Lifeplan Australia Friendly Society Pty Ltd v Ancient Order of Foresters in Victoria Friendly Society Ltd
[2013] SASC 5
SUPREME COURT OF SOUTH AUSTRALIA
(Miscellaneous Appeal: Civil)
LIFEPLAN AUSTRALIA FRIENDLY SOCIETY PTY LTD & ANOR v ANCIENT ORDER OF FORESTERS IN VICTORIA FRIENDLY SOCIETY LTD
[2013] SASC 5
Judgment of The Honourable Justice White
25 January 2013
PROCEDURE - SUPREME COURT PROCEDURE - SOUTH AUSTRALIA - PROCEDURE UNDER RULES OF COURT
PROCEDURE - COURTS AND JUDGES GENERALLY - COURTS - RULES OF COURT - EFFECT AND CONSTRUCTION
PROCEDURE - DISCOVERY AND INTERROGATORIES - DISCOVERY AND INSPECTION OF DOCUMENTS - DISCOVERY OF DOCUMENTS
The plaintiffs considered that they needed more information before commencing an action against the defendant and its chief executive officer - as a result, the plaintiffs sought an order for pre-action disclosure and production under r 32(2) - a Master made the order sought, but the plaintiffs considered the defendant's disclosure to be inadequate - the plaintiffs then sought an order under r 32(3) that the defendant's chief executive officer attend for cross-examination - the Master dismissed that application.
Held (dismissing the appeal):
(1) the power to require a person to attend for cross-examination is to be exercised only for one or other of the purposes specified in r 32(1) - non-compliance with a disclosure order under r 32(2) does not, by itself, entitle the plaintiffs to cross-examine under r 32(3), (at [25]-[26]);
(2) rule 32(1)(b) should be understood as indicating that a plaintiff who has a good cause of action and who requires further information to articulate or construct a claim appropriately will establish the threshold conditions for an order under subr (1), (at [30]);
(3) the Master held correctly that the plaintiffs had not established that cross-examination of the chief executive officer was necessary to obtain the further information in order to formulate their claim properly, (at [38]);
(4) if any cross-examination under subr (3) was to be allowed, it would have to have been confined to the purposes for which the subr (2) order was made - this did not include the subr (1)(c) purpose of determining against whom their claims lie, (at [42]);
(5) the powers in r 32 are exercisable in relation to anticipated proceedings in this Court, and in this Court only, (at [46]).
WORDS AND PHRASES CONSIDERED/DEFINED
"formulate the claim properly"
LIFEPLAN AUSTRALIA FRIENDLY SOCIETY PTY LTD & ANOR v ANCIENT ORDER OF FORESTERS IN VICTORIA FRIENDLY SOCIETY LTD
[2013] SASC 5Appeal from a Master
WHITE J. Should a person who has made pre‑action disclosure of documents be required under r 32(3) of the Supreme Court Civil Rules 2006 (SA) to attend before the Court for cross‑examination? That is the question on this appeal. Its resolution involves both the construction and application of r 32.
Background
The plaintiffs sell prepaid funeral products. The second plaintiff (FPM) is a wholly owned subsidiary of the first plaintiff (Lifeplan).
Until his resignation on 29 December 2010, Mr Noel Woff was employed by Lifeplan in Melbourne as Manager of FPM and was, in effect, its Melbourne Manager. Mr Richard Corby was employed as National Sales Manager by Lifeplan and was also based in Melbourne. He reported to Mr Woff. He resigned on 25 November 2010.
The plaintiffs claim that, during the course of their employment, Messrs Woff and Corby took, without permission, their confidential information and intellectual property. Since their resignations they have established a new entity, Funeral Planning Australia Pty Ltd (FPAPL), to compete directly with the plaintiffs’ business. Both entered into employment contracts with the defendant (Foresters) on 31 December 2010: Mr Woff as General Manager and Mr Corby as National Sales and Marketing Manager. In addition, the plaintiffs assert that on 31 December 2010 Foresters entered into an agreement with FPAPL in the nature of a joint venture pursuant to which FPAPL provides and markets Foresters’ funeral products.
