Supreme Court of WA|1999-06-16|Before: Hanson J, Parker J

Tipperary Developments Pty Ltd & Anor v The State of Western Australia & Ors [1999] WASC 62 (16 June 1999)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : TIPPERARY DEVELOPMENTS PTY LTD & ANOR -v- THE STATE OF WESTERN AUSTRALIA & ORS [1999] WASC 62

(Consolidated by Orders dated 8 June 1994 and 21 September 1994)

Procedure - Non-party discovery - Unnecessary and oppressive

Procedure - Legal professional privilege - Refusal to order liquidators to waive privilege

Re Condon; Ex parte James (1874) 9 Ch App 609 considered

Application for non-party discovery granted in part

Plaintiff (by Counterclaim) : State Crown Solicitor

First Defendant (by Counterclaim) : Slater & Gordon

Aboriginal Sacred Sites Protection Authority v Maurice (1986) 65 ALR 247

Attorney-General (NT) v Maurice [1986] HCA 80; (1986) 161 CLR 475

Australian Manufacturing Workers Union v Seeley international Pty Ltd [1988] IR 253

Lurgi (Australia) Pty Limited v Gratz, unreported; SCt of Vic (Hanson J); BC 950 6631; 14 November 1995

Re Dallhold Investments Pty Ltd [1994] FCA 1398; (1994) 130 ALR 287

1 PARKER J: In this interlocutory application Tipperary Developments Pty Ltd ("the plaintiff") a plaintiff in the original action seeks an order for non-party discovery pursuant to Rules of Supreme Court O 36 r 12(4) from Ian Douglas Ferrier and Robert Allan Tuckey ("the liquidators") the joint liquidators of Rothwells Limited ("Rothwells").

2 There has been an order for the consolidation of more than one action. It is sufficient, for present purposes, to say that one claim of the plaintiff against the State of Western ("the State") is grounded on representations which the plaintiff alleges were made in 1988 by persons acting for or on behalf of the State. In essence it is alleged to have been represented that if the plaintiff made advances of $50 million to Rothwells, that company would have the capacity to repay the advances, and, that accounts of Rothwells prepared in January 1988 and provided to the plaintiff by the State revealed the true financial position of Rothwells, both when the accounts were prepared and as at 16 March 1998 which is a date material to the plaintiff's case. The plaintiff alleges that these representations were false, that Rothwells did not have the capacity to repay the $50 million at any material time and that at least by 16 March 1988 Rothwells was insolvent, contrary to the position indicated by the accounts.

3 The State has not admitted the insolvency of Rothwells as at 16 March 1998 or Rothwells' incapacity to repay an advance of $50 million.

4 An advance of $50 million was made by the plaintiff to Rothwells by means of a bill facility. It was not repaid. On 3 November 1998 the liquidators were appointed provisional liquidators of Rothwells. Since then, pursuant to a compromise in the liquidation, an amount of approximately $20 million was paid to the plaintiff in respect of a claim of the plaintiff to recover the $50 million in the liquidation. In this action the plaintiff seeks to recover its alleged consequential loss of approximately $30 million from the State.

5 For this purpose it will be necessary at trial for the plaintiff to establish the financial position of Rothwells in January 1988 and in particular as at 16 March 1988. It will be necessary also for the plaintiff to establish that Rothwells did not have the capacity to repay an advance of $50 million either in January 1988 or as at 16 March 1988, that the accounts did not reveal the true position of Rothwells at those times, and the insolvency of Rothwells as at 16 March 1988.

6 It is common ground between the plaintiff and the liquidators that the liquidators have in their possession a large number of documents potentially relevant to the financial position of Rothwells and the issues in this action. For convenience, these documents may be divided into two general categories which have been loosely described as the Rothwells' documents and the liquidators' documents.

7 The Rothwells' documents comprise essentially books and accounting records of Rothwells created or held in the course of its business prior to the appointment of the provisional liquidators.

8 The liquidators' documents comprise essentially records relating to the administration of Rothwells following the appointment of the provisional liquidators and during its liquidation, being documents generated in the course of the administration. The liquidators' documents may be further divided into three categories:

(a) documents in respect of which the liquidators entered into confidentiality arrangements,

(b) confidential communications with legal advisers prepared solely for the purposes of legal advice or confidential documents prepared solely for the purpose of litigation involving Rothwells, and

(c) liquidators' records and other material generated in the course of the administration, which are not the subject of legal professional privilege or the subject of confidentiality arrangements.

9 An affidavit on behalf of the liquidators deposes to the existence of some 1021 boxes of documents, being both the Rothwells' and the liquidators' documents, each box containing approximately 1000 pages, ie a total of over one million pages. Almost all of these are now in storage. They are recorded for storage on a file by file basis identified by reference to box numbers.

10 The liquidators' documents have not been filed or recorded in a manner which either separates out the documents into the three categories of liquidators' documents which are identified above or enables their identification without an examination of the documents. Of the approximately 1021 boxes, an assessment of the file by file records has identified approximately 136 boxes which will not contain documents relevant to the action. The remaining approximately 885 boxes contain documents, some of which are potentially relevant to the action, but not all of their contents are potentially relevant.

11 The Rothwells' documents are contained in approximately 300 boxes. Much, if not all, of this material is likely to prove relevant to the action. While it is said for the liquidators that these documents are unlikely to contain documents over which there would be a claim for legal professional privilege or issues of confidentiality to be considered, nevertheless, from their knowledge of the general characteristics of the documents, the liquidators identify a need to review some of these documents for relevance, privilege and confidentiality.

12 The liquidators have provided an estimate of the time and personnel required for this review of the Rothwells' documents and of the rates which would be normally charged by the liquidators for the services of these personnel. They estimate the cost of the review to be in the order of $36,320 plus costs incidental to organising the task, such as equipment and accommodation. In addition, there is foreseen a need to take legal advice in respect of some of these documents.

