Nilsen Industrial Electronics P/L v National Semiconductor Corporation

[1994] FCA 91

9 r q?

JUDGMENT No. ..,...... l .. ..,.......

IN THE FEDERAL COURT OF AUSTRALIA	)
VICTORIA DISTRICT REGISTRY	)
GENERAL DIVISION	) No. VG 507 of 1992
B E T W E E N :

NILSEN INDUSTRIAL ELECTRONICS PTY LTD

Applicant

NATIONAL SEMICONDUCTOR CORPORATION and OTHERS

Respondents

HARDIE TRADING LIMITED and OTHERS

Cross-Claimants

NATIONAL SEMICONDUCTOR CORPORATION and OTHERS

Cross-Respondents

Coram:	Olney J
Place :	Melbourne
Date:	2 March 1994

REASONS FOR DECISION

THE APPLICATION

Thls is an application in which the applicant seeks
agalnst the first respondent (NSC) for particular discovery

pursuant to 0 15 r 8 of the Federal Court Rules and for

(a)	to file any affidavit statrng whether that document or any document of that class 1s or has been in hls possessron, custody or power and, if it has been but is not then in hls possession, custody or power, when he parted wlth lt and
what has become of 1t; and
( b )	t o s e r v e t h e a f f r d a v ~ t on any o t h e r p a r t y .

inspection of certain documents pursuant to 0 15 r 11.

Order 15 rules 8 and 11 of the Federal Court Rules provide:

8. Where, at any stage of the proceeding, it appears to the Court from evldence or from the nature or c~rcumstances of the case or from any document flled in the proceedrng that there are grounds for a bellef that some document or class of document relatlng to any matter In questlon in the proceedrna may be or may have been in the possess-ion, custody or power of dpa;ty, the Court may order that party:

11.   (1) Where:

it appears from a l i s t of documents f i l e d by a p a r t y under

( a ) t h i s Order t h a t any document i s rn h r s pos se s s ion , cus tody

o r power;

( b )	a p leadrng o r a f f r d a v i t f i l e d by a p a r t y r e f e r s t o any
document; o r
( c )	crrcumstances of t h e ca se o r from any document f r l e d i n t h e

~t appears t o t h e Court from evrdence o r from t h e n a t u r e o r

proceedrng t h a t t h e r e a r e grounds f o r a b e l l e f t h a t any

document r e l a t ~ n g t o any m a t t e r i n ques t ron Ln t h e

proceeding i s r n t h e possess ion , custody o r power of a

p a r t y ;

t h e Court may, s u b j e c t t o any ques t ron of p r r v ~ l e g e whrch may

a r r s e , o r d e r t h e pa r t y :

( d ) t o produce t h e document f o r inspection by any o t h e r p a r t y

a t a t ~ m e and p l a c e s p e c i f i e d i n t h e o rde r ; o r

( e ) t o f r l e and s e r v e on any o t h e r p a r t y a copy of t h e whole o r

any p a r t of t h e document, wrth o r wrthout an a f f i d a v r t

v e r r f y ~ n g t h e copy made by a person who h a s exam~ned t h e

document and t h e copy.

( 2 ) An affidavit made pursuan t t o an o r d e r under

paragraph	(1) ( e ) s h a l l ,	u n l e s s t h e Court o therwrse o r d e r s ,	s t a t e
whether t h e r e a r e r n t h e document	copred any and,	i f so ,	what
e r a s u r e s ,	r n t e r l m e a t l o n s	o r	a l t e r a t i o n s .

THE FACTS

The short facts of the case are set out i n paragraphs 2 to 6 of the affldavit of James William Robinson (the applicant's solicitor) sworn 27 July 1993 (the Roblnson affidavit) filed in

