Brian Ross Eckert and Raelene Jean Eckert v National Australia Bank Ltd No. SCGRG 96/2036 Judgment No. 6130 Number of Pages 7 Procedure Abuse of Process

[1997] SASC 6130

IN THE SUPREME COURT OF SOUTH AUSTRALIA

DOYLE CJ

Procedure - abuse of process - strike out - stay - application by defendant for Statement of Claim to be struck out - action brought by plaintiffs identical to counterclaim in earlier action - in later action plaintiffs sought to rely upon facts ascertained after counterclaim was filed in support an an extension of time - breach of rule that documents produced for inspection are to be used only for purposes of that action and not for a collateral purpose - whether abuse of process to bring two actions to seek same relief - if first action stayed should plaintiffs be able to rely upon their own action - contempt of court - distinction between prospective and retrospective leave - to allow plaintiffs who discover material fact after commenced proceeding to abandon original proceeding and begin fresh proceedings has potential to render proceedings unmanageable. Trade Practices Act ; Misrepresentation Act , referred to. Allstate Life Insurance Co v Australian and New Zealand Banking Group Ltd (1995) 57 FCR 360; Sybron Corporation v Barclays Bank [1985] Ch 299; Miller v Scorey [1996] 3 All ER 18, considered.

ADELAIDE, 11, 17 April 1997 (hearing), 17 April 1997 (decision)

#DATE 17:4:1997

#ADD 19:5:1997

Plaintiffs:

Counsel: Mr S H Milazzon

Solicitors: Peter Kerin & Associates

Defendant:

Counsel: Mr W M Ericson

Solicitors: Finlaysons

Order:

1. I direct the parties to make discovery in this action within seven days relating only to the issues raised by para.84.4 of the statement of claim.

2. Subject to that and the following order I stay further proceedings in this action.

3. I reserve to the plaintiffs liberty to apply to the trial judge in action 6 of 1994 for an order lifting the stay and for such consequential orders relating to these proceedings as may seem appropriate to the trial judge.

4. That the plaintiffs pay to the defendant its costs of the hearings before me today and last week.

DOYLE CJ

1. In a claim for damages in this court the defendant has applied to have the statement of claim struck out and judgment entered for the defendant. Alternative claims are for a stay, for summary judgment, or for the striking out of certain paragraphs of the statement of claim. The defendant bases its application in part upon an allegation of a contempt of court by the plaintiffs. Accordingly, the application was referred to a judge of this court.

2. The plaintiffs, Mr and Mrs Eckert, to whom I will refer hereafter as "the Eckerts", claim damages in the action from the defendant Bank. They allege that they were induced to purchase farming land by representations by the Bank's manager about the worth of the farming land, the profits that could be made from it, and the finance that would be made available by the Bank. There is more than one piece of farming land involved. Purchases of farming land were made in 1985 and, as best as I can tell, again in 1989 and 1990. The representations are alleged to have been false and misleading. Complaint is also made that the Bank was under a duty, that it breached, to advise the Eckerts to seek independent advice. Damages are claimed for negligence, for breach of fiduciary duty, under s.52 of the Trade Practices Act, under the Misrepresentation Act, and for unconscionable conduct.

3. As I said, the purchases of land were made in about September 1985 and again in 1989 and 1990. The Eckerts claimed to have suffered trading losses on the land over the years since then. These are part of the damages that they claim.

4. The proceedings were commenced on 10 October 1996 and so appear to be out of time, at least as to some of the loss claimed. Para.84 of the statement of claim seeks an extension of time. This is the key to the application before me.

5. In another action in this court, commenced in 1994, in which the Bank is plaintiff, and I assume claims money owed to it by the Eckerts, the Eckerts, as defendants, have advanced an identical counterclaim. The pleading of the counterclaim is virtually word for word the same as the pleading of the present statement of claim. The action was commenced by the Bank, as I said, in 1994, and is due for trial next month.

6. Why, one wonders, is the present action being brought by the Eckerts since it claims no relief not claimed by the Eckerts by counterclaim? The answer appears from an affidavit filed by the Eckerts' solicitor. He discloses a concern that the counterclaim in the 1994 action was out of time, a concern that materialised during 1995. An extension of time under the Limitation of Actions Act has been sought in respect of the counterclaim, but the material facts relied upon, or at least some of them, were ascertained after the counterclaim was filed. In that respect, the Eckerts face a problem, that is, because the Limitation of Actions Act appears to contemplate only reliance upon facts ascertained before the counterclaim was filed.

