Southern Equities Corporation Ltd (in Liquidation) v Arthur Andersen &Co (No 8) No. Scciv-94-1474

SOUTHERN EQUITIES CORPORATION LTD (IN LIQUIDATION) v ARTHUR ANDERSEN & CO (NO 8)
[2002] SASC 20
Civil
BLEBY J
Background

This is an application for non‑party discovery filed by the defendant on 6 November 2001.
The plaintiff (SECL) is a company in liquidation. It was formerly known as Bond Corporation Holdings Ltd and was a public listed company. It was the ultimate holding company for several hundred wholly or partly owned subsidiaries which together formed the SECL Group. The group had worldwide interests in brewing, real property, media, mining and petroleum. 51 per cent of the shares of SECL were owned by Dallhold Investments Pty Ltd (Dallhold), a company controlled by Mr Alan Bond.
Bond Corporation Pty Ltd (BCPL) was a wholly owned subsidiary of SECL. As at 1 July 1987 BCPL owned 50 per cent of the issued shares of Bond Media Ltd, which in turn was the ultimate holding company of a large number of companies engaged in various media activities. Bond Media Ltd and its subsidiaries were therefore not subsidiaries of SECL, but they became subsidiaries during the 1987‑88 financial year.
In the action the plaintiff claims damages against the defendant, a firm of chartered accountants, as auditor for SECL and the SECL Group of companies for the financial year ended 30 June 1988.
The previous auditors of SECL and the SECL Group were Price Waterhouse. For the year ended 30 June 1988 Price Waterhouse continued to be the auditors of Dallhold and of Bond Media Ltd and its subsidiaries. The application for non‑party discovery seeks an order for discovery of documents against PricewaterhouseCoopers, the successor to Price Waterhouse, of a number of documents in connection with its 1987 audit of the SECL Group, its 1987 and subsequent audits of Dallhold and of Bond Media Ltd and its subsidiaries. I will refer to the detailed nature of the application in due course.
The trial commenced on 21 November 2001. At this stage the plaintiff is in the course of an extensive opening during which many non‑contentious documents are being admitted.
The application for non‑party discovery has been served on PricewaterhouseCoopers, but they have not yet been heard on the application, as the plaintiff opposes the application in principle on grounds which are not necessarily those which might be relied on by PricewaterhouseCoopers. If the plaintiff is successful it will not be necessary to hear PricewaterhouseCoopers.
The standing of the plaintiff to oppose the application
Where an application for non‑party discovery is made after commencement of proceedings, the application is to be served on the person against whom the order is sought and on all other parties to the proceeding: Rule 60.01(2)(b). It is now well‑established, at least in this jurisdiction, that a party to the proceeding has a right to be heard on another party’s application: Casley‑Smith v The District Council of Stirling (1989) 50 SASR 454. The defendant nevertheless relies on the view expressed by Bollen J in that case (at 460) that “it may be rarely that the opposing party will have a legitimate ground for opposing the making of an order for third party discovery and inspection”. The defendant argued that the plaintiff had only a very narrow interest in legitimately opposing the application. It argued that if the documents were “relevant to the proceedings” in the sense in which that expression is used in Rule 60, the plaintiff had no legitimate interest to protect. It is not a case where the plaintiff might have some corporate reputation to maintain where it could legitimately oppose an application based on oppression or abuse of process. There was no suggestion that the plaintiff’s legal professional privilege would be infringed by the production of documents pursuant to any order which might be made.
However, in my opinion there are at least two areas in which the plaintiff in this case has a legitimate interest in opposing the defendant’s application, irrespective of any view which might be taken on these or other matters by PricewaterhouseCoopers. The first is whether the defendant is able to show that the documents of which discovery is sought are “relevant to the proceedings”. The second is as to the consequence of the making of any order on the orderly conduct of the trial which has now begun. In this regard the plaintiff is entitled to be heard on the effect of any alleged delay in bringing the application by the defendant, and on that basis to oppose the making of any order if it will now have a disruptive effect on the proper conduct of the trial.
