Allstate Life Insurance Co v Australia & New Zealand Banking Group Ltd
[1995] FCA 1002
•13 DECEMBER 1995
CATCHWORDS
PRACTICE AND PROCEDURE - letters of request - purpose - "evidence material to any issue to be tried in the proceedings" - whether letters of request can be issued for the purpose of obtaining information as to the identity and whereabouts of witnesses who can give such evidence on the final hearing - whether such information is itself evidence material to an issue to be tried in the proceeding.
Evidence Act 1905 (Cth) s 7V.
Federal Court Rules O 24 r 1, O 35 r 7.
Parsons v Martin (1984) 5 FCR 235 (FC).
Elna Australia Pty Ltd v International Computer (Aust) Pty Ltd (1987) 14 FCR 461 (Gummow J).
Nadin v Bassett (1884) 25 Ch D 21 (CA).
Armour v Walker (1884) 25 Ch D 673 (CA).
Hardie Rubber Co Pty Ltd v General Tire & Rubber Co (1973) 129 CLR 521.
Sydney Ferries Ltd v SS "Tahiti" (1928) 28 SR (NSW) 307 (Street CJ).
Smith v Smith [1975] 1 NSWLR 725 (Woodward J).
ALLSTATE LIFE INSURANCE CO & ORS v AUSTRALIA & NEW ZEALAND BANKING GROUP LIMITED & ORS (No 18)
No NG 381 of 1994
Lindgren J
Sydney
13 December 1995
IN THE FEDERAL COURT OF AUSTRALIA )
NEW SOUTH WALES DISTRICT REGISTRY ) No NG 381 of 1994
GENERAL DIVISION )
BETWEEN:
ALLSTATE LIFE INSURANCE CO and the parties listed as applicants in Annexure A to the third further amended statement of claim.
Applicants
AND:
AUSTRALIA & NEW ZEALAND BANKING GROUP LIMITED and the parties listed as respondents in Annexure B to the third further amended statement of claim.
Respondents
CORAM:Lindgren J
PLACE:Sydney
DATE:13 December 1995
MINUTE OF ORDERS
THE COURT ORDERS THAT:
The proceedings stand over to Tuesday, 19 December 1995 at 9.30 am for the purpose of the making of orders in accordance with the reasons of Lindgren J published on 13 December 1995.
The parties submit to the Associate to Lindgren J by 5.00 pm on 18 December 1995 agreed form of short minutes of orders or if agreement has not been reached by that time, the forms of short minutes of orders for which the
parties will respectively contend on 19 December 1995.
NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA )
NEW SOUTH WALES DISTRICT REGISTRY ) No NG 381 of 1994
GENERAL DIVISION )
BETWEEN:
ALLSTATE LIFE INSURANCE CO and the parties listed as applicants in Annexure A to the third further amended statement of claim.
Applicants
AND:
AUSTRALIA & NEW ZEALAND BANKING GROUP LIMITED and the parties listed as respondents in Annexure B to the third further amended statement of claim.
Respondents
CORAM:Lindgren J
PLACE:Sydney
DATE:13 December 1995
REASONS FOR JUDGMENT (No 18)
(Motion of 207th cross respondent ("Price Waterhouse")
relating to Letters of Request)
BACKGROUND
1.1The case of the "Ariel Entities" as assignees of debentures
The 6th, 11th, 12th, 13th, 14th and 15th applicants ("the Ariel Entities") wish to lead evidence from twelve persons who are residents of the United States of America and who are not "under the control" of the Ariel Entities and are not willing to come to Australia to give evidence. In respect of seven of the proposed witnesses, the position is straightforward: they
are individuals who, the Ariel Entities believe, are able to give evidence material to issues which on the pleadings will arise for determination on the trial. These Reasons for Judgment relate, not to those seven proposed witnesses, but to the remaining five. In order that their position may be understood, it is necessary that I say something about the background to the case sought to be made by the Ariel Entities.
With one exception not presently relevant, the 17 applicants are substantial American investors who are the holders of debentures issued by Linter Textiles Corporation Limited ("Linter Textiles"), a corporation formed under the laws of New South Wales. The exceptional applicant is a trustee for debenture holders, and therefore for the other applicants. The debentures were issued in New York in October 1988. The amount of capital raised by the issue was US$200,000,000. It has been alleged that the investors in the debentures lost substantial amounts of money. The applicants say that the losses were caused by the wrongful and actionable conduct of various Australian corporations and individuals who were associated in various ways with the issue of the debentures. These are the respondents. For present purposes I need not give details of the causes of action on which the applicants rely, save to say that an important allegation is that there were misrepresentations in the prospectus associated with the debenture issue ("the Prospectus").