The plaintiffs have commenced proceedings in the Federal Court against Messrs Woff and Corby. In those proceedings, the plaintiffs allege that the two men breached their employment and fiduciary duties by, amongst other things, taking and exploiting to their own advantage the plaintiffs’ intellectual property and confidential information and, since the commencement of their employment by Foresters, have infringed the plaintiffs’ copyright in the materials which they have produced for use in the business of FPAPL.
The plaintiffs considered that they may also have good causes of action against Foresters and its chief executive officer, Mr Hughes. They considered that they needed more information before commencing an action against them.
Accordingly, on 4 June 2012, the plaintiffs sought an order under r 32(2) of the Supreme Court Civil Rules 2006 (SA) that Foresters disclose and produce to them “evidentiary material” relating to the period between 1 January 2010 and 28 February 2011 relating to four potential causes of action against it. These were the tort of intentional interference with contractual relations; the tort of passing off; accessorial liability for their involvement in the breach of the fiduciary and equitable duties by Messrs Woff and Corby and FPA; and breach of copyright. The supporting affidavit indicated that the plaintiffs sought the information in order to determine whether those causes of action exist against Foresters; to formulate their claims against Foresters properly; and to determine against whom their claims may lie.
On 27 July 2012, a Master made, by consent, the orders sought by the plaintiffs. The order required Foresters to verify its disclosure of documents on oath.
Thereafter, Mr Hughes, in his capacity as chief executive officer of Foresters, filed three affidavits disclosing documents.[1] After the first of these affidavits was filed the plaintiffs took the view that Foresters’ disclosure was inadequate. Accordingly, they sought an order under r 32(3) that Mr Hughes attend for cross‑examination. After they filed the application, Foresters filed the second and third affidavits of Mr Hughes, but these have not satisfied the plaintiffs’ concerns.
[1] The first of the affidavits was actually filed on 24 July 2012, three days before the Master’s order, but it seems that Mr Hughes provided that affidavit in anticipation of the Master’s order.
On 25 September, the Master dismissed the application seeking the attendance of Mr Hughes for cross‑examination. The plaintiffs appeal against that order.
Rule 32
Rule 32 provides for orders as to pre‑action disclosure as follows:
(1)If the Court is satisfied, on application by a person (the plaintiff) that the plaintiff may have a good cause of action and requires further information—
(a) to determine whether a cause of action exists; or
(b) to formulate the claim properly; or
(c) to determine against whom the claim lies,
the Court may exercise the investigative powers conferred by this rule in anticipation of an action.
(2)The Court may, if satisfied that a person may be in possession of evidentiary material relevant to the possible cause of action, make an order imposing one or more of the following requirements—
(a) to disclose to the Court or to the plaintiff whether the person is or has been in possession of relevant evidentiary material and, if so, to disclose full particulars of relevant evidentiary material that is, or has been, in the person's possession;
(b) if the person is in possession of relevant evidentiary material—to produce it to the Court or to the plaintiff;
(c) to verify the person's response to the order by affidavit.
(3)After considering a person's response (or failure to respond) to an order under subrule (2), the Court may require the person to appear before the Court for cross-examination.
(4)Subject to any direction by the Court to the contrary, a person against whom an order is made under this rule is entitled to reasonable compensation from the plaintiff for the time and expense involved in complying with the order.
(5)The compensation is to be fixed by agreement between the plaintiff and the person entitled to the compensation or, in default of agreement, by the Court.
As can be seen, r 32(1) authorises the Court to exercise “the investigative powers conferred by this rule” in anticipation of an action if it is satisfied that a prospective plaintiff may have a good cause of action but requires further information for one or other of the purposes specified in the subrule. Rule 32 contemplates investigative powers of two types: requiring a person to disclose and produce evidentiary material; and, after consideration of the person’s response, requiring the person to attend for cross‑examination.
The Master’s Decision
The Master held that in order to obtain an order for cross‑examination, the plaintiffs had to establish that the cross‑examination of Mr Hughes was required for one or other of the purposes specified in subr (1).[2] Mere proof that Foresters had not complied with the consent order made on 27 July was insufficient.
[2] Lifeplan Australia Friendly Society Ltd & Anor v Foresters Friendly Society Ltd [2012] SASC 173 at [3], [5], [9].
