Diversified Mineral Resources N.L. v CRA Exploration P/L

[1993] FCA 189

IN THE FEDERAL COURT OF AUSTRALIA

9UEENSLAND DISTRICT REGISTRY

GENERAL DIVISION	No. G163 of 1990
BETWEEN:

DIVERSIFIED MINERAL RESOURCES N.L.

CENTRAL VICTORIAN GOLDMINES N.L.

CRA EXPLORATION PTY. LIMITED

Res~ondent

MINUTES OF ORDER

JUDGE MAKING ORDER:	Cooper J.
WHERE MADE:	Brisbane

FEDERAL COURT OF

DATE OF ORDER:	31 March, 1993	AUSTRALIA
PRINCIPAL
REGISTFIY
THE COURT ORDERS:

1.        The applicants within fourteen (14) days of today give further and better discovery of the classes of documents set out in paragraphs (a), (b) and (d) of the letter of Minter Ellison Morris Fletcher dated 4 December, 1992 to the applicants' solicitors by filing a further list of documents verified in accordance with the Federal Court Rules.

The applicants within seven (7) days of today file and serve an affidavit deposing as to whether they have or have had in their possession, custody or power, the documents identified in paragraphs (c) and (e) of the said letter and if they or either of them, have or has been in the applicants' possession, custody or power and are now not in such possession custody or power, when the applicants parted with them or either of them and what has become of them or either of them.

respondent's costs of the appearance on 10 February, 1993 as related to the respondent's application for

further and better discovery and for delivery of a copy oL document 36 in the applicants' list of documents, including the costs of and incidental to the preparation of affidavit material in support of the application.

The applicants provide to the respondent within three (3) days of today a copy of the report of N.H. Cole and Associates Pty. Ltd. dated 23 November, 1990 upon the respondent paying, or undertaking to pay, the applicants' reasonable costs of providing the copy.

Order that the applicants pay so much of the

m:  Settlement and entry of orders is dealt with in
Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA

PUEENSLAND DISTRICT REGISTRY

GENERAL DIVISION	No. G163 of 1990
BETWEEN :

DIVERSIFIED MINERAL RESOURCES N.L.

CENTRAL VICTORIAN GOLDMINES N.L.

Applicants

AND :

CRA EXPLORATION PTY. LIMITED

Resoondent

CORM:	Cooper J.
PLACE :	Brisbane
m:	31 March, 1993

REASONS FOR JUDGMENT

This is an application by the respondent for further and better discovery on the part of the applicants under five headings identified as paragraphs (a) to (e) inclusive in a letter from the respondent's solicitors to the applicants' solicitors dated 4 December, 1992. The letter relevantly states :-

"We raise the following matters :-

(a) There has been little or no discovery

with respect to DMR's internal financial position, its initiatives in respect of the tenements in question other than negotiations with CRA, the dealings had with other potential investors and attempts otherwise to attract investment in development of the relevant tenements including Silver King. This material is clearly discoverable since it may put the respondent onto a train of investigation to answer the question of reliance by the applicant.

(b)	No discovery has been made with respect to a company float provisionally to have been called "Silver King Mining NL" referred to in Mr. Seville's internal memo of 15 August 1990. This documentation is once again discoverable on the basis that it goes directly to the issue of reliance and concerns DMR's intentions with respect to Silver King prior to the sale.
(c)	No discovery has been made of the draft map headed "ATP5875M DMR Joint Venture" which was discovered as document number 68 of the original List of Documents of CRAE. We are instructed that this map was handed to your clients by our client.
(d)	No discovery has been made of the nature, extent and cost of work done by DMR on the "Burton Downs" Coal Prospect. This material is relevant once again in so far as it goes to establish the question of reliance.
(e)	We note that the announcement to the Australian Stock Exchange of 7 September 1990 which originally referred to CRAE as being the purchaser but was subsequently removed at the request of our client has also not been discovered.

With respect to the points raised in (a), (b) and (d) we particularly draw your attention to the terns of the announcement to the Australian Stock Exchange of 7 September 1990 which states :-

the uncertain economic times and	"This sale has occurred partly due to
unwillingness of Diversified Mineral Resources NL to proceed with debt financing the project in such times".

Further it states :-

"The potential proceeds from these asset sales could bring the company's cash position to $9M.

