Southern Equities Corporation Ltd (In Liquidation) v Arthur Andersen & Co (No 5)
[2001] SASC 335
•21 September 2001
SOUTHERN EQUITIES CORPORATION LTD (IN LIQUIDATION)
v ARTHUR ANDERSEN & CO (NO 5)
[2001] SASC 335Civil
BLEBY J.
Background
This is an action for damages by a company in liquidation against a firm of chartered accountants as auditors for the Bond Group of companies for the financial year ended 30 June 1988. The action was commenced in 1994. For most of that time it has been managed by a judge of this Court as a complex action. See now Rule 2A Supreme Court Rules.
By the application now before me the defendant seeks an order for further and better discovery against the plaintiff. Many lists of documents have been filed, and the trial is due to commence on 21 November 2001. The application, as finally pressed by the defendant, seeks further and better discovery in respect of three matters to which I shall return. Before doing so, it is necessary to examine the relevant principles now applicable to an application of this nature.
The relevant principles - Rule 58A.03
Under Rule 58.01 of the Supreme Court Rules and its predecessors, discovery was to be given of documents “…. relating to any matter in question in the action”. This generally imported what was commonly known as the Peruvian Guano test (Compagnie Financière du Pacifique v Peruvian Guano Co (1882) 11 QBD 55). That test required disclosure of any document if it was reasonable to suppose that it contained information which might directly or indirectly enable the party seeking discovery either to advance his own case or to damage the case of his adversary, or which might fairly lead him to a train of inquiry which might have either of those consequences. See also Mulley v Manifold (1959) 103 CLR 341 at 345 per Menzies J.
However, Rule 58A.03 now provides:
“58A.03 The parties must discover in their lists of documents, but discover only, the documents which are or have been in their possession, custody or power which are directly relevant to any issue arising on the pleadings.”
That is plainly a narrower test than the Peruvian Guano test. It requires a greater focus on the pleadings and the issues which arise on the pleadings.
Leaving aside for the moment the qualification “directly”, the test of relevance must be applied only to an issue arising on the pleadings. The test of relevance for the purpose of discovery will therefore be the same as the test of relevance which applies to the admissibility of any piece of evidence upon the trial of a civil action. However, it is not a test which includes only those documents which are strictly admissible in evidence. Many documents, though relevant, may well not be admissible by virtue of some common law or statutory exclusion.
There are many definitions of relevance. One of the most commonly adopted is that of Sir James Stephen in his Digest of the Law of Evidence, 5th Ed (1887) Art 1 p2. See for example Palmer v The Queen (1998) 193 CLR 1 at 24 per McHugh J:
“The word ‘relevant’ means that any two facts to which it is applied are so related to each other that according to the common course of events one either taken by itself or in connection with other facts proves or renders probable the past, present, or future existence or non‑existence of the other.”
For the purpose of the application of that test to Rule 58A.03, the first fact referred to is that proved by the document. The other fact referred to is the fact in issue on the pleadings.
But as I have said, in order to be discoverable, a document does not have to run the gauntlet of admissibility into evidence. McHugh J went on to say in Palmer v The Queen (ibid) at 24:
“In general, evidence of a relevant fact is excluded only when it infringes some policy of the law, one of which (even in civil cases) is that evidence of a relevant fact is not admissible if the probative value of that fact is so low that it cannot justify the time, convenience and cost of litigating its proof.”
Such exclusionary rules will not apply to a document otherwise discoverable under Rule 58A.03.
However, there is a further qualification, in that the documents must be “directly” relevant. I doubt whether that qualification effectively narrows, for the purposes of discovery, ordinary concepts of relevance for the purpose of admissibility into evidence. In my opinion, it cannot mean, if the document is not itself proof of a fact in issue but is merely a piece of circumstantial evidence tending, along with other evidence, to prove the fact in issue, that it is not discoverable. Many a case is provable and in fact proved by circumstantial evidence, including documents. I note that a similar view was expressed by Demack J in Robson v REB Engineering Pty Ltd (1997) 2 Qd R 102 at 104 ‑ 105 in respect of a similar rule in Queensland. The Rule cannot be allowed to govern in practice the admission of documents into evidence merely because they have not been revealed in the discovery process.
What the qualification does reinforce is the notion of relevance to proof or disproof of a fact in issue, and the unquestionable abolition of the rule which required discovery of a document which might directly or indirectly lead to a train of inquiry or which might, in some other way, otherwise advance the party’s case or damage that of the adversary. For example, it would seem that documents going solely to the credit of a witness, unless that witness’s credit is an issue raised on the pleadings, would not be discoverable. However, it is inappropriate to attempt to define exhaustively what will and what will not be discoverable under this Rule.
