National Australia Bank Limited v Transport Safety Systems Group Pty Ltd
[2020] VSC 2
•27 February 2020
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
JUDICIAL REVIEW AND APPEALS LIST
S CI 2018 02833
| NATIONAL AUSTRALIA BANK LIMITED (ACN 004 044 937) | Plaintiff |
| v | |
| TRANSPORT SAFETY SYSTEMS GROUP PTY LTD (ACN 609 644 680) | First Defendant |
| THE MAGISTRATES' COURT OF VICTORIA AT MELBOURNE | Second Defendant |
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JUDGE: | Daly AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 17 October 2019 |
DATE OF JUDGMENT: | 27 February 2020 |
CASE MAY BE CITED AS: | National Australia Bank Limited v Transport Safety Systems Group Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2020] VSC 2 |
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JUDICIAL REVIEW– Application pursuant to Order 56 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) to quash a magistrate’s decision to order the plaintiff to provide preliminary discovery pursuant to Rule 32.05 of the Magistrates’ Court General Civil Procedure Rules 2010 (Vic).
JURISDICTIONAL ERROR – Claim that magistrate misapprehended or disregarded the nature or limits of the Court’s functions or powers – Failed to consider jurisdictional preconditions under Rule 32.05 – Failed to take into account relevant considerations – Took into account irrelevant considerations – No formal reasons – Apparent from the record that magistrate had regard to the r 32.05 preconditions – Discretionary considerations also warrant dismissal of application – Application for judicial review dismissed.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr J F Styring | HWL Ebsworth Lawyers |
| For the First Defendant | Mr J Ruffles | Brand Partners |
| No appearance for the Second Defendant |
HER HONOUR:
Background
The plaintiff, National Australia Bank Limited (‘NAB’), is a major Australian bank. The defendant, Transport Safety Systems Group Pty Ltd (‘TSSG’), is a customer of NAB, and owns Rail Safety Systems Pty Ltd, a company which develops innovative safety systems for railway crossings. In this proceeding, NAB seeks judicial review of a decision of a magistrate to make orders that NAB provide documents to TSSG by way of preliminary discovery.
The dispute between the parties arose from an email fraud perpetrated upon TSSG by an unknown party. On 15 May 2017, the Chief Financial Officer of TSSG (‘CFO’), Mr Stephen Crisp, received emails which appeared to be from the Chief Executive Officer of TSSG (‘CEO’) requesting the transfer of USD65,358.17[1] to a bank account with the Hang Seng Bank in Hong Kong. The amount of the payment roughly correlated with an amount previously approved for payment by the CEO for a software license fee. The CFO instructed NAB via its online ‘NAB Connect’ system to arrange the transfer. A representative of NAB contacted Mr Crisp by telephone to confirm the transfer request, which he did.
[1]$98,967.55 as at 25 February 2020.
Three days later, after further requests for international transfers were made, purportedly on behalf of the CEO, TSSG suspected that the transfer requests were fraudulent and notified the NAB customer service area, which then contacted Hang Seng Bank. However, it was too late to recover the funds already paid from TSSG’s bank account. This type of fraud is often referred to as ‘business email compromise’, or ‘CEO phishing’, where a third party impersonates a senior executive within a targeted organisation to direct another employee of the target to transfer or authorise the transfer of funds to a bank account controlled by the fraudster.
On 22 May 2017, a director of TSSG, Mr David Opperman, requested NAB for copies of all records regarding the transfer of the funds (‘fraudulent transfer’) and related documents. Having not received any response from NAB, the director of TSSG sent a further request on 5 June 2017.
The proceeding in the Magistrates’ Court
Correspondence between the parties and their solicitors failed to resolve the dispute regarding the production of documents by NAB, and on 17 August 2017, TSSG issued a summons in the Magistrates’ Court at Melbourne seeking preliminary discovery from NAB pursuant to r 32.05 of the Magistrates’ Court General Civil Procedure Rules 2010 (Vic) (‘Rules’). The summons was presumably issued in the Magistrates’ Court because, given that in 2017 the potential value of the claim would have fallen within the jurisdictional limit of the Magistrates’ Court, any proceeding issued by TSSG would at that time have been likely to have been issued in the Magistrates’ Court.
Rule 32.05 of the Rules mirrors r 32.05 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic), and states as follows:
Discovery from prospective defendant
If –
(a)there is reasonable cause to believe that the applicant has or may have the right to obtain relief in the Court from a person whose description the applicant has ascertained;
(b)after making all reasonable inquiries, the applicant has not sufficient information to enable the applicant to decide whether to commence a proceeding in the Court to obtain that relief; and
(c)there is reasonable cause to believe that that person has or is likely to have or has had or is likely to have had in the person’s possession any document relating to the question whether the applicant has the right to obtain the relief and that inspection of the document by the applicant would assist the applicant to make the decision –
the Court may order that that person must make discovery to the applicant of any document of the kind described in subparagraph (c).
Rule 32.05(a), (b), and (c) are preconditions (‘r 32.05 preconditions’) that the Court needs to be satisfied before making an order under r 32.05. The r 32.05 preconditions are also described in the authorities as ‘jurisdictional thresholds’, ‘prerequisites’ or ‘gateways’.[2] Ultimately, whether to make an order for preliminary discovery is a matter for the discretion of the Court.
[2]Alex Fraser Pty Ltd v Minister for Planning [2018] VSC 391; Asahi Beverages Pty Ltd v RFGA Management Pty Ltd [2018] VSC 606 [30]; and Grocon Constructors (Vic) Pty Ltd v Biosciences Research Centre Pty Ltd [2014] VSC 204.
It is common ground that the commentary by Derham AsJ in Asahi Beverages Pty Ltd v RFGA Management Pty Ltd[3] (‘Asahi’) regarding the principles relevant to applications for preliminary discovery represents the applicable law governing TSSG’s application for preliminary discovery.
[3][2018] VSC 606.
In Fair Go Pty Ltd v Riseley,[4] a decision delivered while judgment in this proceeding was reserved, I summarised the relevant principles as set out in Asahi,[5] as follows:
[4][2020] VSC 27.
[5][2018] VSC 606.
(a)in relation to the first prerequisite, it is not necessary for an applicant to establish a prima facie case, and it is generally not appropriate to delve into the merits of a possible cause of action. Rather, the applicant must establish sufficient facts to enable the Court to reach an objective conclusion that the applicant may have a right to relief;
(b)in relation to the second prerequisite, it is sufficient for an applicant to show that, notwithstanding they had made all reasonable enquiries, the information generated by those enquiries is insufficient for the applicant to make a prudent decision whether to issue proceedings, having regard to the strength and quantum of the applicant’s claim and the availability of potential defences; and
(c)in relation to the third prerequisite, the applicant must show that it is likely that the respondent has in its possession, custody or power documents which would materially assist the applicant to make a decision to bring a proceeding.
Further, numerous authorities have emphasised that the rule needs to be applied benevolently. However, as observed by Riordan J in Alex Fraser Pty Ltd v Minister for Planning (omitting footnotes):
Although the jurisdictional threshold is low, its satisfaction only empowers the Court to exercise its discretion. In the exercise of its discretion, the Court can control any excesses; and assess whether there may be real benefit in making the order. It will be entitled to weigh the full range of relevant matters in determining whether an order is in the interests of justice – including the following:
(a)The level of inconvenience and cost that will be caused to the respondent.
(b)Whether discovery may cause commercial or other damage to the respondent.
(c) Whether the respondent will be reimbursed for its costs.
(d)Whether an order would be inutile because the documents are privileged.
(e)The prospect of the documents sought providing the information required by the applicant.
(f)Whether the fact that there is no real prospect of success is apparent or discovery will not serve any useful purpose. However, delving extensively in the merits of the existence of a possible cause of action will usually not be appropriate.[6]
[6]Ibid [30]-[31].
