Challenger Life Nominees Pty Ltd v Funk Leasing Pty Ltd - [2021] SADC 89

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil: Appeal Against a Master)
CHALLENGER LIFE NOMINEES PTY LTD v FUNK LEASING PTY LTD
[2021] SADC 89
Judgment of her Honour Judge Bochner
5 August 2021
APPEAL AND NEW TRIAL - PROCEDURE - SOUTH AUSTRALIA
Appeal against a decision of a District Court Master - pre-action discovery.
Held: appeal dismissed.
District Court Act 1991 (SA), referred to.
Belcar Pty Ltd v Premier Automotive Group Australia Pty Ltd [2007] SASC 240; Karam v ANZ Banking Group Ltd & Ors [2001] NSWSC 709; FAI General Insurance Co Ltd v Ocean Marine Mutual Protection & Indemnity Association Ltd (1997) 41 NSWLR 559; House v King (1936) 55 CLR 499; Newport Quays Pty Ltd & Ors v The Urban Renewal Authority & Ors [2012] SASC 84; Pfizer Ireland Pharmaceuticals v Samsung Bioepis AU Pty Ltd [2017] FCAFC 193, considered.

CHALLENGER LIFE NOMINEES PTY LTD v FUNK LEASING PTY LTD
[2021] SADC 89

CIVIL

On 4 February 2021, a District Court Master made orders for pre-action discovery in favour of Funk Leasing Pty Ltd, the respondent to this appeal (“Funk”). Challenger Life Nominees Pty Ltd, the appellant in this appeal, and the first respondent in the primary action (“Challenger”) has now appealed that decision. The second and third respondents in the primary action did not take part in the appeal. On the few occasions that it is necessary to refer to them, I will refer to them as the second and third respondents.
Background
From mid-June 2018, Funk entered into negotiations with Challenger in respect of Funk’s leasing café premises (“the premises”) from Challenger at the Grove Shopping Centre. In the email communications that passed between Funk and Challenger’s agent, the second respondent, during the period of negotiation, the second respondent made certain representations about the foot traffic that passed the premises. These representations were made on 21 June 2018. Ultimately, Funk and Challenger entered into a lease, which commenced on 20 May 2019.
After commencement of the lease, a dispute arose between Funk and Challenger. For the purpose of this appeal, it is not necessary to set out the nature of the dispute. The way the dispute was resolved, however, has taken on great significance in Funk’s application for pre-action discovery.
The dispute was resolved on the basis that Challenger would provide Funk with a “one-off promotional allowance”, and Funk would pay all arrears in rent by 10 February 2020. This agreement was set out in a document prepared by Phil Monfries, the centre manager, and an employee of the third respondent. The document contained the following paragraph:
4.In consideration of the Landlord entering into this Agreement, the Tenant agrees to release the Landlord from all claims, matters or demands they may now have or may at any time have had against the Landlord up to and including the day of 31^st December 2019.[1]
[1] CIV-20-001375, FDN 16, “PGM1”.
The document was signed by Mr Monfries and under his signature was the following:
The Tenant acknowledges the terms as set out in this agreement:
Executed by Funk Leasing Pty Ltd[2]
[2] CIV-20-001375, FDN 16, “PGM1”.
The document was signed by one of the directors of Funk. I will refer to the paragraph at [4] hereof as “the release”.
Since entry into that agreement, Funk has become concerned that the amount of foot traffic that passed the premises was misrepresented in the communication in June 2018. On 8 July 2020, it issued an originating application, seeking pre-action discovery pursuant to Rule 242.1 of the Uniform Civil Rules 2020 (“the UCR”), seeking from each of the respondents, records relating to the amount of foot traffic at the shopping centre and various details in respect of the equipment that was used to measure the foot traffic. In the affidavit in support of the application, Funk’s solicitor deposes that the directors of Funk have observed the foot traffic to be significantly lower than that represented by the second respondent. He says that Funk is considering an action against the respondents for misleading and deceptive conduct or for misrepresentation. Funk needs the material sought to allow it properly to formulate its claim.
On 17 November 2020, one of the directors of Funk affirmed an affidavit in which he set out the representations which he says were made by the second respondent and on which he relied in causing Funk to enter into the lease. He then affirms:
12.I have serious doubts that the foot traffic representation was accurate. Whilst the store was operational I arranged for the staff, as well as myself, to conduct informal counts of people entering through the adjacent Grove entrance which indicated an average of approximately 50-100 people per hour, well down than the expected 450.
…
22.I believe the discovery sought in the application will aid in the first applicant’s decision to bring proceedings against one or more of the respondents because, although I have a strong belief that the foot traffic representation was incorrect, that conclusion is based upon assumptions from my experience and observations rather than substantive evidence upon which a claim might reasonably be based as evidence. Until I have the material sought, the Applicant cannot make a final decision whether to institute proceedings against any of the respondents, and which of them.
Challenger filed an interlocutory application seeking orders that Funk’s application be struck out or dismissed with an order for indemnity costs. In support of this application, Challenger relied on the release as a bar to Funk’s bringing the application for pre-action discovery, on the basis that such an application would be futile as Funk had given Challenger a complete release from any such proposed action.
After hearing argument from Funk and Challenger, the Master made the orders sought by Funk.[3]
[3] Decision No 1 of 2021, delivered 4 February 2021 (“Master’s decision”).
It is from this decision that Challenger appeals.
The Master’s decision
After setting out the background facts, the Master dealt first with Challenger’s application. After setting out Challenger’s arguments, he said:
The parties to this dispute have demonstrated by the affidavit material filed, along with the legal arguments, that there is a serious and real issue regarding:
(a) the validity and efficacy of the release; and
(b) the interpretation and scope of the release (if it be valid and operative).[4]
[4] Ibid, [29].