13 That process of review would, however, not produce a listing of all documents in the form usually appropriate for discovery. The task of a full listing would involve much more time, effort and cost. Subject to first undertaking a limited review, and excluding where appropriate, documents on the basis of relevance, privilege and confidentiality, the liquidators are prepared to release the Rothwells' documents to the plaintiff as a means of discovery (together with any listings, file indices and the like which the liquidators presently have, to facilitate their use by the plaintiffs) if their costs and expenses are met and certain undertakings are given by the plaintiff.

14 Counsel for the plaintiff indicated in the course of submissions that the plaintiff would be content with what is being proposed in this regard by the liquidators which would avoid the need for a full listing. There is, however, dispute as to some of the other proposals of the liquidators and as to the factual basis for them, to which I will turn later in these reasons.

15 As has been indicated there are some 585 boxes of liquidators' documents which contain documents potentially relevant to the action. It is the evidence for the liquidators that the contents of all of these require reviewing for relevance. Further, from the listing of the records, it is said on a preliminary basis that the contents of some 400 of the boxes will require examination for legal professional privilege. Documents within some 30 of those 400 boxes will also require consideration for confidentiality. The nature of these issues, especially the issue of legal professional privilege, gives rise to a need in the view of the liquidators for them to have the assistance of a legal adviser as the documents are reviewed.

16 With respect to legal professional privilege, it is the evidence for the liquidators that the administration of Rothwells was lengthy and extremely complex. It involved preference claims in excess of $300 million and the realisation of assets which involved enforcement proceedings in relation to some 100 debtors. In addition there were numerous enquiries and investigations into the affairs of Rothwells conducted during the administration. It was necessary for the liquidators to have frequent and regular recourse to legal advice during the administration. The evidence revealed that during the administration the liquidators conducted 192 litigation files, many of which took several years to resolve and the expenditure of the liquidators on legal fees exceeded $12 million. It is against this background that the liquidators seek to explain the unusual extent and importance of the task of reviewing something in the order of 400,000 documents to determine which are subject to legal professional privilege and the need for the liquidators to have the assistance of a legal adviser as they undertake this review.

17 With respect to confidentiality, it is the evidence for the liquidators that, in the conduct of their administration of Rothwells, the liquidators dealt with a range of commercial entities and regulatory authorities in the course of which they gave a variety of confidentiality undertakings prior to the receipt by them of certain documents. These documents were relevant to their investigations and to the compilation of evidence for the various legal proceedings in which the liquidators were engaged. In some cases, it is the evidence that a regulatory authority which provided documents to the liquidators had itself, given undertakings of confidentiality with respect to those documents to other regulatory authorities, some of which were overseas. The liquidators point out that those who originally provided documents to the liquidators on the basis of undertakings as to confidentiality may have reason to join in opposition to this application for non-party discovery.

18 An estimate has been deposed to for the liquidators of the time, personnel and cost involved in reviewing the liquidators' documents for relevance, privilege and confidentiality in the circumstances. The estimate is for a cost of $223,360, the work being estimated to take some 80 working days by a group of the liquidators' personnel and a legal adviser.

19 In addition, an estimate has been provided of the costs, personnel and time involved in listing and numbering both the Rothwells and the liquidators' documents and of making them available for inspection and copying, including the cost of the provision of the accommodation and equipment necessary for this task to be undertaken. This estimate, of course, includes the Rothwells' documents but the estimate provides an indication of the size of the task as perceived by the liquidators. In summary, it is estimated that $98,640 would be the cost of listing and numbering, $141,640 the cost of making the documents available for inspection and copying, and $54,000 for accommodation, equipment and fees associated with the present storage arrangements for the documents.

The liquidators' objections re liquidators' documents

20 Primarily, the liquidators object to any order for them to give non-party discovery of any of the liquidators' documents. They submit that the plaintiff has not shown that discovery of the liquidators' documents is necessary for fairly disposing of this action. Further, they submit that any order for them to give discovery in any form of the liquidators' documents would be oppressive; this submission is maintained whether or not a formal listing and affidavit is required.

21 Alternatively, if their primary submissions should not be upheld, the liquidators submit that no orders should be made in respect of documents which are not relevant, which are the subject of claim of legal professional privilege or that were obtained pursuant to undertakings of confidentiality; and it is the submission for the liquidators that they should be first afforded proper opportunity to review the liquidators' documents for relevance, privilege and confidentiality to enable those matters to be raised properly and considered. Further, with respect to confidentiality, it is submitted that opportunity should be given for the identification of the documents and the parties affected by the various undertakings as to confidentiality so that those parties may be informed and have adequate opportunity to raise objections if they so wish.

22 It is further submitted on the part of the liquidators that any form of discovery of the liquidators' documents which is ordered should be on the basis that the plaintiff provides security for the costs of the liquidators in providing discovery and that the liquidators should be fully indemnified in respect to those costs.

23 Rules of the Supreme Court O 26A r 5 relevantly provides:

5(1) If there are reasonable grounds for believing that a person who is not a party to an action ("the non-party") had, has, or is likely to have had or to have, possession of documents that relate to any matter in question in the action, a party to the action may apply for an order under this rule.

(3) On the application the Court may order the non-party to give discovery of all documents that are or have been in the non-party's possession and that relate to any matter in question in the action."

By O 26A r 6 the provisions of O 26, which relate to party and party discovery, are applied to discovery by a non-party, and the Court may exercise any of the powers in O 26 r 7(3), which provides for the limiting or tailoring of orders for discovery in a variety of ways to suit specific circumstances.

