Global Investments Limited v Babcock and Brown Global Investments Management Pty Ltd; Dif Iii - Global Co-Investment Fund LP v BBLP LLC

[2017] NSWSC 729

Supreme Court

New South Wales

Medium Neutral Citation:

Global Investments Limited v Babcock & Brown Global Investments Management Pty Ltd; DIF III – Global Co-Investment Fund LP v BBLP LLC [2017] NSWSC 729

Hearing dates:

05/06/2017

Date of orders:

07 June 2017

Decision date:

07 June 2017

Jurisdiction:

Equity - Commercial List

Before:

McDougall J

Decision:

Each notice of motion dismissed with costs. Reserve liberty to apply.

Catchwords:

PRACTICE AND PROCEDURE – discovery – further and particular discovery is – whether discovery given was inadequate – whether documents sought are relevant to pleaded issues – whether documents sought are in the power of a party – whether parties had taken reasonable steps to discover documents

Legislation Cited:

Civil Procedure Act 2005 (NSW)
Civil Procedure Act 2010 (Vic)
Evidence Act 1995 (NSW)
Supreme Court (General Civil Procedure) Rules 2015 (Vic)
Uniform Civil Procedure Rules 2005 (NSW)

Cases Cited:

Bova v Avati [2009] NSWSC 921
Compare Gambro Pty Ltd v Fresenius Medical Care Australia Pty Ltd [2002] FCA 581
Compagnie Financiere et Commerciale du Pacifique v Peruvian Guano Co (1882) 11 QBD 55 at 63 (Brett LJ)
Gambro Pty Ltd v Fresenius Medical Care Australia Pty Ltd [2002] FCA 581
Lonrho Ltd v Shell Petroleum Co Ltd [1980] 1 WLR 627
Mulley v Manifold (1959) 103 CLR 341
Perpetual Trustees Co Ltd v Burniston [2012] WASC 26
Players Pty Ltd (In Liq) (Receivers Appointed) v Clone Pty Ltd [2015] SASC 133
Sabre Corporation Pty Ltd v Russ Kalvin’s Hair Care Company (1993) 46 FCR 428
SPI Spirits (Cyprus) Ltd v Diageo Australia Ltd (No. 2) (2006) 155 FCR 150.

Taylor v Santos Ltd (1998) 7 1 SASR 434
Volunteer Fire Brigades Victoria v Country Fire Authority (Discovery ruling) [2016] VSC 573

Category:

Procedural and other rulings

Parties:

2016/285820
DIF III – Global Co-Investment Fund LP (Formerly “Babcock & Brown DIF III Global Co-Investment Fund LP”) (First Plaintiff)
DIF III GP Limited (Second Plaintiff)
BBLP LLC (formerly “Babcock & Brown LP”) (First Defendant)
Babcock & Brown Rail North America LLC (Second Defendant)
Babcock & Brown Rail Management LLC (Third Defendant)
Babcock & Brown Rail Investment Management LLC (Fourth Defendant)
Victoria McManus (Fifth Defendant)
George Stone (Sixth Defendant)
Ross Sullivan (Seventh Defendant)
Larry Littlefield (Eighth Defendant)
Richard Umbrecht (Ninth Defendant)
DIF Capital Partners Ltd ACN 101 611 438 (Tenth Defendant)
Robert Neil Topfer (Eleventh Defendant)
Phillip Hartley Green (Twelfth Defendant)
Fergus John Neilson (Thirteenth Defendant)
Harry Nicholson (Fourteenth Defendant)
Robert Rupert Officer (Fifteenth Defendant)
Babcock & Brown International Pty Limited CAN 108 617 483 (Sixteenth Defendant)
Babcock & Brown Rail Funding LLC (Seventeenth Defendant)

  2016/278486
Global Investment Limited (Plaintiff)
Babcock & Brown Global Investments Management Pty Ltd (in liquidation) ACN 118871140 (Tenth defendant)

Representation:

Counsel:

 

AJ Sullivan QC / CN Bova / BA Ng (First and Second Plaintiffs)
RCA Higgins / CK Mitchell (First, Third, Fourth and Sixteenth Defendants)
JA Redwood (Fifth to Ninth Defendants)
MA Jones SC / RPV Carey (Tenth Defendant)
LE Hulmes (Twelfth Defendant)
R McGuinness (Solicitor) (Tenth, Eleventh, Thirteenth, Fourteenth Defendants) (DIF III)

 

Solicitors:

 

2016/285820 and 2016/278486
Piper Alderman (Plaintiffs) (Global) and (DIF)

 

2016/285820
Herbert Smith Freehills (First, Third, Fourth and Sixteenth Defendants)
Arnold Bloch Leibler (Fifth to Ninth Defendants)
Webb Henderson (Tenth, Eleventh, Thirteenth, Fourteenth Defendants)
Kemp Strang (Twelfth Defendant)
Minter Ellision (Fifteenth Defendant)

  2016/00278486
Norton Rose Fullbright (Tenth Defendant)

File Number(s):

2016/285820; 2016/278486

Judgment

1. HIS HONOUR:   These reasons are concerned with two notices of motion seeking, essentially, further discovery. There are two sets of proceedings. Each arises out of an investment made, through an extremely complex structure, in a Babcock and Brown (B & B) subsidiary that owned rail freight cars in the United States of America.

2. One plaintiff (which may be referred to as DIF III), invested USD25 million. The other plaintiff, Global Investments Limited (GIL), invested USD15 million. Each plaintiff claims to have lost the full value of its investment.