Some of the applicant-debenture holders were not "relying debenture holders", that is to say, they did not rely on the conduct in 1988 of the corporations and individuals in question. In particular, all the Ariel Entities became holders of debentures by reason of having purchased them subsequently. In some cases the assignments to the Ariel Entities were direct from relying debenture holders but in other cases they were from intervening holders. The Ariel Entities claim to be entitled, as assignees, to the benefit of the causes of action which the relying debenture holders, which were their predecessors in title, had against the respondents. But they do not know the identity of those individuals who, on behalf of those relying debenture holders, were induced by the misrepresentations or other wrongful conduct complained of, to cause them to subscribe for the debentures in question. The Ariel Entities have sought to invoke the letters of request procedure for the taking of "evidence" from the five individuals referred to as to the identity of persons who will be able to give such evidence of reliance and inducement.
1.2Procedural history relating to letters of request
On 6 April 1995, Beaumont J made the following order:
Upon the Applicants filing and serving a written undertaking to the Court:
(a)not, without the leave of this Court, to oppose the making of an order by a United States Court for the production by other persons of documents in the United States
of the kind specified in MFI 72 or MFI 72A [not presently relevant] except on the ground that the production would or reasonably could prejudice the timely disposition of the proceedings in this Court;
(b)to use their best endeavours to ensure that the evidence taken pursuant to the letters of request is not taken before 11 September 1995 or such earlier date (not being before 3 July 1995) as these proceedings are not being heard in this Court;
(c)to use their best endeavours to inform the other parties to these proceedings as soon as practicable of any proposal of which they are aware by a United States Court to fix a hearing date in order to enable those other parties to have an opportunity of making submissions in that connection,
ORDER that letters of request in the form of annexure A to these orders, do issue directed to the several District Courts of the United States of America with jurisdiction over the geographic areas within which the addresses of the witnesses as set out in annexure B to these orders fall."
I need not set out the form of annexure A to order (2) of 6 April. It referred to the then current form of the applicants' pleading, namely an "Amended Statement of Claim", a copy of which was annexed to the form of letter of request. A copy of annexure "B" to the order listed, without distinction between them, the names of all 12 individuals referred to earlier and their addresses within the United States.
On 6 April 1995 and from time to time subsequently, the applicants undertook not to act on the order for various periods. Ultimately, on 16 October 1995, by which date a third further amended statement of claim had been filed in the proceedings, I made the following orders by consent:
"3.Order that letters of request in the form of Annexure A to these orders, do issue directed to the several District Courts of the United States of America with jurisdiction over the geographic areas within which the addresses of the witnesses as set out in Part I of Annexure B to these orders fall.
4.Direct that the applicants move each of the Courts to which a letter of request is issued by this Court, for orders as follows:
(a)........ ........ ........ ........ .......;
(b)that in the event that the Court makes an order for the issue of further letters of request as referred to in paragraph 9 below, each witness nominated by the applicants as a witness whose evidence is, at least in part, expected to lead to further enquiries by them as to the identity or whereabouts of persons who made a decision to purchase the Linter Textiles debentures the subject of these proceedings or advised in relation thereto, be examined for the purpose only of eliciting such information, as soon as is conveniently possible and prior to March 1996 before a person appointed by the relevant Court;
(c)that the witnesses listed in Annexure B from whom evidence not limited to the information referred to in (b), is sought to be adduced, be examined:
(i)........ ........ ........ ........ .;
(ii)after the conclusion of all other oral evidence to be called by the applicants in Australia and prior to the conclusion of the applicants' case in chief in these proceedings; and
(iii)in accordance with the rules of Australian civil procedure.
5.Subject to the resolution of the matters referred to in paragraphs 9 and 11 below, direct the applicants to give not less than 14 days notice to all other parties of the identity of the persons to be examined pursuant to paragraph 4(b), and the time and place at which such examinations are to take place.
6......... ........ ........ ........ ........ ....
7.Grant leave to the 207th Cross Respondent (Price Waterhouse) to file a Notice of Motion seeking orders to the effect that letters of request should not issue and should not have been issued in respect of the witnesses listed in part II of Annexure B or alternatively orders that the letters of request do not permit information examinations (being examinations limited to matters of the kind referred to in paragraph 4(b)), such Notice of Motion to be filed and served by 4.00pm on Tuesday, 17 October 1995 or alternatively orders directing that the applicants use their best endeavours to have the information examinations of those witnesses taken by video link between the United States and Sydney.
8......... ........ ........ ........ ........ .....
9.Stand over to 9.00am on 24 October 1995 for directions the question whether order 3 above should be extended to order the issue of further letters of request in the form of Annexure A in respect of the witnesses whose names and addresses are listed in Part II of Annexure B.
10.Note the undertaking of the applicants that they will not take any steps prior to 5.00pm on 24 October 1995, to activate any letters of request issued pursuant to the orders made on 6 April 1995 or any other letters of request issued in these proceedings.
