National Mutual Holdings Pty Ltd v The Sentry Corporation
[1990] FCA 245
•18 MAY 1990
Re: NATIONAL MUTUAL HOLDINGS PTY LTD AND OTHERS
And: THE SENTRY CORPORATION AND OTHERS
No. VG173 of 1987
FED No. 245
Practice
COURT
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION
Northrop J.(1)
CATCHWORDS
Practice - Stay of proceeding - related action in foreign jurisdiction - principles to be applied - forum non conveniens - abuse of process, oppressive and vexatious action - election - confidentiality of documents derived by process of the Court - injunction restricting disclosing information so obtained.
Federal Court of Australia Act 1976 Order 11 Rule 16, Order 15 Rule 8, Order 20 Rule 2
HEARING
MELBOURNE
#DATE 18:5:1990
Counsel for Applicants: Mr Hayes QC and Mr Scerri
Counsel for 1st named Mr J. Karkar QC and Mr Ryan
Respondents: Mr Ryan
Counsel for 2nd named Mr Ellicot QC and Mr Rares
Respondents:
Solicitors for Applicants: Mallesons Stephen Jaques
Solictors for 1st named Messrs Phillips Fox
Respondents:
Solicitors for 2nd named Allen Allen and Hemsley
Respondents:
JUDGE1
This proceeding raises matters of some urgency as will become apparent during the course of these reasons and accordingly I propose to give my reasons now to satisfy that degree of urgency even though the matters do raise difficult questions of both fact and law in an area where it is not at all clear what are the appropriate principles to be applied in cases of this kind.
The motion, in its amended form, presently before the Court, is a motion which has been brought by the solicitors on behalf of the respondents Peat Marwick Mitchell and Co. (referred to as "Peat Marwick Australia") against the Sentry Corporation (referred to as "Sentry") the other respondent to the application, seeking:-
"1. An order that Sentry by itself its servants and agents be restrained from:
(a) using or permitting to be used any document or copy thereof or any information contained in or knowledge acquired by or on behalf of Sentry or any such servant or agent from any document or copy thereof discovered by Peat Marwick, Australia, or served pursuant to any order made in these proceedings (herein compendiously called "the Protected Documents") otherwise than for the sole purpose of these proceedings.
(b) Producing, making available for inspection or otherwise disclosing to Sentry Insurance A Mutual Company any of the Protected Documents or any information therein or any knowledge acquired therefrom.
2. An order pursuant to Order 11 r.16 and/or Order 20 r.2(1) striking out, staying permanently or until further order or dismissing the cross claims of Sentry against Peat Marwick, Australia, in these proceedings."
In reply, counsel for Peat Marwick Australia framed the form of order being sought pursuant to paragraph 2 of the motion in the following way:-
"That the proceeding being the cross-claim by Sentry against Peat Marwick Australia be stayed until further order or until SIAMCO undertakes to the Wisconsin Circuit Court to take no procedural or other step in the proceedings in that Court against Peat Warwick Australia pending the hearing and determination of this proceeding."
It should be noted that in these reasons Sentry Insurance a Mutual Company is referred to as "SIAMCO".
By order made ex parte on 10 May 1990 Mr Justice Gummow granted an interim injunction that upon Peat Marwick Australia giving the usual undertaking as to damages that Sentry by itself, its servants and agents by restrained until 4.15p.m. on 17 May 1990 or earlier further order from:-
"(a) using or permitting to be used otherwise than for the sole purpose of these proceedings any document or copy thereof or any information contained in or knowledge acquired by or on behalf of the First Respondent or any such servant or agent from any document or copy thereof discovered by the Second Respondent or served pursuant to any order made in these proceedings (herein compendiously called "the Protected Documents"); and
(b) producing, making available for inspection or otherwise disclosing to Sentry Insurance A Mutual Company any of the Protected Documents or any information therein or any knowledge acquired therefrom."
The motion came on for hearing before me yesterday and that interim injunction was continued until 4.15p.m. today and it will be continued until orders are made as a result of the reasons about to be given.
