Kelbush Pty Ltd v Australia and New Zealand Banking Group Ltd
[2016] WASCA 14
•28 JANUARY 2016
KELBUSH PTY LTD -v- AUSTRALIA AND NEW ZEALAND BANKING GROUP LTD [2016] WASCA 14
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2016] WASCA 14 | |
| THE COURT OF APPEAL (WA) | |||
| Case No: | CACV:68/2015 | 9 NOVEMBER 2015 | |
| Coram: | MARTIN CJ BUSS JA MITCHELL J | 28/01/16 | |
| 36 | Judgment Part: | 1 of 1 | |
| Result: | Leave to appeal granted Appeal allowed Pre-action discovery orders made | ||
| A | |||
| PDF Version |
| Parties: | KELBUSH PTY LTD AUSTRALIA AND NEW ZEALAND BANKING GROUP LTD |
Catchwords: | Practice and procedure Pre-action discovery Whether appellant demonstrated that it may have a cause of action against respondent Whether alleged misleading and deceptive conduct may have caused loss to the appellant Whether discovery orders proportionate to the value of the appellant's claim |
Legislation: | Australian Consumer Law, s 18 Corporations Act 2001 (Cth), s 1041H Rules of the Supreme Court 1971 (WA), O 1 r 4B, O 26A r 4 |
Case References: | ABB Service Pty Ltd v Hetherington [2001] WASCA 417 Abigroup Contractors Pty Ltd v Sydney Catchment Authority [2004] NSWCA 270 Australian Competition and Consumer Commission v TPG Internet Pty Ltd [2013] HCA 54; (2013) 250 CLR 640 Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60; (2004) 218 CLR 592 Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd [2010] NSWSC 233; (2010) 238 FLR 384 Central Exchange Ltd v Anaconda Nickel Ltd [2002] WASCA 94; (2002) 26 WAR 33 Commonwealth Bank of Australia v ZYX Learning Centres Ltd [2014] NSWSC 1676 Dye v Griffin Coal Mining Co (1998) 19 WAR 431 Forrest v ASIC [2012] HCA 39; (2012) 247 CLR 486 Gull Petroleum (WA) Ltd v Tah Land Pty Ltd [2001] FCA 1531 Hanave Pty Ltd v LFOT Pty Ltd [1999] FCA 357; (1999) 43 IPR 545 Hearne v Street [2008] HCA 36; (2008) 235 CLR 125 I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd [2002] HCA 41; (2002) 210 CLR 109 Kelbush Pty Ltd v Australia and New Zealand Banking Group Ltd [2015] WASC 117 Lord Buddha Pty Ltd v Harpur [2013] VSCA 101; (2013) 41 VR 159 Malouf v Malouf [1999] FCA 284; (1999) 86 FCR 134 Norcast S.ár.L v Bradken Ltd [No 2] [2013] FCA 235; (2013) 219 FCR 14 Roe v The State of Western Australia [2013] WASC 130 Rossen v Airey [2012] WASCA 26 Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 Sheraz Pty Ltd v Vegas Enterprises Pty Ltd [2015] WASCA 4; (2015) 48 WAR 93 The State of Western Australia v Bond Corporation Holdings Ltd (1991) 5 WAR 40 Waller v Waller [2009] WASCA 61 Wilson v Metaxas [1989] WAR 285 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA TITLE OF COURT : THE COURT OF APPEAL (WA) CITATION : KELBUSH PTY LTD -v- AUSTRALIA AND NEW ZEALAND BANKING GROUP LTD [2016] WASCA 14 CORAM : MARTIN CJ
- BUSS JA
MITCHELL J
- Appellant
AND
AUSTRALIA AND NEW ZEALAND BANKING GROUP LTD
Respondent
ON APPEAL FROM:
Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA
Coram : MASTER SANDERSON
Citation : KELBUSH PTY LTD -v- AUSTRALIAN & NEW ZEALAND BANKING GROUP LTD [2015] WASC 117
File No : CIV 2488 of 2014
Catchwords:
Practice and procedure - Pre-action discovery - Whether appellant demonstrated that it may have a cause of action against respondent - Whether alleged misleading and deceptive conduct may have caused loss to the appellant - Whether discovery orders proportionate to the value of the appellant's claim
Legislation:
Australian Consumer Law, s 18
Corporations Act 2001 (Cth), s 1041H
Rules of the Supreme Court 1971 (WA), O 1 r 4B, O 26A r 4
Result:
Leave to appeal granted
Appeal allowed
Pre-action discovery orders made
Category: A
Representation:
Counsel:
Appellant : Mr M L Bennett
Respondent : Mr M F Holler
Solicitors:
Appellant : Bennett + Co
Respondent : Norton Rose Fulbright Australia
Case(s) referred to in judgment(s):
ABB Service Pty Ltd v Hetherington [2001] WASCA 417
Abigroup Contractors Pty Ltd v Sydney Catchment Authority [2004] NSWCA 270
Australian Competition and Consumer Commission v TPG Internet Pty Ltd [2013] HCA 54; (2013) 250 CLR 640
Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60; (2004) 218 CLR 592
Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd [2010] NSWSC 233; (2010) 238 FLR 384
Central Exchange Ltd v Anaconda Nickel Ltd [2002] WASCA 94; (2002) 26 WAR 33
Commonwealth Bank of Australia v ZYX Learning Centres Ltd [2014] NSWSC 1676
Dye v Griffin Coal Mining Co (1998) 19 WAR 431
Forrest v ASIC [2012] HCA 39; (2012) 247 CLR 486
Gull Petroleum (WA) Ltd v Tah Land Pty Ltd [2001] FCA 1531
Hanave Pty Ltd v LFOT Pty Ltd [1999] FCA 357; (1999) 43 IPR 545
Hearne v Street [2008] HCA 36; (2008) 235 CLR 125
I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd [2002] HCA 41; (2002) 210 CLR 109
Kelbush Pty Ltd v Australia and New Zealand Banking Group Ltd [2015] WASC 117
Lord Buddha Pty Ltd v Harpur [2013] VSCA 101; (2013) 41 VR 159
Malouf v Malouf [1999] FCA 284; (1999) 86 FCR 134
Norcast S.ár.L v Bradken Ltd [No 2] [2013] FCA 235; (2013) 219 FCR 14
Roe v The State of Western Australia [2013] WASC 130
Rossen v Airey [2012] WASCA 26
Sellars v Adelaide Petroleum NL (1994) 179 CLR 332
Sheraz Pty Ltd v Vegas Enterprises Pty Ltd [2015] WASCA 4; (2015) 48 WAR 93
The State of Western Australia v Bond Corporation Holdings Ltd (1991) 5 WAR 40
Waller v Waller [2009] WASCA 61
Wilson v Metaxas [1989] WAR 285
1 MARTIN CJ: This appeal should be allowed, and the orders proposed by Mitchell J made for the reasons given by his Honour, with which I agree. However, I wish to add a few observations of my own.
2 It is difficult to overstate the importance of the principle of proportionality embodied in O 1 r 4B of the Rules of the Supreme Court 1971 (WA). That rule expressly requires that all the rules of court are to be construed and applied, and all the processes and procedures of the court are to be conducted, so as to best ensure the achievement of the objectives inherent in that principle.
3 This case provides an example of the pervasive impact which the principle of proportionality has upon many, if not all, interlocutory procedures. The principle requires that O 26A be construed and applied so that the time, cost and resources expended by the parties and by the court is proportionate to the forensic significance of the issue raised by the application. It follows that the ambit of the evidence reasonably required to establish that the applicant 'may have a cause of action' will be assessed in the context of the character and the ambit of the relief sought. The character of the relief is, in the case of an application made pursuant to r 4 of O 26A, an order for discovery limited to the provision of documents that may assist the applicant in making a decision as to whether proceedings should be commenced against a potential party. Although an order made pursuant to that rule may impose burdens upon the party against whom it is made, that burden will almost invariably be defrayed by an order that the applicant pay that person's reasonable costs of providing the discovery sought. Although an order made under O 26A r 4 may also infringe the privacy or confidentiality of the person against whom the order is made, an order for discovery is fundamentally different in character to a final judgment upon substantive rights and obligations.
