the parties as to the extent of discovery required, particularly in relation to the defects to which Nexus refers. Some materials have been provided by the applicant to Nexus from which the applicant says Nexus should now be able to particularise those defects which it seeks to rely upon for the purposes of its defence that the applicant was not ready, willing and able to perform the drilling contract at material times. The applicant says Nexus should now particularise its case and the Court should make orders to that effect.

discovery positions 14 The applicant says that once Nexus has particularised its case it will be able to complete discovery and that without particularisation discovery is an "impossible exercise" and, if it has to be given, will significantly increase the costs of the applicant and result in significant delays in the advancement of the proceeding. 15 On the other hand, Nexus says that without a full and complete discovery of appropriate documents, it will not be able to identify all the defects that it wishes to particularise for the purposes of its defence. It says that the extent to which there are other defects additional to those already particularised, the defects are matters within the knowledge of the applicant and it is reasonable that the discovery orders it now seeks be made. 16 The applicant and Nexus in their written submissions in support of their respective applications have recounted something of the history of the dealings between the parties concerning discovery to date and the particularisation of defects, as well as of the Court's approach to this point in the proceeding in relation to discovery issues. It was the Court's judgment, based on earlier submissions made by the parties at directions hearings, that if the technical documents referred to at paras 1(b) to (d) of the discovery plan were provided to Nexus, the process by which Nexus might particularise the defects it wished to rely upon in the proceeding would be advanced and the discovery the applicant needed to complete would be circumscribed. 17 In the event, the position of Nexus is that, having taken expert advice on the technical documents from a Mr Craig Harrison, it requires further material to be discovered by the applicant so that Mr Harrison can complete his assessment of what defects are identified for the purpose of Nexus completing its particularisation of defects alleged in [70] of the defence. On behalf of Nexus it is said that its solicitors have not yet formally provided further particulars to [70] because the annexure to Mr Harrison's report is preliminary. They have, however, prepared a list of a further 143 defects that could be provided by way of further and better particulars of [70] based partly upon Mr Harrison's report. The applicant and the Court have been provided with a copy of that list. 18 Nexus says, however, that Mr Harrison makes the point in his report that the information provided to him is superficial and does not allow him to form a view on the extent to which the defects identified affect the functionality of the rig. 19 Furthermore, Nexus says that Mr Harrison notes other matters that are not defects, but which may be highly relevant to whether the applicant was ready, willing and able to perform the drilling contract. For example he notes a "very high" number of safety incidents on-board, which he says could point to the failure of a system or could be a reflection of the competence of the crew. It is said by Nexus that this is an example of why the applicant's readiness, willingness and ability to perform the drilling contract involves matters other than the mechanical state of the rig. 20 The applicant takes the view, particularly given the nature of a number of the 143 issues noted by Nexus from Mr Harrison's report, which it considers to be irrelevant to the defence being mounted, that Nexus is now in a position to particularise its case and there is no evidence that it cannot do so on the basis of the material that has been provided to date. 21 The applicant says the history of the defects particularisation process demonstrates that Nexus is on a fishing expedition and is seeking to delay the trial of the proceeding. As noted above, it says if it is required to provide a more extensive discovery it will become an impossible exercise, significantly increase the costs to the applicant and result in significant delays in the progress of the proceeding. 22 In relation to the additional discovery Nexus says should be undertaken, it seeks the following orders: (1) the complete computerised maintenance management system (CMMS) in electronic form for the period January 2008 to December 2009; and (2) the documents and categories of documents identified in a list entitled "Specific documents required to be discovered by applicant". 23 The applicant argues that this would result in the applicant being required to give access to all information held by the applicant in relation to many aspects of its business that have absolutely nothing to do with matters in issue. In response to the submission of Nexus that it could undertake appropriate confidentiality processes to ensure the integrity of the applicant's non-relevant materials, the applicant says that, in effect, there remains risks in such an approach and it is simply inappropriate that such a discovery should be ordered. 