Abram v American Express International Inc

[2001] FCA 292

FEDERAL COURT OF AUSTRALIA

Abram v American Express International Inc [2001] FCA 292

PRACTICE AND PROCEDURE – discovery – where there has been apparent compliance with an order for discovery, but the intended result of the order has not been achieved.

JOSEPH ABRAM v AMERICAN EXPRESS INTERNATIONAL INC & ANOR

N 648 OF 1999

HELY J
23 MARCH 2001
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N 648 OF 1999

BETWEEN:

JOSEPH ABRAM
APPLICANT

AND:

AMERICAN EXPRESS INTERNATIONAL INC
RESPONDENT

BETWEEN:

AMERICAN EXPRESS INTERNATIONAL INC

CROSS CLAIMANT

AND:

JOSEPH ABRAM

CROSS RESPONDENT

JUDGE:

HELY J

DATE OF ORDER:

23 MARCH 2001

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:

1.The respondent should discover documents, including computer software, which record or evidence:

-the procedures which were adopted or applied by the respondent in NSW in 1997 and 1998 with respect to “Out Of Pattern Spending” as described in the statement of Michelle Mancy forming part of Exhibit A (“OOPS spending”);

-the nature of the spending which constitutes “OOPS spending”;

-how “OOPS spending” is detected by the respondent;

-the instructions given to merchants when “OOPS spending” occurs.

2.        The respondent is to bring short minutes of order to give effect to this conclusion.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N 648 OF 1999

BETWEEN:	JOSEPH ABRAM APPLICANT
AND:	AMERICAN EXPRESS INTERNATIONAL INC FIRST RESPONDENT
BETWEEN:	AMERICAN EXPRESS INTERNATIONAL INC CROSS CLAIMANT
AND:	JOSEPH ABRAM CROSS RESPONDENT

JUDGE:	HELY J
DATE:	23 MARCH 2001
PLACE:	SYDNEY

REASONS FOR JUDGMENT

1. The applicant is a litigant who appears in person.  He has pleaded his case by means of a Statement of Claim filed on 30 June 1999.  On 13 September 1999 the respondent filed its defence to that claim, having sought and received some particulars of it.  The defence admits that the applicant was the holder of an American Express card at material times, but otherwise puts in issue the substance of the applicant’s claim.  Apart from non-admissions, and denials, no matters of fact are specifically pleaded.

2. On 22 November 2000 the respondent filed a Notice of Motion seeking orders that the application and statement of claim be struck out.  The Court has subsequently been informed that the respondent has elected not to proceed with that motion.

3. On 15 February 2001 the applicant filed a Notice of Motion seeking the following orders:

   “1.That the respondent’s discovered documents be reassessed according to legal principles of discovery, by a proper general review and any additional discoverable documents are then brought forward.

   2.That the respondent file one or more affidavits deposing as to what is actually done by the respondent to further review the respondent’s discoverable documents, for the purposes of complying with the orders of the Court.

   3.That the respondent file one or more affidavits deposing as to the identity of the person or persons or corporation in possession and control of the computer system relied upon by the respondent to perform its authorisation system.

   4.That the respondent file one or more affidavits deposing as to what is actually done by way of further communication to and from any persons or corporations in control of any computer system relied upon by the respondent to perform its authorisation system, for the purposes of complying with the orders of the Court.

   5.The classes of documents to which the Court’s orders should relate, be in accordance with paragraph 1 of the applicant’s e-mail to the respondent dated 5 October 1999;

   ‘Memos, letters, minutes of meetings, faxes, e-mails, written instructions, computer records, computer instructions, computer program code, archived records – dealing with the planning, roll out or implementation and enforcement of the rule or situation where following 5 small purchases using an American express card within the same 24 hour period or a short period of time, the American express card would be declined authorisation until the member contacts American express to restore the card to enable it to be used to make further purchases.’”

