Addstead Pty Limited (in Liquidation) v Simmons (No 2) - [2005] SASC 25

SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
ADDSTEAD PTY LIMITED (IN LIQUIDATION) & ORS v SIMMONS & ORS (No 2)
Reasons for Decision of The Honourable Justice Bleby
24 January 2005
PROCEDURE - DISCOVERY AND INTERROGATORIES - DISCOVERY AND INSPECTION OF DOCUMENTS - DISCOVERY OF DOCUMENTS - ORDERS FOR FURTHER AND BETTER DISCOVERY
Application for inspection of whole document - document previously partially masked by order of court - whether any fresh evidence that masked portion of document relevant to an issue arising on the pleadings - relevance not demonstrated

PROCEDURE - SUPREME COURT PROCEDURE - SOUTH AUSTRALIA - PRACTICE UNDER RULES OF COURT
COURT APPOINTED MEDIATION
Court's power to make orders ancillary to court appointed mediation - scope and nature of power - whether limited by other Rules of Court - factors governing the exercise of discretion - whether order will render mediation more efficacious - disclosure of contents of confidential document - relevant factors considered - confidentiality - commercial sensitivity - companies in liquidation - whether prejudice would be suffered by disclousre - whether conduct of mediation compromised by disclosure - consequences for subsequent litigation - s 65(6) Supreme Court Act - whether disclosure the subject of an implied undertaking - use of confidential material by court in deciding whether to make an order - order for disclosure refused - power to delegate the making of an order to the mediator - s 65(2) Supreme Court Act - circumstances justifying exercise of delegation power
Supreme Court Act 1935 (SA) s 65; Supreme Court Rules (SA) r 58, r 58A.03, r 76, r 76.01, r 76.03(a) and r 3.04(g), referred to.
Addstead Pty Ltd (In Liquidation) v Simmons [2004] SASC 260; Baulderstone Hornibrook Engineering v Dare Sutton Clark & Ors [2000] SASC 159, applied.
Beneficial Finance Corporation Ltd v Price Waterhouse (1996) 68 SASR 19, distinguished.
Reid v Howard (1995) 184 CLR 1; Morgan v Mallard (2001) 216 LSJS 134, considered.

ADDSTEAD PTY LIMITED (IN LIQUIDATION) & ORS v SIMMONS & ORS (No 2)
[2005] SASC 25

BLEBY J: On 26 August 2004 I made an order pursuant to s 65 of the Supreme Court Act 1935 (“the Act”) referring these proceedings to mediation. A number of ancillary orders were made. On the same day I made an order for discovery and inspection of a deed of settlement relating to proceedings in the Supreme Court of Queensland between Emanuel Management Pty Ltd (In Liquidation) & Ors v Foster’s Brewing Group Ltd & Ors. I excluded clauses 1.1(h), (p) and (aa) and clauses 7 and 8 of the deed from inspection and I directed that for the purpose of inspection of the deed those clauses may be masked. I gave liberty to apply.
I published reasons for the order for discovery and inspection: Addstead Pty Ltd (In Liquidation) v Simmons [2004] SASC 260. In making the order for discovery and inspection I acted, as I considered I was bound to do, on the assertion in an affidavit of the liquidator of the plaintiff companies, the liquidator himself also being a plaintiff, that the clauses concerned were not relevant to this litigation. I will not repeat the reasons I then gave. For reasons I then gave I made my order without having inspected the document myself. I also referred to the uncompromising ethical obligation of a party to make true and honest disclosure of relevant documents.
The solicitors for one set of defendants have since requested of the plaintiffs’ solicitors certain information concerning the content of the masked portions of the deed, which request has been refused. In a letter dated 7 September 2004 the plaintiffs’ solicitors were asked whether any of the masked clauses deal with any of the following issues:
1 The charges or other securities held by the “EFG Group” over any of the assets of the plaintiff companies;
2 The entitlement of any of the EFG group to receive any part of the proceeds of action 409 of 1998 in the Supreme Court of South Australia;
3 The relinquishment of any rights to any proceeds of the South Australian action.
By way of explanation, the EFG Group refers to three related companies which, according to the recital in the deed, lent money on security to some of the plaintiff companies. They are included in a larger group of companies identified in the deed as “the Fosters’ Group”. From the unmasked provisions of the deed they appear to remain as secured creditors of those companies for what was an amount in excess of $186 m. It is not clear from the unmasked portions of the deed what has become of that debt or of the securities held by the EFG Group, or whether, if moneys are paid to the plaintiffs as a result of this action, EFG have any claim to those moneys in priority to the unsecured creditors of the plaintiffs.
