Ge Capital Australia Ltd v Pertsinidis
[2006] SADC 55
•30 May 2006
DISTRICT COURT OF SOUTH AUSTRALIA
(Civil: Appeal Against a Master's Decision)
GE CAPITAL AUSTRALIA LTD v PERTSINIDIS
Judgment of His Honour Judge Beazley
30 May 2006
PROCEDURE - DISCOVERY AND INTERROGATORIES - DISCOVERY AND INSPECTION OF DOCUMENTS
Appeal from District Court Master - Application for Further and Better Discovery - Scope of Rules 58A.03, 58A.04 and 59.03 of Rules of Court - Whether documents directly relevant to an issue on pleadings - Whether disclosure of files stored in plaintiffs computer necessary in the interest of a fair trial - Claims of irrelevance, futility and commercial sensitivity - Considerations relevant to orders for limited discovery - Power of Court to permit defendant's experts to be given access to documents and files stored on plaintiffs computer. Held - appeal allowed - orders for further and better discovery varied - orders giving the defendant access to the plaintiff's computer struck out.
District Court Rules S58A.03, 58A.04, 59.01(c), 59.03 and 68.04, referred to.
Channel Seven Adelaide Ltd v Lane [2004] SASC 177; Rehn v Australian Football League (2003) 225 LSJS 378 at [24]; Harris Scarfe Ltd (Receivers and Managers Appointed) (In Liq) v Ernst & Young (No4) [2005] SASC 443; O'Brien Lovrinov Crafter Pty Ltd v Corradini [1999] SASC 159; Naismith - "The discovery of Electronic Evidence" (2003) 12 JJA 180; Garnet International Resources Pty Ltd v Barton International Inc [2005] FCA 93; NT Power Generation Pty Ltd v Power and Water Authority [1999] FCA 1623, 1669; Sony Music Entertainment (Aust) Ltd v University of Tasmania (2003) 198 ALR 367; The Athletes Foot Australia Pty Ltd v Divergent Technologies Pty Ltd (1997) 78 FCR 283; Young v Queensland Trustees Ltd (1956) 99 CLR 560 at 569; Punjab National Bank v Jain [2004] EWCA 589 at [24]; Derby & Co Ltd v Weldon (1991) 2 All ER 901, considered.
GE CAPITAL AUSTRALIA LTD v PERTSINIDIS
[2006] SADC 55Introduction
By Notice of Appeal dated 29 March 2005, but subsequently amended on 12 October 2005, the appellant, (“the plaintiff”) appeals against certain orders, made by a Master of the Court on 14 March 2005. The appeal is brought pursuant to Section 43(2)(a) of the District Court Act 1991. It is to be by way of a rehearing, and, insofar as the orders under appeal involved the exercise of a discretion, I may exercise my own discretion without regard to the manner in which the Master exercised his discretion.
There are two distinct issues arising on the appeal. The first issue is the order made by the Master for further and better discovery. This issue is to be determined by the application of DCR 58A.03 and 58A.04. Are the documents “directly relevant to any issue arising on the pleadings” or alternatively is it “in the interests of justice” that the documents be discovered?
The second issue is whether the orders made by the Master giving the defendant and his nominated experts access to the plaintiff’s computer system should be maintained in their current form or at all.
In Derby & Co Ltd v Weldon (No 9)[1] Vinelott J when, considering the differently expressed English equivalent of District Court Rule 5[2], held that insofar as a computer database contained information capable of being retrieved and converted into readable form, it was a “document” and therefore susceptible to an order for discovery.
[1] Derby & Co Ltd v Weldon (No 9) (1991) 2 All ER 901 at 906.
[2] DCR5 defines a document as including 'any ... computer or device ... in which sounds or other data - are embodied so as to be capable (with or without the aid of some other equipment) of being reproduced therefrom".
Of particular significance to the within appeal, His Lordship said:
However, when information is stored in the memory or database of a … computer, the inspection and copying of the “document” gives rise to problems which the Courts have not previously encountered. Some of the difficulties which have arisen in this case and which are likely to occur with increasing frequency in the future are as follows:
A. Even when the relevant material is on-line and capable of being shown on screen and printed out, some means will have to be found of screening out irrelevant or privileged material. The party-seeking discovery cannot be allowed simply to seat himself at his opponent’s computer console and be provided with all necessary access keys.
B. There may be material on the computer which is not accessible by current programs but which can be retrieved by re-programming …
C. If … the computer is in daily use, the question may arise … whether access can be arranged, in particular whether any necessary re-programming can be done or whether information stored in the archival … files can be retrieved without unduly interrupting the necessary everyday use of the computer. …
On 14 March 2005 the Master posted to the parties, comprehensive reasons detailing the manner in which the discovery process in this action had broken down. The consequential impasse dictated the need for “flexibility in dealing with the discovery and production process”. This included granting the defendant, and experts nominated by him, access to the plaintiff’s computer system. Those orders were:
1.That the plaintiff make Discovery/Further Discovery/Further and Better Discovery together with Production in relation to the following categories of documents:
1.1 Computer operating manuals with respect to the plaintiff's portfolio management system and the plaintiff's accounting systems;
1.2 Documentation of the formulae used to produce documents enumerated in the plaintiff's list of documents, including, but not limited to, formulae for the calculation of interest rates, repayment schedules and residuals with respect to the three Supplements identified in the pleadings;
1.3 The M&D (McCormack & Dodge) General Ledger accounting system, including all computer and operating manuals relating to that ledger and all reconciliation worksheets relating to that ledger;
1.4 All computer operating manuals relating to the IDMS database;
1.5 The complete set of reports from the PMS system, including, but not limited to, PMS FOCUS Reporting.
1.6 All on-line, manual and PMS "JE Records".
2.That Discovery and Production, be given and taken as soon as can conveniently be arranged between the parties as follows:
2.1 That the plaintiff provide to the defendant and to two experts nominated by the defendant, access to the plaintiff's computer system so as to enable them to identify and verify the above documents and the processes by which they are stored and applied;
2.2 That, subject to the` giving of the undertakings specified below, the plaintiff provide to the defendant's nominated experts a level of access to the computer system equivalent to that of a System's Administrator;
2.3 That, so as to enable the defendant's nominated experts to understand the operation of the computer system, for the purposes of the specified identification and verification, the plaintiff give to the those experts access to, and an explanation of, manuals and documentation in relation to the computer: system, including but not limited to, the following:
(a)GE Capital Policy and Procedure manuals from sales function to collection and recovery.