The Master considered that the plaintiffs had not established that the evidential material which they contended had not been disclosed by Foresters was required for one or other of the subr (1) purposes, or was information which they did not already have from other sources.[3] Finally, the Master observed that r 32 cannot be invoked by a plaintiff to obtain evidential material for use in proceedings other than in this Court.[4]
[3] Ibid at [11].
[4] Ibid at [13].
The Appeal
On the appeal, the plaintiffs acknowledged that they did not require further information to determine whether a cause of action exists and abandoned reliance on subr (1)(a). Instead, they relied on subr (1)(b) and (c), in particular, subr (1)(b), contending that they needed further information in order to formulate their claims properly.
The issues on the appeal therefore are these:
1.What is the interrelationship between subrs (1), (2) and (3) in r 32? Is subr (3) enlivened when the Court is satisfied that there has been non‑compliance with subr (2)? Alternatively, is attendance for cross‑examination to be directed only when it is required for a subr (1) purpose?
2.What is the reach of the expression “formulate the claim properly” in subr (1)(c)?
3.Did the plaintiffs establish that Mr Hughes’ attendance for cross‑examination was required in order for them to obtain information they need to formulate their claims properly?
4.Is it open to the plaintiffs to rely presently on subr (1)(c)?
Interrelationship between the Subrules of Rule 32
As already seen, r 32 vests the Court with a discretionary power which may be exercised in anticipation of an action. Before the discretion may be exercised, the Court must be satisfied, on an objective consideration, of two conditions: first, that the applicant may have a good cause of action and, secondly, that it requires further information for at least one of the purposes stated in subr (1). That requires an applicant to place before the Court satisfactory evidence to establish the two preconditions enlivening the discretion. It may be that a favourable exercise of the discretion will usually follow once these two preconditions have been established[5] but that should not be assumed.
[5] Cf Optiver Australia Pty Ltd v Tibra Trading Pty Ltd [2008] FCAFC 133 at [45]; (2008) 169 FCR 435 at 445.
The Federal Court has held that its counterpart Rules should be construed beneficially and given the fullest scope that their language will reasonably allow, with the proper brake on any excess lying in the exercise of the discretion in the particular circumstances of each case.[6] Although r 32 is expressed differently and in some respects has a materially different operation, I consider that a similar approach to its construction is appropriate.
[6] Paxus Services Ltd v People Bank Pty Ltd (1990) 99 ALR 728 at 733; St George Bank Ltd v Rabo Australia Ltd [2004] FCA 1360 at [26]; (2004) 211 ALR 147 at 153.
It is, however, necessary to keep in mind that an exercise of the powers under r 32 involves a coercive intrusion into the right, which the subjects of the order otherwise have, to keep their documents and information to themselves. This is especially so as r 32 would permit an order to be made against someone other than a prospective defendant, for example, a person who has information as to the identity of the persons responsible for the tortiously caused harm of which the plaintiff complains.
As Lord Reid observed in relation to the discovery permitted by the Courts of Chancery:
It has been clear at least since the time of Lord Hardwicke that information cannot be obtained by discovery from a person who will in due course be compellable to give that information either by oral testimony as a witness or on a subpoena duces tecum. Whether the reasons justifying that rule are good or bad it is much too late to enquire: the rule is settled.[7]
[7] Norwich Pharmacal Co & Ors v Customs and Excise Commissioners [1974] AC 133 at 174.
This means that although 32, when construed beneficially, may have a wide operation, the Court should be careful to ensure that it is exercised only for the purposes specified in subr (1).
An understanding of the intrusive effect of an order for pre‑action disclosure is, to my mind, important in construing and understanding the application of r 32. The rule has a number of features which reflect that understanding.
First, the investigative powers may be exercised only if the Court is satisfied that the plaintiff may have a good cause of action and requires further information for at least one of the three enumerated purposes. Those purposes do not include the enabling of plaintiffs to assess their chances of proving the proposed causes of action or to obtain evidence to assist in proving the proposed claims.