Background

3. A B & B subsidiary known as Babcock and Brown Rail North America LLC (BBRNA) had wholly owned subsidiaries known as BBRX One LLC, BBRX Two LLC, BBRX Three LLC, BBRX Four LLC and BBRX Five LLC. I shall refer to those companies as “BBRX1” to “BBRX5” respectively.

4. DIF III and GIL invested by subscribing for shares in the capital of BBRNA. However, each says that the purpose of its investment was to enable BBRNA to fund the acquisition by BBRX5 of a portfolio of 5,482 rail cars. The intention was that BBRX5 would lease those rail cars to rail freight operators.

5. Each plaintiff says, further, that the investment in BBRNA did not meet its investment criteria. Each sues the investment manager and related parties and individuals involved, on various causes of action.

6. Each proceeding was commenced in the Supreme Court of Victoria. They have been cross-vested to this court. They are being managed together, and will be heard together. Evidence in one will be, subject to any proper objection, evidence in the other. On 9 December 2016, orders to that effect were made. Those orders also provided, so far as it may be relevant, that documents discovered by one party to another in one proceeding could be used by that party in the other proceeding without any breach of the implied undertaking as to confidentiality.

7. In the DIF proceeding, the Supreme Court of Victoria made an order for general discovery in accordance with Order 29.01.1 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic). That rule provides:

29.01.1  Scope of discovery

(1)     Unless the Court otherwise orders, discovery of documents pursuant to this Order is limited to the documents referred to in paragraph (3).

(2)     Paragraph (1) applies despite any other rule of law to the contrary.

(3)     Without limiting Rules 29.05 and 29.07, for the purposes of this Order, the documents required to be discovered are any of the following documents of which the party giving discovery is, after a reasonable search, aware at the time discovery is given—

(a)     documents on which the party relies;

(b)     documents that adversely affect the party's own case;

(c)     documents that adversely affect another party's case;

(d)     documents that support another party's case.

(4)     Notwithstanding paragraph (3)—

(a)     if a party giving discovery reasonably believes that a document is already in the possession of the party to which discovery is given, the party giving discovery is not required to discover that document;

(b)     a party required to give discovery who has, or has had in the party's possession more than one copy, however made, of a particular document is not required to give discovery of additional copies by reason only of the fact that the original or any other copy is discoverable.

(5)     For the purposes of paragraph (3), in making a reasonable search a party may take into account—

(a)     the nature and complexity of the proceeding;

(b)    the number of documents involved;

(c)     the ease and cost of retrieving a document;

(d)     the significance of any document to be found; and

(e)     any other relevant matter.

8. In the GIL proceeding, an order pursuant to UCPR r 21.2 for discovery by categories was made in this court on 28 October 2016. That order, which was made against the tenth defendant (BBGIM), which was another B & B subsidiary, required BBGIM:

… to take all reasonable steps to obtain access to and to discover documents that respond to the [agreed] categories that are in the procession, custody or power of its parent company, Babcock and Brown International Pty Ltd.

9. That parent company (BBIPL) is a defendant in the DIF proceeding but not in the GIL proceeding. It is common ground that BBIPL has the vast bulk of potentially discoverable documents of the B & B entities, and that they are held by its solicitors Herbert Smith Freehills (HSF) as agent for BBIPL.

10. The parties to the DIF proceeding have agreed, very sensibly, that as BBIPL holds the “main repositories of Babcock and Brown Group Records”, the fifth to fifteenth defendants (that is, those other than the B & B defendants) should be relieved of any obligation they may have to produce documents that they receive from BBIPL, provided that BBIPL will produce or has produced those documents. They agreed, further, that the fifth to fifteenth defendants should discover any discoverable documents that they did not receive from BBIPL.

11. It follows from that agreement that the fifth to fifteenth defendants in the DIF proceeding must discover:

1. any discoverable documents held by them that they did not receive from BBIPL; and

2. any discoverable document that they received from BBIPL that BBIPL has not discovered.

The discovery dispute in the DIF proceeding

12. The fundamental dispute between the DIF plaintiffs and the defendants – specifically, since they are its documents, BBIPL – is whether the defendants are obliged to discover documents relating to the BBRX1 to BBRX4 transactions. In substance, the DIF plaintiffs say that they are entitled to those documents, because they sue in respect of the “Investment”, which was a defined term referring to DIF III’s investment in BBRNA. In essence, BBIPL (which assumed the conduct of the argument on behalf of all defendants in the DIF proceeding) submits that the pleadings, properly understood, complain only of the Investment insofar as its ultimate purpose was to facilitate the BBRX5 transaction. It says that there is no complaint as to the BBRX1 to BBRX4 transactions.

13. There are in addition individual disputes over particular documents. My intention is to resolve the dispute in relation to the BBRX1 to BBRX4 documents, and to leave it to the parties, recognising and performing their obligations under s 56 of the Civil Procedure Act 2005 (NSW), to sort out the other individual disputes.

The DIF proceeding: structure of the pleaded case

14. The first plaintiff, DIF III, is a limited partnership and the second plaintiff, DIF III GP, is a general partner in and manager of that partnership. The DIF III partnership was established by B & B to invest in transactions that B & B originated and promoted. A number of B & B entities organised the acquisition of rail car portfolios in North America, utilising the corporate vehicles BBRX1 to BBRX5 referred to earlier in these reasons.

15. Before DIF III GP could arrange for DIF III to make an investment, it was required to be satisfied that the investment was an “Eligible Portfolio” as defined, and that it would achieve a specified “Equity Return”. The detail of those defined terms need not be investigated.

