Seiwa Australia Pty Ltd v Seeto Financial Services Pty Ltd

Original or copies of all documents sent to any of the first to third defendants from Brian Phillips as referred to in the attached document marked "A" between 1 April 1999 to [sic] 31 December 2003.

Original or copies of all documents sent to any of the first to third defendants from Mr John Laxon as referred to in the attached document marked "A" between 1 April 1999 to [sic] 31 December 2003.

Original or copies of all documents sent to Mr John Laxon on behalf of any of the first to third defendants from Brian Phillips as referred to in the attached document marked "A" between 1 April 1999 to [sic] 31 December 2003." Background 2 The attachment marked "A" that is referred to is apparently an email from Stephen Seeto to Teruyoshi ("Terry") Nishiura sent on 22 March 2001 in the following terms: "Terry

I am sorry but I have to inform you of something regarding your $100,000.

Some 12 months ago, approximately $10.8 million was frozen by the US Customs in Florida. Of that amount $2.8 million were funds we had invested. We were in a deal which Andrew was managing in the Bahamas. These funds were not supposed to be able to be moved without our consent but somehow control was lost and the funds were moved to the US at which time they were seized. It is fortunate that the funds were seized because if it were not it would have been lost. The information I have given you in the past has been based on what Andrew has told me. I know [sic] learned that information has not been correct. I myself have been waiting for funds which has not happened.

I have since been spent [sic] enormous amounts of money hiring lawyers to recover the funds. Basically I have been defrauded. Certain people at the head of the scam are being indicted. I have retained two lawyers in the US and one in Australia to handle the recovery. I am appropriately being treated as a victim and the lawyers are in the process of dealing with the District Attorneys Office in Florida for the return of the funds. This is the reason I have just been to the US. I was required to give a deposition to the US government. We are confident of the funds being returned. It will just take some time.

The main lawyer I have retained is himself a former Prosecutor for the US government. He is very experienced with these matters. His name and address is

Brian Phillips, P.A. 111 North Orange Avenue Suite 1030 Orlando Florida Ph: (407) 872-0777 Fax: (407) 872-0704

Mr John Laxon Riley Lawyers 224 Riley Street NSW 1300 Sydney, Australia Ph: 61 2 9211 7488 Fax: 61 2 9281 88 44

Terry, everything is being done to have the funds returned from the US Government. Please have your lawyer or yourself call the Australian lawyer Mr John Laxon for more details. If you like I would be happy to go and see him with you.

Stephen". 3 Stephen Seeto is the third defendant. John Laxon is the solicitor for the first, second and third defendants. 4 By notice of motion filed in court on 18 March 2008, the first, second and third defendants seek an order that the plaintiffs' notice to produce dated 3 March 2008 be set aside on one or more of the following grounds: (a) pursuant to UCPR 21.10(1) (a) the documents called for are not referred to in any originating process, pleading, affidavits or witness statement filed or served by the Plaintiff;

(b) pursuant to UCPR 21.10(1) (b) the documents are not relevant to a fact in issue;

(c) the Notice to Produce is oppressive in that it imposes an unduly onerous obligation to collect and produce the documents, given the extent of the documents sought and the cost involved in their collection and production;

