Zhu v Yingle Culture Exchange

LEGISLATION CITED : Uniform Civil Procedure Rules 2005

CASES CITED : Bell Group Limited (in liq) v Westpac Banking Corporation [1998] FCA 849; 166 ALR 699

Yi Lin Zhu (First Plaintiff) Lei Jaing (Second Plaintiff) PARTIES : Yingle Culture Exchange (Australia) Pty Ltd (in liquidation) (First Defendant) Dai Qin Fen (Second Defendant) Bai Carter (Third Defendant)

COUNSEL : P J Hegarty (Solicitor for the Plaintiffs) M A McDonogh (Second and Third Defendants)

SOLICITORS : Thomson Playford Cutlers (Plaintiffs) Colin Biggers & Paisley (Second and Third Defendants)

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

20211/2008 Yi Lin Zhu v Yingle Culture Exchange (Australia) Pty Ltd

JUDGMENT - EX TEMPORE 1 HIS HONOUR: This is an application by the plaintiffs seeking an order pursuant to UCPR 21.7(1) for leave to produce documents discovered to them by the second and third defendants. The plaintiffs' solicitor has been subpoenaed by a party to proceedings in the Federal Court of Australia seeking production of the documents in the plaintiffs' possession. They are concerned that production in response to a subpoena effectively issued to them out of that Court should not constitute a breach by them of the implied undertaking. 2 Although I do not have precise details of the litigation in the Federal Court, it is sufficient to note that the liquidator of the first defendant proposes to examine the second and third defendants in relation to the affairs of that company of which they are directors. Rule 21.7(1) provides as follows: "No copy of a document, or information from a document, obtained by party A as a result of discovery by party B is to be disclosed or used otherwise than for the purposes of the conduct of the proceedings, except by leave of the court, unless the document has been received into evidence in open court". 3 As already indicated, the subpoena that has been issued has been directed to the solicitor for the plaintiffs, rather than to the plaintiffs themselves. For present purposes, that can be put to one side. 4 The plaintiffs' application is opposed by the second and third defendants on three bases. First, they contend that the present motion is misconceived as the plaintiffs do not have standing to seek the order, and that the liquidator should be seeking leave himself to be released from the implied undertaking as a third party who, according to uncontested authority, would be bound by it. Secondly, the second and third defendants argue that special circumstances should be demonstrated in order to warrant a release from the implied undertaking and that the evidence so far before me does not disclose that special circumstances exist. Thirdly, the second and third defendants oppose the application upon the basis that the documents have not been specified with sufficient particularity to permit a proper consideration of this application and that such failure is inimical to the plaintiff's success. 5 I have heard the parties so far only upon the threshold issue of whether or not the plaintiffs have standing or, in other words, whether or not the application is misconceived to the extent that it is not propounded in this Court by the liquidator. 6 The terms of the rule impose upon the plaintiffs an obligation not to disclose, or otherwise use, the documents that they have received as a result of discovery without leave of the court. The plaintiffs do not suggest, and have not demonstrated, an intention to "use" the documents otherwise than for the purposes of the conduct of the proceedings. I say that in the context that so far the only concern they have is their ability without penalty to comply with the subpoena that they have received. No intention to "use" the documents is in my opinion therefore brought forward, and for present purposes can be discarded as a relevant consideration. 7 The burden of the plaintiff's application is that their obligation to comply with the subpoena or, in the events that have occurred, their solicitor's obligation to comply with it, falls foul of the word "disclose" in the rule. The second and third defendants argue that it would not be a breach of the implied undertaking imposed upon the plaintiffs, or their solicitor, to respond to the subpoena to the extent that the process issued out of the Federal Court would impose upon them no more than an obligation to answer that subpoena and would not trigger a disclosure of the sort contemplated by the rule. 8 The plaintiffs are less certain about the accuracy of that contention, and as a matter of caution make the present application, lest their response to a subpoena should amount to a relevant disclosure that takes place without the leave of the court first being granted. 9 Although the present argument may to some extent appear hypothetical, there is, as I observed during the course of argument, a relationship between the solvency of the first defendant, which is the subject of examination in the Federal Court proceedings and the plaintiffs' concern in these proceedings to recover a sum approaching $1M said to be owed to them by the potentially insolvent first defendant. There is also a relationship between the solvency of the first defendant and the performance of the second and third defendants in their role as its directors. 10 The second and third defendants have conceded that the plaintiffs, or their solicitor, would not be in breach of the implied undertaking were they to answer the subpoena. To some extent that concession takes the significance out of the present application. The plaintiffs, however, by their solicitor, dispute that they have no standing to bring it and wish to argue that a response to a subpoena by them, to the extent that it may amount to a disclosure of the discovered documents, remains one in respect of which leave is necessarily required. 11 Mr Hegarty, who coincidentally is the party named in the subpoena, and who is the solicitor for the plaintiffs, draws my attention to what was said by the Full Court of the Federal Court of Australia in Bell Group Limited (in liq) v Westpac Banking Corporation [1998] FCA 849; 166 ALR 699 at 704 as follows: "In Esso Australia Resources Limited v Ploughman (1985) 183 CLR 10 at 32 Mason CJ recognised the implied undertaking, springing from the nature of discovery, by each party not to use any document disclosed for any purpose "otherwise than in relation to the litigation in which it is disclosed", citing Harman . [His Honour] said: "No doubt the implied obligation must yield to inconsistent statutory provisions and to the requirements of curial process in other litigation, eg discovery and inspection, but that circumstance was not a reason for denying the existence of the implied obligation". 12 Despite the considerable assistance from the legal representatives for the parties, there has not been sufficient time to examine that sentiment in detail in the light of considerable authority since then dealing with the topic. Unaided by the benefit of such an examination however, it seems to me that the reference to "the requirements of curial process in other litigation" appears on its face wide enough to contemplate the issue of subpoenas, or like process, out of other courts, including the Federal Court of Australia. To that extent it appears likely that a response to a subpoena issued to the plaintiffs or their solicitor in these proceedings could be complied with without fear of offending the obligation not to disclose documents received in circumstances to which rule 21.7 applies even if leave of the court were not first obtained. 13 The present application has been brought on promptly. Whether or not it was necessary, it seems to me that it was reasonable for the plaintiffs and their solicitor as a matter of caution to make it against the contingency that a failure to do so may incur sanction. To that extent it seems to me that, contrary to the defendant's submission, the plaintiff has standing as a party required to disclose the documents, and that contrary to the second and third defendant's submission, it is not the liquidator at whose request the subpoena was issued, who alone has standing. The liquidator would have standing, as a third party bound by the implied undertaking, but that fact does not in my opinion thereby exclude the plaintiffs or their solicitor as parties who also may have it. The issue is not without significance, having regard to the question of the costs of this application, to which I will shortly return. 14 I consider that in the circumstances of this case I should make the following orders: 1. I grant leave to the plaintiffs to file in court a notice of motion dated 12 August 2009, returnable instanter.