11.Stand over to 9.00 am on 24 October 1995 for directions the question whether, having regard to these and any further orders made in these proceedings, the orders made on 6 April 1995 [should] be vacated or, in the alternative, whether any further action by the applicants in respect of any letters of request issued pursuant to those orders should be stayed.
12.Stand the proceedings over to 9.00am on 24 October 1995 for further directions."
Again it is unnecessary to set out the form of the letter of request which was contained in Annexure "A" to the orders. It refers to the third further amended statement of claim, a copy of which is annexed to it. Annexure "B" repeats the names and addresses of the twelve individuals: the seven as to whom no difficulty arises in Part I, and the five with whom these Reasons for Judgment are concerned in Part II. The five named in Part II, are Huey Falgout, John Carter, David Kast, Robert Levine and Vicki Fuller.
Pursuant to order 7 above, on 18 October 1995, the 207th cross respondent ("Price Waterhouse") filed a notice of motion seeking, relevantly, the following relief:
"1.Order 2 made on 6 April 1995 be vacated or, in the alternative, any further action by the applicants upon Order 2 made on 6 April 1995 by [sic] stayed.
2.Further action by the applicants upon the Letters of Request issued pursuant to Order 2 made on 6 April 1995 be stayed.
3.The orders made on 16 October 1995 to the extent they permit the issue of Letters of Request in respect of any of the witnesses listed in Schedule A to this motion be vacated.
4.In the alternative to paragraphs 1 to 3, an order that the applicants be directed that they must not conduct an examination under any of the Letters of Request issued or authorised to be issued in these proceedings for the purpose of inquiring as to the identity or whereabouts of persons who made a decision to purchase the Linter Textiles debentures the subject of these proceedings or persons who advised in relation thereto (an 'information examination').
5......... ........ ........ ........ ........ ......
6.Direct the applicants in respect of any Letters of Request issued pursuant to the orders made on 16 October 1995 to comply with the written undertakings filed in furtherance of Orders 2(a) and (c) made on 6 April 1995 as if that order continued in force and related to the Letters of Request to be issued pursuant to the orders of 16 October 1995.
7.In the alternative to paragraphs 1 to 4, an order that any information examinations be conducted by video link between the United States and Sydney."
The persons named in annexure "A" to the notice of motion are the five persons named in part II of annexure "B" to the orders of 16 October.
On 24 October 1995 the applicants undertook to the Court not to activate the existing letters of request until further order (subject to a liberty to apply) and Price Waterhouse's motion was stood over to Monday 13 November 1995 for hearing. Numerous motions in these proceedings were heard during the week commencing on that date and Price Waterhouse's motion was heard on Friday 17 November 1995. It is to that motion that these Reasons relate.
1.3The evidence on which the letters of request were ordered on 6 April 1995 to be issued
The evidence on which the applicants relied to apply for order (2) on 6 April 1995 was found in an affidavit of William Hartley Roth sworn 17 March 1995. Mr Roth is a partner in the New York law firm, Kelly & Roth. Mr Roth said that he was counsel to certain Ariel Entities relevant to his affidavit (to which he referred as the "Ariel Entities"). Mr Roth's affidavit was intended to describe the efforts which he had made to attempt to persuade prior holders of the debentures now held by his clients to provide evidence about the circumstances in which those prior holders had purchased the debentures. Because of its importance, I must give a detailed account of the relevant evidence in Mr Roth's affidavit. This appears later in section 4.3 of these Reasons.
1.4Orders for the filing of evidence
The Ariel Entities have never made any secret of the fact that they do not know the identity of the individuals from their predecessors in title which subscribed for the debentures who might be called as witnesses.
On 10 November 1994, Beaumont J directed that the applicants file any non-expert witness statements by 15 December 1994. On 14 December 1994, his Honour directed them to file and serve all statements of evidence (other than expert evidence) on which they intended to rely by 1 March 1995.
When the proceedings were before the Court on 1 February 1995, senior counsel for the applicants informed the Court that any outline of the evidence of reliance to be given by individuals from the Ariel Entities' predecessors in title who may have been induced by the misrepresentations in the Prospectus to cause the debentures to be subscribed for, would be "pretty sketchy" if the Ariel Entities' counsel in the United States had not been able to speak to them. Beaumont J referred to the provision of an "outline" of the evidence and senior counsel for the applicants said that his clients had no difficulty in submitting to a direction that they give the other parties such notice as they could of what they thought the witnesses would say.
On 1 March 1995, the applicants' solicitors supplied what were described as "outline statements of evidence which the applicants believe will be given by: (1) officers of relying debenture holders which assigned to the Ariel Entities; and (2) officers of subsequent (non-original) debenture holders which assigned to the Ariel Entities". These documents were truly remarkable. They were pro forma outline statements in, mutatis mutandis, identical form, prepared by the applicants' legal advisers without instructions from the witnesses. But it must be remembered that both before and after service of the draft outlines, the Ariel Entities informed the Court and the respondents that the documents would and did represent evidence which they "hoped" or "expected" would be given on the assumption that someone within each relevant relying debenture holder could be found who read and relied on the Prospectus.