On 7 September 2017, the Magistrates’ Court made orders by consent for preliminary discovery of certain categories of documents (‘2017 consent orders’). The 2017 consent orders provided as follows:
1.National Australia Bank Limited (ACN 034 044 937) … make discovery of documents of the kind described below:
1.1any communications, consisting of digitally recorded audio or in writing (including swift messages), between employees, contractors or servants of NAB in relation to the transfer of USD $65,358.17 from the account of TSS, being BSB: 083-277 account number 2879-08816 … on 15 May 2017 to the account of Bong Ching Keung (HK) trade Co being a Hang Seng Bank Limited account; 775-238215-883, with NAB transfer reference 3039tt3017571094;
1.2any communications, consisting of digitally recorded audio or in writing (including SWIFT messages), between employees, contractors or servants of NAB and Bank of America, including but not limited to communications referable to swift code BOFAUS3N, in relation to the NAB transfer;
1.3any communications, consisting of digitally recorded audio or in wring (including SWIFT messages), between employees, contractors or servants of NAB and Hang Seng Bank Limited, including but not limited to communications referable to swift code HASEHKHH, in relation to the NAB transfer;
1.4any communications, consisting OP digitally recorded audio or in writing (including SWIFT messages), between employees, contractors or servants of Hang Seng Bank Limited and employees, contractors or servants of Bank of America in relation to the NAB transfer;
1.5any communications, consisting of digitally recorded audio or in writing (including swift messages), relating to the NAB transfer involving the people with the email addresses:
(a)ipc_nokthonab.com.au;
(e)[email protected]; and
1.6any communications, consisting of digitally recorded audio or in writing (including swift message), relating to the NAB transfer relating to the NAB internal reference codes:
(a)TT3017571094
(b)K8721608
(c)K8733004
1.7any communications, consisting of digitally recorded audio or in writing (including swift messages), including the recording of the actual call, in relation to:
(a)a phone conversation between Steve Crisp of TSS and ‘Marty’ from NAB at approximately 1.00pm (AEST) on Thursday, 18 May 2017 regarding the NAB transfer;
(b)phone conversations with Steve Crisp or David Opperman of TSS in the period on and from 18 May 2017 to and including 22 May 2017 regarding the NAB transfer.
1.8any communications, consisting of digitally recorded audio or in writing (including swift messages), relating to the NAB transfer involving any employees, contractors or servants of NAB, Bank of America or Hang Seng Bank Limited.
1.9any record of alleged incidents of fraud reported to NAB in the period of 6 months prior to the NAB transfer involving a payment or request for payment to Hang Seng Bank Limited;
1.10any policy, procedures, rules or guidelines issued or used by NAB in relation to responding to reports of fraudulent banking transactions;
1.11any policy, procedures, rules or guidelines issued or used by NAB in relation to contacting customers in relation to unusual or suspected fraudulent banking transactions;
1.12any policy, procedures, rules or guidelines issued or used by NAB in relation to contracting customers in relation to identification of unusual or fraudulent banking transactions.
On 28 September 2017, NAB discovered 74 documents pursuant to the 2017 consent orders.
The discovered documents included the following classes of documents:
(a) audio recordings of telephone conversations between representatives of TSSG and representatives of NAB between 15 May 2017 and 23 May 2017;
(b) email communications between representatives of TSSG and representatives of NAB between 18 May 2017 and 25 July 2017;
(c) email communications between representatives of NAB and representatives of Hang Seng Bank regarding the fraudulent transaction;
(d) internal NAB email communications; and
(e) internal NAB policy documents.
Upon review of the documents discovered by NAB, TSSG’s lawyers were not satisfied with NAB’s compliance with the 2017 consent orders. A lengthy round of correspondence between the parties in this regard then followed, concluding with the issue of a second summons for preliminary discovery on 14 September 2018 (‘2018 summons’).
Prior to the issue of the 2018 summons, the solicitors for TSSG wrote to the legal counsel of NAB, identifying a number of perceived deficiencies in NAB’s discovery pursuant to the 2017 consent orders. Further correspondence between the parties failed to resolve the dispute between them, and TSSG issued the 2018 summons on 14 September 2018.
The 2018 summons sought the following orders:
1.An order pursuant to ss. 47 and/or 55 of the Civil Procedure Act 2010 (Vic) and/or s. 137 of the Magistrates’ Court Act 1989 (Vic) and/or r. 11.05 of the Magistrates’ Court (Miscellaneous Civil Proceedings) Rules 2010 (Vic) for directions, namely that:
(a)the respondent make, file and serve a further affidavit of documents (‘further affidavit of documents’) in response to the orders of the Court made on 7 September 2017 (‘the previous orders’) which is made by a suitable qualified deponent and which complies with the Magistrates’ Court General Civil Procedure Rules 2010 (Vic) including r. 43.03;
(b)the respondent file and serve an affidavit (‘affidavit as to specific documents’) stating, in respect of the following documents or classes of documents, whether any, and if so what, document or documents of that class is or have been in the respondent’s possession and, if it or they have been but are no longer in the respondent’s possession, when the respondent parted with it or them and its belief as to what has become of it or them:
(i)the class of documents referred to in paragraph 1.9 of the [previous] orders;
(ii)the class of documents referred to in paragraph 1.10 of the [previous] orders, other than documents nos. 57 and 58 enumerated in the Affidavit of Documents filed on behalf of the respondent dated 28 September 2017 (‘first affidavit of documents’);
(iii)the class of documents referred to in paragraph 1.11 of the [previous] orders, other than documents nos. 57 and 58 enumerated in the first affidavit of documents;
(iv)the class of documents referred to in paragraph 1.12 of the [previous] orders, other than documents nos. 57 and 58 enumerated in the first affidavit of documents;
(v)the following documents referred to in the email from Tony Peterson of the respondent to Terence O’Brien of the applicant’s solicitors dated 3 April 2018 (2.05pm):
(A)document referred to as ‘NABit instructions’ (version as at 15 May 2017);
(B)document referred to as ‘’PRM eFraud Rules’ (version as at 15 May 2017);
(C)document referred to as “determining Factors Spreadsheet’ (version as at 15 May 2017);
(c)the further affidavit of docs and the affidavit as to specific documents be filed and served within 14 days;
(d)the applicant’s solicitors may inspect and take copies of the documents in the respondent’s possession referred to in the affidavits (other than any which the respondent objects to produce on the grounds of privilege).
2.Further, an order pursuant to r. 32.05 of the Magistrates’ Court (Miscellaneous Civil Proceedings) Rules 2010 (Vic) that by the respondent’s further affidavit of documents, the respondent make discover of:
(a)any document referred to or relied upon by the respondent in the preparation of the publication by the respondent at document relating to any fraud or report of fraud on or by a customer of the respondent of the kind known or referred to as ‘business email compromise’, ‘email account compromise’ or ‘CEO phishing’ occurring within the 24 month period ending on 15 May 2017 …
Accordingly, the 2018 summons sought further and better discovery with respect to the categories of documents which were the subject of the 2017 consent orders (referable to paragraphs 1.9 to 1.12 inclusive of the 2017 consent orders). Two new categories of documents were also sought by TSSG concerning NAB’s knowledge of the incidence of business email compromise in the period leading up to the date of the fraudulent transfer. These documents were said by TSSG to be relevant to the question of whether NAB owed TSSG a duty to warn TSSG of the potential risks of authorising transfers of substantial amounts of money in response to emails purporting to be from within its organisation.
The 2018 summons was supported by an affidavit sworn by Mr David Opperman of TSSG on 17 September 2018. Mr Opperman deposed, in summary, as follows:
(a) Mr Opperman because aware that NAB had published on its website at (‘online publication’) which referred to the type of fraud that TSS was subjected to which was referred to as ‘Business Email Compromise’ or ‘CEO phishing’. The online publication was published some months prior to the issue of the 2018 summons;
(b) based upon the contents of the online publication, Mr Opperman believed that NAB had knowledge of and/or experience with ‘CEO phishing’; and
(c) NAB had failed to comply with paragraph 1.9 of the 2017 consent orders which required NAB to discover records of incidents of fraud reported to NAB in the period of six months prior to the fraudulent transfer, which only sought documents regarding fraudulent transactions where Hang Seng Bank was the recipient.
Mr Opperman exhibited the online publication to his affidavit in support of the 2018 summons. The online publication runs to four printed A4 pages, and is headed ‘Cyber safety for business: how to protect your business from email based scams’, and commences as follows:
The threat of email scams for businesses is very real, and it’s growing. According to the FBI, in the United States the amount of money stolen by cyber criminals who target business email addresses has increased over 300% in just two years. Globally, $5.3 billion has been targeted in the last three years by criminals using a type of scam called Business Email Compromise (BEC).
Australian businesses are far from safe – we’re the second most targeted country for these attacks, behind the US.
The good news is you can take some simple steps to keep your money and your business safe.
TYPES OF EMAIL-BASED SCAMS
Business Email Compromise (BEC)
Also known as ‘CEO phishing’, BEC is when an email appears to come from a senior person in a business such as a Chief Executive Officer (CEO) or Chief Financial Officer (CFO), requesting an urgent transfer of funds.
