Morgan Stanley Wealth Management Australia Pty Ltd v Detata
[2014] WASC 397
•29 OCTOBER 2014
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: MORGAN STANLEY WEALTH MANAGEMENT AUSTRALIA PTY LTD -v- DETATA [2014] WASC 397
CORAM: BEECH J
HEARD: ON THE PAPERS
DELIVERED : 29 OCTOBER 2014
FILE NO/S: CIV 2461 of 2013
BETWEEN: MORGAN STANLEY WEALTH MANAGEMENT AUSTRALIA PTY LTD
Plaintiff
AND
LOUIS DETATA
Defendant
Catchwords:
Practice and procedure - Discovery - Application for discovery of categories of documents - Discretionary considerations - Turns on own facts
Legislation:
Nil
Result:
Application dismissed
Category: B
Representation:
Counsel:
Plaintiff: No appearance
Defendant: No appearance
Solicitors:
Plaintiff: King & Wood Mallesons
Defendant: Chalmers Legal Studio
Case(s) referred to in judgment(s):
Co‑operative Bulk Handling Ltd v Brookfield Rail Pty Ltd [2014] WASC 31
Lonsdale Investments Pty Ltd v OM (Manganese) Ltd [No 2] [2009] WASC 253
Roe v The State of Western Australia [2013] WASC 130
Westraint Resources Pty Ltd v BHP Iron Ore Pty Ltd [No 4] [2009] WASC 17
BEECH J:
Introduction
The defendant applies for an order requiring the plaintiff to give discovery of a number of categories of documents. For the reasons that follow, I refuse the application.
The pleadings and the issues
It is common ground between the parties that the plaintiff (Morgan Stanley) employed the defendant (Mr Detata) from October 2010 until 12 February 2013 under a contract of employment made in August 2010.
Morgan Stanley sues for an amount of about $1.1 million said to be due to it from Mr Detata under the contract of employment and under a deed entered into between the parties around the time of the termination of Mr Detata's employment. By way of broad summary, there were terms of the contract of employment that:
(a)Morgan Stanley would pay Mr Detata two sums, referred to as a gross retention payment and a long term incentive award;
(b)if at any time in the first five years from the date of payment of those sums Mr Detata terminated his employment for any reason then he would be required to immediately repay those sums in accordance with a sliding scale;
(c)if the termination was within the first year of employment, 100% would be repaid, if within the second year, 80%, and so on, so that if termination was in the fifth year, 20% of those sums would be repaid.
Mr Detata pleads that from about September 2012 Morgan Stanley acted in breach of the contract in various respects, including:
(a)by instructing him not to trade for a client who had, unknown to Mr Detata, engaged in what is referred to as Wash Trades;
(b)by instructing Mr Detata not to engage in trading referred to as Forward Settling.
That conduct on the part of Morgan Stanley is said to have breached implied terms in the contract of employment. Mr Detata pleads[1] implied terms that:
(a)he was to trade in listed shares using Forward Settling as the means by which clients were to pay for share acquisitions;
(b)existing clients of Mr Detata would, upon his cessation of his employment with Morgan Stanley, remain his clients;
(c)Morgan Stanley would do all things necessary for Mr Detata to perform his obligations as an employee;
(d)Morgan Stanley would not without reasonable and proper cause act in a manner calculated or likely to cause serious damage to the relationship of trust between Morgan Stanley and Mr Detata as an employee.
[1] Defence [2.6].
Mr Detata pleads that the giving of the instructions by Morgan Stanley had devastating financial and psychological consequences for him, including that he could no longer earn the income that he needed in order to support his high level of gearing.
Mr Detata claims that the deed entered into between the parties in February 2013 was entered into by him under duress or as a result of unconscionable conduct on the part of Morgan Stanley.
The main issues in the action would appear to be:
(a)did the contract of employment contain the implied terms pleaded in par 2.6 of the defence?;
(b)were Morgan Stanley's instructions to Mr Detata a breach of contract or otherwise unlawful?;
(c)are relevant clauses of the contract of employment void and unenforceable as a penalty?;
(d)is the deed of February 2013 vitiated by economic duress or unconscionable conduct?