The facts giving rise to the present motion are rather confused, but I have been assisted by being handed a procedural chronology of the matters relevant for present purposes. All these matters are contained in exhibits to an affidavit of Peter John Elliot Arthur, the solicitor for Peat Marwick Australia, sworn on 10 May 1990 and further affidavits and exhibits by Mr Arthur sworn on 16, 17 and 18 May of this year, together with affidavits of Mr Magennis, the solicitor for Sentry, sworn on 17 May 1990 and a further affidavit sworn by Mr Magennis on 18 May 1990. I do not propose to deal with the facts in any great detail but to give a broad outline only. The present proceedings in matter VG173 of 1987 were commenced in that year and involve a very complex claim based upon an agreement whereby the applicants, which I will describe as the National Mutual group, acquired the businesses of Sentry, and arising from those transactions the National Mutual Group commenced these proceedings against Sentry and Peat Marwick Australia based upon breaches of the Trade Practices Act and negligence, and also to some extent breaches of warrants. Peat Marwick Australia were the auditors of the Sentry group and the claim against them is based upon negligence in relation to the audited accounts of Sentry. This is not meant to be a complete statement of the causes of action but merely to illustrate the claims which are being made against the two respondents, Sentry and Peat Marwick Australia. By a cross-claim Sentry is seeking, among other things, indemnity against Peat Marwick Australia in the event that Sentry is found to be liable on the claim by the National Mutual interests.
The proceedings are very complex and there have been a large number of interlocutory proceedings, but the matter has been progressing fairly slowly towards trial, and earlier this year the trial date was fixed for October 1990. SIAMCO is the parent company of Sentry, and although in law they are separate legal personalities, it is clear, and it is accepted, that SIAMCO has a 100 percent ownership of Sentry and for practical purposes they can be treated as the same person, even though they are separate companies but the fact that they are separate comanies is of importance in this case.
In October 1988, some 12 months after these proceedings in Australia were commenced, SIAMCO filed a complaint in the Wisconsin Circuit Court against Peat Marwick Mitchell United States. That is a separate partnership from Peat Marwick Australia, but each is a partnership and one can assume there is some connection between the two partnerships. In January of 1990, SIAMCO amended its complaint in the proceedings in the United States by adding claims against Peat Marwick Austraia, and these claims are based upon a breach of contract and a count of negligence or negligent practice. I do not need to go into details but it is clear that the claim based upon breach of contract is a claim apparently open in the United States to a person who is not a direct party to a contract whereas it is doubtful if such a claim would succeed under Australian law. But the important aspect of the amended complaint in the United States proceedings is the claim set out in paragraph 43 of the amended complaint. That paragraph reads as follows:-
"43. As a result of this breach by (Peat Marwick Australia), SIAMCO has been damaged in an amount to be determined at trial, but no less than the auditing fess paid to Peat Marwick and/or Peat Marwick Australia during the relevant period, plus the reduced value of SIAMCO's 100% stock holding in Sentry brought about by the costs incurred and to be incurred by Sentry and the contingent liability of Sentry to National Mutual by reason of the pendency of the Australian lawsuit."
It is clear from the form of that paragraph that the amended complaint in the United States is really based upon the outcome of the proceedings presently before the Federal Court in Australia, and even though the causes of action may be different, in reality, the issues to be determined in the United States proceedings are essentially the same as those in the Federal Court and to some extent are dependent upon the outcome of the Federal Court proceedings.
That amendment was made in January 1990. In February 1990, the solicitors for Peat Marwick Australia wrote to the solicitors for Sentry complaining about the U.S. action and threatening an application for a stay of action in Austraia on the cross-claim by Sentry. Nothing was done. On 27 March 1990, Peat Marwick Australia moved the Court in Wisconsin to dismiss the amended complaint against Peat Marwick Australia based upon the ground that the American court lacked jurisdiction over the person of Peat Marwick Australia, that the plaintiff in the United States proceedings lacked capacity to sue on the claims pleaded against Peat Marwick Australia, and that the amended complaint failed to state a claim upon which relief can be granted in that the plaintiff is not the real party in interests. Alternatively, Peat Marwick Australia moved the Court in Wisconsin for an order staying further proceedings in that action to permit the trial in a foreign forum, namely, the trial in Australia. The grounds for the second motion are set out and include what one would expect to arise from the fact that the Australian proceedings had proceeded to a stage where a date for hearing was about to be fixed and they should proceed first.