There was an exchange between Beaumont J and counsel appearing for the applicants on 22 March 1995 as to whether an outline of the evidence which the Ariel Entities "hoped" that the unidentified witnesses would give, satisfied his Honour's direction that they file an outline of the evidence which it was "expected" that they would give. His Honour referred to the outlines as being "a ritual incantation" and said that the spirit of the direction was that the outline would be of the evidence that the witness could reasonably be expected to give on the information that the applicants had, "not some best case scenario". Counsel for the applicants said:
"These are the things we expect them to say because these are the things all of the other witnesses who have signed statements said, the substance is the same. We have not changed the words to try and pretend that they are actual statements, they are not. That is why we need the letters of request." (emphasis supplied)
It is against the above background that the orders for the letters of request were made on 6 April.
1.5Why did Price Waterhouse not oppose the making of order (2) on 6 April 1995?
The orders were made on 6 April 1995 without opposition from the respondents. On the hearing before me, there was affidavit evidence from a partner of Price Waterhouse's solicitors that he consulted senior counsel on 4 April 1995 as to whether there was any basis on which Price Waterhouse could object to the issue of the then proposed letters of request. He said that in the course of his consideration of the issue and in the course of his discussions with senior counsel, he gave no consideration to the distinction between, on the one hand letters of request in respect of persons able to give evidence on the final hearing as to their role in the decision to subscribe for the debentures and/or their reliance on the Prospectus, and on the other hand persons said to be able to give information as to the identity or possible identity of such persons. He said that he had been advised at the time by senior counsel that there was no basis on which Price Waterhouse could object to the issue of the then proposed letters of request and that after this he gave no further consideration to the matter at that time.
POWER TO ISSUE LETTERS OF REQUEST
Sub-section 7V (1) of the Evidence Act 1905 (Cth) ("the Act") gives the Court the power in question. Pursuant to sub-s 7Z (2) of the Act, rules of court have been made. Sub-sections 7V (1) and (2) and O 24 r 1 of the Federal Court Rules are as follows:
Evidence Act, 1905 (Cth), sub-ss 7V (1) and (2)
"7V (1) In any civil or criminal proceeding before a superior court, the court may, in its discretion and where it appears in the interests of justice to do so, on the application of a party to the proceeding, make, in relation to a person outside Australia, an order:
(a)........ ........ ........ ........ ...;
(b)........ ........ ........ ........ ...; or
(c)for the issue of a letter of request to the judicial authorities of a foreign country to take, or to cause to be taken, the evidence of the person.
(2)In determining whether it is in the interests of justice to make an order under subsection (1) in relation to the taking of evidence of a person, the matters to which the court shall have regard include the following:
(a)whether the person is willing or able to come to Australia to give evidence in the proceeding;
(b)whether the person will be able to give evidence material to any issue to be tried in the proceeding;
(c)whether, having regard to the interests of the parties to the proceeding, justice will be better served by granting or refusing the order." (emphasis supplied)
Federal Court Rules O 24 r 1
"1. The Court may, for the purpose of proceedings in the Court, make orders--
(a)for the examination of any person on oath or affirmation before a Judge or before such other person as the Court may appoint as examiner at any place whether in or out of Australia; or
(b)for the sending or issue of a letter of request to the judicial authorities of another country to take, or cause to be taken, the evidence of any person."
Section 7V of the Act is equivalent to s 7 of the Foreign Evidence Act 1994 (Cth). Part IIIC of the Act (containing s 7V) was repealed by the Foreign Evidence (Transitional Provisions and Consequential Amendments) Act 1994 (Cth). However, s 4 of the transitional legislation saved parts of the Act which continue to apply to proceedings commenced prior to the commencement of the Part 2 of the Foreign Evidence Act (s 7 is within Part 2). The new Act commenced on 9 April 1994. These proceedings were commenced prior to that date.
OUTLINE OF PARTIES' SUBMISSIONS
3.1Outline of submissions of Price Waterhouse (applicants on the motion)
Price Waterhouse submits that the Court lacked jurisdiction to make order (2) on 6 April 1995 for the issue of letters of request in respect of the five "information witnesses".
For the proposition that the Court's power to issue letters of request does not go beyond that conferred by s 7V of the Act and O 24 r 1, Price Waterhouse refer to Elna Australia Pty Ltd v International Computers (Aust) Pty Ltd (1987) 14 FCR 461 (Gummow J). Price Waterhouse's submission is that by reason of s 7V (2) (b) of the Act the Court has power to issue a letter of request only where it is satisfied that the person whose evidence is to be obtained "will be able to give evidence material to any issue to be tried in the proceeding" and that the Court could not properly have been so satisfied on the evidence before it on 6 April, 1995. Price Waterhouse also rely on Hardie Rubber Co Pty Ltd v General Tire & Rubber Co (1973) 129 CLR 521 ("Hardie Rubber") at 528, 536-537 (Gibbs J) and 559 (Walsh J); Smith v Smith [1975] 1 NSWLR 725 (Woodward J) at 728-731 and Parsons v Martin (1984) 5 FCR 235 (FC) at 243-244.