In light of this dispute, he found that it would be inappropriate to finally determine either party’s rights in relation to the release when dealing with the application of either party.[5] In reaching this conclusion, he relied on the decision of Judge Burley in Belcar Pty Ltd v Premier Automotive Group Australia Pty Ltd,[6] where he said:
It must be said that it is not the function of the Court on an application such as this to determine the rights and liabilities of the parties. It is theoretically possible for the Court to come to the conclusion, on any given application, that, on the material before it, the plaintiff’s or the defendant’s contentions are without merit, but such a conclusion does not decide the substantive rights of the parties. It is neither possible nor appropriate to do so on this application. In my view, an examination of the strength of the plaintiff’s contentions (and the defendant’s contentions to the contrary) as to the existence of possible causes of action is limited to the parameters set by sub-rule 32(1).[7]
[5] Ibid, [32].
[6] [2007] SASC 240.
[7] Ibid, [59].
He then rejected the contention of Challenger that, if the application for pre-action discovery were allowed, the Court would have, in effect, ruled on the validity, scope and operation of the release in Funk’s favour.[8] He said:
It is not necessary to go that far: a pre-action discovery application is not the vehicle to authoritatively determine the scope and efficacy of the release and by permitting pursuit of UCR 242.2 orders I am not making a decision upon the validity and scope of the clause.
The protection, if any, afforded by the release, is unimpeded by an application for pre-action discovery which, by definition, is not a substantive claim of any binding significance.[9]
[8] Master’s Decision, [35] – [36].
[9] Ibid, [39] – [40].
He found that, in fact, Challenger’s application to strike out or summarily dismiss Funk’s pre-action discovery application would require an ultimate determination of the rights of the parties.[10] He found that the existence of a defence to the proposed claim would “not negate the potential to satisfy the requirements in UCR 242.1 and 242.2”.[11]
[10] Ibid, [52].
[11] Ibid, [59].
After examining a number of authorities, the Master concluded that Challenger’s application was based on a fundamental misunderstanding about the nature of pre-action discovery.[12] He further found that it would not be in the interest of justice to refuse Funk’s application on the basis of the operation of the release, without determining whether Funk had grounds to challenge its operation and validity.[13]
[12] Ibid, [73].
[13] Ibid, [76].
Next, the Master raised an issue that had not been argued by the parties, in respect of s 51 of the District Court Act 1991 (SA). He put this no higher than a possible alternative basis for dismissing Challenger’s application, and did not reach any conclusion in respect of it.[14]
[14] Ibid, [80] – [84].
The Master then addressed Funk’s application. He considered the wording of the relevant rule, and compared it to the wording of its predecessor.[15] He then examined the way in which the Rule operated, in the context of a number of authorities. He said:
The whole purpose of pre-action discovery is to either result in no substantive action being instituted or, if one is, then promoting its efficient conduct. Compare Pfizer Ireland Pharmaceuticals v Samsung Bioepsis (No. 2) [2019] FCA 657 at [26] as well as the Newport Quays case at [49].[16]
[15] Ibid, [86].
[16] Ibid, [131].
The Master was satisfied that Funk required more information to decide whether a cause of action existed and to formulate the claim properly. He rejected the contention that the information sought would only go to assessing the prospect of success of the proposed action, although he accepted that it would also serve this purpose. He described this as “a mere side benefit of the application”.[17] He also rejected Challenger’s contention that Funk was merely fishing.[18] When considering the discretionary factors, he said:
[17] Ibid, [136].
[18] Ibid, [141].
An alternative for the applicant in this case may have been to abandon pursuing the pre-action discovery application and institute a double-barrelled application by way of substantive action based upon not only the foot traffic representations or misleading and deceptive conduct, but, also, as regards the release. The applicant as part of such a hypothetical substantive action might have sought either
a. a declaration regarding the status of the release; or
b. rectification of the release;
in addition to damages. Had the applicant gone down that path, the material sought by the applicant in this process would then have likely been produced by way of ordinary interlocutory processes.
I do not think it is helpful for the court to encourage applicants in the position of this one to proceed with that “heavy handed” and potentially wasteful approach. As Mr Gentry submitted, it could be found, by this pre-action discovery material, that there is no cause of action.
Such an approach would not be consistent with UCR 3.1.
The prospect of that alternative route is a factor in favour of making more preliminary orders of the type sought in FDN 7 as part of pre-action discovery.[19]
[19] Ibid, [146] – [149].
The grounds of appeal
The grounds of appeal are:
1.   The Master erred by ruling that entertaining pre-action discovery orders would not erode a vested right of the Appellant (R54) in that the Master erred in:
a.mixed fact and law by finding that the parties had “demonstrated” a dispute about the enforceability of the release clause (R29) when the enforceability of the release clause was not a fact in issue before the Court and the Master ought to have:
i.Found that the validity of the release clause was not a dispute raised for resolution before the Court in the proceedings because the Respondent had not and has presently elected not to seek orders challenging the validity of the release;
ii. Recognised that, accordingly, no mini trial on the issue was required on either application; and
iii. Ruled that a contract procured by misrepresentation is not void ab initio but merely voidable and its provisions stand until the Court makes orders setting it aside;
b.fact (R29) by finding that the parties had demonstrated a dispute about the scope of the release when the Master ought to have:
i. Found that the scope of the release was not the subject of any orders sought by the Respondent and was not before the Court;
ii. Found that the Respondent’s affidavits had raised no plausible questions about the construction of the language of the release or its scope;
c.law by ruling that refusing to determine FDN 14 and considering FDN 7 does not determine or impact the Appellant’s rights with respect to the release (R42) in that the Master:
i. Found (in error) that resolving FDN 14 would require a mini trial (R35) when the Master ought to have found that FDN14 raised no triable issue because on the evidence before the Court the express terms of the release itself precluded the pre-action discovery proceeding unless orders were sought by the Respondent to set the release aside;
ii. Ruled (in error) that pre-action discovery does not contravene the terms of the release because it is an investigatory proceeding and does not determine final legal rights and interests (R40 and R47) when the Master ought to have:
1.Ruled that at common law the parties may by enforceable contract release one another from the ancillary processes related to claims including pre-action discovery;
2. Found that the release agreed to by the parties in this matter creates an issue merger which forecloses the Respondent from pursuing pre-action discovery unless and until orders are sought to set aside the release; and
3. Declined to hear FDN 7 on the basis that so doing would be to erode a vested substantive common law right of the Appellant; namely, the Appellant’s right to deploy the release as bar to the Respondent pursuing the pre-action discovery procedure at all is not merely eroded but forever lost.
