Commonwealth Bank of Australia (Respondent) v Andrew Robert Kelly (Appellant) No. SCGRG 92/2707 Judgment No. 4599 Number of Pages 7 Discovery and Interrogatories

[1994] SASC 4599

COURT IN THE SUPREME COURT OF SOUTH AUSTRALIA OLSSON J

CWDS
Discovery and interrogatories - Appeal against refusal of Master to order respondent to make discovery of certain documents - materiality of documents to be determined by reference to the pleadings and the issues arising from them - such issues not limited to those joined in the pleadings but extending to issues which, by inference from the pleadings, are likely to arise for determination at trial - applicant for discovery must establish the document sought has an actual or potential connection with those issues - proper ground for discovery where reasonable to suppose that the relevant document may directly or indirectly enable a party to advance own case or damage another party's case, or would lead to a train of enquiry having that result - discovery cannot be sought where document relates merely to credibility, or purely on basis that document could properly be put to a witness under cross-examination - on application for discovery assertions of applicant specifically pleaded as to issues in question to be taken at face value. Supreme Court Rules R58.01. Mulley v Manifold (1959) 103 CLR 341; Campagnie Financiere et Commerciale du Pacifique v Peruvian Guano Co (1882) 11 QBD 55; Board v Thomas Hedley and Co Ltd (1951) 2 All ER 431; Schlam v WA Trustee Executor and Agency Co Ltd (1964) WAR 178; George Ballantine and Son Ltd and Ors v FER Dixon and Son Ltd and Ors (1974) 2 All ER 503; Martin and Biro Seven Limited v H Millwood Limited (1954) 71 RPC 316 and Format Communications Mfg Ltd v ITT (United Kingdom) Ltd (1983) FSR 473, applied.

HRNG ADELAIDE, 11 May 1994 #DATE 10:6:1994

Counsel for appellant:     Mr P A Mcnamara

Solicitors for appellant:    Lempriere Abbott Mcleod

Counsel for respondent:     Mr G Stevens

Solicitors for respondent: Neville Paul Andersen

ORDER
Appeal upheld; documents to be delivered up.

JUDGE1 OLSSON J This is an appeal by a defendant from the refusal of a Master to order the plaintiff to make discovery of certain portions of its manual of procedures and the report of an internal inquiry into the conduct an officer of it who was, as a matter of fact, involved in the transaction the subject of this litigation. However, it does not appear that such inquiry focused specifically on that transaction. It is said on behalf of the respondent that it was primarily pre-occupied with a quite different transaction, the only possible connection being that O'Brien, a party to the events the subject of this action, was a potential recipient of part of the proceeds of a proposed loan to a third party (which was eventually declined).

2. The appeal has gone forward in a context which may be summarized in these terms:-
    (1) This action is brought, in effect, to enforce the
    asserted liability of the defendant as surety for the
    person O'Brien, who was a customer of the plaintiff.
    The claim is for possession of a house property, as a
    prelude to enforcement of a mortgage security over it,
    given by the defendant to the plaintiff.

(2) The due execution of the mortgage, which, on the
    face of it, is expressed to secure all advances granted
    or to be granted to O'Brien, as referred to in the
    security, is not disputed. The mortgage is expressed to
    be open ended as to the quantum of such advances - it is
    described by Mr McNamara, of counsel for the appellant,
    as "an 'all moneys' mortgage without a ceiling".

(3) The defendant contends that, notwithstanding its
    mode of expression, the security was expressly executed
    and delivered in association with and to support an
    antecedent deed ("the guarantee"), whereby the defendant
    guaranteed due repayment of advances made by O'Brien, up
    to a specified limit of $30,000.

(4) The plaintiff's riposte to that suggestion is that,
    whilst the initial liability of the defendant may have
    been limited to $30,000, nevertheless, by reason of a
    written acknowledgment signed by him on 10 January 1990,
    he expressly agreed to an extension of his liability up
    to a maximum sum of $255,000. The obligation of a party
    to make discovery is expressed by SCR 58.01 in these
    terms:-
    "58.01 (1) Unless the Court otherwise orders, each party
    shall within twenty-one days after the close of
    pleadings or affidavits file and deliver to the other
    party a list of documents in Form 16 that are, or have
    been, in his possession, custody or power, relating to
    any matter in question in the action. If a party claims
    that any document is privileged from discovery he shall
    specify the document and the ground upon which privilege
    is claimed."

3. As I understand the situation the learned Master declined to order discovery of the documents in question because he was of opinion that it had not been demonstrated that they had been shown to relate to any matter in question in this action.

4. He made that ruling against the background that the subject documents were not referred to or identified, expressly or by implication, in the pleadings and the defendant had made no express allegation that the relevant bank officer had been guilty of non compliance with the procedure manual, or that he had been disciplined about his role in the triangular transaction involving the respondent, O'Brien and the appellant.