Procedural background
On 26 February 2014, there was a strategic conference in the action. Directions were made for a draft statement of issues of fact and law and a statement of agreed facts to be prepared and the subject of conferral, and for the parties to confer in relation to the categories of discovery. The thrust of the discussion at the strategic conference was that these were the only steps necessary before mediation.
On about 7 May 2014, by consent, it was ordered that:
(a)by 20 May 2014, the parties file an agreed statement of issues of fact and law and a statement of agreed facts;
(b)by 22 May 2014, each party would identify their categories of documents required to be discovered;
(c)by 2 July 2014, each party would give discovery of agreed categories of documents.
Correspondence about discovery
In May, June, July and August 2014, there was extensive correspondence between the parties relating to discovery.
In June 2014, Morgan Stanley's solicitors made repeated requests for Mr Detata's solicitors to identify the categories of documents proposed by Mr Detata.
On 1 July 2014, Mr Detata's solicitors stated that Mr Detata would require discovery of all trades conducted by him and all documents relating to Morgan Stanley's investigation of Mr Detata's trading and the closure of a client's account.
By letters on 4 and 11 August 2014, Morgan Stanley's solicitors responded in relation to that request. Morgan Stanley's solicitor's letter of 4 August 2014 said that, notwithstanding that they considered trading information to be of limited relevance, Morgan Stanley would comply with the request by discovering all trades it could access on its client management system, unless they heard from Mr Detata's solicitor within seven days. The letter also stated that Morgan Stanley had initiated a search to recover all documents related to Morgan Stanley's investigation of Mr Detata's trading.
The letter of 11 August 2014 outlined the steps that would be required and the steps that had been taken thus far, including a number of items identified by the initial search and likely cost of a production of the list based on that category.
On 22 August 2014, Mr Detata's solicitors wrote to Morgan Stanley's solicitors stating the categories of documents sought in different terms.
By letter of 26 August 2014, Morgan Stanley's solicitors contended that the newly framed request was ill‑defined and oppressively broad. The letter also stated that Morgan Stanley was continuing with the discovery process identified in their earlier letters.
By email on 26 September 2014, Morgan Stanley's solicitors confirmed that they were continuing with the discovery process described in their earlier letters, and explained why there had been a slight delay.
A directions hearing was scheduled for 2 October 2014.
By email of 1 October 2014, Morgan Stanley's solicitors proposed orders relating to categories of discovery by Morgan Stanley of the following categories:
(a)all trades conducted by Mr Detata during his employment with Morgan Stanley as recorded on Morgan Stanley's client management system; and
(b)emails and related documents relating to the investigations into the closure of the account on or about 12 September 2012 and Mr Detata's trading, limited to documents obtained through the searches described in Morgan Stanley's letter to Mr Detata dated 11 August 2014.
On 1 October 2014, Mr Detata's solicitor sent a letter proposing discovery by Morgan Stanley of the following categories:
(a)all documents relating to share trading during the term of Mr Detata's employment;
(b)all documents relating to margin lending for share trading during the course of Mr Detata's employment;
(c)all documents relating to the establishment of margin lending accounts for use by Mr Detata's clients;
(d)all documents relating to compliance checks conducted during the course of Mr Detata's employment;
(e)all documents relating to investigations that were relied on by Morgan Stanley in giving the first instruction pleaded in par 4.1 of the further amended defence and counterclaim;
(f)all documents relied on by Morgan Stanley in giving the second instruction pleaded in par 4.7 of the further amended defence and counterclaim;
(g)all documents relating to Morgan Stanley's investigation for the period of 18 October 2012 to 13 December 2012.
After a directions hearing on 2 October 2014, Morgan Stanley's solicitors sent a letter to Mr Detata's solicitors that day. The letter referred to discussion after the directions hearing and:
(1)'confirm[ed] our agreement' that Morgan Stanley would continue its current discovery process with respect to the categories of trading data, investigation into the interstate account and investigation into Mr Detata's trading. Once this process was complete, they would provide Mr Detata's solicitors with a list of those documents;
(2)with respect to the trading data, said that Morgan Stanley's solicitors had explained that the trading data does not show Forward Settling, referring to the letter of 4 August 2014.