This will enable Diversified Mineral Resources NL to proceed with the development of the major Burton Downs Coal Project which contains 115,000,000 tonnes of coal".

We would appreciate your response as soon
as possible".

On 1 8 January, 1993 the applicants' solicitors rejected the respondent's request in the following terms :-

"We refer to your letter of 4 December, and respond as follows. The matters raised by you respecting our client's discovery were first raised in May and June of last year and we responded at that time.

The issue to which you[r] letter is
relevant is that of reliance.

Our client may succeed by establishing that they relied on your client's misrepresentations even though they may have relied on other considerations as well in deciding to sell to your client.

Your client can only succeed on the issue of reliance if it establishes that our clients did not rely at all on your client's misrepresentations.

In your client's Defence there is no more than a denial, in the most general terms, of all the allegations in paragraph 28 of the Statement of Claim which includes, inter alia, the allegation of reliance. Assuming in your client's favour that there is a denial of reliance, we note that no particulars are given of any

positive case to be advanced by your
client at the trial in relation to the

issue.

Accordingly, it would appear that, at the trial, your client will be precluded from adducing any evidence to support a positive case in relation to the issue of reliance.

Is this not a case of an attempt by your client to conduct a fishing expedition?

We are particularly drawn to this view of your correspondence because of the contents of your letter dated 4 December

1992 and especially the reference on the

second page thereof to our client's announcement to the Australian Stock Exchange in September 1990.

The extract set out by you itself draws particular attention to the fact that the sale had occurred for a number of reasons. We refer, in particular, to the phrase, "This sale has occurred partly due to the uncertain economic times..." (underlining

ours ) .

The fact that our client took into account the "uncertain economic times" does not p r e c l u d e i t s r e l i a n c e o n misrepresentations made by your clients.

Similarly, the fact that a sale made to y o u r c l i e n t f o l l o w i n g t h e misrepresentations made by your client would benefit our clients by the proceeds thereof is obvious and it is equally obvious that any public company properly managed would attempt to turn those proceeds to account by, for example, the development of its other assets and that such attempts would be in relation to, inter alia, the existing resources of the company.

Your proposed wide ranging discovery in relation to what you describe as "DMR's internal financial position" and its history of "initiatives" and "dealings" and the "nature, extent and cost of work

done by it on its Burton Downs Coal Prospect" has the aura of a fishing expedition.

was involved in the "Burton Downs Coal	In particular (sic) example, our client
Prospect l'. Why should your client have discovery of the nature, extent and cost of work done by it on that prospect? Are the nature and extent of the work done possibly such as to bear on whether or not our clients relied on your client's
misrepresentations? Your client's
misrepresentations bore directly on the value of our client's tenements in the vicinity of Lawn Hill. Is it even possible that the nature and extent of the work done on the Burton Downs Coat Prospect was inconsistent with any reliance on those misrepresentations?
If your client has a proper case then, with respect, it should plead and particularise it appropriately.
We shall further consider the question of discovery upon receipt of your response".
On 28 January, 1993 the respondent's solicitors

replied as follows :-

"We refer to your letter of 18 January
1993.

As you have stated in that letter, the matters raised in our letter of 4 December 1992 have been the subject of considerable previous correspondence between the parties. At that time, however, the matter was left unresolved.

Further, you have stated that the issue to which our letter is relevant is that of reliance. In fact, the matter being addressed in our letter was the completeness of your client's discovery. to that end, we acknowledge that it is necessary to have regard to the pleadings for the purposes of determining the breadth of discovery. However, as you would undoubtedly know, a document will be discoverable if it "relates in some way to a matter in issue" but it is also sufficient "if it would, or would lead to a chain of enquiry which would, either advance a party's own case or damage that of his adversary".