7. In March 1995 and after the filing of the counterclaim, the Eckerts' solicitor received from an accountant copies of financial statements relating to the operations of the vendor of the land. These were not shown to the Eckerts until October 1995. The purpose of the second action, the action by the Eckerts, now emerges. In it the Eckerts rely upon that disclosure to Mr Eckert, in 1995, as a material fact upon the basis of which, among other things, they seek an extension of time under the Limitation of Actions Act. Other matters are relied upon for an extension of time in the counterclaim, but they are also pleaded in the counterclaim in the first action. For obvious reasons, the disclosure of the accounts in October 1995, well after the counterclaim is filed, is not relied upon in the counterclaim, but there is more to come.

8. One of the matters pleaded as a material fact supporting an extension of time for the Eckerts' action, and as it happens pleaded also in the counterclaim in the 1994 action, comprises facts disclosed to the Eckerts in February 1995 and March 1995, as best I can tell, when the Bank made discovery in the Bank's own action. The Bank says that the use of the documents discovered in the Bank's action by the Eckerts in their action, is a breach of the well-known

9. rule that a party to whom documents are produced for inspection is bound to use them only for the purposes of that action and not for any collateral or ulterior purpose. Thus follows the allegation by the Bank that the action brought by the Eckerts is based upon a contempt of the court, or at least upon an impermissible use of documents.

10. I begin my attempts to unravel what is, to say the least, an unsatisfactory state of affairs, from a different point. It is, as the Bank argues, an abuse of process to bring two actions seeking the same relief. That is what the Eckerts have done. One action, surely, must be stayed. Ordinarily, the later set of proceedings, the action by the Eckerts, would be the proceedings to be stayed. But if I so order, the Eckerts will lose the opportunity to base their claim for an extension of time upon the documents received by their solicitor in March 1995 and seen by them or one of them in October 1995. They will not lose the ability to seek an extension of time based upon the matters already raised by their counterclaim, but there is an obvious difficulty in respect of those matters, and I have already referred to that difficulty.

11. Should I stay the counterclaim and allow the Eckerts to rely upon their own action? The Bank objects that to do so would be to allow the Eckerts to prosecute an action, that is, their own action, instituted in contempt of court, for reasons that I have already explained, or at least instituted in reliance upon documents in a fashion that the court will not permit.

12. I have doubts about that contention.

13. Understandably, the Bank has not objected that the counterclaim in its action, pleading the very same documents as a basis for an extension of time, constitutes an contempt of court. That is not decisive, of course, but it would be surprising if the use of discovered documents to support a counterclaim was a breach of the implied undertaking. I suspect that a plaintiff's discovery is routinely used to assist a defendant's counterclaim in the same action.

14. I have not been able to find much authority precisely in point, but in Allstate Life Insurance Co v Australian and New Zealand Banking Group Limited
(1995) 57 FCR 360, Hill J of the Federal Court held that the use of discovered documents by a respondent in bringing a cross-claim against an applicant was not in breach of the principle relating to the use of discovered material for collateral purposes. I refer in particular to pp.377 to 380. I find his reasoning persuasive. In the Bank's own action, no doubt, the Eckerts will use the discovered documents on liability and in seeking an extension of time. The case to which I have referred supports the former use of them as permissible, but I can see no point of distinction between the two uses.

15. If that is so, in other words, if the discovered documents can be used on the counterclaim both on liability and for an extension of time, is it any different if the relevant party proceeds by separate action rather than by counterclaim? I would have thought not, although at this stage I am, of course, ignoring the issue of duplicitous proceedings. I would have thought not despite the argument by Mr Ericson that the relevant boundary is set by the action in which discovery is made. He argued that use in any other proceedings is a breach of the undertaking.

16. However, I acknowledge that argument appears to get some support from some of the cases including, for example, Sybron Corporation v Barclays Bank plc [1985] Ch 299. The distinction which he draws is one of form, but I hesitate to say that it is unsound because the principle is stated in some of the cases in a form that supports the distinction and supports his contention. Of course, subject to this point, the court has power to grant leave for the use of the documents, although only in special circumstances. I refer to Simpson, Bailey and Evans, Discovery and Interrogation, (2nd ed) p.79.

17. I consider that the present case may be a proper case for the grant of leave because the action by the Eckerts is closely related to the Bank's action to recover money loaned to the Eckerts and could, as the facts themselves show, be raised as a counterclaim to the Bank's action. I am inclined to the view on the material before me that the Eckerts and their legal advisers acted in good faith, although mistakenly, and in these exceptional circumstances consider that it may be that leave could and should be granted now to use the relevant documents if leave is required. In relation to that I refer to Miller v Scorey [1996] 3 All ER 18 at 29.

