Larocca v Alvarez & Marsal Australia and New Zealand Pty Ltd

In Larocca v Alvarez & Marsal Australia and New Zealand Pty Ltd, the plaintiffs, EY, sought preliminary discovery against the defendants, Alvarez & Marsal, and others, following a mass departure of personnel from the Australian professional services partnership conducted by EY. EY, suspecting wrongful conduct by the departed partners who were employed by a global competitor, sought to gather more information to make an informed decision about whether to commence substantive proceedings. The plaintiffs argued they were in a ‘Goldilocks’ dilemma, knowing enough to be concerned but not enough to make a sensible decision. The defendants, however, resisted the application, arguing the plaintiffs did not meet the threshold for obtaining preliminary discovery.

The court was required to determine whether the plaintiffs had demonstrated sufficient grounds to warrant preliminary discovery. Central to this inquiry was the appropriate test to be applied when deciding whether to grant such discovery. The court considered whether the plaintiffs had reasonable cause to believe that the defendants may have engaged in wrongful conduct, or whether it was sufficient that the plaintiffs appeared to the court to have a prima facie case based on the available evidence. The court rejected the argument that the test required a reasonable cause to believe, instead applying the “appears to the Court” test, which was more aligned with the discretion granted by the relevant legislation.

The court found that the plaintiffs had presented sufficient evidence to meet the “appears to the Court” test, and therefore, the application for preliminary discovery was granted. The court emphasised that the evidence did not need to be conclusive, but rather sufficient to warrant an order for discovery. The court also considered the nature of the information sought, including the potential for inferences to be drawn from the relationship between certain facts and the defendants’ actions. The plaintiffs were permitted to seek specific information to clarify their suspicions and to enable them to make an informed decision about whether to proceed with substantive litigation.

The court further addressed the issue of costs associated with the preliminary discovery process, distinguishing between the costs of litigation and the costs of providing the discovery itself. The court noted that while the defendants would bear the costs of providing the discovery, the plaintiffs were responsible for the overall costs of the litigation. This decision balanced the need for the plaintiffs to obtain necessary information against the defendants’ right to avoid unnecessary expense and intrusion.