24 The ordering of discovery in any form remains discretionary and no one is entitled de jure to an order for discovery; Kent Cole Concession Ltd v Duguid [1910] 1 KB 904, 910. It may be seen that the ultimate touchstone for the exercise of discretion is whether discovery will help achieve the proper administration of justice in the action or proceeding in which the request for discovery is made; see O'Sullivan v Herdsmans Limited [1987] 3 All ER 129 where the House of Lords considered s32(1) of the Administration of Justice Act 1970 of Northern Ireland which is a provision substantially similar in effect to O 26A r 5(1). Lord Mackay of Clashfern, with whom the other Law Lords concurred, said at 135-136:

"In terms of s32(1), when an application has been made in accordance with the rules in proceedings of the kind described and in the circumstances specified in the rules, all of which pre-requisites have admittedly been met in the present case, the Court has a power in no way expressly fettered to order production of any documents which are relevant to an issue arising out of the claim as these documents admittedly are. Where such an unfettered power is given, in my opinion, it is to be construed as a power to be exercised when its exercise would help to achieve the purpose of the Act which is the proper administration of justice or, to put the matter negatively, in the words of Lord Diplock in McIvor v Southern Health and Social Services Board [1978] 2 All ER 625 at 627, [1978] 1 WLR 757 at 760, the Court can decline to make an order -

'if it is of the opinion that the order is unnecessary or oppressive or would not be in the interests of justice or would be injurious to the public interest in some other way.'

In my opinion, there is no factor present in the circumstances of this case which would indicate that it would be just to refuse to exercise the power and there are strong factors in favour of the exercise of the power. If the case goes to trial it is obviously in the interests of justice that these documents of central importance should be available to both parties before the trial starts so that the jury may be given a fair impression of the central issues from the beginning. ..."

That was a case involving a claim in respect of personal injuries. The documents in question were medical records in the possession of the Department which directly related to the personal injuries the subject of the action.

25 As was emphasised by Lord Diplock in the passage quoted by Lord Mackay, the Court has inherent jurisdiction to refuse an order for production of documents when to do so would be unnecessary or oppressive. An order requiring the production of large quantities of documents in itself may well be oppressive; Science Research Council v Nasse [1979] UKHL 9; [1980] AC 1028 at 1076FG, 1985E. In this respect the nature, extent and effect of the oppression is properly to be viewed in the light that the liquidators are non-parties. There may well be circumstances, in my view, where the interests of justice may require a party to an action to bear a degree of burden to make adequate discovery to another party that would be unjust to impose on a non-party. This is not a case however where that distinction is determinative.

26 In Harman v Home Department State Secretary [1983] 1 AC 280 at 308 Lord Keith of Kinkel said:

"Discovery constitutes a very serious invasion of the privacy and confidentiality of a litigant's affairs. It forms part of English legal procedure because the public interest in securing that justice is done between the parties is considered to outweigh the private and public interest in the maintenance of confidentiality. But the process should not be allowed to place upon the litigant any harsher or more oppressive burden than is strictly required for the purpose of securing that justice is done."

The confidentiality there mentioned is the private right to keep one's documents to oneself.

27 Very similar sentiments were expressed by Hayne JA, with whom Winneke P and Phillips JA concurred, sitting in the Victorian Court of Appeal in Mobil Oil Australia Ltd v Guina Developments Pty Ltd [1996] VicRp 54; (1996) 33 IPR 82 cf 86 - 87, and in Molnycke A B v Proctor and Gamble Ltd (No 3) [1990] RPC 498 where at 503 Mummery J said:

"An order may be refused on the ground that it is unduly oppressive to the party giving discovery. The Court takes account of such considerations as the value of the discovery to the person seeking it and the burden imposed on the party giving it, with a view to restricting the volume of documents and the labour and expense involved to that which is necessary for fairly disposing of the issues in the case."

28 There is no dispute between the parties that it is open to the liquidators to object to the inspection by the plaintiff of any document in respect of which a claim of legal professional privilege is made. Save for some issues to which I will turn later in these reasons, the validity of any claim to legal professional privilege will fall to be determined in the usual way after a claim of privilege is asserted.

29 The circumstance that a document is in the possession of the liquidators, pursuant to an undertaking that the liquidators will maintain the confidentiality of the document, is a factor relevant to the exercise of the discretion whether discovery and inspection should be ordered, and if so on what terms. In this case what is raised by the liquidators is an issue of confidentiality which is in some respects different and of greater significance than the private right of a litigant to keep his or her own papers confidential, as mentioned in Harman v Home Department State Secretary (supra). In particular, in the context of the liquidators' documents, any undertakings as to confidentiality appear to have been given by the liquidators in their official capacity for the purpose of facilitating the liquidation. There is an additional level of public interest arising from the liquidation to be weighed in such a situation.

30 Nevertheless, it is clear that generally there is no principle that confidentiality per se precludes discovery or inspection being ordered. As was said by Lord Wilberforce in Science Research Council v Nasse at 1067:

"No authority is needed for the negative proposition that confidentiality alone is no ground for protection: see however Alfred Crompton Amusement Machines Ltd v Customs and Excise Commissioners (No 2) [1974] AC 405. English law as to discovery is extremely far reaching: parties can be compelled to produce their private diary; confidences, except between lawyer and client, may have to be broken however intimate they may be. But there are many examples of cases where the courts have recognised that confidences, particularly those of third persons, ought, if possible, in the interests of justice, to be respected: see, for recent examples, Attorney-General v Mulholland [1963] 2 QB 477, Attorney-General v Clough [1963] 1 QB 733 and compare Attorney-General v North Metropolitan Tramways Co [1892] 3 Ch 70. This principle was accepted by this house in D v National Society for the Prevention of Cruelty to Children [1977] UKHL 1; [1978] AC 171. ... But here the process is to consider fairly the strength and value of the interest in preserving confidentiality and the damage which may be caused by breaking it; then to consider whether the objective - to dispose fairly of the case - can be achieved by doing so, and only in a last resort to order discovery subject if need be to protective measures. This is a more complex process than merely using the scales: it is an exercise in judicial judgment."