2.The Master erred in law by failing to give adequate reasons and refusing to address the Appellant’s arguments (R74) when the Court was required to adjudicate those arguments and ought to have found that the release creates an issue merger which operates as a bar to pre-action discovery.
3. (In the absence of any submission to this effect by the parties) the Master erred in law by ruling that UCR 242 operates to engage section 51 of the District Court Act 1991 (SA) to pro tanto override the Appellant’s substantive law rights to assert that the release is a bar to pre-action discovery proceedings (R82) when the Court ought to have:
a.     Ruled that the UCR has no such effect; and
b.     Provided natural justice to the parties by allowing the opportunity for submissions on that issue before coming (in error) to that ruling.
The essence of the appeal is Challenger’s contention that the Master should have found that the release precluded Funk from bringing the application for pre-action discovery, as such an action would be incorporated into “claims, matters or demands they may now have or may at any time have had against the Landlord up to and including the day of 31^st December 2019”. Challenger contends that the Master should not have found that the enforceability of the release was a matter in dispute between the parties, and in the absence of any challenge to the release by Funk, it remained operational as a bar to any claim, including a claim for pre-action discovery, that arose before 31 December 2019.
Challenger’s position
Challenger says that, prior to commencing this action, Funk should have commenced an action to set aside the release, or, alternatively, an action for pre-action discovery to obtain material to explore whether there was a cause of action in respect of setting aside the release. Challenger further says that, in any event, Funk has sufficient information to allow it to commence an action to have the release set aside. It says, however, that while the release remains, it stands as a bar to an application under UCR 242, and to any claim for misleading and deceptive conduct.
Challenger submits that the release is in clear and broad terms, and because of the breadth of its wording, it must embrace ancillary actions, such as an action for pre-action discovery, as well as substantive actions. Any claim in respect of the representations as to foot traffic would arise out of events occurring before the entry into the release by the parties; consequently, it would be caught by the release. It says that if the Court finds that the release is broad enough to encompass an application under UCR 242, then that application should be dismissed.
In the absence of a claim for relief setting aside the release, the Court’s jurisdiction was not invoked to decide its enforceability; however, by making an order for pre-action discovery, the Master made such a decision. Further, it argues that any action for pre‑action discovery has no utility until the release has been set aside. The application should therefore have been dismissed or struck out as an abuse of process. Alternatively, summary judgment should have been given in favour of Challenger because, while the release remains operational, there is no reasonable basis for Funk’s proposed claim against Challenger.
Challenger further submitted that, by its application for pre-action discovery, Funk has sought, impermissibly, to have substantive legal rights determined. As a procedural rule, UCR 242 should not be used to determine substantive legal right; however, the effect of the Master’s decision was to determine the rights of the parties in respect of the release.
Challenger submits that, by finding that there was a real issue in dispute in respect of the enforceability and scope of the release the Master failed to address the fact that the Court’s jurisdiction was not engaged to consider these issues. Thus, the findings made in this regard are in respect of matters that were not properly before the Court.
Challenger made submissions as to the construction of releases, relying on cases such as Karam v ANZ Banking Group Ltd & Ors.[20] It submitted that the release must be read objectively, and given the meaning that would be allowed by the reasonable commercial reader. On this basis, there can be no genuine contention that the pre-action discovery application is not covered by the release. Once it has been determined that the release is broad enough to encompass an application under UCR 242, any order made in respect of such an application would compromise Challenger’s rights both at common law and pursuant to contract to enforce the release. Consequently, Challenger’s application for strike out or dismissal should have been allowed.
[20] [2001] NSWSC 709.
Challenger further submitted that, even if there were found to be an actionable misrepresentation, it would render the agreement voidable, not void; thus, until further action is taken by Funk, the release remains in operation. In this regard, Challenger relied on FAI General Insurance Co Ltd v Ocean Marine Mutual Protection & Indemnity Association Ltd.[21]
[21] (1997) 41 NSWLR 559.

Challenger submits that the Master erred in finding that a “mini trial” would be required to determine its application for summary judgment. Because neither party was seeking any relief in respect of the release, there was no need for the Court to engage in any determination with respect to the release; thus, the Master erred in this regard. Challenger further submits that the Master erred in finding that an application pursuant to UCR 242 does not determine the legal rights and interests of the parties. It submits that the release is a substantive and enforceable right that amounts to a bar to any proceeding, whether of an investigative, procedural or substantive nature. Thus, by bringing the application under UCR 242, Funk has breached its contract with Challenger. Challenger has the right to enforce the release and so prevent Funk from bringing this proceeding.
In respect of the failure to give adequate reasons, Challenger complains in particular of the reasons given by the Master in respect of his refusal to grant summary judgment. Challenger contends that his refusal to consider the arguments put in respect of FDN 14 amounts in itself to an error in this regard. Further, Challenger says that the Master failed to explain how the jurisdiction of the Court was invoked.
