Alcoa of Australia Ltd v Apache Energy Ltd [No 4]

[2013] WASC 377

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION:   ALCOA OF AUSTRALIA LTD -v- APACHE ENERGY LTD [No 4] [2013] WASC 377

CORAM:   LE MIERE J

HEARD:   30 MAY 2013

DELIVERED          :   16 OCTOBER 2013

FILE NO/S:   CIV 1481 of 2011

BETWEEN:   ALCOA OF AUSTRALIA LTD

Plaintiff

AND

APACHE ENERGY LTD
First Defendant

APACHE NORTHWEST PTY LTD
Second Defendant

TAP (HARRIET) PTY LTD
Third Defendant

KUFPEC AUSTRALIA PTY LTD
Fourth Defendant

Catchwords:

Practice and procedure - Discovery of documents - Production of documents for inspection - Confidentiality regime - Discretion of the court

Legislation:

Civil Procedure Act 2005 (WA), s 56, s 57
Rules of the Supreme Court 1971 (WA), O 1 r 4A, O 1 r 4B, O 26 r 9(1), O 26 r 11

Result:

Parties directed to confer in relation to the confidentiality regime

Category:    B

Representation:

Counsel:

Plaintiff:     Mr N J O'Bryan SC & Mr B L Reilly

First Defendant             :     Mr G P Harris

Second Defendant         :     Mr G P Harris

Third Defendant           :     Mr K Stewart

Fourth Defendant          :     Mr B Dharmananda SC

Solicitors:

Plaintiff:     Tottle Partners as agents for Landers & Rogers

First Defendant             :     K & L Gates

Second Defendant         :     Clifford Chance

Third Defendant           :     Lavan Legal

Fourth Defendant          :     Allens Arthur Robinson

Case(s) referred to in judgment(s):

Hamersley Iron Pty Ltd v Lovell (1998) 19 WAR 316

Hearne v Street [2008] HCA 36; (2008) 235 CLR 125

ICAP Australia v Forrest Moebes [2010] NSWSC 738

Lenark Pty Ltd v Chairman 1 Pty Ltd (No 2) [2012] NSWSC 415

1. LE MIERE J:  The plaintiff applies for an order that the first and second defendants allow the plaintiff to inspect certain documents discovered by those defendants.  The first and second defendants resist that order and seek an order that they produce for inspection the documents in accordance with a confidentiality regime they have put forward.

The action

1. The plaintiff, Alcoa of Australia Limited (Alcoa), claims damages for economic loss for breach of duties of care owed by each of the defendants and damages for breach of gas supply agreements between Alcoa and the second, third and fourth defendants (Apache Northwest Pty Ltd, Harriet (Onyx) Pty Ltd (Harriet) and Kufpec Australia Pty Ltd (Kufpec)).  The claims all arise out of a cessation of the supply of natural gas to Alcoa as a result of an explosion and fire at the defendants' processing facilities on Varanus Island in June 2008.  The writ of summons was issued in March 2011.  There have been a number of interlocutory applications, including applications by the defendants for summary judgment or to strike out the plaintiff's claims and applications by the plaintiff to strike out parts of the defendants' defences.

Discovery

1. In December 2012 I determined that discovery should be given in stages.  The first tranche of documents to be discovered by the first and second defendants (Apache defendants) are the documents referred to in [15A] to [17D] of the second further amended statement of claim.  On 1 February 2013 the Apache defendants delivered to the plaintiff a list of those documents.  The list has 14 documents.  The Apache defendants objected to producing redacted portions of nine of those documents on the ground that the redacted portions of the document are not relevant to any issue in dispute.  There is no dispute about the redaction of those portions of those documents.

2. The solicitors for the Apache defendants informed the solicitors for Alcoa that 12 of the listed documents are confidential or commercially sensitive and that copies of those documents would be made available for inspection once the parties had agreed a confidentiality regime.  Subsequently Apache's solicitors provided a proposed confidentiality regime to Alcoa's solicitors.  Alcoa does not agree to the confidentiality regime proposed by the Apache defendants, or any confidentiality regime, and presses for an order for inspection of the documents.

General principles

1. Order 26 r 9(1) of the Rules of the Supreme Court 1971 (WA) provides that where a party objects to produce any document for inspection the court may on the application of the party entitled to inspection make an order for production of the documents in question for inspection at such time and place, and in such manner as it thinks fit. Order 26 r 11 provides that no order for production of any documents for inspection shall be made unless the court is of opinion that the order is necessary either for disposing fairly of the cause or matter or for saving costs.