By making the email appear to come from a very senior person, the criminals are hoping the recipient will action it quickly without verifying the request.
Find out more about protecting your business from CEO phishing
Mr Opperman went on to depose as follows with respect to the online publication:
I was not aware of the publication at the time of the Orders and I do not know when the publication was made. However, I have calculated that:
(a)If the publication was made a few months ago, then the period of 3 years that is referred to in the publication would encompass a period of time extending about 2 years prior to the NAB Transfer; and
(b)If the publication was made at an earlier time, then the period of 3 years that is referred to would reference a longer period of time prior to the NAB Transfer.
However:
(a)The publication does not provide any evidence of whether and if so from what time or with what frequency or to what extent NAB has had direct or indirect knowledge and/or experience with the kind of fraud that is referred to; and
(b)NAB has not produced any documents in response to Order 1.9.
In order to attribute a duty to NAB to have established an effective process and/or have provided an effective warning in relation to ‘CEO phishing’ the Applicant will reasonably wish if not be required to assert and lead evidence in relation to NAB’s knowledge of CEO phishing, including the duration and extent of NAB’s knowledge and experience with this kind of fraud.
At the time of making this affidavit:
(a)Based on the publication, I believe NAB has had knowledge of and/or experience with ‘CEO phishing’ for at least 2 years prior to the NAB Transfers; but
(b)No evidence of such knowledge or experience has been disclosed; and
(c)The Applicant does not have sufficient information to decide whether to issue proceedings.
At the time of making my earlier affidavit and at the time of the Orders:
(a)I was not aware of the publication; and
(b)I was not aware that NAB knew of the kind of fraud to which the Applicant was subjected as ‘Business Email Compromise’ or ‘CEO phishing’.
The Applicant requires evidence as to whether NAB has in fact had knowledge of and/or experience with ‘Business Email Compromise’ or ‘CEO phishing’ for at least 2 years prior to the NAB Transfer, and if so the extent of that experience, to assist the Applicant in deciding whether to issue proceedings in relation to the NAB Transfer and, in particular, whether to make a claim that NAB had but breached a duty to warn the Applicant of this kind of fraud. The scope of Order 1.9 either does not address this potential claim or is being interpreted by NAB to limit disclosure such that relevant materials pertinent to such a claim are not being provided.
More specifically, if the Applicant issues proceedings without NAB having provided such discovery, a claim by the Applicant that NAB had but breached a duty to warn in relation to this kind of fraud would result in NAB being required to provide such discovery in the course of the proceeding and, depending on the results of that discovery, the Applicant would only then be able to determine whether to proceed with the claim.
The 2018 summons was also supported by an affidavit of TSSG’s solicitor, Mr Terence O’Brien, sworn on 18 September 2017. Mr O’Brien exhibited a bundle of correspondence between TSSG and NAB leading up to the 2018 summons. Mr O’Brien identified a number of issues with the discovery provided by NAB pursuant to the 2017 consent orders, including that:
(a) NAB’s deponent did not swear his affidavit of documents of 28 September 2017 from his own knowledge or information, nor did he state the source of information obtained from others;
(b) NAB’s deponent did not undertake searches for documents himself, and it is unclear whether the searches for documents were undertaken by those with requisite knowledge and qualifications;
(c) NAB had not produced the version of the online publication applicable at the time of the fraudulent transfer;
(d) NAB had redacted certain documents which were responsive to the 2017 consent orders;
(e) NAB had not discovered any document falling within paragraph 1.9 of the 2017 consent orders;
(f) NAB only discovered two documents caught by paragraphs 1.10 to 1.12 of the 2017 consent orders; and
(g) NAB refused to discover the complete PRM eFraud Rules, which specified the events which would trigger the NAB fraud department to contact customers in relation to suspected fraudulent transactions.
In response, in an affidavit sworn on 15 October 2018, Ms Samantha Doyle, a solicitor employed by NAB, addressed TSSG’s complaints in relation to NAB’s compliance with the 2017 consent orders as follows:[7]
[7]Paragraph 15 of the affidavit of Samantha Doyle sworn 15 October 2018.
(a)NAB conducted exhaustive and extensive searches in compliance with the 2017 Orders;
(b)Mr Peterson coordinated those searches;
(c)due to the scope of the request, over 20 employees of NAB from over 7 teams of NAB were involved in the preparation of NAB’s response;
(d)Mr Peterson collated and reviewed the search results;
(e)Mr Peterson liaised with employees of NAB in relation to those search results; and
(f)in circumstances where the number of teams, personnel, databases and searches involved was substantial, and where the Affidavit of Documents was in relation to an interlocutory matter, Mr Peterson considered it most practical, efficient and appropriate for him to swear the Affidavit of Documents based on his knowledge, information and belief (as opposed to each member of personnel swearing a separate affidavit of documents).
Ms Doyle also responded to the additional categories of documents sought by TSSG in the 2018 summons, as follows:[8]
[8]Paragraphs 37-43 of the affidavit of Samantha Doyle sworn 15 October 2018.
Paragraph 2(a) – Online Publication
37.Paragraph 2(a) of the 2018 Summons seeks preliminary discovery of any document referred to or relied on by NAB in the preparation of the publication at https:/ (‘Online Publication’).
38.The Online Publication is a general document. It provides some examples of
(a)types of email scams;
(b)general statistics regarding the impact of email scams on the United States of America and Australia (as opposed to NAB); and
(c)precautions to avoid email scams to be taken by customers (as opposed to NAB).
39.I do not know how the Online Publication and the documents referred to or relied upon by NAB in the preparation of the Online Publication would assist the Applicant in determining whether or not it has a claim against NAB.
40.In any event, I have made enquiries of the team of NAB that authored the Online Publication. Based on my discussions with that team, I believe that:
(a)the Online Publication was prepared based on the team’s general knowledge of email scams; and
(b)there are no documents within this category of documents (aside from publicly available statistics).
41.Paragraph 2(b) of the 2018 Summons seeks preliminary discovery of any document relating to any fraud or report of fraud on or by a customer of NAB of the kind known or referred to as ‘business email compromise’, ‘email account compromise’ or ‘CEO phishing’ occurring within the 24 months period ending on 15 May 2017.
42.This category of documents is extremely broad and amounts to fishing.
43.The necessary searches for documents within this category of documents would take a number of weeks, given the need to:
(a)engage and coordinate several teams of NAB that may have been exposed to frauds or reports of fraud of this nature including, but not limited to, Financial Crime Services, NAB Resolve and the branch;
(b)understand their different reporting mechanisms; and
(c)collate and review the search results.
A hearing was held before a magistrate on 16 October 2018, the day after Ms Doyle swore her affidavit. Both TSSG and NAB were represented by counsel. What transpired at the hearing is summarised in the following paragraphs. Given the learned magistrate did not provide stand-alone reasons, and NAB contends that the learned magistrate failed to have regard to the r 32.05 preconditions, it is necessary to describe what occurred at the hearing in some detail.
At the commencement of the hearing, counsel for TSSG introduced the application, including the factual background to the fraudulent transaction, and explained that the application was directed at enforcing NAB’s compliance with the 2017 consent orders, along with clarifying some ambiguities regarding the scope of the 2017 consent orders. He explained that the discovery was `sought regarding a prospective banker‑customer dispute, and explained the concept of ‘business email compromise’. He submitted that TSSG had a potential claim against NAB for breach of duty pursuant to contract or tort.
Counsel for TSSG identified a key issue as being what was said in a phone call between TSSG and a NAB representative after an alert was raised within NAB by the proposed transfer. He observed that a difficulty with TSSG’s case was that the CFO approved the fraudulent transfer, in circumstances where the authorities say that a bank must follow the instructions of its customer.
The learned magistrate then stated that he understood the relevant line of enquiry to be why NAB made the telephone call that it made to the CEO, and whether it has knowledge of this particular type of fraud. Counsel for TSSG said that TSSG needed this information, and that it sought internal bank documents relating to that issue for a two year period prior to the fraudulent transaction. His Honour replied, ‘there’s mountains of it’. Counsel for TSSG said in response that even if it were to take a few weeks, providing such discovery would be proportionate in all of the circumstances. He submitted that TSSG could not decide whether to issue a proceeding, not only because it was unsure as to whether it had a cause of action, but also whether issuing a proceeding would be a sensible course of action. His Honour seemed to agree, stating, ‘Last thing you want is to go off and launch expensive proceedings, then six or eight months down the track, you go ‘No, this is not going anywhere.’
