Pastina Pty Ltd v Hosanna Excelsis One Universal Church Incorporated (No 3) - [2020] SADC 141

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
PASTINA PTY LTD v HOSANNA EXCELSIS ONE UNIVERSAL CHURCH INCORPORATED (NO 3)
[2020] SADC 141
Judgment of His Honour Judge Burnett
11 September 2020
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - DISCOVERY AND INTERROGATORIES - DISCOVERY AND INSPECTION OF DOCUMENTS - DISCOVERY OF DOCUMENTS - UNDERTAKINGS AND USE OF DOCUMENTS - COLLATERAL OR ULTERIOR PURPOSE
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - DISCOVERY AND INTERROGATORIES - DISCOVERY AND INSPECTION OF DOCUMENTS - DISCOVERY OF DOCUMENTS - UNDERTAKINGS AND USE OF DOCUMENTS - RELEASE FROM IMPLIED UNDERTAKING
The applicant obtained a freezing order prior to trial. The terms of that freezing order prevented the applicant from using any information obtained as a result of the order in any other proceedings, other than the present proceedings between the parties. The production of documents and information was also subject to the implied undertaking or as it is now known, the rule of preclusion, which prevented, without leave of the court, the use of the documents or information for any purpose other than for which it was given.
The respondent filed a number of affidavits and produced a number of documents as a consequence of the freezing order.
The applicant was successful at trial and has instituted winding up proceedings against the respondent. These proceedings are opposed by the respondent on a number of grounds.
The applicant seeks to use some of the documents and information that was produced to it as a consequence of the freezing order in the winding up proceedings and it seeks an order, insofar as necessary, that it be permitted to do so.
The respondent did not oppose the making of an order.
Held:
1. The use of the documents and information, obtained as a consequence of the freezing order, in the winding up proceedings was not a use for a collateral or ulterior purpose. Therefore, the proposed use does not infringe the rule of preclusion/implied undertaking.
2. In any event, special circumstances existed which would permit the use of the documents and information in the winding up proceedings.
3. The release from the express undertaking requires the applicant to establish that special circumstances exist for that release. The same principles govern the release from the express undertaking as the principles that apply to a release from the implied undertaking and are as set out in Springfield Nominees Pty Ltd v Bridgelands Securities Ltd (1992) 38 FCR 217. In the circumstances, it is appropriate that there be a release from the express undertaking.
Corporations Act 2001 (Cth), referred to.
Hearne v Street [2008] HCA 36; (2008) 235 CLR 125; Riddick v Thames Board Mills Ltd [1977] QB 881; British American Tobacco Australia Services Ltd v Cowell [2003] VSCA 43; Esso Australia Resources Ltd v Plowman (1995) 183 CLR 10; Alterskye v Scott [1948] 1 All ER 469; Deputy Commissioner of Taxation v Karas [2012] VCS 143; Northbuild Construction Pty Ltd v Discovery Beach Project Pty Ltd (No 4) [2011] 1 Qd R 145; Mann v Medical Defence Union Ltd [1997] FCA 45; Allstate Life Insurance Co v Australia and New Zealand Banking Group Ltd (1995) 57 FCR 360; Crest Homes PLC v Marks [1987] AC 829; Clone Pty Ltd v Players Pty Ltd (in liq)(receivers appointed) & Ors [2012] SASC 12; Lyons v Legalese Pty Ltd & Ors [2016] SASC 160; Springfield Nominees Pty Ltd & Ors v Bridgelands Securities Ltd & Ors (1992) 38 FCR 217; Australian Securities and Investments Commission v Marshall Bell Hawkins Ltd [2003] FCA 833; Australian Competition and Consumer Commission v Info4pc.com. Pty Ltd [2001] FCA 258; Australian Trade Commission v McMahon (1997) 73 FCR 211; Liberty Funding Pty Ltd v Phoenix Capital Ltd (2005) 218 ALR 283; [2005] FCAFC 3, considered.

PASTINA PTY LTD v HOSANNA EXCELSIS ONE UNIVERSAL CHURCH INCORPORATED (NO 3)
[2020] SADC 141
Background

During the course of the proceedings in this matter, the applicant obtained a freezing order, prior to trial, on 19 September 2019. That freezing order was varied from time to time and is still extant. To obtain the freezing order, the applicant gave an express undertaking in the following terms:
The applicant will not, without permission of the Court, use any information obtained as a result of this order for the purpose of any civil or criminal proceedings either in or outside Australia other than this proceeding.
