ACN 008 664 257 Pty Limited v HIH Casualty & General Insurance Limited (in liquidation)

[2005] NSWSC 881

CITATION:	ACN 008 664 257 Pty Limited v HIH Casualty & General Insurance Limited (in liquidation) & Ors [2005] NSWSC 881
HEARING DATE(S):	30/08/05
JUDGMENT DATE :	30 August 2005
JURISDICTION:	Equity Division Commercial List
JUDGMENT OF:	Einstein J
DECISION:	Subpoena not shown to pursue legitimate forensic purpose

CATCHWORDS:	Practice and Procedure - Subpoena - Putting the plaintiff to proof - Pleadings - Proper conduct of Commercial List Proceedings - requirement that presentation of cases be tied to identified issues
LEGISLATION CITED:	Civil Procedure Act 2005 Supreme Court Act Supreme Court Rules
CASES CITED:	Botany Bay Instrumentation and Control Pty Limited v Stewart [1984] 3 NSWLR 98 Commissioner for Railways v Small (1938) 38 SR (NSW) 564 Lakatoi Universal Pty Ltd v Walker [1998] NSWSC 470 NSW Commissioner of Police v Tucksford & Ors [2002] NSWCA 139 Southern Pacific Hotel Services Inc v Southern Pacific Hotel Corp Ltd [1984] 1 NSWLR 710 Tesrol Joinery Pty Ltd v CEFLA Scri [2005] NSWSC 528
PARTIES:	ACN 008 664 257 Pty Limited (Plaintiff) HIH Casualty & General Insurance (in Liquidation) (First Defendant) Gordian Runoff Limited (Second Defendant) American Home Assurance Company Pty Limited (Third Defendant) Gerling Australia Insurance Company (Fourth Defendant) Michael Pritchard (Fifth Defendant) Eagle Star Reinsurance Company Limited (Sixth Defendant) Stephen Lloyd (Seventh Defendant) Mitsui Sumitomo Insurance Company Limited (Eighth Defendant) HIH Claims Support Limited (Ninth Defendant)
FILE NUMBER(S):	SC 50128/04
COUNSEL:	Ms K Richardson (Plaintiff) Mr T Marskell (2nd, 3rd, 4th, 5th, 6th and 8th Defendants)
SOLICITORS:	DMAW Lawyers (Plaintiff) Wotton & Kearney (2nd, 3rd, 4th, 5th, 6th and 8th Defendants)

LOWER COURT JURISDICTION:

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST

Einstein J

Tuesday 30 August 2005 ex tempore
Revised 31 August 2005

50128/04 ACN 008 664 257 Pty Limited v HIH Casualty & General Insurance Limited (in liquidation) & Ors

JUDGMENT

The notice of motion

1 The plaintiff by motion filed on 15 July 2005 seeks to set aside paragraphs 3, 4, and 5 of a recast form of Subpoena for production issued on behalf of the second, third, fourth, fifth and sixth and eight defendants [“the defendants”], to Sumisho Coal Development Pty Limited [“Sumisho”] on 26 May 2005.

2 These paragraphs define the documents sought in the following terms:

“ 3. During the period from 1 January 2001 to date, all documents which evidence:


(a) communications between Sumisho Coal Development Pty Limited and John Sheahan which refer to the Equipment and/or LW5S;

(b) communications between Sumisho Coal Development Pty Limited and John Sheahan which refer to SCD’s assignment of its interests in the Insurance Claims to ACN 008 664 257 Pty Limited; and

(c) communications between Sumisho Coal Development Pty Limited and John Sheahan which refer to SCD’s assignment of its interests in the Insurance Claims to ACN 008 664 257 Pty Limited pursuant to two Share Sale Deeds dated 30 December 2003 and 23 March 2004 respectively.

4. During the period from 1 January 2001 to date, all documents which evidence:


(a) communications between Sumisho Coal Development Pty Limited and Sheahan Lock Partners which refer to the Equipment and/or LW5S;

(b) communications between Sumisho Coal Development Pty Limited and Sheahan Lock Partners which refer to SCD’s assignment of its interests in the Insurance Claims to ACN 008 664 257 Pty Limited;

(c) communications between Sumisho Coal Development Pty Limited and Sheahan Locke Partners which refer to SCD’s assignment of its interests in the Insurance Claims to ACN 008 664 257 Pty Limited pursuant to two Share Sale Deeds dated 30 December 2003 and 23 March 2004 respectively.