Counsel for TSSG submitted that TSSG was grateful for the documents that NAB had already provided pursuant to the 2017 consent orders, but sought orders that NAB provide the final pieces of information TSSG needed to make a decision as to whether to issue a proceeding.
The learned magistrate then turned to counsel representing NAB, and identified what he believed to be the relevant issues in the application, such as why NAB made a phone call to TSSG prior to the fraudulent transaction, and NAB’s knowledge of this type of fraud. Counsel for NAB agreed, stating these were precisely the issues that were dealt with by the 2017 consent orders, saying:
the bank could see that there was merit in agreeing to provide those documents so as to provide the customer with the information required to see whether it needed to …
Counsel for NAB noted that the affidavit filed by TSSG in support of the 2017 summons identified four potential causes of action, which he enumerated, stating that while an applicant for preliminary discovery did not need to plead its case, it must identify its cause of action with some particularity.
His Honour agreed, and counsel for NAB went on to say that, at the time of the issue of the 2017 summons, TSSG had overlooked that NAB had in fact contacted the CFO regarding the fraudulent transaction. Counsel for NAB noted that NAB had produced 74 documents as a result of the 2017 consent orders and referred to category 1.9 of the 2017 consent orders, being reports of fraud involving Hang Seng Bank, as an issue in controversy between the parties in the application before his Honour.
The learned magistrate told counsel for NAB that he intended to turn to the 2017 consent orders, and hear further from counsel for TSSG. Before he did so, counsel for NAB stated that NAB’s position with respect to the 2017 consent orders was that there was nothing more to produce.
The learned magistrate repeated his earlier statement to the effect that he was going to work through the 2017 consent orders and each individual category to work out what, according to TSSG, was still outstanding, querying whether that was an appropriate way of dealing with the application. Counsel for NAB agreed, but went on to say that if TSSG was in fact making a fresh application for preliminary discovery, the court would need to decide whether TSSG had enough information from what had already been provided by NAB to decide whether or not to issue a proceeding. He observed that some of the potential causes of action which may have been available to TSSG when the 2017 summons was issued had probably fallen away (with the discovery of the telephone call from NAB to the CFO), and the only issue which remained was the question of whether NAB had a duty to warn TSSG of the risk of business email compromise. Counsel for NAB submitted that it is difficult to see how any further documents would assist TSSG to establish whether there was a relevant duty to warn. The learned magistrate responded by saying ‘I understand what your argument is.’
The learned magistrate then turned to the 2017 consent orders, following which counsel for TSSG said there were no issues regarding categories 1.1 to 1.8, but that category 1.9, which sought fraud reports for the six month period prior to the fraudulent transaction concerning Hang Seng Bank, was ‘perhaps not the best way to go’, because the issue relevant to establishing the duty of care and standard of care required was the type of fraud, not the particular bank. Counsel for NAB indicated that he had been attempting to obtain instructions from his client, but that he considered Ms Doyle’s estimate of the time required to recover and produce the documents sought by TSSG in the 2018 summons to be a conservative estimate.
His Honour then interjected, saying, ‘there must be a fraud centre of the bank’. Counsel for NAB then asked whether his Honour was trying to elicit whether the category 1.9 of the 2017 orders should be more broadly expressed, saying ‘then there might be more to be said about that’. His Honour then answered in the affirmative, saying, ‘I could understand limiting the scope of the original order … to just specifically this particular bank … that wouldn’t ordinarily mean that … there isn’t evidence the bank holds in relation to similar types of transactions ... where the banks are different to … Hang Seng.’
Counsel for NAB responded: ‘Precisely so. The fact that the order appears in the 2017 orders should not be seen as acceptance that that category was necessary at the time or is necessary at this time in order for [TSSG] to know whether it has a case against the bank or not …. No discovery as to what’s happened with other instances of fraud affects that duty’.
His Honour responded with ‘Really? Why not?’
Counsel for NAB then raised concerns about NAB having to go through its records, and privacy issues. His Honour responded as follows: ‘I’m not naïve about this. The bank’s fraud section will be on top of this. They will have information at their fingertips … ‘.
Following a further exchange regarding the burden upon NAB of locating and producing the documents sought by TSSG, the learned magistrate said: ‘So your initial position is ‘no – it’s too broad?‘ Counsel for NAB responded: ‘The bank’s position … is in the context of what is put as being the type of case that these documents aren’t necessary for them to work out whether they have a case or not.’
His Honour then said he accepted that the scope of category 1.9 in the 2017 consent orders was too limited in scope. Counsel for NAB then said: ‘I don’t think that the bank … takes issue with making enquiries to see how prevalent the fraud is. The issue that the bank has is in discovering its customers’ records.’
His Honour queried whether, and counsel for NAB agreed, the privacy of customer information was an issue of concern for NAB. His Honour then suggested that there might be a different way in which the relevant information could be provided by NAB, perhaps by way of affidavit. Counsel for TSSG was then asked what words could be used to supplement category 1.9 of the 2017 consent orders, saying:
I’m inclined to give the bank more time to make the further enquiries. … but we’ve got to narrow the scope of the enquiries to a category or class of enquiry that is reasonable. Do you see what I am getting at?
Counsel for TSSG directed the learned magistrate’s attention to paragraph 2 of the 2018 summons, acknowledging that 24 months is a long period of time over which to seek records. Counsel for NAB responded as follows: ‘If what is really driving this application is a desire on the part of [TSSG] to know the extent to which – the prevalence of this, in order to make a case … the bank well knew of this kind of fraud it may well be that a better way through it is for the bank to make certain admissions that [TSSG] could rely on in any proceeding it wished to bring.’
His Honour then suggested there may be a constant stream of alerts to managers within NAB regarding fraudulent schemes. Counsel for NAB responded as follows:
There may well be … what you’re asking for is a different category of documents to what the applicant is asking for, and I don’t have any instructions on that, but it would be more difficult for me to resist production of internal bank documents as to their own reporting between each other as to types of fraud, but the real …
The learned magistrate then interrupted counsel, stating he had to stand the matter down to deal with another matter. His Honour directed counsel to ‘talk and sort out 1.9’, saying that the intent and purpose of that paragraph of the 2017 consent orders was clear, and NAB should provide discovery in relation to that class of documents.
Following the break, counsel for NAB informed his Honour that they had made progress, but that NAB was not in a position to agree to the proposed orders. He sought an adjournment in order to ascertain if the orders were achievable and the kind of effort that would be required for NAB to comply with TSSG’s proposed orders. He said that NAB might, if the orders were not unduly onerous, consent to the orders, and if not, provide a further affidavit. In a further exchange, counsel for TSSG pressed that the application be dealt with that day. However, counsel for NAB said that he did not have instructions to consent to any orders, stating: ‘What we are trying to achieve here is a situation where [TSSG] has everything it needs to decide whether it has a claim against the bank or not. We’re doing what we can to facilitate that.’
Counsel for NAB suggested that the appropriate way forward was for the proposed orders for which he had sought instructions be considered. He took the learned magistrate to the online publication, and referred to an authority to the effect that if a prospective applicant has been told by a prospective defendant that documents do not exist, they cannot be found to have a reasonable belief in the existence of those documents unless the prospective applicant has specific evidence to the contrary. His Honour responded: ‘… without barracking for the applicant, I find it a little bit hard to believe that there isn’t some document giving rise to its publication – some process at NAB that would tick things off insofar as an authorisation is concerned and a date.’
His Honour then went on to say that he was going to allow NAB time to look at that issue more closely. Counsel for NAB then said: ‘… bearing in mind what the rule says – Rule 32.05 - the gateway in there being a reasonable cause by the applicant that they might have … entitlement to relief’ to which his Honour responded: ‘let’s just not beat around the bush here’, going on to explain how he considered the date of the online publication was published was relevant to any potential claim by TSSG.
Counsel for NAB asked: ‘Is your Honour directing me to get instructions?’ The learned magistrate replied in the affirmative, and said he would leave that matter until the adjourned date.
Counsel for TSSG submitted that there are other categories that could be dealt with that day, to which his Honour responded that he was going to give directions as to the ‘whole lot’, and there could be a further affidavit after making further enquiries. Counsel for TSSG submitted that it was unfathomable that NAB had no policies or guidelines regarding business email compromise. He stated there was:
… a real question mark about the quality of the discovery that was originally given – the applicant is supposed to be prudent and careful and cautious in making an application to get the documents it needs so it can comply with the Civil Procedure Act when it issues proceedings.
