Harris Scarfe Limited (Receivers & Managers Appointed) (in Liq) v Ernst & Young (No 11)
[2006] SASC 389
•20 December 2006
SUPREME COURT OF SOUTH AUSTRALIA
(Full Court: Civil)
HARRIS SCARFE LIMITED (RECEIVERS & MANAGERS APPOINTED) (IN LIQ) & ORS v ERNST & YOUNG & ORS (No 11)
[2006] SASC 389
Judgment of The Full Court
(The Honourable Justice Gray, The Honourable Justice Anderson and The Honourable Justice White)
20 December 2006
PROCEDURE - DISCOVERY AND INTERROGATORIES - DISCOVERY AND INSPECTION OF DOCUMENTS - PRODUCTION AND INSPECTION
Appeal against decision of single Judge granting an application for production and inspection of masked portions of confidential settlement agreement - whether Judge correct to order production and inspection of masked portions – whether application should have been considered as application for further and better discovery – whether affidavits of solicitors were conclusive as to irrelevance of masked portions – whether Judge erred in adopting procedures followed – appeal dismissed.
Supreme Court Rules 1987 r 58, r 58A, r 59.03, r 59.04; Acts Interpretation Act 1915 (SA) s 4, referred to.
Harris Scarfe Ltd (Receivers & Managers Appointed) In Liq & Ors v Ernst & Young & Ors (No 10) [2006] SASC 381; GE Capital Corporate Finance Group Ltd Bankers Trust Co [1995] 1 WLR 172; Re Pickering [1884] 25 CH D 247; Luscombe v Steer [1868] 37 LJ Ch 119; Jones v Andrews [1888] 58 LT 601; Curlex Manufacturing Pty Ltd v Carlingford Australia General Insurance Limited (1987) 2 Qd R 335; Peat Marwick Hungerfords v Executor Trustee (unreported, Supreme Court of South Australia, Olsson J, 25.10.95); Baulderstone Hornibrook v Dare Sutton Clarke Pty Ltd [2000] SASC 78; Addstead Pty Ltd (in liq) v Simmons [2004] SASC 260; John Moran v Eistream (Australia) Pty Ltd [2006] NSWSC 79; Telstra Corp v Australis Media Holdings Pty Ltd (unreported, New South Wales Supreme Court, 10.2.97); ANZ Banking Group Limited v ANZCover Insurance Pty Ltd [2004] VSC 529; Liberty Financial Pty Ltd v Scott [2004] VSC 414; CTC Resources NL v Australian Stock Exchange Ltd [2000] WASCA 19; CSBP Ltd v Gerling Australia Insurance Co Pty Ltd [2005] WASC 69; Youlden Enterprises Pty Ltd v Health Solutions (WA) Pty Ltd [2005] WASC 60; Ehrmann v Ehrmann [1896] 2 Ch 826; Mulley v Manifold (1959) 103 CLR 341; Grant v Downs (1976) 135 CLR 674; Esso Australia Resources Ltd v Commissioner for Taxation (1999) 201 CLR 49; Southern Equities Corporation Ltd (in liq) v Arthur Andersen & Co (No 5) [2001] SASC 335; Kadlunga Proprietors v Electricity Trust of South Australia (1935) 39 SASR 410; Dolling-Baker v Merrett (1991) 2 All ER 890; Wallace Smith Trust Co Ltd (in liq) v Deloitte Haskins & Sells (a firm) (1996) 4 All ER 403; Burmah Oil co Ltd v Bank of England (1980) 8 AC 1090, considered.
HARRIS SCARFE LIMITED (RECEIVERS & MANAGERS APPOINTED) (IN LIQ) & ORS v ERNST & YOUNG & ORS (No 11)
[2006] SASC 389Full Court Gray, Anderson and White JJ
GRAY J:
Introduction
These are appeals from an order of a Judge of this Court for production of masked portions of a document.
The primary question for consideration is whether the contents of a discovered but, in part, masked document ought to be produced as relevant to matters arising in the primary action between the parties. The trial of the action is a complex commercial cause and is presently part heard.
Further questions arise with respect to the procedure adopted by the primary Judge - should the application have been considered as an application for the further and better discovery? Were affidavits of solicitors conclusive on the question of relevance? If there has been any error in the procedures followed, should the application be remitted for further hearing?
Background[1]
[1] This background is drawn from the primary Judge’s reasons. There was no challenge to these background facts.
The plaintiff, and appellant, Harris Scarfe Limited operated a substantial department store in Adelaide. It also had other retail outlets. The plaintiff, and appellant, Harris Scarfe Wholesale Pty Ltd was a wholesale purchaser of stock on behalf of Harris Scarfe Limited. The plaintiff, and appellant, Harris Scarfe Holdings Limited was the holding company of both Harris Scarfe Limited and Harris Scarfe Wholesale Pty Ltd.
On 6 April 2001, a receiver of all three companies was appointed. On 3 January 2002, a resolution for the voluntary winding up of those three companies was carried at a meeting of creditors. The plaintiff Australian and New Zealand Banking Group Limited was at all material times the banker and principal financier of the Harris Scarfe Group.
The defendants are firms of accountants. The defendant, and appellant, Ernst & Young carried out the audit of the accounts of the companies in the Harris Scarfe Group for the purposes of complying with the Corporations legislation for the year ending 31 July 1996 and a half yearly review and audit for the financial year ending 31 July 1997. Coopers and Lybrand and their successors in business, PricewaterhouseCoopers, are also defendants. They are the respondents to these appeals. They conducted half yearly reviews and audits of the Harris Scarfe Group for the financial years ending 31 July 1998 and 31 July 1999.
The plaintiffs allege that at all material times from 1996 the chief financial officer of the Harris Scarfe Group instigated a scheme to adjust the financial records of the Group so that assets were overstated and liabilities and expenses underestimated. This was alleged to have caused an overstatement both of profits and net assets. The effects of the accounting manipulations were substantial.
The plaintiffs allege that the defendants negligently conducted the audits in that they failed to identify the fraudulent accounting and failed to identify what was the true financial position in each of the respective periods. It is said that in preparing the reports and the audits each of the defendants acted negligently, acted in breach of contract and engaged in misleading and deceptive conduct contrary to the section 56 of the Fair Trading Act 1987 (SA). The plaintiffs claim that the reports and audits failed to disclose the true financial position to the Harris Scarfe Group.
The plaintiffs allege that the breaches caused the directors of the Harris Scarfe plaintiffs to hold mistaken beliefs as to the state of the accounts of the respective companies. As a result, it is said that the directors held a mistaken view of the overall financial position of the companies and that those mistaken beliefs in turn caused the directors to trade in ignorance of the companies’ true financial position. The ANZ Bank claims that as a result of its mistaken beliefs as to the true financial position of the Harris Scarfe Group, it continued to provide financial accommodation and made further loans to the Harris Scarfe Group which would not have been made had the true position been known.
The plaintiffs allege that, had they known the true financial position, they would have acted differently in making decisions as to the trading operations of the Group. They further say that, had the true position been known, a controller would have been appointed to the Harris Scarfe Group at an early point of time, that controller being either an administrator, receiver or liquidator.
