Harwood v The Trustee of the Property of John Mervyn Harwood
[2015] FCCA 1058
•28 April 2015
FEDERAL CIRCUIT COURT OF AUSTRALIA
| HARWOOD v THE TRUSTEE OF THE PROPERTY OF JOHN MERVYN HARWOOD | [2015] FCCA 1058 |
| Catchwords: PRACTICE AND PROCEDURE – Discovery – application for declaration that it is appropriate in the interests of the administration of justice that discovery be allowed – nature and purposes of discovery – whether purposes of discovery can substantially be met by subpoenas to produce – whether documents sought to be discovered broader than warranted by the issues raised on the pleadings – application dismissed. |
| Legislation: Bankruptcy Act 1966 (Cth), ss.73, 139ZL, 139ZL(1), 149, 149(1), 149D, 149D(1)(f), 178, 179 Federal Circuit Court of Australia Act 1999 (Cth), ss.3, 3(2), 45, 45(1), 81, 82(1)(d), 84 |
| Abrahams v Qantas Airways Ltd (No.2) [2007] FMCA 639 Brookfield v Yevad Products Pty Ltd [2004] FCA 1164 Budden v Wilkinson [1893] 2 QB 432 Davies v Eli Lilly & Co [1987] 1 All ER 801 Ferella v Official Trustee in Bankruptcy [2013] FCAFC 43 Flight v Robinson (1844) 8 Beav 22; 50 ER 9 Macchia v Nilant [2001] FCA 7 Southern Pacific Hotel Services Inc v Southern Pacific Hotel Corp Ltd [1984] 1 NSWLR 710 Spencer Motors Pty Ltd v LNC Industries Ltd [1982] 2 NSWLR 921 Storey v Lord George Lennox (1836) 1 Keen 341; 48 ER 338 The Commissioner for Railways v Small (1938) 38 SR (NSW) 564 The Compagnie Financiere et Commerciale du Pacifique v The Peruvian Guano Co (1882) 11 QBD 55 Wong v Sklavos [2014] FCAFC 120 |
| Applicant: | JOHN MERVYN HARWOOD |
| Respondent: | THE TRUSTEE OF THE PROPERTY OF JOHN MERVYN HARWOOD, A BANKRUPT |
| File Number: | SYG 3622 of 2014 |
| Judgment of: | Judge Manousaridis |
| Hearing date: | 2 April 2015 |
| Delivered at: | Sydney |
| Delivered on: | 28 April 2015 |
REPRESENTATION
| Solicitors for the Applicant: | Mr D Rappoport of Lambeth Lloyd & Associates |
| Counsel for the Respondent: | Ms J Little |
| Solicitors for the Respondent: | Matthews Folbigg Pty Ltd |
ORDERS
The application made by the applicant for a declaration pursuant to s.45 of the Federal Circuit Court of Australia Act 1999 (Cth) that it is in the interests of the administration of justice to allow discovery is dismissed.
The applicant pay the respondent’s costs of the application.
The applicant file and serve any affidavits on which he intends to rely by 5 pm on 1 June 2015.
The respondent file and serve any affidavits on which he intends to rely by 5 pm on 22 June 2015.
The applicant file and serve any affidavits in reply on which he intends to rely by 5 pm on 6 July 2015.
The matter be referred to a Registrar for mediation on a date to be fixed by the Registrar pursuant to section 34 of the Federal Circuit Court of Australia Act 1999 (Cth).
If mediation is unsuccessful the matter be relisted for a directions hearing at a time and date to be fixed.
The parties have liberty to apply on such notice as the circumstances warrant.
The applicant may not apply for the issue of any subpoena or issue any notice to produce without the prior leave of the Court.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 3622 of 2014
| JOHN MERVYN HARWOOD |
Applicant
And
| THE TRUSTEE OF THE PROPERTY OF JOHN MERVYN HARWOOD, A BANKRUPT |
Respondent
REASONS FOR JUDGMENT
Introduction
The applicant, Mr Harwood, applies for a declaration under s.45(1) of the Federal Circuit Court of Australia Act 1999 (Cth) (FCCA Act) that it is appropriate in the interests of the administration of justice to allow discovery.
The application is made in proceedings Mr Harwood has brought against his former trustee in bankruptcy (Trustee) seeking relief under s.178 and s.179 of the Bankruptcy Act 1966 (Cth) (Act). In broad terms, Mr Harwood claims the Trustee acted improperly in objecting to Mr Harwood’s discharge from bankruptcy under s.149 of the Act, in the Trustee’s handling of a proposed composition with creditors Mr Harwood lodged with the Trustee under s.73 of the Act, and in the Trustee’s asserting, before and after Mr Harwood was discharged from bankruptcy, that Mr Harwood is liable to make income contributions. Mr Harwood also claims the Trustee failed to administer Mr Harwood’s estate in an efficient and commercially sound manner.
Mr Harwood will not seek general discovery if the declaration he seeks is made. Instead, he will seek an order that the Trustee discover documents that fall within the classes of documents he identifies in the schedule attached to Mr Harwood’s written outline of submissions.
Before I consider the parties’ competing submissions, it will be necessary to identify the relevant principles that should guide me in determining Mr Harwood’s application.
Principles
The starting point is s.45 of the FCCA Act which provides:
(1)Interrogatories and discovery are not allowed in relation to proceedings in the Federal Circuit Court of Australia unless the Federal Circuit Court of Australia or a Judge declares that it is appropriate, in the interests of the administration of justice, to allow the interrogatories or discovery.
(2)In deciding whether to make a declaration under subsection (1), the Federal Circuit Court of Australia or a Judge must have regard to:
(a)whether allowing the interrogatories or discovery would be likely to contribute to the fair and expeditious conduct of the proceedings; and
(b)such other matters (if any) as the Federal Circuit Court of Australia or the Judge considers relevant.