His Honour then indicated that he would stand the matter down until 2.00pm, and read the affidavits ‘through and through’. If there were matters which could not be resolved over lunch, he would resolve them after lunch. Counsel for NAB stated he would prefer to come back another day, and expressed his concern regarding the sensitivity of some internal policy documents. His Honour stated, ‘there are ways and means of getting around that’, and rose for lunch.
Following the luncheon adjournment, his Honour asked counsel whether they had held any further discussions, to which counsel for NAB said there had not been an opportunity to hold further discussions. His Honour stated as follows:
I’ve read the affidavits, and I must say … I’m sympathetic to [TSSG’s] application … from what Mr Ruffles has outlined to me, although it is new material, I nonetheless think that it behoves the bank to provide that class of document on the overarching principles alone.
His Honour indicated that he was going to make orders essentially in accordance with TSSG’s summons. Counsel for TSSG handed up a proposed form of order. His Honour said that he proposed to keep the matter moving, with any party being able to list the matter for directions with fourteen days’ notice. Counsel for NAB, in relation to the proposed orders, submitted as follows:
I hear what your Honour says about being minded to make orders for further discovery … there’s no opposition from NAB to doing so, so much as there being a desire to … work out how easy or difficult it is to provide, how voluminous the material is and how much of it would need to be redacted to protect other customers’ confidentiality
and
… the order 2B, as proposed in the summons is, in my submission, broader than what is required to achieve the necessary outcome.
Counsel for NAB emphasised that he did not have instructions to consent to the form of order put forward by counsel for TSSG. After a brief further exchange regarding the potential scope of an order for discovery, the learned magistrate said he would stand the matter down to enable counsel to work further on the form of order. Counsel for NAB explained that the documents sought by TSSG were highly sensitive, and that there were logistical issues regarding the inspection of documents which were only available to be inspected online. His Honour observed there were ways around this issue, and that any orders would be made by him, not by consent. Counsel for NAB stated: ‘I’m not instructed to be obstructionist.’
Following a short adjournment, counsel for NAB announced: ‘We’re close. There’s a hand amended form of order … there’s a dispute between six months and 24 months’, following which there was a further discussion between counsel and the learned magistrate regarding the wording of the order. Counsel for NAB agreed to provide TSSG with the date of publication of the online publication once that came to hand. Following an exchange regarding the period of time referred to in the order requiring NAB to discover initial reports of fraud to the NAB’s Financial Crimes Services Department, the learned magistrate in effect ‘split the difference’ and specified a twelve month time frame, giving NAB liberty to apply if the amount of documents provided to be voluminous, and if the parties could not agree on an appropriate confidentiality regime.
What should be evident from the above summary was the manner in which the hearing was conducted before the learned magistrate. This was not an application where counsel for the applicant rose to his feet and made submissions in support of the application uninterrupted, and counsel for the respondent did the same with respect to his submissions in opposition. Rather, the learned magistrate adopted an interventionist approach, identifying (with counsels’ apparent agreement) what he saw as the key issues in the application, indicating to counsel for the parties the general approach he intended to take towards the application, and encouraging counsel to seek instructions and reach agreement regarding the precise categories of documents which ought to be discovered by NAB. His Honour did not provide reasons, in the traditional sense, but it is apparent from the interactions between him and counsel for the parties that he was keen to ensure that TSSG obtain documents which would enable it to make a considered decision as to whether to bring a proceeding against NAB, without imposing an undue burden upon NAB.
The learned magistrate made the following orders:
Pursuant to r. 32.05 of the Magistrates’ Court General Civil Procedure Rules 2010 (Vic), the respondent make discover of:
(a)any document referred to or relied upon by the respondent in the preparation of the publication by the respondent at
document recording the initial report by or identification of fraud on a customer of the respondent to the financial crime services department of the kind known or referred to as ‘business email compromise’, ‘email account compromise’ or ‘CEO phishing’ occurring with the 12 month period ending on 15 May 2017;
(c)any document including without limitation policies, training manuals, rules, guidelines, instructions or other internet documents relating to a fraud or report of fraud on or by a customer of the respondent of the kind known or referred to as ‘business email compromise’, ‘email account compromise’ or ‘CEO phishing’ occurring during the 24 month period ending on 15 May 2017;
(d)the document referred to as ‘NAB IT instructions’ (version as at 15 May 2017);
(e)the document referred to as ‘PRM eFraud rules’ (version as at 15 May 2017).
…
These orders were not made by consent, but it appears from the transcript of the hearing that counsel for NAB played an active part in formulating the orders in consultation with counsel for TSSG once it became clear that the learned magistrate did not propose to adjourn the hearing of the application.
Originating Motion for Judicial Review
On 14 December 2018, NAB filed an originating motion in this Court seeking to quash the 2018 orders, as follows:
1.An order in the nature of certiorari quashing the 16 October 2018 order (‘Order’) of the second defendant for preliminary discovery made under r 32.05 of the Magistrates’ Court General Civil Procedure Rules 2010 (‘Rules’) in case No H12316702 between the first defendant and the plaintiff.
2.An order in the nature of mandamus directed to the second defendant, and requiring the second defendant to hear and determine the preliminary discovery subject matter of the Order according to law.
3.The first defendant pay the plaintiff’s costs of the proceeding.
4.Such further or other order or relief as this Honourable Court deems fit.
NAB’s grounds of review are as follows:
1.Jurisdictional error constituted by the Court misapprehending or disregarding the nature or limits of the Court’s functions or powers under r 32.05 of the Rules.
2.Further or alternatively, jurisdictional error by the Court not considering or disregarding preconditions or thresholds contained in r 32.05 of the Rules for the exercise of its authority to make an order or decision under that rule.
3.Further or alternatively, the Court exceeded its authority and fell into jurisdictional error by misconstruing or not applying r 32.05 of the Rules and thereby misconceived the nature of the function that it was performing or the extent of its powers to make an order under r 32.05 of the Rules.
4.Alternatively, the plaintiff relies upon non-jurisdictional error of law on the face of the record.
Particulars of grounds (1), (2) and (3)
(a)The learned Magistrate did not satisfy himself or determine as a jurisdictional precondition or threshold under r 32.05(a) of the Rules whether objectively the first defendant had reasonable cause to believe that it had or may have had the right to obtain relief from the Court from the plaintiff.
(b)The learned Magistrate did not satisfy himself or determine as a jurisdictional precondition or threshold under r 32.05(b) of the Rules whether as an objective fact the first defendant did not have sufficient information to make the decision whether to commence a proceeding to obtain the relief the subject of r 32.05(a).
(c)The learned Magistrate did not satisfy himself or determine as a jurisdictional precondition or threshold under r 32.05(c) of the Rules whether as an objective fact Document/Category (1), Document/Category (2), Document/Category (3), Document/ Category 94), or Document/Category (5), or all of them, related to the question whether the first defendant had the right to obtain the relief the subject of r 32.05(a) of the Rules.
(d)The learned Magistrate did not satisfy himself or determine as a jurisdictional precondition or threshold under r 32.05(c) of the Rules whether as an objective fact, Document/Category (1), Document/Category (2), Document/Category (3), Document/ Category (4), or Document/Category (5), or all of them, would assist the first defendant to make the decision whether it had the right to obtain relief the subject of r 32.05(a) of the Rules.
Particulars of ground (4)
(e)The learned Magistrate erred in law by failing to take into consideration each of the precondition or threshold matters referred to in particulars (a), (b), (c) and (d) above.
(f)The learned Magistrate erred in law in his reasons for decision by taking irrelevant considerations into account, including as to Document/Category (2) and Document/Category (3) – as each class was later formulated during the hearing – that those classes were discoverable by the plaintiff to the first defendant ‘just simply on the overarching principles alone’.
Accordingly, notwithstanding that NAB had already agreed to provide preliminary discovery pursuant to the 2017 consent orders, and counsel for NAB did not assert before the learned magistrate (at least expressly) that the r 32.05 preconditions had not been met, NAB challenges not merely the scope or breadth of the 2018 orders - but the fact that the 2018 orders were made at all.
Submissions
In NAB’s outline of submissions dated 6 May 2019, NAB identified the rule 32.05 preconditions, and submitted that the learned magistrate did not consider any of the r 32.05 preconditions in making his orders. Therefore, the magistrate committed an error of law on the face of the record.