Finally, Challenger says that the Master erred in respect of his reasoning in relation to the interaction between UCR 242 and s 51 of the District Court Act. This was not an argument raised by either party, and neither made submissions in respect of it. Further, there is no authority which supports this line of reasoning, and so it should be treated with great caution.
Funk’s position
Funk submits that the making of orders for pre-action discovery is discretionary. To succeed on appeal, Challenger must demonstrate that the Master made an error of the House v King[22] type.
[22] (1936) 55 CLR 499.
In respect of ground 1(a)(i), Funk says that it cannot amount to an appealable error for the Master to have found that there was a “serious and real issue” in relation to the enforceability of the release. The Master does no more than acknowledge the existence of this dispute; his finding in no way amounts to a determination of the rights of the parties in respect of the release. In fact, Funk submits that the Master does no more than acknowledge what was clear: that is, that the enforceability of the release would be an issue in dispute between the parties should substantive proceedings be commenced. Further, Funk says that this fact in itself is a relevant matter for the Master to have taken into account, in determining whether Funk may have a good cause of action for the purpose of UCR 242.2(1).
Funk submits that the procedure advocated for by Challenger is unreasonable. It submits that the release may amount to a defence to any claim that it might bring against Challenger; the fact that Challenger might have a good defence does not, in itself, preclude Funk from having a good cause of action. To require Funk to issue substantive proceedings, only to discover once formal discovery has occurred, that it does not have a good cause of action (disregarding issues involving the release) would be wasteful of Court resources, and of significant cost to the parties. The pre-action discovery procedure will allow Funk to make an informed decision as to whether it otherwise has a good cause of action. It may be, that once discovery under UCR 242 has been made, Funk may elect not to issue proceedings.
Funk submits that Challenger’s argument as to the determination of the enforceability of the release lacks consistency. On the one hand, Challenger complains that the Master made a determination as to the enforceability of the release, when this question was not before him, while at the same time complaining that the Master should have determined that the release was enforceable and should have granted summary judgment to Challenger on the basis of it. These arguments are clearly inconsistent. Funk also disputes Challenger’s assertion that there can be no genuine basis to determine that the release is not enforceable to prevent Funk from seeking pre-action discovery.
In respect of ground 1(a)(ii), Funk says that it justifies the Master’s finding that FDN 14 demonstrated a “fundamental misunderstanding about the nature of … pre‑action discovery and what it entails”. Challenger appears to take the position that the Court does not need to consider the enforceability of the release at trial, but, rather, should be prepared to accept it on its face, to the extent that it precludes Funk from having a good cause of action. Funk submits that this is clearly misconceived.
Funk submits that ground 1(a)(iii) mistakes the question which was before the Master. The only question which he had to answer was whether the test set out in UCR 242 was satisfied. Any such ruling by the Master would have intruded upon the substantive rights of the parties, in a way that is impermissible in an application for pre‑action discovery.
In respect of ground 1(b)(ii), Funk says that it ignores the affidavit evidence of its director, Mr Damaskos. Any question about the construction of the release is a matter for legal submission, not evidence. Otherwise, the evidence went to Mr Damaskos’ intention when signing the release, his belief and reliance on the representations in respect of foot traffic, and the failure by Challenger to comply with the terms of the agreement of which the release formed part.
Funk says that ground 1(c)(i) asks the Court to ignore the clear dispute between the parties as to the enforceability and scope of the release and to enforce it summarily. This would amount to a determination of the rights of the parties, which cannot occur in an application for pre-action discovery.
As to ground 1(c)(ii), Funk says that, had the Master made the findings contended for by Challenger, he would have determined the substantive rights of the parties. The findings sought by Challenger amount to determinations on the effect and enforceability of the release. As with ground 1(a)(iii), this ground mistakes the only question which the Master was required to answer, which is whether the test in UCR 242 has been satisfied.
In respect of ground 2, Funk says that no error was made by the Master in respect of the adequacy of his reasons. He gave extensive reasons as to why FDN 14 failed at a fundamental level, and which removed the need to examine the authorities and arguments dealing with summary judgment in any detail.
Finally, as to ground 3, Funk says that the discussion of the relationship between UCR 242 and s 51 of the District Court Act formed no part of the operative reasons for the Master’s decision. He clearly acknowledged that this point had not been argued by the parties and put it no higher than a “possible alternate basis” for dismissing FDN 14. It did not have any bearing on his final decision.
Consideration
UCR 242 provides:
242.1—Institution
(1)A person who seeks discovery or production of evidentiary material or information to decide whether or against whom whether to bring or formulate a proceeding may institute an action under this rule by filing an Originating Application and supporting affidavit in accordance with rule 82.1.
(2)     The supporting affidavit must identify—
(a)     the person against whom the applicant is contemplating bringing a claim and the cause of action contemplated;
(b)     the evidentiary material or information sought; and
(c)     why the applicant requires the evidentiary material or information to determine whether a cause of action exists or against whom the claim lies or to formulate the claim properly.
242.2—Order
(1)     The Court may make an order under subrule (2) if satisfied that—
(a)     the applicant may have a good cause of action against another person;
(b)     the person against whom the order is sought may be in possession or custody of, or have power over, evidentiary material or information relevant to the possible cause of action; and
(c)     the applicant requires discovery or production of relevant evidentiary material or information to—
(i)    decide whether a cause of action exists;
(ii)     decide against whom the claim lies; or
(iii)    formulate the claim properly.
(2)     If the Court is satisfied under subrule (1), the Court may—
(a)     order that the respondent file and serve on the applicant a document disclosing whether the respondent is or has been in possession or custody of, or has or had power over, evidentiary material relevant to the possible cause of action and, if so, providing full particulars of such evidentiary material;
(b)     order that the respondent produce any evidentiary material relevant to the possible cause of action to the Court or for inspection or copying by the applicant;
(c)     order that the respondent make discovery as if the respondent were a party to a substantive action for the possible cause of action and for that purpose specify any matters or make any order that could be specified or made in respect of a party under Chapter 7 Part 13;
(d)     order that the respondent verify discovery or production by affidavit;
(e)     order that the respondent provide specified information to the Court;
(f)     order that the respondent attend before the Court for examination; or
(g)     make any other or further order as it thinks fit, including as to costs.