alleged that your client relied on certain	In your client's Statement of Claim, it is
conduct and representations reputedly made by our client. Unless our client's defence contained an admission (which it does not) of the alleged reliance by your client, the question of reliance is a matter in issue.
It is quite a separate question as to whether, having regard to the rules of pleading, our client's denial of your client's reliance is sufficient. If your client considers that our pleading is inadequate then it should say so.
Whilst the matter of reliance is in issue, our client is entitled to obtain on discovery documents which go directly to that issue including documents which will put our client on a chain of enquiry. Having regard to that issue, it is clearly legitimate for our client to obtain discovery of documentation which may evidence, or provide assistance in determining the reason or reasons motivating your client to effect the sale. For example, the documents requested in paragraph (d) to which you have specifically referred, namely, documents evidencing the nature, extent and cost of work done by DMR on "Burton Downs" coal prospects will evidence the intention of DMR with respect to that prospect and the pressures, if any, on DMR and hence may provide evidence of the motivating factors behind the sale. Further, it is possible that the documentation requested may relate to or lead to a train of enquiry in respect of representations your client alleges were made.
Accordingly, we confirm our request for the material referred to in paragraphs (a), (b) and (d) to be discovered. As the material referred to in paragraphs (c) and (e) are not relevant to the issue of reliance, could you please advise us of your client's objection to the production
of those documents " .

The applicants' solicitors, on 1 February, 1993, state had been found and were discoverable. However, the

forwarded copies of eighteen documents which the solicitors

documents do not purport to have been supplied in consequence of the request made in the letter of 4 December, 1992 or in respect of any category of documents identified in that letter.

Having considered the correspondence, I am persuaded that the applicants have misconceived the obligation to discover all documents which are relevant in a discovery sense to a matter in issue in the proceedings. The test of what is relevant for the purposes of discovery is that the document relates to the matters in issue, and includes documents which would not only be direct evidence on any issue but also includes documents which may, not which must, either directly or indirectly enable the party requiring the affidavit to advance his own case or damage the case of his adversary (Compaanie Financiere et Commerciale der Pacifiaue v. Peruvian Guano Co. (1882) 11 QBD 55 at 63). It has been described variously in the authorities as documents which may lead to a chain of inquiry which would advance a party's own case or damage that of his or her opponent.

The relevant issues raised on the pleadings are :-

(a)	That misleading and deceptive conduct in the form of misrepresentations was engaged in by the respondent.
(b)	That the applicants relied upon the representations and thereby suffered loss and damage.

The applicants bear the onus on each of these matters. It is not for the respondent to plead a positive case as to other circumstances which the respondent contents induced the applicants to sell, before the applicants are obliged to make discovery of such documents as touch upon all relevant circumstances which existed at or around the time of the decision to sell and which may have been borne upon that decision.

It was submitted that the extent of discovery sought under heading (d) as to the Burt0n Downs project was too wide and included discovery of the source documents evidencing the day-to-day expenditure of the applicants on that venture. It was further submitted that some documents had been discovered, or, consideration had been given to the discoverability of some documentation from "the top down" ie. from Board level down. TO what extent, if at all, this was reflected in the applicants' list of documents was never made clear to me. I agree that the documentation as to daily expenditure is not relevant and is not discoverable. However, the respondent by its Counsel states from the Bar table that it does not seek such documentation but rather seeks documentation which relates to the applicants' commitment to the venture, its financial requirements to further the venture, the priority set, or to be decided, by the applicants at or about the time of the sale of certain mining tenements to the respondent as to the development of the Burton Downs development, and, the available resources to the applicants to further the ventures

which it then had in contemplation. The announcement to the Australian Stock Exchange of 7 September, 1990 referred to in

the letter of 4 December, 1992 links the future development of the Burton Downs venture with the funds expected to be generated by the sale to the respondent. Such material, in my view, may lead to a line of inquiry which would enable the respondent to demonstrate an absence of reliance on the part of the applicants at the time the decision to sell was made by the applicants.

The applicants have not addressed the issue applying the proper test of relevance. In the circumstances the proper order is that the applicants give further and better discovery within fourteen days in respect of the categories of documents identified in paragraphs (a), (b) and (d) of the letter of 4 December, 1992.

The applicants, by their Counsel, submits that the applicants do not have the documents identified in paragraphs (c) and (e) of the letter of 4 December, 1992. There has previously been no suggestion in the correspondence that this is the case. If it is the fact, then that ought to have been sworn to and if the documents were in the possession, custody or control of the applicants, but are now no longer in its possession, custody or control then the documents ought to be discovered in the appropriate way.