The qualification also indicates that any application for further and better discovery will need to be scrutinised in order to ensure that what might have been allowed by way of discovery in the past is not now properly categorised as fishing.
Whether Rule 58A applies
The defendant argued that these changes in the Rules could not or should not affect the plaintiff’s continuing obligation to give discovery in this case. Previous lists of documents in the case have been supplied under the provisions of Rule 58. If there was a defect in one or more of those lists, it should be made good in accordance with the provisions of that rule.
Rule 58A was enacted by Rules of Court published in the Gazette on 6 April 2000. Rule 58A.01 provides:
“58A.01 Rule 58A applies to the exclusion of Rule 58 to all lists and affidavits of documents, including those for supplementary and further discovery, filed after 3 June 2000.”
It is not necessary to decide whether that provision is retrospective in its operation. It does not affect or qualify in any way discovery previously given in an action, nor does it qualify the use which may be made of documents discovered under the previous Rule but which might not be discoverable under the present Rule. At worst, it can be said to have changed a rule of procedure, and to have altered an obligation to be observed by both parties to the action in the course of interlocutory steps being taken in the action. However, nothing could be clearer than the intention revealed by Rule 58A.01 that all lists of documents filed after 3 June 2000 need only comply with the new Rule. Even if that intention had not been made clear, ordinary principles of construction relating to procedural statutes would have ensured that the new Rule applied to the defendant’s present application and to any continuing obligation on the plaintiff: Maxwell v Murphy (1957) 96 CLR 261 per Dixon CJ at 267; Williams J at 277; Fullagar J at 285 ‑ 286.
Further and better discovery
One further general observation needs to be made concerning an application for further and better discovery. Rule 58.04, which, by virtue of Rule 58A.10 continues to apply to discovery given under Rule 58A, requires the Court to be satisfied that before such an order is made, “there are grounds for a belief that some document or class of documents relating to any matter in question in the proceedings may be or may have been in the possession, custody or power of a party”: Rule 58.04(e). Although that Rule retains the language applicable to discovery under Rule 58, in my opinion it was not intended that the restrictions on what is discoverable enacted by Rule 58A should be relaxed merely because an application for further and better discovery is made under Rule 58.04. There must, nevertheless, be grounds for a belief that a document discoverable under Rule 58A.03 is or has been in the possession custody or power of the opposing party.
The plaintiff, in this case, has delivered numerous lists of documents, and in respect of each of the topics the subject of this application, asserts that there are no other documents. That is an unsworn assertion made by the solicitor for the plaintiff. Nevertheless, given the uncompromising ethical obligation that a legal practitioner has to the Court to make true and honest disclosure of such matters, the Court is entitled to act on that assertion, unless the Court has reason to believe that the assertion cannot be relied on. This may arise because of some possible misconduct on the part of the practitioner or from some reason to believe that the practitioner has received less than full and complete instructions from the client. In such a case, there is a further possible remedy under Rule 58.04A. However, no such situation is suggested here, and no request has been made for an order for interrogatories or cross-examination as to the existence of additional documents.
What acceptance of the assertion of the plaintiff’s solicitor does mean, however, is that if the defendant is to succeed in its application, it must point to some evidence to raise the necessary belief required by Rule 58.04(e). It requires more than merely an assumption or speculation that such documents may exist. The necessary belief may be formed from an examination of the pleadings. Common experience may dictate that there must have been a particular relevant document in the custody, possession or power of a party concerning a particular transaction. The existence of a relevant document may be properly inferred from the contents of another document. Alternatively, the description of a document or class of documents by the respondent party may be so vague and uncertain as to require more particularity. There may be other circumstances which induce the necessary belief. However, the Court will not act on speculation.
With those general comments in mind I turn to the particular application by the defendant.
Benefits received by the plaintiff and/or the SECL Group
The Statement of Claim pleads negligence and breach of statutory and other duties against the defendant as the plaintiff’s auditor in respect of a number of transactions and events affecting what I will generally describe as the Bond Group of companies during the financial year ended 30 June 1988 and in the following year. In the section of the Statement of Claim in which the plaintiff pleads its loss and damage, paragraphs 798 and 798A plead as follows:
“798.As a result of the matters particularised in paragraphs 786 to 794 above, SECL has suffered loss and damage in the sum of $305,653.251 as set out below:
German Bond issue
$118,000,000
Swiss Bond issue
$80,000,000
1988 final dividend
$33,839,824
1989 Interim Dividend
$33,839,824
Takeover of Austmark International Limited
$6,955,857
Acquisition of Arkindale option
$27,000,000
Professional fees paid to Arthur Andersen
$6,017,746
together with compound interest thereon.
798A.Further, SECL has suffered loss and damage in the sum of $66,824,606 in respect of the investment in British Satellite Broadcasting Limited.”