The terms of the application
As finally amended, and leaving aside matters not pressed at the hearing of the application, the application was far‑reaching in its effect. It should be noted that in the extracts of the application set out below, reference to Bond Corporation Holdings Limited and BCHL is a reference to SECL. The application seeks discovery of the following documents:
1.BCHL and BCHL Group audits for the 1987 financial year and subsequent periods
1.1All audit workpapers and other documents maintained by Price Waterhouse in respect of the audit by Price Waterhouse of Bond Corporation Holdings Limited (“BCHL”) and the BCHL Group for the financial year ended 30 June 1987 and any subsequent period or periods save for the audit working papers concerning the audit of Bond Brewing Holdings Limited (“BBH”) and the operations of the BBH Group.
1.2In the alternative to 1.1 the audit workpapers and all other documents maintained by Price Waterhouse in respect of the audit by Price Waterhouse of BCHL and the BCHL Group for the financial year ended 30 June 1987 and any subsequent period or periods and concerning the following matters:
[There follows reference to a number of assets held or transactions entered into by SECL or members of the SECL Group during the financial year ended 30 June 1987 and their audit treatment by Price Waterhouse, which assets or transactions became the subject of further transactions in the financial year ended 30 June 1988, the audit treatment of which is subject to challenge in these proceedings, or the audit treatment of which assets for the year ended 30 June 1988 are also the subject of challenge. The list of matters also includes reference to letters of support issued by BCHL to various subsidiaries and to matters concerning the drafting and content of a certain letter from BCHL to Price Waterhouse dated 11 September 1987 and certain other audit practices of Price Waterhouse.]
2.     BCIL audit for 1987 and 1988
All audit workpapers and other documents maintained by Price Waterhouse in respect of the audit of [Bond Corporation International Ltd (BCIL)] and the BCIL Group in 1987 and 1988 concerning any dealings of the BCIL Group and/or the BCHL Group relating to the Rome Land, including (but not limited to) any interest of BCIL in the Rome Land and the accounting treatment in respect of the call option fee paid by BCIL to Bisley Options Management Limited (or an associated company) in, or around, December 1987.
....
4.Dallhold audits for the periods to June 1987, June 1988 and December 1988
The audit workpapers and all other documents maintained by Price Waterhouse in respect of Dallhold for the periods to 30 June 1987, 30 June 1988 and 30 December 1988 concerning the following matters:
(a)(i) the sale by Spring Street Developments to Inkberry Pty Ltd of the Emu Brewery Site, including any arrangements for the financing of such sale, and any other dealings with the Emu Brewery Site, including but not limited to the entry in May or June 1987 or at any other time into profit sharing agreements between Multiplex and/or its subsidiaries, BCHL and/or its subsidiaries and/or Dallhold, concerning the Emu Brewery Site and any put and/or call option agreements entered into in relation to the Emu Brewery site any proposals for the Emu Brewery Site; and the value of the Emu Brewery Site;
(ii)the 1988 sale of the Emu Brewery Site to the FAI Insurances Ltd subsidiary ‘United Body Works (Qld) Pty Ltd’ (“UB (Qld)”), and the profit recorded by each of Dallhold, BCHL and Bond Corporation Pty Ltd on that sale, and all associated arrangements including, the put and call option agreements in respect of the Emu Brewery Site entered into between UB (Qld) and the BCHL subsidiary ‘Actraint 84 Pty Ltd’;
(b)the value of the investment in Austmark held by Dallhold, including the value of assets held by the Austmark Group (including an interest held in the R & I Tower in Perth, and in any other property assets, and a $30m investment in preference shares in Hastings Finance Pty Ltd held through Puhugo Pty Ltd);
....
(g)the review by Price Waterhouse of the audit by Arthur Andersen of BCHL and the BCHL Group for the financial year ended 30 June 1988 (including but not limited to discussions with Arthur Andersen in the course of such review).