In accordance with the procedural practices in the United States, there was a request by SIAMCO for documents to be produced by Peat Marwick Australia, and among the documents sought to be produced were documents described as follows:-
"All documents within the possession, custody or control of Peat Marwick Australia which have been produced by Peat Marwick Australia to The Sentry Corporation ("Sentry") in discovery, or otherwise, in connection with the lawsuit in the Federal Court of Australia, General Division, Victoria District Registry, styled National Mutual Holdings Pty. Ltd. et al v. The Sentry Corporation et al No. VG 173 of 1987".
The Circuit Court in Wisconsin granted the procedural steps for production of those documents and also made orders to the effect, in conformity with the practice in the United States of pre-trial investigation, to allow the examination on dispositions as it were, of persons in Australia in relation to the claim based upon the action being brought in the United States.
Peat Marwick Australia appealed to a court of appeal in Wisconsin against the order for the production of documents. Leave to appeal was granted by the court of appeal, and the order for general discovery was stayed but leaving open the discovery in relation to the matter for the claim to have the action stayed in the United States based upon the absence of jurisdiction. The appeal as to discovery generally is still pending in the court of appeal in the United States but the matter apparently came back to the Judge of the Circuit Court who ruled that in order to determine the question of the jurisdiction of the proceedings in that Court, the order for the discovery necessitated the discovery of all the documents referred to in the original order for discovery and also included the claim for the examination of persons in Australia, and in all probability those procedural steps will be enforced against Peat Marwick Australia.
In addition there is currently before the Circuit Court in Wisconsin an order to show cause, which is similar to a motion, why Peat Marwick Australia should not be found guilty of contempt of the Circuit Court if it did not produce those documents to the Circuit Court.
Those matters are due to come on for hearing before the Judge in the Wisconsin Circuit Court in the near future but in the meantime, pursuant to orders made by that Court, the documents the subject of the order have been lodged with the Circuit Court in Wisconsin, the documents being basically documents the subject of orders in this Court in relation to discovery and other matters. So the matters which are pending in the Circuit Court are those two matters, motions to produce the documents to be enforced by contempt proceedings but in substance the reality is that the documents have been produced to the Court and are currently in the custody of the Court in Wisconsin.
There is also before me evidence as to what has occurred between the solicitors in the proceedings in the Wisconsin Circuit Court. I do not propose to go into that in any detail except to say that it is clear that there is one person, a Pat Ducey, who is counsel for SIAMCO in the proceedings in the Wisconsin Court. His name appears as counsel on some on the court documents. At the same time his name, and I presume the same person, is stated to be one of the team, one of the Sentry team at Phillips Fox the solicitors for Sentry in relation to the proceeding in the Federal Court. This matter is of importance both in relation to the injunction and also in relation to the general issue of the application for the stay of the proceeding being the cross claim.
I do not think it is necessary to refer to any of the further facts which are contained in the exhibits or the affidavits to which I have referred earlier.
In these circumstances it is necessary to determine what is the appropriate law to be applied in relation to the application for the stay. Order 20, rule 2 of the Federal Court rules provides:-
"2(1) Where in any proceeding it appears to the Court that in relation to the proceeding generally or in relation to any claim for relief in the proceeding:-
(a) ...
(b) the proceeding is frivolous or vexatious; or
(c) the proceeding is an abuse of the process of the Court, the Court may order that the proceeding be stayed or dismissed generally or in relation to any claim for relief in the proceeding."