3.2Outline of submissions of applicants (respondents to the motion)
Senior counsel for the applicants points out that order (2) of 6 April was made following discussion of the matter before Beaumont J intermittently over the period 21, 22 and 23 March and 3 and 6 April. In particular, he refers to references in the transcript according to which Price Waterhouse raised the possibility that it might challenge the Court's power to issue the letters of request and relies on the fact that it chose not to do so.
The Ariel Entities (although the applicants were named as respondents to Price Waterhouse's motion, it is convenient to refer to "the Ariel Entities" as the particular applicants concerned) accept that they will need to establish on the hearing that there were individuals who read and were misled by the Prospectus; that this induced the relying debenture holders to subscribe for the debentures; that the debentures were sold and that by "chains of varying lengths those debentures ended up in the hands of the Ariel Entities"; and that in accordance with the law of New York any cause of action arising from the circumstances in which the debentures were subscribed for also ended up in the hands of the Ariel Entities. They accept that it will be necessary for them to have witnesses to prove those steps including the authority of the individuals who engaged in them. Finally, they concede that they presently do not know who will be able to prove those various matters.
The Ariel Entities do not dispute that the Court has power under O 35, r 7 to set aside or vary order (2) of 6 April, since it has not been entered and is, in any event, interlocutory, and the letters of request have not been issued. However, the applicants submit that the Court should set aside that order only if satisfied that there was no jurisdiction to make it.
In support of the existence of the jurisdiction to make order (2) of 6 April, the Ariel Entities refer to Nadin v Bassett (1884) 25 Ch D 21 at 29 (Cotton LJ), Georgini v Electric Power Transmission Pty Ltd [1963] NSWR 258 at 260 (Herron ACJ) 262 (McClemens J) and 263 (Brereton J) and Hardie Rubber at 537 (Gibbs J).
The applicants point to the Ariel Entities' need to prove on the hearing, not only initial reliance, but also the chain of title. With reference to Mr Falgout, for example, they submit that he might be able to give evidence as to the number of debentures which had been held by his company, of the assignment of them to the Ariel Entities, and of the authority of other officers whose evidence may be relevant to those matters.
REASONING
4.1Some general propositions
It is useful to note at the outset the following general propositions:
The Court does not have inherent jurisdiction to order the issue of letters of request; the power is statutory (Parsons v Martin (1984) 5 FCR 235 (FC) at 240-241; Elna Australia Pty Ltd v International Computers (Aust) Pty Ltd (1987) 14 FCR 461 (Gummow J) at 465-467).
Sub-section 7V (1) of the Act empowers the Court as a "superior court" (see s 7T of that Act) to make an order for the issue of a letter of request "in its discretion and where it appears in the interests of justice to do so" for the taking of the evidence of "a person outside Australia". Sub-section 7V (2) provides that in determining whether it is "in the interests of justice" to make an order under sub-s (1) for the taking of a person's evidence, the Court shall have regard to, inter alia, "(b) whether the person will be able to give evidence material to any issue to be tried in the proceeding". Thus, in terms, s 7V lays down only one condition of the existence of the power to make an order, namely that it must appear to be "in the interests of justice" to make the order, but the section requires that in determining whether that condition is satisfied, the
Court must have regard to the question whether the person will be able to give evidence material to an issue to be tried in the proceedings. On the proper construction of these provisions in their application to order (2) dated 6 April 1995, it could properly have appeared to be in the interests of justice to make an order in relation to any one of the five named individuals, only if there was before the Court some evidence that the individual would probably be able to give evidence in relation to an issue to be tried in the proceedings.
The Ariel Entities did not dispute, and in my view they could not have done, that the expression "any issue to be tried in the proceedings" in para 7V (2) (b) refers to an issue between the parties to be decided.
In my view, information as to the identity of a person who may be able to give evidence material to an issue to be tried in a proceeding is not itself evidence material to such an issue within para 7V (2) (b) of the Act.
It is not necessary that an applicant for a letter of request be able to name the persons who will be able to give evidence material to an issue to be tried in a proceeding but it is necessary that the applicant prove at least that the persons in respect of whom letters of request are to be issued, exist and that some one or some of them will probably be able to give such evidence; Nadin v Bassett (1884) 25 Ch D 21 (CA); Armour v Walker (1884) 25 Ch D 673 (CA) at 677 (Cotton LJ); Hardie Rubber at 537 (Gibbs J), 559 (Walsh J with whom McTiernan ACJ, Stephen and Mason JJ agreed).