The discovery[1] the Court may declare is appropriate in the interests of the administration of justice is that which is provided by Part 14 of the Federal Circuit Court Rules 2001 (Cth) (FCC Rules).[2] Subrule 14.02(2) provides that if a declaration is made under s.45 of the FCCA Act, the Court (or a Registrar) may make an “order for disclosure” either “generally”, or “in relation to particular classes of documents”, or “in relation to particular issues” or “by a specified date”. Rule 14.03 provides that “[a] party who is ordered to disclose documents must file an affidavit of documents”. The expression “affidavit of documents”, although having a reasonably well understood legal meaning, is not defined in the FCCA Act or in the FCC Rules, and there is no form of “affidavit of documents” prescribed by the FCC Rules.
[1] I ignore interrogatories in these reasons.
[2] The rules contained in Part 14 of the FCC Rules were made pursuant to s.82(1)(d) and s.81 of the FCCA Act.
Section 45 of the FCCA Act presents an apparent difficulty. On the one hand, it in effect raises a presumption that it is not appropriate in the interests of the administration of justice to allow discovery. On the other hand, s.45 contemplates that, at least in certain circumstances, that presumption may be rebutted, in which case the Court may make a declaration that it is appropriate in the interests of the administration of justice to allow discovery. Yet neither s.45 nor Part 14 of the FCC Rules expressly identifies the circumstances in which discovery could be considered to be appropriate in the interests of the administration of justice.
In my opinion, consistently with the objects of the FCCA Act stated in s.3(2), this apparent difficulty is to be resolved by construing s.45 of the FCCA Act as presuming that, in most cases, there will be available to the Court less formal or more streamlined procedures than discovery that are capable of substantially achieving the purposes for which discovery has been traditionally allowed; and that it will only be in circumstances where no such procedures are available to the Court that the Court should consider whether it may be appropriate in the interests of the administration of justice to allow discovery. In those circumstances, the Court will need to consider whether the expected benefits of allowing discovery would outweigh the burdens of allowing discovery in terms of time and cost; and the Court should make a declaration only if it is satisfied the benefits outweigh the burden.
On this approach, the Court needs to consider two questions when entertaining an application for a declaration under s.45 of the FCCA Act. The first is: is there available to the Court a less formal or more streamlined procedure than discovery which, in the particular circumstances of the case, is likely to substantially achieve the same purposes as discovery if discovery were allowed? If that question is answered in the affirmative, no declaration under s.45 of the FCCA Act should be made. If, on the other hand, the question is answered in the negative, a second question arises: do the expected benefits of allowing discovery outweigh the expected costs and delay of allowing discovery? If that question is answered in the affirmative, the Court should make a declaration under s.45 of the FCCA Act.
The correct answer to these questions requires an understanding of the nature and purposes of discovery, and the identification of any available procedures that are less formal or more streamlined than discovery that are capable of substantially achieving the same purposes as discovery. It is to these two topics I now turn.
The nature and purposes of discovery
Discovery has a long history. The procedures denoted by the word “discovery” have changed over time. Even today “discovery” denotes different procedures that apply under different rules of court in Australia. This suggests that a proper understanding of the nature and purposes of discovery requires a brief review of its history, and what judges have said about its purposes.
The necessary starting point is the procedure of the Court of Chancery before the Chancery Practice Amendment Act 1852 (UK) came into effect.[3] That is so, not only because the process which was denoted by the word “discovery” originated early in the history of the Court of Chancery, and that process to some extent still reflects the nature of discovery under modern procedures; but also because the clearest judicial statements of the purposes of discovery were made by judges who superintended discovery as it was administered by the Court of Chancery. Moreover, those statements have been taken to illuminate the purposes of discovery under modern procedures.[4]
[3] 15 & 16 Vict cc. 80, 86, 87
[4] See, for example, Managing Discovery: Discovery of Documents in Federal Courts (ALRC Report 115) at [2.8] where the Australian Law Reform Commission quoted a passage from E Bray The Principles and Practice of Discovery London (1885), which largely relied on cases dealing with discovery before 1852.
Under the procedure of the Court of Chancery before 1852, the process that was denoted by the word “discovery” was a central part of proceedings commenced in that Court by bill. “Discovery” denoted the process by which a defendant to a bill (and to a cross-bill) was required to disclose on oath – that is, to “discover” – not only documents relating to the matters alleged in the bill, but also the defendant’s knowledge and belief of the matters asked in interrogatories listed in the bill. Every bill in Chancery, therefore, was a bill for discovery. The discovery required by a bill was described in 1852 as follows:[5]
[The bill] not only demands relief, but requires the defendants to make discovery, that is, to give answer on oath in respect of the several matters specifically stated and charged; in the case of executors, trustees, and the like, to set forth accounts of the estate under their administration, and in almost all cases, to set forth a list of all books, accounts, and documents in their possession or power relating to the subject matter of the suit. With a view to this discovery, the Bill contains what is called the interrogating part, in which every statement and charge is converted into a series of questions framed on the principle that the defendant may possibly be a dishonest defendant disposed to answer evasively and, therefore, suggesting modifications of the statement or charge.
[5] Copy of the First Report of Her Majesty’s Commissioners Appointed to Inquire into the Process, Practice, and System of Pleading in the Court of Chancery (1852), page 5
The manner in which discovery was given was described as follows:[6]
The solicitor goes through all the interrogatories of the Bill with his client, and takes down his answers to the several questions; he assists in searching for and making out a list of all the documents relating to the matters in question, and in preparing all the other materials for the defence. These are laid before counsel, who from them prepares an Answer; which Answer is elaborate and minute; and with verbal exactness either admits, or traverses, or ignores all the minute interrogatories of the Bill.