4. One needs to know something of the history of this matter to understand the claims now made by the applicant.

5. On 13 September 1999 I directed the applicant to notify the respondent of any categories of documents which the applicant wished to have discovered.  On 5 October 1999 the applicant advised the respondent by e-mail that he sought discovery of eight classes of documents.  Paragraph 1 of that e-mail referred to a class of documents described as follows:

   “Memos, letters, minutes of meetings, faxes, e-mails, written instructions, computer records, computer instructions, computer program code, archived records – dealing with the planning, roll out or implementation and enforcement of the rule or situation where following 5 small purchases using an American express card within the same day or 24 hours or a short period of time, the American express card would be declined authorisation until the member contacts American express to restore the card to enable it to be used to make further purchases.”

   (Emphasis added)

6. The matter came on for further directions on 8 October 1999.  I was informed by the respondent’s solicitor that pars 1-4 of the e-mail “are uncontentious”, by which I understood him to accept that documents within those classes would be discovered.  During the course of discussion of subsequent paragraphs, the following is recorded:

   “HIS HONOUR:        What you want to know, I suppose, is whether American Express had a policy or practice declining authorisations if the member had made five small purchases in a short period of time before authorisation is sought.

   MR ABRAM:              Yes.

   MR DONOVAN:        That might be easily resolved, your Honour, without the need for this.

   HIS HONOUR:          And how do we resolve it?

   MR DONOVAN:        I indicated to Mr Abram just outside that the respondent admits that there was a procedure in place to prevent fraud whereby when there’s a pattern of spending which is outside the usual pattern which is usually indicated by many small purchases in a day and the number five is such a number, then authorisation is declined.”

7. In the result I directed the respondent to supply to the applicant a written statement setting out any policy or practice observed by the respondent with respect to declining authorisations of card members following the member making five small purchases in a short period of time, and indicating the period during which that policy or practice was operative.  In addition, the respondent was directed to supply the applicant with any documents which record the terms of the policy or practice and the results of its implementation.

8. That direction was framed in the way it was partly because of the “admission” of the solicitor for the respondent noted in par 6 above.

9. In response to that direction, an undated statement was prepared on behalf of the respondent by Michelle Mancy, the material part of which provides as follows:

   “I am informed by Patrick Donovan, solicitor, and verily believe that a statement is required in relation to an alleged ‘five small purchases and then the sale is declined’ rule which is said to exist at American Express.  There is no such rule.  There is, however, an anti-fraud procedure in place which is implemented when Out Of Pattern Spending (‘OOPS Spending’) occurs, which includes multiple charging in a period of 24 hours on a card member’s card.  There are other anti-fraud procedures including where purchases are made in perceived ‘high risk’ categories of items which are easily converted into cash.  When OOPS Spending occurs the card member’s charge is not declined, but a ‘referral’ message is sent to the merchant processing the charge requesting that the merchant contact American Express so that the identity of the card member be verified.  The card member is asked a series of questions by an American Express employee, and if the employee is not satisfied with the identity of the card member the charge is then declined.  Conversely, if the American Express employee is satisfied with the identity of the card member, then the charge is approved.

   Pursuant to the agreement between American Express and its merchants for non-American Express owned terminals (e.g. bank owned terminals) a declined message displayed on the terminal should prompt the merchant to phone American Express Authorisations for clearance of the transaction and does not mean that the transaction is declined.

   This procedure has existed at American Express since at least 1987.”

10. On 26 November 1999 I directed, by consent, that the respondent should serve its list of discovered documents within fourteen days and that the applicant should notify the respondent of any further discovery within twenty eight days.

11. On 14 December 1999 a list of documents was served, (but so far as I can see, not filed) which gave discovery pursuant to the directions given on 8 October 1999.  Part I of Schedule I to that document is as follows:

    “1.      Copy document dated 1 May 1998 headed ‘Referral Reasons’.

    2.Copy document dated March 1999 entitled ‘Identification of Card Members’.

    3.Bundle of documents dated 9 July 1999 headed ‘Collection History Screen’.

    4.Bundle of documents bearing various dates headed ‘American Express Company Credit Authorisation System’.

    5.Statement of Michelle Mancy.”

12. The document styled “Referral Reasons” indicates that “referral” will occur for a number of specified reasons including:

    -more than ten charges in the last three days at the same merchant type;

    -multiple high value charges in the last three days.

13. The document styled “Identification of Card Members” includes a statement that verbal ID should always be established if there has been “OOP (out of pattern) spending; including multiple charging in last 24 hours”.