16. Features of the BBRX5 transaction of which complaint is made include a mezzanine debt facility obtained from Everest Capital Ltd (yet another B & B entity), referred to in the pleadings as the “Everest Loan”, and an interest rate swap transaction and an associated “Collateralisation Obligation” imposed by ANZ Banking Group Limited on behalf of the senior lenders to BBRX5. Again, it is unnecessary to go to the detail of those complaints.

17. Although the pleadings are far more complex, the parties conducted their arguments by reference to the misleading or deceptive conduct case alleged against the “Manager” (ie, the fourth defendant, DIF Capital Partners). The pleading, in para 79 of the statement of claim, is that the Manager made three representations to DIFIII GP:

79.   The Investment Committee, for and on behalf of the Manager, represented to the General Partner that:

79.1    the Investment was advisable and in the commercial interests of the Partnership;

79.2   the Partnership could exit the Investment profitably within two years;

79.3   The Investment could achieve an internal rate of return of 32% on the basis of an expected securitisation in the first quarter of 2010.

18. Paragraph 80 pleads that those representations were “false in material particulars and… materially misleading”:

80.   The Manager Representations were false in material particulars and were materially misleading in that:

80.1   the Investment was likely to, and did, result in a catastrophic loss;

80.2   by virtue of the Swap Breakage Exposure it was improbable the Partnership could exit the Investment profitably within two years or at all;

80.3   by virtue of the Swap Breakage Exposure and the qualities of the BBRX Five Transaction the Investment would not be able to achieve an internal rate of return of 32% on the basis of an expected securitisation in the first quarter of 2010 or at all.

Particulars

80.4   The qualities of the BBRX Five Transaction relied upon are particularised in paragraph 81.2.

19. Paragraph 81 pleads that those representations were as to future matters, and were made without reasonable grounds. For reasons that are not entirely clear, the allegation of want of reasonable grounds (statutorily presumed to be lacking, unless the relevant defendants prove otherwise) is pleaded and particularised in para 81.2 of the statement of claim.

20. I shall not set out all the pleading and particulars of want of reasonable grounds. The notable feature of the seven pleaded matters (some of which are further particularised) is that all but three relate specifically and only to the BBRX5 transaction. They make specific complaints about the modelling that had been carried out to demonstrate that the “Investment” (I repeat, the investment in BBRNA made for the purpose of the BBRX5 transaction) met the investment criteria to which I have referred.

21. The only pleaded matters that relate to the Investment more generally, rather than to specific aspects of the BBRX5 transaction, are (d), (f) and (g):

(d)   failed to properly assess the commercial advisability and viability of the Investment before making the Manager Representations;

…

(f)   failed to carry out any or any proper due diligence into the BBRX Five Transaction and BBRNA;

(g)   approved the Investment when it knew or ought to have known that the price of shares offered for sale in BBRNA were grossly overpriced

22. Although I have referred specifically to the pleaded case of misleading or deceptive conduct (because it is by reference to that aspect of the pleaded case that the parties structured their submissions), it should be noted that:

1. there are pleaded cases also of breach of contract, breach of a common law duty of care and breach of fiduciary duty; and

2. one way or another, the pleadings seek to ascribe to all defendants responsibility for the legal liabilities arising out of all the pleaded claims.

23. It is not necessary to go to the details of the other pleaded claims, or of the ways in which the other defendants are said to be liable.

The parties’ submissions on the DIF application

24. Mr Sullivan of Queens Counsel, who appeared with Mr Bova and Ms Ng of Counsel for the plaintiffs, submitted that there were two fundamental errors in the defendants’ approach to discovery. One might be called substantive and the other procedural (my labels, not his).

25. The suggested substantive error was the defendants’ failure to discover documents relating to the BBRX1 to BBRX4 transactions. The defendants took the view that the pleaded case related to the BBRX5 transaction, and that it was only documents relevant to that transaction that they were obliged to discover. Mr Sullivan submitted that the pleaded case related to the “Investment” as defined – the acquisition of shares in BBRNA. BBRNA was the parent company of each of the BBRX companies. Accordingly, Mr Sullivan submitted, the affairs of all those companies, not merely BBRX5, were relevant. Mr Sullivan referred specifically to the pleading at para 81.2(d), (f) and (g) of the statement of claim.

26. Mr Sullivan referred also to the evidence of the plaintiff’s solicitor, Mr Whyte. Mr Whyte said, among other things, that the plaintiffs had retained an expert, Mr McGlynn “as an expert witness on investment management issues that arise in the Proceedings”. Mr Whyte said, on information and belief, that Mr McGlynn required documents relating to the BBRX1 to BBRX4 transactions, because they were “the source documents that establish critical hard coded data in the Models”, to enable him “to test the quality of the figures inputted into the Models”. Mr Whyte said that Mr McGlynn told him, further, that a reasonable investment manager considering the investments at the relevant time “would likewise have sought to test the quality of the figures imputed into the Model by reviewing this [sic] data”.

27. The “Models” to which Mr Whyte were referred were Microsoft Excel files projecting, among other things, the internal rate of return on the invested equity. They were prepared both before and after the close of BBRX5 transaction. Mr McGlynn said, according to Mr Whyte, that the documents sought were “directly relevant to the quality of the inputs into the Models”.

28. Mr Whyte gave evidence as to other reasons that, he said, Mr McGlynn had expressed for needing aspects of the documents in dispute.