31 Subject to what is said later about legal professional privilege, on the materials before me with respect both to legal professional privilege and confidentiality, it is clear that the liquidators should have proper opportunity to review and consider their documents to decide whether privilege or confidentiality is to be raised in respect of any particular documents, whether Rothwells' documents or liquidators' documents. In the case of the liquidators' documents, if discovery were to be ordered, the liquidators should also have reasonable opportunity to notify those non-parties to whom undertakings of confidence had been given so that they might raise objection if that was their wish. For reasons which follow, however, that will not arise.

32 There has been evidence and submissions for the plaintiff directed to persuading me that, in the case of the Rothwells' documents, there should be no need for the liquidators to review the documents at all, or certainly not to undertake a review which is as comprehensive as the liquidators propose, and in the case of the liquidators' documents that I should be persuaded that only a quite limited review is in truth required. It was further contended that I should find that legal professional privilege has been waived at least, it seems, in respect of the many documents associated with the litigation in which the liquidators were involved with the Government Employees Superannuation Board ("the GESB"). Further, and consequently, it was submitted there was no real substance in any purported reliance on the part of the liquidators on confidentiality with respect to the GESB documents. It was also submitted that only a limited review should be needed for other documents which might be subject to any undertaking as to confidentiality.

33 Alternatively, it was submitted that if legal professional privilege has not been waived there is no reason for the liquidators to assert any privilege in the present circumstances, and they should be ordered to waive legal professional privilege on the ground that it is unconscionable for them to maintain it. It was further submitted that many of the liquidators' documents, although connected with litigation, were not created for the sole purpose of litigation and therefore could not be the subject of legal professional privilege.

34 It is to be accepted from the evidence as to the nature of the Rothwells' documents that they are, at least in substantial part, likely to relate to one or more of the matters in question in this litigation. It is to be expected that, at least for the most part, they may either be documents admissible as evidence in the action or contain information which may enable the plaintiff to advance its case or damage the case for the defendants.

35 I am persuaded I should accept in general substance the opinion in the affidavit of an accountant acting on behalf of the plaintiff, whose firm is charged with preparing expert evidence as to the financial position of Rothwells at the material times, that it is essential for the firm to have access to the financial documents of Rothwells for it to perform its task as part of the preparation of the plaintiff's case for trial. Subject to what follows the parties see a mutually satisfactory procedure by which the plaintiff will have access to the Rothwells' documents without the need for formal listing and a supporting affidavit. This appears to be a satisfactory basis on which to proceed.

36 There remain, however, the questions of relevance, privilege and confidentiality. While the evidence suggests it is likely that most, perhaps even all, of these documents will prove to be relevant to the action, and while there may not be a strong likelihood that legal professional privilege or confidentiality will be an issue with respect to documents in this category, it remains clear, in my view, that it is reasonable that the liquidators should have the opportunity to review these documents so that they can satisfy themselves about these issues. It is not reasonable to assert, as does the plaintiff, either that the liquidators should have a sufficient knowledge of the documents to make a review for these purposes unnecessary, or that they should have a system of indexing and filing which would enable them to complete the review task in a much simpler and quicker manner than is proposed. Nor am I persuaded, from the nature of the documents themselves, that there is no sufficient prospect of there being real issues of relevance, privilege or confidentiality to make any review unnecessary or a matter of minor moment and of no substance. In these respects I am unable to accept the submissions for the plaintiff.

37 While initially there were submissions for the plaintiff that the liquidators had waived legal professional privilege in respect of all documents the subject to this application, including the Rothwells' documents, that claim was later expressly limited by counsel to one particular class within the liquidators' documents, ie the GESB litigation documents, so that I have no need to consider that further with respect to the Rothwells' documents.

38 It was also submitted for the plaintiff, as I understood counsel, that as there had not been any actual claim of legal professional privilege to date, and no documents had actually been identified which were the subject of any undertaking as to confidentiality, no issue as to privilege or confidentiality had been raised. Hence, it was submitted, an order for discovery might properly be made without regard to those issues. This submission clearly puts the cart before the horse. The liquidators are concerned, for reasons that have been given, that there are documents among those now sought to be discovered which could properly be the subject of legal professional privilege or which are the subject of undertakings as to confidentiality. They must first review their documents to identify which, if any, fall into those categories. Only then may objections to discovery be made in respect of particular documents. While the liquidators' concerns may be greater in respect of the liquidators' documents than the Rothwells' documents, I am satisfied there are genuine reasons for concern adequately founded in respect of the Rothwells' documents.

39 There are most material distinctions between the Rothwells' documents and the liquidators' documents. The liquidators' documents were not ever documents of Rothwells. Indeed, it appears they were not in existence before Rothwells went into provisional liquidation which was over half a year after the dates directly material to this action. They comprise documents brought into existence by the liquidators or obtained from others by the liquidators, in each case for the purposes of the liquidation. In part, this involved the pursuit of legal proceedings, whether as plaintiff or defendant, ultimately for the benefit of the creditors of Rothwells who, it appears, in the ordinary way were the ultimate source of some or all of the costs of pursuing that litigation.

40 It is apparent that the liquidators' documents, in substantial part, have been prepared by the liquidators using their resources and skill. It appears that in some cases they were prepared for the purposes generally of the administration and in others for the purposes of particular litigation in which the liquidators were concerned. The submissions suggest that some of the documents appear to involve an evaluation and appreciation by the liquidators of the Rothwells' documents, in some cases in combination with other information obtained by or developed by the liquidators. It has not been shown that any of the liquidators' documents are themselves admissible in the action. The liquidators are not, of course, parties to the action, nor are they potentially parties.

41 It is of some significance to notice the basis on which the need for discovery of the liquidators' documents is justified for the plaintiff. The affidavit in support of the plaintiff's application in this respect goes no higher than a claim that:

"it would be of assistance to the plaintiff if it was granted access to the working papers and reports prepared by the liquidators in relation to the litigation between Rothwells and the Government Employee Superannuation Board. This would result in a significant reduction in the work involved in preparing the expert report and there would be a significant cost saving to the plaintiff."