The respondent has also sought that the applicants
provide a further copy of document 36 in the applicants' list

dated 23 November, 1990 from N.H. Cole and Associates Pty. of documents filed on 8 April, 1991. The document is a report

Ltd. to the first named applicant entitled "INDEPENDENT VALUATION OF THE SILVER KING, MENDED HILL AND SILVER QUEEN MINING LEASES". The applicants oppose the application on the basis that the original copy was provided on a "without prejudice" basis in an attempt to settle the dispute prior to litigation and that the document is and was subject to legal professional privilege.

The material establishes that the document was prepared on instructions received from the first named applicant some time after the sale of the mining tenements to the respondent and before 23 November, 1990. On 24 November, 1990 a "without prejudice" conference was held to attempt to settle the matter. On 10 December, 1990 the applicants' solicitors, under cover of a facsimile transmission of that date, which read :-

"MESSAGE:
"Without Prejudice"

We enclose herewith Report to DMR of the Independent Valuation of the Silver King, Mended Hill and Silver Queen Mining Leases.

Yours faithfully ..."

forwarded a copy of the report to the respondent's solicitors.

The settlement negotiations failed. The application for relief was filed in this Court on 24 December, 1990.

The report was listed in Schedule 1 - Part 1 of the applicants' List of Documents filed on 8 April, 1991. I am

satisfied on the evidence that the report was produced for

inspection by the applicants' solicitors to the respondent's solicitors on 27 April, 1991 and that at that time a copy was not requested because the respondent was already in possession of the copy provided on 10 December, 1990.

It was not until 20 January, 1993 that the question of the "without prejudice" delivery of the original copy report was again raised when the respondent sought a more legible copy of the report. On 1 February, 1993 it was contended by the applicants that the report was provided :-

"...on a 'without prejudice' basis prior to the institution of this litigation and in an effort to settle the dispute between your client and ours. Accordingly, the report is the subject of legal professional privilege, and that privilege has not and will not be waived by our

clients 'l.

The letter went on to assert that the report had been inadvertently placed in Part 1 Schedule 1 when it should have been placed in Part 2 of Schedule 1.

A copy of the report is in evidence and although in places there is some difficulty with legibility, the whole of the report is capable of being read and understood.

In support of the submission that the report is not subject to production and inspection as part of the discovery process, the applicants rely upon the decision of the English Court of Appeal in Rabin v. Mendoza & Co. [l9541 1 All ER 247.

The principle stated in Bray on Discovery and given effect to

in Rabin v. Mendoza is that :-

"The right to discovery may under very special circumstances be lost by contract as where correspondence passed between the parties' solicitors with a view to an amicable arrangement of the question at issue in the suit on a stipulation that it should not be referred to or used to the defendant's prejudice in case of a failure to come to an arrangement".

As appears from the judgment of Denning M.R., documents which fall within this category are not for that reason alone subject to legal professional privilege. Further, as appears from the judgment of Romer L. J. , such documents ought to be disclosed in the affidavit of documents and the claim to protection made in the form of a claim to be relieved of the obligation to make the documents available for production and inspection. However, to fall within the class of documents, it is necessary that the documents result from, or come into existence because of, the attempted settlement negotiations (see per Denning M.R. at 248; Romer L.J. at 2 4 8 ) . That is not this case. The report came into existence prior to the "without prejudice" negotiations and on its face states the circumstances of its creation, namely, :-

"This report has been prepared at the request of Diversified Mineral Resources NL ("DMR") by N H Cole and Associates Pty Ltd ("NHCA") for the purposes of valuing the Silver King, Mended Hill and Silver Queen mining lease areas (collectively known for the purposes of this report as "the DMR project areas"). The areas were owned by DMR and were recently sold to CRA Exploration Pty Ltd ("CRA") for a cash consideration of $3 million. The report is supplied on a confidential basis

exclusively for the internal use of DMR	and should not be relied upon for any
other purpose".

Putting aside the question of legal professional privilege, the report, when it came into existence on 23 November, 1990 was, in the litigation which followed, discoverable. If the report was properly discoverable and subject to production and inspection in the ordinary way, to make a copy available on a "without prejudice" basis could not have the effect of thereafter denying to the respondent the right to require production and inspection of the document when it was properly discovered in the ensuing litigation.