as pleaded by the applicant can be summarised as follows: The	support of the notice of motlon. For present purposes the facts
claim relates to 30,000 real time clocks purchased by the applicant from the second and third respondents. The clocks were called, by NSC, MM58274B, belng revision B of a clock originally called MM58274. The second and third respondents ordered the clocks through NSC's wholly-owned Australian subsidiary, and they were supplied by NSC's wholly-owned Hong Kong subsidiary. These subsidiaries are cross-respondents in this proceeding. The applicant and the second and third respondents allege that the real tlme clocks were designed and manufactured by N S C , but this has not been admitted in the pleadings by N S C . The applicant used the clocks as a component in an electronic electricity metering devlce it had developed.
More than 20,000 of the clocks were Installed in devices manufactured between mid-1988 and May 1990, and most of these were distributed to customers and installed by them. In May 1990, the applicant's engineers noted in tests, that the clocks exhib~ted a defect which has been called "bit-flip". Typically thls defect exhibits itself in the following manner. The clock was supposed to be programmable in either 12 or 24 hour mode. If it was programmed in 24 hour mode, it would, after an lndeflnite tlme, reprogram itself to the 12 hour mode. The clock would also jump time as it flipped, going from 19:59 to 20:OO and then
immediately to 00:00, for instance. The applicant and the second and third respondents claim that the clocks were defective; that N S C knew that they were defective from early December 1987; and that N S C failed to inform any of them of the
defect untll after it had been observed by the applicant in May
1990. The applicant claims damages for the cost of replacing the clocks in meters it had manufactured; the cost of recalling meters whlch had been shlpped to customers; loss of future sales and injury to lts trading reputation; and exemplary damages.
THE NOTICE OF MOTION
The notice of motion filed on 27 July 1993 seeks orders that :

1.     The first respondent give particular discovery, pursuant to Order 15 rule 8, of the documents referred to in:

(a)	the extracts from a letter dated 8 October 1992 from the applrcant's solicitors to the f ~ r s t respondent's solicitors annexed hereto and marked "A";
(b)	the letter dated 9 July 1993 from the appl~cant's

solicitors to the f ~ r s t respondent's solicltors

annexed hereto and marked "B"; and

(c) the letter dated 13 July 1993 from the appl~cant's sol~crtors to the first respondent's solrcrtors annexed hereto and marked "C".

2.     Pursuant to Order 15 rule 11, the flrst respondent produce for rnspectlon by the applicant's solicrtors:

(a) bound copies of: 

(1) rts annual reports to shareholders srnce 1982;

(li)  the handbooks and simrlar documents referred to under headlng 3 in the said letter dated 9 July 1993;

( l ~ i )	the appo~ntment d ~ a r ~ e s for the year 1985 of
Mr Ray Farnham and Mr Clifton Ho; and
(iv)	the costs schedules, coples of extracts of which are item N61 in the flrst respondent's llst of documents dated 24 July 1992;

(b) the or~ginal	of the letter dated 23 November 1988 from Mr Ble~er of Canad~an Marcon1 Company to Mr Sporck, referred to at item 6(a) in the sard letter dated 9 July 1993;
(c)	a copy of that letter on whrch the handwrltlng subsequently added can be dec~phered;
(d)	pages 4033-4 from the series of which other pages are lncluded in ~ t e m NI08 in the first respondent's sald lrst of documents; and
(e)	the original of the E-mall dated 12 December 1989
from Jonathan Lee received by Ph~lllp Jury referred
to at rtem 8(b) Ln the annexure "B".

Annexed to the notice of motion are what are sald to be extracts	from the letters referred to in subparagraphs l(a) and l(b) and
the letter referred to in subparagraph l(c).
The flnal paragraph of the Robinson affidavit says:

51. As at the date of swearing t h ~ s aff~davlt, I have rece~ved

no response from the flrst respondent's solic~tors to my

letters of 9 and 13 July 1993. The applicant therefore seeks orders Ln the form requested in the notlce of motion filed herew~th.

Given the form of the notice of motion, it seems entirely inapproprlste that any order for discovery should be made in the form sought.

In seeking the relief which 0 15 r 8 provides for the applicant has assumed the task of satisfying the Court:

. . . from ev~dence or from the nature or clrcumstances of the case

or from any document f ~ l e d ln the proceed~ng that there are grounds for a belief that some document or class of document relat~ng to any matter In question in the proceeding may be or may have been in the possessLon, custody or power of a party ...

It is necessary that the Court be satisfied as to the actual or likely existence of particular documents or classes of documents and it follows that any order made pursuant to the rule be

sufficiently precise to enable the party to whom it is directed

to know with particularity what its obligations are.

The various annexures to the notice of motion contain both

argument and speculation. It would be onerous in the extreme

to expect a party to comply wlth an order framed in the form of

the notice of motion and it would be virtually impossible for the Court, if later called upon, to determine whether the order had been complied with. Accord~ngly, I do not propose making an

order in the form sought. I will however give the applicant the opportunity to amend its notice of motion In a manner more appropriate to the relief it seeks.