The assessment by the Harris Scarfe plaintiffs of their loss is based on the difference between the net assets surplus of each plaintiff as shown in the accounts and the net asset deficiency in fact. The plaintiffs claim that the loss is represented by the deterioration in the asset position of the Harris Scarfe Group from the date when the true financial position ought to have been disclosed until the time when it was disclosed, a controller was appointed and the assets realised. That loss, including the loss of the ANZ Bank, is said to be of the order of $165M.
The plaintiffs claim that Ernst & Young are liable for losses from September 1996 to April 2001 and that PricewaterhouseCoopers are liable for losses from March 1998 to April 2001. The plaintiffs therefore seek to recover losses for the period March 1998 and April 2001 from both Ernst & Young and PricewaterhouseCoopers. Ernst & Young and PricewaterhouseCoopers have filed contribution claims, each against the other.
On 14 September 2006, the plaintiffs and Ernst & Young executed an agreement by which they compromised the plaintiffs’ claim against Ernst & Young (“the settlement agreement”). As part of the overall agreement two Deed Polls were executed. The three documents are together described in these reasons as the settlement agreement. On or about the same day the plaintiffs informed PricewaterhouseCoopers of the execution of the settlement agreement.
The Application to the Primary Judge
On 28 September 2006, in the course of a management conference, the primary Judge (who is not the trial Judge) became aware of there being a confidential settlement between the plaintiffs and Ernst & Young. The learned Judge then ordered that upon the completion of the settlement agreement notice should be given forthwith to PricewaterhouseCoopers. It was further ordered that if PricewaterhouseCoopers sought discovery of the terms of the settlement agreement, they should make an application with supporting affidavits and proffer an undertaking to observe confidentiality.
On 4 October 2006, PricewaterhouseCoopers applied for an order for further and better discovery and for production in the following terms:
That the plaintiffs and/or the first defendant make further and better discovery of, and produce forthwith, a copy of any document or documents recording the settlement or compromise of the within action as between the plaintiffs (or some of them) and the first defendant, including any Settlement Agreement or Deed between these parties.
Such further or other order as to this Honourable Court may deem necessary.
With respect to the application, the plaintiffs tendered an affidavit sworn by Juliana Rose Warner, a member of the firm of solicitors acting for the plaintiffs. Ms Warner deposed to the intention of the plaintiffs to file a supplementary list of documents making discovery of three documents each dated 14 September 2006. She described the documents as follows:
Agreement – Settlement Agreement between Harris Scarfe Holdings Limited (Receivers and Managers Appointed) (in liquidation), Australia and New Zealand Banking Group Limited and Ernst & Young (Reg) (executed in three counterparts), masked in respect of irrelevant portions
Deed Poll entered into by Ernst & Young (Reg) in favour of Harris Scarfe Holdings Limited (Receivers and Managers Appointed) (in liquidation), Australia and New Zealand Banking Group Limited, the entities listed in Schedule 1 and Bruce James Carter and John Menzies Spark, masked in respect of irrelevant portions
Deed Poll entered into by Harris Scarfe Holdings Limited (Receivers and Managers Appointed) (in liquidation), Australia and New Zealand Banking Group Limited and the entities listed in Schedule 1 in favour of Ernst & Young (Reg) and the Former Partners (executed in two counterparts), masked in respect of irrelevant portions
Ms Warner then further deposed:
I have reviewed the documents listed above and caused them to be masked in respect of those portions of the documents that I consider to be irrelevant to the issues arising on the pleadings in these proceedings.
The unmasked parts of these documents disclose, among other things, the settlement amount, the application of the settlement amount to the particular periods in respect of which losses were claimed, the nature of the compromise (which is effected by covenants not to sue) and the breadth of the claims compromised.
This Court was informed that a supplementary list of documents in accordance with the deposed terms had been filed by the plaintiffs.
Brendan Charles Roberts, a member of the firm of solicitors acting for Ernst & Young, provided an affidavit in relevantly identical terms. Ernst & Young have made supplementary discovery as outlined in Mr Roberts’ affidavit.
The primary Judge identified the principal issue for decision as follows:[2]
This is an application for discovery and inspection of a confidential agreement recording the terms of settlement between parties to a major commercial action. The parties to the document concede that the document is relevant. However, they have produced it for inspection with a number of clauses masked to cover them up. The issue is whether the entire document should be produced for inspection to the other parties in the action, that is to say, whether it should be produced for inspection in an unmasked form.
The learned Judge considered it appropriate that PricewaterhouseCoopers be represented by counsel, who also had access to the documents. To that end, different counsel were appointed than those appearing in the trial and orders as to confidentiality were put in place, together with the appropriate undertakings to “quarantine” knowledge of the content of the documents to counsel appearing on the application. This was to ensure that the information not be available to those engaged in the trial. As events unfolded, the learned Judge first inspected the masked documents and then the documents in their unmasked form. As earlier discussed, the documents together are referred to as the “settlement agreement”.
[2] Harris Scarfe Ltd (Receivers & Managers Appointed) In Liq & Ors v Ernst & Young & Ors(No 10) [2006] SASC 381 at [1].
For reasons to be discussed in more detail later, the primary Judge ordered the production of the masked version of the settlement agreement, save for certain paragraphs that were not sought. Because of the prospects of an appeal, confidential reasons were published.
CONFIDENTIAL
CONFIDENTIAL
CONFIDENTIAL
The Appeal
I have reached the conclusion that the orders made by the primary Judge were entirely appropriate, and that this appeal should be dismissed. My reasons for reaching this conclusion follow.
As earlier indicated, challenges were made to the correctness of the procedure followed. Both the plaintiff and Ernst & Young contended that the primary Judge had incorrectly treated the application as an application for production rather than for further and better discovery. It was contended that the application should strictly have been considered as an application for further and better discovery of the masked portions of the settlement agreement. It was then contended that the affidavits of Ms Warner and Mr Roberts were conclusive as to the lack of relevance. It was complained that the learned Judge was wrong to reject those contentions, and was incorrect in treating the application as being one for production.
As earlier observed, the primary Judge inspected the settlement agreement in an unmasked form and reached the conclusion that certain of the contents of the masked portions were relevant and should be produced. It is convenient to deal with that issue first as, in the events that have occurred, this Court is also aware of the contents of the settlement agreement in an unmasked form and have had the opportunity to consider the correctness of the Judge’s conclusions about relevance. As was submitted by counsel for PricewaterhouseCoopers if, in fact, the masked portions are relevant they should have been discovered and produced in the first place. It was said that the administration of justice would be served by this Court dealing directly with the issue of relevance.
CONFIDENTIAL
CONFIDENTIAL
If the above conclusions are correct, counsel for the plaintiffs and Ernst & Young conceded that the settlement agreement was relevant and was discoverable and producible in an unmasked form. However, the conclusions of the primary Judge about relevance were challenged.