42 This is to be contrasted with the evidence that it would be essential to have access to the Rothwells' documents.

43 The GESB litigation is but one of the 192 litigation files of the liquidators although it is clear that it was a substantial piece of litigation. While the evidence only dealt with the assistance which the GESB working papers and reports would provide the plaintiff in its preparation for this action, the submissions sought to extend this to all the liquidators' papers, including those comprising the other 191 litigation files.

44 Given the nature of the documents in question, the circumstance that they are documents held by a non-party, and were created or in some cases collected a considerable time after the material events, and insofar as they have been collected from others nothing appears on which it could be concluded they are documents which would be admissible in the action, there is reason to question that it would be appropriate to order their discovery by a non-party for the purposes of this action in any event.

45 The liquidators, however, were content to found their opposition to discovery in the lack of any demonstrated necessity for the plaintiffs to have access to the documents and the very considerable burden which discovery in any form will impose on them.

46 In these respects, the submissions for the plaintiff were, in the end, quite frank that the essential significance of these documents for the plaintiff, and those assisting it in the preparation of the case, is that they would make it easier and quicker for the plaintiff to prepare for trial. This, it seems, is because by and large the availability of the liquidators' working papers and reports would obviate the need for those advising the plaintiff to go over the same ground as had the liquidators. In effect, the plaintiff was seeking to have its expert take advantage of the professional expertise and work of the liquidators and those assisting them so as to be able to shortcut the task of the plaintiff in preparing its case.

47 To achieve this shortcut in the plaintiff's preparation it is proposed that the liquidators should be put to what, I am satisfied, would be the necessary, but quite enormous, work of reviewing the liquidators' papers for relevance, legal professional privilege and confidentiality. This is in a context in which there is a significant prospect that quite a number of the liquidators' documents will not sufficiently relate to the issues in the action to justify discovery, and where a substantial number of the documents can be expected to be subject to legal professional privilege or to undertakings as to confidentiality.

48 Significantly, there is no demonstrated need for the plaintiff to have the liquidators' documents to prepare or present its case. It is not suggested that it is the case that without them that the plaintiff will not be able to prepare its case adequately for trial. It is merely said that it will take longer to do so which may delay the actual hearing of the action to the disadvantage of all parties, and will involve the plaintiff in additional cost.

49 I am persuaded that the estimates on behalf of the liquidators as to the personnel, time and cost of reviewing the documents is reasonable and is to be preferred to the contentions for the plaintiff that the task is no where near as substantial as the liquidators suggest. Clearly, only the liquidators have any reliable knowledge of the nature of their documents, the manner in which they are filed and indexed, and their possible contents. In these respects the submissions for the plaintiffs are substantially conjectural.

50 Subject to issues yet to be considered, I am persuaded that there is no absolute or sufficient need for the plaintiff to have access to the liquidators' documents to enable it to conduct its case, and that the degree of effort and time which the task of discovery would involve for the liquidators would be clearly oppressive in the circumstances and cannot be justified for the purposes of ensuring the interests of justice as between the parties to the action.

51 In case it should be material I would note that I accept that a number of personnel including a partner and a legal adviser would properly be engaged in the task of review over what is reasonably estimated as some 80 days and this would involve expenditure which may be estimated at over $223,000. The task of listing and numbering of documents, should that be required, would involve additional staff during the same period at an estimated cost of more than $98,500. The task of providing the records for inspection and copying as required could involve an estimated additional sum of more than $140,000. Further, it would be necessary to retrieve the documents from storage, provide accommodation for them during the review task and provide the equipment necessary, at an estimated cost in excess of $50,000.

Waiver of legal professional privilege - GESB documents

52 A substantial issue raised for the plaintiff is that the liquidators should be found to have waived legal professional privilege. Originally the submission in this respect covered the full range of documents in respect of which discovery is sought but, in the course of argument, this submission was expressly limited to those documents which relate to the GESB litigation. It is unnecessary to detail anything of the nature of that litigation. It was a substantial litigation and the documents relating to it involves some 159 of the liquidators' boxes. It seems that the GESB litigation was settled before it went to trial but a considerable amount of work had been undertaken in preparing it for trial. Most of the liquidators' documents, insofar as some of them were being prepared for use in the litigation, were still in the draft stages. With only a few exceptions none had been filed, served or otherwise disclosed in the GESB litigation. It is the evidence for the liquidators that, subject to those few exceptions, the documents remain confidential to the liquidators and their legal advisers in the litigation and that all of these documents were prepared for the sole purpose of submission to and use by their legal advisers in the litigation. It is clear that, if and when these documents are separated out from among the approximately 16,000 documents in the 159 boxes, they will be the subject of a formal claim of legal professional privilege, should discovery be ordered.

53 There is also an affidavit, on behalf of the plaintiff, by a partner of the firm of accountants advising in the preparation of the plaintiff's case. The partner is also a registered liquidator. This affidavit canvasses at some length and detail many of the tasks and investigations normally carried out by a liquidator, especially with a view to establishing the insolvency of a company being administered. While the affidavit is speaking only in general terms, and not with respect to the liquidation of Rothwells, nor with respect specifically to the papers relating to the GESB litigation, the general effect of the affidavit evidence is directed to suggesting that much of the information utilised by the liquidators for the purposes of litigation in the administration would not have been prepared for the sole purpose of litigation but would have been prepared in the ordinary course of the liquidation of the company.

54 Given the generality of the evidence for the plaintiff in this regard, and until there is more precise identification of the GESB documents the subject of a claim of privilege, it is not possible for me to form any satisfactory view about this factual controversy. It is altogether too premature at this stage. Were discovery to be ordered it would become possible to deal with this issue in the context of specific documents. I remain persuaded, for present purposes, by the evidence for the liquidators as to the likelihood that a substantial number of the GESB documents will be subject to a claim of legal professional privilege should discovery of the liquidators' documents be ordered.