Secondly, when the discretion is enlivened, the investigative power which must be exercised first is an order for a form of documentary disclosure. The documentary disclosure is to be confined to “relevant evidentiary material”; that is, evidentiary material as defined in r 4 of the Rules, but only such evidentiary material as is relevant to the matter for which the plaintiff requires further information. By providing that a form of documentary disclosure is to be made in the first instance, the rule seeks to minimise the impact on the subject of the order.
Thirdly, after the non‑party has responded (or failed to respond) to the Court’s order for documentary disclosure then, and only then, may the Court take the step of requiring the person to attend for cross‑examination. That is the second of the investigatory powers which the Court may exercise.
It follows, therefore, that the power to require a person to attend for cross‑examination is to be exercised only for one or other of the purposes specified in subr (1). That is the yardstick by which the Court acts when exercising the discretion under subr (3). That means that, however inadequate the person’s response to the order for documentary disclosure may have been, the Court will not require the person to attend for cross‑examination unless it is satisfied that that is the means by which the plaintiff may obtain the further information contemplated by subr (1). It also means that even when the person’s response to the order for documentary disclosure has been complete, the Court may require the person to attend for cross‑examination if satisfied that the plaintiff still needs further information for one or other of the subr (1) purposes.
The incompleteness of a person’s response to an order for disclosure and production of documents under subr (2) may of course be relevant to the exercise of the discretion to order cross‑examination under subr (3), but it is not a sufficient condition for its exercise. As I have said, the necessary condition is that the Court is satisfied that the cross‑examination is an appropriate means of meeting a plaintiff’s requirement for further information for a subr (1) purpose.
Accordingly, I consider that the Master was correct in rejecting the plaintiffs’ submission that non‑compliance by Foresters with the disclosure order entitled them, by itself, to cross‑examine Mr Hughes. The Master was correct in requiring the plaintiffs to show that, despite the information which they had from their own resources and from the documents produced by Foresters, they still required further information for at least one of the subrule (1) purposes.
“Formulate the Claim Properly”
The submissions of the plaintiffs on appeal focussed on the expression “formulate the claim properly” in subr (1)(b). Their submissions before the Master did not have this focus as the plaintiffs directed their submissions then to the claim that Foresters’ response to the disclosure order was inadequate. It is, however, appropriate to address the plaintiffs’ submissions on this topic as the proper construction of subr (1)(b) provides part of the framework against which the plaintiffs’ next submission is to be addressed.
In context, the expression “to formulate” seems to have the meaning of “to express” or “to articulate” or perhaps “to construct”. The formulation of a claim seems to extend beyond the mere ability to plead the claim. That is because the concept of pleadings is well understood and the Rules address that topic in some detail in Ch 5, Pt 2. If r 32(1)(b) contemplated only a plaintiff’s ability to plead a claim, it would have been natural for the rule to have referred to the pleading of the claim. The use of the somewhat wider term “formulate” suggests that it is used in the sense of articulating or constructing a claim more generally. The adverb “properly” incorporates notions of appropriateness.
Accordingly, I consider that r 32(1)(b) should be understood as indicating that a plaintiff who has a good cause of action and who requires further information to articulate or construct the claim appropriately will establish the threshold conditions for an order under subr (1). Construing the rule in this way gives it the beneficial effect which is appropriate.
This does not mean that a plaintiff who needs further information to articulate or construct a claim perfectly or completely will establish the threshold requirements. A plaintiff who can formulate a claim appropriately, albeit less than perfectly, will not ordinarily be entitled to a r 32 order.
It should be kept in mind that r 32 is part of an overall rules regime containing means by which a party may obtain information and documents from an opponent. The prospect that a party may follow the well‑established practice of pleading in as much detail as is possible but indicating that it will provide further particulars later, for example, following disclosure, will be very relevant to the assessment of the existence of the threshold conditions under subr (1) and to the exercise of the discretion under subr (2).
It is possible that the ability to formulate a claim properly may extend to knowing the existence of any defence to a proposed claim. However, that possibility does not arise in this case and it is not necessary presently to address it.
Cross‑examination of Mr Hughes and Formulating the Claim Properly
The Master considered it unnecessary for him to rule on the critique which the plaintiffs made of the adequacy of Foresters’ disclosure. That was because the plaintiffs had not attempted to establish that they required, for a subr (1) purpose, the information which they asserted had not been disclosed.