CONFIDENTIAL
CONFIDENTIAL
CONFIDENTIAL
CONFIDENTIAL
CONFIDENTIAL
CONFIDENTIAL
CONFIDENTIAL
The settlement agreement in its unmasked form is directly relevant to an issue arising on the pleadings of the action - the question of damages. Further, rule 58A.04 makes discoverable documents which are only indirectly relevant to an issue arising in the event that the Court considers that it is in the interests of justice that discovery be made. For the reasons identified earlier, it is in the interests of justice that discovery of the entire terms of the settlement agreement be made to enable a fair disposal of the action.
Having regard to the above conclusions, it is only necessary to briefly address the remaining issues.
The supplementary discovery made by the plaintiffs and Ernst & Young was of the settlement agreement. The fact that certain portions of the discovered documents were masked does not affect the identification of documents as being the documents discovered. Each of the documents comprising the settlement agreement has been discovered in their entirety, but objection has been taken to production of portion of the documents because of a suggested lack of relevance. In these circumstances, the issue before the primary Judge was one of production not discovery.
The affidavits of the solicitors were not conclusive as to relevance. Rule 59.04 of the Supreme Court Rules 1987 provides:
Where an application for production is objected to, the Court may inspect the document for the purpose of deciding the validity of the objection.
This rule invests the Court with an unfettered discretion to inspect a document with the purposes of deciding on any objection as to production. The Court has the power to inspect the masked portions to determine for itself the question of relevance. It was well within the primary Judge’s discretion to call for and inspect each of the documents comprising the settlement agreement in their unmasked form.
As events have shown the assertions of the solicitors were incorrect. Neither affidavit made any disclosure of the solicitors’ knowledge of the proceedings or of the issues to which the documents might relate. The unmasked portions had relevance in regard to the issue of damages. Additionally, there was a need for disclosure to enable a fair disposal of the proceedings. Weight will attach to the opinions of solicitors as to relevance. However, those opinions, even when a proper foundation has been laid, are not conclusive. They do not bind the Court.
Conclusion
The appeals should be dismissed.
ANDERSON J In this matter I have had the advantage of reading draft reasons prepared by Gray and White JJ. The full background and circumstances leading to this appeal are set out in detail in the reasons of Gray J. The arguments of the appellants are set out and analysed in detail in the reasons of White J who also analyses the relevant Supreme Court Rules 1987 (SA).
Rule 58A.03 requires discovery of documents which are directly relevant to any issue arising on the pleadings. As pointed out in the reasons of White J, the argument put to the Court by the appellant, was that the issue of whether the masked clauses were directly relevant, should govern the question of production. I do not agree with that submission for the reasons given by White J.
In this matter both rule 58A.03 and rules 59.03 and 59.04 are relevant but I agree with White J that rules 59.03 and 59.04 are really the dominant considerations in this matter. As White J points out, it does not necessarily follow that production should be denied, even if the decision is that the masked clauses are irrelevant, because production may be necessary for the fair disposition of the matter.
I am not convinced from my own reading of the masked clauses that they are directly relevant. Gray J sets out the effect of the masked clauses in his reasons. I think that apart from clauses 13 and 14 there is really no direct relevance to the pleaded issues.
CONFIDENTIAL
Both Gray and White JJ give their reasons as to how, by non-disclosure of the relevant clauses, the trial may be affected, and how, when the clauses are revealed, the trial Judge will be placed in a fully informed position to control the trial.
My ultimate agreement in relation to the dismissal of the appeal relates to the practical aspects of the future running of the trial. Both Gray and White JJ point out that this includes such matters as the extent to which dual cross-examination should be allowed, the order of addresses, and other practical considerations which the trial Judge is not in a position to properly control without the knowledge contained in the masked clauses.
As White J says, whatever the correct answer is in relation to whether the masked clauses are directly relevant, the interests of justice do require, in the interests of a fair and expeditious disposal of the proceeding, that the masked clauses should be disclosed.
Although I do not consider the masked clauses directly relevant, for the reasons set out I agree that the appeal should be dismissed.
WHITE J: These appeals concern the extent to which a document recording a settlement between a plaintiff and one defendant is discoverable and liable to production in litigation between the plaintiff and a remaining defendant, and in contribution proceedings between the defendants. The appeals also concern an aspect of the relationship between r 58A and r 59 of the Supreme Court Rules 1987 (“the 1987 Rules”), the circumstances in which, pursuant to those Rules, a court may inspect a document in the course of determining a dispute about the production of that document for inspection, and the conclusiveness of a solicitor’s affidavit as to the relevance of a settlement agreement or of particular clauses within it.
The Background Circumstances
The circumstances giving rise to the appeals are fully set out in the judgment of Gray J.
Two Harris Scarfe entities and the Australian and New Zealand Banking Group Ltd (collectively “the plaintiffs”) sued Ernst and Young (“EY”) and Coopers & Lybrand and PricewaterhouseCoopers (collectively “PwC”) to recover damages for financial losses said to have resulted from the professional negligence, breach of contract, and misleading or deceptive conduct of each of EY and PwC. The plaintiffs alleged that EY was responsible for the whole of its alleged losses and that PwC was liable jointly with EY for a portion of those losses.
The plaintiffs reached a settlement of its claim with EY. Since the settlement, the plaintiffs have continued their claim against PwC which has, in turn, joined EY as a third party. PwC claims that if it is liable to the plaintiffs, it is entitled to contribution from EY.
When PwC first learned of the settlement it asserted an entitlement to discovery of any document recording the terms of the compromise. By application filed on 4 October 2006 it sought (relevantly) an order as follows:
That [the plaintiffs] and/or [EY] make further and better discovery of, and produce forthwith, a copy of any document or documents recording the settlement or compromise of the within action as between [the plaintiffs] and [EY], including any settlement agreement or Deed between these parties.
On or about 12 October 2006 the plaintiffs made discovery in the following terms:
Date
14/09/06
Document Type
Agreement
Description
Settlement Agreement between Harris Scarfe Holdings Limited (Receivers and Managers Appointed) (in liquidation), Australia New Zealand Banking Group Limited and Ernst & Young (Reg) (executed in 3 counterparts), masked in respect of irrelevant portions (Confidential Document).
14/09/2006 Deed Poll A deed poll entered into by Ernst & Young (Reg) in favour of Haris Scarfe Holdings Limited, Australia and New Zealand Banking Group Limited, the entities listed in Schedule 1, and Bruce James Carter and John Menzies Spark, masked in respect of irrelevant portions (Confidential Document). 14/09/2006
Deed Poll
A deed poll entered into by Harris Scarfe Holdings Limited, Australia and New Zealand Banking Group Ltd, and the entities listed in schedule 1 in favour of Ernst & Young (Reg) and the former Partners (executed in 2 counterparts), masked in respect of irrelevant portions (Confidential Document)
[Emphasis added]It can be seen that the settlement was recorded in three documents, one settlement agreement and two deed polls.
The Court was informed that EY has made discovery in (relevantly) identical terms.
Ms Warner, a partner in the firm of solicitors acting for the plaintiffs, swore an affidavit on 12 October 2006 in which she said:
3.I have reviewed the documents listed above and caused them to be masked in respect of those portions of the documents that I consider to be irrelevant to the issues arising on the pleadings in these proceedings.
