MacKay Sugar Co-operative Association Ltd v CSR Ltd
[1996] FCA 154
•23 FEBRUARY 1996
CATCHWORDS
PROCEDURE
DISCOVERY AND INTERROGATORIES - discovery and inspection of documents - grounds for resisting production - confidential and commercially sensitive documents
Federal Court Rules O 15
Harman v Home Office [1983] 2 AC 280
Science Research Council v Nasse [1980] AC 1028
Warner-Lambert Co. v Glaxo Laboratories Ltd (1975) 92 RPC 354
Mobil Oil Australia Limited and McDonalds Australia Limited v Guina Developments Pty Limited - unreported judgment of Victorian Court of Appeal, 3 November 1995.
MACKAY SUGAR CO-OPERATIVE ASSOCIATION LIMITED & ORS v
CSR LIMITED
No. QG 178 of 1994
SPENDER J
BRISBANE
23 FEBRUARY 1996
IN THE FEDERAL COURT OF AUSTRALIA )
QUEENSLAND DISTRICT REGISTRY ) No. QG 178 of 1994
GENERAL DIVISION )
BETWEEN: MACKAY SUGAR CO-OPERATIVE ASSOCIATION LIMITED
(ARBN 057 463 671)
First Applicant
AND: ED & F MAN AUSTRALIA PTY LTD
ACN 054 982 071)
Second Applicant
AND: MACKAY REFINED SUGARS PTY LTD
(ACN 054 641 824)
Third Applicant
AND: ED & F MAN NEW ZEALAND LIMITED
(AK 552848)
Fourth Applicant
AND: MACKAY REFINED SUGARS (NZ) LIMITED
(AK 552905)
Fifth Applicant
AND: CSR LIMITED
(ACN 000 001 276)
First Respondent
AND: NEW ZEALAND SUGAR COMPANY LIMITED
(AK 058799)
Second Respondent
CORAM: Spender J
PLACE: Brisbane
DATE: 23 February 1996
MINUTES OF ORDER
In respect of the applicants' motion filed 29 December 1995:
THE COURT ORDERS THAT:
As from 4 p.m. on Wednesday, 28 February 1996, each person described in schedule A to the notice of motion of the applicants filed on 29 December 1995 be released from his or her undertaking to the Court insofar as that undertaking prohibits disclosure of the particulars or information described in that notice of motion to Athol Harley, Neil Gregory, Howard Delaney, Ken Innes or James Proudlock, save that that release does not extend to any documents which touch the VLC process or concern its commercial exploitation, or which came into existence
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after 31 December 1995, and provided that any such disclosure must be subsequent to each of those named persons signing and filing the Undertaking of Confidentiality in the terms used in these proceedings.
THE COURT DIRECTS THAT:
the respondents deliver by 4 p.m. on Wednesday, 28 February 1996 a letter containing a list of the documents which they contend are documents which touch the VLC process or which concern its commercial exploitation.
THE COURT GRANTS liberty to apply.
In respect of the respondents' motion filed 4 January 1996:
THE COURT ORDERS THAT:
as from 4 p.m. on Wednesday, 28 February 1996, each person on behalf of the respondents who has filed an Undertaking of Confidentiality in these proceedings be released from that undertaking, except that that undertaking applies to the following documents, the documents listed as discovered documents 257, 258, 259, 263, 265, 268, 269, 270, 271, 272, 273, 278, 283 and G374; in respect of those documents, access be permitted to officers of the respondents on the Undertaking of Confidentiality that has been applied in these proceedings.
THE COURT GRANTS liberty to apply.
THE COURT FURTHER ORDERS that in respect of each notice of motion the costs of each party be their costs in the proceedings.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA )
QUEENSLAND DISTRICT REGISTRY ) No. QG 178 of 1994
GENERAL DIVISION )
BETWEEN: MACKAY SUGAR CO-OPERATIVE ASSOCIATION LIMITED
(ARBN 057 463 671)
First Applicant
AND: ED & F MAN AUSTRALIA PTY LTD
ACN 054 982 071)
Second Applicant
AND: MACKAY REFINED SUGARS PTY LTD
(ACN 054 641 824)
Third Applicant
AND: ED & F MAN NEW ZEALAND LIMITED
(AK 552848)
Fourth Applicant
AND: MACKAY REFINED SUGARS (NZ) LIMITED
(AK 552905)
Fifth Applicant
AND: CSR LIMITED
(ACN 000 001 276)
First Respondent
AND: NEW ZEALAND SUGAR COMPANY LIMITED
(AK 058799)
Second Respondent
CORAM: Spender J
PLACE: Brisbane
DATE: 23 February 1996
REASONS FOR JUDGMENT
These are two motions which concern the inspection of discovered documents. The principal proceedings concern dealings subsequent to the coming to an end of a joint venture between Mackay Sugar Co-operative Association Limited and some, if not all, of the respondents, in early 1994.