It would require clear and strong evidence before I would be prepared to find that the respondent had contracted away its rights to discovery, production and inspection of the document or to use the document or the contents of it in its defence of the action. The evidence does not go beyond the existence of "without prejudice" negotiations and the delivery of the report under cover of the facsimile. The term "without prejudice" standing alone is equally open to the construction that delivery of the report was without prejudice to the applicants right to advance a claim on a basis other than revealed in the reasoning of the valuation report. That is, that the applicants were to be free to advance whatever case they chose on whatever basis they determined if the settlement negotiations did not proceed to a satisfactory conclusion, and, that the facts that negotiations had occurred and

material had been provided were not in themselves	circumstances open to the respondent to adduce in evidence to
the detriment of the applicants. But this does not mean that the information contained in the report and the fact that the applicants had obtained the report and the information it contained could not be used by the respondent in the conduct of its case when the report was properly discovered in the applicants' list of documents.
As I have indicated above, mere delivery of the document for the purpose of settlement negotiations does not clothe the document with legal professional privilege and the letter from the applicants' solicitors claiming privilege on that basis is misconceived. On its face the document was produced for the internal use of the first named applicant at its request and may not necessarily satisfy the sole purpose test ie. solely produced or obtained for the purpose of obtaining legal advice, to qualify for legal professional privilege. However, assuming the report does satisfy the test, and, its inclusion in Part 1 of Schedule 1 without a claim for legal professional privilege was due to inadvertence, the fact remains that the document has been produced for inspection, the respondent has a copy of it and all the information contained in the document is sufficiently legible to be fully comprehensible to a reader of the document. There has been no conduct on the part of the respondent which has contributed to the inadvertent inclusion of the document Part 1 in the list; nor to its disclosure on
contents of the report can be given (In Re Briamore Ltd. inspection. In those circumstances, secondary evidence of the [l9861 1 WLR 1429 at 1431). That being so, it is illogical to
deny to the Court the best evidence of the document (Briamore at 1431). Additionally, in the instant case the respondent has a copy of the report available to it albeit that in some minor degree the legibility is not of the best quality; the respondent has full knowledge of the contents of the document. This is to be contrasted with the decision in Kabwand Ptv. ~td. v. National Australia Bank Ltd. (1987) 16 FCR 85, where the respondent's solicitors knowledge was fairly incomplete and there was no futility in protecting what was left of the applicants' privilege. Even if, the report was originally entitled to legal professional privilege, to attempt to enforce that privilege by refusing to order that the applicants now provide a copy of the report would be a futility.
TEE COURT ORDERS:
1. The applicants within fourteen (14) days of today give further and better discovery of the classes of documents set out in paragraphs (a), (b) and (d) of the letter of Minter Ellison Morris Fletcher dated 4 December, 1992 to the applicants' solicitors by filing a further list of documents verified in accordance with the Federal Court Rules.

The applicants within seven (7) days of today file

and serve an affidavit deposing as to whether they	have or have had in their possession, custody or
power, the documents identified in paragraphs (c) and (e) of the said letter and if they or either of them, have or has been in the applicants' possession, custody or power and are now not in such possession custody or power, when the applicants parted with them or either of them and what has become of them or either of them.
The applicants provide to the respondent within three (3) days of today a copy of the report of N.H. Cole and A~sociates Pty. Ltd. dated 23 November,
1990 upon the respondent paying, or undertaking to pay, the applicants' reasonable costs of providing the copy.
Order that the applicants pay so much of the respondent's costs of the appearance on 10 February, 1993 as related to the respondent's application for further and better discovery and for delivery of a copy of document 36 in the applicants' list of documents, including the costs of and incidental to the preparation of affidavit material in support of the application.

I certify that this and the

preceding fifteen (15) pages are a true copy of the reasons for judgment herein of His Honour

Mr. Justice Cooper.

Date: 31 March, 1993	J~rn&fJ	m ld-ceeiQJVw
Associate

Counsel for the Applicant:	Mr. E. Lennon Q.C.
Solicitors for the Applicant:	Clayton Utz
Counsel for the Respondent:	Mr. P.A. Keane Q.C.
Solicitors for the Respondent:	Minter Ellison Morris Fletcher
Date of Hearing:	10 February, 1993
Place of Hearing:	Brisbane
Date of Judgment:	31 March, 1993