(d) a notice to produce cannot be used as a means of further and better discovery where orders have already been made under UCPR 21.2 defining the classes of documents required for discovery. 5 The notice of motion was supported by an affidavit of John Laxon sworn 25 March 2008. Mr Laxon said that the email was not a document discovered in the present proceedings and did not fall within the categories of documents sought by the plaintiffs in the course of discovery in these proceedings. The email was apparently, and uncontroversially, discovered in late 2007 or early 2008 by the plaintiffs and by the first, second and third defendants in separate proceedings commenced in this court by Terry Nishiura ("the Nishiura proceedings"). Those proceedings name the first plaintiff in these proceedings as the first defendant, Seeto Financial Services Pty Ltd as the second defendant, Stephen Seeto as the third defendant, Malcolm Beard as the fourth defendant and Gregory Ralph as the fifth defendant. Ground (d) 6 Because the first, second and third defendants relied principally upon ground (d) in their notice of motion, it is convenient to deal with that ground first. Mr O'Brien of counsel, who appeared for those defendants, submitted that the email was discovered in the Nishiura proceedings but was never discovered in the present proceedings and could never have been discovered because Mr Nishiura is not a party to these proceedings. Furthermore, Mr O'Brien points out that every category in the notice to produce is crafted by reference to the email and communications between not only the parties to these proceedings but also Mr Nishiura. Accordingly, the documents that are being sought in the notice to produce are quite distinct from the documents referred to in pars 86 to 88 of an affidavit sworn by Mr Nishiura in the Nishiura proceedings: they are quite simply not the documents or communications specifically identified in the notice to produce because they only relate, or are only relevant, to Mr Nishiura's investment. To that extent the notice to produce is invalid and cannot be corrected by re-drafting because that will not cure the abuse of process in these proceedings constituted by the use of an email discovered in separate proceedings. According to Mr O'Brien's submission, this would impermissibly and invalidly broaden discovery beyond the categories that have already been ordered. 7 The category within which the plaintiffs say the documents or communications fall is category 5, which is in the following terms: "5. All correspondence sent or received during the period 1 January 1998 to 13 May 2004 between any (or any combination) of the defendants and any other person or persons concerning any investment made or to be made by, on behalf, or at the request of any (or any combination) of the plaintiffs or any account, fund, or other asset into which such an investment was subsequently converted, including but not limited to all letters, e-mails, facsimiles, and all annexures and/or attachments to the above." 8 According to Mr O'Brien, the operative words are "concerning any investment made or to be made on behalf or at the request of any (or any combination) of the plaintiffs". As is clear, Mr Nishiura is not a plaintiff in the present proceedings. The documents and communications, therefore, sought in the notice to produce cannot fall within this category and to that extent the notice to produce seeks to go behind the discovery process or to broaden it beyond the categories which have already been set. It is submitted that such an approach amounts to an abuse of process. 9 In support of that proposition I was referred to the decision of Brereton J in Azzi & Ors v Volvo [2006] NSWSC 283 and in particular to the following paragraphs: "9 Formerly, an affidavit of discovery was, save for limited exceptions, conclusive [ Mulley v Manifold (1959) 103 CLR 341; Fruehauf Finance Corporation Pty Ltd v Zurich Australian Insurance Ltd (1990) 20 NSWLR 359], including as to the whether the deponent had any relevant documents other than those listed in his or her possession, custody or power [ Gardner v Irvin (1878) 4 Ex D 49 (CA); Jones v Monte Video Gas Co (1880) 5 QBD 556 (CA); Compagnie Financier et Commerciale du Pacifique v Peruvian Guano Company (1882) 11 QBD 55 (CA); Hall v Truman, Hanbury & Co (1885) 29 CLD 307, 319] and as to the relevance of such documents for the purposes of discovery [ Budden v Wilkinson [1893] 2 QB 432 (CA); Mogul Steamship Co v McGregor, Gow & Co (1886) 2 TLR 752; Hastings Corporation v Ivall (1873) LR 8 Ch App 1017]. It was, therefore, not permissible to go behind an affidavit of discovery by issuing a subpoena for production of documents which ought to have been the subject of discovery, on the basis that the affidavit of discovery was incomplete; to issue a subpoena in those circumstances was one of the classic cases of use of a subpoena as an abuse of process [ Commissioner for Railways v Small, 574]. The proper remedy for an inadequate affidavit of documents was a motion for further and better discovery or, when the rules provided for it, a motion for particular discovery.

10 Since the amendments to the rules, not only the recent Uniform Civil Procedure Rules but also the more recent versions of the Supreme Court Rules , the right to general discovery has been limited, and the rules have provided for discovery by reference to classes. The relevant rule is now to be found in UCPR rule 21.2, which provides that the court may order that one party give discovery to the other of documents within a class or classes specified in the order. The purpose of adopting this approach to discovery was to reduce the burdens of unlimited general discovery, by confining its scope through requiring that the classes of documents of which discovery would be required be identified by the parties and agreed by them and, if not, then determined by the court.

11 However, in my opinion, this does not affect the previous rule that a subpoena which seeks documents which could have been the subject of discovery is an abuse of process. The fundamental purpose of the amendments to the rules which limit discovery to classes was to avoid parties having excessively burdensome discovery obligations imposed on them, by excluding from discovery those documents which were outside the classes which were agreed or determined to be appropriate for discovery. If it remained open to a party to subpoena classes of documents which had been excluded from discovery, that would completely defeat the purpose of the rules in limiting discovery to specified classes. It would amount to using a subpoena to obtain discovery.