4.The unmasked parts of these documents disclose, amongst other things, the settlement amount, the application of the settlement to the particular periods in respect of which losses were claimed, the nature of the compromise (which is effected by covenants not to sue) and the breadth of the claims compromised.
Mr Roberts, a solicitor in the firm acting for EY, swore an affidavit on the same day, in which he made statements identical to the quoted statements by Ms Warner.
Gray J has summarised the course of the proceedings before the primary judge, the orders which the judge made, and his reasons for those orders. It is not necessary to repeat in detail those aspects of the matter. It is sufficient to note that in the course of the proceedings before the primary judge, PwC (by counsel retained solely for the discovery argument) abandoned its claim to production of the two deed polls and abandoned its claim to production of certain clauses of the settlement agreement. It maintained its claim for discovery or production of the remaining masked clauses in the settlement agreement. The primary judge considered that the settlement agreement was a document directly relevant to the issues arising between the plaintiffs and PwC as well as to issues arising between PwC and EY on its contribution proceedings. Each of the plaintiffs and EY accepted that significant portions of the settlement agreement were relevant but each disputed the relevance of the whole of the documents. Being satisfied that at least some portions of the document were relevant, the primary judge considered that the issue for determination was one about production, ie, whether the entire document should be produced for inspection as opposed to production of the documents in partly masked form.
The primary judge declined to regard the affidavits of Ms Warner and Mr Roberts as conclusive of the question of relevance. He insisted upon copies of the settlement agreement being provided to him in unmasked form. The judge gave extensive reasons for concluding that it was within his power to inspect the settlement agreement.
Having inspected the settlement agreement, the primary judge held that several of the clauses which had been masked by the plaintiffs and EY were directly relevant to issues in the proceedings and he ordered that those clauses should be disclosed to PwC. However, as PwC had accepted that disclosure of certain clauses was not required, he did not order production of the whole of the settlement agreement.
The appeals are brought against that decision. In these reasons I will refer to the plaintiffs and EY collectively as “the appellants”.
The Central Submission on Appeal
The appellants submitted that the primary judge erred in regarding the issue for determination as one of production and not, as they contended, as one of discovery. Each submitted that it was entitled to discover only the relevant portions of the settlement agreement.
Mr Whitington QC, who appeared with Mr Cox for the plaintiffs, submitted that discovery was a process of disclosing information. He referred in this respect to the equitable origins of the process of discovery. Because it is information which is being disclosed, this made it appropriate, so the submission ran, for there to be discovery of the relevant information contained in a document but not of the irrelevant information. For this purpose, the relevant parts could be considered as one document and the irrelevant parts another. In a practical sense discovery could be made by the masking of the irrelevant portions. Mr Livesey QC, for EY, made a similar submission.
If PwC was dissatisfied with the portions of the documents disclosed, the appropriate course, it was submitted, was for it to seek further and better discovery. On such an application, the affidavit of the respective solicitors should have been regarded as conclusive, and, in any event, it would have been PwC which had the burden of establishing that further and better discovery was appropriate. By treating it as an issue of production, the judge had inappropriately resorted to r 59.04 of the 1987 Rules, a rule which, it was said, had no application at the discovery stage.
The appellants went further, submitting that rr 59.03 and 59.04 are to be invoked only after issues of relevance have been determined. Unless a document was relevant, no question of it having to be produced arose. It was submitted that issues of relevance should be determined within the confines of applications for further and better discovery pursuant to r 58A of the 1987 Rules.
The submission of the appellants was that the judge’s error in approach was pervasive, tainting his entire decision. As will become apparent, I do not accept that the judge made such an error.
Discovery of Documents Containing Relevant Material
In my opinion, the appropriate starting point for the consideration of the appellants’ submission is the 1987 Rules themselves. It is those Rules rather than the Supreme Court Civil Rules 2006 which govern this case.
Rule 58A, which incorporates by reference some of the provisions of r 58, is the rule concerning discovery. It requires discovery of documents which are “directly relevant” to an issue arising on the pleadings. For the time being, however, it is convenient to speak simply of a requirement that relevant documents should be discovered.
Rule 58A.02 requires a litigant to file and serve a list of “documents” within times specified in that rule. Although the Rules do not say so explicitly, it is clear enough that it is the delivery of the list of documents which amounts to the making of discovery. The Rules draw a distinction between discovery of a document by disclosing its existence, and the production of that document for inspection. This is made plain by r 58.01(3) (which is incorporated by r 58A.10),
58.01(3)A party discovering any document shall state a place at which the document may be inspected and copied, and if necessary by photocopying, during ordinary business hours, or deliver, if acceptable, photostat copies thereof at the cost then prescribed for such copies pursuant to Rule 101. [Emphasis added.]
In substance, the subject of rr 58 and 58A is the disclosure of documents whereas the subject matter of r 59 is the production of documents. There is, however, some overlap between the two rules. For example, r 58.01(3) contains a requirement that a party discovering the document state the place at which the document may be inspected and copied and 58.01(7) provides that a party may not oppose production of any document on the ground that it relates solely to, and does not tend to impeach, his own case and does not relate to or tend to support the case of the opposing party. Rule 59 on the other hand is more concerned with the Court’s powers to deal with disputes about production. In this way, rr 58 and 58A on the one hand, and r 59 on the other can be seen to work together. Rules 58 and 58A contain the requirements for disclosure of documents and state the position with respect to production which is to apply in the absence of any court order. Rule 59 on the other hand applies when there are disputes about the production of documents for inspection.
Rules 59.03 and 59.04 are particularly relevant in the present case. They provide:
59.03An order for the production of any document or copy thereof shall not be made unless the Court is of the opinion that the order is necessary for disposing fairly and expeditiously of the action and is not injurious to the public interest.
59.04Where an application for production is objected to, the Court may inspect the document for the purpose of deciding the validity of the objection.
As it is necessary in these reasons to distinguish between discovery of documents by way of a list of documents on the one hand, and production of the documents for inspection on the other, I will refer in these reasons to the first stage as “disclosure” and to the second as “production”.
Rules 58 and 58A speak consistently of the discovery of “documents”. For example, r 58A.06 provides:
(1)A list of documents must identify the documents discovered in such a manner that it is subsequently practicable to ascertain precisely what are the documents referred to, but it is only to contain a concise general description of them.
(2) A list of documents is not to describe documents individually where they are:
(a) part of a file which is discovered as a file;
(b) contained on a computer disc which is discovered as a disc;
(c) part of a related group of documents where the group is discovered (eg the accounting records for a stated financial year);
(d) differing versions of the same documents (eg drafts 1 to 4 of document X); and
(e) of similar type but of different date or content (eg letters from X to Y dated etc, invoices from P to Q numbered etc, bank statements of A for the months etc). [Emphasis added.]
The rules are expressed in terms indicating that the whole of any document containing relevant information is to be discovered. None of the rules contain any indication that the discovery obligation applies separately to a portion, or to each portion, of a document which contains relevant information. Parties are to discover the documents which are or which have been in their possession, custody or power which are “directly relevant” to any issue arising on the pleading.[3] The use of the definite article is to be noted. A similar implication can be drawn from 58.04(e) which provides for orders for further and better discovery is in the following terms:
(e)where it appears to the Court that there are grounds for a belief that some document or class of documents relating to any matter in question in the proceedings may be or may have been in the possession, custody or power of a party, order that party:
(i) to file an affidavit stating whether that document, or any of that class, is or has been in his possession, custody or power and, if it has been but is not presently, to state when he parted with it and what has become of it;
(ii) to deliver the affidavit to any other party; [Emphasis added.]