4 The ambit of the order sought will, of course, depend upon the particular circumstances of the application. In this case, the ambit of discovery initially sought was broad, and there was evidence that the burden of providing discovery of that breadth would have been substantial. However, prior to the hearing, the ambit of discovery sought was confined to emails sent or received by one person on particular topics over a period of approximately two and a half months. In the absence of evidence it can be inferred that the burden of providing discovery within that narrow ambit would not be significant, and the respondent did not contend otherwise.
5 So, in this case, the proportionality principle requires that O 26A be construed and applied in such a way that the time and cost incurred in presenting evidence which establishes that the applicant may have a cause of action against the respondent, and in particular, the level of detail to which that evidence descends, is proportional to the character of the order sought, that order being limited to an order for discovery of a confined ambit. In the circumstances of this case, the proportionality principle would be infringed if O 26A was construed and applied in such a way as to effectively require the applicant to adduce evidence sufficient to establish a prima facie case in respect of each and every element of each and every prospective cause of action which it may have against the respondent.
6 The proportionality principle is also relevant to the exercise of the discretion conferred by O 26A. As with discovery ordered in the course of pending proceedings pursuant to O 26, the cost and delay involved in the provision of the discovery sought must be proportionate to the forensic benefit likely to be derived and to the value and importance or complexity of the subject matter of the proceedings.1 As Mitchell J observes, the evidence currently before the court suggests that the quantum of the appellant's claim against the respondent will be much less than the invoiced amount of $686,375.30. In that context, when the ambit of the discovery initially sought was such that the respondent estimated that it would cost between $323,920 and $647,100 to provide that discovery, the proportionality principle would have militated strongly against the exercise of the discretion to order the discovery sought. However, after the ambit of the discovery sought was confined to the point at which it can be inferred that the burden of providing the discovery sought will not be onerous, and the appellant will in any event be ordered to indemnify the respondent in respect of the cost of providing the discovery sought, the proportionality principle provides no impediment to the exercise of discretion in favour of the appellant.
7 BUSS JA: I agree with the orders proposed by Mitchell J.
8 Subject to the following observations about the proper construction and effect of O 26A r 4 of the Rules of the Supreme Court 1971 (WA), I agree generally with Martin CJ's reasons and Mitchell J's reasons.
9 Order 26A r 4 provides:
(1) This rule applies if a person who may have a cause of action against a person whose description has been ascertained (the potential party) wants -
(a) to commence proceedings against the potential party; or
(b) to take proceedings against the potential party in the course of an action to which the person is a party,
but the person, after reasonable enquiries, has not been able to obtain sufficient information to enable a decision to be made as to whether to commence or take the proceedings.
(2) If there are reasonable grounds for believing that the potential party had, has, or is likely to have had or to have, possession of documents that may assist in making the decision, the person may apply for an order under this rule.
(3) The application shall be supported by an affidavit and a copy of both shall be served on the potential party.
(4) On the application the Court may order the potential party to give discovery of all documents that are or have been in the potential party's possession and that may assist the applicant in making the decision.
10 By O 26A r 4(1), O 26A r 4 applies if the following conditions are satisfied.
11 First, there must be a person (the person) who 'may have a cause of action' against a person whose description has been ascertained (the potential party).
12 Secondly, the person must want:
(a) to commence proceedings against the potential party; or
(b) to take proceedings against the potential party in the course of an action to which the person is a party.
13 Thirdly, the person must have made 'reasonable enquiries' for the purpose of obtaining sufficient information to enable the person to make a decision as to whether to commence or take the proceedings.
14 Fourthly, after making those reasonable enquiries, the person has not been able to obtain sufficient information to enable the decision to be made.
15 By O 26A r 4(2), properly construed, if:
(a) O 26A r 4 applies because the conditions specified in O 26A r 4(1) have been satisfied; and
(b) there are 'reasonable grounds for believing' that the potential party had, has, or is likely to have had or to have, possession of documents that may assist in making the decision,
the person may apply for an order under O 26A r 4.
16 By O 26A r 4(3), an application under O 26A r 4 must be supported by an affidavit, and a copy of the application and the affidavit must be served on the potential party.
17 By O 26A r 4(4), properly construed, if the person makes an application under O 26A r 4, supported by an affidavit, and the person persuades the Court that:
(a) the conditions specified in O 26A r 4(1) have been satisfied;
(b) there are reasonable grounds for believing that the potential party had, has, or is likely to have had or to have, possession of documents that may assist the person in making a decision as to whether to commence or take the proceedings against the potential party, as required by O 26A r 4(2); and
(c) a copy of the application and the affidavit have been served on the potential party, as required by O 26A r 4(3),
then the Court's discretionary power under O 26A r 4(4) is enlivened.
18 Order 26A r 4(4) empowers the Court, in its discretion, to order the potential party to give discovery of all documents that are or have been in the potential party's possession and that may assist the person in making the decision.
- MITCHELL J:
Summary
19 The appellant carries on the business of hiring vehicles to commercial users, primarily in the mining and construction sector. The appellant is also a creditor of Forge Group Construction Pty Ltd (Forge Construction), which entered voluntary administration on 11 February 2014.
20 Prior to entering administration, Forge Construction's parent company, Forge Group Ltd (Forge Group), made a number of announcements to the Australian Securities Exchange (ASX). The appellant contends that those ASX announcements conveyed the message that Forge Group had the support of the respondent as its financier, which solved its liquidity issues and allowed it to continue to trade on a 'business as usual basis'. The appellant says that a report subsequently prepared by the administrators of Forge Group suggests that the ASX announcements were misleading and deceptive in those respects. The appellant contends that Forge Group may have contravened s 18 of the Australian Consumer Law and s 1041H of the Corporations Act 2001 (Cth)in making the ASX announcements.
21 The appellant says that it relied on the ASX announcements in deciding to continue its hire agreements with Forge Construction.
22 As Forge Group and Forge Construction have gone into liquidation, the appellant does not wish to take action against those companies. However, the appellant says that it will have a right to seek damages against the respondent if the respondent was involved in making the ASX announcements. The appellant does not currently know the extent, if any, to which the respondent was involved in making the ASX announcements, but apprehends from certain circumstances that it may have been involved.
23 The appellant sought pre-action discovery from the respondent of documents which would show the existence and extent of the respondent's involvement in making the ASX announcements. That order was sought under O 26A r 4 of the Rules of the Supreme Court 1971 (WA). In order to enliven the court's discretion under that rule, it was necessary for the appellant to establish that it may have a cause of action against the respondent.
24 At first instance, the master dismissed the application on the ground that the appellant had not established that it may have a cause of action against the respondent. He did so for the reason that the appellant had not established that it may have suffered loss because of the alleged misleading and deceptive conduct. The basis for this conclusion was that the appellant had no right to terminate the contracts for the hire of vehicles.
25 In my view the master erred in so holding. The appellant appears to have had a right to demand or take possession of the vehicles from, at the latest, 14 January 2014, when Forge Construction failed to pay hire charges by the due date. The loss which the appellant may have sustained because of the allegedly misleading and deceptive conduct is the loss of the commercial opportunity to recover possession of vehicles hired to Forge Construction and rehire them to a customer which would actually pay the hire charges. The basis on which the master concluded the appellant had failed to establish that it may have a cause of action against the respondent was erroneous.
26 The error having been identified, it falls on this court to consider how the discretion should be exercised.
27 I have concluded that the court should exercise its discretion to require the respondent to provide limited pre-action discovery. While the appellant's prospective case cannot be said to be strong on the presently available material, it may have a case and the burden cast on the respondent by the proposed orders is not great. The appellant requires the documents to decide whether to commence proceedings, and without access to the documents is denied a foundation which is required to plead any case it may have against the respondent. In all the circumstances, I am satisfied that the order sought is reasonably necessary to achieve the proper administration of justice.