12 In this case, orders were made for discovery on several occasions, and classes for discovery were identified. So far as I can tell at this stage, the plaintiff specified classes of documents of which it sought discovery. Either the documents now sought fall within those classes and, if they exist, ought to have been discovered, or they fall outside the specified classes.

13 If the plaintiff contends that documents falling within one of the classes which it specified and in respect of which an order for discovery was made have not in fact been discovered, the only proper remedy is for it to seek further and better discovery, upon proof that there has been a failure to give proper discovery in that class. The defendant, of course, should be alert that if it transpires that it has not given proper discovery of documents in classes which were identified for discovery, then that will have been a serious default on its part. I do not suggest for a moment that that is in fact the case, but in view of the debate which has taken place and in view of the arguments which have been advanced about the subpoena, it should not be assumed that a conclusion that it was not permissible to subpoena these documents involves any conclusion as to whether or not there has been sufficient compliance with the order for discovery in the first place.

14 If, on the other hand, the plaintiff contends that it now seeks documents which were not covered by the order for discovery, then the proper approach would have been to make an application for further discovery by adding a further class to the documents for discovery. It seems to me that 28 February, a couple of days before the commencement of the trial, is rather too late to take that course, at least in the absence of a compelling explanation as to why it could not have been or was not taken earlier [cf Small , 574]." 10 I was also referred to Douglas Corporation Pty Ltd v Currico Nominees Pty Ltd [2007] NSW SC 113 at par [28]. 11 Mr M W Young of counsel, who appeared for the plaintiffs, conceded that it was impermissible to use a notice to produce as a means to review the adequacy of discovery or in an attempt to add other, substantial categories to a formulated list. He conceded that in such circumstances, if that were the aim, then one ought to be forthright about that and approach the matter by seeking further and better discovery in the ways indicated by Brereton J in Azzi (supra). 12 Mr Young submitted, however, that the question in issue was whether or not the documents that are the subject of the notice to produce actually fell within any of the existing categories of documents already identified in the discovery process. He submitted that, "as a matter of practicality" a notice to produce was a far better way of dealing with a fairly discreet set of documents such as those relating to the defendants' alleged attempts to recover the missing money in proceedings commenced in the United States of America than a requirement for the plaintiffs to file motions either for further and better discovery within the categories already in place, or for further discovery by adding an additional class to the documents already covered by those categories. Mr Young submitted that, in the present circumstances, which include, presumably, the fact that the plaintiffs have gone to the trouble of preparing and serving the subject notice to produce in the first place, the court would not require them in effect to re-formulate their application in a slightly different form. 13 As commendable a sentiment as this submission would appear to promote, particularly having regard to the requirement for the just, quick and cheap disposition of proceedings, it flies directly in the face of the wisdom identified above in the extracted paragraphs from the judgment of Brereton J in Azzi. In my view, the notice to produce is susceptible to being set aside on this ground alone. I should however deal with the other grounds relied upon. Grounds (a) and (b) 14 The plaintiffs did not appear to contest the factual basis for ground (a). They did however contend that the email was relevant to a fact in issue, contrary to the assertion in ground (b). The plaintiffs relied in this respect upon an affidavit of their solicitor Donald Junn sworn 1 April 2008, which contained the following material: "3. The last page of the Notice to Produce is an e-mail from Stephen Seeto to Terry Nishiura dated 22 March 2001 ("the E-mail"). The e-mail first came to my attention shortly after 29 February 2008 after I received a copy of the affidavit of Mr Nishiura dated 29 February 2008 filed in the Equity Division proceedings 2082 of 2007 brought by Mr Nishiura against the third plaintiff and the first, third, fourth and fifth defendants in the present proceedings. The E-mail is annexure "L" to that affidavit.

4. Claims made by the plaintiffs in the present proceedings include breach of trust on a wilful default basis, and claims for negligence and breach of contractual duty of care for the failure of the defendants to properly manage the plaintiffs' investments the subject of these proceedings ("the Investments"). One particular of the negligence/breach of contractual duty claims is that the defendants did not take sufficient steps to recover the bulk of the Investments, but entrusted the recovery to Mr Andrew Mansell. Another particular is that the defendants failed to take adequate precautions against allowing the investments to be misappropriated by Mr Andrew Mansell or any other person.