[3] Rule 58A.03.
Rule 58.04(e) is in terms suggesting that it is referring to entire documents. It does not, for example, provide for the court to be able to order further and better discovery of portions or parts of a document.
Relevant Definitions
The word “document” is not defined in rr 58 and 59. Rule 5 of the 1987 Rules contains a definition which applies to all rules, absent a contrary intention or context.
“document” includes, in addition to a document in writing—
(a) any book, map, plan, graph or drawing;
(b) any photograph;
(c) any label, marking or other writing which identifies or describes anything of which it forms part, or to which it is attached by any means whatever;
(d) any disc, tape, sound track, computer or device whether of the same kind or any kind whatsoever in which sounds or other data (not being visual images) are embodied so as to be capable (with or without the aid of some other equipment) of being reproduced therefrom;
(e) any film (including a microfilm) negative tape disc or other device in which one or more visual images are embodied so as to be capable (with or without the aid of some other equipment) of being reproduced therefrom:
and
(f) anything whatsoever on which is marked any words, figures, letters or symbols which are capable of carrying a definite meaning to persons conversant with them;
There is no indication in that definition that the word “document” is to be understood as referring to two or more portions of the one document.
Section 4(1) of the Acts Interpretation Act 1915 (SA) also contains a definition of “document”.
"document" includes—
(a) any paper or other material on which there is writing; and
(b) any map, plan, drawing, graph or photograph; and
(c) any paper or other material on which there are marks, figures, symbols or perforations having a meaning for persons qualified to interpret them; and
(d) any article or material from which sounds, images or writings are capable of being reproduced with or without the aid of any other article or device;
That definition is applicable to the 1987 Rules unless a contrary intention appears. The inclusion of a definition of the word “document” in the 1987 Rules is itself probably a sufficient indication of a contrary intention. However, I think it relevant to note that the definition in the Acts Interpretation Act does not suggest that a portion of a document is itself to be regarded as a document.
In short, neither the text of rr 58 and 58A nor relevant definitions provide any support for the appellants’ submission that it is only the relevant portions of a document which need be discovered. This suggests that if a document is relevant in the requisite sense, then it must be discovered (in the sense of disclosed) even though it may contain, in addition, irrelevant material or privileged material.
General Considerations
Acceptance of the appellant’s submission that it is only relevant portions of documents which had to be disclosed, would produce some remarkable and inconvenient consequences. The 1987 Rules contain positive obligations on a litigant to discover documents which are directly relevant and only those documents.[4] Litigants are directed not to include in their list of documents those documents which are only indirectly relevant to an issue arising on the pleadings.[5]
[4] Rule 58A.03.
[5] r 58A.04(1).
As was pointed out by Hoffmann LJ in G E Capital Corporate Finance Group Ltd v Bankers Trust Co[6] relevant and irrelevant information may be contained within the one sentence or paragraph. A single sentence or a single paragraph may be irrelevant in a document which otherwise contains relevant information. Acceptance of the appellants’ submission would mean that it would be incumbent on a litigant to go through a document, line by line, to distinguish the relevant from the irrelevant so as to ensure that only the relevant material was discovered. Such an undesirable prospect militates very much against acceptance of the appellants’ submissions on this topic. The prospect is avoided if the Rules are understood as requiring the disclosure of the whole of any document which contains relevant material.
[6] [1995] 1 WLR 172 at 175.
The Meaning of Discovery
There is a sense in which the submission of Mr Whitington QC is correct. The purpose of discovery is to provide the other party with information. It is to enable opposing parties to be acquainted with the information which is contained in, or can be inferred from, the documents held by the other.
However, it should be recognised that the word “discovery” in this context is not always used with the same meaning. It sometimes refers to the process in general by which a party is compelled to disclose information to another prior to trial. In this sense, discovery is capable of encompassing disclosure and inspection of documents, interrogatories, forms of pre-trial oral examination, and perhaps disclosure of expert reports (r 38) and medical examinations of litigants whose health is an issue in the litigation (r 61). In another sense, the word “discovery” is sometimes used to encompass the two stages of disclosing the existence of a document and producing it for inspection. In yet another sense, the word “discovery” is used to refer only to the first of those two stages, ie, the disclosure of the existence of a document by the listing of it in a party’s list of documents. Insofar as it refers to the first of these uses, the submission of Mr Whitington QC has some force. However, as noted above, it is clear enough that the making of discovery to which rr 58.01(2) and (3) refer is the disclosure of the existence of documents by the inclusion of them in a list of documents. That being so, it is the document, rather than the information contained in it, which is to be discovered.
A Well Established Practice
The appellants submitted that the practice by which a party masks portions of a document considered by that party to be irrelevant is well established. The Court was taken to numerous authorities evidencing the practice. I agree that there is such a practice and that it is of long standing. But a review of the authorities shows, with few exceptions, that the practice operates at the time a discovered document is produced for inspection, and not at the disclosure stage.
In Bray’s Principles and Practice of Discovery (published in 1885) the position was stated as follows:
Where one part of a document is relevant and another part irrelevant (or only consequentially relevant or irrelevant to a particular matter in question) or where protection can be claimed for one part and not for another part, the part which is irrelevant or consequentially relevant or can be protected may as a rule be sealed up and so concealed from inspection on the party’s oath as to its nature, under the same conditions as if the part so concealed constituted a separate document.[7] [Emphasis added.]
[7] (1st ed, 1885), 233.
In 1885 the practice was that a party wishing to conceal any parts of its documents from inspection had to apply to the Court for leave to seal them up. In other words, the documents had to be disclosed in the ordinary way and the party then had to seek an order relieving it from the obligation to produce the whole document for an inspection.[8]
[8] Ibid at 237.
The authorities to which Bray referred support his statement of the practice. See for example Re Pickering[9] and Luscombe v Steer.[10]
[9] [1884] 25 Ch D 247 at 249 per Cotton LJ; at 250 per Lindley LJ.
[10] [1868] 37 LJ Ch 119.
Mr Livesey QC referred to Jones v Andrews[11] in support of his submission, but that that too was a “production” case. The plaintiff in that case appealed an order made by Chitty J “allowing the defendants to seal up such portions of the documents to be produced by them”.[12]
[11] [1888] 58 LT 601.
[12] Ibid at 604 per Cotton LJ [Emphasis added.]
It is true that in his 2nd Edition published in 1910, Bray said:
Generally speaking, any part of a document may be sealed up or otherwise concealed under the same conditions as a whole document may be withheld from production …; the party’s oath for this purpose is as valid in the one case as in the other. The practice is either to schedule to the affidavit of documents those parts only which are relevant, or to schedule the whole document and to seal up those parts which are sworn to be irrelevant … [13]
[13] (2nd ed, 1910), 55-6.