18. In short, I am not satisfied that the alleged contempt or breach of the implied undertaking is an obstacle to the continuation of the Eckerts' proceedings, but nor am I satisfied that leave should be given. I know little about the circumstances in which the counterclaim was filed and little about the circumstances in which the new action was instituted.

19. There are some further complications. Mr Ericson has argued that contempt is a criminal matter, that the court cannot pardon a crime, and that the grant of leave now to rely upon the documents at the time of issuing the summons in this action would be to pardon a contempt. He distinguishes between the prospective grant of leave to use the documents and a retrospective grant of leave that would enable the Eckerts to rely upon them as at the time of the issue of proceedings some time in the past. At the least, he says, the grant of leave now would be to allow the Eckerts to benefit by their past wrongdoing. That submission applies only to the documents discovered by the Bank, not to the material that came from other sources to the solicitor for the Eckerts in March 1995 and was apparently shown to Mr Eckert in October 1995.

20. Whether I can now excuse what may have been a contempt already committed, is a difficult and important question. That matter has touched on in Miller v Scorey [1996] 3 All ER 18, 28 to 29. Sybron Corporation v Barclays Bank plc [1985] Ch 299 does not appear to me to be a retrospective authorisation of the use of documents, but, rather, a prospective authorisation of the use of documents for pleadings yet to be filed, but in an action already commenced. However, the judgment at pp.24 to 25 might support the view that there is no distinction in this respect between issuing proceedings using knowledge gained from discovered documents, and the later pleading of the documents. If that is how it is to be read, and that was the point the court was intending to deal with, then it may be that that case is authority for retrospective curing of a contempt.

21. It can be seen that a number of difficult issues arise on the Bank's application for a strike out order on the basis of contempt, and on the Eckerts' application now for leave to use the documents already relied upon in the statement of claim. The effect of the Eckerts' application is to allow them now, in effect, to abandon or shelve the counterclaim and to proceed on their own summons. That raises the question of whether it is appropriate now, mere weeks before trial, to stay the counterclaim in the Bank's action and to allow the Eckerts' own action to proceed.

22. Until 2 April 1997 when the Eckerts sought leave to use the documents, they had done nothing about these problems. Their solicitor's affidavit sworn on 3 March 1997 seeks the amalgamation of the proceedings. An affidavit sworn on 1 April 1997 seeks, in the alternative, an adjournment of the Eckerts' claim until after the hearing of the Bank's action, but that could be done only if the counterclaim was stayed. Duplicated proceedings should not be left on foot.

23. As I see it, the difficulty in what the Eckerts seek is that it enables them to take advantage, by means of an action which was prima facie an abuse of process, because it replicated their counterclaim, of a matter arising after their counterclaim was filed. They seek to escape the consequences of their own inexcusable, as it seems to me, failure to address the procedural problems until now.

24. There is the further difficulty that if I accede to the Eckerts' application, any party who discovers a putative material fact after commencing proceedings, would equally be entitled to abandon those proceedings and begin fresh proceedings relying upon the new putative material fact to support an extension of time. That is, in effect, what has happened here. I reject the other arguments advanced by the Eckerts justifying the fresh proceedings and in particular the argument that the Limitation of Actions Act does not allow an extension of time to institute proceedings by way of counterclaim. In any event, as to that, the bank has undertaken by it's counsel not to argue that the Act does not permit a court to extend time for the bringing of the counterclaim.

25. My view is that the proceedings by the Eckerts are, in fact, no more than an attempt to rely upon facts discovered after their counterclaim to gain an extension of time for the claims raised by the counterclaim. To do so is not improper or dishonest, but on the other hand, I have touched on the obstacles to them doing so.

26. It is tempting to accede to the Eckerts' application on the basis that they should be allowed to rely upon everything which might support their application for an extension of time. To my mind that's the only real point in their favour. But, assuming that the question of the use of discovered documents can be surmounted, to do what the Eckerts want is to countenance proceedings which are an abuse of process, and to countenance the concept already referred to of parties abandoning proceedings and starting again to take advantage of new material facts. To allow this has the potential to make proceedings unmanageable.

27. The law and practice relating to extension of time under the Limitation of Actions Act is, I consider, somewhat unsatisfactory and in some respects artificial, but to allow the Eckerts to do what they want to do would, while having an air of fairness about it, render practice in this area even more artificial.

28. When the matter came before me today for a second time, it having been adjourned for a week at the request of the Eckerts, a new proposal was made by counsel for the Eckerts. As I understand it, the proposal is, in effect, to amend the statement of claim by withdrawing certain allegations relying upon rule 52.02 of the Supreme Court Rules. The proposed withdrawal would delete all claims relating to events in 1989 and 1990 so that the statement of claim would relate only to the original land purchased in 1985.