[6] Copy of the First Report of Her Majesty’s Commissioners Appointed to Inquire into the Process, Practice, and System of Pleading in the Court of Chancery (1852), page 6
The Court of Chancery’s insistence on discovery was based on an unbending ethical principle of full disclosure:[7]
From the mode of proceeding at common law, a man with the full knowledge of facts which would shew the truth and justice of the case, may, by concealing those facts within his own breast, and merely for want of disclosure or evidence, succeed in recovering a demand which he knows to be satisfied, or in resisting a demand which he knows to be just.
This conduct is by Courts of Equity considered to be against conscience; and they accordingly enable the party in danger of being oppressed by it to obtain from his adversary a discovery of the facts within his knowledge or belief, by filing a proper bill for the purpose; and by the general rule the Defendant to a proper bill of discovery is bound to make a complete disclosure of everything he knows or believes in relation to the matter in question. According to the general rule he is not to withhold anything.
Almost every bill of discovery contains, as this bill does, a charge that the Defendant has in his possession or power papers relating to the matter in question, and calls upon the Defendant to set forth, as part of the discovery he is required to make, either the contents of the papers, or a list of the papers, in order to their production; and by the general rule the Defendant is bound to produce (as part of the discovery he is required to make, and to complete his answer, which would otherwise be imperfect) all the papers which he admits to be in his possession, and to relate to the matters in question.
[7] Storey v Lord George Lennox (1836) 1 Keen 341 at [349]-[350]; 48 ER 338 at 341 (Lord Langdale MR)
Judges identified other purposes of discovery as it was administered by the Court of Chancery:[8]
A party was entitled to discovery in order to ascertain facts material to the merits of his case, either because he could not prove them, or in aid of proof and to avoid expense . . . to deliver him from the necessity of procuring evidence . . . to supply evidence or to prevent expense and delay in procuring it . . . to save expense and trouble . . . to prevent a long enquiry and to determine the action as expeditiously as possible.
[8] E Bray The Principles and Practice of Discovery London (1885), pages 1-2
It is apparent that discovery, where it was available, was a right of every litigant who filed a bill in the Court of Chancery:[9]
According to the general rule which has always prevailed in this Court, every Defendant is bound to discover all the facts within his knowledge, and to produce all documents in his possession which are material to the case of the Plaintiff. However disagreeable it may be to make the disclosure, however contrary to his personal interests, however fatal to the claim upon which he may have insisted, he is required and compelled, under the most solemn sanction, to set forth all he knows, believes, or thinks in relation to the matters in question.
[9] Flight v Robinson (1844) 8 Beav 22 at [33]-[34]; 50 ER 9 at 13 (Lord Langdale MR)
Further, subject to a number of exceptions, the Court of Chancery permitted litigants in the common law courts to file a bill in that Court solely for the purpose of obtaining discovery in aid of claims or defences they made or raised in proceedings in the common law courts. Thus, litigants in common law courts, although not bound to invoke the procedure of discovery the Court of Chancery made available to them, had the right to discovery in the Court of Chancery.
The procedure for obtaining discovery in the Court of Chancery was altered by the Chancery Practice Amendment Act 1852 (UK).[10] The most radical alteration was the separation of the pleading function of the bill from its discovery function. Section 10 of the Act provided that the bill should contain “as concisely as may be a narrative of the material facts, matters and circumstances on which the plaintiff relies”, set forth in numbered paragraphs, with a prayer for relief, but should “not contain any interrogatories for the examination of the defendant”. Section 12 provided for the filing and service of written interrogatories. Section 18 provided that the Court could upon application make an order for the production by the defendant, “upon oath, of such of the documents in his possession or power relating to matters in question in the suit”, and s.20 provided that, on the application of a defendant, the Court may make “an order for the production by the plaintiff . . . on oath of such of the documents in his possession or power relating to the matters in question in the suit as the court shall think right”.
[10] 15 & 16 Vict cc. 80, 86, 87
At around the same time, the common law courts were given power to order discovery of documents. That was originally done by s.6 of the Evidence Act 1851 (UK),[11] and then by s.50 of the Common Law Procedure Act 1854 (UK).[12] Section 50 of the latter Act provided that on application by a party (A) based on an affidavit of A’s belief that the other party (B) had documents to the production of which A is entitled for the purpose of discovery, the court could order B to state in an affidavit what documents B had in his or her custody “relating to the matters in dispute”.
[11] 14 & 15 Vict. c. 99
[12] 17 & 18 Vict. c. 125
The substance of the procedures provided for by the Chancery Practice Amendment Act 1852 (UK) and by the Common Law Procedure Act 1854 (UK) were repeated in Order XXX1 of the Rules of the Supreme Court 1883 (UK) made pursuant to the Supreme Court of Judicature Act 1875 (UK). Rule 12 of Order XXXI provided (emphasis added):
Any party may, without filing any affidavit, apply to the Court or a judge for an order directing any other party to any cause or matter to make discovery on oath of the documents which are or have been in his possession or power, relating to any matter in question therein. On the hearing of such application the Court or judge may either refuse or adjourn the same, if satisfied that such discovery is not necessary, or not necessary at that stage of the cause or matter, or make such order, either generally or limited to certain classes of documents, as may, in their or his discretion, be thought fit.
The critical expression “relating to any matter in question” was given its authoritative interpretation in 1882 by Brett LJ in The Compagnie Financiere et Commerciale du Pacifique v The Peruvian Guano Co:[13]
It seems to me that every document relates to the matters in question in the action, which not only would be evidence upon any issue, but also which, it is reasonable to suppose, contains information which may - not which must - either directly or indirectly enable the party requiring the affidavit either to advance his own case or to damage the case of his adversary. I have put in the words “either directly or indirectly,” because, as it seems to me, a document can properly be said to contain information which may enable the party requiring the affidavit either to advance his own case or to damage the case of his adversary, if it is a document which may fairly lead him to a train of inquiry, which may have either of these two consequences.