(b)GE Capital Process Mapping, and/or flow charts of the financial model, the positions/job specifications at the levels within the organisation from sales function to collection/recovery process.
(c)Manuals of the computer systems including the System Administration Manual.
(d)Computer system logs.
(e)Manuals of the computer system for PMS, M&D, FOCUS Transaction Logs for journals, general ledger, collection activities.
(f)Record of changes made to the computer system from January 1995;
2.4 That the plaintiff inform the defendant's nominated experts of the name, title, level of access, and availability of any employee directed to assist in, and supervise, the experts' access to the computer system;
2.5 That the plaintiff make available to the defendant's nominated experts an employee with at least the level of access to the computer system equivalent to that of a System's Administrator to guide the experts and to witness their access to the computer system;
2.6 That the plaintiff inform the defendant's nominated experts of the location of a computer terminal equipped with the level of access specified above, together with the time or times access can be taken at that terminal;
2.7 That the plaintiff inform the defendant's nominated experts of any limitations on access to the computer system, and the nature and type of restrictions or limitations;
2.8 That the plaintiff inform the defendant's nominated experts of the type of computer system and database used by the plaintiff, as well as any customised modifications or related sub-systems employed in the plaintiff's computer system;
2.9 That the plaintiff permit the defendant's nominated experts to access and print off in hard copy reports from the plaintiff's computer system relating to payment details of the defendant's accounts recorded in the computer system.
3.That before taking access of the plaintiff's computer system for the purposes of production in accordance with this order, the defendant and the defendant's nominated experts give a written undertaking to the Court, to be filed in Court and served upon the plaintiff, in the following terms:
3.1 That they will not, except with the prior consent of the plaintiff, or the prior leave of the Court, disclose any data obtained from their access to the plaintiff's computer system to any person other than each other and the defendant and the defendant's legal representatives (who shall give a like undertaking);
3.2 That they will not involve themselves in any enquiries relevant to customers' accounts (other than the defendant), which might infringe privacy legislation in Australia or overseas.
4.Liberty to either party to apply on short written notice to the other to vary this order so as to carry out its purpose more effectively.
5. …….
As can be seen, the orders made by the Master are somewhat novel in that, they require further and better discovery of the plaintiff’s entire general ledger accounting system and all reconciliation worksheets without limitation.[3] They also direct the plaintiff to provide assistance to the defendant’s nominated computer experts; and permit the latter access to the plaintiff’s computer system. Invasive orders, including the freezing of data on a party’s computer hard drive have been made in the Federal Court of Australia in support of Anton Pillar orders[4]. Access to an opposing party’s hard drive has been ordered in various Courts in respect of computer software litigation;[5] and in a case involving discovery of emails stored on computer.[6]
In State Bank of SA v Heinrich (1989) 52 SASR 596 orders for further and better discovery of, and for inspection of, microfiche records included a requirement that the plaintiff make available a suitable microfiche reader to enable inspection to take place.
[3] Naismith - "The discovery of electronic evidence" (2003) 12 JJA 180.
[4] J.H. Lever & Co Pty Ltd v Maniotis [2005] FCA 252.
[5] Sony Music Entertainment (Aust) Ltd v University of Tasmania (2003) 198 ALR 367; [2003] FCA 532, 725; Athletes Foot Australia Pty Ltd v Divergent Technologies Pty Ltd (1997) 78 FCR 283; Idoport v National Bank Ltd [2001] NSWSC 530.
[6] N.T. Power Generation Pty Ltd v Power and Water Authority [1997] FCA 1623, 1669. The respondent had sought an order limiting discovery to certain hard copy emails, however the Court ordered general discovery of relevant emails notwithstanding the time, expense and effort required to comply with the order.
I heard the argument on appeal on 31 October and 1 November 2005. I regret the delay in the publication of these reasons caused by my list of cases. This delay, however, pales into insignificance in respect of these proceedings, which were commenced on 20 April 1999, and yet are still not in a position to be listed for trial. The respective parties’ time and resources have almost exclusively been expended on issues of discovery, including allegations of non-compliance by the plaintiff with orders previously made by the Court. The Court file now exceeds some nine folders.
Background
On or about 1 June 1995, the plaintiff and the defendant entered into a “Master Commercial Hire Purchase Agreement, No V0400201”, which contained three supplements respectively numbered “S1”, “S2” and “S3”. Each respective supplement applied to a certain piece of equipment hired by the defendant, and specifies both monthly and residual payments. The item in “S.1” is a Volvo FH12 truck, hired for 60 months at the monthly rate of $3,707. “S.2” was a Mercedes Prime Mover hired for 36 months, but ultimately paid out in full by the defendant. “S.3” is a Freightmaster Trailer hired for 60 months at the monthly rate of $1,278, commencing on 27 November 1995.
On 6 March 1996 the “S1” truck was extensively damaged in a road accident. On 20 February 1998 the plaintiff asserted that the pay out figure on “S2” was $20,855.72. The defendant paid that sum to the plaintiff on 5 March 1998. It is common ground that payments were made by the defendant to the plaintiff, by cheque, bank cheque, and telegraphic transfer or by cash.
The proceedings
The plaintiff commenced its action in this Court by affidavit, on 20 April 1999, seeking possession of the S1 truck and the S3 trailer. The plaintiff asserted that the defendant had failed to maintain payments in accordance with the supplements.