That is, by 1910, two alternative means were adopted in practice to achieve the purpose of protecting irrelevant and confidential material from production. But the fact that two alternative means were adopted in practice did not alter the substance of what was occurring. When a party “scheduled” only the relevant portion of a document, it was still making discovery (disclosing) the whole of the sealed or masked portion but at the same time signalling its objection to production of that portion. This point is made clear in the Queensland Full Court decision in Curlex Manufacturing Pty Ltd v Carlingford Australia General Insurance Limited[14] upon which Mr Livesey QC placed particular reliance.
[14] (1987) 2 Qd R 335.
Curlex is authority for the proposition that a portion of a document for which legal professional privilege is claimed may be masked and the balance produced for inspection without the party thereby impliedly waiving the privilege in respect of the masked portion. Curlex was a “production” case, not a “disclosure” case. The defendant discovered portions of an accountant’s report, but objected to produce the balance on the grounds of legal professional privilege. Its entitlement to do so was upheld. The judgment of McPherson J (which was the judgment of the Court) does not, on analysis, provide support for the submission that it was appropriate for the party to disclose only the non-privileged portion of the accountant’s report. McPherson J reviewed the authorities concerning the sealing up and masking of the portions of a document to which an objection to production was taken. In the course of that review, McPherson J said:
An aspect of the Chancery practice adopted by the common law courts was that of permitting the party producing a document to claim upon a sufficient affidavit to seal up those parts of it that he objected on some proper ground to producing …
As a result the practice of sealing up the parts of documents to which the objection to produce was taken prevailed both at common law and in equity. … The claim to immunity from production of part of a document is now taken in the affidavit of documents itself. The relevant part may be described, or it may be identified simply as a part sealed up. The practice of sealing up or, nowadays, covering up parts of documents continues, in my experience, to be adopted in Queensland. The choice of method is doubtless dictated largely by convenience. Where large numbers of parts of documents are involved, the only practical course is to identify the parts that it is objected to produce as being those parts that have been sealed up. …
The point to be gathered from this digression is that for at least 150 years it has been possible to resist on some proper ground production of parts of discoverable documents … .[15] [Emphasis added.]
The passages emphasised indicate that McPherson J was speaking of circumstances in which an objection to production could be made and the means by which such an objection could be signalled. The 19th Century cases to which McPherson J referred support his conclusions.
[15] Ibid at 338-9.
Mr Livesey QC also relied very much on the discussion of the Court of Appeal in G E Capital Corporate Finance Group Ltd v Bankers Trust Co.[16]
[16] [1995] 1 WLR 172.
There are passages in G E Capital which provide some support for the appellants’ submission. The question in that case was whether it was open to a party to mask portions of a document on the grounds of irrelevance. The Court of Appeal held that a party was so entitled. Hoffman LJ referred with apparent approval to the passage from Bray 2nd Edition, which I have set out above.[17] Leggatt LJ said that the plaintiffs were obliged “to disclose the relevant parts of documents, but not the irrelevant”.[18] These passages may suggest that Hoffman and Leggatt LJJ considered the issue to be one arising at the disclosure stage. However, the issue came before the Court of Appeal as an issue about production, as the opening sentence in the judgment of Hoffman LJ indicates:
This is an appeal from an order of Ferris J refusing to allow the plaintiff to cover up on the ground of irrelevance parts of certain documents which had been disclosed on discovery.[19] [Emphasis added.]
The judgment of Hoffman and Leggatt LJJ have to be understood as directed to that context. Accordingly, I do not regard the decision in G E Capital as providing much support for the proposition that when a document contains relevant and irrelevant portions, the party may disclose only the relevant portion.
[17] Ibid at 174.
[18] Ibid at 176.
[19] Ibid at 173.
Mr Livesey QC then referred to three decisions of this Court. The first was the judgment of Olsson J in Peat Marwick Hungerfords v Executor Trustee.[20] That case involved an application for “discovery and production” of certain documents which had been disclosed in masked form. There are certain features of the reasons which indicate that the distinction between disclosure on the one hand and production on the other was not always observed. But it is clear enough that Olsson J dealt with the application as though it was an application for further and better disclosure of documents rather than an application for production. However, in stating the longstanding principle which was to be applied, Olsson J did so in terms applicable to an issue about production, ie,
It is well settled that, where documents contain an admixture of material which is relevant and discoverable and material which is irrelevant (and thus not discoverable), it is a proper compliance with the rules obligation to produce such documents with irrelevant portions masked out in some appropriate fashion. So much was expressly recognised by the Court of Appeal in G E Capital Corporate Finance Group Ltd v Bankers Trust Co and Others as being a practice of at least 100 years standing. (See also the discussion in Curlex Manufacturing Pty Ltd v Carlingford Australia General Insurance Ltd.).[21] [Citations omitted and emphasis added.]
The absence of distinction in Peat Marwick between disclosure, on the one hand, and production, on the other, detracts from its strength as an authority in the present context.
[20] (Unreported, Supreme Court of South Australia, Olsson J, 25.10.95).
[21] Ibid at 2.
In Baulderstone Hornibrook v Dare Sutton Clarke Pty Ltd,[22] a master of this Court treated as conclusive a solicitor’s affidavit that masked portions of a document were irrelevant. The master refused an application for production of full copies of the document for inspection. The reasons are brief and I do not regard his decision as providing any present assistance.
[22] [2000] SASC 78.
The third decision was that of Bleby J in Addstead Pty Ltd (in liq) v Simmons.[23] Bleby J decided at short notice an oral application for “discovery and inspection” of a deed of settlement, portions of which had been masked by the plaintiff on the grounds of irrelevance. Bleby J refused the application for “discovery and inspection” holding that the solicitor’s affidavit as to the irrelevance of the masked portion should, in the circumstances of that case, be regarded as conclusive. There are aspects of the reasons suggesting that Bleby J treated the application as though it was an application for further and better discovery pursuant to r 58.04(e), but there are other passages indicating that the issue was treated as one of production.
[23] [2004] SASC 260.
I do not regard any of the above three authorities as being persuasive in the present context. In the first place, none address directly the issues raised for consideration on this appeal. Secondly, in none of the three decisions was the distinction between disclosure of documents on the one hand, and production of the disclosed documents for inspection on the other, made clear. Finally, in none of the three decisions was reference made to the powers of the court in r 59 concerning production and, in particular, to the court’s powers contained in r 59.04 to inspect a document for the purpose of deciding the validity of an objection to production.
Finally, Mr Livesey QC referred to interstate authority which it was said supported the view that a party was entitled to discover relevant portions of a document only and to mask irrelevant portions. Mr Livesey referred to John Moran v Eistream (Australia) Pty Ltd;[24] Telstra Corp v Australis Media Holdings Pty Ltd;[25] ANZ Banking Group Limited v ANZCover Insurance Pty Ltd;[26] Liberty Financial Pty Ltd v Scott;[27] CTC Resources NL v Australian Stock Exchange Ltd;[28] CSBP Ltd v Gerling Australia Insurance Co Pty Ltd;[29] Youlden Enterprises Pty Ltd v Health Solutions (WA) Pty Ltd.[30] I do not consider that it is necessary to review these decisions. They do not cause me to alter the view which I have reached about this aspect of the appeal. Those cases either were themselves production cases, or did not address the issues arising on this appeal at all, or were decided in a different rules context, or were decided without reference to the distinction between the disclosure and production stages in the making of discovery.