Distinct from the permissible purpose of letters of request referred to in the foregoing paragraph is the impermissible use of them for the purpose of "conducting a search in the hope of finding evidence" or "merely fishing for witnesses to examine" (Hardie Rubber at 537 (Gibbs J)) or the conduct of "a mere roving commission to give the party a chance of finding evidence abroad" (Armour v Walker (1883) 25 Ch D 673 (CA) at 677 (Cotton LJ)); and cf Sydney Ferries Ltd v SS "Tahiti" (1928) 28 SR (NSW) 307 (Street CJ) at 311 and Smith v Smith [1975] 1 NSWLR 725 (Woodward J) at 728-731.
4.2General
An initial question arises as to the principles in accordance with which Price Waterhouse's motion should be dealt with. There was no appeal from Beaumont J's order made on 6 April. Moreover, that order was made without opposition. On the other hand O 35 sub-r 7 (1) gives a power, unqualified in its terms, to "vary or set aside a judgment or order before it has been entered" and even where an order has been entered, O 35 sub-r 7 (2) (c) gives such a power, unqualified in its terms, where the order is interlocutory. Order (2) of 6 April has not been entered and is, in any event, interlocutory. No doubt the discretion touching the exercise of the power to vary or set aside is not to be limited but must, like all such discretions, be exercised judicially. It is important to stress, as Price Waterhouse accepted, that the point which they now seek to take was not pressed before Beaumont J on 6 April.
In this case the order which is attacked was for the issue of letters of request in respect of five named individuals. Although the order was obtained for the impermissible purpose of eliciting information as to the existence and identity of witnesses able to give evidence material to an issue to be tried in the proceedings, the Ariel Entities now seek to support the order on the basis that the five individuals can reasonably be expected to give evidence material to the chains of title to the debentures held by them and to causes of action asserted in these proceedings. Price Waterhouse does not submit that there is no issue to be tried in the proceedings as to those chains of title. There was no occasion for the Ariel Entities to support the order on this basis back on 6 April, as Price Waterhouse did not ultimately oppose the making of the order then.
In the circumstances and in the exercise of my discretion under O 35 r 7, I would set aside the order in respect of any of the five individuals only if there was before the Court no evidence that he or she would probably be able to give evidence material to the Ariel Entities' chain of title. There was no evidence or suggestion that any of them could give evidence material to reliance, inducement or any other issue for decision in the proceedings.
4.3The evidence relating to the five individuals
The first relying debenture holder referred to by Mr Roth was "American Capital - American Income". He deposed that American Capital Inc assigned debentures to Ariel Entities on 17 April 1990 (US$4,880,000) and that American Income Inc assigned debentures to Ariel Entities on 26 December 1991 (US$600,000), 6 October 1992 (US$1,000,000) and again 6 October 1992 (US$1,400,000). It will be noted that the first assignment was 18 months after the issue of the debentures in October 1988. The second and third were after Linter Textiles had been ordered to be wound up. He said that he telephoned Huey Falgout, Portfolio Manager of American Capital Asset Management whose name had been given to him by Michael Harwood of Kasowitz Hoff Benson Torres and Friedman, who were, according to Mr Roth, also New York attorneys acting for the Ariel Entities. Over the telephone Mr Roth inquired whether Mr Falgout was the person at American Capital Asset Management responsible for the subscription for US$4,880,000 of debentures purchased by his clients on 17 April 1990 from American Capital Asset Management Inc and if not, who that person was. Mr Falgout requested that Mr Roth put his inquiry in writing which he did. Mr Falgout replied advising Mr Roth that after discussion with counsel, the decision had been taken not to participate in any way in the litigation at that time.
The second relying debenture holder referred to by Mr Roth was "Templeton Global/Investment/Income" which, according to him, assigned debentures to Ariel Entities under three assignments all on 24 April 1990 in amounts totalling US$6,250,000. Mr Roth said that he telephoned John Carter "an attorney with Templeton Funds" whose name had also been given to him by Mr Harwood. Mr Carter also requested that Mr Roth put his inquiry in writing. Mr Roth did so. The request was for information as to whether Mr Carter was the person responsible for the subscription for the following debentures by the following Templeton Funds which had sold them for US$6,250,000 to Ariel Entities:
AmountSeller
$5,000,000Templeton Global Income Fund
500,000Templeton Investment Income Fund
250,000Templeton Global Income Fund III
500,000Templeton Income Fund (or Templeton G Port Limited Fund)
Notwithstanding follow-up telephone calls, there was no fruitful response from Mr Carter (in one telephone conversation Mr Carter undertook to discuss Mr Roth's request with "general counsel of Templeton").