(3)If the Court makes an order under subrule (2), the Court may subsequently make a further order under subrule (2).
Example—
If the Court orders that the respondent make discovery, after the respondent has done so the Court may order that the respondent attend before the Court for examination.
242.3—Compensation
(1)Unless the Court otherwise orders, the respondent is entitled to payment by the applicant of reasonable compensation for the time and expense involved in complying with an order made under rule 242.2.
(2)     The compensation is to be fixed by agreement or in default of agreement by the Court.
In Newport Quays Pty Ltd & Ors v The Urban Renewal Authority & Ors,[23] Judge Lunn considered UCR 242’s predecessor, Rule 32 of the District Court Civil Rules 2006. While Rule 32 is in different terms, like UCR 242, it requires the Court to be satisfied that a person “may have a good cause of action and requires further information…to determine whether a cause of action exists…” Judge Lunn said the following:
[23] [2012] SASC 84.
Rule 5.3 of the New South Wales Uniform Civil Procedure Rules provides:
5.3 Discovery of documents from prospective defendant
(1)     If it appears to the court that;
(a)     the applicant may be entitled to make a claim for relief from the court against a person (the prospective defendant) but, having made reasonable inquiries, is unable to obtain sufficient information to decide whether or not to commence proceedings against the prospective defendant, and
(b)     the prospective defendant may have or have had possession of a document or thing that can assist in determining whether or not the applicant is entitled to make such a claim for relief, and
(c)     inspection of such a document would assist the applicant to make the decision concerned,
the court may order that the prospective defendant must give discovery to the applicant of all documents that are or have been in the person’s possession and that relate to the question of whether or not the applicant is entitled to make a claim for relief …
In some respects this New South Wales Rule is similar to 6R 32. 6R 32 requires as a threshold for considering making an order that “The plaintiff may have a good cause of action”, which is very similar to the New South Wales “The applicant may be entitled to make a claim”.3 In respect of the threshold issue for pre-action disclosure the New South Wales Court of Appeal has stated in Hatfield v TCN Channel Nine Pty Ltd that the relevant principles are as follows:
46     It is convenient to set out the key principles relevant to an application for preliminary discovery …
47     First, “[i]n order for it to ‘appear’ to the Court that the applicant ‘may be entitled’ to make a claim for relief, it is not necessary for the applicant to show a prima facie or pleadable case”.
48     Secondly, while “the mere assertion of a case is insufficient … [i]t will be sufficient if there is reasonable cause to believe that the applicant may have a right of action against the respondent resting on some recognised legal ground”.
49     Thirdly, “belief requires more than mere assertion and more than suspicion or conjecture. [It] is an inclination of the mind towards assenting to, rather than rejecting a proposition. Thus it is not sufficient to point to a mere possibility. The evidence must incline the mind towards the matter or fact in question. If there is no reasonable cause to believe that one of the necessary elements of a potential cause of action exists, that would dispose of the application insofar as it is based on that cause of action” … The use of the word “may” indicates the court does not have to reach “a firm view that there is a right to relief”.
…
52     Sixthly, … “the rule is to be beneficially construed, given the fullest scope that its language will reasonably allow, with the proper brake on any excesses lying in the discretion of the Court, exercised in the particular circumstances of each case”.
[Citation of authorities omitted. In the main, they are authorities on the Federal Court O 15A r 6.]
I consider this statement of the principles should be applied under 6R 32 as the threshold test (“the threshold test”). I do not consider there is any material difference between “if the Court is satisfied” at the commencement of 6R 32(1) and “if it appears to the Court” as is stated in the NSW UCPR 5.3(1). If the threshold test is satisfied, the court then has to exercise a further judicial discretion as to whether the order should be made.[24]
[24] Ibid, [14]-[15].
Thus, he determined that, in applying Rule 32, the person need only establish that there is reasonable cause to believe that the person may have a recognised right of action against the respondent. The person need not go so far as to demonstrate that they have a prima facie case, although mere assertion of a case is not sufficient.
In Pfizer Ireland Pharmaceuticals v Samsung Bioepis AU Pty Ltd,[25] the Full Court of the Federal Court of Australia considered the equivalent provision in the Federal Court Rules 2011, which provides:
[25] [2017] FCAFC 193.
Discovery from prospective respondent
(1)A prospective applicant may apply to the Court for an order under subrule (2) if the prospective applicant:
(a)     reasonably believes that he or she may have the right to obtain relief in the Court from a prospective respondent whose description has been ascertained; and
(b)    after making reasonable inquiries, does not have sufficient information to decide whether to start a proceeding in the Court to obtain that relief; and
(c)    reasonably believes that:
(i)the prospective respondent has or is likely to have or has had or is likely to have had in the prospective respondent's control documents directly relevant to the question whether the prospective applicant has a right to obtain the relief; and
(ii)inspection of the documents by the prospective applicant would assist in making the decision.
(2)If the Court is satisfied about matters mentioned in subrule (1), the Court may order the prospective respondent to give discovery to the prospective applicant of the documents of the kind mentioned in subparagraph (1) (c) (i).
In respect of Rule 7.23 of the Federal Court Rules, Allsop CJ said:
… First, the words of the rule are the framework of analysis for deciding applications under the rule. Secondly, these are summary applications not mini-trials.
…
Rule 7.23 is a beneficial provision, the purpose of which is to enable a person who believes he, she or it may have a right to seek relief to obtain information to make a responsible decision as to whether to commence proceedings…[26]
[26] Ibid, [2]-[4].