The principal proceedings involve allegations by the Mackay Sugar interests of, amongst other things, abuse of market power as well as misleading and deceptive conduct. The issues are commercially complex and the evidence in respect of them quite voluminous.
I am dealing essentially with two notices of motion: a notice of motion filed by the applicants on 29 December 1995, being Document 123 (which seems to overtake what was sought by the applicants' motion filed on 7 December 1995). That notice of motion seeks the release of nominated persons from undertakings which those persons had given to the court and to the respondents insofar as those undertakings prohibited disclosure to any representative of the applicants of confidential particulars of the respondents' defence and any other information designated as "confidential to external legal advisers and independent experts and provided by the respondents during the course of these proceedings". Alternatively, it was sought that the persons referred to in that first paragraph be released insofar as those undertakings prohibit disclosure of the particulars or information referred to in that paragraph to five named officers or employees of the applicants.
The respondents' notice of motion filed on 4 January 1996 seeks orders that each of the applicants' discovered documents enumerated in the schedule to the motion be treated as non-confidential for the purpose of these proceedings or that each person on behalf of the respondents who have filed
an undertaking of confidentiality in these proceedings be released from that undertaking insofar as the undertaking prohibits disclosure of the documents specified in the schedule.
On each motion there has been extensive affidavit evidence, some oral evidence as well, as well as quite extensive submissions both oral and written. I have taken the opportunity to examine what was said by Mr Doyle, counsel for the respondents in the principal proceedings, to be samples of the categories of documents in respect of which the respondents contend that discovery should be limited legal advisers and experts, and then on conditions of confidentiality.
I do not propose to canvass the evidence or the submissions in detail and I intend to be terse in these reasons. The fact that I do not deal expressly with any particular body of evidence or submission does not of course mean that it has not been considered. One example is the evidence relating to the breach of undertakings and the significance and consequences that might follow in the resolution of the issues raised by the motions.
Notwithstanding the extensive reference to authority by the parties, ultimately the questions raised by the motions have to be considered by reference to the Federal Court Rules. Order 15 deals with discovery. Order 15 r 1 provides that:
"...any party may, unless the Court otherwise orders, by notice of discovery filed and served on any other party, require any other party to give discovery of documents. "
Order 15 r 2 indicates how discovery is to be given and within what time it is to be given.
It is important to note, and it is something which really the undertakings given in this case merely emphasise, that a party to whom documents are produced on discovery impliedly undertakes not to use them or allow them to be used for any purpose other than the proper conduct of the action, and if that party wishes to use documents for any other purpose, then the court's leave is necessary before that can be done.
The rest of O 15 deals with particular aspects of how the discovery process is to be carried out, but I should note r 11, which permits the court, in the circumstances there set out and subject to any question of privilege, to order a party to produce a document for inspection by any other party at a time or place specified in the order.
Rule 14, not irrelevantly, provides that:
"Where an application is made for an order under rule 11 for the production of any document for inspection by another party or for an order under rule 13 for the production of any document to the Court and a claim is made that the document is privileged from production or an objection to production is made on any other ground, the Court may inspect the document for the purpose of deciding the validity of the claim or objection. "
In a rule on which the respondents place particular reliance, O 15 r 15 provides that:
"The Court shall not make an order under this Order for the filing or service of any list of documents or affidavit or other document or for the production of any document unless satisfied that the order is necessary at the time when the order is made. "
It is convenient to deal with the applicant's motion. I do this because it seems to me that the applicant's position was reduced to contending that if they succeeded or were substantially successful, then client inspection of the applicant's documents should be ordered, subject to appropriate undertakings.