For their part, the plaintiffs have responded to the questions merely by asserting that it is “inappropriate” for the defendants to put questions to them to elicit information on those masked clauses.
In the course of correspondence which has followed, the solicitors for the set of defendants concerned have also expressed the following view:
“Moreover, and independent of any obligations your client may or may not have under Rule 58, as a matter of practical reality a successful mediation requires a measure of trust on both sides. If your client does wish this matter to be resolved it will be in its interest to respond to the questions our client has asked and to disclose the masked clauses. In our view there is a risk that the mediation will not be successful if some or all of the defendant parties retain a concern that the masked clauses may be relevant.”
The solicitors for another group of defendants have also expressed similar concern in correspondence about “the practicalities of the parties whom we represent entering into mediation in light of the stance currently expressed by the plaintiff”.
As I have mentioned, I ordered discovery and inspection of the deed of settlement excluding certain identified clauses or parts of clauses. That order for exclusion did not include any part of the table of contents. Inspection has been given of the document excluding that part of the table of contents indicating the general nature of clauses 7 and 8. To that extent, the plaintiffs are in breach of the order made. However, I accept the liquidator’s sworn assertion that the failure to ask that they be masked was an oversight, and the assertion that they are irrelevant, commercially sensitive and confidential. I shall vary the previous order to allow masking of those portions.
As a result of the plaintiffs’ refusal to supply the requested information, one set of defendants now seeks an order for production to that set of defendants of an unmasked copy of the deed of settlement.
In my earlier decision I indicated that discovery and inspection could only be ordered if, from the pleadings, from the unmasked part of the document itself or from other documents the masked portion of the deed appeared to be directly relevant to an issue arising on the pleadings: see r 58A.03, Supreme Court Rules. I indicated that, in the circumstances of this action, I would act, if necessary, on an intended amendment to the pleadings if it appeared reasonably likely that leave would be given to make such amendment if the mediation fails. No such amendment has been foreshadowed.
No other documents have been produced which would suggest that the masked portions of the document are directly relevant to an issue arising on the pleadings.
The unmasked portion of the deed itself defines the term “the Liquidator’s Remaining Claims” as meaning “the following actions brought by the Liquidator (either in his own name or in the name of companies in the Emanuel Group) namely Supreme Court of South Australia action numbers 409 and 410 of 1998 and Federal Court action numbers SG3203 of 1995 and SG3126 of 1996”. That definition includes these actions.
That defined phrase appears in the recital to the deed and in clause 6.3 which reads as follows:
“To remove any doubt, the parties intend that the provisions of this clause will only operate in respect of the parties to this agreement (or their officers, servants, Agents and employees) and do not intend that the releases provided for herein will operate in favour of any person who is not a party to this agreement (other than the officers, servants, Agents and employees of the parties to this agreement). Specifically, nothing in this agreement is intended to release any of the current defendants to any of the Liquidator’s Remaining Claims.”
The phrase appears nowhere else in the unmasked portion of the deed. Clause 6 immediately precedes clauses 7 and 8 which are masked. Together those masked clauses occupy more than 2 pages of the deed, the operative parts of which comprise about 14 pages. If the defined phrase is used in those masked sections or if the questions asked of the plaintiffs’ solicitors were answered in the affirmative, the clause could well be relevant to an issue arising on the pleadings. From the unmasked parts of the deed I cannot tell whether the masked sections are relevant, and I must, as I did on the previous occasion, rely on the proper discharge of his ethical obligations by the liquidator and his assertion as to relevance contained in his affidavit. There is nothing contained in the unmasked portions of the deed which suggests that clauses 7 and 8 otherwise deal with or refer to the liquidator’s remaining claims. The unmasked portions of the deed do not obviously lack something to do with those claims, and the masked portions do not destroy the integrity of what remains. Nevertheless, for the reasons I have explained, one is left with a certain unease, upon reading the masked copy of the deed, about whether and to what extent a non-party to this litigation has some financial interest in the outcome. Notwithstanding that reservation, nothing has been advanced which would cause me to alter my previous decision on the application for discovery and inspection of the document. Therefore, as an application for further and better discovery or for an order for inspection of the whole deed, absent any order for mediation, the application must fail.