Morgan Stanley's solicitors' letter said that Mr Detata's solicitor had indicated that he would take instructions from his client as to whether there were any documents he believed existed which he wanted discovered before the mediation.
Without any further contact with Morgan Stanley's solicitors, on 9 October 2014, Mr Detata's solicitors filed and served an application for discovery.
On 16 October 2014, Morgan Stanley's solicitors wrote to Mr Detata's solicitors in relation to the application for discovery. The letter set out in detail the position of Morgan Stanley in relation to the categories of documents now sought. The letter asserted that the categories of documents specified in par 1.1 to 1.10 and par 2 of the application had not previously been requested by Mr Detata to be discovered by Morgan Stanley other than to the extent that they were in the scope of the general category 'all documents relating to share trading'. The letter also attached a trading information spreadsheet, as had been foreshadowed in August 2014.
In relation to the documents in pars 3 and 4 of the application, the letter stated that Morgan Stanley's solicitors had made it clear in earlier correspondence that the searches were being conducted, and that they expected the list of documents in those categories to be provided within a week.
Mr Detata's application
Mr Detata applies for an order that Morgan Stanley give discovery of the following categories of documents:
1.… all documents relating to share trading during [Mr Detata's] employment with [Morgan Stanley] comprising:
1.1electronic entries into [Morgan Stanley's] IOS System for shares purchased through [Mr Detata];
1.2electronic transmissions of contract notes for shares purchased through [Mr Detata] and sent by [Morgan Stanley] to Leveraged Equities and the ANZ Bank;
1.3electronic and hard copy communications from [Morgan Stanley] to [Mr Detata's] clients enclosing contract notes for shares purchased by them;
1.4the day book maintained by [Morgan Stanley] recording all shares purchased through [Mr Detata] and the compliance checks undertaken;
1.5electronic entries into [Morgan Stanley's] IOS System for all shares sold through [Mr Detata];
1.6electronic transmission of contracts notes for shares sold through [Mr Detata] and sent by [Morgan Stanley] to Leveraged Equities and the ANZ Bank;
1.7electronic and hard copy communications from [Morgan Stanley] to [Mr Detata's] clients enclosing contract notes for shares sold by them through [Mr Detata];
1.8the day book maintained by [Morgan Stanley] including all shares sold through [Mr Detata] and the compliance checks undertaken;
1.9the receipt of monies by [Morgan Stanley] from Leveraged Equities and the ANZ Bank in response to the electronic communications referred to in paragraphs 1.2 and 1.6;
1.10contract note histories of shares purchased and sold by [Mr Detata's] clients.
2.Notes made by Ms Hogan a compliance officer employed by [Morgan Stanley] of two meetings Ms Hogan attended with [Mr Detata] that were with Leveraged Equities when forward settling was discussed.
3.All documents relating to investigations and the share transactions investigated that were relied on by [Morgan Stanley] in giving the instruction pleaded in paragraph 4.1 of the Further Amended Defence and Counterclaim.
4.All documents relating to [Morgan Stanley's] investigation and the share transactions investigated that were relied on by [Morgan Stanley] to give the instruction pleaded in paragraph 4.7 of the Further Amended Defence and Counterclaim and relied on by [Morgan Stanley] in sending the email pleaded in paragraph 4.15 of the Further Amended Defence and Counterclaim.
Applications for discovery - legal principles
This is the first stage of discovery. No orders have been made for discovery. The parties are proceeding to give discovery by categories prior to mediation.