In my opinion, the Master’s conclusion on this topic was well justified. The affidavit on which the plaintiffs relied in support of the application for cross‑examination of Mr Hughes focussed on the alleged incompleteness of Foresters’ response to the disclosure order. It did not identify the further information which the plaintiffs required for a subr (1) purpose. Similarly, the submissions made by the plaintiffs’ counsel before the Master indicate that the plaintiffs’ contention was that non‑compliance by Foresters with the disclosure obligations enlivened the Court’s discretion under subr (3). The plaintiffs did not endeavour to identify the information which they needed (and wished to obtain by cross‑examination of Mr Hughes) for a subr (1) purpose.
The plaintiffs’ submissions before the Master contrast markedly with their submissions on appeal. As part of the latter, the plaintiffs provided a working draft of a statement of claim for proceedings against Foresters, Mr Hughes and Foresters’ directors. By reference to this draft statement of claim, the plaintiffs identified the topics on which they require further information in order to formulate their claims properly.
The plaintiffs acknowledged that this Court could have regard to the draft statement of claim on appeal only if the Court was satisfied that the Master had made some error warranting the re-exercise on appeal of the discretion under r 32(3).
In my opinion, the Master did not make an error in his understanding of the evidence which the plaintiffs had adduced before him. The Master held correctly that the plaintiffs had not adduced evidence of the principal matter which was required for a favourable exercise of the discretion under subr (3), that is, that cross‑examination of Mr Hughes was necessary to obtain the further information they required to formulate their claim properly. Accordingly, I have had no regard to the plaintiffs’ draft statement of claim on this appeal.
Plaintiffs’ Reliance on R 32(1)(c)
On the appeal, the plaintiffs submitted that they also required the information which they hoped to obtain on cross‑examination of Mr Hughes in order to determine whether they have claims against Foresters’ directors. The working draft of the statement of claim indicates the topics on which the plaintiffs seek further information for this purpose.
However, the history of the matter so far runs counter to the plaintiffs’ submissions on this topic.
The plaintiffs’ original summons did indicate that they sought further information relating to potential causes of action against Foresters and also to determine against whom their claim may lie. However, the orders which the parties submitted to the Court and which were made by consent on 27 July related to causes of action against Foresters only. Accordingly, Foresters has not been obliged to‑date to disclose and produce documents relating to possible proceedings against persons other than itself. If the plaintiffs require further information for that purpose they should seek an order to that effect.
If cross‑examination of Mr Hughes under subr (3) was allowed, it would have to be confined to the purpose for which Foresters has been required to produce documents so far; that is, a potential claim against Foresters itself. Otherwise the purpose discernible in the underlying structure of r 32 to which I referred earlier would be undermined.
Accordingly, this ground of appeal fails.
General
The Master held that it was not permissible for the plaintiffs to use r 32 to obtain evidentiary material for use in subsequent proceedings in another Court. He went on to say that if the plaintiffs make any further application under r 32 he would require an undertaking from them that any subsequent action would be brought in this Court.
The plaintiffs challenged the appropriateness of this intimation of the Master. It seems that at one stage they contemplated that they may use the information they obtained under r 32 in proceedings which they would commence in the Federal Court and which they would seek to have heard at the same time as their action against Messrs Woff and Corby.
I agree with the principle which underpins the Master’s statement. The powers in r 32 are exercisable in relation to anticipated proceedings in this Court, and in this Court only. Rule 32 derives its validity from the rule‑making power of this Court in s 72 of the Supreme Court Act 1935 (SA).[8] That rule‑making power relates to litigation in this Court, and not any other court. A party invoking r 32 with the intention of using the information thereby obtained in proceedings in another court will probably be abusing the process of this Court.
[8] Cf The State Bank of South Australia v Hellaby (1992) 59 SASR 304.
The fact that the r 32 power is exercisable in relation to anticipated proceedings in this Court may not preclude a party later changing its mind, for example, if it found that the quantum of its claim was less than it had initially supposed, making it more appropriate for the proceedings to be commenced in the District Court or the Magistrates Court. However, circumstances of that kind are likely to be rare.
Conclusion
For these reasons I dismiss the appeal.
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