28 My more detailed reasons for reaching these conclusions follow.
Primary facts
29 The appellant carries on the business of hiring vehicles to commercial users, primarily in the mining and construction sector.
Hire agreement
30 On 20 April 2012, the appellant agreed to hire vehicles to Cimeco Pty Ltd, later called Forge Construction. On that date, an officer of Forge Construction agreed to printed terms and conditions on which vehicles would be hired.
31 It is apparent that the terms of the hire contracts were varied from those appearing in the printed terms and conditions. For example, the terms provided for the payment of a deposit and rental charges at the beginning of the rental period, and operated by reference to page 1 of the agreement form (which was not produced in evidence).
32 David Rocci, a director and company secretary of the appellant, deposed that the terms of the appellant's agreement with Forge Construction at the relevant times were such that:
1. Forge Construction would provide a purchase order for the hire of vehicles;
2. Forge Construction would take possession of the vehicles by delivery of the vehicles to their designated site; and
3. the appellant would invoice Forge Construction monthly, with payment to be made within 45 days.
33 Counsel for the appellant submitted that the payment terms were those specified in the printed terms and conditions, which required payment at the beginning of the rental period. Alternatively, he submitted that the payment terms were those indicated on invoices issued at the end of each month in respect of the hire of vehicles in that month. The invoices indicated that payment was due by the seventh day of the next month.
34 In my view, Mr Rocci's affidavit deposed to the payment terms of the hire contracts. The court must deal with the appeal on the basis of that evidence, rather than some inference which might be drawn from provisions of the printed terms which may have been superseded or invoices which do not themselves constitute the hire contracts.
35 The purchase orders were not produced, and there is no evidence of the other terms of the hire agreements relating to particular vehicles, including the agreed duration of hire. Some of the invoices which the appellant issued on 17 February 2014 claim for costs over periods extending to August 2014.
36 Clause 1 of the printed terms and conditions contemplated collection of the vehicle by the hirer, and relevantly provided:
You agree to return the Vehicle … to the location specified on page 1 and on the date specified on page 1 (or sooner if demanded by the Company). The Company may take possession of the Vehicle without demand and at Your expense, if it is illegally parked, used in violation of the Law or of this Agreement, if the paid rental period as specified on page 1 has expired, or if it is apparently abandoned.
- There is no evidence to suggest that this term was subsequently varied.
37 Counsel for the appellant accepted that cl 1 of the printed terms and conditions did not relevantly entitle the appellant to either demand early return of the vehicles or itself take possession of the vehicles until there was a breach of Forge Construction's obligations to pay hire charges when they were due. However, he contended that the agreement expressly authorised the appellant to demand return of the vehicle or take possession of the vehicle when there was a breach of the obligation to pay hire charges when due. He also contended that failure to pay hire charges when due would have been a breach of an essential term of the hire agreement entitling the appellant to terminate the agreement. Termination of the hire agreement would mean that Forge Construction was no longer entitled to possession of the vehicles, so that the appellant could have demanded their return or taken possession of them.
38 I accept it appears that, on one of more of these bases, the appellant was entitled to demand or take possession of the vehicles, following a failure by Forge Construction to pay vehicle hire charges by the due date.
November 2013 ASX announcement
39 On 28 November 2013, Forge Group made an announcement to the ASX, and requested a lifting of the voluntary suspension of trading in its shares which had been requested and granted on 6 November 2013. Forge Construction was, at all material times, a wholly owned subsidiary of Forge Group.
40 The bullet point summary of the announcement to the ASX read as follows:
• $127 million profit writedown in FY2014 associated with Diamantina Power Station and West Angelas Power Station projects
• $45 million net cash outlay required to complete both projects
• Net cash outflows expected in November and December 2013, resulting in a challenging liquidity position in early December 2013
• Australia and New Zealand Banking Group Limited ('ANZ') has agreed to provide further support to Forge Group through new facilities and certain amendments to existing debt facilities ('ANZ Debt Facilities Amendments')
• The ANZ Debt Facilities Amendments will provide sufficient facilities to cover the liquidity challenges and strengthen Forge Group's balance sheet
• Allows Forge Group to continue trading on a business as usual basis, deliver its current work in hand and bid new work
• Forge Group requests the ASX lifts the voluntary suspension of its shares
41 The statement indicated that 'significant underperformance' on two projects would result in Forge Group 'incurring a one-off profit writedown of $127 million in FY 2014'. The announcement indicated that, at the end of October 2013, Forge Group's cash balance was approximately $44 million and its net debt was approximately $25 million. It said that, as a result of the 'net cash outlay' required to complete the two projects, 'Forge Group was facing a challenging liquidity position in early December 2013'. The announcement said that the Board of Forge Group had explored a range of options to 'secure additional liquidity and strengthen Forge Group's balance sheet'.
42 The announcement also indicated that 'Forge Group's existing financier, ANZ has agreed to the ANZ Debt Facilities Amendments'. It was said these amendments include:
• Formal waiver to exclude the impact of various covenants in relation to Forge Group's existing banking facilities which remain in place
• Exclusion of the impact of the profit writedowns in certain covenant calculations
• An increase in working capital facility, resulting in an increase to the total working capital facility size from $11 million to $60 million, with $30 million available immediately and the balance available progressively as performance guarantees are returned or cancelled
• The issue of warrants on the terms set out in Annexure A
• Deferral of quarterly principal repayments of an existing acquisition facility of $3.3 million per quarter for the next three quarters
43 The announcement went on to state:
The ANZ Debt Facilities Amendments will solve the liquidity issues and strengthen Forge Group's balance sheet.
Mr Simpson added: 'The overall funding support gives Forge Group the financial flexibility to continue to trade on a business as usual basis and deliver on our current work in hand. Additionally, it underpins our future growth and tendering prospects.'
44 Mr Rocci deposed to reviewing this ASX announcement on or about 28 November 2013. He deposed to first becoming aware that Forge Group and Forge Construction were experiencing financial difficulty at this time. He said that he became concerned about the appellant's financial exposure to Forge Group and Forge Construction.
November 2013 invoices
45 On 29 November 2013, the appellant issued a number of invoices to Forge Construction in respect of the hire of vehicles in November 2013. The total amount invoiced and not subsequently paid was $41,943.2 While the invoices referred to 7 December 2013 as the payment due date, on the terms deposed to by Mr Rocci payment would not have been due until 45 days after the issue of the invoices. That is, these amounts were due to be paid by 13 January 2014.
December 2013 invoices
46 On 31 December 2013, the appellant issued invoices to Forge Construction in respect of the hire of vehicles in December 2013. Two invoices relating to the hire of vehicles in December 2013 were also issued on 3 and 13 December 2013. The total amount invoiced was $114,765.66.3 The amounts were due for payment by 14 February 2014, except for the two invoices issued on 3 and 13 December 2013.
January 2014 ASX announcements
47 On 14 January 2014, Forge Group made a further announcement to the ASX. The bullet point summary relevantly stated:
• Additional $23 million to $28 million profit writedown in FY2014 attributable to the West Angelas Power Station project
• $14 million to $19 million net cash outlay is required to complete WAPS which is to be funded from existing cash and facilities
• Financiers including Australian and New Zealand Banking Group remain fully supportive of Forge Group
48 The body of the announcement included the following statement:
Forge Group's financiers have agreed to continue to provide overall support to the Company through existing facilities. New bonding facilities have been provided by Forge Group's surety providers to fully bond phase three of the Roy Hill project. The Company continues its dialogue with other key stakeholders to formalise and secure their ongoing support.
Mr Simpson added: 'The ongoing and expected support provided by our financiers and other key stakeholders gives Forge Group the confidence to continue to trade on a business as usual basis and deliver on our current work in hand.'
49 On 29 January 2014, Forge Group made an announcement to the ASX which included the following statement:
Financing Support
Forge Group continues to work closely with its financier, the Australian and New Zealand Banking Group Limited ('ANZ'). ANZ continues to provide overall support to the Company through existing facilities. This support enables Forge Group to deliver on current work in hand and operate on a business as usual basis.