However, the Court has ordered that a mediation take place and it has a duty to ensure that mediations ordered by it under s 65 of the Act are facilitated by any means available to the Court. A mediation may be ordered without the consent of a party: s 65(1) of the Act. If the use of the compulsory mediation power is to be effective and is not to be frustrated by an unwilling party, the Court must be able to give directions incidental to the direction to mediate in order to ensure that the process is not frustrated by non-co-operation. A source of such power is to be found, in my opinion, by necessary implication from subsections (1) and (2) of s 65 itself, from the power of the Court to give a direction pursuant to r 76.03(a) and the broad power to give directions relating to the conduct of the action conferred by r 3.04(g).
In Baulderstone Hornibrook Engineering v Dare Sutton Clark & Ors [2000] SASC 159 Perry J refused leave to appeal against an order made in relation to a reluctant party to a mediation that the party “attend the mediation by an officer, employee, agent or insurer with authority to negotiate and settle the matter on behalf of the party”. His Honour held that the power to order a mediation without the consent of the parties in s 65(1) must carry with it the ability to do just that, namely to order the mediation to take place, notwithstanding the failure by one party to consent. His Honour continued, at [5]:
“In the second place, I see no reason why the section should not be construed so as to empower the Court, whether the order is made by consent or not, to give such further orders as are necessary to make the mediation efficacious.”
I respectfully agree. There is no reason why the order should be limited to an order requiring a party to attend and participate in the mediation.
“Mediation” as used in s 65 of the Act and as defined in r 76.01 of the Supreme Court Rules may include a process by which settlement of a dispute is brought about by agreement to take action or to engage in conduct which a Court, in conventional litigation, could not order. That is one of the great advantages of mediation. The possible remedies open to parties in settlement of their dispute are limited only by the initiative and creativity of the parties and the mediator.
Once it has ordered mediation under s 65 the Court has a duty to do all in its power to facilitate that process. In doing so, the Court cannot be limited in its orders and directions by the type of orders it might make in the course of pre-trial management of conventional litigation. In particular, in giving any such directions which may involve the disclosure of information or the production of documents, the Court will not be limited in its orders to information or documents which are directly relevant to an issue arising on the pleadings. The Court should not hesitate to give any necessary or appropriate direction if, in the opinion of the Court, such a direction will facilitate the mediation process, assist the task of a mediator or render the mediation process efficacious.
Similarly, if the Court apprehends that the success of the mediation may be prejudiced by failure to disclose a piece of information or to produce a document that may assist in a successful outcome of the mediation, the Court is able to give directions for disclosure of that information or production of that document, even though the information or document may not be directly relevant to any issue arising on the pleadings, and even though the order may not be appropriate to the management of conventional litigation relating to the dispute.
The power of the Court to refer a matter to mediation under s 65(1) of the Supreme Court Act is prefaced by the phrase:
“Subject to and in accordance with the rules of court, …”
I reject any suggestion that, in considering orders to be made incidental to an order for mediation, that qualification in some way limits the nature of orders that can be made to orders that could otherwise be made under the rules of court. The qualification in s 65(1) is there to enable rules to be made as to the method of appointment and qualification of mediators, the costs of mediations, reports as to the outcomes of mediations and a number of other like matters. The expression is not intended to limit orders that may be made to those authorised by other rules of court applying to quite different situations and matters. There is also nothing in r 76 of the Supreme Court Rules or in the practice direction published in amplification of that rule which would limit in any way the nature of an order that a Judge may make in order to assist a mediation in the manner to which I have referred.