24 The applicant says any such discovery will involve it either having to: (1) undertake a detailed review of all the documents which touch upon or relate to the condition of the Legend, the rig in question here, including virtually all of the 18,000 documents taken from the hard drive of the rig's offshore installation manager during the period 1 January 2009 to 30 August 2009, with the assistance of an expert and attempt to discern which documents might potentially be relevant to any case that Nexus is seeking to make. Not only would this involve considerable time and expense and significantly delay the provision of discovery by the applicant, but it would also require the applicant to second guess what case Nexus might choose to advance; or (2) discover all documents which touch upon or relate to the Legend, regardless of any apparent relevance to any case that the first respondent is seeking to make. The search for and discovery of all documents relating to the condition of the Legend will involve considerable time and expense. In addition, any documents provided to Nexus would have to be reviewed by the applicant's legal team before the matter proceeded to trial. This would involve considerable expense and be likely to delay the fair trial of the matter. 25 In short, the applicant says for the Court to make discovery orders in accordance with the requirements of Nexus would result in a burden being imposed on it inconsistent with the Federal Court Rules 2011 (Cth) (Rules) as to discovery, and disproportionate in the circumstances, particularly given the information available currently to Nexus to enable it to particularise its case. 26 The applicant contends that the purpose of the application of Nexus is contrary to the modern approach adopted by this Court to discovery, whereby it seeks to ensure that cost and time required for discovery of documents is proportionate to matters in dispute and whereby it seeks to regulate the overuse of discovery, reduce expense and ensure key documents relevant to the real issue are identified as early as possible. 27 The applicant draws attention to R 20.11 whereby a party must not apply for an order for discovery unless the order will facilitate the "just resolution of the proceeding as quickly, inexpensively and efficiently as possible". 28 The applicant also notes that "standard discovery" is the usual level of discovery that will be given under R 20.13, involving the discovery of those documents directly relevant to the issues raised by the pleadings of which a party is aware after a "reasonable search". 29 It also notes the terms of Practice Note CM5: Discovery at [3] which states that the Court, when considering applications for discovery, will have regard to the likely benefits of discovery, the likely costs of discovery and whether those costs are proportionate to the nature and complexity of the proceeding. 30 In summary, the applicant says the proposed application of Nexus will require the applicant to undertake extensive searches to obtain and produce documents, many of which have little or no relevance to any issue in the proceedings. Such an application is contrary to the Rules and should not be permitted. 31 So far as Mr Harrison's report is concerned and the listing of 143 issues, the applicant says Mr Harrison does not explain why or how each specific document or class of document sought would help Nexus plead its case. The document request list does not identify which requests relate to which entries in the document review register. It would be onerous to require the applicant to review the document review register and follow through the leads in an attempt to ascertain whether there are any further clues, which would enable it to identify the documents sought. 32 Nexus acknowledges the terms of the Rules and the Practice Note but say that this is a proceeding in which the ends of justice will be appropriately served by more fulsome discovery being granted at this point. It acknowledges that it could seek to particularise defects on the basis of information currently to hand and to that extent it is assisted by Mr Harrison's report. But it says that any such particularisation and discovery given in respect of it will not necessarily prevent further particularisation later. Nexus contends that by obtaining a more fulsome discovery now, it will not be engaging in "fishing", but will be provided with a legitimate opportunity to regard the applicant's relevant documents so that it can properly complete particularisation of [70] of their defence in a timely way. This should not be productive of any delay in the advancement of the proceeding. It says that to the extent that the Rules and Practice Note identify the avoidance of expense as a goal in the exercise of the Court's discretionary discovery powers, the applicant is a large, well-resourced international corporation, well able to undertake the discovery it requires. 33 The applicant says that notwithstanding the requirement that there be factual material to provide a proper basis for each allegation in the pleading, it is apparent that the expert, Mr Harrison, has been engaged to identify every possible source of information which could be examined to assist Nexus to ascertain a case that it can put on the pleaded issue and that this is the very essence of a "fishing expedition" and is not the proper purpose of discovery.

