Airlie Group L.P. v John Fairfax Group Pty Ltd (Receiver & Manager Appointed)
[1991] FCA 706
•20 Nov 1991
1
1 No. G028 of 1991
1 1
BETWEEN:
ADDlicante
ver S
a u u ! R L
| a: | SHEPPARD J. |
: 20 NOVEMBER 1991
FEDERAL COURT OF
AUSTRAUA
-
H I S HONOUR : delivered reasons for judgment in this matter
on 16 October last. In those reamons I decided that the respondents were entitled to have discovery of doments relating to the applicants' overall dealings in junk bonds and their relationship, in connection with those dealings, with the company Drexel Burnham Lambert Group Inc.; see p.27.
| I also said (p.27) that I had been concerned in the management of the litigation that there not be cast upon any party a burden in relation to discovery which was so onerous | detail much of which would be, if not irrelevant, then largely | that the litigation would become bogged down in a mass of |
unhelpful. I mentioned the fact that at one time it was foreshadowed that an affidavit would be filed on behalf of the applicants with a view to demonstrating that the ordering of discovery by the applicants of their overall dealings in junk bonds would cast a most oppressive burden upon the applicants and their legal advisers. I noted that no such affidavit had been filed. I also noted the fact that I was asked to infer from the whole of the circumstances that this oppressive burden would exist. I went on to speculate about the reason why the affidavit had not been filed, speculation which, I note in passing, proved to be fairly accurate. I refer to the evidence of Mr. Winter given on 15 November last.
I did not make formal orders on 16 October last when I published my reasons. I required counsel for the second and third respondents to bring in short minutes of the orders for which they submitted as a consequence of my reasons.
The matter was in the list again on 22 October 1991 when
there was general discussion about the form of the orders as
| well as about other matters. The question of oppression again | arose. Ultimately I directed the applicants, on or before 5 |
| November 1991, to file such affidavit or affidavits as they might be advised in relation to the form of order to give effect to my reasons for judgment. | |
| When the matter was again listed on 15 November last, counsel for the applicants sought to read two affidavits, one sworn by Mr. C.D. Winter on 6 November 1991 and the other by Mr. S.L. Ezzes sworn on 8 November 1991. Counsel for the respondents objected to the entirety of Mr. Ezzesl affidavit on the ground that it was evidence which, if relevant, should have been filed prior to the delivery of my reasons on 16 October 1991. Objection was taken to some parts of Mr. Winter's affidavit. He was called to give supplementary oral evidence which seemed to me to overcome some of the difficulties relied upon by counsel for the two respondents. The affidavit was admitted in its entirety. | |
| Mr. Winter is the applicants' solicitor. He deposed to the fact that he had made inquiries from a number of individuals on behalf of each of the applicants. Each of these persons informed him, and he said that he believed them, that each was authorised to provide him with answers to his inquiries on behalf of the applicant or applicants in whom each held office or by whom each was employed. The oral evidence given by Mr. Winter established that each of the persons holds a responsible and senior office in or position | |
| |
| Mr. Winter said that the second and third applicants (the two Allstate Life insurance companies) estimated that they had in their possession approximately 200 "file cartons" of documents relating to high yield bond transactions in which they participated during the relevant period, that is the period from 1 January 1987 to 28 February 1989. The transactions included private placements, public offers and | |
| secondary market transactions. The cartons were said to be standard document storage boxes measuring approximately 18 inches by 12 inches by 10 inches. | |
| The evidence given about the fourth applicant (Executive Life) was to the same effect except that in its case there were approximately 750 cartons of documents. In the case of the fifth and sixth applicants (Western Pacific Life and Guarantee Security Life) there were said to be 90 cartons and in relation to the seventh and eighth applicants (Prudential- Bache and U.S. High Yield Fund) there were said to be 35 file cartons of documents. I gather that file cartons of the dimensions specified in Mr. Winter's affidavit must be, as he says, of a standard size throughout the United States because they are apparently used by each of the applicants. The second and third applicants' documents are in Illinois and New York, the fourth applicants' documents are in California, the fifth and sixth applicants' documents are in Florida and those of the seventh and eighth applicants are in New Jersey. | |
| |
| In relation to the second and third applicants, Mr. Winter has also deposed to the fact that a substantial amount of documentation in relation to high yield bond transactions has been destroyed in the ordinary course of business. He said that it was likely to be difficult, if not impossible, to ascertain what documents had been destroyed. These difficulties were likely to arise, for example, because the individuals who had been involved in the relevant transactions would not be able to recall what documents had been destroyed or because they had left the employment of the relevant applicant. Mr. Winter also said that documents relating to high yield bond issues in which the applicant decided not to participate ware retained for a period of six months only. | |
| In relation to the remining applicants, other than the first, Mr. Winter has given evidence along similar lines indicating that documents may have been lost or destroyed or may be difficult, or even impossible, to locate. I do not go to the detail of this evidence. |
| I do not propose to reject Mr. Ezzesl affidavit. It States. Nevertheless I have not found it of substantial | contains information which is of value as background material | in relation to the high yield bond market in the United |
| assistance in reaching a conclusion as to what the appropriate form of orders should be. |
In order to provide assistance to the Court in that task,
counsel for the applicants and counsel for the second and
third respondents proffered competing "regimes" or forms of
order setting out what they claimed to be appropriate. The
regime proffered on behalf of the applicants was proffered
without prejudice to the applicants' right to contest on
appeal the making of any order whatsoever for further and
better discovery.