In the clrcumstances I do not propose canvassing in detail all of the clalms and responses made in the correspondence which has passed between the parties nor the assertions made in the affidavits filed in these proceedings. To some extent NSC has provlded informal discovery or has indicated that documents sought do not exist or are not in its possession. The applicant maintains, in my opinion quite properly, that it is entitled to have NSC's responses on oath and I propose that any order I make will so provide.

I propose to deal with the question of particular discovery under the various main headings that have been referred to in argument.

EXEMPLARY DAMAGES
In its statement of claim the applicant claims exemplary damages
from NSC. The facts alleged as givlng rlse to an entitlement
to exemplary damages are: The flrst delivery of clocks to the
applicant vras in November 1987, the last in March 1989; NSC knew
in 1987 that the clocks were, or possibly were, defective; it
falled to warn the applicant of the defect or possible defect and
failed to communicate notice of design change dated 28 July 1989

to the applicant at any time which would have allowed the

disregarded the known risk of causing damage to purchasers such	applicant to have avoided or minimised any loss and damage; NSC
as the applicant by supplying them clocks which it knew were defective or possibly defective; NSC is a large profit maklng concern.
The applicant says that the relevant considerations in the assessment of exemplary damages are the wealth of the party agalnst whom the claim is made and the profit obtained or obtainable by it calculated by reference to the amount it stands to gain by its misconduct.
The respondent has submitted that the question of assessment of exemplary damages (and thus discovery in relation to that issue) should be considered separately, and only if, and when, the Court finds that the case is appropriate for such an award.
Whether or not the assessment of exemplary damages should be trled as a separate issue is not something that the Court has been asked to address. Accordingly, it must be assumed that all
Issues raised by the pleadings will be tried upon the hearlng of the application. It is therefore appropriate that the respondent gives discovery of all documents relevant to Issues of fact raised by the claim for exemplary damages. Indeed, until discovery has been glven it would probably be inappropriate to consider the questlon of whether the assessment of exemplary damages should be tried separately. Further, such discovery can be expected to be relevant to the initial question of whether the
case is one which justifies the awarding of exemplary damages.
One aspect of this part of the application is the applicant's request for discovery of documents relating to the respondent's profit margins on the goods in question. The respondent's counsel has questioned what is intended to be understood by the term "profit margins". T h ~ s difficulty will be overcome if the applicant ldentlfies the particular documents or class of documents it seeks.
THE MEETING OF 3 FEBRUARY 1989
It is common cause that on 3 February 1989 a meeting took place between representatives of the applicant and the respondent. It is sald that what occurred at this meeting is relevant to the question of the speclfic knowledge of the respondent of the use to which the applicant put the clocks.
In correspondence the respondent's solicitors have said that
enquiries have not revealed any record of the meeting.
There is evidence to suggest not only that such a meeting took place but that it is likely that what occurred at the meeting may be relevant in these proceedings. The evldence and the circumstances of the case give ris6 to a belief that some document or documents relating to what transpired at the meeting may be, or may have been, in the possession, custody or power of
N S C . N S C should give discovery in the required form.
HANDBOOKS
The applicant seeks discovery of various handbooks relating to
the clocks. It says that it has had partial discovery but complains that some of the documents discovered are incomplete and further says that not all of the documents sought have been disclosed.
N S C has made an answer to the applicant's claims by way of
correspondence. It is not said that the documents sought, if they exist, are irrelevant or at least are not properly discoverable. NSC should make its response on affidavit in the
requ~red form.
OTHER CUSTOMERS
There is some evidence to suggest that NSC received complaints from other customers concerning the functioning of the clock and indeed that in some cases the clock was used in equipment similar to that developed by the applicant. It is appropriate that NSC dlscover documents relating to all such complaints including documents relevant to the action it took in response to such complaints. Such documents may be relevant to, or lead to a tram of enquiry relating to, NSC's knowledge of the alleged defect, which would touch upon the questions of both negligence
and exemplary damages.
ENGINEERING CHANGE NOTICE
The particular document sought is said by NSC not to exist. If this is so, it will be sufficient if that response is confirmed on affidavit.
ANNUAL REPORTS
The applicant seeks discovery of certain returns and reports that NSC is required to make under American law. The evidence and the nature and circumstances of the case give rise to a belief that documents of the class identified may be, or may have been, in the possession, custody or power of NSC. The documents
ldentifled would seem likely to go to the question of exemplary
damages. NSC should give discovery in the required form.
OTHER COURT PROCEEDINGS
At paragraph 39 of the Robinson affidavit reference is made to certain proceedings in which NSC in 1984 pleaded guilty to charges of not properly testing microchips supplled to the US Defense Department. The material provided by the applicant suggests that NSC misrepresented the extent to which microchips supplied to the Defense Department had been tested. When tested they were found to meet the specification.
I do not think that the proceedings between the US Defense Department and NSC are sufficiently relevant to any Issue (including the question of exemplary damages) to justify the Court ordering NSC to dlscover documents relating to those proceedings. The circumstances of the two cases are quite different and the period of tlme which elapsed between the earller proceedings and the conduct of which the applicant complains was qulte substantial. Apart from the question of relevance, I would as a matter of discretion decllne to order discovery of the documents sought.
And the same applies to other proceedings between a company named Thesys and NSC relating to problems experienced with an earlier
verslon of the MM58274B clock. There is no evldence that the earller verslon was ever supplied to the applicant. Indeed it is common cause that only the MM58274B clock was supplled to the applicant. The relevance of the earlier proceedings has not been demonstrated.
CALIFORNIAN LAW
In its defence (at paragraph 17) NSC denies that it owed the appllcant a duty of care and pleads in the alternatlve (at paragraph 29):