5. During the period from 1 January 2001 to date, all documents which evidence:


(a) communications between Sumisho Coal Development Pty Limited and Sheahan Partners which refer to the Equipment and/or LW5S;

(b) communications between Sumisho Coal Development Pty Limited and Sheahan Lock Partners which refer to SCD’s assignment of its interests in the Insurance Claims to ACN 008 664 257 Pty Limited; and

(c) communications between Sumisho Coal Development Pty Limited and Sheahan Lock Partners which refer to SCD’s assignment of its interests in the Insurance Claims to ACN 008 664 257 Pty Limited pursuant to two Share Sale Deeds dated 30 December 2003 and 23 March 2004 respectively.”

3 It is apparent that each of paragraphs 3, 4 and 5 are in identical terms save for the different references to one party to each of the communications: ie either Mr John Sheahan, or Sheahan Lock Partners or Sheahan Partners.

4 There is however a divide between what is sought in subparagraph (a) and what is sought in subparagraphs (b) and (c).

The background

5 It is necessary to follow some background.

6 Is inappropriate to repeat the record. A deal of the general background may be discerned from the judgment of Austin J: Re ACN 003 671 387 Pty Ltd (in liq) 49 ACSR 443.

7 A convenient short summary of matters which were accepted for general purposes by the plaintiffs for the purposes of this motion was provided in the submission of the defendants to the following effect:

“The substantive proceedings involve a claim for indemnity for business interruption and loss of mining equipment under an industrial special risks insurance policy. The Applicant was one of the insured under this Policy and the Respondents were, for differing amounts, the insurers.

The alleged underlying incidents were roof collapses in Longwall 5 South (variously referred to as LW5S) of the North Goonyella Coal Mine in Queensland in 1998 and 1999, with this mine eventually sealed off.

The Applicant was a wholly owned subsidiary of ACN 003 671 387 Pty Limited (“ACN3 ” ), the latter previously in a joint venture with Sumisho to conduct coal mining operations at the mine. ACN3 eventually became a wholly-owned subsidiary of Sumisho.

Sumisho eventually sold the coal mine in question, though retained the right to pursue insurance (and other) claims in respect of the roof falls and mine closure.”

Mr John Sheahan was, and is, a partner of an insolvency firm currently known as Sheahan Lock. The corporate trustee of the service trust for that firm was, and is, Delamere Pty Limited ( “ Delamere ” ). Mr Sheahan was, and is, a director of that company.

Mr Sheahan’s firm was initially appointed in February 2001 to provide “litigation management services” to Sumisho in respect of the potential claims referred to above.

When these claims were not pursued (Mr Sheahan having sought funding), the Applicant and ACN3 were placed into liquidation on 18 October 2001 with Mr Sheahan their liquidator.

Whilst one of its directors was in a fiduciary position viz the Applicant, Delamere entered into two share sale deeds with Sumisho.

Under the terms these Deeds, Sumisho sold Delamere all issued shares in ACN3 and ACN8 for consideration of $400,000. As part of this transaction, Sumisho claims to have assigned all its rights in respect of any potential insurance claims to the Applicant (other potential claims were also assigned).”

8 Although describing this summary as “generally accepted” by the plaintiff for the purposes of the motion, it has to be accepted that this being an interlocutory hearing, matters concerning in particular the assignment referred to above, have been the subject of contest and submissions received from both parties.

The pleading position

9 The above-described assignment was pleaded by the plaintiff in paragraph 80 of the Summons.

10 The defendants to the motion pleaded (at [69]) that they did not admit the allegations in paragraph 80.

11 Albeit having telegraphed, in correspondence relating to the legitimacy of the subpoena, a proposal to seek to amend paragraph 69 of the defence so as, in answer to paragraph 80, to plead:

- that any purported assignment of the Vendor Claims (Insurance Claims) under the share sale deed is void and

- otherwise not to admit the allegations in paragraph 80 of the contentions.

during the course of the hearing of the motion counsel for the defendants made plain that he had no present instructions to seek such an amendment. I will return to this matter below.

Agreed categories of discovery

12 The categories of discovery agreed by the parties include "Documents relating to the sale of shares in ACN 008 and ACN 003."