29. Mr Sullivan submitted that on a fair reading of the affidavits of the solicitor for the B&B defendants, Ms Warner, it was apparent that the only issues she had taken into account were the four core issues that she identified as arising as between the DIF plaintiffs and the B & B defendants. Mr Sullivan accepted that Ms Warner had said that those issues also arose as between the DIF plaintiffs and the other defendants. However, he submitted, there were further issues involving the other defendants, and it did not appear that Ms Warner had taken them into account.

30. Ms Higgins of Counsel, who appeared with Mr Mitchell of Counsel for the B & B defendants (the first, third, fourth and sixteenth defendants) submitted that those defendants had complied with their discovery obligations under r 29.01.1. She relied on affidavits sworn by Ms Warner. Ms Warner said, in essence, that she had considered:

1. the requirements of the rule;

2. the issues that arose as between the plaintiffs and her clients; and

3. the issues that arose as between the plaintiffs and the other defendants.

31. Ms Warner gave detailed evidence of the way that (and the sources from which) documents had been collated, and of the searches that had been constructed to narrow those documents down to a pool of potentially relevant documents, and then to narrow them down further (including by analysing documents for privilege and confidentiality otherwise) to determine what documents were discoverable. She said that in performing (and supervising the performance by others of) this demanding task, she took into account the three matters to which I have just referred.

32. Ms Warner said, in summary, that a database containing over 900,000 documents was constructed; the preliminary searches identified more than 34,000 that were potentially discoverable; the reviews of those documents (for many, on more than one occasion) occupied about 550 hours and cost about $198,000; and the result was that almost 6,500 documents were discovered.

33. Ms Warner gave evidence in addition, that the B & B defendants had conducted further searches in response to some further categories of documents sought by the plaintiffs, and had responded to the extent that those searches produced discoverable documents. Ms Warner made it plain that her clients had not searched in relation to all the additional categories of documents, because HSF took the view, on analysis, that the cost of doing so would be disproportionate to the likely outcome.

34. Ms Higgins submitted that, when one looked at the whole of Ms Warner’s affidavit evidence and not simply at the paragraphs on which Mr Sullivan had focused in support of his submissions set out at [29] above, it was clear that Ms Warner had taken into consideration all the issues arising, whether between the DIF plaintiffs and the B & B defendants or between those plaintiffs and the other defendants. Ms Higgins submitted that this reading of the affidavits was reinforced by Ms Warner’s express acknowledgment of the terms of r 29.01.1, and her unchallenged statement that the review, for the purposes of discovery, had been performed in accordance with the requirements of that rule.

31. The other relevant aspect of the evidence is contained in affidavits sworn by various solicitors in the employ of Mr Whyte’s firm. Those affidavits deposed, in substance, to apparent discrepancies in the discovery which suggested that there were documents in existence that had not been discovered. I do not propose to go to the detail of that evidence, nor to rule on what may be called, without wishing to be offensive, “rats and mice” complaints. In many cases, the complaints have been answered. My expectation is that once I publish these reasons dealing with the principal disputes, the parties will deal with the “rats and mice” issues themselves, in a way that meets the objectives of s 56 of the Civil Procedure Act.

32. Mr Sullivan’s procedural complaint was that the defendants other than the B & B defendants had impermissibly delegated their obligations of discovery to the B & B defendants. That really involves an analysis of the agreement that was made, to which I have referred at [10] above.

Decision on the DIF application

37. The parties’ submissions appeared to be equivocal as to whether the further discovery sought was under the Victorian rule 29.01.1 or pursuant to UCPR r 21.2. If the former, the application requires attention to sections 7 and 55(1) of the Civil Procedure Act 2010 (Vic). I set out those sections:

7   Overarching purpose

(1)   The overarching purpose of this Act and the rules of court in relation to civil proceedings is to facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute.

(2)   Without limiting how the overarching purpose is achieved, it may be achieved by—

(a)   the determination of the proceeding by the court;

(b)   agreement between the parties;

(c)   any appropriate dispute resolution process—

(i)   agreed to by the parties; or

(ii)   ordered by the court.

55   Court orders for discovery

(1)   A court may make any order or give any directions in relation to discovery that it considers necessary or appropriate.

38. If the application is pressed pursuant to r 21.2, then of course s 56 of the Civil Procedure Act of this state is relevant. In addition, it will be necessary to consider Practice Note SC Eq 11. The only “exceptional circumstances” that are said to justify (further) discovery before evidence are those relating to the suggested need of the plaintiffs’ expert, Mr McGlynn, for various categories of documents relating to BBRX1 to BBRX4.

39. Whichever way the application is put, an application for further or particular discovery must take account of the principles explained in Mulley v Manifold [1] . In that case, Menzies J said [2] that the insufficiency of discovery might appear not only from the pleadings, the affidavit of discovery or the documents thereby discovered, “but also from any other source that constituted an admission of the existence of a discoverable document”. His Honour added that “it is not necessary to infer the existence of a particular document; it is sufficient if it appears that a party has excluded documents under a misconception of the case”.

    1. (1959) 103 CLR 341.

    2. At 343.

40. It will be apparent from what I have said that Mr Sullivan’s substantive complaint does indeed assert that the defendants have undertaken discovery “under a misconception of the case”.