The following points seem to me to be of central importance. First, the documents are relevant to the issues in these proceedings. Secondly, while legitimate criticisms can be directed at the evidence of Mr Mark Bryant, the position in respect of Mr Ian Hughes, an experienced commercial solicitor having the principal conduct of the proceedings for the applicants, is different.
He deposed in paragraph 14 of his affidavit of 7 December 1995 that whilst he is prevented from disclosing the confidential material to officers of the applicants, he is significantly impeded in being able to obtain proper
instructions, is greatly handicapped in the giving of specific and worthwhile advice, is gravely handicapped in the preparation of the applicant's case, for example by being unable to discuss experts' reports with his clients, and that as a consequence there is a considerable risk that significant evidence may be misunderstood.
Notwithstanding the adjectival embellishments contained in that claim, he was not sought to be cross-examined. Having regard to the nature of the material, and considering the capacity of legal advisers and other experts in particular fields to comprehend the significance of documents which have a technical or special component and which in many respects are not simple, the position deposed to by Mr Hughes assumes significance in the conclusion that I have reached. This consideration is of importance, having regard to the factual differences with the case on which most reliance was placed by Mr Doyle, the Mobil Oil Case.
Thirdly, concerning the cut-off date of February 1994 when the joint venture came to an end, the position that has been adopted by the respondents is that client access is not sought to be prevented in respect of documents prior to that date. As an aspect of the "due diligence" associated with the joint venture, applicants' officers had access without any qualification or exemption to all documents of the respondents prior to that date. The respondents assert that the client access should be prevented after that date, and some of the evidence is directed to suggesting that that would cause no significant difficulty to the applicants because, armed with that information of the position prior to February 1994, the applicants would be able to prepare their case by a process of extrapolation.
The fourth point that I think is of central importance concerns the process of very low-colour ("VLC") sugar referred to in the material which is the subject of a patent application in February 1995, and which the material suggests may be granted about now.
The fifth matter which seems to me to be of central importance is the fact that the applicants are the respondents' competitors in the refined sugar market in Australia and New Zealand, and that the second applicants, which has entered into a joint venture agreement with the third applicants, is also a sugar trader world-wide. In the way of these sorts of proceedings, the competition has been described in the evidence before me as "fierce"; the fact that they are trade rivals seems to me to be a matter of central importance in trying to balance the competing considerations that these motions throw up.
The respondents contend that various documents of theirs are sufficiently commercially sensitive to require that inspection be qualified so that information contained in them not be provided to the applicants. Mr Stephen Hughes, in an affidavit filed on 31 January, sets out in detail the various
categories of documents for which the respondents make that claim and the basis for those claims.
The categories are essentially five. The first category has been described as "Consumer Contract" documents which contain details of the respondents' contemporaneous negotiations contracts and relationships with their customers; the second, "Strategy Documents" which relate to the respondents' marketing strategies over time in various respects. The third category is described as "Pricing and Costing Documents" which relate to the pricing and costings of the respondent at any particular time. The fourth category relates to the purchase by the respondents of raw sugar from suppliers, and particularly from the Queensland Sugar Corporation, and there is a category of miscellaneous documents.
The applicants say that they should be relieved of the undertakings of confidentiality to the extent of at least permitting the five named officers in their motion to be able to advise the legal advisers and the experts concerning those documents.
The applicants, I think, were summarised rightly by Mr Doyle as contending that the documents in fact were not confidential; but even if confidential, the applicants would suffer a prejudice in the preparation of their case which warrants them having the access by their principals to those documents for the purpose of giving instructions and advice;
and thirdly, it was contended that because the respondents had inspected some of the confidential documents of the applicants, there was some imbalance which should be addressed by permitting the applicants' officers to have access to the respondents' commercial documents.
The claim that the documents are not confidential sits very oddly with the contention that access is necessary for the applicant's case to be properly prepared. Much of Mr Harley's affidavit is directed to showing that the relevant information is public knowledge or ascertainable from not difficult sources, but that claim sits, as I say, oddly with the claim that access is necessary. It is difficult, it seems to me, to assert prejudice by being denied access whilst at the same time asserting that the information is otherwise readily known or available.
On the evidence, and aided by the inspection of the documents, particularly those in Exhibit 11, I am satisfied that concerning the categories of documents as described and in respect of some of which I have seen, those documents are commercially sensitive and are properly to be described as confidential.