The third relying debenture holder referred to by Mr Roth was "Prudential Insurance/High Yield" which, according to Mr Roth, assigned debentures to Ariel Entities on 8 August 1991 by four
assignments in amounts totalling US$18,550,000. Mr Roth said that he spoke on the telephone with a Mr David Kast, "an attorney employed by the Prudential Group". He asked him for the name or names of the employees who were responsible for the purchase of Linter Textiles debentures in 1988 or 1989. Mr Kast undertook to look into the matter and call back. On the same day (18 January 1995) Mr Roth telecopied a letter to Mr Kast confirming his request as follows:
"I request that you give me the names and last known addresses of the managing directors of Prudential's Capital Management Group in October, 1988, so that we may contact them to provide information about Prudential's purchase of the Linter Textiles [sic]."
Mr Roth says that he next spoke to Mr Kast on the telephone on 23 January 1995 when Mr Kast told him that the debentures had been purchased by a "Prudential Investment Committee" which was no longer in existence. Mr Kast subsequently told Mr Roth the names of the four members of that Committee but also told him that none of them worked for Prudential any longer. He told Mr Roth that he did not have their addresses but that one of them might live in Greenwich, Connecticut.
Mr Roth inquired subsequently of Blassina Diaz of the Personnel Department of Prudential as to the last known addresses of the four members of the Committee but she told him that Prudential's policy forbade her from giving out information about former employees.
Subsequently, Mr Roth telecopied a letter to each of Mr Kast and Ms Diaz a letter in identical terms which included the following:
"Our clients' Australian counsel have advised that our clients must establish (1) the chain of title to the bonds they now hold, (2) that prior purchasers read and understood the bond issue prospectus before purchasing the bonds, and (3) that the purchase was made in reliance upon the terms of the prospectus.
You have identified the persons responsible for the decision and have informed me that they are no longer employed by Prudential. However, you have not provided the addresses of these employees, and I am not able to locate them by independent means.
Our clients seek your agreement to travel to Sydney, Australia at their expense to give what is anticipated would be brief but important evidence as to the investment decision your company made. All appropriate arrangements will be made for your return air travel and accommodation and it is not anticipated you will be absent from the New Jersey area for more than 5 days.
Would you please advise me as it is a matter of urgency whether you are prepared to provide assistance to our clients by identifying the addresses of these former employees."
The Chief Counsel of Prudential Capital Group confirmed in writing to Mr Roth that the addresses of the former employees would not be provided.
The fourth relying debenture holder referred to by Mr Roth was "Equitable Capital" which, he deposed, assigned debentures (US $2,000,000) to Ariel Entities on 15 March 1994. This date was long after the commencement of these proceedings in 1991. Mr Roth deposed that he telecopied a letter to "Nelson Jantzen" at Equitable Capital on 8 March 1995 and telephoned him. The letter (dated 8 March 1995) asked for identification of the individual originally responsible for purchasing the debentures. By the letter he informed Mr Jantzen that Equitable had "purchased" the debentures on 11 May 1989. The letter concluded,
"Please contact me and let me know if you were the person responsible for such purchase, or if not, who such person is".
In the telephone conversation, Mr Jantzen told Mr Roth that the person responsible for Equitable's decision still worked for Equitable. Mr Roth then telecopied two further letters to Mr Jantzen on the same day, advising that what was being asked was that the person either swear an affidavit in a form similar to a pro forma enclosed or travel to Australia to give "brief but important evidence that the person's investment decision was based upon a review of the Linter Prospectus" and Mr Roth forwarded a copy of the Prospectus to Mr Jantzen. On 13 March 1995 Mr Roth again telephoned Mr Jantzen who told him that the person concerned was "Hugh Fuller" who was at the time on his way to South America. Mr Jantzen said that when Mr Fuller returned, Equitable Capital would provide an affidavit setting out his reliance on the Prospectus. Mr Jantzen said that he did not believe that Mr Fuller would be willing to go to Australia to give evidence. On the hearing, counsel for the applicants said that the reference to "Vicki Fuller" in annexure "B" to order (2) of 6 April was an error and that the reference should have been to "Hugh Fuller".
The fifth and final relevant inquiry by Mr Roth was one made of "Nomura Target B Funds" ("Nomura"). It must be noticed immediately that although, according to Mr Roth, Nomura assigned debentures (US$1,000,000) to his clients on 17 September 1991, it is not suggested that this assignor was a relying debenture holder. Rather, it intervened between a relying debenture holder and his clients. In or about early March 1994, Mr Roth was told by "Robert Levine of Nomura" that Nomura had acquired the debentures which it assigned to Ariel Entities from, he believed, "a small fund from Prudential". Mr Levine undertook to "look into" the matter and to telephone Mr Roth. He did not telephone him. Mr Roth telephoned Mr Levine's office on 24 March and 4 April 1994 and left messages for him to return the calls. Again, he did not do so.