41. Mr Sullivan relied on the decision of Edelman J in Perpetual Trustees Co Ltd v Burniston [3] . His Honour stated[4] that relevant documents, for the purpose of discovery, comprised both documents that might advance a party’s case or damage the opponent’s case, and documents that might lead to a train of inquiry that could achieve either of those ends. As His Honour expressly recognised, that is an application of what is often called the Peruvian Guano test[5] . However, Ms Higgins submitted, the Peruvian Guano test was no longer relevant to an application under (or in relation to) r 29.01.1. She relied on the decision of JHL Forrest J in Volunteer Fire Brigades Victoria v Country Fire Authority (Discovery ruling)[6] .

    3. [2012] WASC 26.

    4. At [30].

    5. Compagnie Financiere et Commerciale du Pacifique v Peruvian Guano Co (1882) 11 QBD 55 at 63 (Brett LJ).

    6. [2016] VSC 573.

42. Forrest J said[7] that, reading the rule in the context of s 55 of the Victorian Civil Procedure Act, “[t]he Peruvian Guano test has been consigned to the dust bin”. His Honour added[8] that the parties were entitled to “a fair trial… not a perfect trial”; “the best trial that a court can provide… within reason and in proportion to the issues in dispute and the court’s resources”. His Honour then stated that “demands for discovery of documents which are peripheral to the central issues cannot be entertained”.

    7. At [33].

    8. At [34].

43. In my respectful view, that is the approach to be taken to the present application, whether it is considered as an application under the existing order for discovery made pursuant to r 29.01.1, or as an application for particular discovery made pursuant to UCPR r 21.2. That conclusion is reinforced, in my view, by reference to Practice Note SC Eq 11. Since the proceedings have been cross - vested to this court and are being managed by and will be heard in this court, it is now appropriate for this court to utilise its own procedures to the extent that they are relevant. Those procedures include the general prohibition on discovery before evidence embodied in the practice note. However, taking into account what Forrest J said, I do not think that any different result would follow if the application were considered pursuant to the Victorian rule and ss 7 and 55 of the Victorian Civil Procedure Act.

44. I return to the pleaded case. There is nothing in it, apart from the repeated use of the phrase “the Investment” (understood as a reference to the investment in BBRNA), to suggest that there is any specific complaint about any of the BBRX1 to BBRX4 transactions. On the contrary, the complaints that are made are all pleaded and particularised specifically and only by reference to the BBRX5 transaction.

45. That is so in relation to the pleading and particulars of want of reasonable grounds in para 81.2; the preceding pleading of “false, misleading and deceptive conduct” ascribed to “the Executive Defendants” and attributed through them to the “Promoter Defendants”; and the subsequent pleading of breach of fiduciary duty and breach of contract or breach of a common law duty of care.

46. All of the detail of those paragraphs focuses on various aspects of the BBRX5 transaction, with particular reference to the Everest Loan and the Collateralisation Obligation. With a possible and limited exception, none of those paragraphs suggests that there is any complaint made about the BBRX1 to BBRX4 transactions.

47. The possible exception to this appears in the pleading of the case of breach of fiduciary duty. That pleaded case is in essence that the various defendants against whom it is pleaded breached their fiduciary duties in relation to the Investment, in part because they did not disclose the Everest Loan or the Collateralisation Obligation, and in part because they did not disclose the very substantial fees and profits that some of them made, in the usual way, by clipping the ticket as it was passed from entity to entity.

48. However, it is clear that those allegations do not complain of any specific feature of the BBRX1 to BBRX4 transactions. And when they descend to particularity, the particularity relates either to the Everest loan or the Collateralisation Obligation (both of which are relevant only to BBRX5) or, as I have said, to the various fees and profits made along the way. I should add, in fairness to Mr Sullivan, that he did not suggest that the pleading of the case of breach of fiduciary duty added anything to the strength of this clients’ requirement for further and particular discovery.

49. I turn to Mr Sullivan’s submission set out at [29] above. I accept that if one focuses on the particular paragraphs of Ms Warner’s affidavit to which Mr Sullivan referred, it is not immediately clear that Ms Warner had taken into account anything more than the four core issues that she described. However, I accept Ms Higgins’ submission that, reading the affidavits as a whole, that is not the correct inference to draw. Ms Warner referred specifically to the requirements of r 29.01.1. As has been seen (the rule is set out at [7] above), that rule requires the party making discovery to take into account the cases against other parties in the proceedings, and to discover documents that it has that help or hinder those cases.

50. Ms Warner said specifically that she had analysed all the issues arising, including as between the DIF plaintiffs and the other defendants. She said that she had organised the discovery process by reference to her understanding of all those issues, and by reference to her understanding of r 29.01.1. I accept, as Mr Sullivan submitted, that a different impression may be gained from particular paragraphs of one affidavit. But looking at, Ms Warner’s evidence in its totality, I am satisfied that the B & B defendants’ discovery was organised by reference to all issues in the proceedings, not merely by reference to the four core issues that Ms Warner perceived to arise between her clients and the DIF plaintiffs. I add that Mr Sullivan did not submit that her identification and description of those four core issues was defective, or that there were other issues arising between his clients and the B & B defendants.

51. So far, I have dealt with the substantive complaint at what might be called the macro level. When one descends (as Mr Sullivan did) to the micro level, nothing changes. When one examines the details of the pleadings and particulars of want of reasonable grounds, it is clear, as Ms Higgins submitted, that the pleadings assume what might be called a “base case”: the performance of the BBRX1 to BBRX4 transactions as to renewals of rail car leases and rentals to be achieved on those renewals.