I acknowledge the force of the submission by the applicants concerning the exercise of inspection and the acquiring of information during the period of due diligence. It was said by the applicants, that the respondents in 1993 were happy to divulge what they now seek not to divulge. The circumstances however were that in 1993 it was hoped that a happy marriage would result. The relations now between the parties are more similar to the consequence of divorce; those different circumstances have to be acknowledged.
I turn now to my conclusions. First of all, a party obtaining discovery will generally be entitled to inspect all of the other's discoverable documents, except those in respect of which a proper claim for privilege can be made. Lord Keith of Kinkel in Harman v Home Office [1983] 2 AC 280, said at 308:
"Discovery constitutes a very serious invasion of the privacy and confidentiality of a litigant's affairs. It forms part of English legal procedure because the public interest in securing that justice is done between parties is considered to outweigh the private and public interest in the maintenance of confidentiality. But the process should not be allowed to place upon the litigant any harsher or more oppressive burden than is strictly required for the purpose of securing that justice is done. "
Those propositions, it seems to me, are reflected in the rules of this court to which I have earlier referred.
Lord Wilberforce said in Science Research Council v Nasse [1980] AC 1028, at 1065:
"There is no principle in English law by which documents are protected from discovery by reason of confidentiality alone. But there is no reason why, in the exercise of its discretion to order discovery, the tribunal should not have regard to the fact that documents are confidential, and that to order disclosure would involve a breach of confidence. "
He said later:
"As a corollary to the above, it should be added that relevance alone, though a necessary ingredient, does not provide an automatic sufficient test for ordering discovery. The tribunal always has a discretion. "
It might be noted that the County Court rules that were there being considered by the House of Lords conferred on the County Court a general discretion concerning discovery, coupled with the qualification that:
"discovery shall not be ordered if and so far as the court is of the opinion that it is not necessary either for disposing fairly of the proceedings or for saving costs. "
There is, in this case, a category of documents which are of a similar kind to that considered by the Court of Appeal in Warner-Lambert Co. v Glaxo Laboratories Ltd (1975) 92 RPC 354.
In that case the plaintiff sued for infringement of two patents relating to steroid compounds and their manufacture. The question that arose in the Court of Appeal was the extent to which the defendant should be required to disclose its process to representatives of the plaintiff, the defendants denying that its product infringed either of the patients and asserting that there were secrets of considerable commercial value connected with its method of producing the substance in question. Buckley LJ said at 356:
"In this respect, the court is, in my opinion, confronted with a conflict of expedients. The plaintiff is entitled to be protected against infringements of its monopolies under the two patents in suit. If the defendant is in fact infringing, it should not be permitted to shelter behind a plea of secrecy. If, however, the defendant is not infringing, it is entitled to have the secrets associated with its process maintained intact. The parties are competitors in a highly competitive market. How can justice be done and at the same time effect be given to the rights of each party to the greatest possible extent? "
He addressed this question later at 356 where he said:
"In such a case a controlled measure of disclosure seems best calculated to serve the interests of justice. The course which has been taken in a number a such cases has been to direct disclosure to selected individuals upon terms aimed at securing that there will not be either use or further disclosure of the information in ways which might prejudice the defendant. "
His Honour said at 359:
"The judge was, as it appears to me, concerned to ensure that the plaintiff company, in the person of some responsible officer, should have an opportunity not only of being advised by technical experts and legal advisers, but of knowing the facts on which that advice was founded so as to be able to form a personal judgment on how to deal with the action. There are obviously strong arguments in favour of a party to litigation being enabled so far as possible to chart his own course in the light of professional advice. "
And at 360 his Lordship said:
"If in a particular case it is right that disclosure of any facts should be made by one party to his opponent's advisers before trial, it must normally follow as a matter of course that the opponent should be entitled to know the fact so disclosed. His advisers are his agents in the matter and strong grounds must be required for excluding the principal from knowledge which his agents properly acquire on his behalf. But this principle must be subject to some modification if trade secrets are to be protected from disclosure to possible competitors. "
And later:
"Where a matter in question in an action, being that matter upon which inspection or disclosure will throw light, is of a technical nature, the party seeking discovery may well require inspection by, or disclosure to, technical and professional advisers. If the matter be of a kind on which the party will be likely to be able with the aid of those advisers to form some kind of view of his own, it seems to me that he should normally be allowed to know as much about the facts as his advisers. "
I cite those observations in respect of the general matters in respect of which confidentiality is claimed, as well as in respect of more particular considerations that apply concerning the Very Low Colour technology.