The issue which is joined in relation to the subpoena

13 Leaving to the side for the moment the arguments put by the plaintiff suggesting that the defendants do not have a sufficiently demonstrated interest to give them standing to move to set aside the subpoena, the issue comes down to whether or not the nominate paragraphs in the subpoena constitute:

· as the plaintiff submits, an impermissible purpose, such that they should be set aside as being oppressive or an abuse of process or,

· as the defendants submit, a permissible purpose within the principled exercise of the Court's material discretion.

14 The plaintiff's proposition is that the subpoena constitutes an impermissible "fishing exercise": cf Commissioner for Railways v Small (1938) 38 SR (NSW) 564 at 575; Botany Bay Instrumentation and Control Pty Limited v Stewart [1984] 3 NSWLR 98 at 100-101.

15 The plaintiff has also cited NSW Commissioner of Police v Tucksford & Ors [2002] NSWCA 139 where Brownie AJA said:

"It is plain beyond argument that, if documents are produced on subpoena and objection is taken to their being inspected, inspection should not be permitted unless and until the party who procured the issue of the subpoena identifies a legitimate forensic purpose . In that context it is said that a party is not entitled to go on a fishing expedition, nor should the Court do so. In the language of Lord Wilberforce in Air Canada at 439, there must be something beyond speculation, some common ground for belief that takes the case beyond a mere fishing expedition."
[emphasis added]

16 Generally the principles which obtain are referred to in Southern Pacific Hotel Services Inc v Southern Pacific Hotel Corp Ltd [1984] 1 NSWLR 710 at 716 per Clarke JA and in Lakatoi Universal Pty Ltd v Walker [1998] NSWSC 470 per Rolfe J at 18.

17 The defendants’ sole contention is that the assignment has been placed in issue on the pleadings and that the paragraphs under challenge seek documents from the party on “the other side” of the transaction.

The current state of the proceedings

18 The position with respect to the current state of the proceedings has been the subject of submissions from the Bar table on instructions.

19 The Court has been informed that the plaintiff's discovery has been completed some months ago. It may be that there is an issue as to whether or not that discovery was staged. The defendant's counsel has contended the defendants' legal team have not yet had anything remotely like a full and proper opportunity to examine all of that material. I proceed upon the basis that the defendants for whatever reason, have not yet completed their investigation of the voluminous documents so discovered.

20 The position with respect to the case management of the proceedings had been, as the Court has been informed from the Bar table, that the plaintiff's evidence in chief had been required to be filed by 26 August. Apparently a very large volume of evidence has been served by the plaintiff. The Court is unaware as to whether or not further statements from the plaintiff's side of the Bar table remain in a state of preparation to be served in due course.

Decision

21 One of the paragraphs in the defendants' written submissions referred to the defendants having expressed an intention to amend their defences to make affirmative pleas in respect of the assignment alleging that the assignment was void. The following paragraph reads:

"In this respect the [defendants] submit documents sought under the subpoena may assist in informing the precise nature of this amendment." [emphasis added]

22 During the course of his address counsel appearing for the defendants submitted as follows:

“Your Honour, the proposition that flows from that is the defendant sits in a difficult position in that it senses there may be a basis for challenge, more than senses, it does mount a challenge to the transaction in question but obviously under the professional obligations and the manner in which pleadings have to be dealt with under the now uniform civil procedure, but formerly the Supreme Court Rules, there is obviously a limit in terms of what the defendants can do in challenging that transaction, and your Honour will see in the outline of submissions the amendments that flow from subpoenaed documents are something that the court would rather have dealt with earlier rather than later.”:
[Transcript 19]

23 Importantly it is of course the case that the state of the pleadings is that the defendants have simply not admitted the allegations made in paragraph 80 of the Contentions. That non-admission is not accompanied by any particulars at all.

24 Reference was made in Tesrol Joinery Pty Ltd v CEFLA Scri [2005] NSWSC 528 at ([35]) to the stance of seeking to do no more than to 'put the plaintiff to proof':

“It is of crucial significance in terms of the proper conduct of Commercial List proceedings and in terms of the case management of a final hearing for the Court to be squarely and clearly seized of what are the issues to be litigated in the proceedings. To my mind the Overriding Purpose rule [the overriding purpose being to facilitate the just, quick and cheap resolution of the real issues in proceedings] informed by sections such as section 82 of the Supreme Court Act , together with the Practice Note 100 operative in relation to Commercial List proceedings, clearly manifest a requirement that the presentation of cases in the Commercial List be tied to identified issues.”
[cf Civil Procedure Act 2005 sections 56(1), (2), (3) and 57(1) and (2)]

25 On the present state of the pleadings, it is precisely this approach which is here adopted by the defendants.

26 Without descending into the particular detail, none of the materials presently before the Court and none of the submissions of the defendants, are sufficient to satisfy the Court that the materials sought in the nominate paragraphs of the subpoena, travel outside of a speculative exercise.