The early history of the dispute is set out in the unreported decision of His Honour Judge Kitchen.[7]
[7] [2000] SADC 68.
The pleadings
On 17 January 2000, the plaintiff filed a Statement of Claim alleging that the defendant had defaulted in his periodic payments, between 1 February 1998 and 1 December 1998 in the sum of $40,777 in respect of S1; and between 1 September 1998 and 1 December 1998 in the sum of $5,112 in respect of S3. In consequence the plaintiff had purported to terminate the hire purchase agreement by notice and demanded possession of the truck and trailer. The plaintiff claimed, inter alia, declaratory relief, an order for possession, injunctive relief, an order for an account of profits, and judgment in the sum of $45, 889 being the total of the periodic payments then allegedly outstanding.
By his defence, the defendant:
denies being indebted to the plaintiff;
positively asserts having paid in excess of any sum that he was required to pay pursuant to the hire purchase agreement;
brings into issue payments made by him in respect of S.2, which had not been referred to in the plaintiff’s claim;
pleads that he paid to the plaintiff the sum of $46,016 in respect of S1 and S3 for the relevant period;
asserts that prior to the alleged first default date, 1 February 1998, he had paid to the plaintiff $28,549.41 more than was due on that date in respect of all three supplements;
claims that any default interest charged by the plaintiff constitutes a penalty;
claims further that the plaintiff is estopped from relying upon any alleged defaults;
seeks relief against the enforcement of the plaintiff’s notices of termination.
The defendant has counterclaimed against the plaintiff, inter alia, for declaratory relief; and alternatively for damages, and other consequential relief for alleged misrepresentation, misleading and deceptive conduct and unconscionable conduct.
Principal dispute
The principal issue in dispute between the parties has been and remains the quantum and timing of the payments allegedly made by the defendant to the plaintiff. For the plaintiff, the timing of the payments is crucial. The S1 and S3 supplements had a maximum expected life of five years. In consequence of payments subsequently made pursuant to interim orders of the Court, the full amount payable under the supplements has been paid to the plaintiff. The plaintiff however claims that in consequence of the breaches giving rise to the termination notice, it remains entitled to an order for possession of the S1 Truck and S3 Trailer. The plaintiff had sought to quarantine discovery to the records of payments in respect of S1 and S3 between 1 February 1998 and 1 December 1998. The difficulty with that approach is that the defendant’s defence and counterclaim is cast far more widely, and may involve a full reconciliation of all three supplements at least up to the date of the Notices of Termination.
From the defendant’s point of view, the principal dispute includes the question whether the plaintiff failed properly to record payments to the credit of the defendant. It also involves the question whether the plaintiff has failed to properly allocate the payments to the correct supplement. Additionally, and, allegedly solely within the knowledge of the plaintiff, is whether some of those monies were applied incorrectly to penalty interest. The hire purchase agreement makes reference to a 10-day period of grace. Similarly the defendant wishes to establish whether any payments made by him, were not allocated to his credit at all, but simply placed into a suspense account established by the plaintiff for monies received where the source of funds could not be identified.
By affidavit sworn on 8 June 1999, the defendant asserted that documentation discovered by the plaintiff did not set out the basis upon which the plaintiff has recorded or allocated payments received from the defendant, nor the calculations under pinning the termination notices. By affidavit sworn 13 August 2002 the defendant asserts that major discrepancies as to the quantum of payments are evident from the plaintiff’s own documentation. He further asserts that the payout figure provided by the plaintiff in respect of S.2 was grossly overstated. The plaintiff had maintained at least until 2001 that all it needed to do was to satisfy itself about what payments had been made by the defendant in consequence of which it would rely on certificates pursuant to s 59(b) of the Evidence Act.[8]
[8] Reasons of the Master, 28 August 2001 at p13.
There had been a suggestion in June 1999, before His Honour Judge Kitchen, that the parties would engage in a mutual “accounting exercise”. By 26 November 1999, the defendant had obtained reports from Public Actuaries, Brett & Watson Pty Ltd, apparently based upon a combination of the defendant’s records and alleged acknowledgements from the plaintiff, and which suggested that by 1 December 1999 the plaintiff had received more than the total sums including residual payments due under the agreement. It was in this history of distrust between the parties that various orders for discovery were made by the Master.
It seems extraordinary that 6 years after the proceedings were issued the parties are unable or unwilling to identify and reconcile the various payments, which have been made so as to enable the trial to be listed for hearing. The defendant asserts, “I have paid you”. The plaintiff counters “not according to our records you haven’t”.
Onus of proof at trial
It is probable that at the trial of this action the defendant will carry the onus of proof in establishing that the payments were made as alleged in the defence.[9]
[9] Young v Queensland Trustees Ltd (1956) 99 CLR 560 at 569; and Barber v Carrier Air Conditioning Pty Ltd [2004] VSC 475.
This is a documentary case. The defendant will need to establish both the quantum and timing of payments made by him. He asserts that in respect of certain cash payments, he cannot readily produce documentation, and accordingly must be given access to the plaintiff’s records of payments received. Further he asserts that only the plaintiff can identify how payments were allocated by it to the three supplements, and specify what if, any, sums were applied to penalty interest.
Issues on the Appeal
In its Notice of Appeal dated 29 March 2005, the plaintiff purported to appeal against orders made on 13 April 2004 and 21 January 2005, in addition to those made on 14 March 2005. Insofar as it was said to constitute a Notice of Appeal against orders, other than those made on 14 March 2005, such notice was out of time by a substantial period. Pursuant to DCR 97.03, the time limit prescribed for the institution of an appeal was 14 days.
I gave leave to the appellant to amend its Notice of Appeal limited to the orders made on 14 March 2005. There were still a substantial number of grounds of appeal. The principal grounds were:
1. That the Master applied a Rule 58 test rather than one under Rule 58A, in that he ordered documents to be discovered which were said to be not directly relevant to any issue arising on the pleadings, or not necessary in the interests of justice. The arguments in support of this ground have been somewhat confused because of the existence of orders made prior to 14 March 2005 and which were not the subject of an appeal.