The respondents particularly rely on an unreported judgment of the Victorian Court of Appeal, Mobil Oil Australia Limited and McDonalds Australia Limited v Guina Developments Pty Limited, a judgment of 3 November 1995. Hayne JA at page 8 of the unreported judgment said:
"Once the documents are inspected by the principals of the trade rival the information which is revealed is known to the trade rival and cannot be forgotten. Confidentiality is destroyed once and for all (at least so far as the particular trade rival is concerned). To say that trade rival is bound not to use the documents except for the purpose of the action concerned, is in a case such as this, to impose upon that trade rival an obligation that is impossible of performance by him and impossible of enforcement by the party who secrets have been revealed. "
It seems to me that this concern, while a very real one, is somewhat overstated. In many circumstances people, including judges, are given information which for some reason
or another should not be used for a particular purpose. It goes without saying that judges are expected to decide cases on the material properly admissible before them and to put to one side anything which is inadmissible or irrelevant to the determination of the issues before them. It seems to me that while there are difficulties raised by the need to adopt that course, it is a course which, in fact, is both necessary and frequent. Similarly, here it seems to me that it overstates the matter to say that confidentiality is destroyed on disclosure, or that a particular person is unable not to use information, imparted to him on a strict undertaking of confidentiality, for improper purposes.
In the Mobil Oil Case, Hayne, JA said at 10:
"Where, as here, the problem is one of balancing the needs of a party to the litigation and the legitimate concern of a trade rival to retain secrecy of commercially sensitive information, it may well be necessary to mould orders that will distinguish between the plaintiff, its officers, its legal advisers, and experts. Again it may be accepted that generally a party is entitled to inspect the documents of an opposite party by itself its servants or its agents. But in the present kind of case, is it necessary to destroy the legitimate claim of confidentiality from trade rivals by permitting the principal of the rival to look at the documents? Is it sufficient to permit counsel and solicitors (and nominated experts) to do so? It is now commonplace in the Courts for material to be made available only to the legal advisers of the parties and nominated experts. Of course such arrangements bring with them their own difficulties and are arrangements that should be adopted only when there is a need to do so; of course they are arrangements that may need to be reviewed as the matter progresses towards trial or as the trial itself proceeds. But they are arrangements that are made and should be made when doing so would strike a fair balance between the competing interests of the party seeking inspection and the party claiming confidentiality. No more specific rule can be laid down - each case will fall for determination according to its own facts. "
I agree that each case does fall for determination according to its own facts, and the question in the present case is: is the disclosure to the applicants or some nominated officers of them necessary for the proper preparation of their case? The factual circumstance in the Mobil Oil Case appears to me to be significantly different from the factual circumstances here. I do, nonetheless, acknowledge the trade rivalry and the need, as far as possible, to ensure that the interests of the respondents are not unfairly put at risk.
I do not accept that in any meaningful way the applicant's case can be developed by some process of extrapolation from pre-February 1994 documents or by reference to some outside experts.
I am going to permit client access to much of the confidential material, that access being to the persons named in the applicants' notice of motion. I have had regard to the evidence of Mr Stephen Hughes. I agree that, as a matter of experience and as a matter of evidence in this case, the sensitivity of commercial information and of documents fades with time, and that documents which are contemporaneous have a much higher degree of sensitivity than those of more historical significance. It seems to me that the more immediate are the documents of the categories of which Mr Stephen Hughes speaks, then the greater are the fears that he has referred to in that affidavit.
Trying to balance that aspect of the matter as best I can, it seems to me that I ought to permit access by the named officers of the applicants to the discovered documents of the respondents, but that access be restricted to documents coming into existence before 31 December 1995. I know that in respect of some of those documents performance will continue much beyond that cut off date, and much of the information in those documents will have a current significance. Notwithstanding those considerations, it seems to me that as a matter of necessity the applicants are entitled to access to confidential documents coming into existence significantly after the February 1994 cut-off date proposed by the respondents.