Mr Roth telecopied a letter to Mr Levine on 14 March 1995 which included the following:
"In connection with litigation concerning these bonds in Australia, in which our clients are plaintiffs, we have been asked to trace each lot back to its original purchaser, and provide the names of the individuals who made the decision to purchase each time the bonds changed hands. Thus it would be very helpful to us if you could find out (or put us in touch with a person who can find out) the name of Nomura Target B Fund's predecessor, the name of the entity from which these bonds were purchased by that predecessor, what officer made that purchase decision, and if possible, the name of someone connected with the seller whom we could talk
to in order to continue this tracing back.
You and I spoke of this matter approximately one year ago. My notes indicate that Nomura Target B Fund was the successor to "a small fund" of which Prudential was the manager. However, at the time we spoke you had not ascertained the name of the fund.
I would appreciate any help you could provide about the initial purchase of these debentures. We will be happy to reimburse Nomura for any expense involved in looking up this information."
Finally, on 16 March 1995, Mr Roth again telephoned Mr Levine's office. He left a message with the secretary requesting Mr Levine to telephone him. Again this was without result.
The foregoing account of the relevant parts of Mr Roth's affidavit dated 17 March 1995 does not, of course, take into account any developments which may have occurred subsequently, as to which there is no evidence before me.
4.4Summary of effect of the evidence
In relation to Huey Falgout, the evidence that he is the portfolio manager of a company which subscribed for debentures which it assigned to the Ariel Entities leads me to conclude that he will probably be able to give evidence material to the Ariel Entities' chain of title.
In relation to John Carter, the evidence shows no more than that he was "an attorney with Templeton Funds" and that he said that he would pass on Mr Roth's inquiry to "general
counsel of Templeton". This does not establish that Mr Carter would probably be able to give evidence material to the Ariel Entities' chain of title.
In relation to David Kast, Mr Roth's affidavit established, relevantly, no more than that he was "an attorney employed by the Prudential Group" and that he informed Mr Roth of his understanding of the identity of the four members of the "Prudential Investment Committee" which is no longer in existence. This is not any evidence that Mr Kast would probably be able to give evidence material to the Ariel Entities' chain of title.
There is no evidence that Vicki Fuller would probably be able to give evidence material to an issue in the proceedings. There is, however, some evidence that Hugh Fuller would probably be able to do so.
Finally, in relation to Robert Levine of Nomura, there was no evidence of his position. I do not think that it can be inferred from the fact that Robert Levine told Mr Roth that Nomura had acquired the debentures in question from "a small fund from Prudential" that he would probably be able to give evidence material to the Ariel Entities' chain of title.
In the result, order (2) of 6 April will be set aside in so far as it relates to John Carter, David Kast, Vicki Fuller and Robert Levine and survives in relation to one only of the five witnesses in question, Huey Falgout.
On the hearing before me, the question of the form of the letter of request being annexure "A" to order (2) of 6 April was the subject of debate. As noted above, it incorporates a superseded form of the applicants' pleading. This is unsatisfactory even though it may be, as senior counsel for the Ariel Entities submitted, that the chain of title issues to which the evidence to be obtained from Mr Falgout relates, are the same under the various forms which the applicants' pleading has taken. I would be prepared to order the issue of a letter of request in respect of Mr Falgout in the terms of the letter of request annexed to my orders dated 16 October 1995.
It will be clear that in my view it would be improper to use a letter of request in relation to Mr Falgout for the purpose of ascertaining from him the identity of witnesses who may be able to give evidence relating to reliance and inducement as distinct from obtaining his own evidence material to the Ariel Entities' chain of title. Mr Falgout may be examined on behalf of the applicants only for the purpose of obtaining evidence material to an issue to be tried in the proceedings.
In relation to the form of examination, I do not understand the applicants to resist Price Waterhouse's submission that the examination should be conducted by myself by video link between the United States and Sydney. However, I will not deal with this submission at this time. Rather, the parties should have the opportunity of studying these reasons and agreeing upon the orders to be made including any order as to the form of the examination of Mr Falgout.
In view of Price Waterhouse's failure to oppose the making of order (2) of 6 April 1995, I will not order that the applicants pay Price Waterhouse's costs on the motion.
CONCLUSION
The proceedings will be stood over to a date for the making of orders. There will be a direction for the parties to Price Waterhouse's motion to supply to my Associate an agreed form of short minutes of orders, or if agreement cannot be reached, the forms of orders for which they will respectively contend.
I certify that this and the preceding 29 pages are a true copy of the Reasons for Judgment of the Honourable Justice Lindgren.
Associate:
Dated:13 December 1995
Heard: 17 November 1995
Place: Sydney
Decision: 13 December 1995
Appearances: Mr A R Emmett QC with Mr D R Stack of counsel instructed by Deacons Graham & James appeared for the applicants-respondents to the motion.
Mr T F Bathurst QC with Mr R G McHugh of counsel instructed by Blake Dawson Waldron appeared for the 207th cross respondents ("Price Waterhouse") - applicants on the motion.
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