29.    Further and In the alternatlve to paragraph 17 hereof, it says that:

(1) The laws of the State of Callforn~a govern and determine its tortlous obllgatlons (if any) to the (appllcant); and

(2) Accord~ng to the laws of the State of Callfornla lt dld not and could not ln the clrcumstances alleged in the further amended Statement of Clam owe a duty of care to the (appllcant) as alleged in paragraph 17 or at all.

The applicant seeks discovery of

"the relevant cases, legislative provlslons, tests and

other authorities" relevant to this plea.

The question of what was, or is, in the circumstances of this case the law of California, is a question of fact to be proved by expert evidence. There is nothing in the evidence nor in the nature or circumstances of the case to give rise to a bellef that NSC has, or has had, in its possession custody or power any documents of the class referred to other than documents which in ordlnary clrcumstances would be subject to legal professional privilege. In the circumstances, as a matter of discretion, I

decline to make an order for discovery.

INSPECTION OF DOCUMENTS

The applicant does not press subparagraph 2(a) of the application.

The power of the Court to make an order pursuant to 0 15 r 11 is dependent upon one or other of the three criteria in subrule (1) being satisfied. In ordinary circumstances in a case where a party has provided a list of documents (as is so in the present proceeding) ~t could be expected that inspection would not be ordered of a document which is not discoverable. A party ought not to be required to produce for inspection documents that are not sufficiently relevant to be discovered.

In the present matter NSC has in correspondence and In the af f ldavit material f lled in relatlon to the notice of motion made some responses to paragraph 2, and indeed it may be that events have overtaken this decision to the extent that some degree of inspection has taken place.

As it can be anticipated that the applicant will be filing an amended appllcation relating to discovery, it seems to me to be convenient that lt also have leave to amend paragraph 2 to reflect its present demands in relatlon to inspection. I am

disinclined to make any order which is not necessary.

CONCLUSION

I do not propose making any order for discovery on the applicant's notice of motion in its present form. However, I grant leave to the applicant to file an amended notlce of motlon setting each document or class of document of whlch particular discovery is sought. The amended appllcation should be confined to those documents or classes of documents lntended to be encompassed by the notice of motlon filed on 27 July 1993 but should exclude documents or classes of document in respect of which I have indicated I do not intend ordering discovery.

To the extent that the applicant is entitled to an order pursuant to 0 1 5 r 8, the order will be made in the terms of paragraphs

(a) and (b) of the rule. Such an order is what is intended to be understood by my references about discovery in the requlred form.

At the directions hearing scheduled for 4 March 1994 I will fix a tlme within which the applicant may exercise its leave to flle an amended application and any other necessary consequential directions wlll be given

I certify that this and the preceding 12 pages are a true copy of the Reasons for Judgment of the Honourable Mr Justlce

Olney	A
Associate:
Dated: 2J-kd.q	[sJ+'.

Heard:	10 November 1993
Place:	Melbourne
Decision :	2nd March 1994
ADDearances:

Mr W.J. Martln QC and MS S. Lindsey (instructed by Best Hooper)

appeared for the applicant.

Mr M. Sifrls and Mr M. Connock (instructed by Baker & McKenzle)

appeared for the first respondent.