[13] (1882) 11 QBD 55 at 63
The consequences of a court making an order for discovery under r.12 of Order XXX1 of the Rules of the Supreme Court 1883 (UK) was to oblige the party against whom it was made to prepare an affidavit of documents. The object of an affidavit of documents was “to enable the Court to make an order for the production of the documents mentioned in it if the Court think fit so to do, and that a description of the documents which enables production, if ordered, to be enforced is sufficient”.[14] “Discovery”, therefore consisted in the party who was required to give discovery preparing an affidavit of documents disclosing such documents the party had in his or her possession or power that related to any matter in question or to such issues in relation to which the court ordered the party to give discovery.
[14] Budden v Wilkinson [1893] 2 QB 432 at page 436
In broad terms, the scheme for providing discovery of documents under the rules made pursuant to the Supreme Court of Judicature Act 1875 (UK) was implemented in jurisdictions in Australia when colonial or state legislatures adopted the Judicature System. Discovery of documents, where it must be given, is, in most cases, given by the party identifying in a list of documents the documents in the party’s power or possession that fall within the terms of the obligation to give discovery. There were, and continue to be, however, differences between Australian jurisdictions in the rules dealing with the circumstances in which, and the procedures by which, discovery of documents may be obtained. Jurisdictions differ according to whether discovery is mandatory,[15] or not mandatory. Where discovery is not mandatory, jurisdictions differ according to whether discovery is available only after notice requiring discovery is given by one party to the other,[16] or whether discovery can be given only after the court has ordered so.[17] And there are differences as to the scope of discovery that must be given once an obligation to give discovery accrues.
[15] Supreme Court Rules 1987 (NT) r.29.02; Uniform Procedure Rules 1999 (Qld) r.211, r.214(1)(a); Supreme Court Civil Rules 2006 (SA) r.136.
[16] Court Procedures Rules 2006 (ACT) r.607; Rules of the Supreme Court 1971 (WA) Order 26 r.1; Supreme Court (General Civil Procedure) Rules 2005 (Vic) r.29.02.
[17] Federal Court Rules 2011 (Cth) r.20.12; Uniform Civil Procedure Rules 2005 (NSW) r.21.2
Although the procedures for administering discovery have changed over the years, discovery in its modern form is still regarded as serving purposes identified by the judges of the Court of Chancery. Thus, discovery is still viewed as serving the purpose of full disclosure:[18]
In plain language, litigation in this country is conducted ‘cards face up on the table’. Some people from other lands regard this as incomprehensible. ‘Why,’ they ask, should I be expected to provide my opponent with the means of defeating me?’ The answer, of course, is that litigation is not a war or even a game. It is designed to do real justice between opposing parties and, if the court does not have all the relevant information, it cannot achieve this object.
[18] Davies v Eli Lilly & Co [1987] 1 All ER 801 at 804 (Lord Donaldson MR)
This purpose was also identified by Lander J in Brookfield v Yevad Products Pty Ltd where his Honour said:[19]
The purpose of including a regime which allowed for discovery was to ensure that the parties had full access to all relevant material whether in their hands or their opponents.
The process enables the parties to obtain documents from their opponents which support their own case, and which destroy their opponents’ case.
[19] [2004] FCA 1164 at [365]-[366]
And his Honour identified other purposes of discovery:[20]
It enables the parties to assess their own prospects of success before trial and to ensure that they are not ambushed at trial. Interrogatories also form part of this process and are designed to identify the opposing parties’ oral evidence.
[20] [2004] FCA 1164 at [366]
Viewed alone, these purposes are obviously beneficial to the administration of justice. In modern times, however, courts and legislators are aware that discovery is a costly and time-consuming process, and most jurisdictions in Australia have sought to limit discovery. That has been done either by prohibiting discovery unless a court permits it, or by restricting the range of documents that should be discovered when discovery is permitted, or both.
In summary, therefore, the principal purpose of discovery is to require each party to disclose documents in his or her possession or control that are relevant to the proceedings. That, in turn, increases the probability that a court will have before it all relevant evidence and thus make a decision that is based on the truth of the matter; and, by requiring disclosure of documents before trial, discovery affords the parties a better opportunity to assess the truth of the matter for themselves, and, therefore, be in a position to make a more reasoned decision about the issues that should be tendered to the court for its determination and, indeed, whether the proceeding should be resolved without the expense, delay, stress, and aggravation of a hearing.
Alternative procedures – subpoenas for production and notices to produce
Discovery, then, is a procedure for compelling disclosure of, and gaining access to documents. There is, however, available to this Court, in common with most courts in Australia, another procedure by which parties may be able to obtain documents from each other; and that is by the issue of subpoenas for production.
Under s.84 of the FCCA Act, Rules of Court the Judges of the Court may make under s.81 of the FCCA Act may provide for “subpoenas”. The FCC Rules do provide for subpoenas, and these are contained in Part 15A. Subrule 15A.02(1) provides that the Court may, at the request of a party, issue, among other things, a “subpoena for production”. A subpoena for production may be issued to a party as well as to persons who are not parties to the proceedings.
The nature of the subpoena for production the Court may issue is apparent from the prescribed form of subpoena.[21] A subpoena for production is an order. It orders the person to whom it is addressed to produce documents to the Court. The documents must be described in a schedule to the subpoena, it being a requirement under r.15A.02(4) of the FCC Rules that the subpoena for production “must include an adequate description of the document”. And the subpoena must specify a date and a time on which, and the place at which, the documents must be produced to the Court.
[21] There is only one prescribed form of subpoena. However, by ticking the appropriate box before the words “Produce documents to the Court”, the subpoena becomes a subpoena for production,.