2. That the orders for production of documents and, in particular, the rather complex orders granting access to the plaintiff’s computer records, were not necessary, at this stage, for disposing fairly and expeditiously of the action. Again the question as to whether an order for immediate production ought to have been made must be seen in light of the history of the previous orders made by the Master. A court may be more inclined to combine an order for discovery and production, where the discovery process has bogged down.[10]
3. That insofar as any order for discovery or production ought properly be made, such documents must be identified or limited by reference to dates or having a nexus with the defendant’s supplements.
[10] Punjab National Bank v Jain & Co [2004] EWCA 589 at [24].
Orders of the Master
Although the orders, the subject of the Notice of Appeal, were made on 14 March 2005, they were inextricably linked with and the culmination of a series of orders made on 28 August 2001, 13 April 2004 and 21 January 2005.
While it is necessary to refer to orders made at earlier times, the plaintiff has not appealed against those earlier orders and concedes that it is not able to collaterally attack those orders simply because some of them were reproduced in the order made on 14 March 2005.[11] It has however become necessary for me to revisit the history of the discovery applications. Ultimately I must exercise my own discretion.[12]
[11] (Submissions T 74)
[12] O'Brien Lovrinov Crafter Pty Ltd v Corradini [1999] SASC 159.
It must be said that it is not an easy task to comprehend from the transcript the precise basis for the breadth of the orders finally made. The defendant somewhat broadened the scope of its request for further and better discovery at different stages.
On 28 August 2001, the Master ordered the plaintiff to make further and better discovery. In comprehensive reasons the Master concluded that computer-operating manuals must be discovered by the plaintiff to render intelligible other documents, which had been discovered by it. He further concluded that documentation already then discovered by the plaintiff must have been the product of some formulae employed by the plaintiff, and that such documents encompassing that formulae must be discovered.
The following classes of documents were the subject of the order, made on 28 August 2001:
(i) Bank statements and credit slips of the plaintiff detailing payments made by the defendant from 1 May 1995 to 1 May 2000.
(ii) Transaction and reconciliation statements between the plaintiff’s bank account and the plaintiff’s account of the defendant’s debt.
(iii) Computer operating manuals with respect to the plaintiff’s portfolio management system and the plaintiff’s accounting systems.
(iv) Documentation in the nature of formulae employed by the plaintiff to produce its discovered documents including default notices.
This order was made by a Master notwithstanding submissions from the plaintiff as to the apparent difficulties in accessing relevant material from the plaintiff’s computer system and issues of confidentiality. The computer operating manuals, although widely expressed, seemed to be directed to the “PMS”, which had been identified as the plaintiff’s computerised accounts received function. Some criticism was made by Mr McNamara Q.C., who appeared on the appeal for the plaintiff, that the Master had erred in making those orders pursuant to the regime in Rule 58 rather than Rule 58A given that any list in compliance with the order would be filed after 3 June 2000. The fact remains that the order of the Master was not the subject of an appeal, and cannot now be collaterally attacked. As can be seen the orders made by the Master on 28 August 2001, for further and better discovery applied to at least the categories of documents enumerated in paragraphs 1.1 and 1.2 of the order of 14 March 2005, if not 1.3 and 1.4 thereof. In purported compliance with that order, the plaintiff filed a supplementary list of documents dated 30 October 2001.
On 1 August 2002, the Master made an order that the plaintiff verify its discovery on oath, and an affidavit of Mr David Thrift was filed on behalf of the plaintiff. That affidavit sworn on 13 September 2002 deposed that all documents directly relevant had been discovered by the plaintiff. Prima facie the plaintiff’s list of documents, verified by affidavit is conclusive. It did however refer to other computer manuals, which had not previously been discovered. It also included a diagram, which identified other accounting functions connected to the “PMS”, which had been the subject of the orders made on 28 August 2001. On 13 April 2004, the Master ordered that Mr Thrift be cross-examined on his affidavit. The question whether there was a proper basis for that order is not in issue as there was no appeal against that order.
The Master had at that time received numerous affidavits from the plaintiff as to its accounting methodology including those of Mr Thrift, Mr Querzoli, Mr Parker and Ms Lawson. He had also received a bundle of affidavits from the defendant. In addition both the defendant Mr Pertsinidis, and the accountant Mr Jorgensen had given evidence and had been cross-examined.
Mr Pertsinidis had deposed in an affidavit sworn by him on 13 August 2002 to his belief that the plaintiff had not properly recorded various payments made by him. The defendant has deposed to various occasions in which he made a single large payment to cover a number of monthly instalments for all three supplements. Some of these payments were not accompanied by any documentation, identifying the particular supplements or monthly payments to which they related. He asserted that the plaintiff had missed payments and had applied payments at its discretion to particular accounts contrary to the purpose for which the payments were made. When cross-examined on his affidavit he gave examples of the plaintiff crediting some other customer’s payments to his account, and failing to credit his account with a payment, which he could establish, was made by him.[13] It was submitted that access to the plaintiff’s hard drive was necessary to establish the way in which the payments were received and allocated by the plaintiff. The defendant said that this was the only way the source information could be obtained for a proper audit and reconciliation.[14]
[13] T 116-117; T 154-156 and T 182 (27/10/03)
[14] T 180
The Master found that the defendant did have the expertise to express opinions as to the functions of the plaintiffs computer system. The defendant identified the “PMS” as the accounts received system. He said that the plaintiff’s computer had a “PMS” “J” Records function, which should contain general entries including reversals. He said that, having identified alterations to his accounts, he would expect them to be identified in the “PMS” “J” records. By reference to the diagram exhibited to Mr Thrift’s affidavit, Mr Pertsinidis and Mr Jorgensen had given general evidence about the functions available in the plaintiff’s computer system. This included the “M & D” General Ledger, which was a source database, providing source financial information. A general ledger interface document suggested sequential movement in transactions between the “PMS” and “M & D” ledger. The “PMS” system included a reporting function. Mr Jorgensen had opined that because the computer database contained a record of what was entered at specific times, the operator could print out a record from the database. He opined that there would have been material printed even if “a one page summary of the account as it was set up”.