NAB submitted that the learned magistrate fell into jurisdictional error by disregarding matters that the relevant statute required to be taken into account as a condition of exercising jurisdiction, being the r 32.05 preconditions.
Alternatively, NAB submitted that the learned magistrate committed non‑jurisdictional error by not taking the r 32.05 preconditions into account, as evidenced by the lack of discussion regarding the r 32.05 preconditions during the course of the hearing.
NAB submitted that the learned magistrate treated the 2018 summons as an application for further and better discovery, rather than as an application for preliminary discovery. He failed to observe the law, and failed to entertain the application in accordance with the relevant statutory provisions. There was no objective inquiry into the potential causes of action that TSSG may have had against NAB. He had formed the view at an early stage of the proceeding that he was going to make the orders and that coloured his approach to the application thereafter. The transcript reveals a number of examples of the learned magistrate shutting down NAB’s counsel, but there was no waiver or acquiescence on the part of counsel for NAB. The transcript does not reveal any analysis of the r 32.05 preconditions of the nature carried out by Derham AsJ in Asahi.[9] The consequences of the orders made were grave, as they forced NAB to produce sensitive documents.
[9][2018] VSC 606.
In its outline of submissions dated 11 June 2019, TSSG submitted that the threshold for satisfying the r 32.05 preconditions was low in light of the authorities and the overarching purpose of the Civil Procedure Act 2010 (Vic) (‘CPA’).
TSSG relied upon the decision of Vickery J in Grocon Constructors (Vic) Pty Ltd v Biosciences Research Centre Pty Ltd,[10] where his Honour accepted the contention that where possible, r 32.05 should be applied in favour of an applicant for preliminary discovery, stating:
Consistently with giving full effect to the overarching purpose of the Civil Procedure Act and to the observations already referred to in the relevant case law (such as those of Hollingworth J in Beston Parks, above), it is accepted that r 32.05 should be construed benevolently, and that it should be given the fullest scope its language will reasonably allow in its exercise.[11]
[10][2014] VSC 204.
[11]Ibid.
TSSG submitted that the learned magistrate considered each of the r 32.05 preconditions. Each precondition had been the subject of submissions and affidavit evidence. Further:
(a) the learned magistrate did not ignore the first r 32.05 pre‑condition, as TSSG brought the prospective claim against NAB to his Honour’s attention, and submitted that despite its efforts to obtain documents for the course of over a year, TSSG was unable to obtain sufficient information to decide whether to commence a proceeding;
(b) the learned magistrate did not ignore the second r 32.05 pre‑condition, as NAB’s counsel implicitly conceded at the hearing that TSSG did not have sufficient information to decide whether to commence a case based on a duty to warn against NAB or not. The learned magistrate did not accept NAB’s submission that preliminary discovery required by TSSG would not be relevant to TSSG’s prospective case. Counsel for TSSG analysed each of the categories of documents and explained to the learned magistrate how TSSG had reasonable cause to believe that the documents sought were in NAB’s possession; and
(c) the learned magistrate did not ignore the third r 32.05 pre‑condition, as counsel for NAB did not deny having any relevant documents in its possession, and counsel for NAB conceded at the hearing that it would be difficult for NAB to resist discovery of internal bank documents relating to business email compromise.
TSSG submitted that a review of the transcript of the hearing before the learned magistrate did not support the proposition that the magistrate disregarded the r 32.05 pre‑conditions, submitting that NAB has not identified with precision which relevant matter was disregarded. TSSG submitted further that:
In the circumstances, the Magistrate properly regarded the [Civil Procedure Act] as being a significant matter to the exercise of the Court’s discretion, including in respect of the manner in which the Court is to construe the gateway requirements themselves. Read as a whole, the lengthy transcript of the hearing does not reveal that the Magistrate regarded the CPA as operating in a vacuum or contrary to the requirements of r. 32.05, as the NAB appears to suggest. Rather, the transcript reveals that His Honour sought to facilitate the quick and economical provision of preliminary discovery by granting the NAB liberty to apply should the discovery exercise become onerous or issues of confidentiality arise.
TSSG submitted that NAB’s submissions ignore the fact that the hearing of the application took almost a full day, over four separate sessions. NAB sought to impugn the learned magistrate’s decision on the basis of what was not said at the hearing, and its submissions were geared towards identifying scraps from a transcript and accidents of language where the subject matter of the application was well understood by all concerned. The affidavits in support of the application identified and addressed the r 32.05 preconditions, and the discovery was clearly focussed upon documents relevant to the content of NAB’s duty to TSSG.
Further, TSSG submitted that this was not a case that was appropriate for judicial intervention, given the liberal construction to be given to r 32.05.[12] This proceeding is a proceeding seeking judicial review of a decision arising out of an alleged disregard of a rule establishing a low threshold and a discretion to be exercised benevolently. The learned magistrate acted lawfully in exercising his discretion having regard to the overarching purpose of the CPA, and this Court should be slow to undertake a review of the merits of the learned magistrate’s decision. Counsel for TSSG relied on the decision of the High Court in Minister for Immigration and Border Protection v SZMTA,[13] which held that an error is material to a decision if it could have resulted in a different decision.[14] Further, not every misconstruction of a statute amounts to jurisdictional error. In the current case, NAB had not identified the different decision that the learned magistrate would have made, had the hearing proceeded in a different way. In order to obtain relief, NAB would need to show that if the learned magistrate had approached the application differently, TSSG would have been unsuccessful in obtaining the relief sought in the 2018 summons.
[12]United Energy Ltd v Energy Risk Management Pty Ltd [1998] VSC 133 [38].
[13][2019] HCA 3.
[14]Ibid.
Further, TSSG submitted that, in framing his orders, the learned magistrate had appropriately confined the categories of documents sought by TSSG. The learned magistrate provided NAB with liberty to bring the matter back to court to raise matters of confidentiality, cost or other issues, which was an appropriate mechanism for confining the categories of document should the obligation imposed by the 2018 orders prove to be too onerous upon NAB.
In his submissions in reply, counsel for NAB emphasised that the test under r 32.05(a) was objective, which meant that the first r 32.05 precondition required TSSG to have a reasonable cause for its belief that it had a right to relief from NAB. TSSG’s subjective belief that it might have a right to obtain relief from NAB was an irrelevant consideration. Further, under r 32.05(b), the learned magistrate was required to objectively conclude whether TSSG was lacking documents that were reasonably necessary for it to review in order to decide whether to issue a proceeding. Under r 32.05(c), the learned magistrate was required to consider what TSSG ‘objectively lacked to make it reasonably necessary for it to decide whether to institute proceedings’. The question of materiality is irrelevant to determining whether there has been jurisdictional error, and in any event the learned magistrate’s error was material.
Discussion
The current application is an application for judicial review of an order made in an interlocutory application, not an appeal against a final order on a question of law under s 109 of the Magistrates’ Court Act 1989 (Vic). While decisions of magistrates with respect to interlocutory applications are amenable to judicial review,[15] the distinction between an application for judicial review and an appeal is material in the current case. An application for judicial review is concerned with the legality of the decision‑making process rather than the merits of the decision itself. Here, NAB contends that the learned magistrate failed to properly consider the r 32.05 preconditions. That failure can either be characterised as a failure to take into account the relevant considerations prescribed by the Rules, or an error with respect to a jurisdictional fact, the relevant jurisdictional fact being the requisite state of satisfaction regarding each of the r 32.05 preconditions.
[15]DPP v Kaba (2014) 44 VR 526.
There is scope for some debate as to whether the complaints made by NAB regarding the learned magistrate’s decision could give rise to jurisdictional error in the true sense: that is, in making the order for preliminary discovery, the learned magistrate acted beyond power (as compared with making an error of law which was within his power to make). That debate arises in part because the r 32.05 preconditions are often described as ‘jurisdictional thresholds’. The use of the term ‘jurisdictional thresholds’ to describe the r 32.05 preconditions is apt to cause confusion in the context of an application for prerogative relief in relation to a decision of an inferior court, in circumstances where the authorities provide that an error of law made within that court’s ostensible jurisdiction does not amount to jurisdictional error.[16] It is of course within the jurisdiction of the Magistrates’ Court to make orders for preliminary discovery.
[16]Kirk v Industrial Court (NSW) (2010) 239 CLR 531 (‘Kirk’) [67]-[68].