29. The counterclaim would then be amended to delete all claims relating to the original purchase in 1985 and would relate only to events in 1989 and 1990 said to be within time for the purposes of the counterclaim.

30. Presumably, the suggestion is that the two actions would then proceed to trial, even though discovery has not yet taken place in the 1996 action. That withdrawal of parts of the pleadings was not, in fact, made before me. It was expressed to be conditional upon a retrospective grant by me of leave to use the bank documents in the 1996 proceedings.

31. To my mind that proposal does not really remove the difficulties. It still amounts to the Eckerts, having counterclaimed in respect of certain matters, abandoning some of those matters from the counterclaim and raising them in a fresh action solely to enable them to take advantage for the purposes of the Limitation of Actions Act of a matter that occurred after the counterclaim was filed.

32. Admittedly, if this proposal proceeded, the two proceedings would not now be in respect of the same causes of action, but that would only be because of the withdrawal of certain allegations, a withdrawal itself contingent upon a grant of leave by me to clear the way for that to be done. And, as Mr Ericson fairly pointed out, the pleadings in the two actions would still very substantially overlap with identical pleas of breach of duty and breach of statutory obligation in each action.

33. I do not consider that I should give leave to discontinue proceedings or a part of them so that, in effect, the very same claim can be made in fresh proceedings where the only new factor would be a new matter relied upon for an extension of time. By this I mean, that even if I have the power to do so, which I do not wish to decide finally for the moment, I should not give such leave without a much better understanding than I have of the circumstances under which the counterclaim was filed and how the Eckerts got into their present difficulty.

34. I consider that the matters last referred to lead to the conclusion that the statement of claim should be stayed. If I take that approach it becomes unnecessary to deal with the argument that the Limitation of Actions Act does not empower an extension of time for proceedings under the Trade Practices Act. That is a matter that will arise in any event under the pleadings in the bank's action and in my opinion is best dealt with at trial.

35. If I take that course it is also unnecessary to resolve finally the question of my power now to grant retrospective for the use of the documents in the Eckerts' action. Although I incline to the view that, in the exceptional circumstances of a case like this, I have the power to do so, as I have said, I do not express a view on whether it is appropriate to do so because I have inadequate information before me.

36. What I have said indicates that the applications before me raise points which warrant careful consideration. I would have preferred to reserve judgment on them, but the action by the bank and the Eckerts' counterclaim are listed for trial on 5 May 1997, and it is highly desirable that this trial proceed and that the parties know where they stand. That is why I've dealt with the applications here and now, although they warranted more detailed treatment.

37. What I propose to do is to direct the parties to make such further discovery as is required in this action by the pleading of the further material fact. But subject to that, to stay further proceedings in this action, but to give liberty to the plaintiffs to apply to the trial judge in the Bank's action for an order lifting the stay that I propose to apply and for any order that would flow from that.

38. I realise that it may seem as if I have simply left it to the trial judge to sort these matters out. That is not my wish, although it may be the effect of what I'm doing. But if, as I was inclined to do, I stayed permanently or struck the statement of claim out, two problems would arise.

39. First, an appeal against that order might yet jeopardise the trial due in a week or so. Secondly, I'm conscious of the fact that the material before me is not sufficient for a proper decision on the question of leave to use the bank's documents or on the question of the exercise of the discretion, if I have one, to allow the Eckerts to abandon the first proceedings or part of them.

40. A proper investigation of those points is not possible now but could be undertaken conveniently at the trial, because it would almost certainly involve oral evidence. That is why I propose to make an order which preserves for the plaintiffs a chance to put their case in the best light despite their failure to do so before me. I say, as will be obvious from what I said, that to my mind the affidavits filed are inadequate for the exercise of the various discretions which are invoked by the Eckerts.

41. I can only hope that what I have done does not embarrass the trial of the action or the trial judge and does lead to a just resolution of these complications. I make it plain that my intention is as far as possible to enable the bank to have the trial in May, to which it is entitled, but to ensure that all issues are fairly decided at the trial.

42. Accordingly, I order as follows:

1. I direct the parties to make discovery in this action within seven days relating only to the issues raised by para.84.4 of the statement of claim.

2. Subject to that and the following order I stay further proceedings in this action.

3. I reserve to the plaintiffs liberty to apply to the trial judge in action 6 of 1994 for an order lifting the stay and for such consequential orders relating to these proceedings as may seem appropriate to the trial judge.

4. That the plaintiffs pay to the defendant its costs of the hearings before me today and last week.