| It was common ground between the parties that there should be same definition of high yield or junk bonds. | The |
| respondents' definition was as follows:- |
"'Bonds' means bond8 or debentures which were offered to or acquired by an Applicant, and were not rated at or above Baa 3 (in the case of a rating by Hoodys) and were not rated at or above BBB (in the case of a rating by Standard and Poors) within 3 months of their issue."
The applicants0 definition was to similar effect but with an important omission. It was that "bonds" in the orders should mean debentures which:-
"were rated below Baa 3 (in the case of a rating by
Moodys) or below BBB (in the case of a rating by Standard h Poors) within 3 months of their issue."
The difference between the two definitions is that the applicants' definition omits the possibility that the bonds were not rated at all. Each definition proceeds upon the basis that the bonds in question were bonds which had a rating below each of the standards referred to in the definitions; but the respondents' definition adds in bonds which were not rated at all. That bonds were sometimes not rated at all
appears from the material exhibited to the affidavit of Mr.
Lloyd. The Fairfax bonds themselves were never rated. In
those circumstances I propose to adopt the respondents' definition of bondm but it will be modified slightly to make it clearer that unrated bonds are included.
The respondents wish to define Drexel Burnham so as to include any corporation related to it or affiliated with it. That is contested by the applicants. I shall resolve that conflict a little later.
The respondents wish to include in the discovery order a requirement that discovery be given of dealings, so far as concerns the fifth and sixth applicants, by Transmark USA Inc., it being a company related to the fifth and sixth applicants, and so far as concerns the fourth applicant (Executive Life) dealings by its parent, First Executive Corporation Inc. I have reached the conclusion that this is not something to which the respondents are entitled.
| Discovery is inter partes. A company required to discover documents is not required to discover documents which may be | in the possession or power of an associated company. The |
| reason for this is that it may not be within that company's power to compel the production of the documents. Documents falling into this category may only be produced pursuant to a subpoena or notice to produce. There may be cases in which the evidence will show that a company, which is a party, does have the power to compel the production of documents in the |
B
posseesion of one of its related companies so that it is corre~ct to say that the documents, if not in its possession,
are nevertheless within its power. The evidence in the
present case does not establish that this is so here. Accordingly the order which will be made will limit the discovery to discovery by the applicants.
There is next a contest between the parties as to whether the discovery nhould relate to transactions which did not eventuate; in other words should it relate to issues of bonds offered to or considered by the applicants but not taken up. In my view it should not unless the applicants intend to rely on documents of this nature. In other words, if they themselves intend to rely on such documents, they should be discovered. If they are not, there may be problems about their entitlement to use them at the hearing.
There is then the question whether the discovery should
relate to bonds however acquired. The Fairfax bonds were
| discovery extend to bonds acquired not only pureuant to | issued pursuant to a private placement memorandum. Should the |
| private placement memoranda but also to bonds acquired pursuant to public offers or on the secondary market? On the basis that the issue to which I have concluded discovery of these documents goes is reliance and the establishment by the respondents of their contention that there was a course of indiscriminate dealing by each of the applicants in which vast quantities of bonds were acquired, I think the discovery |
ehould extend to the production of all documents relating to the acquisition of bonds whether by way of private placement, public offer or transactions on the secondary market.