[24] [2006] NSWSC 79.
[25] Unreported, New South Wales Supreme Court, McLelland CJ, 10.2.97).
[26] [2004] VSC 529.
[27] [2004] VSC 414.
[28] [2000] WASCA 19; (2000) 22 WAR 48.
[29] [2005] WASC 69.
[30] [2005] WASC 60.
Conclusion on the Approach of the Judge
Subject to one matter which I will mention shortly, my opinion is that the approach of the primary judge in treating the application before him as one for production (rather than for discovery) of the unmasked settlement agreement was correct. The judge was correct in my opinion, in treating the application as one to be determined having regard, in particular, to the provisions of r 59 of the 1987 Rules.
The appellants’ submission that they were entitled to discover only the relevant portions of the settlement agreement, and that they had done so, was an acknowledgment by them that they had not discovered the entire settlement agreement. Once it be accepted that the settlement agreement was a directly relevant document (which it was because it contained material directly relevant to the amount of damages to which the plaintiffs may be entitled) and once it was acknowledged that it had not been discovered, an application for further and better discovery was, strictly speaking, appropriate. In that sense, the appellants are correct in their submission that the primary judge was in error in characterising the issue for his decisions as one of production. But in the circumstances of this case, that is a point of no consequence. An application for further and better discovery of the entire settlement agreement was bound to succeed. There was no ground upon which disclosure of the settlement agreement could have been resisted. Once disclosed, the issue was whether the appellants could object to having to produce the whole of the agreement for inspection. All the primary judge did was to go directly to the substantive issue which thereby arose. This did not involve error on his part. It was appropriate for him to deal with the matter expeditiously as the substantive action was then commencing before the trial judge.
Accordingly, in my opinion, the appellants have not made good the submission that there was a fundamental error in approach by the primary judge.
Inspection By the Court
The appellants submitted that the judge should not have called for the unmasked settlement agreement to be produced to him for his inspection in the course of deciding PwC’s application. This submission depended very much on the appellants’ primary submission that the judge had erred in treating the issue to be decided as one of production rather than disclosure. The rejection of that primary submission deprives the appellants’ submission about the judge’s inspection of the unmasked settlement agreement of its force.
As already noted, r 59.04 provides that in determining an objection to production of a document, “the Court may inspect the document for the purpose of deciding the validity of the objection”.
The judge said:
Rule 59.04 is expressed in unequivocal terms. It invests the court with a wide and unfettered discretion to inspect a document for the purpose of determining the validity of an objection to the production of part or whole of a document. The rule is expressed in terms which enable the court to exercise the discretion to inspect if the objection to production is made on either the ground of relevance or on the ground of privilege. The Court may, therefore, order production if it is necessary for the disposing fairly and expeditiously of the action and is not injurious to the public interest. On the face of Rule 59.04 there is no bar to the Court inspecting the document.[31]
[31] Harris Scarfe Ltd (Receivers & Managers Appointed) in liq & Ors v Ernst & Young & Ors (No 10) [2006] SASC 325 at [25].
I respectfully agree with these remarks. That is, strictly speaking, sufficient to dispose of this aspect of the appeal.
The primary judge went on to consider the history of r 59.04 as well as the practice of Australian, New Zealand an English courts with respect to inspection.[32] I respectfully agree with the judge’s review of these authorities, and do not consider that I can usefully add to it.
[32] Ibid at [26]-[42].
The appellants critiqued the judge’s review. It was said that with the exception of one case, all the authorities reviewed by the judge involved circumstances in which the relevance of the document in question had been conceded. The exception is Ehrmann v Ehrmann[33] and the significance of this decision as an authority was disparaged. It was said that the concession concerning the relevance of the document in issue in each of the cases reviewed was sufficient to distinguish those authorities from the present case as the appellants disputed the relevance of the masked portions.
[33] [1896] 2 Ch 826.
It can be seen that this submission had as its premise the contention of the appellants that each was obliged to discover (in the sense of disclose) only the relevant portions of the settlement agreement and that until the relevance of the masked portions of the agreement had been established, there was no need for those potions to be disclosed. For the reasons already given that premise is unsound. The settlement agreement contains material which, by the appellants’ own acknowledgement, is directly relevant to an issue arising on the pleadings. That meant that it had to be disclosed in its entirety. Hence, the suggested point of distinction between this case and that of the authorities reviewed by the primary judge is without foundation.
The appellants’ submission that r 59.04 assumes relevance is correct. That requirement was satisfied in this case by the appellants’ concession that the settlement agreement contained relevant information.
Rule 59.04 is expressed in general terms. There is no reason to construe it narrowly. The court may, whenever it considers it necessary or desirable, inspect a document in respect of which an objection to production has been taken. The primary judge’s conclusion about the power vested in him by r 59.04, and his exercise of the power, was, in my opinion, correct.
Conclusiveness of the Solicitors’ Affidavits
The submission of the appellants that the judge had erred in not treating the respective solicitors’ affidavits as conclusive again had as their premise the proposition that the judge should have treated PwC’s application as an application for further and better discovery. Hence, the appellants relied upon numerous authorities concerning challenges to the adequacy of the disclosure of documents made by a litigant and, in particular, to the well known passages in the decision of Menzies J in Mulley v Manifold.[34] These authorities indicated that ordinarily a court would not go behind a solicitor’s affidavit as to relevance (or irrelevance) of specified documents.
[34] (1959) 103 CLR 341.
This is not the occasion to review the authorities relating to the significance which should now be attached to a solicitor’s affidavit when an issue about disclosure is being determined. Any such review would have to take account of the changes in the rules’ regime which have occurred since Mulley v Manifold was decided. See, for example, r 58.04A which provides for the administration of interrogatories to, or the cross-examination of, the deponent to an affidavit of documents. See also rr 59.01(a) and 59.04.
At least on disputes about production, modern practice has not treated affidavits of discovery as conclusive. In Grant v Downs[35] Stephen, Mason and Murphy JJ said:
The court has power to examine the documents for itself, a power which has perhaps been exercised too sparingly in the past, springing possibly from a misplaced reluctance to go behind the formal claim of privilege. It should not be forgotten that in many instances the character of the documents the subject of the claim will illuminate the purpose for which they were brought into existence.[36]
[35] (1976) 135 CLR 674.
[36] Ibid at 689.
Similarly, in Esso Australia Resources Ltd v Commissioner for Taxation[37] Gleeson CJ, Gaudron and Gummow JJ said:
Although it has not direct bearing upon the issue now under consideration, reference should be made to a point emphasised both in the joint judgment in Grant v Downs and by Cooke J in Guardian Royal Exchange Assurance of New Zealand Ltd v Stuart. A claim for privilege is not conclusively established by the use of a verbal formula. A court has power to examine documents in cases where there is a disputed claim, and it should not be hesitant to exercise such a power. In appropriate cases, there is also power to allow cross-examination of a deponent of an affidavit claiming privilege.[38] [Citations omitted.]