Any documents that were produced pursuant to the freezing order were also subject to the implied undertaking, commonly referred to as the Harman undertaking or more recently, the rule of preclusion. That rule or undertaking has been recognised by the High Court in Hearne v Street.[1] In Hearne v Street, the High Court expressed the implied undertaking as applying to all cases:
Where one party to litigation is compelled, either by reason of a rule of court, or by reason of a specific order of the court, or otherwise to disclose documents or information, the party obtaining the disclosure cannot, without the leave of the court, use it for any purpose other than that for which it is given unless it is received into evidence.
[1] [2008] HCA 36; (2008) 235 CLR 125 at [96].
As a consequence of the freezing order, the respondent filed an affidavit of Moira Foreman, sworn on 9 October 2019 in which amongst other things, she stated that she was the public officer of the respondent and provided as her address a residence at Brooklyn Park.
The respondent also produced a number of documents as a consequence of the freezing order, including the four documents referred to in AJC27 of Mr Caruso's seventh affidavit. They were:
(1) a contract for the sale of a West Lakes property between the respondent and one of its officers (Document 1);
(2) a bundle of correspondence between the applicant’s solicitors and the respondent’s solicitors (Document 2);
(3) the profit and loss statement of the respondent for the year ending 30 June 2017 (Document 3); and
(4) the balance sheet for the respondent for the year ending 30 June 2017 (Document 4).
The applicant was ultimately successful at trial. Subsequent to trial the applicant has commenced winding up proceedings against the respondent in the Supreme Court of South Australia. Those proceedings are opposed by the respondent on a number of grounds, including:
(1) the alleged solvency of the respondent;
(2) that the statutory demand was not served in accordance with the requirements of the Corporations Act 2001 (Cth); and
(3) that in the exercise of the discretion of the court, a winding up order ought not to be made.
The affidavit of Ms Foreman is relevant in the winding up proceedings in relation to the issue of service of the statutory demand. The documents relating to the sale of the land, the profit and loss statement, and the balance sheet (Documents 1, 3 and 4) are all relevant to the issue of solvency, and also relevant to the issue of disposition of property, which will go to the question of the exercise of the discretion to wind up. Document 2, comprising the bundle of correspondence, comprises information relating to the disposition of assets of the respondent and is relevant to the exercise of the discretion to wind up.
The implied undertaking
The implied undertaking is a substantial legal obligation[2] and applies not only to documents produced on discovery, but wherever one party to litigation is compelled, either by rules of court, or by specific order of the court, or otherwise, to disclose documents or information.[3]
[2] Hearne v Street [2008] HCA 36; (2008) 235 CLR 125 at [106].
[3] Id at [106].
The rationale for the obligation, as held in Hearne v Street,[4] is that the undertaking provides a limited right of privacy. The compulsion to disclose documents or information during the court process is an invasion of the party’s right to keep documents or information private. The public interest and privacy demands that this intrusion should not be pressed any further than justice requires. The implied undertaking is also said to encourage full and frank disclosure in legal proceedings because it restricts the use of material disclosed during legal proceedings.[5]
[4] Id at [107]; Riddick v Thames Board Mills Ltd [1977] QB 881 at 896.
[5] British American Tobacco Australia Services Ltd v Cowell [2003] VSCA 43 at [20].
The implied undertaking, if applicable, prohibits the use of documents or information that have been produced under compulsion from being used for collateral or ulterior purposes.[6] The focus is on the purpose for which the documents and information are to be used.
[6] Esso Australia Resources Ltd v Plowman (1995) 183 CLR 10 at [36] citing Alterskye v Scott [1948] 1 All ER 469 at 470.
I am satisfied that the documents that form the subject of this application were produced under compulsion and are therefore prima facie subject to the implied undertaking. The party obtaining the documents or information cannot, without leave of the court, use the documents for any other purpose, other than the purpose for which they were given, unless the documents are received into evidence.
It is sometimes said that the implied undertaking prohibits the use of documents in another proceeding, but that formulation of the undertaking is not accurate and ignores that the underlying focus of the undertaking is on the purpose for which the documents and information are to be used.[7] Proceedings that are between the same parties and with respect to the same dispute (even if not in the same proceedings) do not infringe the purpose of the undertaking. The Documents were produced for the purpose of the dispute between the applicant and the respondent and not simply the proceeding between the parties. Normally, the dispute between the parties will be encompassed in the one set of proceedings, but there will be occasions where the dispute is comprised in multiple proceedings.