Mr Thrift was cross-examined about the different accounts received functions of the “PMS” and the base “M & D” ledger accounting system. He said that the plaintiff’s procedure was to send all payments received by it to its bank. It would then use its bank statement as the prime source for inputting information into its computer. An employee would then decide how those sums would be allocated, and would then manually input that data into the plaintiff’s computerised “P.M.S.”. Over the years the plaintiff’s computer system had changed, so that since 2002, the “PMS” system has not been used in Australia. The “PMS” at the relevant time to December 1998 was a receivables system, which also provided calculations of outstanding balances.[15] He was not involved in the day to day accounting operations, and could not comment on the function of the “M & D” general ledger; or whether accounting transactions moved sequentially between it and the “PMS”, even though the diagram exhibited to his affidavit indicated that it did. He reiterated that the recording of payments depended upon the plaintiff’s bank statements. If a payment went “missing”, in that it was not recorded in the bank statement it would not have been entered into the computer records. The difficulty is that the payments received by the plaintiff were not paid into a separate bank account. The bank statement records all payments received in respect of all customers. If payments are made by cheque or relate to a specific identifiable monthly payment then no difficulty ought arise in identifying the correct account. If a cash payment is made for an unidentified account, and it cannot be linked to a specific account then it would be recorded in a “suspense” account – assuming no other human error.[16]
[15] T 8 (19/8/04)
[16] T 51-53 (19/8/04)
Mr Thrift conceded that for the computer to verify the correct calculation of repayments there was necessarily in existence formulae employed by the plaintiff.[17] He was unable to explain some of the functions of the plaintiff’s computer including the “IDMS” database, the subject of paragraph 1.4 of the order of 14 March 2005.
[17] T 50
On 21 January 2005, the Master again provided comprehensive reasons in which he concluded that:
I am satisfied that Mr Thrift’s evidence establishes the grounds for a belief that relevant documents exist within the plaintiff’s computer data base which have not been considered by the plaintiff in its search for discoverable documents so further discovery should be ordered.
Mr McNamara QC conceded that this finding was open to the Master.
The Master ordered that the plaintiff make further discovery and, in addition thereto, production of those documents. The Master did however reserve the form of order for inspection so that there would be no unreasonable intrusion on the plaintiff’s business. The orders made on 21 January 2005 were:
1.That the plaintiff make further and better discovery and production in relation to the following category of documents.
1.1 Computer operating manuals with respect to the plaintiff’s portfolio management system and the plaintiff’s accounting system.
1.2 Documentation of the formulae used to produce documents enumerated in the plaintiff’s list of documents including but not limited to, formulae for the calculation of interest rates, repayment schedules and residuals with respect to three supplements identified in the pleadings.
1.3 The M and D (McCormack and Dodge) general ledger accounting system including all computer and operating manuals relating to that ledger and all reconciliation worksheets relating to that ledger.
1.4 All computer operating manuals relating to the IDMS data base.
1.5 The complete set of reports from the PMS system, including, but not limited to, PMS Focus reporting.
1.6 All on line manual and PMSX (JE records).
These orders were the same as the final orders made with respect to further and better discovery.
On 14 March 2005, the Master made the orders, the subject of the Notice of Appeal.
The Law
The obligation imposed upon a party by Rules 58A.03 and 58A.04 is to discover those documents which are or have been in its possession, custody or power and which are directly relevant to any issue arising on the pleadings or, alternatively, if not directly relevant, where discovery is ordered by the Court, in the interests of justice.
In Harris Scarfe Ltd (Receivers & Managers Appointed) (In Liq) v Ernst & Young (No 4)[18], Bleby J summarised the authorities as to the qualification of “directly relevant” in Rule 58A.03. While noting that distinguishing between direct and indirect relevance is not an easy task, His Honour said at [15]:
It can be seen that the phrase “directly relevant” is to be given a relatively narrow meaning. Its application to particular classes of documents will be governed by the pleadings. A document will be directly relevant if it tends to prove or disprove something that may be relevant to a matter in issue, or if there is merely a chance that the document will prove or disprove a matter in issue.
The central issue in that case was the amount and reasonableness of a Receiver’s costs. While noting that many primary records in the Receiver’s files would not necessarily be directly relevant to the reasonableness of the costs, His Honour concluded that a computerised printout prepared by the Receiver did not adequately link the fees with the particular work performed by particular members of the Receiver’s staff.
[18] [2005] SASC 443
His Honour inferred that “there must be within the plaintiff’s possession or power … computer records or other documents … which indicate the nature of the work performed, by whom it was performed and the time spent on that work by each person”, and ordered that further and better discovery of such documents be made.
As to the question of production, the Court is empowered in DCR 59.01(c) to require parties who have discovered computer records to make available the hardware necessary to elicit those records from the computer.
In Derby & Co Ltd v Weldon (No 9)[19], the Court analysed the question as not being whether a database was a “document”,
… but as to the circumstances in which and the means by which a party seeking discovery is entitled to inspect and have copies of that document. … If I am right in my conclusion that the memory or database … is the original document the Court must have power to permit the party seeking discovery to inspect … the memory by reading from the console or the screen or by taking hard copy in any case where there is a real doubt whether the printouts supplied comprise a complete and accurate copy of all relevant and non-privileged information stored on the word processor’s memory.
[19] At page 906.