A subpoena cannot be used as a substitute for discovery, or as a substitute for an application for better discovery. That is an old rule. Because of the enlargement of the use of subpoenas for production in modern times, however, the rule now is of relatively limited application. The traditional justification for the rule differed according to whether the subpoena for production was issued to a non-party or to a party. In the case of a non-party, the justification was that the non-party, being a stranger to the litigation, would not know what matters are in issue between the parties.[22]
It is not legitimate to use a subpoena for the purpose of endeavouring to obtain what would be in effect discovery of documents against a person who, being a stranger, is not liable to make discovery. A stranger to the cause ought not to be required to go to trouble and perhaps to expense in ransacking his records and endeavouring to form a judgment as to whether any of his papers throw light on a dispute which is to be litigated upon issues of which he is presumably ignorant.
[22] The Commissioner for Railways v Small (1938) 38 SR (NSW) 564 at page 573 (Jordan CJ)
In the case of parties to litigation, the principal objection to using discovery as a substitute for discovery was it would disrupt the normal course of litigation.[23]
Where the subpoena is addressed to a party, it is still necessary that it should state with reasonable particularity the documents which are to be produced . . . It is true that a party, unlike a stranger, can be required to give discovery; but it is not legitimate to use a writ of subpoena duces tecum as a substitute for an application for discovery of documents, or as an alternative to an application for further and better discovery. Discovery applications should be made at the proper time and place. It would greatly impede the trial of actions at nisi prius, and impose an intolerable burden upon the presiding judge, if he were required from time to time to suspend proceedings and wade for himself through masses of documents for the purpose of endeavouring to determine whether any of them are relevant.
[23] The Commissioner for Railways v Small (1938) 38 SR (NSW) 564 at page 574 (Jordan CJ)
As this passage itself indicates, the rationale for the rule prohibiting the use of subpoena as a substitute for discovery was stated at a time where subpoenas for production were only to be made returnable at the final hearing. The position under modern rules of procedure, including those of this Court, is different. Under r.15A.02(4) of the FCC Rules, a subpoena requiring production only may be made returnable at a time fixed by the Court, including on a day in advance of the hearing; and under the rules contained in Division 15A.2 of the FCC Rules, parties are entitled to gain access to documents produced on subpoena, subject to any objections the person producing the documents may raise. This reflects the practice described by Clarke J in Southern Pacific Hotel Services Inc v Southern Pacific Hotel Corp Ltd: [24]
The practice of requiring a party to make subpoenas returnable days, weeks or months before the trial, as is appropriate, has been followed by judges administering the Commercial List for many years. It is a practice designed to further the ends of justice, in particular by avoiding the time wasting and distractions during the trial involved in dealing with objections, sometimes lengthy, to the production of documents. It is also designed to minimize the need for amendments of pleadings, for wasteful adjournments, and overall to enable the Commercial Court to carry out its task of providing an expeditious hearing of commercial disputes.
[24] [1984] 1 NSWLR 710 at 716
The principle that subpoenas must not be used as a substitute for discovery does not require that the subpoena identify documents individually. It is permissible to describe documents by reference to, or in relation to, a particular subject matter. Waddell J made this point in Spencer Motors Pty Ltd v LNC Industries Ltd. [25] After referring to the passage I have reproduced in paragraph 35 of these reasons, his Honour said:[26]
It is, of course, important not to read the passage cited as forbidding the use of expressions such as “relating to”. Taken as a whole, the passage indicates that what is objectionable is placing on the person to whom a subpoena is addressed the same kind of burden as is placed on a party required to give discovery of documents. Broadly speaking, that burden is to go through the documents in his possession or power and list each document which relates to the matters in question in the proceeding in the sense that “it contains information which may — not which must — either directly or indirectly enable the party requiring the discovery either to advance his own case or to damage the case of his adversary, or which may fairly lead to a train of inquiry which may have either of these two consequences”: . . .
Use of expressions such as “relating to” need not result in there being any oppression or abuse of process. It all depends on the context in which the expression is used. For instance, it could hardly be said to be objectionable to require a person to produce all “invoices” relating to sales of a particular item to the defendant on a particular day. The use of the word “invoices” would restrict the potential width of the expression “relating to”.
[25] [1982] 2 NSWLR 921
[26] [1982] 2 NSWLR 921 at 929
Also relevant is the following passages from the judgment of Clarke J in Southern Pacific Hotel Services Inc v Southern Pacific Hotel Corp Ltd:[27]
[I]t does not follow . . . that a subpoena requiring the production of documents relating to a specified subject matter is necessarily objectionable on the ground it calls for discovery. . . .
I have been at pains in this judgment to point out that court procedures are designed to bring about, as far as possible, an efficient and expeditious resolution of disputes between parties. They are essentially practical matters. The subpoena, which is an important part of the process, requires a person, quite often a lay person, to bring to court documents which may be specified in particular or general terms. The recipient is not and should not be required to consult a dictionary and then carry out an exercise in construction of the document before embarking upon the collection of the documents. The court, in determining whether a subpoena is oppressive, is concerned with whether in all the circumstances the demand is, for relevant purposes, too wide or uncertain. For this purpose it must determine whether the terms of the subpoena convey to the recipient in relatively clear language the document or class of document called for. The court would inquire, I apprehend, as to the meaning which would be conveyed to members of the public as opposed to the meanings which might be conveyed to lawyers engaged in a debate upon construction. It seems to me that, in the context of the subpoena with which I am presently concerned, the recipient would not be concerned with fine distinctions between “relating to” and “referring to” and would read them as broadly calling for the same range of documents.