52. The structure of the pleadings is that it is was inappropriate to use the historical performance of BBRX1 to BBRX4 not because the records of that performance were inadequate but because, properly understood and analysed, that performance could not justify the projections based on it. The pleading does not suggest that the records of the historical performance of the BBRX1 to BBRX4 transactions were inaccurate, incomplete, misleadingly stated, or in any other way defective. The complaint is, rather, that assuming the substantial accuracy of those records, they provided no sound or logical basis for the projected returns of the BBRX5 transaction.

53. Remaining at the micro level, Ms Higgins referred to particulars that had been sought and given of, amongst others, para 81 of the DIF statement of claim. One request (number 29) related to “sub-paragraphs 81.2(c), 81.2(f) and 112(b) to (d))”. Para 112 of the statement of claim pleaded that the Manager breached terms of the management agreement in the ways there set out.

54. The request asked what was meant by “adequate” or “proper” due diligence, and what were the material facts, matters and circumstances relied upon to show that there was a failure to carry out adequate or proper due diligence. It asked also for details of the actions that would have constituted adequate or proper due diligence.

55. The answers are telling, particularly bearing in mind that para 81.2(f) was one of the paragraphs on which Mr Sullivan relied in support of his submission that the pleading related to the Investment more widely, not just to the BBRX5 transaction. The answers given were:

(i)   Ascertaining that all material terms of the BBRX Five Transaction were finalised before recommending the Investment;

(ii)   Independently verifying the financing arrangements for the BBRX Five Transaction, so as to identify the true terms of the Everest Loan and the Interest Rate Swap;

(iii)   Ascertaining the level of Swap Breakage Exposure and the potential for such exposure to grow and hinder an early exit of the Investment;

(iv)   Ascertaining whether the Everest Loan and the Interest Rate Swap had been properly accounted for in the Model; and

(v)    Ascertaining whether there was any obligation on BBRX Five LLC to accept the novation of the Interest Rate Swap and whether it was commercially advisable for it to do so.

56. In my view, those answers confirm that the core of the DIF plaintiffs’ complaint is that the Investment Committee, and through it the Manager, lacked reasonable grounds for making the Management Representations, among other things because they failed to carry out adequate and proper due diligence inquiries in relation to the particularised aspects of the BBRX5 transaction. The answers do not allege any failure of due diligence in relation to the BBRX1 to BBRX4 transactions.

57. Thus, in my view, the further and better particulars support the conclusion that although (because of the investment structure adopted) the “Investment” was made in BBRNA, the DIF plaintiffs’ complaints about it are directed to BBRNA’s investment in BBRX5.

58. It must follow, in my view, applying the overriding purpose requirement as analysed by Forrest J in the context of r 29.01.1, that the DIF plaintiffs have not so far made good a case for discovery of records relating to the BBRX1 to BBRX4 transactions.

59. I turn to the suggested need that Mr McGlynn has expressed for those records. In my view, that adds nothing. Like all other evidence, expert evidence must be relevant. It must thus be evidence “that, if it were accepted, could rationally affect (directly or indirectly) the assessment of the probability of the existence of a fact in issue in the proceeding”[9] . There is no pleaded or particularised case as to the inadequacy of the assumed financial performance of BBRX1 to BBRX4 as used in the “Models”. Evidence that sought to explore the adequacy of that information would be outside the generously defined pale of relevance.

    9. Evidence Act 1995 (NSW), s 55(1).

60. I conclude that the substantive complaint fails.

61. I turn to the procedural complaint. It is clear that the DIF plaintiffs agreed to accept discovery on the basis set out at [10] above. The fifth to fifteenth defendants were not required to discover documents that they had received from the B & B defendants, provided that the B & B defendants had produced those documents on discovery. Once it is accepted that documents relevant to BBRX1 to 4 are not discoverable, the complaints in respect of “impermissible delegation of discovery” largely fall away.

62. There is a limited qualification to that conclusion. It does not appear, from any of the evidence provided on behalf of the fifth to fifteenth defendants, that they have cross-checked the discovery provided by the B & B defendants against the documents provided to each of them by those defendants. It follows, at least as a matter of possibility, that some of the fifth to fifteenth defendants may have received (from the B & B defendants) documents that are discoverable by them, but that were not discoverable by the B & B defendants. The affidavits do not make it plain that the fifth to fifteenth defendants have considered this possibility.

63. That is not a matter that should concern the court. None of the fifth to fifteenth defendants disputed that their obligation to discover, in respect of documents provided by the B & B defendants, was discharged only to the extent to which the B & B defendants themselves made discovery. However, I would expect that this technical omission (if that is the correct way to describe it) in the affidavits of the fifth to fifteenth defendants is something that the parties should be able to sort out between themselves. I would expect, further, that if the process that I have outlined does demonstrate to any of the fifth to fifteenth defendants that they have discoverable documents that have not yet been discovered, they will produce them.

64. In the result, the DIF plaintiffs’ notice of motion substantially fails. It should be dismissed with costs. However, there should be a reservation of liberty to apply both in respect of what I described earlier as “rats and mice” documents and in respect of what I have just said as to the discovery obligations of the fifth to fifteenth defendants, properly understood.

The discovery dispute in the GIL proceedings

65. The tenth defendant in these proceedings, Babcock and Brown Global Investments Management Pty Ltd (In Liquidation) (BBGIM), says that it has no documents of its own, apart from a few that it has discovered. As the orders made on 28 October 2016 recognise, the bulk of documents referable to GIL’s investment in BBRNA are held by BBIPL. For a time, BBGIM negotiated with BBIPL for the latter to provide documents, on the basis that BBGIM would pay its costs (referable to HSF’s scrutinising documents within the requested categories for privilege, and for confidentiality apart from privilege). However, it seems that BBGIM is no longer willing to pay. It says that it should not have to do so, because the evidence makes it clear that the documents in question are not, and never were, its; they are, and have always been, BBIPL’s.