consideration 34 It is common ground that a pleading enables a party to state with clarity a case to be met and that parties should not engage in fishing expeditions by reference to documents held by the other side in order to discover a defence (or a cross-claim) in a proceeding against them. 35 There are numerous cases in which discovery has been rejected because it amounts to a fishing expedition understood in this way: Lyons v Kern Konstruction (Townsville) Pty Ltd (1983) 70 FLR 135 discusses some of them. Fitzgerald J in that case considered a number of authorities in which discovery was allowed prior to pleading or particularisation of a pleading. In that case his Honour considered that insofar as discovery related to the allegations under consideration they were nothing but a fishing expedition. The pleading baldly alleged the state of mind of the defendant. His Honour said it was nothing but a bare allegation and there were no particulars to support it. There was therefore no basis upon which discovery about state of mind should be permitted. 36 But, as Fitzgerald J observed at 151, each case must be decided on its merits and particular circumstances. The ultimate object is to mould the Court's procedure to do justice between the parties. There are those cases where a party in its pleading particularises as far as it can go but it can go no further. The Court in such circumstances may well take the view that discovery to enable further particularisation is not in the nature of a fishing expedition. However, as his Honour noted at 151, even if a fishing investigation is not what is intended, the proper balance of the competing considerations may still require the Court to refuse early discovery. 37 In Trade Practices Commission v CC (New South Wales) Pty Limited (1995) 58 FCR 426, Lindgren J, at 438, confirmed that the fishing prohibition is designed to prevent the use of discovery for the purpose of ascertaining whether a case exists, as distinct from the purpose of compelling the production of documents where there is already some evidence that a case exists. His Honour recited what Brennan J said in WA Pines Pty Ltd v Bannerman (1980) 41 FLR 175 at 181 to the effect that what is required is that sufficient is shown to ground a suspicion that the party applying for discovery has a good case proof of which is likely to be aided by discovery, acknowledging that the distinction between fishing and non-fishing cases may be difficult. 38 Nexus contends that the position it finds itself in is that it has given all the particulars it can at this point on the "defects" claim and that, consistent with "good practice and good sense" as to which see Keshi v Firefly Press (Australia) Pty Ltd [2008] FCA 440; (2008) 246 ALR 166 at [25] (McKerracher J), it should receive discovery before delivering further particulars. 39 As noted, drawing a distinction between a fishing and non-fishing case may be difficult on occasions to draw. This, in my judgment, is one of those occasions. In some cases, such as Silver v Dome Resources NL [2004] NSWSC 266 (Silver), a decision on which Nexus relies, discovery was not considered a fishing expedition in relation to the particulars of an alleged contract because there was some evidence that a contract existed. In light of that fact and because the relevant documents were in the possession and power of the responding party, disclosure was required. 40 Here, it is true to say, as Nexus does, that it alleges defects and has particularised some of the defects it wishes to rely on. But it fears there may be more "defects" and will only be able to say if there is if it is permitted to have access to all of the applicant's documents. Presently it has identified a range of issues in Mr Harrison's report, although it is not entirely clear that Nexus is contending that each of the 143 matters listed constitutes a "defect" in the relevant sense. 41 It seems to me, as a matter of judgment, that the discovery Nexus requires is very much a fishing expedition. It is currently aware of some issues it considers to be defects. However it now wishes to undertake a comprehensive search of the applicant's documents to see if any other "defects" can be found. It does not know if there are any others. There is nothing to suggest there are any. While it may be true to say that, if there are any other issues that fall within the category "defects" in the relevant sense, they will only be discovered in the documentation of the applicant, that, in my view, in the circumstances of this case, is not sufficient for me to be satisfied that what Nexus wants to undertake here, is anything but a fishing expedition. It is unlike the situation in Silver where there was some evidence a contract existed, and discovery was allowed to flesh out its details. 42 Further, even if one were more sympathetic to the view that additional discovery of the type required by Nexus is not intended to be a fishing expedition, I also take into account that Nexus, by its application, primarily requires the applicant to provide all of its materials electronically so that Nexus might search the applicant's database in order to discover information that might be helpful to it mounting its defects case. I do not consider that it is appropriate in any event to order such a broadly scoped discovery in a case such as the present, even if technically it may be achieved: cf Wimmera Industrial Minerals Pty Ltd v RGC Mineral Sands Ltd [1998] FCA 299 at 28 (Mansfield J). Discovery ought, in a case like this, be a much more targeted exercise than that. In this case the order sought by Nexus would give it broad access to numerous business documents of the applicant that are not relevant on any view. Indeed Nexus' proposal in this regard tends to emphasise that what it wishes to embark upon is indeed a fishing expedition. 