50 Mr Rocci recalled seeing the announcements of 14 and 29 January 2014 at or about the time they were made.
January 2014 invoices
51 On 31 January 2014, the appellant issued invoices to Forge Construction in respect of the hire of vehicles in January 2014. Two invoices relating to the hire of vehicles in January 2014 were also issued on 2 and 15 January 2014. The amounts were due for payment on 17 March 2014, except for the two invoices issued on 2 and 15 January 2014. The total amount invoiced was $96,767.01.4
Appointment of administrators, receivers and managers
52 On 11 February 2014, the directors of Forge Group and of Forge Construction resolved to appoint voluntary administrators to those companies. On the same day, the respondent appointed Mark Mentha and Scott Langdon of KordaMentha as receivers and managers of the property of Forge Group. On 20 February 2014 Mathew Donnelly and Said Jahani of Grant Thornton were appointed receivers and managers of the property of Forge Construction.
February 2014 invoices
53 On or about 17 February 2014,5 the appellant issued invoices for vehicle hire totalling $175,735.11.6 The invoices indicated a considerable escalation in respect of the rates applied to hire vehicles. For example, a Nissan Navara Ute hired at the rate of $1,672 in December 2013 and January 20147 was the subject of a $10,000 invoice for February 2014.8 In this case the invoice period was from 1 February 2014 to 31 July 2014. It appears that the larger hire charges in February 2014 resulted from invoicing of hire charges for later months.
54 In addition, on 13 February 2014, the appellant invoiced Forge Construction $254,100 in respect of the '[e]stimated cost of recovery and cost to recover possible damages on an average mining vehicle at the return'.9
Proof of debt
55 On 17 February 2014, the appellant lodged an informal proof of debt with the administrators of $686,375.30. This reflects the amount of the invoices the appellant issued to Forge Construction in the period from November 2013 to February 2014 (referred to above).
Media reports
56 In February 2014, a number of media reports were published in relation to the administration of Forge Group. Those reports contained statements to the effect that the respondent's support was 'conditional on Forge finding an equity backer'.
Administrators' report
57 On 10 March 2014, the administrators of Forge Group and some of its subsidiaries, including Forge Construction, published a report under s 439A(4)(a) of the Corporations Act. In the report, the administrators said:10
Based on our preliminary investigations to date, we are of the opinion that the Group may have been insolvent as early as November 2013.
58 A statement to the same effect was made in relation to Forge Construction.11
59 In addition, the administrators' report indicated that the administrators had reviewed board minutes dating from January 2013 to February 2014, with a focus on those held in the months leading up to their appointment. It is not clear whether the reference to the 'board' was to the board of directors of Forge Group only or whether the meetings included those of subsidiary companies. In the administrators' summary of matters discussed, it was stated:12
The ANZ appointed KordaMentha as Investigative Accountants to review Group materials and engage with the Group on their behalf and consider the ANZ's security position.
60 References to the 'Group' in the administrators' report are to the companies listed in Annexure 1 to the report, which include Forge Group and Forge Construction.13
61 A chronology of major events contained in the administrators' report indicates that, on 5 November 2013, KordaMentha were 'appointed by the ANZ Bank to review Company materials and engage with the Company on its behalf'.14
62 The administrators' report indicated that Forge Group and Forge Construction were in 'crisis mode' with respect to cash management from 14 November 2013.15 It identified that, as at 31 January 2014, 97.9% of the group's trading creditors were outstanding for a period greater than 30 days and 68% of the outstanding debts relate to Forge Construction.16
63 The administrators' report also noted capital raising efforts which companies including Forge Group and Forge Construction had undertaken without success. The last proposal, which proved not to be acceptable to Forge Group's board, was tabled at a meeting held on 6 February 2014.17
Reliance
64 Mr Rocci deposed that, after reviewing the ASX announcement of 28 November 2013, he became 'aware for the first time that [Forge Group and Forge Construction] was experiencing financial difficulty'. He said he was concerned as to the appellant's financial exposure to those companies, and continued to monitor Forge's ASX announcements. He said that based on the November 2013 and February 2014 announcements to which I have referred:
I formed the view that despite the financial difficulties referred to above, [the appellant] could safely continue the Rental Agreement with Forge as:
12.1 Forge's lender, the [respondent], had agreed to provide further support to Forge through new facilities and amendments to existing debt facilities to enable Forge to continue its operations (as stated in the announcements of 28 November 2013, 14 and 29 January 2014 …); and
12.2 the continued assistance and support of the [respondent] meant that there was no imminent threat that Forge would be placed into liquidation or administration (and therefore no imminent threat that [the appellant] would not receive payment from Forge pursuant to the Rental Agreement).
Order 26A r 4 of the Rules
65 The application was made under O 26A r 4 of the Rules. That rule provides:
(1) This rule applies if a person who may have a cause of action against a person whose description has been ascertained (the potential party) wants -
(a) to commence proceedings against the potential party; or
(b) to take proceedings against the potential party in the course of an action to which the person is a party,
but the person, after reasonable enquiries, has not been able to obtain sufficient information to enable a decision to be made as to whether to commence or take the proceedings.
(2) If there are reasonable grounds for believing that the potential party had, has, or is likely to have had or to have, possession of documents that may assist in making the decision, the person may apply for an order under this rule.
(3) The application shall be supported by an affidavit and a copy of both shall be served on the potential party.
(4) On the application the Court may order the potential party to give discovery of all documents that are or have been in the potential party's possession and that may assist the applicant in making the decision.
Jurisdictional question
66 Order 26A r 4(1) identifies, as a condition for the application of the rule, a requirement that the appellant 'may have a cause of action against' the respondent. This may be referred to as the jurisdictional question, which must be answered affirmatively before the court's discretion to order pre-action discovery under the rule is enlivened.
67 In Waller, Le Miere J, with whom Martin CJ agreed, formulated the following test:
O 26A r 4(1) should … be interpreted to require an objective test. The court must form an opinion as to whether there is sufficient evidence before it that the applicant may have a cause of action against the potential party. The court must make its own evaluation of the circumstances which ground the applicant's belief that he may have a cause of action against the potential party. The test is objective in the sense that it is not sufficient that the applicant believes that he may have a cause of action against a potential party; the court might determine this belief to be unfounded. It is not necessary that the applicant have a prima facie case. However, there must be material to establish that the applicant may have a cause of action against the potential party. There must be some tangible backing, or objective foundation, that takes the existence of the cause of action beyond a mere allegation, suspicion or assertion [75]. (citation omitted)
68 Martin CJ identified the purposes of the rule as being to enable a prospective litigant to obtain discovery of documents that may assist in making a decision as to whether to commence proceedings. He explained that it would entirely defeat the purpose of the rule to require an applicant to demonstrate the present existence of a cause of action as a condition to the exercise of the court's jurisdiction.18 The Chief Justice observed:
It would therefore be wrong in principle to approach the rule with an undue focus or emphasis upon the demonstration of the prospective cause of action. Thus, the jurisdictional question is whether there might be a cause of action which could be demonstrated by the provision of the documents sought. However, something more than mere assertion, conjecture or suspicion is required to enable the court to conclude that there might be such a cause of action [4].
69 I agree with those observations, and with Martin CJ's comments in the present case about the importance of the principle of proportionality in construing O 26A of the Rules.
70 So an applicant under O 26A r 4 must demonstrate more than mere assertion, conjecture or suspicion, but does not have to positively establish the existence of a cause of action. What the applicant must produce is evidence showing that he, she or it may have a cause of action.
71 The phrase 'cause of action', as it appears in r 4, should be understood in its ordinary sense of the facts or combination of facts which gives the right to sue.19 An applicant under r 4 does not need to prove those facts, but there must be evidence indicating (beyond mere assertion, conjecture or suspicion) that all facts necessary to give rise to a right to curial relief may be able to be established.