66. The issue is a very narrow one: whether BBGIM is obliged to discover documents that are held by HSF as agents for the B & B defendants, specifically BBIPL. BBGIM is not a defendant in the DIF proceedings. The issue arises because BBGIM has no documents of its own, and such documents as much be relevant to the issues between GIL and BBGIM are documents of the B & B defendants, held by HSF as their agent, and not documents of BBGIM. That point was specifically made, twice, in an affidavit sworn by the B & B defendants’ solicitor Ms Warner on 1 June 2017 [10] , and was not controverted.

    10. See para 111(b) and para 134(c).

67. BBGIM, through its solicitors Norton Rose Fulbright Australia (NRF), has negotiated with the B & B defendants, through their solicitors HSF, for access to BBIPL’s documents. Stated compendiously, the attitude of the B & B defendants is that they are prepared to provide access to specific categories of documents provided that NRF (or BBGIM) pay the costs of doing so. The first estimate of costs, based on searches for defined categories of documents, exceeded $193,000. After the categories of documents were reduced, a further estimate was given, in excess of $91,000. Finally, after a further reduction, an estimate was given in excess of $46,000.

68. Since the dispute is so narrow, I need not outline the issues on the pleadings.

The parties’ submissions on the GIL application

69. Mr Sullivan submitted that the order that had been made required BBGIM “to take all reasonable steps to obtain access to and to discover documents that respond to” specified categories. He submitted that, after the order was made, NRF had corresponded with HSF on terms that the former or their client would pay the costs of the latter of reviewing identified documents (identified in the sense that they responded to search categories propounded by NRF) for confidentiality and privilege. In those circumstances, Mr Sullivan submitted, it was “reasonable” for BBGIM to take the step of paying the amount demanded, so as to have access to the documents for the purpose of discovering them.

70. Mr Sullivan submitted, alternatively, that in any event the documents were within the power of BBGIM, by reason of the arrangements made between NRF and HSF. He referred to the decision of Hargrarve AJ in Players Pty Ltd (In Liq) (Receivers Appointed) v Clone Pty Ltd [11] at [177], citing the decision of the Full Court of the Supreme Court of South Australia in Taylor v Santos Ltd [12] , in particular what Doyle CJ had said at 438.

    11. [2015] SASC 133.

    12. (1998) 7 1 SASR 434.

71. Mr Jones of Senior Counsel, who appeared with Mr Carey of Counsel for BBGIM, submitted that the documents were not in the power of BBGIM, because it had no unconditional enforceable right to obtain or inspect them. Further, he submitted, his client had taken reasonable steps to obtain access to the documents by negotiating (through NRF, with HSF) in the way that had been done. He submitted that it could not be “reasonable” for BBGIM to pay the sum required (be it $46,000, $91,000 or $193,000) of reviewing and vetting the documents.

Decision on the GIL application

72. I start with Mr Sullivan’s submission that the documents are discoverable because they are in the “power” of BBGIM. I do not accept that submission. I do not think that it is supported by the decisions on which Mr Sullivan relied: the decision of Hargrave AJ in Players or the decision of Doyle CJ (and the other members of the Full Court) in Taylor.

73. The convenient starting point in the reasons of Doyle CJ is found at 437, where his Honour referred to the speech of Lord Diplock in Lonrho Ltd v Shell Petroleum Co Ltd [13] . His Lordship, with whom the other members of the House concurred, said [14] “that, in the context of the obligation to discover documents in a party’s possession, custody or power”, the word “power” means “a presently enforceable legal right to obtain from whoever actually holds the document inspection of it without the need to obtain the consent of anyone else”. His Lordship emphasised that the focus was on the right (presently enforceable) to obtain immediate inspection, not the physical ability (for example, by reason of the location of the document) to do so.

    13. [1980] 1 WLR 627.

    14. At 635 – 636.

74. As Doyle CJ recognised [15] , his Lordship did not intend to state exhaustively the meaning of “power” in the context of discovery. His Lordship accepted, as did Doyle CJ, that there might be particular circumstances where different considerations might apply.

    15. At 437.

75. Doyle CJ then turned [16] to the relevant South Australian rule. His Honour said that the obligation depends upon a person having “the legal power or (I can think of no better expression) actual and immediate ability to inspect, even though the document is the property of or is held by another person”. His Honour added that “the obligation to discover hinges upon having a right or actual and immediate ability to examine the document”. That right or ability will not exist “if the person is able to inspect the document only if a third person, who has control of the document, agrees to permit inspection, or agrees to refrain from exercising… control so as to prevent inspection”.

    16. At 438.

76. His Honour then said [17] :

The point I wish to emphasis is that to the extent that the concept of power extends beyond a presently enforceable legal right, it should to be held to so extend only when the court can say that the person in question does have the actual immediate ability to inspect the document.

17. At 438.

77. It was this aspect of the reasons of Doyle CJ at 438 that Hargrave AJ applied and explained in Players at [177] and following. I do not read anything said by Hargrave AJ, as to the explanation of “power” given by Doyle CJ, to indicate any variation of or expansion upon what Doyle CJ had said. On the contrary, I think, the way that Hargrave AJ applied the reasoning of Doyle CJ to the facts before him shows very clearly that no such variation or expansion was either intended or in fact undertaken.