[27] [1984] 1 NSWLR 710 at 718; and 720-721
There is one final, yet important, matter I need to note about subpoenas for production. Not only must the subpoena for production sufficiently describe the documents that must be produced. The documents it describes must be related to an issue or issues in the proceedings. The relationship that documents described in a subpoena for production must have to the issues in a proceeding was recently described by the Full Federal Court in Wong v Sklavos as follows (omitting authorities cited):[28]
The party issuing a subpoena bears the onus of demonstrating that the subpoena has a legitimate forensic purpose in relation to the issues in the proceedings. A subpoena may be set aside if it requires the production of documents which do not have apparent relevance to the issues arising on the pleadings. Other cases have used different terminology, but with essentially the same effect, for example, by requiring that, viewed realistically, the documents sought have a bearing on an issue which is not unreal, fanciful or speculative, or that the material sought is reasonably likely to add in some way to the relevant evidence in the case, or that it be “on the cards” that the documents sought will materially assist the party at whose request the subpoena has been issued.
[28] [2014] FCAFC 120 at [12]
In addition to subpoenas for production, a party may be able to compel another party to produce documents by issuing a notice to produce. That is provided for by r.15A.17 of the FCC Rules. This rule, however, only permits the notice to produce to require production at a hearing. There is no reason, however, having regard to the objects in s.3 of the FCCA Act, why the Court could not authorise a party to issue a notice to produce to the other party returnable at a time and place earlier than the hearing.
It should be apparent that, in many cases, a party would be able to obtain by subpoena for production documents he or she would be able to obtain through discovery. There are, nevertheless, two differences between a party obtaining documents from another party through a subpoena rather than through discovery. The first is that the party seeking the documents must describe the documents in the subpoena for production whereas that need not be the case if the party seeks to obtain documents through discovery. This difference, however, is more apparent than real. Under r.14.02(2) of the FCC Rules, the Court may order discovery by reference to classes of documents. It is the usual practice in jurisdictions where discovery will not be allowed without a court order that applications for discovery are made by reference to classes of documents. In such applications, the party seeking discovery describes the classes of documents he or she claims should be discovered, often with a particularity that would constitute a sufficient description of documents for the purposes of a subpoena for production.
The second difference is that the party who produces documents in answer to a subpoena for production is not required to list the documents he or she produces and verify by affidavit that he or she has produced all the documents described in the subpoena. This difference, too, is more apparent than real. As I have already noted, the purpose of an affidavit of documents is to enable the Court to make an order for the production of the documents mentioned in it. Such affidavit would not be required where a subpoena to produce is used because the documents to be produced will be described in the subpoena.
From what I have said, there would appear to be little difference in substance between obtaining documents through discovery, at least where discovery is given by reference to classes of documents, and obtaining documents through subpoenas for production. That may be so. Nothing I say in these reasons, however, should be taken to licence the indiscriminate use of subpoenas for production at an early stage in proceedings, and in particular before the parties have filed their written evidence. The usual course of proceedings will be for parties to apply for the issue of subpoenas or to issue notices to produce after they have filed their evidence.
The claims in relation to which Mr Harwood seeks discovery
To understand the discovery Mr Harwood seeks, if a declaration is made under s.45 of the FCCA Act, and the grounds on which he seeks the declaration, it will be necessary to describe in a little more detail the claims he makes in his statement of claim.
Mr Harwood makes four claims. The first is that the Trustee objected to Mr Harwood being discharged from bankruptcy when the Trustee had no valid basis or evidence to do so.[29] That claim is based on two representations, one the Trustee allegedly made to Mr Harwood in June or July 2008, and one the Trustee’s servant allegedly made to Mr Harwood in early 2009. Mr Harwood alleges the Trustee represented to Mr Harwood that he need not worry about paying income contributions until “ITSA jump up and down”; and he alleges the Trustee’s servant represented he would get back (but did not get back) to Mr Harwood as to why Mr Harwood was required to complete an income questionnaire Mr Harwood received on or about 17 November 2008. Mr Harwood claims he relied on these representations and, as a result, he was exposed to the Trustee’s objecting under s.149D(1)(f) of the Act to Mr Harwood’s being discharged from bankruptcy under s.149.
[29] Statement of Claim, 24.12.2014, [6.a.]
The second claim is that the Trustee failed to properly exercise his powers in relation to a proposal Mr Harwood provided to the Trustee under s.73 of the Act for a composition or scheme of arrangement with Mr Harwood’s creditors.[30] This claim is based on two broad allegations. One is that the report to creditors the Trustee prepared in response to Mr Harwood’s proposal contained a number of errors. The other allegation is that the Trustee refused Mr Harwood’s request that the Trustee adjourn the meeting of creditors that had been convened on 26 November 2014 to consider Mr Harwood’s proposal.
[30] Statement of Claim, 24.12.2014, [6.b.]
The third claim is that the Trustee has incorrectly asserted, and continues to assert, that Mr Harwood is liable to pay income contributions to Mr Harwood’s estate.[31]
[31] Statement of Claim, 24.12.2014, [6.c.]
Mr Harwood alleges, on the basis of these claims, that the Trustee failed to act honestly and impartially, he failed to avoid a conflict of interest and duty, he failed to exercise his powers in good faith, he failed to exercise his powers for the purposes for which they were conferred, he failed in his duty not to use or deal with the property for his own advantage, he failed in his duty to exercise his powers reasonably, and he failed in his duty to act with reasonable diligence.
The fourth claim is that the Trustee failed to use notices available under s.139ZL(1) of the Act to collect contributions at the earliest opportunity, failed to object to Mr Harwood’s discharge earlier than 4 December 2009, and failed to declare dividends in a timely manner.[32] This claim is based on a limited set of alleged facts pleaded in paragraph 12 of the statement of claim. On the basis of those alleged facts, Mr Harwood claims the Trustee failed in his duties to administer the estate as efficiently as possible and in a commercially sound way.
[32] Statement of Claim, 24.12.2014, [13.a.i.]