Mr Livesey, counsel for the plaintiffs, drew my attention to observations made in the Full Court of this Court in Beneficial Finance Corporation Ltd v Price Waterhouse (1996) 68 SASR 19. That case concerned an application for discovery of documents relating to contracts of insurance entered into by defendants in the action under which they might be entitled to indemnity if the action against them succeeded. It was held that the action, as then framed, did not bring into issue any question concerning the defendants’ insurance arrangements, as their insurers had not declined indemnity. Accordingly, the documents evidencing their insurance arrangements were not the proper subject of discovery. One of the grounds advanced in favour of an order for discovery and inspection of the documents related to the possibility, during the course of management of the action, of the Court referring the matter to mediation. In the course of his judgment Cox J said, at 22:
“Discovery before action and third party discovery do not really take the matter any further, for it would not be a proper use of the court’s powers in those respects to make orders enabling a plaintiff or prospective plaintiff to fish around to see what evidence he might be able to discover about another person’s ability to satisfy an adverse judgment in an action that is not directly concerned with that person’s post-judgment financial worth. Nor in my view, can considerations of case flow management or the possibility of mediation ordinarily, and certainly in an action such as the case at bar, justify requiring a defendant to disclose his financial position including his right to seek indemnity against an insurer.”
Cox J was addressing a different situation from that which now confronts me. He was dealing with a conventional application for discovery and inspection at a time when mediation was neither contemplated nor ordered, and where the requirements of r 58 of the Supreme Court Rules governed the ability of the Court to make the order sought. The mere fact that mediation might possibly at some stage be directed was insufficient justification to order discovery of documents which might reveal a defendant’s financial position. Lander J made a similar observation at 58:
“Because a court may require parties to submit to mediation is not, in my opinion, in any way relevant to determine whether or not a party ought to make discovery of a document which records its commercial relationship with a party, not then a party to the proceedings, and in circumstances where the document is not relevant to any matter currently in the proceedings.
The matters of alternative dispute resolution or mediation are not good reasons to override a party’s right to keep its commercial documents or any of its documents confidential, nor are they a reason to allow one party to intermeddle in the affairs of another party and its insurers.”
The remarks of Lander J contained in the second paragraph quoted must be read in the context of what he was then concerned with – a conventional application for discovery and inspection.
Perry J expressed his reasons slightly differently. He distinguished between documents relevant to the trial of an action and documents relevant to a mediation. He said, at 34-35:
“The suggestion that knowledge of the extent of the appellant’s insurance cover might assist in the process of mediation does not, in my opinion, afford a proper basis to justify the order under appeal as being within the scope of r 58. Rule 58 relates to discovery relevant to the trial of the action, not to documents which might be thought to be relevant to the process of mediation. True it is that documents relevant to the trial of the action may also be relevant to mediation. But it does not follow that documents which could only be relevant to the process of mediation become, by reason of that fact, discoverable under r 58, or for that matter, liable to be produced by reference to any other rule.
Mediation is an entirely different procedure from the trial of an action at law. While mediation may be mandated, nonetheless it is essentially a consensual procedure. It would be contrary to the proper disposal of pretrial procedures relating to proceedings in the civil jurisdiction of the court (as opposed to mediation) to confuse those procedures by taking steps which might be thought desirable if there was to be a mediation.
For example, it might be highly relevant to the process of mediation to know how much money the State government was prepared to put towards the costs of the plaintiffs’ conduct of the proceedings. But no-one could suggest that documents which might indicate the position in that regard could possibly be, for that reason, discoverable under r 58.” (Footnotes omitted)

The distinction between that case and this is that in this case an order for mediation has been made. The question is not whether the disclosures now sought are relevant to the trial of the action, but whether they will render the mediation more efficacious. As Perry J pointed out, the ability of a party to pay a judgment is not at all relevant on the trial of an action. However, it may become highly relevant to and may well influence the course of a mediation.
For these reasons I conclude that the Court has power to direct that information be given in answer to the questions which have been asked of the plaintiffs and if necessary, to direct production of an unmasked copy of the deed of settlement. I consider that I have the power not because the information or documents are necessarily compellable as an aid to the proper trial of the action but that the power may be exercised, if it is appropriate to do so, as an aid to the process of mediation of the dispute.