The application before the master
72 The originating summons originally sought a wide range of documents concerning various communications between the respondent, Forge Group, KordaMentha and another company between November 2013 and February 2014. Evidence produced by the respondent indicated that the estimated costs of complying with the order sought were surprisingly high, ranging between $323,920 and $647,100. However, the range of documents sought was substantially narrowed in oral argument before the master, so as to be confined to emails sent to or from a single person's email account in relation to specified matters relating to Forge Group and Forge Construction between 23 November 2013 and 11 February 2014.
73 The pre-action discovery was sought to enable the appellant to decide whether to commence proceedings against the respondent for damages arising from the respondent's involvement in a contravention of s 18 of the Australian Consumer Law or s 1041H of the Corporations Act. The contravention would concern the allegedly misleading and deceptive nature of the ASX announcements made by Forge.
74 It was also suggested that the appellant may have a cause of action based on the respondent adopting a role of 'de facto' or 'shadow' director20 of Forge Group or Forge Construction. It is not necessary to consider this claim to resolve the appeal.
75 In this case there was little doubt that the appellant wants to commence proceedings against the respondent, but has not been able to obtain sufficient information to enable it to decide whether to do so. The information which the appellant lacks is whether, and if so to what extent, the respondent was involved in the publication of the ASX announcements. There are obviously reasonable grounds for believing that the respondent would have documents in its possession that would indicate the extent of its involvement in the publication of the ASX announcements. It is clear that discovery of those documents would assist the appellant in deciding whether to commence proceedings. Therefore, the condition for the appellant's right to apply for an order specified in O 26A r 4(2) is satisfied.
76 There were two contentious issues which the master was required to determine.
77 The first issue, which may be described as jurisdictional, was whether the appellant 'may have a cause of action against' the respondent. If that condition was not satisfied then O 26A r 4 would not apply, and the court's discretion to order pre-action discovery would not be enlivened.
78 The second issue arose if it was concluded that the appellant 'may have a cause of action' against the respondent. In that event, the issue was whether the court should exercise its discretion to order the respondent to give pre-action discovery of the relevant documents.
79 The master was not satisfied that the appellant may have a cause of action against the respondent, and dismissed the application for pre-action discovery on that ground. It was not necessary for the master to consider, and he did not consider, how the discretion should be exercised if it had arisen.
Leave to appeal
80 An order dismissing an application for pre-action discovery is interlocutory in character.21 As such, the appellant requires leave to appeal under s 60(1)(f) of the Supreme Court Act 1935 (WA). Generally, leave should not be granted unless the decision below is plainly wrong or is attended by sufficient doubt to justify the grant of leave and a substantial injustice would be done if it remains undisturbed.22
81 As Martin CJ noted in Waller, the requirement for leave to appeal against an interlocutory decision is no mere technicality or procedural nicety. Rather it is a substantive restriction which advances the administration of justice by preventing procedural disputes distracting the court and the parties from the determination of contested substantive rights. I agree with the following observations made in Waller:
The grant of leave to appeal from an interlocutory determination is therefore restricted to those exceptional cases in which the decision in question is not only plainly wrong or attended with sufficient doubt to justify the grant of leave, but also in which a substantial injustice would be done if the decision remains in place. It would defeat the purpose of the restriction upon interlocutory appeals if there were to be any departure from the strict satisfaction of these requirements.
In particular, the injustice that must be demonstrated must be properly characterised as 'substantial'. If every infraction of a party's procedural rights were to be regarded as a 'substantial injustice', this aspect of the requirements for the grant of leave would become meaningless, as virtually every erroneous interlocutory decision will involve an infraction of a party's procedural rights. Accordingly, the notion of 'substantial injustice' looks to the substantive rights of the party adversely affected by the order under review, and requires that party to demonstrate that the effect of the order will go beyond mere inconvenience and procedural disadvantage [9] - [10].
82 In the present case I am satisfied that the master's decision is attended by sufficient doubt to justify the grant of leave. I have concluded that the master erred in relation to the jurisdictional issue, for reasons which I will explain. Further, in all the circumstances I consider that an order for pre-action discovery is reasonably necessary to achieve the proper administration of justice.
83 I am also satisfied that substantial injustice would follow if the decision to dismiss the application remained undisturbed. If the appellant is denied information required to decide whether to commence an action, it may effectively be precluded from bringing an action as it will have no evidentiary basis for pleading the respondent's involvement in the publication of the ASX announcements. A legal practitioner would not, consistently with his or her professional duties, make such an allegation unless it is reasonably justified by the material then available to the practitioner.23 Further, in pleading a claim against the respondent the appellant would be required to plead with clarity the factual basis for the allegation that the respondent was 'involved' in misleading or deceptive conduct.24 An allegation with no foundation should not be made.25
84 While the appellant could make a further application for pre-action discovery, in doing so it would face the substantial risk that the previous failed application would be regarded as a discretionary reason for refusing the subsequent application. It might also be argued that the attempt to re-litigate the issue determined in previous proceedings is an abuse of process.26
85 In the present case the prejudice resulting from the error goes beyond mere inconvenience and procedural disadvantage. There is a real prospect that the refusal of pre-action discovery will preclude the appellant from ever asserting any rights which it may have against the respondent. In those circumstances, the grant of leave to appeal from the master's interlocutory decision is warranted.
Apprehended cause of action
86 As I noted above, the appellant identifies three bases on which the above primary facts support a conclusion that it might have a cause of action against the respondent. As I also noted, it is only necessary to consider the first two bases, which concern allegedly misleading and deceptive conduct.
Australian Consumer Law
87 Section 18(1) of the Australian Consumer Law27provides that a person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.
88 Section 236 of the Australian Consumer Law provides for a person who suffers loss or damage because of the conduct of another person which contravened a provision of ch 2 (in which s 18 is located) to recover the amount of the loss or damage by action against that other person 'or against any person involved in the contravention'.
89 The concept of being 'involved' in a contravention is defined in s 2(1) of the Australian Consumer Law in the following terms:
involved: a person is involved, in a contravention of a provision of this Schedule or in conduct that constitutes such a contravention, if the person:
(a) has aided, abetted, counselled or procured the contravention; or
(b) has induced, whether by threats or promises or otherwise, the contravention; or
(c) has been in any way, directly or indirectly, knowingly concerned in, or party to, the contravention; or
(d) has conspired with others to effect the contravention.
90 The appellant contends that making the ASX announcements was conduct in trade or commerce which was misleading or deceptive in that it conveyed that:
1. the respondent's continued financial support for Forge Group was not conditional on Forge Group finding an 'equity backer' (when in fact the support was conditional upon an equity backer being found);
2. the respondent's support would solve Forge Group's liquidity problems and strengthen Forge Group's balance sheet (when in fact Forge Group was probably insolvent and the respondent's support would only solve the liquidity problems if an equity backer could be found); and
3. the respondent's support allowed Forge Group to continue trading on a 'business as usual basis' (when in fact it was in crisis mode with respect to cash management and failing to pay debts in line with trading terms).
91 In my view, it is reasonably arguable that the ASX announcements would have been understood by a person in the appellant's position as conveying these messages.28 The administrators' report describing the financial position of Forge Group and Forge Construction in very different terms suggests that the announcements may have been misleading or deceptive and likely to lead a person in the position of the appellant into error. It is also arguable that a person in the appellant's position may have understood the financial position of Forge Group (the company which was the subject of the ASX announcements) as reflecting that of Forge Construction (the wholly owned subsidiary company with which the appellant contracted).
92 Conduct may be misleading or deceptive even if it does not cause financial loss or damage to any person.29 However, before it can be awarded damages under s 236 of the Australian Consumer Law, the appellant must establish that it suffered loss or damage because of the conduct of Forge Group in publishing the ASX announcements. The existence of such loss or damage is a fact which must be established before the appellant is entitled to final relief. However, it is not necessary for an applicant for pre-action discovery to establish that loss or damage has actually been sustained. It is sufficient that there is some material before the court to indicate (beyond mere assertion, conjecture or suspicion) that some loss or damage may have been sustained.