[7] Ibid; Deputy Commissioner of Taxation v Karas [2012] VCS 143 at [42]-[44]; Northbuild Construction Pty Ltd v Discovery Beach Project Pty Ltd(No 4) [2011] 1 Qd R 145 at [26].
The issue that arises for determination therefore is whether the documents, if used in the winding up proceedings, are being used for a collateral or ulterior purpose.[8] In Mann v Medical Defence Union Ltd,[9] Ryan J held:
Usually, if not invariably, the use of documents disclosed in one action for the purposes of another action will be a collateral or ulterior purpose, even where the parties to both actions are identical, and where the causes of action are identical.
[8] Mann v Medical Defence Union Ltd [1997] FCA 45.
[9] Ibid.
Groves[10] stated that in his opinion, only two purposes could be considered not to be collateral or ulterior. First, he said they could be used in a separate claim within the same proceeding, for example in a cross claim. Hill J in Allstate Life Insurance Co v Australia and New Zealand Banking Group Ltd[11] held that the use of documents to commence a cross claim against either an existing party or a new party was not an ulterior or collateral purpose. Ryan J in Mann v Medical Defence Union Ltd[12] was a little more qualified and held that there was no absolute rule that the use of documents in a cross claim could never constitute a collateral or ulterior purpose. Although the use of documents to commence a cross claim would not normally infringe the undertaking, Ryan J held that the proposed use of the material must bear a reasonable relation to the primary claim. The second exception referred to by Groves was that documents or information may be used for contempt proceedings.[13]
[10] Groves, The Implied Undertaking Restricting the Use of Material Obtained During Legal Proceedings (2003) 23 Australian Bar Review 314 at 325
[11] (1995) 57 FCR 360 at 378-380.
[12] [1997] FCA 45.
[13] Crest Homes PLC v Marks [1987] AC 829.
The applicant in the present case has submitted that what constitutes a collateral or ulterior purpose should not be construed technically.[14] The relevant test as to whether documents are being used for a collateral or ulterior purpose should be whether the documents or information that have been produced are being used for a purpose unrelated to or unconnected with the proceeding or litigation in question or not for a purpose reasonably necessary for the conduct of the litigation.[15]
[14] Northbuild Construction Pty Ltd v Discovery Beach Project Pty Ltd (No 4) [2011] 1 Qd R 145 at [47].
[15] Id at [44]-[47]. Approved in Deputy Commissioner of Taxation v Karas [2012] VSC 143 [42]-[43].
In this particular case, the applicant has submitted that the use of the documents in the winding up proceedings should not be considered collateral or ulterior, relying upon the decision of the Deputy Commissioner of Taxation v Karas.[16] This would constitute an additional exception to the cases in which the use of documents in other proceedings would not be considered collateral or ulterior. In Karas, it was held that documents, produced pursuant to a freezing order, could be used in winding up proceedings or bankrupt proceedings (or other related proceedings, such as review proceedings) and were not collateral or ulterior to the proceedings in which the documents were obtained, and therefore not a use of the documents which contravened the implied undertaking. In reaching this conclusion, the Court noted that the purpose of the freezing order was to ensure that the court process was not frustrated by a person removing or dissipating assets.[17] The freezing order was to protect the value of the cause of action,[18] which value the applicant was seeking to realise in the recovery action. The freezing order would ensure that the applicant’s success in the proceedings was not pyrrhic.[19] I consider that this approach conforms with the nature of the implied undertaking, as expressed in Hearne v Street, which focuses on the purpose for which the documents were obtained and the purpose for which they are now sought to be used.
[16] [2012] VSC 143 at [40]-[44].
[17] Id at [33].
[18] Id at [42].
[19] Ibid.
In these circumstances, I find that the documents produced as a consequence of the freezing order were intimately bound up with the enforcement of recovery proceedings and were ancillary to the wider dispute between the applicant and the respondent.[20] They were produced for the same underlying purpose, namely the ultimate realisation of the chose in action of the applicant. In Clone Pty Ltd v Players Pty Ltd (in liq)(receivers appointed) & Ors,[21] Kourakis J (as he then was) also focussed on the question whether there was a single underlying controversy between the parties. There was such a single underlying controversy in the present matter.
[20] Id at [43].
[21] [2012] SASC 12 at [183].
I am satisfied therefore that the implied undertaking does not apply to the use of the documents in the winding up proceedings.