Accordingly, the relevant limbs of r 32.05 are perhaps better described as preconditions, or gateways, which must be satisfied before a court is empowered to exercise its discretion to make an order for preliminary discovery. However, any confusion caused by the reference to the ‘jurisdictional thresholds’ in r 32.05 is of limited practical significance in the current case, given that the High Court in Kirk[17] held, referring to its earlier decision in Craig v South Australia,[18] that an inferior court may act beyond jurisdiction if it disregards a matter that the relevant statute requires the Court to take into account as a condition of jurisdiction. The r 32.05 preconditions are, according to ordinary principles of statutory construction, mandatory relevant considerations to which a court must have regard before a court may make an order for preliminary discovery. A failure to have due regard to statutorily mandatory prescribed relevant considerations is an error of law amenable to judicial review. While I accept there is room for debate as to whether a failure to have regard to the preconditions in r 32.05 is sufficiently serious or material as to amount to jurisdictional error, for present purposes, I am prepared to make that presumption in favour of NAB.
[17]Ibid.
[18](1995) 184 CLR 163.
However, the grant of certiorari is at the discretion of the Court.[19] That is, notwithstanding any error of law on the part of an inferior court or tribunal, the Court may decline to grant relief. One matter which is relevant to this Court’s discretion is that, once the r 32.05 preconditions have been satisfied, the question of whether to order preliminary discovery itself involves the exercise of a discretion, only amenable to challenge on the grounds referred to in House v R.[20] A reviewing court should be cautious to disturb a discretionary determination of a court on an interlocutory application.
[19]Re Refugee Tribunal: Ex parte Aala (2002) 204 CLR 82; Re McBain; Ex parte Australian Catholic Bishops Conference (2002) 209 CLR 372.
[20](1936) 55 CLR 499.
In any event, the question of whether this Court should grant relief as a matter of discretion only arises in the event that the Court was to find that the learned magistrate had failed to take into account any mandatory relevant considerations, being the r 32.05 preconditions. In my view, NAB has not established that he failed to do so.
As noted in paragraph 53 above, the learned magistrate took an interventionist approach to the hearing of the application, and was actively engaged in discussion with both counsel regarding the issues in the application. It is correct to say that the learned magistrate was ‘results oriented’, in that he endeavoured to guide counsel towards achieving a compromise position whereby NAB would agree to provide TSSG with certain categories of documents. In doing so, the learned magistrate discussed with both counsel what type of documents would best assist TSSG to make a decision as to whether to bring a proceeding against NAB for breach of duty with respect to the fraudulent transaction, while having due regard to NAB’s concerns regarding customer confidentiality and the amount of work that would be required for NAB to give discovery of the documents likely to be able to assist TSSG in making any decision. In particular, it was apparent that he considered that documents which might show that NAB had knowledge of the existence of business email compromise prior to the fraudulent transaction were central to the question of whether NAB had a duty to warn its customers that they should check the authenticity of requests for funds via email before transferring funds electronically.
Before turning in more detail to the question of whether the learned magistrate gave proper consideration to the r 32.05 preconditions, the context in which the application came before the learned magistrate ought be borne in mind. It was drawn to the learned magistrate’s attention quite early in the course of the hearing that the 2017 summons had been resolved by consent, with NAB agreeing to provide certain categories of documents. In that context, it was entirely understandable that the learned magistrate may have perceived that the real issue in dispute between the parties was the scope of any further discovery, and the terms upon which it might be granted, rather than TSSG’s entitlement to preliminary discovery in the first place, and NAB’s counsel said little during the course of the hearing to suggest otherwise.
Turning to the first r 32.05 precondition, being the question of whether TSSG had reasonable cause to believe that it may have a right to relief against NAB, the analysis of the transcript prepared by counsel for TSSG shows the occasions upon which there was discussion between the learned magistrate regarding this question, including:
(a) the explanation of the fraudulent transaction;
(b) the reference to a possible claim against NAB for breach of duty, and the possible legal and factual issues associated with a claim of this nature; and
(c) the content of the relevant duty, being any duty owed by NAB to warn TSSG of the possibility of business email compromise. The learned magistrate agreed that the date of publication of the online publication was relevant to the determination of when NAB became aware of the existence and prevalence of this particular kind of fraud.
It was, of course, not necessary for TSSG to establish that it had a prima facie case for relief against NAB: indeed, counsel for TSSG candidly conceded that there were some difficulties facing TSSG in bringing such a claim, given that TSSG’s CFO had expressly authorised the fraudulent transfer. However, it was those difficulties and uncertainties which caused TSSG to press for preliminary discovery, on the basis that TSSG needed further information in order to prudently determine whether or not to bring a proceeding. Indeed, it was this issue, arising out of the second r 32.05 precondition, that was the most contentious at the hearing, as counsel for NAB submitted that TSSG already had sufficient information from the documents already produced by NAB to decide whether to issue a proceeding. The discussion between the learned magistrate and both counsel focussed upon the issue of whether NAB had a duty to warn TSSG that it might be a victim of business email compromise. It was apparent from the discussion that this issue was at the forefront of the learned magistrate’s mind, particularly given that counsel for NAB was not in a position to provide the date of the first publication of the online publication (which would enable TSSG to draw an inference of when NAB first learned of this kind of fraud).
Apart from the date and the provenance of the online publication, the major issue between the parties was whether NAB should be required to discover documents showing the incidence of reports of business email compromise in the period leading up to the fraudulent transaction, not simply limited to reports where the recipient bank was Hang Seng Bank. The learned magistrate clearly accepted that documents of this kind were relevant to the question of whether NAB had a duty to warn, and would be documents which would assist TSSG to determine whether it was worth its while to bring a proceeding against NAB for breach of duty with respect to the fraudulent transaction. It is apparent from the exchange referred to at paragraphs 34 and 35 above that the learned magistrate did not accept the submission advanced by counsel for NAB that ‘no discovery as to what’s happened with other instances of fraud affects that duty.’ Indeed, when discussing the scope of the category of documents sought by paragraph 2 of the 2018 summons, counsel for NAB seemed to, implicitly at least, concede the point, suggesting that a better approach to this issue would be for NAB to volunteer admissions upon which TSSG could rely.
Finally, in regard to the third r 32.05 precondition, the question of whether NAB in fact had (or was likely to have) documents relating to whether it had a duty to warn TSSG of the possibility of business email compromise was not an issue which loomed large in the application before the learned magistrate. The nature of the dispute, and the nature of the potential claim against NAB means that the only party in possession of relevant documents would be NAB, given that the question of whether it had a duty to warn was intimately linked with its knowledge of the existence and prevalence of business email compromise.
Counsel for NAB asserted (and it appears to have been accepted) that there were no further documents which responded to the categories of documents referred to in the 2017 consent orders which required NAB to discover other reported instances of business email compromise. Accordingly, the discussion at the hearing focussed upon the extension of this category of documents to reports involving banks other than Hang Seng Bank. It was not suggested on behalf of NAB that no documents of this kind existed: rather, counsel for NAB resisted the making of orders for discovery of documents of this kind on the basis that making such an order would impose an undue burden upon NAB, and on the basis that the documents would contain confidential customer information. In any event, if orders for discovery were made with respect to this category of documents, and NAB subsequently went on oath to say that there were no such documents, then that evidence would be of forensic value to TSSG, because the absence of such documents would signal to TSSG and its lawyers that the task of establishing that NAB had a duty to warn would be difficult indeed.
It should be noted that in this proceeding, NAB made no complaint about the exercise of the learned magistrate’s discretion to order preliminary discovery or adequacy of the learned magistrate’s reasons, notwithstanding that NAB’s submissions criticised the learned magistrate’s failure to undertake a detailed analysis of the r 32.05 preconditions of the kind undertaken in Asahi.[21] That, of itself, seems to be an implicit recognition by NAB of the relatively informal manner in which the hearing of the application progressed. In any event, it is apparent from the transcript of the hearing that the learned magistrate accepted that TSSG had a potential claim, but that it was a claim which had limited prospects of success unless TSSG could show that NAB was aware of the practice of business email compromise at the time of the fraudulent transaction. Only then would TSSG be in a position to assert that NAB owed its customers a duty to warn them to be cautious of authorising transactions upon requests made from within the customer’s organisation by email.
[21][2018] VSC 606.