43 Moreover I consider that the process of further discovery as envisaged by Nexus would be unduly complex, lengthy and expensive. In that regard I accept, broadly speaking, the affidavit evidence put on by the applicant as to complexity and cost and time that would be involved in the processes that would be required on its side to provide broad discovery of all materials that might fall into the category of "defects", short of handing over its electronic database to Nexus. Leaving aside the characterisation by the applicant itself as to what or is not a possible defect for the purpose of Nexus' pleading, the sheer physical demands of the discovery required suggests to me that this is not a case where the Court should facilitate the required discovery as a matter of course in the circumstances of this case. While it may be true, as Nexus contends, that the applicant is financially well resourced and able to complete a lengthy, complex and expensive discovery, in my judgment, given the history and progress of this particular proceeding, such a discovery is not appropriate and indeed may lead to a delay in the proceeding going to trial. 44 The position is that Nexus has been provided with relevant technical documents. At an earlier stage I considered there was practical sense in the applicant giving this additional discovery to Nexus in the real expectation that it would assist in a practical way to identify any further "defects" that Nexus wished to particularise. It plainly has assisted in that regard, given Mr Harrison's report. In my judgment, the level of disclosure so far made on behalf of the applicant is sufficient for Nexus now to particularise the defects upon which it wishes to rely in advancing the [70] allegations. 45 There is an old saying that something is "Not worth the candle". This is sometimes suggested to mean that something is "worthless". However, it usually means something more subtle than that, namely, that while something may, on one view, be worthwhile, the trouble or effort in trying to realise it makes it not so. At this stage I do not think that the discovery requested by Nexus is worth the candle. In this regard, my judgment is ultimately informed by the overarching purpose of the civil practice and procedure provisions of this Court, as expressed in s 37M(1) of the Federal Court of Australia Act 1976 (Cth), which is to facilitate the just resolution of disputes according to law and as quickly, inexpensively and efficiently as possible. The overarching purpose includes the objectives spelt out in s 37M(2), which include the: just determination of all proceedings before the Court; efficient use of the judicial and administrative resources available for the purposes of the Court; efficient disposal of the Court's overall case load; disposal of all proceedings in a timely manner; resolution of disputes at a cost that is proportionate to the importance and complexity of the matters in dispute. 46 While what is in dispute in this proceeding is a very large sum of money, and on one view that might justify a court requiring the parties or one of them to incur great expenses in the prosecution or defence of the proceeding, I consider that the objectives just listed require a more practical assessment to be made as to what is required by way of further discovery at this point to ensure the proceeding advances to a relatively early trial on the material issues. 47 In that regard, Nexus should complete its particularisation of its plea in [70] of its defence so that the applicant can complete discovery according to the discovery plan having regard to that particularisation of the pleading. 48 In these circumstances, I would refuse Nexus' interlocutory application filed 1 February 2013, and make orders in terms of the applicant's interlocutory application filed 20 December 2012, but amended so far as the time frames are concerned. 49 I will also order a further directions hearing to follow the discovery, with a view to programming the proceeding to a fixed trial date.

Orders 50 The Court orders that: 1. By 28 March 2013, the first respondent provide further and better particulars to the first respondent's defence. 2. The discovery orders made by Justice Barker on 7 August 2012 and 19 October 2012 be varied as follows so that: (a) by 8 April 2013, the first respondent, second respondent and third respondent provide standard discovery of documents in accordance with the discovery plan dated 7 August 2012; (b) by 22 April 2013, the first respondent, second respondent and third respondent file and serve a sworn affidavit of discovery; (c) by 20 May 2013, the applicant provide standard discovery in accordance with the discovery plan dated 7 August 2012; (d) the applicant's obligation to provide standard discovery of documents relevant to the matters pleaded in [45(d)], [70], [77(a)] and [80] of the first respondent's defence will be fulfilled by the provision of standard discovery of the documents relevant to the eight defects particularised at [70] of the first respondent's defence and any additional defects particularised by the first respondent in accordance with (1) above; (e) by 3 June 2013, the applicant file and serve a sworn affidavit of discovery. 3. The interlocutory application of the first respondent filed 1 February 2013 be dismissed. 4. Costs of each interlocutory application to be in the cause. 5. The matter be listed for a further directions hearing on Friday 21 June 2013 at 10:15am. I certify that the preceding fifty (50) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Barker.