The first question is whether a category relates to a matter in question in the proceedings. In determining whether that is so, I adopt what Edelman J said in Co‑operative Bulk Holding Ltd v Brookfield Rail Pty Ltd[2] as follows:
It is sufficient if the document would either (i) advance a party's case or damage his or her opponent's case, or (ii) lead to a train of inquiry that would either advance a party's case or damage his or her opponent's case. Alternatively, the documents will relate to a matter in question in the proceedings if they contain information which could affect the manner in which a party may decide to conduct proceedings. The assessment of whether documents relate to a matter in question therefore proceeds by reference to the pleadings, the conduct and admissions of the parties, and the nature of the action (footnotes omitted).
[2] Co‑operative Bulk Handling Ltd v Brookfield Rail Pty Ltd [2014] WASC 31 [18].
Discovery is discretionary. There is no strict entitlement to an order for discovery. Considerations referred to in O 1 r 4B of the Rules of the Supreme Court 1971 (WA) are relevant. Of course, the court has regard to, among other things, the likely relevance and importance of the documents to the issues in the proceeding and the likely time, cost and inconvenience of searching for and disclosing the documents.[3]
[3] Westraint Resources Pty Ltd v BHP Iron Ore Pty Ltd [No 4] [2009] WASC 17 [13]; Lonsdale Investments Pty Ltd v OM (Manganese) Ltd [No 2] [2009] WASC 253 [5].
I adopt the following observations of Martin CJ in Roe v The State of Western Australia[4]:
The contemporary principles that govern the provision of discovery are conveniently set out in the defendants' submissions which I adopt: Singh v Friedman [2013] WASC 78 [3] ‑ [4] (Allanson J). Put shortly, it 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.
The only proposition I would add to the principles enunciated in the defendant's written submissions is the proposition that at least in cases such as this, when general discovery has not been sought or ordered, adjectival or indirect relevance of itself will no longer determine whether or not a document will be ordered to be discovered, and in particular the approach to general discovery enunciated in cases like Compagnie Financiere et Commerciale du Pacifique v Peruvian Guano Co (1882) 11 QBD 55 will no longer guide the court in relation to issues with respect to informal discovery.
Rather, those issues will be determined by the balancing of the likely forensic benefit to be obtained against the risk of cost and delay in the manner that I have described, viewed in the context of the value, importance and complexity of the subject matter of the proceedings. In that context, the forensic significance of the issue in respect of which discovery is sought and the relevance of the documents sought to that issue, in a qualitative sense, will be pertinent to the proper disposition of any application for discovery.
[4] Roe v The State of Western Australia [2013] WASC 130 [10] ‑ [13].
Thus, there are two main questions that arise in relation to each category:
(1)does the category relate to a matter in question?; and
(2)if so, should the court exercise its discretion to order discovery of that category?
The disposition of the application
Mr Detata's written submissions assert that his position on why the discovery orders should be made is set out in the correspondence.[5] In circumstances where the categories now sought had not been identified in the correspondence, that would seem a surprising contention. In any event, nothing in Mr Detata's solicitors' letters sustains the discovery orders he seeks.
[5] Mr Detata's submissions 9 October 2014 [5], [10], [14].
I will deal with the various categories sought by Mr Detata.
Category 1.10
Morgan Stanley has given discovery of its trading spreadsheet by letter of 16 October 2004. It has consistently stated that it would do so. See, for example, Morgan Stanley's solicitor's letter of 4 August 2014.
In relation to that letter, Mr Detata's submissions complain that Morgan Stanley cannot demand a response from Mr Detata within seven days, failing which Morgan Stanley would limit its discovery. In my respectful opinion, that submission misses the point. The letter of 4 August 2014 was an appropriate and reasonable step in conferring about the scope of discovery. In circumstances where what was proposed was that discovery be given by categories to be requested by one party to the other, it was reasonable for Morgan Stanley to enquire of Mr Detata whether Morgan Stanley's proposal satisfied Mr Detata's request or not. That was all the more so given the generality with which Mr Detata's solicitors had stated the category. Mr Detata's solicitors failed to respond to that request. There is no evidence or submission that explains that failure.
In the circumstances and for the reasons I have stated, no order is justified or required in relation to category 1.10.