In considering whether to make such an order the primary question to be considered is whether the order will promote the efficacy of the mediation. Commercial and other interests of parties to the mediation may need to be taken into account, but sometimes it is the very disclosure of those commercial and other interests which will assist in resolving the dispute in a well conducted mediation. On other occasions disclosure of confidential information not relevant to a just and fair outcome of the dispute may nevertheless present an impediment to a satisfactory mediation. On yet other occasions, other situations may arise where, although a Judge may consider the disclosure of information to be of assistance in resolving the dispute by mediation, fundamental rights and privileges have to be respected, such as the privilege against self-incrimination: cf Reid v Howard (1995) 184 CLR 1). I do not see that any questions of the latter type arise for consideration here.
In deciding whether to make orders in aid of the mediation process, I consider that the Court must always be mindful of the consequences of such orders for the litigation if the mediation should fail to settle the dispute. It may be relevant to consider, for example, whether the compulsory disclosure of information could properly be the subject of interrogatories at some stage. But as in the case of production of documents, the answer to that question will not necessarily govern the decision whether disclosure of the information is appropriate for the mediation. The Court must guard against providing one party to the litigation with a forensic advantage in the litigation if the mediation process fails. Some protection in this regard is afforded by s 65(6) of the Supreme Court Act. That subsection provides:
“(6)Evidence of anything said or done in an attempt to settle the proceeding by mediation under this section is not subsequently admissible in the proceeding or in related proceedings.”
It may be necessary to frame any order in such a way as to ensure that the information is given in the course of the attempt to settle the proceeding by mediation, in order to engage the protection of that subsection. The orders that I propose to make, if any information is given, should ensure the protection afforded by subsection (6).
In my previous decision I referred to the implied undertaking on the part of those to whom discovery and inspection are made not to use the information thereby obtained for any collateral or ulterior purpose not connected with the litigation in which it is disclosed. I referred in that context to Morgan v Mallard (2001) 216 LSJS 134. Although the question cannot be decided in these proceedings, and whilst I am not aware of any authority on the question, I expressed the view, without deciding, that a similar undertaking should be implied in respect of information, whether obtained by documentary or oral means, disclosed in the course of a Court directed mediation. I consider that such an obligation should extend to not using the information for any purpose not connected with the mediation. That would include for the purpose of any subsequent litigation consequent upon the failure of the mediation, unless it became apparent that there had been some failure on the part of a party to comply with an ethical or legal obligation in connection with the litigation.
In this case, some of the parties clearly distrust the assertion by the liquidator that, although the unmasked portions of the Deed are acknowledged by him to be relevant to an issue arising on the pleadings, the masked portions are not relevant. It is evident from the correspondence that this is perceived to be a barrier to the openness, frankness and trust necessary for the mediation process to be able properly to resolve the dispute. As was submitted on behalf of the defendants, it is also relevant for the defendant parties to the mediation to know whether some other party, pursuant to the deed of settlement, has an interest, whether direct or indirect, in the proceeds of any settlement of this action in case that other party too might need to be involved in the mediation, and to know whether the plaintiffs are negotiating on behalf of themselves or for the potential benefit of someone else.
In considering whether to make such an order I must be sensitive to the confidentiality of the deed. Clause 13 of the deed, subject to a number of exceptions noted in clause 13.3, requires that the contents of the deed remain confidential to the parties. The liquidator has sworn that he regards the provisions of the deed as being “commercially sensitive and confidential”. I do not accept the defendants’ argument that there can be nothing commercially sensitive or confidential about the affairs of a company or companies in liquidation. The liquidator is required to manage the assets under his control in order to achieve the maximum benefit available for creditors and, if there remains a surplus, for shareholders. That will often involve complex litigation and the entering into a variety of commercial arrangements, whether associated with litigation or otherwise, depending on the nature of the property available or claimed to be available for distribution. The nature and extent of those transactions will often reflect the nature and complexity of transactions entered into by the company or companies concerned before liquidation. Notwithstanding the public nature of the liquidator’s accountability for his stewardship, he is not required to enter into necessary commercial arrangements with the great disadvantage of having to disclose contemporaneously to the world what others, in ordinary circumstances, would properly wish to remain confidential.