5. Mr McNamara accepted that, as was pointed out in Mulley v Manifold (1959) 103 CLR 341 at 345, the concept of materiality is generally determined by reference to the pleadings and the issues arising from them. However, he argued that the concept of what is a "matter in question" is not confined to a matter on which issue has actually been joined in the pleadings. It was, he said, necessary for the Court, by inference from the pleadings, to form a liberal view of what is likely to be in controversy at the trial and relevant to the determination of the questions likely to be live evidentiary issues at trial. He derived support for that approach from Board v Thomas Hedley and Co Ltd (1951) 2 All ER 431 at 432 and Schlam v WA Trustee Executor and Agency Co Ltd (1964) WAR 178 at 186. In my opinion his proposition is correct.

6. He went on to submit that an applicant for discovery need not go to the point of demonstrating the precise probative effect of a document sought. Proof of either an actual or potential association or connection with a matter likely to arise for determination at trial is sufficient.

7. So it was that he contended that a proper ground for discovery is made out if it be shown that it is reasonable to suppose that a relevant document contains information which may - not must - either directly or indirectly enable a party to advance that party's own case or damage that of the other party - or which would lead to a train of enquiry which will have that result (Campagnie Financiere et Commerciale du Pacifique v Peruvian Guano Co (1882) 11 QBD 55 at 62-3, Donaldson v Harris and Anor (1973) 4 SASR 299 at 304-7, District Council 4 of Stirling v Casley-Smith and Ors (1989) 50 SASR 297 at 305 and on appeal (1989) 51 SASR 447 at 451, 467 and Friedrich v Baxter and Ors (1991) 56 SASR 562 at 565.)

8. Once again it seems to me that such a proposition is soundly based. One need go no further than the well known dictum of Brett LJ in the Peruvian Guano Case to the effect that (at pp63-64):-
    "... It seems to me that every document relates to the
    matters in question in the action, which not only would
    be evidence upon any issue, but also which, it is
    reasonable to suppose, contains information which may -
    not which must - either directly or indirectly enable
    the party requiring the affidavit either to advance his
    own case or to damage the case of his adversary. I have
    put in the words 'either directly or indirectly',
    because, as it seems to me, a document can properly be
    said to contain information which may enable the party
    requiring the affidavit either to advance his own case
    or to damage the case of his adversary, if it is a
    document which may fairly lead him to a train of
    inquiry, which may have either of these two
    consequences: the question upon a summons for a further
    affidavit is whether the party issuing it can shew, from
    one of the sources mentioned in Jones v Monte Video Gas
Co (1880) 5 QBD 556, that the party swearing the first
    affidavit has not set out all the documents falling
    within the definition which I have mentioned and being
    in his possession or control. I agree that the party
    issuing the summons for a further affidavit is bound by
    the description given in the sources of information
    mentioned in Jones v Monte Video Gas Co: that is to say,
    he is bound to a certain extent: I do not think that he
    would be bound absolutely by every description of their
    contents if the Court can see, from the nature of them,
    that the description of them is not or may not
    reasonably be correct. I do not think that the Court is
    bound any more on the second summons than on the first
    to accept absolutely everything which the party swearing
    the affidavit says about the documents, but the Court is
    bound to take his description of their nature. The
    question must be, whether from the description either in
    the first affidavit itself or in the list of documents
    referred to in the first affidavit or in the pleadings
    of the action, there are still documents in the
    possession of the party making the first affidavit
    which, it is not unreasonable to suppose, do contain
    information which may, either directly or indirectly,
    enable the party requiring the further affidavit either
    to advance his own case or to damage the case of his
    adversary. In order to determine whether certain
    documents are within that description, it is necessary
    to consider what are the questions in the action: the
    Court must look, not only at the statement of claim and
    the plaintiffs' case, but also at the statement of the
    defence and the defendants' case."

9. It was argued that the documents the subject of this appeal would, on the face of the situation, enable the appellant to embark upon a relevant train of inquiry at or before trial.

10. On such basis of logic the appellant first seeks discovery of those portions of the manual, in force at the relevant times, which seek to regulate dealings between the Bank and potential guarantors.