Having regard to the definition of proceeding in the Federal Court of Australia Act 1976, it is sufficient to say that the cross claim by Sentry against Peat Marwick Australia is a proceeding within this rule. The law on the subject of the appropriate forum is not at all clear. A reference to the case of Oceanic Sunline Special Co. In. v Fay (1988) 165 CLR 197, makes this position clear. That was not a case of separate actions in different jurisdictions but was a claim for a stay of proceedings in Australia in circumstances where the defendant alleged that the proper place for the claim to be made was in Greece. The Court comprised five Judges, Wilson, Brennan, Deane, Toohey and Gaudron JJ. The Court divided three: two, Wilson and Toohey JJ. dissenting, and the other three Justices holding that there should not be a stay. In the course of these judgments, the three Judges forming the majority, discussed at length the principles of law to be applied in cases of this nature where there are conflicting proceedings in different jurisdictions in different countries and an application is made in the Australian proceedings for a stay of the Australian proceedings.
I do not propose to refer in detail to the differing views expressed. Brennan J. gave a long dissertation on the history of the principles applied in England going back to the early cases in the 1880s commencing with, in substance, McHenry v Lewis (1882) 22 Ch.D.397, Peruvian Guano Co. v Bockwoldt (1883) 23 Ch.D.225, Hyman v Helm, (1883) 24 Ch.D.531, Thornton v Thornton (1886) 11 P.D.176, and Logan v Bank of Scotland (No. 2) (1906) 1 K.B. 141. The substance of the views expressed by Brennan J. then appear commencing at pages 238 and I am fully conscious of those views where in substance it is made clear by his Honour that a Court should not stop a proceeding which has been regularly commenced in the Courts in Australia merely because there is a similar action being brought in a foreign Court unless the invocation of the jurisdiction in the Austrlian Court is oppressive, vexatious or otherwise an abuse of process and that a very strict and narrow meaning must be given to those words, "oppressive, vexatious or otherwise an abuse of process".
Deane J., on the other hand, does not seem to go quite so far as Brennan J. did. Again, I do not need to refer in detail to what his Honour said, but it is set out commencing at page 242 of the report.
What is clear from all those authorities is that each case must depend upon its own particular circumstances, that the Courts, both in England and in Australia, have been careful not to lay down any particular restrictions to be applied in every case and stress the need to keep in mind that a party should not be deprived of a right to prosecute an action in the Courts in Australia since to do so, of necessity, causes an injustice to that person seeking relief. But at the same time the Court should not allow the use of the two proceedings to cause an injustice to a defendant.
In the present case Peat Marwick Austrlia is in the position of a defendant. The mere existence of the two proceedings in Australia and Wisconsin of itself is not oppressive, vexatious or an abuse of the process of the Court. More is required.
A similar position arises in cases where a party is a party to the proceedings in the Court in which the application is made as well as a party in the foreign proceedings where an injunction can have the same effect. Here, it is to be remembered that Sentry and Siamco are different legal persons.
An illustration of an injunction can be seen by a reference to the decision of the Privy Council in Societe Nationale Industrielle Aerospatiale v Lee Kui Jak (1987), 1 AC 871 where there is a consideration of the same general principles as are discussed in the stay cases but in the context of an injunction. But the opinion expressed there makes it clear that each case must be determined on the particular facts of each case and it must be shown that in the circumstances of any case, to allow the two proceedings to continue would, in the circumstances, be vexatious, oppressive or an abuse of process. There is one passage in that case which is very helpful in considering the present case, at page 893, the following passages appears:-
"Another important category of case in which injunctions may be granted is where the plaintiff has commenced proceedings against the defendant in respect of the same subject matter both in this country and overseas, and the defendant has asked the English court to compel the plaintiff to elect in which country he shall alone proceed. In such cases, there is authority that the court will only restrain the plaintiff from pursuing the foreign proceedings if the pursuit of such proceedings is regarded as vexatious or oppresive; see McHenry v. Lewis (1882) 22 ChD 397 and Peruvian Guano Co. v. Bockwoldt (1883) 23 Ch.D. 225. Since in these cases the court has been presented with a choice whether to restrain the foreign proceedings or to stay the English proceedings, we find in them the germ of the idea that the same test (i.e. whether the relevant proceedings are vexatious or oppresive) is applicable in both clasess of case, an idea which was to bear fruit in the statement of principle by Scott L.J. in St. Pierre v. South American Stores (Gath and Chaves) Ltd. (1936) 1 KB 382, 398, in relation to staying proceedings in this country, a statement of principle now overlaid by the adoption in such cases of the Scottish principle of forum non conveniens, which has been gratefully incorporated into English law."