Pursuant to Rule 59.03 an order for production of any document may not be made unless that order is necessary for disposing fairly and expeditiously of the action and is not injurious to the public interest. Where the “document” is computer data, the Court pursuant to Rule 59.01(c) may order the person having custody of the data to make available the hardware necessary and the means by which the information in the data can be ascertained. In Yarash Pty Ltd (In Liq) v Walters and Bolaffi [1993] SASC 4191 Perry J said:
“The party is obliged to make complete discovery of all documents in his or her possession or power relating to any matter in issue, and that obligation may be fortified by an appropriate order made in Rule 59.01© to oblige a party to give such technical information to the opposing party, as may be necessary, for appropriate retrieval to be made of information which may not otherwise be readily obtainable or so easily extracted from records ….”
Submissions
(a) Further and better discovery
The plaintiff’s counsel made various criticisms of the orders made on 14 March 2005 for further and better discovery. Mr McNamara submitted that none of the documents could be said to be “directly relevant” to an issue on the pleadings.
Further the orders were cast too widely in that they did not identify the relevant period namely the period from the commencement of the hire purchase agreement in 1995 to December 1998, and did not on their face have any nexus with the defendant’s hire purchase agreement. Finally there was no evidence to support a finding as to the existence of the documents enumerated in paragraphs 1.3 to 1.6 thereof.
Although Mr McNamara concentrated his submissions on the Reasons of the Master dated 21 January 2005 and the form of orders ultimately made on 14 March 2005; he submitted that the Master had erred in applying a Rule 58 test of relevancy rather than the “directly relevant” test in Rule 58A, when ordering further and better discovery on 28 August 2001.
He conceded that he could not collaterally attack those orders, and therefore could not seek to set aside paragraph 1.1 and the first line of paragraph 1.2 of the orders made on 14 March 2005, as they simply mirrored the orders made on 28 August 2001.
As to the balance of paragraph 1.2 and the remaining paragraphs 1.3 to 1.6 inclusive, Mr McNamara Q.C. was again critical of the expression employed by the Master in his 21 January 2005 Reasons, that “any documents bearing on the issue of what payments were made and when, will be directly relevant”. He submitted that the Master applied a Rule 58 test of relevancy rather than the “directly relevant” test. In my opinion the Master did not apply the wrong test. While it would have been better to have avoided the use of the expression “bearing on”, I have no doubt that the Master directed himself only to those documents which were “directly relevant” as that expression had been defined in Rehn v Australian Football League[20], and other cases.
[20] (2003) 225 LSJS 378 at [24]
Paragraph 1.2
The plaintiff submitted that the “formulae for the calculation of interest rates, repayment schedules and residuals with respect to the three supplements” as referred to in the balance of paragraph 1.2 could not be directly relevant to the issues on the pleadings. While that submission is undoubtedly correct with respect to the plaintiff’s claim, it is necessary to consider the defendant’s defence and counterclaim. In my opinion those documents enumerated in paragraph 1.2 are directly relevant, to the issues pleaded by the defendant. These include the questions of how the plaintiff allocated payments received by it; whether the plaintiff had overstated the pay out figure on the S2 vehicle; and whether periods of grace had been given to the defendant in accordance with the terms of the hire purchase agreement. The form of order was restricted to the identified three supplements. I am of course free to exercise my own discretion without regard to the manner in which the Master exercised his discretion. I have come to the conclusion that it is in the interests of justice at this stage of the proceedings that the plaintiff must make further and better discovery in terms of paragraph 1.2 of the Master’s order.
Paragraph 1.3
As to paragraph 1.3 of the order of 14 March 2005, the Master set out in paragraphs 91 and 92 of his Reasons of 21 January 2005 the evidence in support of his conclusion that there were grounds for belief that the “M & D” General Ledger accounting system, reconciliation worksheets and computer and operating manuals relating to it existed and may be in the possession of the plaintiff. The plaintiff disputed that finding. While it is true that Mr Jorgensen and the defendant could only speculate about whether the “M & D” Module was employed by the plaintiff, the Master was left with the exhibits to Mr Thrift’s affidavit, identifying its connection with the “PMS”. Mr Thrift did not suggest that the system did not operate in the manner suggested in the exhibits to his affidavit. The Master was entitled to draw the inference that he did. I have drawn the same inference. The Master made the order that the documents enumerated in paragraph 1.3 were all directly relevant.
There is considerable force in the plaintiff’s submission that the order is cast too widely. As presently phrased it requires the plaintiff to discover its entire Australia wide general ledger and all reconciliation worksheets relating to that ledger. Mr Wells submitted that such an order was necessary because it relates to a computer system and cannot refer to a time period or nexus. He submitted that the undertakings proposed in paragraph 3 of the order, with respect to inspection, will ensure that the inspection is limited to the defendant’s payments.
Notwithstanding Mr Wells submissions, I do conclude that the order in paragraph 1.3 is cast too widely. In my opinion a form of order requiring discovery of records of payments recovered by the plaintiff, restricted to the defendant’s three supplements will, ensure that the plaintiff discovers only directly relevant documents. In any event I am satisfied that it is in the interests of justice at this stage of the proceedings to order further and better discovery of the class of documents identified in the varied paragraph 1.3 of the orders. The order should be varied as follows:
“1.3 All computer operating manuals relating to the “McCormack and Dodge” General Ledger accounting system of the plaintiff, and all records contained within that system and all reconciliation worksheets relating to payments received by the plaintiff from the defendant with respect to the three supplements identified in the pleadings”.
Paragraph 1.4
The plaintiff submitted that there was no evidence at all as to the existence or usage of the “IDMS” database. The Master did not specifically set out why an order ought be made for further discovery of this category.
I accept that there was no factual finding about the existence of the “IDMS” database. In my opinion however the order in paragraph 1.4 for “all computer and operating manuals relating to the “IDMS” database” falls with the category of “computer operating manuals with respect to the plaintiff’s accounting system” ordered by the Master on 28 August 2001, and cannot be collaterally attacked.