Special circumstances
In any event, and if I am wrong in coming to this conclusion, I am satisfied that there are special circumstances which entitle the applicant to be released from the implied undertaking. In Hearne v Street, the Court held that there was a discretion to release a party from the implied undertaking if special circumstances are shown to exist. The onus of persuading a Court to exempt a party from the implied undertaking (or rule of preclusion) rests on the party seeking the exemption.[22]
[22] Clone Pty Ltd v Players Pty Ltd (in liq)(receivers appointed) [2012] SASC 12 at [186]. Applied in Lyons v Legalese Pty Ltd & Ors [2016] SASC 160 at [72].
In Crest Homes PLC v Marks,[23] the House of Lords held that a party seeking release from an implied undertaking must satisfy the court there are special circumstances to support an order for release. The party seeking release from an implied undertaking must prove that the release would not occasion injustice or prejudice to the party who provided the material.
[23] [1987] AC 829.
I note that in this regard, the respondent does not oppose the application for release, and has not adduced any evidence of injustice or prejudice.
The decision of Wilcox J in Springfield Nominees Pty Ltd & Ors v Bridgelands Securities Ltd & Ors[24] also addressed what constitutes special circumstances. That decision has been widely accepted.[25] In Springfield Nominees, Wilcox J held:
For special circumstances to exist, it is enough that there is a special feature of the case which affords a reason for modifying or releasing the undertaking, and is not usually present. The matter then becomes one of the proper exercise of the court's discretion, many factors being relevant. It is neither possible nor desirable to propound an exhaustive list of those factors. But plainly, they include the nature of the document, the circumstances under which it came into existence, the attitude of the author of the document, and any prejudice the author may sustain, whether the document pre-existed litigation or was created for that purpose, and therefore expected to enter the public domain, the nature of the information in the document (in particular whether it contains personal data, or commercial sensitive information), the circumstances in which the documents came into the hands of the applicant for leave and, perhaps most important of all, the likely contribution of the document to achieving justice in the second proceeding.
[24] (1992) 38 FCR 217 at 225.
[25] Australian Securities and Investments Commission v Marshall Bell Hawkins Ltd [2003] FCA 833 at [11]; Australian Competition and Consumer Commission v Info4pc.com. Pty Ltd [2001] FCA 258 at [6]-[7]; Clone Pty Ltd v Players Pty Ltd (in liq)(receivers appointed) [2012] SASC 12 at [187].
Lehane J followed this approach in Australian Trade Commission v McMahon[26]and held that where an application for release is decided in contested proceedings, special circumstances will fairly readily be found, where it established that the use of the documents discovered in a proceeding is reasonably required for the purpose of doing justice between the parties in the other proceedings. As held by the Full Court of the Federal Court in Liberty Funding Pty Ltd v Phoenix Capital Ltd,[27] the notion of special circumstances does not require that some extraordinary factors must exist before the discretion is exercised. Rather, it is sufficient that good reason is shown for the use of the documents, contrary to the usual position that documents or information obtained in one set of proceedings should not be used in another set of proceedings.
[26] (1997) 73 FCR 211 at 217.
[27] (2005) 218 ALR 283 at [31]; [2005] FCAFC 3.
That comment is apposite in the present case. For the reasons which I previously identified, the documents are all relevant to the winding up proceedings, and the notice of opposition that has been filed by the respondent in these proceedings. Given that the Documents would materially contribute to the achieving of justice in that winding up proceedings, given that there is no prejudice, I consider it appropriate that the applicant be released from the implied undertaking.
Express undertaking
Similar principles apply to the use of the Documents that are prohibited by the express undertaking and the release of the applicant from that undertaking. I note the submission of the applicant that, with the exception set out below, the release from the express undertaking is governed by the same principles as the release from the implied undertaking. The exception is that the terms of the express undertaking do not permit the use in any other proceedings (even if such proceedings are not collateral) as the terms of the undertaking are limited to use in the proceedings.

The express undertaking expressly contemplates the Documents being able to be used with permission from the court. The Court has a discretion to give permission. I consider the fact that the court has a discretion to give permission indicates that there will be circumstances when that release is appropriate. I consider that those circumstances are the same sort of circumstances that I have referred to in the special circumstances set out by Wilcox J in Springfield Nominees. The Court reached the same conclusion in Karas and held the same considerations are relevant, because both the express undertaking and the implied undertaking seek to achieve the same purpose, namely to preserve the confidentiality of documents and information produced under compulsory process.[28] It follows that the circumstances in which an exemption is granted from that undertaking should be the same.[29]
[28] [2012] VSC 143 at [30].
[29] Id.
For the same reasons, I therefore find that the applicant is entitled to be released from the express undertaking.
Conclusion
I will therefore make an order in terms of the draft minutes of order providing for the release of the documents for the purposes of use in the winding up proceedings.