The discovery Mr Harwood seeks
As I note at the beginning of these reasons, Mr Harwood will not seek general discovery if a declaration under s.45 of the FCCA Act is made. He will seek discovery of classes of documents. He describes the classes in the fourth column of the schedule (Schedule) that is attached to his written outline of submissions. In addition to identifying the classes of documents, the Schedule purports to identify by reference to the pleadings the issues that arise to which each class of documents is relevant, and how each class is relevant to each of the issues that are identified in the Schedule.
Parties’ submissions
Mr Harwood submits that whether or not the Court should make a declaration turns on applying and weighing the factors Lucev FM (as his Honour then was) identified in Abrahams v Qantas Airways Ltd (No.2).[33] Those factors are whether the discovery sought would be likely to contribute to the fair and expeditious conduct of the proceedings, the relevance of the documents sought to be discovered, the volume of documents to be discovered, whether there is a court book containing relevant documents, whether discovery would narrow the issues, and whether both parties seek discovery. [34]
[33] [2007] FMCA 639
[34] [2007] FMCA 639 at [25]
Mr Harwood submits that most of these factors are present in the case before me, and they favour the granting of the declaration he seeks. First, Mr Harwood submits that the documents of which he seeks discovery are likely to contribute to the fair conduct of the proceedings. All the documents are contained in the client file maintained by the Trustee; discovery will give him access to documents that are relevant and admissible; the statement of claim alleges serious breaches of duty by the Trustee; and allowing discovery would not be unduly burdensome on the Trustee. Second, discovery will contribute to the expeditious conduct of the hearing because no hearing date has yet been set; discovery may assist the parties to narrow the issues; and discovery will assist in reducing insufficient or inadequate preparation of the case or inquiry in relation to the Trustee’s conduct. Third, the documents Mr Harwood seeks to be discovered are relevant to issues in the proceedings.
The Trustee, on the other hand, submits the discovery Mr Harwood seeks is not appropriate in the interests of the administration of justice. The principal ground on which the Trustee relies is what he submits is the extraordinary ambit of the documents of which Mr Harwood seeks discovery.
Should a declaration under s.45 be made?
Mr Harwood has not submitted he could not obtain the documents of which he seeks discovery by a less formal procedure than discovery, and in particular, by issuing a subpoena or notice to produce. There is no reason why an appropriately drafted subpoena to produce could not be issued to obtain documents relevant to Mr Harwood’s claims. For those reasons alone, I cannot be satisfied it is appropriate in the interests of the administration of justice to allow discovery in these proceedings.
In any event, many, if not most, of the classes of documents of which Mr Harwood seeks discovery go far beyond the issues raised on the pleadings. Even if I were to declare that discovery is appropriate in the interests of the administration of justice, Mr Harwood would not be entitled to obtain discovery of many, if not most, of the classes of documents for which he seeks discovery.
I first turn to the classes of documents Mr Harwood says relate to paragraph 6.a. of the statement of claim. That paragraph alleges the Trustee “objected to the applicant’s discharge when he did not have a valid basis or evidence to do so”. The Schedule claims the following five issues of fact arise from the Trustee’s denying that allegation:
a)Whether the Trustee had any valid basis to object to the discharge from bankruptcy.
b)Whether the Trustee had any valid evidence to object to the discharge from bankruptcy.
c)Whether the contents of the objection to the discharge were correct.
d)Whether the Trustee made the representations alleged to have been made by him or on his behalf.
e)Whether Mr Harwood relied on the representations in failing to meet his obligations under s.149D of the Act.
On the basis of these five issues, the Schedule seeks discovery of the following classes of documents:
a)File notes, memoranda, or any other document recording any “oral conversation” between Mr Harwood and the Trustee “or his servants and/or agents between the period 5 December 2006 – 4 December 2009” and “between the period 5 December 2009 – 30 July 2010”.
b)Any correspondence between the Trustee “or any of his servants and/or agents during the period 5 December 2006 – 4 December 2009” and between the period “5 December 2009 – 30 July 2010”.
c)To the extent they do not fall within (a) or (b), all documents between the period 5 December 2006 to 4 December 2009 relating to “Assets/Realisations”; income contributions; “Creditors/Proof of debts”; fees, remuneration, expenses, charges; dividends; and objections.
The first three of the issues the Schedule identifies do not arise out of the Trustee’s denial of paragraph 6.a. of the statement of claim. The matters on which paragraph 6.a. relies for alleging the Trustee did not have grounds for opposing Mr Harwood’s discharge is the Trustee and his servant having made the representations alleged in paragraphs 6.a.ii.1. and 6.a.ii.2 of the statement of claim. The only issues that arise out of the Trustee’s denial of paragraph 6.a., therefore, are:
a)whether the Trustee and his servant made the representation alleged in paragraphs 6.a.ii.1. and 6.a.ii.2 of the statement of claim; and
b)whether Mr Harwood failed to comply with the matters on which the Trustee relied under s.149D(1)(f) of the Act for opposing the discharge because Mr Harwood relied on the representations pleaded in 6.a.ii.1. and 6.a.ii.2 of the statement of claim.
At most, the only documents that could reasonably be sought from the Trustee on the issues arising out of the Trustee’s denial of paragraph 6.a. of the statement of claim are documents recording or referring to the conversations in which Mr Harwood alleges representations were made.
Next, there is the allegation made in paragraph 6.b. of the statement of claim that the Trustee failed to properly exercise his powers in relation to the proposal Mr Harwood submitted under s.73 of the Act. The Schedule claims the following issues of fact arise out of the Trustee’s denial of that paragraph:
a)Whether the errors and misrepresentations in the report to creditors alleged in the statement of claim were in fact errors or were in fact misleading or incorrect.
b)Whether the creditors relied on the alleged errors and misrepresentations when voting on Mr Harwood’s proposal.