Paragraph 1.5
As to paragraph 1.5 the plaintiff submitted that there was no evidence of the existence of reports being generated by the “PMS” system, and the fact that the menu on the plaintiff’s computer refers to a “PMS” focus reporting function, does not establish that it was ever employed. Further it was submitted that the form of order was unrestricted as to the scope of the reports, to whom they related; and their timing. Mr Wells submitted that there was a clear finding that such documents did exist. In my opinion the Master was entitled to infer from the combined evidence of Mr Jorgensen and the defendant, and the existence of the “PMS” focus reporting function that there would be at least a one-page report containing a summary of the defendant’s account as it was set up. I draw the same inference from that evidence. However again in my opinion the scope of the order is so wide as to be oppressive. The order ought be varied as follows:
“1.5All reports from the “PMS” system relating to payments received by the plaintiff with respect to the three supplements identified in the pleadings”.
I am satisfied that the order as varied ought be made in the interests of justice under Rule 58A.04.
Paragraph 1.6
Similar criticisms were made by the plaintiff with respect to the records enumerated in paragraph 1.6 of the orders. I am of the opinion that the Master was entitled to infer from the evidence of the defendant as to the reversal of entries made by the plaintiff to his account; the existence of the “PMS” “J” records function as disclosed in the affidavit of Mr Thrift; and the fact that Mr Thrift did not deny the existence of such reports, that such documents did exist in the plaintiff’s computer system. I have drawn the same inference. The order however is similarly cast too widely. It ought be varied as follows:
“1.6 “All “PMS” “J” and manual records with respect to any payments received by the plaintiff in respect of the three supplements referred to in the pleadings”.
I am satisfied that it is in the interests of justice at this stage of the proceedings that the order for further and better discovery as varied be made.
Production
As to paragraph 2 of the orders of 14 March 2005 the plaintiff submitted that there was no proper basis for combining an order for further and better discovery with an order giving access to the plaintiff’s computer. It was submitted that the orders were unusual, and unprecedented with respect to a debt claim. This was a case involving very few instalment payments in dispute. In those circumstances it could not justify such an invasive order permitting the defendant access to all of the plaintiff’s computer accounting records. This would give rise to the potential infringement of the privacy rights of other customers of the plaintiff.
It was submitted that the Master ought first have made an order for further and better discovery by way of an affidavit by Mr Thrift deposing to the results of the further enquiries he would have undertaken following his cross-examination and the findings of the Master in his Reasons of 21 January 2005.[21]
[21] Submissions T 39.
Mr McNamara submitted that the order was not necessary for disposing fairly and expeditiously of the action. It could serve no purpose because the computer database could only record information, which had been input from the bank statements. No order for production ought be made because of irrelevance and commercial sensitivity. He submitted that there was a practical alternative, namely that a “Scott” schedule be prepared by the plaintiff. This document would specify the relevant instalment dates prescribed by the hire purchase agreement in respect of the three supplements. The plaintiff would detail the monies it had received, and how they were allocated, so that a complete reconciliation could be established. He further submitted that there was no basis for the order giving the defendant, personally, access to the plaintiff’s computer system. Further he submitted that the orders would result in further delays rather than expedite a hearing, as the history of the litigation suggests that there would be disputes at every stage of the process. Further he submitted that there was no reporting back mechanism, and little or no protection for the plaintiff’s confidential information.
Mr Wells submitted that the plaintiff’s claim is based entirely upon the plaintiff’s computer records, which had reported that the defendant had been in default. The accuracy of those computer records depends upon the inputting of data and, the application of the inbuilt formulae for calculating, recording, allocating and otherwise accounting for the defendant’s payments.
He submitted that while a “Scott” schedule was a useful method of narrowing the issues, the figures in any “Scott” schedule could not be verified until access to the data on the database was given to the defendant. He referred to the delays, which had taken place over the years, and submitted that the plaintiff had never fully understood its obligations with respect to discovery. Accordingly nothing short of access to the database would progress the matter. Mr Wells also submitted that the series of orders made by the Master had been made in consequence of the non-compliance by the plaintiff of its obligations to make discovery. One can feel some sympathy for the position in which the defendant finds himself. He clearly believes that the plaintiff has made an error in its calculations, and has attempted to avoid scrutiny of its source documents. He has had to issue many applications to ensure compliance by the plaintiff with its obligations to make discovery.
There is no doubt that the orders made by the Master are invasive. The Master correctly directed himself that the burden was on the defendant to satisfy the Court that the order was necessary for disposing fairly of the case.
In Derby & Co Ltd v Weldon No9, the Court said that it:
“will have to consider, if necessary in the light of expert evidence, what information is or can be made available, how far it is necessary for there to be inspection or copying of the original document (the database) or whether the provision of print outs or hard copy is sufficient, and what safeguards should be incorporated to avoid damage to the database, and to minimise interference with ever day use if inspection is ordered”.
Conclusion
In this case the Master was dealing with issues of discovery some 6 years after the proceedings were commenced. He had satisfied himself that orders, which he had made in 2001, had not been fully complied with. It was obvious at least at that stage that the parties could not or would not voluntarily adopt a process whereby a reconciliation of the defendant’s payments could be achieved. It must also be said that after the Master reserved the form of order for inspection on 21 January 2005, the plaintiff did not suggest any other process of inspection to ensure that there would be no unreasonable intrusion into its business. The Master was justifiably concerned to bring to an end these interlocutory processes.
As I have previously indicated, while I ought to give significant weight to the views expressed by the Master having the control of such a long and difficult matter, ultimately I may exercise my discretion without regard to the manner in which the Master exercised his discretion.
In my opinion the Master has the power to combine an order for further and better discovery and for production[22], and to order that the defendant be given access to the plaintiff’s computer system to inspect documents ordered to be discovered and produced.
[22] Punjab National Bank v Jain & Co [2004] EWCA 589 at [24].