93 The appellant says that it cannot recover damages from Forge Construction or Forge Group because of the insolvency of those companies. However, it contends that there are grounds for apprehending that the respondent may have been involved in the contravention. There is a significant degree of speculation in that submission, as there is no evidence positively indicating any involvement of the respondent in the publication of the announcements.
94 That, of course, is the appellant's dilemma. The appellant requires pre-action discovery because it does not know what, if any, involvement the respondent had in the preparation and publication of the ASX announcements. The existence and extent of the respondent's involvement will determine whether the appellant has any claim at all. However, it is necessary to adduce some evidence to support the conclusion that the necessary elements of the cause of action may exist, including the respondent's involvement.
95 I am satisfied in the present case that there is a sufficient evidentiary basis for finding that the respondent may have been involved in a contravention of s 18 of the Australian Consumer Law. There is a real prospect that Forge Group would have provided a draft statement and sought the respondent’s approval before publishing an announcement about the nature and extent of the support which the respondent was offering.
96 Further, the evidence indicates that the respondent was closely managing its relationship with Forge Group at the time the ASX announcements were made. On 18 November 2013, Forge Group's loan account was transferred to the respondent's Lending Services section. That is the section which manages accounts where default has occurred, or where the account is considered to be at higher than usual risk of default.30 There is also evidence that at least 10 of the respondent's employees had worked on the Forge matter.31 The administrators' report indicates that the respondent appointed investigative accountants to Forge Group on 5 November 2013. This material provides reason to suspect that the respondent was well informed about the true state of Forge Group's financial affairs. The respondent was certainly aware of the conditions it had identified for its continued financial support.
97 Combined, the material described above provides reason to think that the respondent's approval of the ASX announcements may have been obtained before they were published, in circumstances where the respondent knew facts which were inconsistent with the messages which those releases would arguably convey to a person in the appellant's position. If those matters were established, the respondent may have been knowingly concerned in a contravention of s 18 of the Australian Consumer Law by approving the publication of misleading and deceptive ASX announcements.
98 Nothing in the above paragraphs should be taken as a finding either that Forge Group in fact contravened s 18 of the Australian Consumer Law, or that the respondent was involved in such a contravention. The proposed exercise might be pejoratively described as a fishing expedition. However, that characterisation of the exercise is not fatal to a discovery application which, in this kind of case, is designed to provide a prospective plaintiff with information for the purposes of deciding whether to sue. If the appellant knew the extent of the respondent's involvement, if any, in making the ASX announcements it would not need pre-action discovery. Where there is some factual material suggesting that the respondent may have been involved in the publication, pre-action discovery may be ordered in the exercise of the court's discretion to enable the appellant to discover whether there is evidence that the respondent was actually involved.
99 I also note that the respondent's notice of contention does not assert that the jurisdictional question is to be determined on the basis that there were no grounds for thinking that it may have been involved in any contravention of s 18 of the Australian Consumer Law. That is a further reason why it is appropriate for this court to proceed on the basis that such grounds existed.
Corporations Act: misleading and deceptive conduct
100 Section 1041H(1) of the Corporations Act relevantly provides thata person must not engage in conduct, in relation to a financial product, that is misleading or deceptive or is likely to mislead or deceive.
101 Section 764A(1)(a) relevantly provides that a security is a financial product for the purposes of ch 7 of the Corporations Act. Section 761A of the Corporations Act relevantly provides that 'security' means shares in a body.
102 Section 1041I(1) of the Corporations Act relevantly provides that a person who suffers loss or damage because of the conduct of another person that was engaged in in contravention of s 1041H may recover the amount of the loss or damage by action against that other person or 'any person involved in the contravention'.
103 Section 79 of the Corporations Act defines the concept of involvement in a contravention in a manner which reflects s 2 of the Australian Consumer Law.
104 In Forrest, the plurality considered that an intended audience in a case under s 1041H could perhapsinclude 'some wider section of the commercial or business community' than present or future investors in the relevant company.32
105 The appellant's prospective case under the Corporations Act otherwise reflects its case based on s 18 of the Australian Consumer Law.
The master's reasons
106 The master was not satisfied that the appellant may have a cause of action against the respondent. He appears to have accepted that the ASX announcements may have been misleading and deceptive. He accepted that without the discovery sought the appellant will not be in a position to understand the respondent's involvement in the publication of the announcements.33 The master's reasons for concluding that he was not satisfied that the appellant may have a cause of action were expressed in the following terms:
But that is not the end of the matter. The difficulty for the plaintiff is establishing that as a consequence of any misleading and deceptive conduct it had a right to terminate the Rental Agreement ... It is a very simple agreement. It contains no provision which would allow for termination of the agreement in the event of financial uncertainty surrounding Forge. I have used the word 'uncertainty' advisedly. It is not unusual for a contract to contain a provision which provides for termination when a company goes into administration or liquidation (in fact this contract does not contain such a provision). But it would be most unusual for a contract to provide for termination if one party felt the other was in a parlous financial position. Consequently even if the announcements made by Forge referred to the conditional nature of the defendant's support it is difficult to see how the plaintiff's position would have been any different. It would still have been bound by the contractual arrangement it had with Forge, Forge would have been entitled to retain possession of the vehicles pursuant to the agreement and the indebtedness of Forge to the plaintiff would have continued to accrue.
As I indicated above this difficulty of establishing loss is not addressed by Mr Rocci in his affidavit. It is difficult to see how the plaintiff 'elected' to continue the terms of the Rental Agreement with Forge after becoming aware of the announcements. It had no basis for terminating the agreement [18] - [19].
Appellant's grounds of appeal
107 In order to resolve the appeal, it is only necessary to address the appellant's third ground of appeal, which is expressed in the following terms:
3. In any event, and as a result of the errors set out in grounds 1 and 2, the Master erred in mixed fact and law in holding factually that the [appellant] did not have a right to terminate the Rental Agreement in circumstances where the evidence before the Court established that the [appellant] did have relevant rights including:
3.1 an express right to terminate for reasons that included non-compliance with the terms of the Rental Agreement (including non-payment); and
3.2 rights at common law to terminate for breach of contract.
which rights the [appellant] may have exercised in the event that [Forge Construction's] true financial position had been known to it when its parent, [Forge Group], made the relevant announcements to the ASX: Reasons, [18], [19].
109 The evidence before the court indicated that, from 13 January 2014, Forge Construction was in default of its obligation under the hire agreements to pay the hire charges by the due date. I have concluded above that this breach of the hire agreements at least arguably gave the appellant the legal right after that date to terminate the hire of the vehicles and to either demand the return of the vehicles or take possession of the vehicles itself. It is a reasonable inference that the appellant may have taken that opportunity if it had not been misled as to the true state of Forge Group's finances.
110 If the vehicles had been returned to or recovered by the appellant, then the appellant would have avoided loss of income if it had been able to hire out the vehicles to another customer. There is no evidence as to the state of the commercial vehicle hire market at the relevant time. However, once it had taken possession of the vehicles, the appellant would have had the commercial opportunity to seek to hire the vehicles to other customers at an earlier time. Loss of such a commercial opportunity may constitute loss or damage which can be compensated under the legislation according to the degree of probability of the appellant being able to take advantage of the opportunity.34
111 On the state of the evidence before the court, the appellant may have suffered some loss or damage. The likely quantification of that loss or damage may be relevant when considering the exercise of discretion. However, for the purposes of enlivening the discretion it is sufficient for the court to be satisfied that the plaintiff may have suffered some non-negligible loss or damage by a contravention of the relevant provision.
112 The respondent did not advance any submissions contrary to the above analysis. The respondent made the point, which the appellant accepted, that the appellant did not have any right to terminate the hire agreements before there was a failure to pay hire charges by the due date. The respondent also submitted, and I accept, that the appellant must show that it may have suffered the loss of a commercial opportunity which was of more than negligible value.35 For the reasons I have explained, the appellant has demonstrated that it may have suffered a loss of that kind.