The Schedule seeks discovery of classes of documents that include the following:
a)Documents that the Schedule claims are discoverable in relation to the issues arising out of the Trustee’s denial of paragraph 6.a. of the statement of claim.
b)File notes of conversations between Mr Harwood and his agents, on the one hand, and the Trustee and his agents, on the other hand, in relation to the allegation made in paragraph 6.b.iii.3. of the statement of claim. That paragraph refers to an alleged statement in the creditors’ report of Mr Harwood’s solicitor reneging on an agreement to provide assistance.
c)All documents relating to antecedent or “potential antecedent transactions”. These documents are alleged to relate to paragraph 6.b.iii.4 of the statement of claim where it is alleged the report to creditors referred to potential antecedent transactions.
d)All documents relating to the amount owing to creditors in the bankrupt estate as at the date of the report to creditors. This is said to relate to the allegation made in paragraph 6.b.iii.7.d. of the statement of claim that the comparison referred to in the report to creditors between the benefits and alleged detriments of Mr Harwood’s proposal was misleading because the comparison was based on original amounts of the creditors’ claims rather than on what was owing to each creditor as at the date of the proposal.
e)All documents relating to the alleged writing by Mr Harwood to his creditors of a letter in which he pointed out all of the alleged errors and omissions in the creditors’ report including file notes of conversations between the Trustee and his agents and creditors in relation to such letter.
Except for the documents to which I refer in paragraph 60(b) of these reasons, all other documents I have described in paragraph 60 of these reasons include documents that extend beyond the issues to which Mr Harwood claims they relate.
I pass on to the documents of which Mr Harwood seeks discovery in relation to the allegations made in paragraph 12 of the statement of claim. That paragraph alleges: the Trustee assessed the applicant for CAP 1 (by which I understand Mr Harwood means the first contribution assessment period) in January 2007; the Trustee sent to Mr Harwood a questionnaire for CAP 2 on 15 November 2007; the Trustee, in December 2007, reassessed the applicant for CAP 1 and assessed the applicant for CAP 2; Mr Harwood made a contribution of $1,000 on 23 January 2008; on 13 June 2008 Mr Harwood made a contribution of $87,294.67 using the proceeds of an inheritance; Mr Harwood had a conversation with the Trustee in which the Trustee made the representation on which Mr Harwood relies for his first claim; the Trustee sent to Mr Harwood a questionnaire for CAP 3 on or about 17 November 2008; and the Trustee objected to Mr Harwood’s being discharged from bankruptcy.
From these allegations, the Schedule claims a number of issues arise, including the following:
a)Whether Mr Harwood was making voluntary payments towards his income contributions liability in excess of the amount that would otherwise be recovered using a statutory notice.
b)Whether the Trustee failed to use s.139ZL notices earlier than he did.
c)Whether the Trustee had a valid basis and sufficient evidence to object to Mr Harwood’s discharge from bankruptcy.
d)Whether the Trustee, if he was so entitled, should have objected to Mr Harwood’s discharge.
I cannot conceive how these issues can be said to arise from the allegations made in paragraphs 12 and 13 of the statement of claim. I can understand Mr Harwood may wish to make the issues identified in this part of the Schedule issues in his application. That, however, is not how the statement of claim is pleaded. Although Mr Harwood alleges the Trustee failed to administer the estate efficiently and in a commercially sound way, the factual basis of those allegations is the relatively restricted set of facts alleged in paragraph 12 of the statement of claim. The documents to which Mr Harwood would be entitled by way of discovery or even by notice to produce would extend no further than documents that relate to the matters alleged in paragraph 12 of the statement of claim, and then only to the extent the Trustee disputes them. The documents for which Mr Harwood seeks discovery extend far beyond the matters alleged in paragraph 12 of the statement of claim.
I do not propose to examine all the other categories of documents the applicant seeks to have discovered. For the most part, the categories are broader than is warranted by the issue to which Mr Harwood claims the documents relate.
Conclusion
For these reasons, I am not satisfied I should make a declaration under s.45 of the FCCA Act. I propose, therefore, to dismiss Mr Harwood’s application for a declaration under s.45 of the FCCA Act. I also propose to order that Mr Harwood pay the Trustee’s costs of that application.
Further progress of the proceedings
As I have already noted, Mr Harwood claims relief under both s.178 and s.179 of the Act. Applications under s.179 are usually dealt with according to the two stage procedure described by French J (as his Honour then was) in Macchia v Nilant:[35]
As appears from the language of s 179 it invites first a consideration, albeit upon application by a person with standing, of whether the Court should inquire into the conduct of the trustee. If inquiry is undertaken, the next question is whether the trustee should be removed from office and/or any other order made. The first question requires the Court to consider whether, on the grounds and facts before it, a case has been made for an inquiry . . . . The application of s 179 to that first step involves a broad discretion as to whether or not there are sufficient grounds to make an inquiry appropriate . . .
[35] [2001] FCA 7 at [49]. This passage was reproduced with approval by the Full Federal Court in Ferella v Official Trustee in Bankruptcy [2013] FCAFC 43 at [39].
Counsel for the Trustee has submitted draft directions that do not propose a preliminary hearing to determine whether there is a case for an inquiry. Given Mr Harwood also claims relief under s.178 of the Act, and the facts on which he relies for relief under that section substantially overlap with those on which he relies for an inquiry under s.179, it is appropriate that there not be a preliminary hearing on that part of Mr Harwood’s claim based on s.179 of the Act.
The Trustee’s proposed directions provide for the filing and serving of affidavits, and an order that the matter be referred to mediation. I propose to make directions to the effect suggested by counsel for the Trustee and to order that the matter be referred to mediation. I also propose to order that Mr Harwood issue no subpoena or notice to produce without first obtaining the leave of the Court.
I certify that the preceding sixty-nine (69) paragraphs are a true copy of the reasons for judgment of Judge Manousaridis
Associate:
Date: 28 April 2015
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