He went on to say:
It is important to approach the task with the fundamentals of the rule in mind. There have been a large number of cases now (both at first instance and Full Court) dealing with and explaining the relevant rule. Those authorities should not be utilised to form a complex matrix of sub-rules for the operation and application of a tolerably straightforward provision. Whilst there was no submission that any of these cases was wrongly decided, there does appear to have been a tendency to create an overly abstracted conceptualisation of refined states of mind which, if the words of the rule are not kept in mind, can lead in application to a misstatement of the essence of the rule, focused as it is upon what may be the position. The foundation of the application in r 7.23(1)(a) is that an applicant (a person or a corporation) reasonably believes that he, she or it may have a right to relief. The belief therefore must be reasonable (expressed in the active voice that someone reasonably believes) and it is about something that may be the case, not is the case. It is unhelpful and likely to mislead to use different words such as “suspicion” or “speculation” to re-express the rule. For instance, it is unhelpful to discuss the theoretical difference between “reasonably believing that one may have a right to relief” and “suspecting that one does have a right to relief” or “suspecting that one may have a right to relief” or “speculating” in these respects. The use of such (different) words and phrases, with subtleties of differences of imprecise meaning, and not found within the rule itself is likely to lead to the proliferation of evidence and of argument, to confusion and to error. One must keep the words of the rule firmly in mind in examining the material that exists in order to come to an evaluation as to whether the relevant person reasonably believes that he or she may have a right to relief. That evaluation may well be one about which reasonable minds may differ.[27]
[27] Ibid, [8].
The judgment of Perram J is also instructive. He said:
Rule 7.23 of the Federal Court Rules 2011 (Cth) (‘FCR’) allows this Court to grant a prospective applicant, like Pfizer, preliminary discovery if a number of conditions are met. The principal (but not sole) condition is that the prospective applicant ‘reasonably believes that the prospective applicant may have the right to obtain relief in the Court from a prospective respondent…’ (FCR 7.23(1)(a)). In this case, there was no doubt that the belief was held but the primary judge concluded that it was not reasonably held.[28]
[28] Ibid, [90].
He went on to say:
FCR 7.23(1) is not about giving preliminary discovery to those who believe they do have a case but believe that they may. In terms, it authorises what traditionally have been referred to as fishing expeditions; that is to say, evidentiary adventures in which the goal is not to find proof of a case already known to exist, but instead to ascertain whether a case exists at all.[29]
[29] Ibid, [108].
After reviewing some of the recent authorities dealing with Rule 7.23, Perram J said:
The following propositions about preliminary discovery applications should be accepted:
(i)the prospective applicant must prove that it has a belief that it may (not does) have a right to relief;
(ii)it must demonstrate that the belief is reasonable, either by reference to material known to the person holding the belief or by other material subsequently placed before the Court;
(iii)the person deposing to the belief need not give evidence of the belief a second time to the extent that additional material is placed before the Court on the issue of the reasonableness of the belief. That belief may be inferred;
(iv)the question of whether the belief is reasonable requires one to ask whether a person apprised of all of the material before the person holding the belief (or subsequently the Court) could reasonably believe that they may have a right to obtain relief; and
(v)it is useful to ask whether the material inclines the mind to that proposition but very important to keep at the forefront of the inclining mind the subjunctive nature of the proposition. One may believe that a person may have a case on certain material without one’s mind being in any way inclined to the notion that they do have such a case.
In practice, to defeat a claim for preliminary discovery it will be necessary either to show that the subjectively held belief does not exist or, if it does, that there is no reasonable basis for thinking that there may be (not is) such a case. Showing that some aspect of the material on which the belief is based is contestable, or even arguably wrong, will rarely come close to making good such a contention. Many views may be held with which one disagrees, perhaps even strongly, but this does not make such a view one which is necessarily unreasonably held. Nor will it be an answer to an application for preliminary discovery to say that the belief relied upon may involve a degree of speculation. Where the language of FCR 7.23 relates to a belief that a claim may exist, a degree of speculation is unavoidable. The question is not whether the belief involves some degree of speculation (how could it not?); it is whether the belief resulting from that speculation is a reasonable one. Debate on an application will rarely be advanced, therefore, by observing that speculation is involved.[30]
[30] Ibid, [120]-[121].

While there are significant differences in the drafting of UCR 242 as compared to R 7.23, neither requires more than a possibility that the applicant has a good cause of action or the right to obtain relief. Under UCR 242, it is the Court that must be satisfied that a good cause of action exists; under R 7.23, it is the applicant who must reasonably believe that he or she has a reasonable right to obtain relief. In both cases, if the view is not reasonably held, the order will not be made, in the case of an application under UCR 242, because if the applicant does not reasonably hold the belief that a good cause of action exists, the Court will not be so satisfied. In both cases, the onus must rest on the applicant.
Like R 7.23, UCR 242 does not require the Court to be satisfied that there is a good cause of action, only that there may be one.
Given the clear similarities between the two rules in regard to their fundamental propositions, I consider that the propositions distilled by Perram J apply equally to consideration of applications pursuant to UCR 242. For a Court to be satisfied that the applicant may have a good cause of action, there must appear to be a reasonable possibility that a good cause of action exists, and that the application is not based on pure speculation, clearly erroneous beliefs or fanciful conjecture (bearing in mind that some degree of speculation may exist, given the level of certainty that is required by the Rule).
Further, it is important to bear in mind that UCR 242 requires the Court to be satisfied only that the applicant may have a good cause of action. It does not require the Court to be satisfied that the cause of action has reasonable prospects of success, or that there is or may be no reasonable basis for defending the action. The wording of UCR 242 does not require the Court to give any consideration to whether a good defence may exist; once the Court is satisfied that there may be a good cause of action, it is in a position to exercise its discretion to make the order, regardless of whether there is or may be a good defence. In my view, this is consistent with Perram J’s comments in respect of what is required to defeat an application for pre-action discovery.