2. A party to whom documents are produced on discovery or pursuant to an order of the court is under an obligation not to use them or any information derived from them for a purpose unrelated to the conduct of the proceedings:  Hearne v Street [2008] HCA 36; (2008) 235 CLR 125. In Hearne v Street Hayne, Heydon and Crennan JJ said that whilst the primary person bound by the relevant obligation is the litigant who receives documents or information from the other side pursuant to litigation processes, the obligation also binds others to whom documents and information are given. For example, their Honours said, it is likely that, in the future, documents and information will be provided to persons funding litigation, who will likewise be bound by the obligation: [109]. Their Honours approved the statement of Anderson J (Pidgeon and Ipp JJ concurring) in Hamersley Iron Pty Ltd v Lovell (1998) 19 WAR 316, 334 ‑ 335, that the obligation is binding upon anyone into whose hands the discovered documents come, if he knows that they were obtained by way of discovery: [110]. Their Honours said that a third party was bound by the obligation if that party knew of the origins of the material in legal proceedings: [111]. There are a number of insurers standing behind Alcoa in this action. If those insurers receive documents or information from the defendants and the insurers know that the documents or information were obtained by way of discovery, they will be bound by an obligation to not use the documents or information for a purpose unrelated to the conduct of the proceedings.

3. Under the Rules of the Supreme Court, the normal procedure is that a party to an action is entitled to inspect documents disclosed on discovery.  However, in certain circumstances the court may order such inspection subject to conditions or restrictions.  These might include specific undertakings to be given in relation to the documents produced or restrictions on who in the other party's camp may inspect them and on the making of further copies or extracts.  The court will not order such additional protection lightly but may do so where the risk of damage or loss to the producing party, or possibly to others, is so significant that some additional restriction on the usual position is justified.

4. In Lenark Pty Ltd v Chairman 1 Pty Ltd (No 2) [2012] NSWSC 415 Black J reviewed authorities relating to confidentiality orders in proceedings involving trade rivals, which in general apply to confidential or commercially sensitive documents:

   The principles applicable for orders in respect of confidentiality or restrictions on access, in proceedings involving trade rivals and potential trade rivals, were not substantially disputed by the parties and I referred to those principles in my earlier judgment.  Once trade rivalry is established, then the Court must be conscious of the risk that, once the principals of the trade rival inspect confidential information, then that information cannot be forgotten and it may be impossible for the trade rival not thereafter to use that information except for the purposes of the proceedings:  Mobil Oil Australia Ltd v Guina Developments Pty Ltd [1996] 2 VR 34 at 38. It will often be appropriate where confidentiality is claimed for the Court to inspect the relevant documents since '[i]t is only upon consideration of exactly what is in the documents that a decision can be made about what orders should be made for inspection by or on behalf' of the other party, and arrangements as to confidentiality should 'strike a fair balance between the competing interests of the party seeking inspection and the party claiming confidentiality' and the nature and content of the disputed documents will be an important relevant matter: Mobil Oil v Guina at 39 ‑ 40.

   These principles have been adopted in subsequent decisions including Reebok International Ltd v Sydney Organising Committee for the Olympic Games [2000] NSWSC 295, affirmed Sydney Organising Committee for the Olympic Games v Reebok International Ltd [2000] NSWCA 185. The applicable principles were summarised and applied in Cadbury Pty Ltd v Amcor Ltd (No 2) [2009] FCA 663 at [6] and [7], where Gordon J pointed to the need, in litigation between trade rivals, to strike a fair balance between the needs of the party seeking discovery and the legitimate concern of the trade rival to retain the secrecy of its commercially sensitive information; pointed to the importance of inspection of the nature and contents of the documents in issue to resolve such a dispute; and noted that it was for the party seeking an order limiting inspection of discoverable documents to establish the character of each such document that warranted protection additional to that granted by the implied undertaking.