The various heads of loss are related to events pleaded elsewhere in the Statement of Claim.
The defendant’s application seeks an order for further and better discovery relating to the following matters:
“The benefits received by SECL and/or the SECL Group in relation to the expenditures and obligations incurred by SECL and/or the SECL Group in respect of the matters referred to in paragraphs 798 and 798A of the Claim.”
There is a general denial contained in the defence as to any loss alleged and as to liability for any loss. Save in respect of the two bond issues referred to in paragraph 798, the defendant does not plead any benefit to the plaintiff arising out of any of those transactions. The plea of benefit to the plaintiff in respect of the bond issues appears in paragraph 750(c) of the defence. In respect of that plea I am satisfied that the plaintiff has given discovery in its first and twenty-sixth lists of documents. There is nothing contained in the pleadings, or in other documents to which my attention has been drawn, and there is nothing inherent in the circumstances pleaded, to suggest that there may have been in existence any further documents concerning that benefit.
As to the other heads of loss alleged by the plaintiff, it will be for the plaintiff to prove those losses at the trial. There is no complaint that it has not given discovery in respect of those heads of loss. As there is no issue raised on the pleadings in respect of any benefits arising out of those transactions, there is no justification for ordering further and better discovery in respect of that topic.
The defendant’s application under this head must be refused.
Payments in respect of the Arkindale option
One of the transactions in question in the proceedings concerns the granting by Austmark International Limited (Austmark) to Bond Properties Pty Ltd (BPPL) of an option to acquire from Austmark all the issued capital of Arkindale Pty Ltd (Arkindale) a subsidiary of Austmark. The option fee was $27,000,000. The funds required by BPPL for the payment of the option fee were provided by the plaintiff by way of inter‑company loan. In essence, the defendant pleads a series of back to back transactions whereby the plaintiff and other companies within the SECL group fraudulently stripped cash out of certain companies, including the Bell Group of companies, in order to meet the negative cash flow of the plaintiff brought about by the expenditure, among other things, on the Arkindale option fee.
The defendant seeks further and better discovery in respect of:
“(a) The:
(i) source;
(ii) payment; and
(iii) use
of the sum of $27 million purportedly lent by the Plaintiff to Bond Properties Pty Limited (formerly Muchea Properties Pty Limited) in connection with the Arkindale Option.
(b)The:
(i)source;
(ii)payment; and
(iii)use
of the sum of $27 million purportedly paid to Austmark by Bond Properties Pty Limited in connection with the Arkindale Option.”
The plaintiff claims that it has given discovery of documents relating to the payment of the monies in question, and that appears to be the case. I agree with the plaintiff’s submission that on the case as pleaded, there is no issue between the parties concerning the source and use of the sums apparently lent by the plaintiff or paid by BPPL. They do not appear to be relevant to any issue arising on the pleadings. Mr Brereton’s submission for the defendant was that the defendant wanted discovery so that it could explore the possibility that the plaintiff had paid money to itself, thereby suffering no loss. It is a misuse of discovery merely to explore the possibility of another line of defence which is not and may never be pleaded. That part of the application cannot succeed.
Price Waterhouse documents
Price Waterhouse was the auditor of the SECL group (with one exception) immediately preceding the appointment of the defendant as auditor. In proceedings in the liquidation of the plaintiff in this Court, Price Waterhouse was required to attend and produce audit work papers, correspondence and files in respect of the SECL group, in respect of Dallhold Investments Pty Ltd and in respect of Bond Media Limited. They remained the auditors of the latter company for the financial year ended 30 June 1988. Documents were produced and inspected by the liquidator. Discovery has been given of a substantial number of documents, copies of which were obtained by the liquidator by means of that process. The plaintiff has not given discovery of all of the documents which the liquidator obtained. The defendant now seeks further and better discovery from the plaintiff of the following:
“Price Waterhouse audit papers for the audits of Dallhold, SECL, SECL Group and Bond Media for the years ended 30 June 1987, 31 December 1987, 30 June 1988 and 31 December 1988.”
The plaintiff has asserted on a number of occasions that it is not obliged to give discovery of any further such documents because it has disclosed all documents from that source which are relevant to any issue arising on the pleadings. Nothing has been put forward by the defendant to show that any relevant documents have been withheld from discovery. The approach to date by the defendant has been that because the documents exist they must be relevant. However, that does not follow, and is not a relevant test for whether discovery has been properly given.
In the circumstances the Court is entitled to rely on the assertion by the solicitors for the plaintiff, there being no reason to doubt it, that the plaintiff has not and has not had in its power, possession or control any other relevant documents from the files of Price Waterhouse. This part of the application cannot succeed.
Conclusion
Other parts of the defendant’s application for further and better discovery were not pressed. In the circumstances, the defendant’s application is dismissed.
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