As I said, one must remain sensitive to but must not be dominated by respect for confidentiality. In this case, the only parties who have objected to production of the deed are the liquidator in his own right and on behalf of the plaintiff companies of which he is liquidator, together with Gordian Runoff Ltd, a party to the deed and to this action which has provided funding to the Emanuel Group and the liquidator to commence and prosecute the Queensland actions the subject of the deed of settlement. None of the other parties to the deed have registered any objection to disclosure of the deed.
I gave an opportunity for counsel for the plaintiffs to put before me such material, either in the form of an affidavit or in a confidential manner, as might indicate the nature of any particular prejudice that the plaintiffs might sustain by reason of the supply of the information requested or disclosure of the deed. None of the defendants or third parties objected to my reading, for the purpose of this application, an affidavit of the liquidator, a copy of which was not supplied to the other parties and which, at the plaintiffs’ request, again without objection of the other parties, I placed in a sealed envelope with a direction that it only be opened upon the order of a judge of this Court.
Had there been objection to that course I consider that, in appropriate circumstances, that is a course which is open to me in this situation. I am at present not managing litigation but overseeing a process of compulsory mediation. As will often occur in the situation of the mediator, there will be occasions when it may be necessary for a Judge, in that situation and in the best interests of a successful mediation, to receive confidential information which is not disclosed to another party to the mediation. Whether the disclosure of that information to a judge would necessarily disqualify that judge from hearing the trial of the action if the mediation were to fail is a matter that would have to be considered at the time in the light of the nature of the disclosure and the issues to be tried. There can be no universal rule in that regard.
I have read the affidavit. It discloses the general nature of the masked portions of the deed. It gives reasons why, if the deed were disclosed or the questions were answered, a successful outcome to the mediation could, in the liquidator’s view, be prejudiced. I have carefully weighed in my own mind the prejudice asserted by the defendants by non-disclosure and that asserted by the plaintiffs. At this stage I am satisfied that the fears expressed by the defendants and apparent from the questions asked of the plaintiffs are groundless. They should not be allowed to interfere with or limit full and frank participation in the mediation by all parties to the action. For reasons which it would obviously be unwise to disclose and which are somewhat unusual, I am satisfied there would be undue prejudice to the plaintiffs which could possibly affect the efficacy of the mediation if I were to direct that the information be given or that the unmasked portions of the deed be disclosed at this stage.
However, I also cannot overlook the possibility that something which I cannot presently foresee may happen in the course of the mediation which might cause that situation to change. I will not be privy to the unfolding of the mediation and what may be said or done in the course of it. The mediator will. It is only he who will be able to make a judgment as to whether, in any circumstances as they may occur, the complete deed should be produced or disclosure of its contents should be made. In the interests of the efficacy of the mediation the mediator should be equipped to make any such decision. For that purpose he may need to be privy to the contents of the deed. I therefore propose to direct that if the mediator should so require, the plaintiffs provide him with an unmasked copy of the deed.
It would be inappropriate and disruptive of the mediation for me to decide during the course of the mediation whether something has happened which might render it efficacious that the deed be disclosed. I would not be able to assess what effect disclosure would then have on the mediation and whether it would be appropriate. Section 65(2) of the Supreme Court Act provides that a mediator has such of the powers of the court as the court may delegate. In the circumstances it seems to me that the exercise of the power to direct that the masked portions of the deed be disclosed to the parties to the mediation is best left to the discretion of the mediator in the circumstances as they unfold before him. He will be in the best position to determine whether disclosure will then assist in the settling of the dispute. I therefore propose to delegate to the mediator the exercise of the power to direct that an unmasked copy of the deed be produced to a party, or that the contents of the masked portions of the deed be disclosed. I also propose to direct that if any such direction is given by him, it may be done upon such terms as to confidentiality of the deed as the mediator may direct.
Given the nature of this application and the way it was argued, I consider that the costs of the application are properly regarded as costs of and incidental to the mediation, and that they should be treated as the parties’ costs of participation in the mediation and therefore dealt with in accordance with the Court’s order of 26 August 2004 referring the matter to mediation.
There will be orders accordingly.