I turn now to the grounds of appeal.
Ground 1(a): The Master erred by ruling that entertaining pre-action discovery orders would not erode a vested right of the Appellant in that the Master erred in mixed fact and law by finding that the parties had demonstrated a dispute about the enforceability of the release clause when the enforceability of the release clause was not a fact in issue before the Court.
This ground effectively asserts two errors on the part of the Master, first, that he ruled that entertaining pre-action discovery orders would not erode a vested right of Challenger, and second, making the finding that the parties had demonstrated a dispute about the enforceability of the release.
In my view, neither of these errors has been made out. As to the first, allowing, or refusing, an application for pre-action discovery has no effect on the rights of the parties. By allowing, or refusing such an application, the Court does no more than express a view as to whether the applicant may have a good cause of action, and whether the applicant requires discovery or production of relevant evidentiary material for the purposes set out in UCR 242.2(1)(c). The rights of the parties are in no way affected by the making of such an order. Such an order does not suggest that a particular cause of action is likely to be successful, or that a particular defence is likely to fail. It only goes to the existence of a cause of action, and the need for further information.
As to the second alleged error under this ground, the Master’s “finding” that the parties had demonstrated a dispute about the enforceability of the release, this is no more than a statement of the obvious state of affairs between the parties. It is not in doubt that the enforceability of the release was not in issue before the Master; indeed, the Master took pains to make it clear that he made no, and intended to make no finding as to the release’s enforceability and the parties’ rights under it.[31] Further, it is somewhat disingenuous to suggest that the Master should have considered each of FDNs 7 and 14, without adverting to what will no doubt be a fundamental issue in dispute between the parties should substantive proceedings be issued, that is, whether and to what extent the release is enforceable. In my view, it would have been impossible for the Master to address either of these applications without his acknowledging that there was a real issue in dispute between the parties in this regard.
[31] See for example, Reasons, [32], [39], [40].
The conclusions that I have reached in respect of these two issues raised by ground 1(a) naturally require me to reject the grounds of appeal set out at grounds 1(a)(i), (ii), and (iii).
In respect of ground 1(a)(i), the Master specifically rejected the need to make a finding as to the validity of the release. While he may not have found specifically that this was not an issue currently before the Court, he made it abundantly clear that he did not consider that it was appropriate for him to make any findings as to the enforceability of the release. While he acknowledged that the validity of the release was without doubt a serious issue in contention between the parties, he deliberately did not seek to resolve the issue when dealing with either FDN 7 or FDN 14.
As to ground 1(a)(ii), I am of the view that Challenger mistakes the task that the Court would have had to undertake if it had sought to determine FDN 14. To determine whether an order for summary judgment was open to Challenger, the Court would be required to determine whether there was a reasonable basis for prosecuting the claim, that is, whether there is a real question to be tried. How that concept works in the present case, however, is problematic.
Challenger says that, because Funk’s application does not put into contention the validity of the release, it is clear that the release acts as a bar. In my view, this argument is misconceived. Challenger seeks to conflate the test under UCR 242 (that Funk may have a good cause of action), with the test under UCR 144.2 (that there is no reasonable basis for prosecuting the cause of action). Pre-action discovery is neither a cause of action, nor is it a “claim” within the meaning of the UCR. It is a stand alone investigative procedural tool. Pre-action discovery is to investigate a cause of action but is not a cause of action in itself.
An application for summary judgment is fundamentally unsuited to an application for pre-action discovery, because the application for pre-action discovery does not, in itself, rely on a cause of action. An application for summary judgment calls for an examination of the merits of the case. An application for pre-action discovery has no “merits” beyond the criteria set out in UCR 144.2. It is not a cause of action in itself nor does it embody one. In this case, even if I am wrong about there being no cause of action to which UCR 144.2 can attach, such an application would necessitate determining whether there was a real prospect of the release acting as a complete bar to the application for pre-action discovery. The submissions of Funk in respect of the enforceability of the release demonstrate that there is clearly an issue to be tried in this regard. In my view, the fact that Funk’s application does not seek to set aside or otherwise ameliorate the application of the release does not mean that such an exercise would not be required. An application for pre-action discovery would not be the appropriate vehicle by which Funk could seek to determine the operation of the release.
The same reasoning operates in respect of Challenger’s application that FDN 7 be struck out or stayed.
As to ground 1(a)(iii), it would be entirely inappropriate for the Master to make any ruling as to the validity of the contract between the parties. This is one of the matters that Funk seeks to investigate through FDN 7; to make any ruling on the status of the contract would have been to pre-empt the matters that may end up being the subject of future litigation between the parties. Furthermore, Challenger appears to suggest that this ruling should have been made in the absence of pleadings, evidence and submissions on this topic. In its written submissions for the hearing before the Master, Challenger says:
The rules for pre-action discovery at UCR 242.1. and 242.2 are procedural rules directed to the Court deploying investigative powers. They however do not in and of themselves settle substantial legal rights or controversies…[32]
[32] CIV-20-001375, FDN20, [55].
Yet, by ground 1(a)(iii) this is precisely what it says the Master should have done.
Ground 1(b): The Master erred in fact by finding that the parties had demonstrated a dispute about the scope of the release when the Master ought to have:
i.Found that the scope of the release was not the subject of any orders sought by the Respondent and was not before the Court;
ii.Found that the Respondent’s affidavits raised no plausible questions about the construction of the language of the release or its scope.