It is next appropriate to determine the extent of the discovery of documents relevant to the relationship between each applicant and Drexel Burnham during the relevant period. It is in this respect that the respondents wish to have discovery of documents relevant to that relationship whether it be with Drexel Burnham or with one or other of its related or affiliated corporations. I have reached the conclusion that the respondents' submissions in this regard should be accepted and the order will therefore require the discovery of documents relevant to the relationship between each applicant and Drexel Burnham or with one or more of its related or affiliated corporations.
| I have given consideration to the bulk of the material which is involved upon the basis of what Mr. Winter has said | > |
| boxes particularly in relation to the fourth applicant which | in his affidavit. There are certainly a substantial number of |
| has some 750 file cartons. I explored with counsel the possibility of a form of sampling of the cartons especially in the first instance. Counsel for the two respondents resisted this saying that the burden of the task which was involved was one which lay on them, not on the applicants. The evidence of Mr. Winter established that the documents had in fact been identified and were capable of being produced at short notice. |
The burden was one which the respondents were quite willing to pick up. They asserted that they had extensive resources available to them in the United States and that the task of inspecting the documents in the cartons could be done within a matter of weeks. The fact that the documents were scattered in various States of the United States was not a matter that posed any problem for them. Another matter which they emphasised was that, although there were a large number of cartons, the cartons were not very large. The dimensions given in Mr. Winter's affidavit suggest that not a great many files would be likely to be found in any one carton. I have taken these matters into account and have decided that the quantity of documents involved should not deter me from making an order.
It remains to mention the difficulties referred to in Mr. Winter's affidavit concerning documents which have been destroyed or which can not be found. That is not an uncommon difficulty in discovery in large cases. Appropriate witnesses
| may depose to what Mr. Winter has said about these matters | and, unless there is ground for challenging their statements, |
| that should be the end of the matter. | |
| Counsel for the applicants have foreshadowed an application for leave to appeal against these orders. I have not heard the parties on this question but I did, during the course of the argument, indicate that I would probably grant leave to appeal whatever the outcome of the applications was. I am conscious that this matter involves an exercise of discretion and relates to a matter of practice or procedure. Nevertheless, I think there is a real question whether it is correct to take the view, as I have, that the documents, discovery of which I have ordered, go to a substantive issue in the case or can at the most go only to credit. It is important that the hearing of the case commence, if possible, on 6 April next when it is provisionally fixed for hearing. Notwithstanding the fact that I have not heard the parties on the question of leave to appeal, I have reached the conclusion that it is better that I now grant that leave rather than delay the matter further. |
In the circumstances, the orders which I make are as
| follows : | - |
Each applicant, on or before 6 December 1991, is to file and serve upon each respondent a supplementary list of documents verified by a responsible officer
documents each applicant has or has had in its or signed by its solicitor specifying which possession or power relating to its dealings in bonds (as hereinafter defined) and its relationship, in connection with those dealings, with Drexel Burnham Lambert Group Inc. or any corporation related to or affiliated with Drexel Burnham Lambert Group Inc.
Each applicant is to specify in such list the place
or places in the United States of America where such
documents may be inspected by the applicants or
their legal representatives.The documents so to be discovered may be specified in the applicants8 Lists of documents by category.
4. Without restricting the applicants' entitlement to
categorise documents in such manner as they may be advised, it will be a sufficient compliance with para. 1 of these orders if the documents are referred to as being contained within files, the titles and/or number6 of which are specified.
In the event that any applicant no longer has in its possession or power any document of the kind specified in para. 1 of these orders or is uncertain whether it has or has had documents of such a kind, it will be a sufficient compliance with this order if a responsible officer of such an applicant deposes generally to the circumstances in which the documents have ceased to be in its possession and or
power and specifies the reasons why their present location is not known or, in cases where the applicant is uncertain whether it still has in its possession or power such documents, the reasons for its uncertainty.
6. The applicants are to afford inspection of such
documents on or before 16 December 1991 and from time to time thereafter as may be reasonably necessary to enable the respondents to inspect the
documents and copy such of them, or such parts of
them, as are required by them for copying.7. In these orders the word "bonds" means bonds or
debentures which were offered to or acquired by an Applicant, and were either unrated or were not rated at or above Baa 3 (in the case of a rating by Moodys) or above BBB (in the case of a rating by Standard and Poors) within 3 months of their issue.
8. There be liberty to apply on two days' notice.
9. The applicants have leave to appeal against the
making of these orders.
I certify that this and the /L preceding pages are a true copy of the reasons for
ludgment Mr J herein of The H nourabie tiak7,*
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