   In Portal Software International Pty Ltd v Bodsworth [2005] NSWSC 1115 at [41] ‑ [42] and Drivetime Radio Australia Pty Ltd v Pivotal Creative Solutions Pty Ltd [2010] NSWSC 763, Brereton J emphasised that the Courts are reluctant to exclude the parties to the litigation from knowledge of relevant material by limiting access to their advisers, although the Court may sometimes need to take that approach. In NAK Australia Pty Ltd v Starkey Consulting Pty Ltd [2008] NSWSC 1136 at [8] ‑ [9], Brereton J referred to his decision in Portal Software International Pty Ltd v Bodsworth above and observed that:

   'it has long been the practice that restrictions be imposed on the access of a party to documents produced on discovery, or on subpoena, particularly in cases concerning patents and trade secrets.  Although that is less so when documents are sought from parties to litigation than from third parties, and particularly where it is a plaintiff who asserts confidentiality against a defendant (because, the plaintiff having invoked the jurisdiction of the Court, a still stronger case is required to deny a defendant access to relevant confidential documents), the position of a defendant brought to a court by a plaintiff is in an intermediate position. Protective limitations are sometimes introduced at the time of the production or inspection - such as orders for inspection by an independent solicitor or expert, or limiting access (for example) to the plaintiff's expert but not the plaintiff, or inspection by the plaintiff's solicitor but not by the plaintiff.

   In more recent times it has become rarer that a person is excluded from knowledge, because courts take the view that decisions such as whether to continue or abandon litigation should be made by the party personally on advice, rather than by the advisors. Imposing restrictions on the ability of lawyers to speak to their clients and disclose to their clients information produced to them is undesirable. It places those lawyers in a position of difficulty vis‑a‑vis their client and even in the conduct of the litigation.  But, despite these difficulties, courts do nonetheless still make such orders as the best compromise that can be achieved between preserving the interests of the defendant's confidentiality, and allowing the plaintiff reasonably to conduct its case.'

   In accepting a regime that limits access to external solicitors and counsel, the Court must be conscious that, as was noted in ICAP Australia v Forrest Moebes [2010] NSWSC 738 at [11]:

   'Those solicitors and counsel must act on the instructions of someone; and normally the person or persons giving those instructions should be entitled to see all the documents available to their advisers so that they can understand the basis of any advice given to them'.

   A party who seeks protection additional to that given by the implied undertaking generally bears the onus of establishing that each document in relation to which additional protection is sought warrants that protection: Idoport Pty Ltd v National Australia Bank Ltd [2001] NSWSC 1024; Betfair Pty Ltd v Racing New South Wales (No 5); ICAP Australia v Forrest Moebes above.  Although documents are not protected from discovery by reason of confidentiality alone, the obligation to give discovery should not place upon the litigant (or third parties) any more oppressive burden than is required to permit justice to be done and that Courts will more closely scrutinise the discovery sought to ensure that it truly is material and not oppressive where giving discovery would involve the loss of trade secrets or confidences:  Science Research Council v Nasse [1980] AC 1028 at 1065; NAK Australia Pty Ltd v Starkey Consulting Pty Ltdabove at [4], [10] [11] ‑ [15].

Proposed confidentiality regime

1. The confidentiality regime proposed by the Apache defendants is lengthy and detailed.  It is sufficient to outline its basic features.  A party who produces documents may identify them as a Confidential Document or a Restricted Confidential Document.  Access to Confidential Documents is restricted to solicitors, law graduates, counsel, experts and three employees of a party nominated by the party.  That may be altered by agreement.  Access to Restricted Confidential Documents is confined to solicitors, counsel and experts.

2. The obligations imposed on people who inspect Confidential Documents or Restricted Confidential Documents are in essence to use the documents only for the purpose of the proceedings and to keep them confidential.  The regime has a mechanism for adding additional nominated persons to inspect Confidential Documents or Restricted Confidential Documents.  There is a procedure to vary the regime by agreement.  There are provisions dealing with an electronic database and dealing with the documents after the proceedings have concluded.  There is a procedure for resolving a dispute about confidentiality.  After a party has identified a document upon which it intends to rely in the proceeding, that party may dispute the producing party's assertion of confidentiality over the document.  There is a process of conferral and if, following conferral, the parties are unable to agree on an approach for the treatment of the disputed document, the party wishing to dispute the confidentiality of the document may apply to the court for orders that the disputed document is not confidential.

Evidence

1. Mr Luscombe is a partner of Clifford Chance, the solicitors for the second defendant.  Mr Luscombe has extensive experience in commercial litigation in this jurisdiction.  In his affidavit sworn 30 April 2013 Mr Luscombe says that, given the matters in issue in this proceeding, he believes that a significant number of documents that have and will be discovered are likely to contain information that is private, proprietary, confidential and/or commercially sensitive to the Apache parties or to third parties who have contracted with Apache, other than Alcoa.  He also believes that there are likely to be documents that contain information that is confidential to each of the defendants.  Mr Luscombe gives the following as obvious examples:

   (a)gas sale agreements and associated documents between the defendants and third parties;

   (b)gas pricing information;

   (c)volume or quantities information;