5. The third defendant swore an affidavit in the present proceedings on 3 September 2007 in which he gave evidence, inter alia, about steps that he says were taken to recover the Investments. In paragraphs 86 to 88 of that affidavit, the third defendant refers to a US attorney, Mr Brian Phillips, being engaged by Mr Andrew Mansell in 1999 (or shortly thereafter) on behalf of the first defendant to join the first defendant to "US Forfeiture Proceedings" that are said to have concerned part of the Investments. The third defendant says that Mr Mansell informed him that part of the Investments were "frozen by US authorities on suspicion of money laundering". The third defendant states further that the first defendant's claim was struck out for being out of time and because Mr Andrew Mansell was neither a director of the first defendant nor a partner of Gould Ralph.

The documents the subject of the Notice to Produce are relevant to these proceedings because they are likely to shed further light on the attempts made by at least the first and third defendants to recover at least part of the investments. They are also likely to reveal whether the third defendant's account of monies being frozen and court proceedings being brought in the United States to recover the frozen monies is true and accurate." 15 In my view, the email is a relevant document and the documents sought in the notice to produce are also potentially relevant. For example, the characterisation of the money in the hands of the defendants in documents that set out their claim to be entitled to it could have a potential significance in the present proceedings. On one view, the defendants themselves may have wished to rely upon such documents. It is unnecessary to comment further about these matters. Ground (c) 16 The first, second and third defendants next argued that the notice to produce was oppressive "in that it imposes an unduly onerous obligation [upon them] to collect and produce the documents". Mr Laxon gave evidence apparently in support of this ground in an affidavit sworn by him on 25 March 2008. That evidence was in the following terms: "8. A very large burden attaches to the production of the documents called for in the Notice to Produce. There are a very large number of documents covered by the call in Australia and in the United States. The documents, if they exist, date back to 1999 and the passage of time imposes difficulties in locating and recovering the documents.

9. Many of the documents, if they still exist, will be located in the United States of America. If those documents still exist they will be in the possession or control of the US Attorney who previously acted for Stephen Seeto, Mr Brian Phillips, of Orlando, Florida, with whom I have had no contact for a number of years. I am informed and verily believe that Mr Stephen Seeto has also not had contact with Brian Phillips for a number of years.

10. As the purported scope of the Notice is so broad, a very large amount of time will be necessary to trawl through the various files to locate and recover the documents. Hillman Laxon Tobias is a small firm with only limited resources available within the office to carry out the task of locating and recovering the documents. Such a task will cause an extensive diversion and delay and will impinge upon the preparation for trial on behalf of the Seeto parties.

11. Further, in my opinion the costs to my clients in paying for two lawyers (Mr Brian Phillips in the USA and myself) to recover, examine and deliver the documents the subject of the Notice, in order to comply with the Notice, will be prohibitive and may cost several thousand dollars to my client. This will prejudice my client as it will divert money that would otherwise be used in preparing for the trial." 17 Mr Laxon was cross-examined upon these parts of his affidavit. Part of the transcript of that cross examination reveals the following questions and answers: "Q. Mr Laxon, in your affidavit of 25 March 2008 in paragraph 8 where you refer to the burden attaching to the production of documents you say, "There are a very large number of documents covered by the call in Australia and in the United States. The documents, if they exist, date back to 1999." Do you see that? A. Yes, I do.

Q. Then in paragraph 9 you start that paragraph by saying, "Many of the documents, if they still exist, would be located in the United States." A. Yes.

Q. You don't actually know whether any documents exist in relation to the notice to produce; is that right? A. I don't know whether any documents still exist so far as the United States documents are concerned in relation to the notice to produce.

Q. Aren't you suggesting in paragraph 8 that you are not sure whether any documents exist in relation to the notice to produce? A. Well, I'm suggesting there's the possibility that documents certainly did exist which may no longer exist.

Q. These particular documents deal with one particular set of proceedings in the United States. Isn't that right? A. Yes, that's correct.

Q. Although you say that the documents, if they exist, date back to 1999, the issues in this case are issues concerning events that happened around 1999 and shortly thereafter. Isn't that right? A. Yes.

Q. So the documents subject to the notice to produce are really no older than the other documents that are relevant to these proceedings. Isn't that right? A. Yes.