I am informed from the bar table that the principles expressed in the Oceanic Sunline case have been considered further by the High Court in a more recent decision in which argument has been heard but judgment has been reserved.
I propose to apply the principles as to whether, on the facts of this case, it is an abuse of the process of the Court or vexatious or oppressive to Peat Marwick Australia for the claim against it being pursued in the Wisconsin Circuit Court in the particular circumstances of this case.
I should also add that in the course of submissions counsel for Sentry enunciated nine principles which he contended should be applied and followed from the judgments of Mr Justice Brennan and the earlier English cases to which reference has been made. They can be summarized as follows:-
1. Prima facie a person who has invoked the jurisdiction of the Court, in this case the Federal Court, is entitled to have that case heard and determined in that Court notwithstanding the institution of proceedings in a foreign Court unless the defendant can show, and the onus is on the defendant, which I accept, that the continuation of the proceedings in the Australian Court are vexatious, oppressive or an abuse of process in the Australian Court.
2. The grounds upon which a stay can be granted can only be established where they are grave and narrowly confined as being oppressive, vexatious or an abuse of process in conformity with the views expressed by Mr Justice Brennan in the Oceanic case, where there is no injustice to the plaintiff.
3. That even though the actions in the two countries are prima facie the same, that is not sufficient of itself to show that the proceeding is vexatious. The defendant must show a special case. In any event, in the present case they are different, it is argued, and I accept that fact, although I do say that the relief sought is based upon the result of the proceedings in Australia. 4, The principles are that the two proceedings 5, pending are not of themselves sufficient to show 6, vexation or oppression or an abuse of process 7 particularly if the foreign court has remedies or
and procedures which may not be available in the
8 Australian proceedings. There should not be a stay order unless the parties are the same. In the present case the parties are different. SIAMCO is not Sentry even though SIAMCO is the parent. The defendants are the same in that Peat Marwick Australia is a party to the proceedings here. They must relate to the same subject matter, and it is said they do not relate to the same subject matter here, and are not made where the procedures and remedies are different, and that is true here. Further, any harassment must be vexatiously harassing.
9. Finally, it was said that additional benefits could be greater in the foreign court to those available in Australia.
In my opinion the proceedings by SIAMCO in the United States do have the effect of causing a very grave injustice to Peat Marwick Australia in the proceedings in this case to the extent that they do constitute an abuse of the process of this Court of a kind sufficient to justify this Court making an order of the type sought. In coming to this opinion I rely upon the fact that the proceedings in the United States were commenced in October 1988 and it was not until January 1990 that Peat Marwick Australia was joined as a party. It is realized that Peat Marwick Australia, in one sense, is a moving party in what has happened since then in that it has applied to have the proceedings against it in the United States stayed and in so doing has unleashed a series of procedural steps which on their face do interfere in my opinion with the proceedings currently before this Court. This Court has before it a series of causes of action which are going to give rise to a very lengthy and difficult hearing. It is said that the hearing might take four or five months. The matter has been set down for hearing and on its face the amended complaint in the United States proceedings is based upon damages depending upon what happens in the Australian proceedings. In addition to that the interlocutory proceedings in the United States, on their very face, make reference to the proceedings in this Court and require the production of the documents which have been prepared for the purposes of making the cross-claim in these proceedings, making those documents available to SIAMCO in Australia albeit under the guise of jurisdiction, but, in my opinion, in reality going beyond that.