It does not follow that access to the plaintiff’s computer systems ought to have been ordered to the degree that it was so ordered in this case. It is apparent that the Courts process will only be applied as far as is necessary to ensure justice as between the parties and no more.[23] There is a need to weigh up the requirement to minimise inference to the operations of the plaintiff against the significance of the information likely to be obtained by the defendant having direct access to the plaintiff’s database. Before the orders were made on 14 March 2005, the plaintiff finally gave the defendant access to its bank statements. I assume discovery has also been made of the directly relevant statements from the suspense account. Mr Wells was critical of the circumstances in which the defendant was given inspection of those records. The defendant will presumably be able to establish all payments made by him by cheque, bank cheque and telegraphic transfer. Indeed that exercise has been partly undertaken in the Brett v Watson reports of 26 November 1999, referred to previously in these Reasons.
[23] Index Group of Companies v Nolan [2002] FCA 608.
The bank statements should record any payments received from any source. As to cash payments the defendant will presumably be able to point to cash payments noted on the plaintiff’s bank statements. The plaintiff will need to establish how it treated those payments. In addition the plaintiff has now volunteered to prepare a “Scott” schedule detailing its receipts from the defendant and how it dealt with them. I accept that this is not a complete answer because the defendant cannot verify the accuracy of such a document without accessing the plaintiff’s database. The fact remains that in balancing the respective interests of the parties, the proper exercise of the discretion does not permit such an invasive order granting the defendant unrestricted access to the plaintiff’s computer system.
I have indicated that I intend to order that further and better discovery in the form as varied by me, be provided by the plaintiff. This may result in reports and other hard copy material being made available. I do not know whether relevant information on the plaintiff’s database can be provided on disc. No order giving access to the plaintiff’s computer should have been considered in this case until the plaintiff had complied with the order for further and better discovery.
Although these are sufficient reasons to strike out paragraphs 2 and 3 of the orders of the Master, in my opinion the form of orders made by the Master did not provide adequate safeguards to the plaintiff.
This is the sort of case, envisaged in Derby & Co Ltd v Weldon (No 9), where expert evidence was required to establish the practical effects of giving another party access to a party’s computer system. The evidence of the defendant and Mr Jorgensen did not extend that far.
The order ought to have provided for access to be given and taken at the plaintiff’s premises rather than remote access. Some means should have been devised to ensure that the defendant’s expert or experts would restrict their access to records relevant to the defendant’s account with the plaintiff and not other customers’ records.
Further the defendant personally should not have been given access to the plaintiff’s computer. I appreciate that the Master did find that the defendant had a great deal of expertise with respect to computer databases, and I accept that the defendant would be in a much better position to identify payments than any other expert.
There is no doubt however that those having access to the plaintiff’s database will be exposed to the confidential information of the plaintiff’s other customers at least as it was contained in the database at December 1998. As noted by Einstein J. in Idoport Pty Ltd v National Australia Bank[24] the question of the scope of any order granting access is simply “one of the court’s discretion in the instant circumstances”, including the sensitivity of the affairs of the party upon whom access is imposed. I cannot see any basis upon which the defendant personally should have been given access to the plaintiff’s computer system.
[24] [2001] NSWSC 530 at [9] - [15].
I am also of the opinion that in practice the defendant’s “experts” should be identified prior to a formal order being made giving access. It may be that the plaintiff may have a reasonable objection to a particular expert having access to the computer system. Mr Thrift gave evidence to the effect that the “PMS” system had not been in use since 2002, but that it could be accessed. I do not know, as there is no evidence on the topic, how in a practical sense, one may access records in the “PMS” system. If the position were that one could gain access to records effectively frozen in 2002 in the “PMS” system, and that in some way the plaintiff’s current records could be bypassed, then this may to some degree ameliorate the plaintiff’s concerns as to the invasive nature of the orders. Any order should have required the defendant’s experts to make two copies of the information extracted by them, one of which ought be provided to the plaintiff and the other provided, in a sealed envelope for safe keeping, to the Court. The order should also have limited access to that information and have made provision for its return to the plaintiff at the end of the litigation.
In making these comments I am not suggesting that an order for access to the plaintiff’s computer system ought be made in the future. Although I do not wish to fetter the Master’s discretion it is difficult at the present to envisage how the discretion would be exercised in favour of any order for access after balancing the effect upon the plaintiff against the fact that there will be relatively few payments in dispute between June 1995 and December 1998. In my opinion it is well and truly time for the parties to ensure that the action is brought to trial “without further delay and without further interlocutory sparring”.[25] I encourage the parties to prepare the “Scott” schedule suggested by Mr McNamara.
[25] Woods Bagot Pty Ltd v Stapledon & Others [2005] SASC 346 per Perry J.
Orders
1. I allow the appeal.
2. I vary paragraph 1 of the Orders made by the Master on 14 March 2005 as follows: -
“1.That the plaintiff make Discovery/Further Discovery/Further and Better Discovery together with production in relation to the following categories of documents:
1.1Computer operating manuals with respect to the plaintiff’s portfolio management system and the plaintiff’s accounting system;
1.2Documentation of the formulae used to produce the documents enumerated in the plaintiff’s lists of documents, including, but not limited to formulae for the calculation of interest rates, repayment schedules and residuals with respect to the three supplements identified in the pleadings;
1.3All computer operating manuals relating to the “McCormack and Dodge” General Ledger accounting system of the plaintiff, and all records contained within that system and all reconciliation worksheets relating to payments received by the plaintiff from the defendant with respect to the three supplements identified in the pleadings;
1.4 All computer operating manuals relating to the IDMS database.
1.5All reports from the “PMS” system relating to payments received by the plaintiff with respect to the three supplements identified in the pleadings;
1.6All “PMS” “J” and manual records with respect to any payments received by the plaintiff in respect of the three supplements referred to in the pleadings.”
3.I order that the plaintiff file and serve within 21 days a list of documents verified by affidavit of an officer of the plaintiff to include those documents enumerated in the orders in paragraph 1.
4.I strike out paragraphs 2 and 3 of the Orders made by the Master on 14 March 2005.
5.I will hear the parties further on the question of any further order to expedite the proceedings and the costs of the appeal.
6. In so far as is necessary I refer the matter back to the Masters list.