2. Pursuant to UCPR 21.7, I grant leave to the first plaintiff and the second plaintiff to produce to the Federal Court of Australia such documents as are referred to in a subpoena issued out of that Court to them in proceedings number NSD 92/2009.

3. I note that the grant of leave made by me in order 2 is not to be construed, or to be used, as an expression of a view about whether or not the documents which are the subject of the subpoena and of the leave are amenable to use for any purpose in the proceedings in the Federal Court of Australia in which the subpoena has issued. 15 The plaintiffs have been successful in this application, and seek their costs. The second and third defendants oppose that application upon the basis that they ought, in the circumstances, to have responded to the subpoena, which according to the authority I have referred to would on this argument authorise the disclosure of the documents without the need to seek, or to obtain, the leave that UCPR 21.7 (1) requires. 16 The correspondence annexed to the affidavit of Mr Hegarty sets out the relatively short history of the events that give rise to this application commencing as recently as 11 August 2009 when he received a letter from the solicitors for the liquidator foreshadowing an application by them for the production of the documents in answer to the subpoena. Mr McDonogh of counsel, who appears for the second and third defendants, emphasises, in my opinion correctly, that the liquidator is seeking the documents for use in the examination of the second and/or third defendants in the Federal Court proceedings tomorrow and that production of the documents in those circumstances had little prospect of offending the rule. However, whether or not the plaintiffs were, in colloquial terms, over-cautious in bringing forward the present application, the history between the parties to this litigation is one of some acrimony, thus making the application a prudent one in the circumstances. As I have said, the plaintiffs have succeeded and there seems be no good basis for making other than the usual order. In those circumstances, I order that the second and third defendants pay the plaintiffs' costs of this application.

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