It is realized that the parties are different, but SIAMCO is the controller of Sentry. There is the one person, Mr Ducey, who is acting for SIAMCO in the United States and apparently at the same time for Sentry in Australia. The proceedings in the United States have the appearance, and I say no more than that, of being a tactic to harass Peat Marwick Australia in the conduct of its proceedings in Australia. All the facts of this case support the view, in my opinion, that the proceedings in the Wisconsin Circuit Court are designed to have a bearing upon or interfere with or have a harassing effect on Peat Marwick Australia in its conduct of the proceedings in this Court.
In those circumstances seeing that SIAMCO is not a party to the proceedings in Australia this Court cannot make any injunctive order against SIAMCO, but it can make orders of the kind sought in this case, namely, the order in the form as set out in reply and set out earlier in these reasons. I propose to make that order.
To a large extent the views already expressed have a bearing on the other matter, the continuation or otherwise of the interlocutory injunction made by Mr Justice Gummow. It is clear that according to Australian law a person who acquires a document pursuant to the processes of the Court is under a duty not to disclose or make use of that document for purposes other than the Court proceedings without the leave of the Court or the person from whom the document has been obtained. The position has been stated in clear terms by McLelland J. in the case of United States Surgical Corporation v Hospital Products International Pty Limited, judgment in which was given on 7 May 1982. In that judgment His Honour said:-
"It is a general principle that a party (or a representative of a party) who is permitted to inspect, or copy, a document of another produced under compulsory process of the Court in relation to pending proceedings (whether under subpoena or on discovery) is subject to an obligation not to use, or permit to be used, any such copy, or any knowledge acquired from any such inspection, otherwise than for the purpose of the proceedings, without the consent of the owner of the documents, or the leave of the Court (at least where the documents is of a confidential nature). Breach of that obligation may constitute a contempt of Court, and the Court may reinforce or secure compliance therewith by requiring appropriate express undertakings to be given as a condition of permitting the inspection or copying of any such document, or by granting injunctions, or by limiting access to particular individuals or classes of individuals. (See Alterskye v. Scott 1948 1 AER 469; Distillers Co. (Biochemicals) v. Times Newspapers 1975 QB 613; Riddick v. Thames Board Mills 1977 QB 887 at 895-7, 901-2; Halcon International v. The Shell Transport and Trading Co. 1979 RPC 97; Church of Scientology v. Department of Health 1979 1 WLR 723; Kimberley Minerals v. McEwan 1980 1 NSWLR 210 at 215-6; Registrar v. McPherson 1980 1 NSWLR 688 at 694-5; Home Office v. Harman 1981 1 QB 534 (Park J. and Court of Appeal), 1982 2 WLR 338 (House of Lords))."
Questions arise as to what is meant by the use of the documents because that passage makes use not only of the word "shall not make use" of the documents but also not to make use of any knowledge acquired from any such documents. Counsel for Sentry has urged on the Court that the words "or knowledge acquired" are too wide and should not be made part of any injunction that is to be made by the Court if such an injunction is to be granted.
To some extent the very strict ruling in Harman's Case have been modified in its application in the Federal Court by O.15 r.18 of the Federal Court Rules but that does not detract from the general principle that, in my view, if knowledge is acquired from a document and use is made of that knowledge for purposes other than the case itself then that document and that knowledge has been used in contravention of the general principle as set out by McLelland J. and also by other authorities.
It is argued against the continuation of the injunction that there was no evidence of any threat or intention by Sentry or its legal advisors to make use of knowledge of documents contained in the proceeding before this Court or of knowledge obtained from those documents for purposes other than those connected with these proceedings. That may well be true in that there is no direct evidence of that, and the existence of the legal principle is well accepted and acknowledged by counsel for Sentry. Nevertheless, in this case there is the position where the one person apparently is part of the team for Sentry in the proceedings in Australia and as counsel in the proceedings in Wisconsin. In those circumstances it seems to me that it is important that the injunction in the form expressed should be made to make it clear to all parties that the injunction applies not only directly to the use of documents but indirectly to knowledge obtained from those documents.
For these reasons it is proposed to continue the function in the form granted by Gummow J. It will be in an interlocutory form and on the basis of the usual undertaking as to damages being given.
Orders made accordingly.
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