113 Counsel for the respondent made the point that there is no evidence as to the state of the hire market at the relevant time, or whether the appellant could have rehired the vehicles. The absence of evidence of that kind is not fatal to the application. As I have noted, it was not necessary for the appellant to establish a prima facie case on each element of its cause of action. The appellant was not required to go to the expense of adducing all evidence that might be led at trial to enliven the discretion of the court to order discovery for the purpose of enabling the appellant to decide whether to sue at all. It is enough that the evidence shows that the appellant may have a cause of action. In the present case it can be inferred that there must have been some market for the hire of commercial vehicles. The state of that market, and the extent of the appellant's prospects of re-hiring the vehicles, would be relevant to determining the proportion of the forgone hire charges which would be subject of a damages award. However, evidence about the state of the market is not required to enable a conclusion to be reached that the appellant may have suffered some non-negligible loss.
114 Counsel for the respondent also contended that Mr Rocci had not given evidence as to what he would have done if he had not been comforted by the content of the ASX announcements.
115 The appellant will have to show that a contravention of the relevant provision was a cause of the loss it suffered. It is not necessary to show that the contravention was the only cause of the loss.36 For this purpose, the appellant showed apparent reliance on the ASX announcements by the evidence of Mr Rocci that he was concerned about the appellant's exposure to Forge Construction, that he read the ASX announcements and that he formed the view that the appellant could continue to cover the cost of the rental agreements. Evidence of Mr Rocci as to what he would have done had the ASX announcement not contained misleading messages may have been relevant. However, the weight of such evidence would be limited by the likely influence of hindsight and self interest in the formation of Mr Rocci's perceptions about these matters at this time. Ultimately, the question of causation will depend on the court's objective assessment of what the appellant would have done if the allegedly misleading statements had not been included in the ASX announcements, and direct evidence is not always required for that purpose.37
116 The respondent also submits that, given the apparent insolvency of Forge Construction since November 2013, the loss of opportunity to take steps to recover outstanding fees from Forge Construction prior to 11 February 2014 was of no more than negligible value. While that may well be correct, the loss I have identified is not based on an inability to recover outstanding fees from Forge Construction. Rather, it is based on the appellant's capacity to demand or take possession of the vehicles, and the loss of opportunity to rehire the vehicles to another customer who would pay the hire charges.
117 For the above reasons, the appellant did not fail to establish that it may have suffered loss because it had no right to terminate the hire agreements. The appellant has shown that it may have suffered loss by relying on the ASX announcements, namely the loss of the commercial opportunity to recover the vehicles and rehire them to a customer who would pay the hire charges.
118 The respondent does not contend that the appellant failed to establish that it may have a cause of action for any reason other than that it failed to establish that it may have suffered relevant loss. In those circumstances, the appropriate conclusion was that the discretion to order pre-action discovery was enlivened. That discretion now falls to be exercised by this court.
Discretion
119 The respondent contends that, if the discretion to order pre-action discovery is enlivened, it should not be exercised in favour of the appellant.
General principles
120 It is established that the discretion to order pre-action discovery will not be exercised in favour of the party seeking discovery as a matter of course. A court considering the exercise of the discretion will commonly consider whether or not the order is reasonably necessary to achieve the proper administration of justice.38 In Central Exchange, the court identified the following non-exhaustive factors as relevant to the exercise of its discretion:
1. the likelihood that a cause of action of the kind suggested will be found to exist;
2. the nature and significance of that potential cause of action;
3. the likely effect, on the person against whom discovery is sought, of the making of an order of the kind contended for;
4. whether there is any other adequate means, available to the intending plaintiff, of obtaining the information which it seeks;
5. the nature and confidentiality of the documents proposed to be obtained;
6. the possible significance of the information contained within those documents to the decision whether or not to commence the contemplated proceedings;
7. whether the applicant is able to compensate the potential party for its cost of complying with the order; and
8. whether there is any evidence of bad faith on the part of the applicant.
121 To that list of relevant matters, I would add the extent to which the cost and effort involved in undertaking discovery and inspection is proportionate to the likely value of the claim if successful.
122 In Roe v The State of Western Australia,39 Martin CJ summarised the principles governing the exercise of discretion to order discovery within an existing action in the following terms, with which I respectfully agree:
[I]t is now established that general discovery is no longer regarded as a right. Rather, the extent of the obligation to give discovery and the entitlement to discovery will be fashioned having regard to the general principles that are articulated in the Rules of the Supreme Court 1971 (WA) and in particular the principles enunciated in O 1 r 4A and r 4B. Those principles include and expressly embody the notion of proportionality, which requires a court, before ordering any interlocutory process, to assess whether the forensic benefit to be derived by that process is proportional to the cost and delay which will flow from the undertaking of the process, having regard to the value, importance and complexity of the subject matter in dispute and the financial position of the parties.
In the context of discovery, this means that when issues arise with respect to the breadth of the discovery to be ordered, the ambit of discovery will be determined taking into account the cost and delay associated with the provision of discovery over a broader ambit, as compared to the forensic benefit likely to be derived from the provision of discovery over that broader ambit. Unless the cost and delay involved in the provision of that discovery is proportionate to the forensic benefit likely to be derived from a broader ambit of discovery, and to the value and importance or complexity of the subject matter of the proceedings, a narrower ambit of discovery will be ordered.
123 That question of proportionality will also be relevant at the stage of pre-action discovery.
124 In Central Exchange Steytler J, with whom other members of the court agreed, observed:
While it is true that the rule, in this State, uses the word 'may', that does not mean that, in any case in which the applicant asserts a possible cause of action against some other person, no matter how speculative or remote, discovery will be ordered [82].
Exercise of discretion in this case
125 While I am satisfied that the appellant may have a cause of action against the respondent, at this stage the likelihood that a cause of action will ultimately be found to exist cannot be described as high. Much will turn on whether there is any evidence to show that the respondent was knowingly concerned in the publication of the ASX announcements. Even if the pre-action discovery ultimately produces evidence suggesting this may be the case, the prospect of a substantial factual contest fought out at trial will remain.
126 In addition, at any trial a number of legal issues may require determination, including some not discussed above. For example, there may be room for debate as to whether the publication of the ASX announcements was conduct 'in trade or commerce' for the purposes of s 18 of the Australian Consumer Law or 'in relation to a financial product' for the purposes of s 1041H of the Corporations Act. This issue was adverted to, but not resolved, by Hamill J in Commonwealth Bank of Australia v ZYX Learning Centres Ltd,40 in relation to financial reports. There may also be an issue as to whether a person who is neither an investor or potential investor in securities can take advantage of s 1041H and related provisions of the Corporations Act. That issue was noted, but not resolved, in Forrest.
127 An application for pre-action discovery is not the occasion to attempt to resolve these legal issues. However, they illustrate some of the difficulties which the appellant may face in seeking to establish a cause of action.
128 It should also be noted that, on the material currently before the court, the quantum of the appellant's claim will be much less than the invoiced amount of $686,375.30. Of that amount:
1. the November hire of the vehicles was effectively complete, and the $41,943 in hire charges for November 2013 already incurred, when the first ASX Announcement was made on 28 November 2013;
2. any liability to pay the $254,100 invoiced for recovery and repair costs41 on 17 February 2014 would have been incurred in any event;
3. any claims for hire periods after February 201442 would not have been affected;
4. the appellant may not have been in a position to demand or take possession of the vehicles until 14 January 2014, and, if so, loss of commercial opportunity to rehire the vehicles could not be claimed before that date.
129 On the material currently before the court, the most likely award of damages, if liability were to be established, would be some proportion of approximately one month's ordinary hire charges, reflecting the loss of a commercial opportunity to rehire the vehicles between 14 January 2014 and 11 February 2014.