Categories 1.1 to 1.9
Mr Detata has not satisfied me that categories 1.1 to 1.9 relate to any matter in question in the action. Mr Detata's submissions do not explain how and in what respect these categories are said to relate to a matter in question. Mr Detata's affidavit in support of the application states that issues in the proceeding include:
(a)whether Mr Detata was employed to trade in shares utilising Forward Settling that would enable his clients through their marginal lenders to pay for the share acquisition;
(b)whether the cessation of the use of Forward Settling by Morgan Stanley was lawful;
(c)whether the closure of an account on the ground that the share trades occurred where there was no change of ownership was lawful.[6]
[6] Affidavit of Mr Detata 8 October 2014 [3].
Relevantly, the issues relate to the terms of the contract of employment. What Mr Detata did in the course of his employment, after the parties had signed the contract of employment, does not inform the identification of the express and implied terms of the agreement.
In any event, if and to the extent that these categories relate to any matter in question in the action, in my opinion, discretionary considerations militate firmly against an order for discovery of these categories.
First, given the provision by Morgan Stanley of the trading spreadsheet, what categories 1.1 to 1.9 would add has not been identified by Mr Detata. I am not satisfied that documents in these categories are likely to show whether a trade involved Forward Settling. In any event, as I have said, what Mr Detata did in the course of his work does not bear on what the terms of the contract were.
Secondly, discovery of many of these categories will involve undue time, expense and inconvenience. Some will involve Morgan Stanley making further enquiry as to whether some of the categories can be retrieved at all and, if so, how. Some involve difficult interrogation of email data bases. Others would involve time consuming manual processes.[7]
[7] Affidavit of Ms Oaten [5] ‑ [6] and annexure KLO2.
Finally, these specific categories were not in terms adequately identified by Mr Detata to Morgan Stanley's solicitors prior to the making of this application. Mr Detata had ample opportunity from June to September 2014 to identify with precision the categories that he proposed. Morgan Stanley acted reasonably in progressing its work towards discovering the categories identified in Mr Detata's letter of 1 July 2014, albeit that the category was framed in very general terms.
For all these reasons I decline to order discovery of these categories.
Category 2
Category 2 was not in terms requested by Mr Detata prior to the making of the application. Morgan Stanley submits, with some force, that the category does not relate to any matter in question. Notwithstanding that, Morgan Stanley has located documents apparently within the category and will provide discovery of them.
In the circumstances, no order should be made in relation to category 2.
Categories 3 and 4
Again, these categories are expressed in terms that have not been the subject of a prior specific request by Mr Detata to Morgan Stanley. By letter of 1 July 2014, Mr Detata's solicitors identified a category in respect of which it was said discovery would be required, namely documents relating to Morgan Stanley's investigation of Mr Detata's trading and the closure of a client's account. Morgan Stanley's solicitors responded in letters of 4 August 2014 and 11 August 2004, outlining the steps it proposed to take in relation to documents of that character. It identified that the process of retrieval and review of what might be numerous emails would take a considerable amount of time. By 11 August 2014, Morgan Stanley's solicitors had identified 7,887 items that were potentially relevant and would need to be reviewed. In the letter of 11 August 2014, Morgan Stanley's solicitors estimated that the process would cost about $30,000 to $40,000 and invited Mr Detata's solicitors to respond within seven days if they considered the process should not continue.
Morgan Stanley's solicitors have continued with that process. It has cost well in excess of their estimate.[8]
[8] Affidavit of Ms Oaten [25].
Morgan Stanley has proposed that it would give, and is in the course of giving, discovery of emails and related documents relating to the investigations into the closure of the account on or about 12 September 2012 and Mr Detata's trading, limited to documents obtained through the searches described in the letter to Mr Detata of 11 August 2014.
In the circumstances, given the communications between the parties, and bearing in mind the need for proportionality, I would not make any order for discovery of categories 3 and 4.
Conclusion
For these reasons, I would dismiss the application.
Mr Detata should pay Morgan Stanley's costs of the application. The costs should be fixed. If the amount is not agreed within the next seven days, the parties should write to my Associate as to the appropriate amount.
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