55 It is also the evidence for the liquidators that their professional costs for the preparation of the GESB documents was in excess of $350,000 which costs, as an expense in the administration of Rothwells, were paid by the creditors in the course of the winding-up.

56 The primary contention for the plaintiff, however, is that of waiver. The foundation for this is in the evidence of the same accountant as to a telephone conversation with a partner of the liquidators on 17 February 1999 in which access was requested on behalf of the plaintiff to the working papers and files of the liquidators, specifically those relating to the GESB litigation and the financial documents of Rothwells.

57 It is the evidence of the accountant that he was informed in that conversation "that access to the reports prepared by the liquidators of Rothwells for the purposes of the litigation between Rothwells and the GESB would only be made available if payment was made of a fee of $350,000 by the plaintiff." The evidence indicates that this amount of $350,000 was to compensate the creditors of Rothwells for the costs previously incurred for the preparation of the documents.

58 The conversation of 17 February 1999 was followed up by a letter dated 22 February 1999 to the liquidators from the accountant which concluded by asking two questions:

"* Are there any files or working papers of the liquidator which may assist Tipperary in establishing the insolvency of Rothwells as at March 1998 which may be released to Tipperary free of charge (save for the reimbursement of your reasonable costs)?

* Are you prepared to allow Tipperary to access the books and records of Rothwells to conduct their own research regarding Rothwells financial position in March 1998?"

A reply dated 1 March 1999 answered these questions as follows:

"* There are no files or working papers of the liquidator which may assist Tipperary in establishing insolvency of Rothwells as at March 1998 which may be released to Tipperary free of charge (save for the reimbursement of your (sic) reasonable costs).

* I am not prepared to allow Tipperary access to books and records of Rothwells to conduct their own research regarding Rothwells financial position in March 1998 other than by way of subpoena and on the basis of reimbursement of our reasonable costs."

59 At the time of the conversation on 17 February 1999 it is the evidence of the accountant that there was no claim of privilege made in relation to the documents.

60 It is contended for the plaintiff on the basis of this evidence that I should find that the liquidators not only made no specific claim of privilege in respect of the GESB documents but that they waived any claim they might have had because they were prepared to disclose them on payment of a fee. Further, it is contended I should find that they (a) offered, (b) agreed, to disclose the documents on payment of $350,000.

61 In respect of this evidence, there is evidence on behalf of the liquidators which deposes that the conversation on 17 February 1999 was not an isolated discussion. There had been earlier conversations on the subject which involved the second defendant in the counterclaim, Mr Anderson (an officer and shareholder of the plaintiff then said to be acting for the plaintiff) and other persons, during which the representative of the liquidators had said that the question of the provision of the documents would need consideration by the Committee of Inspection representing the creditors of Rothwells and that the liquidators would not pursue the request with the Rothwells Committee of Inspection unless the plaintiff:

(a) was prepared to pay the costs to Rothwells of the preparation of the material in question, in the order of $350,000;

(b) agreed to release Rothwells in relation to representations and other matters the subject of the litigation; and

(c) agreed to indemnify Rothwells against any claims by the defendant or by any third parties who might be joined to the litigation.

There had been no commitment on the part of the plaintiff to meet any of these conditions by the time of the further conversation of 17 February 1999. It is the submission for the liquidators that the conversation on 17 February 1999 must be considered and interpreted in the context of the ongoing discussions between representatives of the liquidators and the plaintiff, and that an acceptance by the plaintiff that it should pay $350,000 was only one of the preconditions which had been stipulated, all of which needed to be accepted before the liquidators would place the request of the plaintiff before the Committee of Inspection. The plaintiff has not sought to deny this evidence for the liquidators. It was stressed by way of response on affidavit, however, that no claim of privilege was made in relation to the documents during the conversation on 17 February 1999.

62 I was critical during the hearing of the affidavits on both sides for having avoided a frank approach to some factual matters, and I remain of that view. Nevertheless, given what is revealed by the evidence, I am satisfied it would be erroneous to treat the conversation of 17 February 1999 as an entirely self-contained and isolated conversation. Rather, I am persuaded that the conversation of 17 February 1999 was intended at least on the part of the representative of the liquidators, to be supplementary to the earlier conversations and not to constitute a distinct proposition. I am also persuaded that what had been put to the various representatives of the plaintiff during the conversations preceding and on 17 February 1999 should have left the plaintiff with the understanding that the liquidators had stipulated a number of preconditions which would need to be agreed to by the plaintiff before the liquidators would place the plaintiff's request to have access to the liquidators' documents before the Committee of Inspection. One of those preconditions was that should the release of the documents be agreed to, the plaintiff would pay $350,000 being the approximate cost to the creditors of the work the liquidators had done to prepare the material in question for the GESB litigation. I accept that the need to agree to this was again stipulated, indeed underlined, on 17 February 1999 and that no mention was then made of privilege. That has not been shown to be, or to have been intended to be, a waiver of legal professional privilege. Had the plaintiff agreed that it should pay the $350,000, and that it would meet the other preconditions, the liquidators had agreed to do no more than consult the Committee of Inspection. The consequence of that consultation may have been an agreement by the liquidators to the plaintiff's request, or a rejection of it; another response may have been that the GESB documents would be made available save for some that were subject to legal professional privilege. I am not able to find that there was an offer on the part of the liquidators to provide the GESB documents on the payment of $350,000 by the plaintiffs, nor that there was an agreement to that effect, nor that the conversation on 17 February 1999 was intended to suggest, or was understood by the plaintiff as suggesting, anything about legal professional privilege or its waiver. I am unable to accept the submissions for the plaintiff in respect of these issues.