   (d)the operation and design of the gas processing plant and facilities on Varanus Island (including third party interests on the island);

   (e)the pipeline capacity;

   (f)the defendants' gas exploration, production and processing operations;

   (g)the defendants' marketing and distribution operations;

   (h)safety and operational manuals developed by Apache over a number of years; and

   (i)the infrastructure and operations of the facilities on and around Varanus Island, including plans and schematics disclosing the design, layout and operations of facilities on and around Varanus Island, including the onshore processing plant, the oil processing plant, oil tanks, gas processing trains, condensate stabilisation facilities, water treatment and injection facilities, the various pipelines carrying product to or from the onshore processing facilities, including but not limited to the design and operating specifications of the 12" and 16" sales gas pipeline.

2. Mr Luscombe also says that the Apache defendants believe that disclosure of information which is of an operational nature may pose a security threat.  One of the documents entitled Varanus Hub Safety Case and referred to in par 17C of the current statement of claim discloses safety and operational know‑how developed by Apache over a number of years and details of security procedures and security precautions taken by the defendants on Varanus Island and offshore operations.  The Apache defendants say that the disclosure of such information may risk the security of the offshore oil and gas facilities and make them more vulnerable to attack.

3. In his affidavit sworn 23 May 2013 Mr Luscombe swears that a lawyer employed by Apache solicitors, Nathan Landis, has reviewed the documents including the Varanus Hub Safety Case and that review discloses that the Varanus Hub Safety Case document runs to over 2,000 pages and covers safety aspects of operations associated with the Varanus Island facilities and contains a range of policies, procedures, systems and processes which represent valuable know‑how for Apache.  Further, the document contains details of security procedures and precautions.  By way of example, Part II of the document contains the precise security arrangements regarding one of the gas fields operated by Apache.  If the security of this gas field was compromised that would fundamentally affect the ability of Apache to operate that gas field.  Mr Luscombe annexes to his affidavit a copy of relevant pages from the Australian Government's response to the report by the Inspector of Transport Security on the Offshore Oil and Gas Resources Sector Security Inquiry.  On those pages the report states, amongst other things:

   However, while the security threat to the Australian offshore oil and gas industry is relatively low, this is no basis for complacency in ensuring that Australia continues to remain a secure and reliable source of strategic energy supply and a safe investment destination.  Oil and gas industry participants and governments need to ensure that we have effective security arrangements in place and the right response capabilities in the event of an incident or attack on offshore oil and gas exploration and production infrastructure.

   Apache is concerned about possible security threats to its installations and facilities worldwide including those on and around Varanus Island.

4. Mr Luscombe says that in his experience, asserting and defending a claim to confidentiality over individual documents is a very time‑consuming and expensive process which often delays the entry for trial.  Those costs and that time may be completely wasted when such claims are challenged in circumstances where the challenging party has not even determined whether it will seek to rely on the documents in the proceeding.  The complexity of the process, and hence the time and costs involved, in determining whether a document is confidential and in asserting or defending a claim to confidentiality depends on the length of the documents and the number and nature of the claims to confidentiality.

5. The first tranche of documents discovered by the Apache defendants is small ‑ only 14 in number.  The Apache defendants assert confidentiality in relation to 12 of them.  However, some of the documents are lengthy and technical in nature.  The 12 documents the subject of the plaintiff's application for inspection total over 4,900 pages and occupy seven lever arch files when printed double‑sided.  Mr Luscombe swears that Mr Landis took approximately six hours to review the documents and, in the course of his review, Mr Landis located references in the documents to matters which are confidential and referred to in Mr Luscombe's affidavit sworn 23 May 2013.  Mr Landis' review was not exhaustive and a further review would be required to determine every part of those documents in relation to which the Apache defendants might properly claim confidentiality.

1. The evidence is not sufficient to establish that each part of each of the 12 documents which the plaintiff seeks to inspect is relevantly confidential.  However, I am satisfied that each of the documents contain at least some confidential or commercially sensitive material and it would take substantial time and therefore costs to examine them sufficiently to identify each part of the document that is confidential or commercially sensitive.

Further documents to be discovered

1. The Apache defendants have provided discovery of tranche 2 documents.  Those documents concern the issue of vulnerability.  The list comprises 2,252 documents.  The Apache defendants claim that 2,200 of them should be covered by the confidentiality regime.

Other defendants' positions

1. The third defendant, Harriet, supports the position of the Apache defendants in relation to a confidentiality regime and adopted the submissions of those parties.  The fourth defendant, Kufpec, supports the position of the Apache defendants and the submissions of those defendants.