130 The likely quantum of the claim, if a cause of action is established, highlights the need to ensure that a disproportionate burden is not imposed by any pre-action discovery orders. Costs of undertaking the discovery which was originally sought were estimated at between $323,920 and $647,100 in an unchallenged affidavit of Carolyn Wyatt, an employee of the respondent's solicitors, affirmed 23 January 2015. Even if that is a considerable over-estimate, if the original scope of discovery were pursued there would be a real prospect that the cost of complying with the proposed discovery order would exceed the value of the claim. Such a conclusion would ordinarily provide a proper basis for refusing to make an order for discovery.
131 However, the scope of discovery has now been confined, so that what is involved will be a search of one person's email account for emails on particular topics sent or received over a period of approximately 2½ months. The respondent is a large financial institution which, it can be inferred, has adequate resources to undertake that search without any significant disruption to its business activities. Requiring the respondent to provide the reduced scope of discovery would not be a disproportionate burden, given the importance of the documents sought to the decision as to whether to commence proceedings.
132 The respondent has not advanced any material indicating that the documents which may be discovered have a particularly sensitive or confidential nature. The intrusion into the privacy of the respondent's business affairs will be limited by the 'implied undertaking', or obligation, of the appellant not to use the discovered documents for purposes collateral to the contemplated proceedings against the respondent and deciding whether they should be commenced.43 The appellant has agreed to pay the respondent's reasonable costs of undertaking the discovery. The respondent has not contended that any security should be required for costs, although the appellant has indicated a willingness to provide security if it were required.
133 There are no other means for the appellant to obtain the documents it requires to make its decision as to whether to commence the contemplated proceedings. There is no suggestion that the appellant has acted in bad faith.
134 Taking all of the above matters into account, I have come to the view that the court should exercise its discretion to require the more confined pre-action discovery. While the appellant's prospective case cannot be said to be strong on the presently available material, it may have a case and the burden cast on the respondent by the proposed orders is not great. The appellant requires the documents to decide whether to commence proceedings, and without access to the documents is denied a foundation which is required to plead any case it may have against the respondent. In all the circumstances, I am satisfied that the orders sought are reasonably necessary to achieve the proper administration of justice.
Orders
135 For the above reason I would make the following orders:
1. The appellant have leave to appeal against the orders made by the master on 7 April 2015.
2. The appeal be allowed.
3. The orders made by the master on 7 April 2015 be set aside.
4. The respondent discover and produce for inspection within 21 days emails in the possession, custody or power of the respondent limited to the email account of its then employee Mr Jern Siew (being emails sent to or from the email account of Mr Jern Siew maintained by the respondent) which fall within the following categories of documents for the period 23 November 2013 to 11 February 2014:
(a) its agreement with Forge Group Ltd and/or Forge Group Construction Pty Ltd (collectively Forge) in relation to amendments to its Debt Facility with Forge dated or arising in about November 2013;
(b) the appointment by the respondent of KordaMentha Pty Ltd (KordaMentha) and/or 333 Capital Pty Ltd or any of its related companies (333) on or about 5 November 2013 to investigate and review the financial affairs of Forge or otherwise relating to Forge or any of its related corporations including any written retainer, contract, mandate or other agreement between:
(i) the respondent and KordaMentha; and/or
(ii) the respondent and 333; and/or
(iii) KordaMentha and 333;
(c) any correspondence relating to Forge, or documents recording any such communications, between 23 November 2013 and 11 February 2014 passing between:
(i) the respondent and KordaMentha Pty Ltd;
(ii) the respondent and 333; or
(iii) KordaMentha and 333;
(d) any correspondence, drafts, notes or written records of communications between Forge and the respondent, or otherwise copied to the respondent, relating to Announcements made or intended to be made by Forge on the ASX Announcements Platform between November 2013 and February 2014.
5. The appellant pay the respondent's reasonable costs of compliance with order 4 to be taxed if not agreed.
136 The parties should be heard in relation to the costs of the proceedings before the master and this court.
1Roe v The State of Western Australia [2013] WASC 130 [10] - [11].
2 Invoices totalling $1,296.21 were issued on 6 and 18 November 2013 in respect of parking costs.
3 Invoices totalling $1,010.96 were issued on 10 and 13 December 2013 in respect of parking costs.
4 Invoices totalling $594.55 were also issued on 9 and 23 January 2014 in respect of parking costs.
5 I infer that the invoices were prepared prior to the proof of debt being lodged with supporting documents (as to which see par 18 of Mr Rocci's affidavit and attachment DR13).
6 An invoice for $162.80 was also issued on 4 February 2014 in respect of parking costs.
7 Invoice numbers 4246 and 4436.
8 Invoice number 4540.
9 Invoice number 4551.
10 Page 9 of the report.
11 Heading 5.1.5 of Annexure 7 to the report.
12 Page 35 of the report.
13 See the Glossary of Terms at page 5 of the Report and Annexure 1 to the report.
14 Annexure 2 to the report.
15 Page 36 of the report.
16 Page 49 of the report.
17 Pages 41 - 44 of the report.
18Waller v Waller [2009] WASCA 61 [2], [4].
19Dye v Griffin Coal Mining Co (1998) 19 WAR 431,434; Morgan v Banning (1999) 20 WAR 474,484, 487; ABB Service Pty Ltd v Hetherington [2001] WASCA 417 [9] (iii); Rossen v Airey [2012] WASCA 26[30].
20 As to which see Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd [2010] NSWSC 233;(2010) 238 FLR 384 [211] and authorities there cited.
21Waller [8], [116], [120]; Malouf v Malouf [1999] FCA 284; (1999) 86 FCR 134 [36].
22Waller [9] - [10], [121]; The State of Western Australia v Bond Corporation Holdings Ltd (1991) 5 WAR 40, 54 - 57; Wilson v Metaxas [1989] WAR 285, 294.
23 Rule 36(2)(a) of the Legal Profession Conduct Rules 2010 (WA).
24Forrest v ASIC [2012] HCA 39; (2012) 247 CLR 486 [26].
25Forrest [30].
26Sheraz Pty Ltd v Vegas Enterprises Pty Ltd [2015] WASCA 4; (2015) 48 WAR 93 [4] - [20].
27Competition and Consumer Act 2010 (Cth), sch 2.
28 Where damages are claimed, the question must focus on the conduct of Forge Construction in relation to the appellant alone: Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60;(2004) 218 CLR 592 [36] - [37].
29Australian Competition and Consumer Commission v TPG Internet Pty Ltd [2013] HCA 54; (2013) 250 CLR 640 [49] - [50].
30 Affidavit of Jern Siew affirmed 22 January 2015, pars 5 - 6.
31 Affidavit of Jern Siew, par 7.
32Forrest [36].
33Kelbush Pty Ltd v Australia and New Zealand Banking Group Ltd [2015] WASC 117 [17].
34Sellars v Adelaide Petroleum NL (1994) 179 CLR 332, 349 - 355.
35Gull Petroleum (WA) Ltd v Tah Land Pty Ltd [2001] FCA 1531 [78] and cases there cited.
36I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd [2002] HCA 41; (2002) 210 CLR 109 [57].
37Hanave Pty Ltd v LFOT Pty Ltd[1999] FCA 357; (1999) 43 IPR 545 [1], [45]; Abigroup Contractors Pty Ltd v Sydney Catchment Authority [2004] NSWCA 270 [85]; Norcast S.ár.L v Bradken Ltd [No 2] [2013] FCA 235; (2013) 219 FCR 14 [331]; Lord Buddha Pty Ltd v Harpur [2013] VSCA 101; (2013) 41 VR 159 [159].
38Central Exchange Ltd v Anaconda Nickel Ltd [2002] WASCA 94; (2002) 26 WAR 33 [82] - [83].
39Roe v The State of Western Australia [2013] WASC 130 [10] - [11].
40Commonwealth Bank of Australia v ZYX Learning Centres Ltd [2014] NSWSC 1676 [220] - [225].
41 Invoice 4551 dated 13 February 2014.
42 See, for example, invoices 4536 - 4545, which invoice hire charges to various dates between March and August 2014.
43 As to the 'implied undertaking' see Hearne v Street [2008] HCA 36; (2008) 235 CLR 125.
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