Further, the learned magistrate clearly understood the dilemma faced by TSSG in determining whether to bring a claim, but was also aware of the potential burden which might be imposed upon NAB by ordering discovery, and it was also clear that he was open to suggestions as to how that burden might be ameliorated. It should be kept in mind that the decision in Asahi[22] was made after what was clearly a hard fought application (including objections to the admissibility of evidence) where judgment was reserved for a considerable period of time. In the current case, the learned magistrate made orders at the conclusion of an oral hearing where the focus of the argument was the nature of the orders to be made, not the question of whether orders ought be made at all.
[22]Ibid.
For completeness, while the learned magistrate did not make express reference to r 32.05, or any or all of the r 32.05 preconditions during the course of the hearing, I note that the affidavit evidence relied upon by TSSG in support of its application in the 2018 summons did make express reference to these preconditions. The extract of Mr Opperman’s affidavit (reproduced at paragraph 18 of these reasons) refers to TSSG needing evidence as to whether NAB in fact had knowledge of business email compromise prior to the fraudulent transaction in order to determine whether NAB had breached its duty to warn TSSG of this kind of fraud. While, strictly speaking, the evidence before the learned magistrate does not form part of the ‘record’ for the purpose of judicial review, given that NAB’s grounds of review criticise the learned magistrate for not having regard to the r 32.05 preconditions, I consider that it is permissible and appropriate to have regard to the material before the learned magistrate. The transcript of the hearing records the learned magistrate saying after the luncheon adjournment that he had reviewed the materials in relation to the application over the break.
In its grounds of review, NAB took issue with the statement of the learned magistrate that certain documents were discoverable ‘on the overarching principles alone’. NAB submitted that this reference demonstrated that the learned magistrate acted on the wrong principle, as the question of whether preliminary discovery ought to be ordered is governed by the terms of r 32.05, not the overarching principles set out in the CPA.
However, I do not consider that the learned magistrate’s reference to the overarching principles of the CPA evidenced any error on his part. First, NAB’s submissions equate a passing remark on the part of his Honour to the adoption of an erroneous test. I do not consider, in the context of the hearing as a whole, that this remark can be given the weight sought to be placed upon it by NAB. Secondly, the provisions of the CPA are, in any event, relevant to the determination of applications for preliminary discovery. Section 9 of the CPA requires the Court to further the overarching purpose (being the facilitation of the just, efficient, timely and cost‑effective resolution of the real issues in the dispute) in the exercise of its powers in a civil proceeding. As noted by counsel for TSSG in its submissions, the decision of Vickery J in Grocon Constructions (Vic) Pty Ltd v Biosciences Research Centre Pty Ltd[23] referred to the principles underlying the CPA as providing support for the application of the benevolent approach to applications under r 32.05 of the Rules.
[23][2014] VSC 204.
The provisions of the CPA are also relevant to the question of whether preliminary discovery ought to be ordered to enable a party, properly advised, to determine whether to issue a proceeding. While it is arguable that the certification requirements under s 42 of the CPA merely codified the obligations imposed upon legal practitioners by the common law not to issue proceedings without a proper basis, requirement to file a ‘proper basis’ certificate throws these requirements into sharp relief.
Accordingly, the learned magistrate was not in error in having regard to the overarching purpose of the CPA, and, in any event, his focus upon the question of what documents TSSG required in order to make a decision to issue a proceeding demonstrates that he was well aware of the test under r 32.05.
As I have found that the learned magistrate took all necessary mandatory relevant considerations into account when deciding to order that NAB provide preliminary discovery, there was no error of law on the part of the learned magistrate. However, if I had found such an error, the current case would be one of the reasonably rare cases where there would be strong discretionary grounds for refusing relief in the nature of certiorari. In particular, the following matters count against the grant of the relief sought by NAB in this proceeding:
(a) the manner in which NAB conducted the hearing before the learned magistrate;
(b) the nature of the application before the learned magistrate, being an application of an interlocutory character, and the nature of the orders made;
(c) NAB has not established that if the matter was remitted for further determination, a different result would have been achieved or at least would likely to have been achieved; and
(d) even if a different result was achievable by NAB, that might prove to be an arid victory, because all TSSG would need to do to obtain the documents sought by the 2018 summons would be to issue a proceeding against NAB in order to render those documents instantly discoverable.
In relation to (a) above, while I am prepared to accept, for present purposes, that NAB is not in this proceeding bound by the manner in which it conducted the application below, its conduct is a relevant consideration to the exercise of this Court’s discretion. While counsel for NAB at the hearing before the learned magistrate somewhat obliquely suggested that if TSSG was seeking to go beyond the scope of the 2017 consent orders he would ‘have something to say about that’, at no time did he expressly and directly tell the learned magistrate that NAB opposed the application in its entirety. In my view, both the learned magistrate and counsel for TSSG were entitled to assume that while NAB was concerned about the scope of any preliminary discovery to be ordered, and sought to avoid orders that might impose an undue burden upon NAB, NAB’s ‘in principle’ opposition to the application was subdued. Such an assumption would also have been reinforced by the fact that the 2017 consent orders were made by agreement without the need for a hearing. Further, counsel for NAB sought an adjournment of the hearing, expressing the expectation, or at least the hope, that further enquiries and discussion would result in consent orders being provided to the Court without the need for a further appearance. One might expect that if counsel for NAB had voiced full throated opposition to any order being made for preliminary discovery, the learned magistrate might have adopted a more traditional approach to the adjudication of the dispute, rather than adopting a pragmatic approach directed at achieving an outcome acceptable to both parties. However, the approach he did adopt is hardly novel in the civil jurisdiction.
In relation to (b) above, appellate and reviewing courts are generally reluctant to interfere with determinations of interlocutory applications, in the absence of manifest error and/or real injustice. In his written outline of submissions, counsel for NAB asserted in relation to the alleged error on the part of the learned magistrate that ‘The materiality (gravity) of the error warrants disposition of the proceeding in favour of the plaintiff’. However, it is not immediately apparent from the materials before me how it is said that the making of an order for preliminary discovery in favour of TSSG (which is, or was, it should be remembered, a customer of NAB which had been the victim of a fraud) had such grave consequences for NAB that the intervention of this Court is warranted. In any event, the learned magistrate expressly reserved liberty to apply in the event the orders imposed an undue burden upon NAB.
In relation to (c) above, even if I had found that, for example, the absence of any formal reasons meant that the Court was unable to determine whether the learned magistrate had proper regard to the r 32.05 preconditions, I would have to be persuaded that a proper reconsideration of these preconditions would have led to a different result.
Reviewing the material in support of the 2018 summons in the light of the r 32.05 preconditions, I doubt I would have reached a different conclusion than that reached by the learned magistrate had I been in his place (which is not, of course, the relevant test upon judicial review, save that such an analysis is relevant to the question of whether to grant relief should error be found).
First, it was not in dispute that TSSG was the victim of a fraud, and that NAB, as its banker, owed it contractual and tortious duties to take care. The only issues, having regard to the state of NAB’s knowledge at the time of the fraudulent transaction, were the content of that duty, and whether NAB breached any such duty. Accordingly, TSSG had, objectively speaking, reasonable cause that it had a right to obtain relief from NAB. Any doubts that it had about the viability of any such claim were also reasonable, and were directly connected with the state of NAB’s knowledge at the relevant time, with any documents relevant to that question being clearly within NAB’s exclusive domain. Given the modest size (in the context of commercial litigation at least) of TSSG’s potential claim compared with the likely legal costs associated with pursuing any claim, it was reasonable for TSSG to adopt a cautious approach in deciding whether to issue a proceeding against NAB.
Further, as indicated earlier in these reasons, there was no dispute about whether NAB was in possession of the documents sought by TSSG over and above the documents already provided pursuant to the 2017 consent orders. Finally, as observed by the learned magistrate, there are mechanisms by which NAB’s concerns about the burden of providing discovery and disclosure of confidential customer information could be ameliorated. In light of the above, particularly given the benevolent approach to such applications required by the authorities, it is difficult to see how TSSG’s application would have been refused, had the learned magistrate approached the application differently.
Finally, in relation to (d) above, even if the learned magistrate had refused to make orders for preliminary discovery, that would not necessarily have been the end of the matter. It would have still been open to TSSG to issue a proceeding. The documents ordered to have been discovered pursuant to the 2018 summons would have been rendered discoverable by being relevant to an issue in any proceeding issued by TSSG. It would have been difficult for NAB to assert that there was no proper basis for issuing the proceeding having successfully resisted discovery of documents which would have established one way or another whether there was such a proper basis.
Accordingly, I shall dismiss the application, and hear further from the parties regarding the form of any order and the question of costs.
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