14. On 25 February 2000 I stood the matter over for further directions on 28 April 2000 on the basis that the parties would attempt to secure agreement on issues of discovery before that time.

15. On 12 April 2000 the respondent’s solicitor provided the applicant with three further documents which relate to “referrals” of American Express charges.  Included amongst those documents was one styled “referral reasons” which appears to be similar to, if not the same as, the similarly described document referred to in par 12 above.

16. At a directions hearing on 28 April 2000 I noted that the respondent would provide further discovery “in accordance with the agreement of the parties” by 16 June 2000.  At that directions hearing, I was informed by the respondent’s solicitor that the respondent was endeavouring to “get the documents that Mr Abram requires” which he was told were in America.

17. On 7 June 2000 the respondent’s solicitors told the applicant:

    “We advise that American Express has no further documents in its possession which fit the category of documents for which you require discovery.”

    (Emphasis added)

    There was no elaboration of the words which I have emphasised.

18. On 1 August 2000 the applicant wrote to the respondent’s solicitors referring particularly to the first paragraph of the e-mail sent on 5 October 1999.  The letter included the following:

    “The documents that have been discovered by your client to date do not address the planning, implementation, and enforcement of the trigger to declined authorisation following 5 small purchases in a 24 hour period.

    Your client has discovered some of the manuals and instructions given to it’s [sic] staff.

    Your client continues to function using a large computer system to enforce the small purchases rule.

    The computer obviously did not program itself.

    I would be surprised to find that a ‘ROGUE PROGRAMMER’ had somehow without your client’s knowledge or authority modified the computer code to cause the trigger without having being instructed by anyone in authority at American Express to do so.

    I am not suing the staff working for your client because they are simply following your client’s instructions pursuant to their individual terms of employment.

    I am however suing your client because your client made a decision to implement a secret rule that would save your client costs at the expense of it’s members.  By not informing it’s [sic] members of such rules, and by instructing it’s [sic] staff to deny the existence of such rules, your client has engaged in conduct which is misleading and deceptive.

    I would have thought by now, following all the numerous directions hearings in the Federal Court before his Honour Mr Justice Hely, that it was clear that I am seeking discovery of documents which record your client’s initial decision, instructions, planning, implementation and the enforcement of the so called 5 small purchases rule, NOT the instructions and manuals given to the staff.

    Please provide adequate and proper discovery of those documents.”

19. A directions hearing was held on 10 August 2000 in consequence of the applicant’s complaints as to the sufficiency of the respondent’s discovery.  I have re-read the transcript of that hearing, which is a less than perfect record of what took place, but I have some recollection of what occurred on that occasion.  These things are clear:

    -the applicant sought discovery of the “instructions to the computer” which implement the Out Of Pattern Spending (“OOPS”) procedure referred to in Michelle Mancy’s statement;

    -the respondent’s solicitor, Mr Donovan, unsuccessfully sought to persuade me that production of those documents was irrelevant as “the existence of this rule is no longer in dispute”.  I rejected that contention because the “rule” is simply a way of describing what happens in fact.  I said that documents which go to the implementation of the OOPS procedure, including any computer instructions, were at least adjectively relevant and should be produced;

    -Mr Donovan accepted that logically such documents must exist;

    -Mr Donovan accepted that the order which I made was an appropriate one to give effect to my ruling that such documents ought to be produced.  That is, that the respondent give discovery by 8 September 2000 of documents falling within the description referred to in the first paragraph of the e-mail of J Abram sent on 5 October 1999, these being the documents of which the applicant sought discovery in the letter of 1 August 2000.

20. Ultimately, and in the circumstances outlined in the decision which I gave on 21 November 2000, the respondent filed a verified list of documents on 21 November 2000.  By that list, the respondent stated that it does not now have, nor has it ever had, any documents in its possession, power or control which are discoverable as a result of the order made on 10 August 2000.

21. Taken at face value, the verified list of documents filed on 21 November 2000 is, except as to the date of its filing, a compliance with the order made on 10 August 2000.

22. The applicant submits that the verified list is only a colourable compliance with the terms of the order, as there must be documents beyond those discovered which fall within the class of documents required to be discovered.  The applicant says that the respondent operates a computer based credit authorisation system.  Someone must have decided what the parameters are within which authorisation of a proposed transaction is to be declined and there must be some recording of the matters thus decided, if only in terms of the source code, instructions to programmers and software by means of which the parameters are implemented.