63 In reaching these views I have taken into account that the letter dated 22 February 1999 written by the accountants acting for the plaintiff suggests it was then the understanding of those accountants that the liquidators had already consulted the Committee of Inspection by the time of the conversation of 17 February 1999 and that the conversation on 17 February indicated the outcome of that consultation. The affidavits for the liquidators, however, contain nothing to support that view and the letter in reply dated 1 March 1999 confines itself to responding to the specific questions raised in the 22 February 1999 letter. The effect of the liquidators' affidavits, which I accept, is that the liquidators' position was that they would not pursue the plaintiff's request with the Committee of Inspection unless the plaintiff agreed to their preconditions, none of which had or has ever been agreed to. I should also mention that there was a proposal by the plaintiff, which is mentioned in the letter of the accountant of 22 February, that it would reimburse the liquidators' "reasonable costs", but I am satisfied from the evidence that this was not intended to be and was not understood to be an offer to pay the $350,000.

Claim of legal professional privilege - unconscionable

64 The plaintiff also sought to rely on what has become known as the rule in Re Condon; Ex parte James (1874) 9 Ch App 609 and also on Hartogen Energy Limited v A G L Co (1992) 36 FCR 557 at 571-577 as supporting a submission that the liquidators should be ordered to waive legal professional privilege on the ground that it would be unfair or unconscionable for the liquidators to maintain such a privilege in the circumstances.

65 Ex parte James was a case where the court was not prepared, on appeal from a decision in bankruptcy, to discharge an order that a trustee in bankruptcy, (and thereby an officer of the court) repay an execution creditor money paid voluntarily to the trustee under a mistake of law, not of fact. The court held it had jurisdiction to order the repayment even though the money was paid under a mistake of law. At 614 James LJ reasoned that the trustee held the money upon trust for its equitable distribution among the creditors, and if it is found that he has money, which in equity belongs to someone else, the court (by its officer) ought to set an example by paying it to the person really entitled to it.

66 This decision was considered with some care by Gummow J in Hartogen Energy Limited v A G L Co at 571 - 576. While his Honour's reasoning suggests that his Honour would prefer to see the doctrinal basis of the rule in Ex parte James as lying in the law as to the recovery of mistaken payments, his Honour noted at 574 that in England the rule has been treated as propounding a wider principle with the result that the cases in England and Australasia which have applied Ex parte James in company liquidations are for the most part better understood as outlining the manner in which the court controls the exercise by liquidators of their powers. At 574 -575 his Honour summarised the propositions extracted by Walton J in Re Clark (A bankrupt; Ex parte trustee) v Texaco Ltd [1975] 1 WLR 559 at 563 - 564 as the effect of the English cases which have expounded the rule in Ex parte James. Walton J identified four conditions which must be present for the rule to operate; summarised for present purposes those conditions are:

(1) there must be some form of enrichment of the assets of the bankrupt by the person relying on the application of the rule ...;

(2) the claimant must not be in a position to submit an ordinary proof of debt as the rule exists in part to provide relief to a claimant that would otherwise be without relief;

(3) the rule applies so as to nullify the claim of the liquidator if, in the circumstances, as an honest man he would nevertheless be bound to admit it would not be fair for the liquidator to keep the money; and

(4) even so the rule only applies to the extent necessary to nullify the enrichment of the estate.

67 It is apparent from this summary of the effect of the cases, that the rule can have no application to the present case. The plaintiff relies on its payment of $50 million to Rothwells to satisfy the first condition, but it appears that the plaintiff did submit a proof of debt in the liquidation and has compromised its claim by accepting from the liquidators some $20 million. This precludes the plaintiff coming within the second condition. Further, the plaintiff in effect seeks to treat the third condition as a statement about unfair conduct by a liquidator, but ignoring the context of the third condition where the unfairness is directly related to the retention of the money which enriched the estate. In this respect the plaintiff sought to call in aid the reformulation of the third condition by Morling J in Re Ayoub; Ex parte Sylvia [1983] FCA 112; (1983) 67 FLR 144 of 148 that "it must be shown that it would be unfair for the trustee to rely upon his strict legal rights". But that reformulation did not take the unfairness, which is the subject of the condition, out of its context which I have just indicated. In this case the plaintiff has no present claim against the liquidators which they can be seen to be unfairly resisting by insisting on strict legal rights. The liquidators are strangers to the present claim to recover money from the defendant.

68 The plaintiff sought to draw some support for its position from the somewhat similar submission considered by Gummow J in Hartogen Energy Limited v A G L Co at 575 - 576 which, it was submitted, led his Honour to accept that it might be proper in an appropriate case to direct a liquidator to waive legal professional privilege. The actual passage in the reasons of his Honour is in these words:

"The substance of the submissions for the respondent is that the rule in Ex parte James, in an expanded formulation, may apply to require the court to direct a liquidator to waive legal professional privilege. It may be, in a given case, that the court, acting pursuant to s377(5) of the Code or other enabling statutory provision, may so direct a liquidator. But if the court were to do so it would, in my view, be acting in exercise of the relevant statutory power rather than any generally formulated abstraction of the rule in Ex parte James."

This passage, in my view, rather than offering support for the proposition that the rule in Ex parte James would support an order requiring the liquidators to waive legal professional privilege, tends strongly against such a position.

69 In that case Gummow J was considering submissions which sought to rely in the alternative on the rule and on s377(5) of the Companies (NSW) Code. In my respectful view the reasons offer no support for the view that the rule will support such an order. At the most the prospect is left open that in a given case the exercise of an appropriate statutory power may lead to such an order; cf Southern Equities Corporation Ltd v West Australian Government Holdings Ltd (1993) 10 WAR 1 at 5 per Malcolm CJ, Seaman and White JJ concurring. In this present application no case has been made out for the exercise of any statutory power and in my view the application cannot be brought within any accepted understanding of the rule in Ex parte James.