27 Notwithstanding that as far as I can recall it, the defendant's counsel at a later occasion during his address sought to withdraw the above described use of the phrase "it senses there may be a basis for challenge", it has to be said that when enunciated it seemed to me that the phrase did encapsulate the nature of the present exercise being pursued by the defendants.

28 I have come to the view that, having regard to section 57(1)(b) of the Civil Procedure Act 2005, the principled exercise of the Court's discretion is to:

· stand over to a future occasion the motion to strike out these paragraphs

· to thereby give the defendants :

- the opportunity to complete their inspection of the plaintiff's discovered documents,

- the opportunity, should they be so advised, to seek leave to amend the material pleading.

29 That is, it seems to me, a more efficient approach than to currently strike out the nominate paragraphs of the subpoena: which has already had to be served, has already had to be recast and has been the subject of such close attention by the parties today and in correspondence.

30 This approach says nothing whatever to the fact that, had the position today been that the defendants had completed their examination of the plaintiff's discovered documents and determined not to seek leave to amend the pleadings, the Court would have struck out paragraphs 3, 4 and 5 of the recast subpoena. It is simply a case management mode of avoiding the parties arguably having to go out and issue further subpoenas.

31 Further production on the nominate paragraphs of the subpoena will be stayed pending any attempt by the defendants to reactivate the matters which have been before the Court today.

32 In short, the defendants have been unable to the present point in time to justify the issue of the subpoena in terms of the material paragraphs, and that, notwithstanding the fairly extensive entitlement of parties to make subpoena returnable well before a final hearing. To submit that documents sought under a subpoena may assist in informing the precise nature of an amendment is not an acceptable approach, where the touchstone comprises the necessity for a subpoena as issued to be shown to be pursuing a legitimate forensic purpose.

33 The Share Sale Deed [Annexure ‘N’ to the affidavit of Mr Moore of 5 August 2005] containing the ‘Assignment of Vendor Claims’ provision [in clause 9] was discovered by the plaintiff. The defendants have simply been unable to place before the Court any evidence which would ground a challenge to the document on any nominate legal basis able to be enunciated.

34 It is appropriate to shortly refer to sub – paragraphs (a) of each of the nominate paragraphs. The reference to "LW5S" is a reference to long wall 5 south. The documents sought in these sub-paragraphs (1) relate to the equipment and/or LW5S (2), fall outside of the dates of any of the events in issue regarding the equipment and LW5S and (3) are not shown to bear any relation to the assignment which, in any event occurred many months after the commencement of the date range sought.

Standing

35 In my view there is no substance in the plaintiffs submissions that the respondents to the motion do not have standing to challenge the subpoena. As parties they have a clearly sufficient interest in the subject matter. [cf SCR Part 37 R 8]

Costs

36 In my view the principled exercise of the Court's discretion in relation to costs is clearly to order that the defendants pay the plaintiff's costs of and occasioned by and relating to the motion up to and including today's hearing. For the reasons given above, it seems clear that at the least, the subpoena was premature having been issued at a time prior to the defendants being in the position to justify that issue. Whether or not the defendants are able at a later date to re-enliven the currently offensive paragraphs of the subpoena, is a matter which must await further forensic manoeuvres by the parties. The clear victor today in terms of the substance of the motion has been the plaintiff.

Orders

37 The Court orders as follows:

1. The parties have liberty to restore the motion to the list at short notice, whether together with or outside of a motion by the defendants to further amend the pleadings.

2. I order that until further order, any further production on paragraphs 3, 4 and 5 of the subpoenae be stayed.

3. I order that the second to sixth and eighth defendants pay the plaintiff's costs of and occasioned in relation to the notice of motion, including the costs of today.

I certify that paragraphs 1 - 37
are a true copy of the reasons
for judgment herein of
the Hon. Justice Einstein
given on 30 August 2005 and
revised 31 August 2005

___________________
Susan Piggott
Associate

31 August 2005