23. Discovery was ordered of categories of documents as defined by the applicant rather than by issues.  The relevant category called for production of specified types of documents dealing with the planning, roll out or implementation and enforcement of the rule or situation where following five small purchases using an American Express card within the same day or twenty four hours or a short period of time authorisation would be declined until further contact was made with the respondent.

24. I was informed by counsel for the respondent during the course of argument on the hearing of the motion that, for example, the “referral message” referred to in the statement of Ms Mancey was not discovered.  Nor were the computer programs which produced the “CAS detail transaction reports” (Document 4 in the list of documents served on 14 December 1999) discovered, because they were not related to a rule or situation as described by the words emphasised in par 23 above, but to some other rule or situation, presumably one which is applied when “Out Of Pattern Spending”, as incompletely described in the statement of Ms Mancey, occurs.

25. There are defects in the way in which the applicant’s case is pleaded.  As he is not legally trained, or legally represented, this is not surprising.  The respondent has not sought to strike out the Statement of Claim, in whole or in part, because of any pleading deficiency.  It must therefore be assumed that in the respondent’s assessment, the pleading and particulars adequately expose the case which it has to meet.

26. The elements of the claim insofar as it concerns s 52 of the Trade Practices Act 1974 (Cth) are reasonably clear. The claim is that the respondent promotes its card on the basis that a cardholder will not have any problems in using the card to make purchases for any amount. But, for its own protection, the respondent has devised procedures which inhibit or create problems in the use of the card in particular circumstances, which procedures are not made known to cardholders. The incidents in December 1997, and in January and February of 1998 in which the applicant claims to have been involved are given as illustrations of problems encountered by a cardholder in endeavouring to use the card which are caused by the respondent’s adoption of the procedures in question. It is said that these procedures, as illustrated by the incidents, make the respondent’s claims for its card misleading and deceptive.

27. At the directions hearing on 10 August 2000 I decided that documents which go to the implementation of the OOPS procedure, including any computer programs whereby messages are conveyed to merchants, are adjectively relevant to the claim which the applicant makes.  The fact, if it be a fact, that the respondent’s procedures may not be described with complete accuracy by the rubric “5 small purchases using an American Express card within the same day or twenty four hours or a short period of time” does not alter that conclusion.

28. If, as the respondent’s counsel stated, the non-discovery of documents was for the reason that the rule or situation which the respondent adopts is not that attributed to it by the applicant then, in my view, it has misconceived its obligations as to discovery.  Mr Ashhurst accepted that “it may even be difficult to withstand” an application for specific discovery of “any referral measures (sic messages) sent to the merchant in this case”, which seems to me to reinforce my conclusion that the list of documents verified on 21 November 2000 was prepared on a false premise.

29. Under Order 10 r (2)(a)(i) the processes of discovery are completely within the discretion of the Court.  The result which I intended to achieve by the directions which I gave on 10 August 2000 has not been achieved.  Nonetheless, I do not think that orders in the form sought by the applicant are appropriate.

30. I am prepared to assume, somewhat charitably, that the form of order which I last made may have contributed to the present problem, although I was originally told that the first paragraph of the 5 October 1999 e-mail was uncontentious.

1. I intend that the respondent should discover documents, including computer software, which record or evidence:

   -the procedures which were adopted or applied by the respondent in NSW in 1997 and 1998 with respect to “Out Of Pattern Spending” as described in the statement of Michelle Mancy forming part of Exhibit A (“OOPS spending”);

   -the nature of the spending which constitutes “OOPS spending”;

   -how “OOPS spending” is detected by the respondent;

   -the instructions given to merchants when “OOPS spending” occurs.

2. The respondent should bring in short minutes of order to give effect to this conclusion.

I certify that the preceding thirty-two (32) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Hely.

Associate:

Dated:             23 March 2001

The Applicant appeared in person
Counsel for the Respondent:	Mr Ashhurst
Solicitor for the Respondent:
Date of Hearing:	12 March 2001
Date of Judgment:	23 March 2001