The limitation that I have imposed means that the risk of spoiling or tainting current trade dealings is much reduced in any event, and that the undertakings will have a place in underlining the use to which documents in respect of which access has been permitted might be put.
As to the fears that Mr Stephen Hughes expressed in his affidavits, when one looks at this affidavit the fears involve breaches of the undertakings which will be required. He says "Documents which reveal comparative prices between customers could be used to damage the respondent's relationships," and "disclosure of contract terms, including prices, could put pressure on the relationships between the respondents and their customers ". The documents concerning the respondents operating strategies "could be used by the applicants to their advantage in negotiation with customers who are seeking delivery of sugar during which changes are proposed and may be implemented", and the applicants "could use the information about the respondent's assets strategies for their advantage" in negotiation with customers.
I think that what he says is as a matter of fact true, but one has to have regard to the fact that the disclosure is for the purposes of the litigation and the undertakings should not be regarded as hollow.
Finally, in respect of the process which has been described in the evidence before me as the Very Low Colour sugar technology, it seems to me that that is a secret process and that different considerations apply to it, having regard to the timing of its introduction and what I regard as its commercial potential. It seems to me that what might be regarded as the more protective approach should be adopted in respect of documents which touch that process or which concern its commercial exploitation. I have expressed myself that way because there are, it seems to me, documents which are not only directed to the process and its description, or its implementation, but which depend on it as the basis for the contents of the document. I will deny access by the applicants' nominated officers to documents which touch that process or which concern its exploitation.
In that regard I am influenced by the document which is P6465 in Exhibit 11, which deals with the commercial exploiting of the VLC process; I think documents of that kind ought also to be the subject of the more protective orders that I propose to make.
In summary, dealing with the applicant's motion, the orders that I propose are, first, that each person described in schedule A to the notice of motion of the applicants filed on 29 December 1995 be released from his or her undertaking to the Court insofar as that undertaking prohibits disclosure of the particulars or information described in that notice of motion to Athol Harley, Neil Gregory, Howard Delaney, Ken Innes or James Proudlock. That order does not apply to any documents which touch the VLC process or concern its commercial exploitation, and that order does not apply to any documents which came into existence after 31 December 1995.
There will be liberty to apply in respect of those orders.
In relation to the respondents' motion, each person on behalf of the respondents who has filed an Undertaking of Confidentiality in these proceedings be released from that undertaking, except that that undertaking applies to the following documents, the documents listed as discovered documents 257, 8, 9, 263, 265, 268, 9, 70, 71, 72, 73, 78, 283 and G374; in respect of those documents, access be permitted to officers of the respondents on the Undertaking of Confidentiality that has been applied in these proceedings. Again, I grant liberty to apply.
The final matter is costs. Having regard to the conclusions that I have reached on both motions and the contingent position that the applicants adopted in respect of their documents, my present intention is to order that the costs of the motions be costs in the proceedings.
I make a further direction: that the respondents deliver by letter a list of the documents which they contend are documents which touch the VLC process or which concern its commercial exploitation. I would anticipate that those documents would include all the C3 documents, but there may be other documents as well, and I do not think it would be a particularly onerous task for the respondents to nominate those documents in addition to C3 which they claim are covered by that order.
The order earlier indicated should have the addition:
"provided that any such disclosure must be subsequent to each of those named persons signing and filing the Undertaking of Confidentiality in the terms used in these proceedings. "
At the moment, for the purposes of permitting the respondents to consider whether an application for leave to appeal these orders might be made, I should order that in respect of the orders that I made on each motion they do not
come into operation before 4 pm on Wednesday, 28 February 1996.
It will thus be necessary to obtain a Court order to get around the operation of these orders at 1 minute past 4 p.m. on Wednesday, 28 February 1996.
After hearing counsel as to costs, I think that a fair order is the one that I have indicated. In respect of both motions the costs of each party will be their costs in the proceedings.
I certify that this and the preceding nineteen (19) pages are a true copy of the reasons for judgment herein of the Honourable Justice Spender.
Associate
Date: 23 February 1996
Counsel for the applicants : Mr J D M Muir QC
instructed by : McCullough Robertson
Counsel for the respondents : Mr S L Doyle SC
instructed by : Clayton Utz
Date of Hearing : 20 February 1996
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