[37] [1999] HCA 67; (1999) 201 CLR 49.
[38] Ibid at [52]; 70.
The numerous authorities to which the primary judge referred in relation to the Court’s power to inspect documents provide further illustrations of the modern practice of not treating solicitor’s affidavits as conclusive. Insofar as Bleby J held to the contrary in Addstead Pty Ltd (in liq) v Simmons,[39] then I respectfully disagree.
[39] [2004] SASC 260.
The appellants placed emphasis on the obligation (described by Bleby J in Addstead as an “uncompromising ethical obligation”[40]) to make true and honest disclosure of relevant documents. Like Bleby J and the primary judge, I agree that legal practitioners do have an uncompromising ethical obligation to ensure that proper discovery is made. However, I do not consider that the existence of such an obligation should indicate that the affidavit of a practitioner concerning discovery should be conclusive. Mistakes can be made in the discharge of an uncompromising ethical obligation as much as they can in any other sphere of human activity. The prospect of mistakes of this kind was recognised in a related context by White J in Kadlunga Proprietors v Electricity Trust of South Australia:[41]
In interpreting the respondent’s description, the appellants must rely upon the respondent’s oath and its solicitor’s role as an officer of the court; but they must have at least an adequate description. Without it, they are at the mercy of the respondent’s adviser as arbiter in the respondent’s cause; and there is scope for innocent error at best and abuse at worst. The authorities are full of instances where bona fide mistakes have been made by practitioners as to the scope of privilege and its applicability to particular documents … I merely point out what an inadequate safeguard reliance on professional integrity can be. It is a common occurrence for error to be made in this area of legal practice.[42]
The possibility of such mistakes is perhaps even greater in a case such as the present. I agree with the following comment of the primary judge:
[I]n substantial litigation of this kind where the stakes are high and legal practitioners have a natural desire that their client should prevail in the litigation, there is a real capacity for an unconscious departure from the uncompromising ethical obligation.[43]
[40] Ibid at [5]. See also Southern Equities Corporation Ltd (in liq) v Arthur Andersen & Co (No 5) [2001] SASC 335 at [17] per Bleby J.
[41] (1935) 39 SASR 410.
[42] Ibid at 415.
[43] [2006] SASC 325 at [45].
For these reasons, I do not consider that the judge was in error in not regarding the respective solicitor’s affidavits as conclusive, and in deciding to inspect the unmasked settlement agreement.
Relevance
The argument of the appellants at the hearing of the appeal proceeded on the basis that it was the direct relevance or otherwise of the masked clauses to any issue arising on the pleading which should determine the issue of production. At the hearing, I was inclined to think that such an approach was correct. However, on reflection, my view has changed.
Rule 59.03 governs the situation. As already noted, it provides that an order for the production of any document shall not be made unless the court is of the opinion that the order is necessary for disposing fairly and expeditiously of the action and is not injurious to the public interest. Rule 59.03 is capable of being applied both to portions of documents which are said to be irrelevant, as well as to whole documents.
The effect of r 59.03 is that (relevantly) an order for production is to be made only if the court is satisfied that production is necessary for the fair and efficient disposition of the action. It follows that if the court be satisfied that production of an entire document containing relevant information is necessary for the fair and efficient disposition of the proceedings, it may order that production (subject if necessary to appropriate ancillary orders to protect confidentiality) even though particular portions of the document may not themselves be directly relevant to any issue on the pleadings. If the masked clauses are themselves directly relevant to an issue arising on the pleadings, one would expect that an order for production of those clauses would follow. But the converse is not true. A finding that the masked clauses are irrelevant does not mean that production may not be required.
On an application for production, the onus of showing that production is necessary for the fair and expeditious disposal of an action is on the party seeking that production. This flows from the language of the rule and is consistent with authority. See, for example, Dolling-Baker v Merrett[44] in which Parker LJ (with whom the other members of the Court of Appeal agreed) said:
It is submitted on behalf of the first defendant that the effect of r 13(1) is that the burden of satisfying the court that production and inspection is necessary is squarely upon the party applying, whereas under r 8 it is for the party who is objecting to any such order to satisfy the court that discovery by list or affidavit is not necessary. It appears to me that that approach and submission are correct, and there is a perfectly sensible reason for it. If one is merely at the stage of discovery, it does no harm in most cases for the party against whom discovery is sought merely to list his documents. That discloses that he has them, or has power over them. But he can object to produce them on the grounds of privilege or, indeed, on any other ground. At that stage not very much has occurred except that the applying party will be enabled to know what documents the objecting party has, and it is right that the burden should be upon the objector in such a case. When, however, one gets to the stage of production and the document is to be produced to the court or the other side, the position is different, and it should be (and the rules appear to me to state with complete clarity) that it is for the party seeking production to satisfy the court that such production is necessary for the purposes specified in r 13(1), namely for disposing fairly of the cause or matter or for saving costs.[45]
[44] (1991) 2 All ER 890.
[45] Ibid at 895. See also Ventouris v Mountain (1991) 3 All ER 472; Wallace Smith Trust Co Ltd (in liq) v Deloitte Haskins& Sells (a firm)(1996) 4 All ER 403.
The primary judge did say that a party who seeks to establish that a document which has been discovered should not be produced for inspection bears a heavy burden of proof, suggesting that the burden in this case was on the plaintiffs and not upon PwC. The judge referred in this respect to remarks of Lord Edmund-Davies in Burmah Oil Co Ltd v Bank of England.[46] It may be that those remarks were confined to circumstances in which production is resisted on grounds of public interest immunity. Mr Livesey QC submitted that the judge had incorrectly reversed the onus in this case, but I do not consider that to be so. The judge specifically noted that r 59.03 requires the party seeking production to establish that the order for production is necessary in order to dispose fairly of the action.[47]
[46] (1980) 8 AC 1090 at 1125.
[47] [2006] SASC 325 at [50].
The judge was satisfied that the masked clauses were directly relevant to the issues between the appellants and PwC. This conclusion was subject to a detailed critique on the appeal. In particular, it was submitted that the masked clauses, considered by themselves, did not have any direct relevance to any issue arising on the pleadings. I consider that there is some force in that submission, but in the end I have not thought it necessary to reach any final view about it as I am satisfied that PwC has, in any event, shown that production of the settlement agreement in its entirety is necessary for the fair and expeditious disposal of the proceedings.
I have come to that view having regard to cl 13 and cl 14 of the settlement agreement. Those clauses are set out in full in the judgment of Gray J.
CONFIDENTIAL
CONFIDENTIAL
CONFIDENTIAL
As cl 13 and cl 14 were the clauses which were the principal subject of the submissions, I do not consider it necessary to consider separately the remaining clauses to which objection to production was taken.
Whatever may be the proper conclusion with respect to the direct relevance of the masked clauses, I am satisfied that the interests of justice, and in particular the interests of a fair and expeditious disposal of the proceedings, make production of the entire settlement agreement appropriate. I am not satisfied that the judge’s conclusion in this respect was wrong.
Conclusion
For the reasons given above, my opinion is that each of the appeals should be dismissed.
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