Q. And you would likely have a file in your own office just sitting there containing those documents relevant to the notice to produce that are in your possession. Isn't that right? A. No.

Q. You do keep files in your office, don't you? A. Yes.

Q. And it's quite likely, isn't it, that the US lawyer has got a file sitting in his office relating to these proceedings and all one has to do is ring him up and say, excuse me, but do you have this file, could I have it, and that lawyer would say yes. It's quite possible, isn't it? A. Are you asking whether it is likely or whether it is possible?

Q. It's quite possible, isn't it? A. It's possible.

Q. So it is quite possible that very little time would be required to obtain the documents relating to the US proceedings. Isn't that right? A. No, I disagree. You first have to track down Brian Phillips, if he is still practising. Assuming I can do that, I have no idea whether Mr Phillips - given these proceedings were in 1999 and 2000 and we are now in 2008, I assume that there's every chance the documents aren't in his possession and may well have been archived.

Q. Did Mr Phillips act for your clients in a large number of matters? A. No.

Q. Even if the documents are archived, that hardly involves a major task to sort through an enormous number of documents to find the documents in relation to this notice to produce? A. I simply can't comment on the American documents.

Q. You have commented in your affidavit, haven't you? You said a very large amount of time would be necessary to trawl through the various files to locate and recover the documents. A. Assuming the documents have been archived, by its very nature that requires a degree of time, a large degree of time to go out to the archives, locate the documents, go through the documents. Of its very nature, yes, I think the statement is correct.

Q. It involves a trip to the archive office and then retrieving the file in question? A. Well, you are asking me to comment on a legal practitioner in America and his archiving practices. These are matters that I have no direct knowledge of.

Q. It is equally possible or even more possible, isn't it, that rather than requiring a very large amount of time to trawl through various files it would require a very short amount of time. Isn't that right? A. No, I would have thought that quite some degree of time would be required.

Q. Just out of interest, Mr Laxon, much of your affidavit is based upon assumptions you have made. Do you have any idea whether these documents do exist or don't exist, if they do, where they are, and if they can be located how large they are, or do you not know? A. I can't answer accurately, your Honour. If the documents still exist the vast bulk of them will exist in America in Florida.

Q. But we don't know if we are talking about a folder an inch thick or 40 lever arch files, do we? A. My best recollection is we would be talking about certainly more than one folder. There were US forfeiture proceedings that were commenced and they were quite significant proceedings. It wasn't simple." 18 Mr Young submitted that Mr Laxon's evidence revealed that he was really simply guessing at what might be involved. In Mr Young's words, these guesses were "[pitched] at the most difficult end of the range of possibilities when really it is quite possible that there might just be a file sitting there [that] could be mailed to Australia by return post". There is considerable force in this submission. 19 Mr Laxon's evidence on this point was clearly directed at an attempt to support the exercise of a discretion in favour of his clients on what is arguably an important interlocutory issue in the proceedings. He was patently unsure whether or not the documents existed at all or, if they did, what form they took, where they might be located, or how many of them there were. Despite his clearly imperfect understanding of the true position, Mr Laxon felt able to say that a very large burden attached to the production of the documents in question. He gave no evidence of having made any enquiries to ascertain the true position, such as the making of a telephone call to Mr Phillips in the United States, and promoted his lack of knowledge as somehow amounting to a relevant consideration. For example, Mr Laxon appears to have assumed that Mr Phillips no longer exists or is no longer in practice and that in the latter case would therefore be too difficult to contact or locate. I consider this approach, based as it is upon unsupported assumptions, to be somewhat unsatisfactory in the circumstances. Had it been necessary for me to decide the point, this evidence would not have satisfied me that Mr Laxon's clients ought to be relieved of the burden of compliance with the obligations called forth by the notice to produce. Client legal privilege 20 Finally, the first, second and third defendants raised the spectre of a claim for client legal privilege with respect to the documents of which the plaintiffs sought production. In the events that occurred, this issue does not arise for consideration. Conclusion 21 The plaintiffs' notice to produce amounts to an attempt to subvert the discovery process and should be set aside. Orders 22 I make the following orders:

(1) Order that the notice to produce dated 3 March 2008 issued by the plaintiffs to the first, second and third defendants be set aside.

(2) Order that the plaintiffs pay the first, second and third defendants costs of the motion.

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