78. When one applies that test to the facts of the present case, the outcome is clear. On the evidence, the documents are BBIPL’s. They are not BBGIM’s. There is no evidence that BBIPL holds them for, or in some way at the direction or order of, BBGIM. BBIPL has made it clear that the only basis upon which it is prepared to permit inspection of the documents is if, the required documents having been defined adequately, HSF reviews them for privilege and confidentiality, and BBGIM pays for that exercise. On no view can a conditional contractual right to inspect, depending on the payment of a substantial sum of money, be equated to “actual and immediate ability to examine” the documents in question.

79. I turn to the proposition that, under this court’s orders of 28 October 2016, the “reasonable steps” that BBGIM is required to take to obtain access to and to discover the documents extend to paying a substantial sum of money in that behalf. An important fact to take into account, in this context, is that as Bergin CJ in Eq (who made the orders) recognised in the course of the hearing that led up to the making of those orders, there were two alternatives. One was that BBGIM could do what it could to get the documents from BBIPL so as to discover them. The other was that GIL could serve a notice to produce on BBIPL. Her Honour made it clear that, one way or the other, GIL had to have access to the documents.

80. Although the dispute did not directly concern the B & B defendants (who were content to abide the order of the court, so long as their costs of reviewing for privilege and confidentiality were paid), Ms Higgins did put some brief submissions. In the course of those submissions, she confirmed that if GIL served a notice to produce on BBIPL requiring production of the documents, and undertook to pay the reasonable costs, BBIPL would do so [18] . In the light of both what Bergin CJ in Eq said when the orders were made and of BBIPL’s position as stated by Ms Higgins before me, it is clear that GIL will be able to get the documents. The only question is whether it should do so at the immediate expense of BBGIM, or at its own immediate expense.

    18. T62.20-.27.

81. Mr Sullivan submitted that there was always a cost incurred in giving discovery. That cost, he submitted, was like any other cost in litigation. If the party incurring it succeeded and obtained an order for costs, the cost might be recouped in whole or in part. If the party failed, it would be unlikely to be recouped at all.

82. The submission may be accepted. However, it does not take matters much further. In general terms, those considerations are relevant where the party is discovering its own documents, or documents to which it has an immediate and unfettered right of access. That is not this case. The question is, whether in view of the limited and conditional contractual right of access that BBGIM appears to have, it should be required, as it were, to perfect that right by paying the amount demanded; or whether that is going beyond whatever is embodied in the notion of “reasonable steps”.

83. It is unfortunate that the orders made on 28 October 2016 did not descend into the detail of what reasonable steps might be required. That reflects the way that the parties approached the task of drafting the orders. After Bergin CJ in Eq had dealt with the question of principle, she directed the parties to bring in orders to give effect to her conclusion. The orders that were made reflected the parties’ drafting choices. In my respectful view, where parties request the court to make what may be called a “Sabre” order[19] , they should take care to identify the specific steps that ought be taken to obtain access to the documents. See Bova v Avati [20] at [370], where Ward J cited Edmonds J in SPI Spirits to this effect.

    19. Sabre Corporation Pty Ltd v Russ Kalvin’s Hair Care Company (1993) 46 FCR 428; compare Gambro Pty Ltd v Fresenius Medical Care Australia Pty Ltd [2002] FCA 581 and SPI Spirits (Cyprus) Ltd v Diageo Australia Ltd (No. 2) (2006) 155 FCR 150.

    20. [2009] NSWSC 921.

84. That point is not merely pedantic. The form of relief now sought is not that BBGIM rectify alleged non-compliance with the orders of 28 October 2016. It is, rather, that BBGIM give discovery in accordance with categories specified in the notice of motion. Although, with some difficulty, those categories may be aligned to the categories the subject of the earlier orders, the complaint is neither of non-performance of the earlier orders nor of inadequate performance of them. It is not a request for further and particular discovery. It is, on its face, a fresh request for discovery.

85. It follows, in my view, that the GIL notice of motion should be dismissed with costs. I take into account that this will occasion no practical injustice, because (on Ms Higgins’ statement of BBIPL’s position), GIL will be able to get its hands on the documents that, at present, it seeks through BBGIM. The practical consequence is to allocate, as between GIL and BBGIM, the immediate burden of the cost of obtaining those documents.

86. To the best of my recollection, there were no “rats and mice” issues bedevilling the GIL application. Nonetheless, against the event that there were, or against the event that BBIPL seeks to reconsider its position (and on the assumption, which I do not make, that it should be permitted to do so), I propose to reserve liberty to apply.

Orders

87. When I gave the parties a draft version of these reasons, I said (consistent with [64] and [85] above) that each notice of motion should be dismissed with costs. Mr Bova of Counsel, who appeared for the DIF plaintiffs and GIL when I published my draft reasons, said that the plaintiffs wished to make submissions in respect of costs. He said, further, that there were unresolved issues arising on the GIL notice of motion. In those circumstances, I revoked the orders that I had announced, and made orders for any outstanding issues to be resolved through written submissions and a decision thereafter on the papers. I ordered:

1. Order that each notice of motion be dismissed with costs.

2. Order that the exhibits be returned.

88. In addition, and again consistent with what I have said earlier in these reasons, I reserve liberty to apply on three days’ notice specifically in respect of any unresolved issue arising under the notices of motion. For the avoidance of doubt, that is in addition to and not in substitution for the general reservation of liberty to apply contained in Practice Note SC Eq 3.

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Endnotes

Decision last updated: 10 August 2017