The issue

1. The plaintiff submits that it has a prima facie right to inspect the documents discovered by the defendants and it is incumbent upon the party seeking to displace the prima facie right to inspect discovered documents to explain fully how and why the relevant information ought to be excluded from inspection in the ordinary way.  Unless the party can persuade the Court that special arrangements should apply, no such arrangements will apply.  The plaintiff says that the defendants must do that, if at all, by demonstrating in relation to each document exactly what it is in the document that justifies restrictions upon access to the documents by the plaintiff.

2. Mr B Dharmananda SC, counsel for Kufpec, submitted that the defendants' position is that the Court has jurisdiction, power and discretion to tailor‑make orders for inspection and if that is accepted then the defendants should succeed.  That is because the confidentiality regime proposed by the defendants will save time and costs and will not prejudice any party in their prosecution or defence of the proceeding.

Discretion of the court

1. In ICAP Australia v Forrest Moebes [2010] NSWSC 738, Ball J said that

   [g]enerally, a party who seeks protection additional to that given by the implied undertaking in relation to discovered documents bears the onus of establishing that the character of each document in relation to which additional protection is sought is such as to warrant that protection [8].

   However, his Honour went on to say that that general principle is subject to an important qualification which arises from s 56 and s 57 of the Civil Procedure Act 2005 (NSW). Those statutory provisions are similar to O 1 r 4A and r 4B of the Rules of the Supreme Court of Western Australia.  Ball J said that

   it is not uncommon in proceedings involving a substantial number of documents in respect of which a special claim of confidentiality is made for the parties, or in some cases the court, to develop regimes to avoid the necessity and expense of having to deal with claims of confidentiality on a document‑by‑document basis [10].

   His Honour said that s 56 and s 57 of the Civil Procedure Act may require the court to consider the reasonableness of the regime rather than a claim on a document‑by‑document basis and that

   [t]hat is so even when one party or the other seeks to resile from a regime that has been put in place or seeks to oppose a regime proposed by another [11].

   His Honour said:

   Whether a Court should depart from the document‑by‑document approach and, if it does, the nature of the regime that it should accept depends on all the circumstances of the case. One relevant factor is the number of documents involved. Another is the nature of the relationship between the parties – and, in particular, the extent to which they are trade rivals. A third is the nature of the documents sought to be protected – and, in particular, the likelihood that they contain information that could properly be regarded as confidential and as requiring some special protection beyond that provided by the implied undertaking. A fourth is the nature of the case and the urgency in making the documents available for inspection [11].

2. I am satisfied that the court has power and discretion to tailor‑make orders for inspection which orders involve a confidentiality regime restricting access to documents. That power and discretion arises from O 26 r 9 and r 11 and O 1 r 4A and r 4B of the Rules of the Supreme Court.

3. In the circumstances of this case the imposition of a confidentiality regime will advance the objects set out in O 1 r 4B(1)(a) to (d). Those circumstances include that this is substantial commercial litigation, there are a large number of documents involved, a substantial number of documents contain confidential or commercially sensitive information and discovery is to be in stages. If claims to confidentiality are to be made, argued and determined by the court on a document by document basis that is likely to be time consuming, expensive and involve substantial court resources. A regime of the sort proposed by the defendants in effect delays any contest over the confidentiality of individual documents until the parties have determined that it is necessary to determine whether or not the document is confidential. That process will save substantial costs to the parties and significant court resources.

The appropriate confidentiality regime

1. The parties have not conferred in relation to an appropriate regime.  The parties did not argue the appropriateness of the regime proposed by the defendants in the course of this application.  The defendants propose that the court should order the parties to confer regarding the terms of an appropriate confidentiality regime that will apply in respect of the documents the subject of the first and second defendants' tranche 2 discovery and, in the meantime, order that the plaintiff's right to inspect the documents the subject of tranche 1 discovery be limited to inspection by and disclosure to individuals nominated by the plaintiff comprising up to two external counsel, up to two solicitors or graduates from the plaintiff's solicitors and three named employees of the plaintiff.  That is an appropriate order with one qualification.  The plaintiff has made no submissions concerning the number of counsel, solicitors, graduates or employees of the plaintiff who should be permitted to inspect the tranche 1 documents on the interim basis outlined.  I will consider any submission by the plaintiffs concerning the number of counsel, solicitors, graduates and employees of the plaintiff who should be permitted to inspect the documents and whether any other persons should be permitted to inspect them on an interim basis.

2. The parties should confer in relation to an appropriate confidentiality regime.