This ground misconceives the nature and purpose of an application for pre-action discovery. As I have previously explained, an application pursuant to UCR 242 is not the vehicle for seeking orders or findings in respect of the release. Thus, it should go without saying that Funk has not sought, by FDN 7, any orders in respect of the release. Further, Funk’s affidavit material is not the place for questioning the construction of the release. Should Funk have included such material, it would have been open to Challenger to seek to have those paragraphs struck out on the basis that they amounted to legal submission.
Ground 1(c)(i): The Master erred in law in finding that FDN 14 would require a mini trial, rather than finding that it raised no triable issue on the evidence as it, on its own terms, precluded an application for pre-action discovery.
This ground is based on the erroneous premise that the release, on its own terms, precluded such an application, or, that such a finding could be made by way of a summary process.
It is clear from the submissions made by Funk that it is not so clear.[33] There is clearly an issue in dispute as to the enforceability of the release. As I have previously explained, however, the orders sought in FDN 14 are not appropriate for an application for pre-action discovery.
Ground 1(c)(ii): The Master erred in law in finding that pre-action discovery does not contravene the terms of the release because it is an investigatory proceeding and does not determine final legal rights and interests (R40 and R47) when the Master ought to have:
1.   Ruled that at common law the parties may by enforceable contract release one another from the ancillary processes related to claims including pre-action discovery;
2.   2. Found that the release agreed to by the parties in this matter creates an issue merger which forecloses the Respondent from pursuing pre-action discovery unless and until orders are sought to set aside the release; and
3.   Declined to hear FDN 7 on the basis that so doing would be to erode a vested substantive common law right of the Appellant; namely, the Appellant’s right to deploy the release as bar to the Respondent pursuing the pre-action discovery procedure at all is not merely eroded but forever lost. As I have previously explained, I am of the view that the Master was correct to find that an application for pre-action discovery does not involve the determination of the rights of the parties, as a result of which Funk was not in breach of the release by bringing the application.
[33] See for example, Funk’s written submissions, [16] and Transcript, 22.4 – 26.4.
In my view, it was impossible for the Master to find that the release created an issue merger which prevented Funk from seeking pre-action discovery. Such a finding would, in fact, determine the rights of the parties, and, on Challenger’s own reasoning, would be impermissible. The Master appropriately found that it would be inappropriate to determine finally the parties’ rights in respect of the release.[34]
[34] Reasons, [32].
I am also of the view that it would have been inappropriate to decline to hear FDN 7, on the basis that, to do so, would erode a vested substantive common law right of Challenger. As I have previously explained, an application for pre-action discovery does not deal with the rights of the parties in any way. It is an investigative procedure, and as such, may be the precursor to an action seeking a remedy in respect of a party’s rights; the investigation, in itself, in no way informs those rights and their enforceability or otherwise.
Ground 2: The Master erred in law by failing to give adequate reasons and refusing to address the Appellant’s arguments when the Court was required to adjudicate those arguments and ought to have found that the release creates an issue merger which operates as a bar to pre-action discovery.
This ground of appeal must be rejected. The Master gave lengthy and comprehensive reasons for finding that FDN 14 was based on a fundamental misunderstanding of the nature of FDN 7. He canvassed the arguments of the parties, examined the wording of UCR 242, discussed relevant authority and reached a conclusion based on those considerations. He also considered the interests of justice in dealing with FDN 7. He provided reasoned, logical and coherent reasons for not addressing Challenger’s arguments in respect of summary judgment, strike out and a stay in any detail.
Ground 3: (In the absence of any submission to this effect by the parties) the Master erred in law by ruling that UCR 242 operates to engage section 51 of the District Court Act 1991 (SA) to pro tanto override the Appellant’s substantive law rights to assert that the release is a bar to pre-action discovery proceedings when the Court ought to have:
a.Ruled that the UCR has no such effect; and
b.Provided natural justice to the parties by allowing the opportunity for submissions on that issue before coming (in error) to that ruling.
This ground must be rejected. It stems from a fundamental misunderstanding of the Master’s reasons. The section of the Reasons of which Challenger complains fall under the heading “Buttress”. It is clear that this did not form an operative part of the Master’s reasons. The opening sentence of that section makes it clear that he reached no decision on this question:
There is an alternate (sic) basis which, if it were valid, would lead to the same outcome in dismissing FDN 14.[35]
(emphasis added)
[35] Reasons, [80].
This “alternate(sic) basis” is clearly proposed by the Master as a reason for dismissing FDN 14, but only if it is found to be valid. It is not proposed as a determined or decided reason for rejection of FDN 14. At [81], he acknowledges:
This basis has not been argued before me and it is not necessary for my conclusions.
Thus, it is clear that he has not reached any conclusion in respect of this “alternate (sic) basis”. The Master concludes this section of his Reasons with the words:
In this way, there is a possible alternate (sic) basis for ruling against FDN 14 and allowing FND 7 to be argued.[36]
[36] Reasons, [84].
The Master clearly made no decision on this “alternate (sic) basis”; it did not inform his decision in any way. He put it no higher than a “possible” basis for rejecting FDN 14.
Challenger’s appeal must be dismissed. The Court has a discretion to make an order for pre-action discovery if it is satisfied that:
·The applicant may have a good cause of action; and
·The person against whom the order is sought may be in possession of evidentiary material or information relevant to that cause of action; and
·The applicant requires the requested disclosure or production to make a decision as to the existence of a cause of action, to make a decision as to the appropriate respondent, or to formulate the claim properly.
Challenger has not argued that there is no likelihood that Funk has a good cause of action in respect of its prospective claim, nor has it suggested that it does not have in its possession the documents sought in Funk’s application. It has not suggested that Funk does not need the documents to make a decision as to the cause of action, or to formulate properly; it has only submitted that Funk has sufficient information to launch a challenge against the enforceability and operation of the release.
Challenger has not demonstrated any error on the part of the Master. The appeal must be dismissed.