70 I would further observe that it is not been shown that there is any unfairness or unconscionability on the part of the liquidators in seeking to invoke legal professional privilege in the present circumstances. The plaintiff's submissions sought to identify a number of matters which made the maintenance of legal professional privilege unconscionable. At the forefront was the factual assertion, which has been rejected, that the liquidators were prepared to release the documents for money, and a corollary that privilege was only raised when money was refused which is similarly not made out as a matter of fact. The submissions also sought to rely on evidence that the administration is effectively at an end and that the plaintiff was not a party to the GESB or any other litigation in respect of which the liquidators claimed privilege, and that neither Rothwells nor the liquidators are parties to the present action. It remains the case, however, that the liquidation is not formerly concluded. In any event there is no basis on which I could be satisfied that there are not still interests, whether of Rothwells or its officers, or creditors, or of the liquidators themselves and their officers, to which documents of the liquidators relate, and which interests might be materially affected if the claim to privilege was not maintained. In this regard I note the tenor of the other preconditions which the liquidators put to the plaintiff. It is not the issue whether or not the liquidators or their officers are presently at risk in this litigation, or whether or not the parties to this action are the same as those involved in other litigation which gave rise to the privilege. Absent any statutory provision to the contrary, there being no loss of confidentiality, the privilege, having arisen, remains until waived by a person or entity competent and able to waive it: See generally Carter v The Managing Partner, Northmore Hale Davey and Leake (1995) 183 CLR 121, Lake Cumbeline Pty Ltd v Effem Foods Pty Ltd (1994) 126 ALR 58.

71 There was considerable dispute as to the form any orders might take. While the plaintiff propounded orders which, inter alia, would have purported to restrict the use of any documents discovered to the plaintiff and their advisers in the action, counsel for the State made the point that by virtue of the processes of discovery within this action the documents would become available to the other parties and their advisers.

72 At the end of the hearing I asked counsel to confer to resolve the differences. It appears they have conferred but remain in disagreement. By 8 June 1999 I received three forms of proposed orders, one from the plaintiff, another from the liquidators and a revision of the latter, and short observations on them for the State. I have had regard to these in formulating the orders which I propose.

73 As the plaintiff seeks the privilege of discovery from non-parties, it is appropriate that it should pay for the privilege and that the non-parties should not be out of pocket. In the present circumstances it is clear that security for their costs of compliance is appropriate; Davis v Sagar Pty Ltd, unreported; SCt of WA (Sanderson M); Library No 980443; 10 August 1998. Despite the plaintiff's submissions I see no reason not to accept the estimates provided for the liquidators on affidavit as reasonable as to the hourly rates sought and as to the estimated duration of the task. Some of the estimates for incidental costs may require substantial revision in the light of actual events so that I have made little provision for these at this stage in setting the security.

74 In respect of the informal discovery of the Rothwells' documents which is contemplated by the parties the plaintiff should be required to deposit $37,500 by way of security. The order with respect to the liquidators' costs and expenses will be limited to those reasonably incurred so that there is a check on unwarranted expenditure.

1. Within 21 days from the date of this Order Ian Douglas Ferrier and Robert Allan Tuckey ("the liquidators") do make available to the plaintiff's solicitors for collection the books and accounting records of Rothwells Limited ("Rothwells") referred to in par 4(a) of the affidavit of Terence Michael Potter sworn 21 May 1999, together with any lists of documents already in existence which relate or refer to such books and records, which are in their possession and which are relevant to these proceedings and which are not the subject of:

(a) a claim for legal professional privilege by the liquidators or Rothwells, or

2. Within 28 days from the date of this Order the liquidators list and verify on affidavit the books and accounting records of Rothwells (a) in respect of which they would maintain a claim of legal professional privilege, and (b) which they would maintain should not be inspected on the ground that they are subject to confidentiality agreements or undertakings.

3. Within 7 days from the date of this Order the plaintiff file with the Court and serve on the liquidators a written undertaking to the Court and the liquidators in the following terms:

(a) The plaintiff will take all proper precautions to ensure the documents made available to it by the liquidators are not lost, stolen, damaged or destroyed.

(b) The plaintiff will keep the documents confidential and use them only for the purposes of these proceedings and, except to the extent that the documents may be tendered in evidence in these proceedings, will not allow access to the documents except by:

(iv) any party to these proceedings pursuant to any obligation on behalf of the plaintiff to discover the Documents in these proceedings,

and their respective officers, employees and agents;

(c) The plaintiff will allow the liquidators and their officers, employees and agents access to the documents when required on reasonable notice and will provide such copies of the documents to the liquidators as requested within a reasonable time and at the expense of the plaintiff;

(d) The plaintiff will return the documents to the liquidators when no longer required for the purposes of these proceedings, or when the documents are returned from the Court (if made an exhibit), or at the conclusion of the trial (in respect of any of the documents which are discovered by the plaintiff in these proceedings), by delivering them to the liquidators' nominated document storage contractors;

(e) The plaintiff will pay the costs incurred by the liquidators to its document storage contractors in respect of the collection and return of the documents.

4. The plaintiff pay the liquidators' reasonably incurred costs and expenses of complying with Order 1 and 2.

5. The plaintiff give security for the liquidators' reasonably incurred costs and expenses of complying with Order 1 and 2 in the sum of $37,500 by payment of that sum into court within 7 days.

6. The liquidators have liberty to apply for further security for costs.

7. There be no order with respect to the records relating to the administration of Rothwells following the appointment of provisional administrators referred to in par 4(b) of the affidavit of Terence Michael Potter sworn 21 May 1999.

9. The plaintiffs pay forthwith the liquidators' taxed costs of the plaintiff's non-party discovery application including the hearing on 19 May 1999 on a practitioner and client basis.

10. As between the plaintiff and the defendant, the costs of the plaintiff's non-party discovery application including the hearing on 19 May 1999 be reserved.

11. The plaintiff's application be otherwise adjourned sine die.

Tipperary Developments Pty Ltd & Anor v The State of Western Australia & Ors [1999] WASC 62

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Judgment (143 paragraphs)

Tipperary Developments Pty Ltd & Anor v The State of Western Australia & Ors [1999] WASC 62 (16 June 1999)

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Legislation Cited (1)

Cases Cited (12)