11. It was said by Mr McNamara that the materiality of these portions was as under:-
    - The case will turn on the credibility of witnesses
    rather than on documents. The critical witnesses will
    be the appellant, the bank officer concerned and
    O'Brien.
    - It is an issue whether the guarantee was physically
    returned to the Bank. The Bank's manual is expected to
    contain procedures as to the making of notations (on
    files and security packets and in security registers) as
    to the receipt of and safe-keeping of instruments such
    as guarantees. Armed with knowledge of those
    procedures, the appellant will be able, at the trial, to
    explore the physical fate of the guarantee after, on his
    case, it was returned to the Hindley Street branch of
    the Bank.
    - The Bank's manual is expected to contain instructions
    as to the procedures to be followed by the Bank's
    officers in procuring from guarantors the execution of
    instruments such as the memorandum of mortgage and the
    letter of acknowledgment. It is relevant to know
    whether the relevant bank officer did or did not adhere
    to those procedures. Two facts which are common ground
    are pertinent:-
    (i) the letter of acknowledgment was signed by the
    appellant at the bank officer's home and witnessed by
    his wife; no suggestion was made to the appellant that
    he seek independent advice on or an independent
    explanation of the letter of acknowledgment before
    signing it;
    (ii) the letter of acknowledgment was presented to the
    appellant for signature after O'Brien's debt to the
    respondent had increased from $30,000 to in excess of
    $200,000 so that, on its case, the respondent was partly
    unsecured until the letter of acknowledgment was signed
    by the appellant.
    - The very fact that the manual touches upon the topic
    of dealings between the Bank and guarantors gives it a
    sufficient connection with the case. There can be no
    doubt that, as Mr Stevens, of counsel for the
    respondent, contended, insofar as the discovery sought
    is merely related to a question of credibility, the
    appellant cannot succeed. (George Ballantine and Son Ltd
    and Ors v FER Dixon and Son Ltd and Ors (1974) 2 All ER
    503.) Nor is it sufficient merely to demonstrate that a
    document may properly be put to a witness under cross
    examination (Martin and Biro Seven Limited v H.
Millwood Limited (1954) 71 RPC 316).

12. However, to the extent that the pleadings expressly place in issue the factual question of whether or not the deed of guarantee was delivered by the appellant to the Hindley Street Branch of the respondent (as to which the assertions of the appellant are, for present purposes, to be taken at face value - Format Communications Mfg Ltd v ITT (United Kingdom) Ltd (1983) FSR
473 at 477), the manual procedures are potentially relevant. They are material to a train of enquiry as to what should or may have happened to any such document upon lodgment.

13. I hold that the relevant segments of the manual are plainly discoverable having regard to the issues arising on the pleadings and that the learned Master fell into error in concluding that they were not, in the relevant sense, material. The appeal as to this document must be upheld. There will be an order that the respondent make discovery of it within ten days of this day.

14. Secondly, in relation to the Bank inquiry, Mr McNamara advanced these points:-
    - The fact of the inquiry was conceded in a letter from
    the respondent's solicitor dated 15 February 1994. That
    letter contains an admission that the inquiry touched
    upon the dealings of the relevant bank officer with
    O'Brien but asserts that: (i) the officer was absolved
    of misconduct; and (ii) the "Kelly" transaction to which
    the present action relates was not a topic of the
    inquiry.
    - The appellant is not bound by the assertions in the
    letter and is entitled to satisfy himself as to the
    ambit of the inquiry and whether it traversed matters
    relevant in the action. The very fact that the inquiry
    touched upon dealings between O'Brien and the relevant
    bank officer gives it a sufficient connection with the
    case. Whilst, in absence of evidence to the contrary,
    the Court will not go behind an affidavit as to what
    documents exist, it is not bound by the characterisation
    of a party as to their nature, or whether or not they
    are relevant or material to issues arising in the
    action.

15. The problem which arises in the instant case is that the affidavit of Mr Andersen, the solicitor for the respondent, merely exhibits a letter written by him, the substance of which is couched in these terms:-
    "Re: Commonwealth Bank of Australia -v- Kelly
    I refer to your letter relating to the investigation by
    my client of Mr Pearce and I confirm that an
    investigation was conducted during December 1991 to
    determine whether there was any improper conduct on the
    part of Mr Pearce and he was absolved of any misconduct.
    The investigation did not deal with the account of or
    the loans to G J O'Brien or A R Kelly apart from a
    reference being made to O'Brien as a potential recipient
    of partial proceeds of a proposed loan to another party
    which was eventually declined."

16. The problem which I have with that letter is that it does not render it sufficiently clear as to whether there was, or was not, any relevant nexus between the proposed loan referred to and the transaction founding the present litigation, or whether it was so totally divorced from it, in terms of topic and/or time, that it could have no relevance whatsoever to this action. It also concerned a potential triangular financing proposal involving the respondent and O'Brien. Prima facie, there is a possibility that it may have been portion of an evolving, ongoing sequence of events which constitutes an important and relevant backdrop to the events which are here in issue; and it may serve to explain how they came about. I simply do not know. I conclude that the proper course as to this second aspect is to direct that all documents relevant to the inquiry be delivered by the respondent to the Court in a sealed envelope, within ten days of this day, for my perusal. Upon receipt I will peruse them and then finally consider this aspect of the appeal. There will be an order for such delivery accordingly. Pending perusal of those documents further consideration of my decision as to that facet of the appeal will be stood over.