5.     Bond Media audits for the 1987 and 1988 financial years
The audit workpapers and all other documents maintained by Price Waterhouse in respect of the audit of Bond Media for the financial years ended 30 June 1988, and 30 June 1989 concerning the following matters:
(a)The loan of $100 million from Bond Media to Rothwells (funded in part by $66 million borrowed from Indosuez Australia Limited and $16 million from BCHL) and the recoverability of that loan, including any security for that loan, the assignment to Bond Media of the fee payable by Tryart Pty Ltd to Rothwells and the NSW Supreme Court proceedings to recover that fee (‘the Tryart litigation’), copies of the advice provided by Allen Allen & Hemsley to Bond Media dated 16 August 1988 and any other advices provided by Allen Allen & Hemsley or any other legal advisers to Bond Media or to BCHL concerning the Tryart litigation, and the 12 August 1988 letter from Rothwells to Price Waterhouse concerning repayment of $25 million of the $100 million loan;
(b)the Channel 9 acquisition, and all associated arrangements including the Bond Media Option; the value of the media licences held by Bond Media and its subsidiaries; and the Australian Broadcasting Tribunal inquiry into ‘issues relating to commercial radio and television licences owned by companies associated with Alan Bond’ and the impact of such inquiry on Bond Media and the value of the broadcasting licences held by Bond Media and its subsidiaries, and the risk that Bond Media might be forced to divest its media licences;
(c)discussions with Arthur Andersen as the auditors of BCHL and the BCHL Group in respect of the BCHL and BCHL Group audit, and in respect of the Bond Media audit and issues arising in those audits, and the review by Arthur Andersen of the Bond Media audit work;
6.     Kwinana Petrochemical Project
The valuation prepared by Price Waterhouse (Webb) in 1988 on the proposed petrochemical project at Kwinana, Western Australia.
7.     Dallhold Documents
(a)Audited financial statements of Dallhold for 1987, 1988 and 1989 financial years; and
(b)Minutes of meetings of directors of Dallhold for 1987, 1988 and 1989.
The relevant principles
Rule 60.01(3) requires the applicant to file a supporting affidavit “specifying the documents sought and their relevance to the proceedings....”. Rule 60.02(c) limits the Court’s power to the making of an order where the person against whom it is sought “appears likely to have or have had in his possession, custody or power, any document relevant to the proceedings....”.
It has been held by this Court that the test of relevance to the proceedings referred to in Rule 60 was not intended to provide a different test from that applicable to discovery of documents between parties to litigation. In District Council of Stirling v Casley‑Smith (1989) 50 SASR 297, Perry J said (at 305):
“In my opinion, the difference in wording between the present rule relating to discovery inter‑parties and the rule relating to discovery by a stranger to an action, should not be regarded as importing a different test or meaning. I see no reason why, if documents would be regarded as relevant and liable to production inter‑parties, the same documents should not be liable to be ordered to be produced out of the hands of a stranger to the action.”
At that time the obligation on parties to litigation was to give discovery of all documents “relating to any matter in question in the action”: Rule 58.01(1). 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: Compagnie Financière due Pacifique v Peruvian Guano Co (1882) 11 QBD 55. In other words the test of relevance to the proceedings was to be applied in no different manner from that then applicable to discovery between parties. That view was confirmed by Jacobs ACJ on appeal from Perry J in Casley-Smith v District Council of Stirling (1989) 51 SASR 447 at 448:
“In my opinion the narrow construction of r 60 for which the appellant contends should be rejected. That construction seeks to test ‘relevance’ solely by the test of ‘admissibility’. That construction in my opinion does violence both to the language and purpose of the rule. It is to be observed that the rule applies with the same effect to a person against whom the order is sought, whether or not proceedings have already been instituted, and whether or not that person is merely a ‘stranger’ to existing proceedings or is likely to be a party to proceedings yet to be commenced. ‘Relevance’ must have the same meaning in either case, and yet the appellants propose a test of ‘admissibility’ which, in the latter case, simply could not be applied until the issues are raised;....”
Since 3 June 2000, the obligation between parties to discover documents has become limited to documents “which are directly relevant to any issue arising on the pleadings”: Rule 58A.03. I discussed the effect of that change in Southern Equities Corporation Ltd (In liquidation) v Arthur Andersen & Co (No 5) [2001] SASC 335 at [4 ‑ 12]. I will not repeat what I then said. In my opinion, the approach taken in the two Casley-Smith Cases to which I have referred must continue to be applied and that the test now applicable to discovery between parties should be applied to non‑party discovery. To do otherwise would be productive of confusion and uncertainty, although it means that the provisions of Rule 60 must be given an ambulatory meaning.
I am not deterred in that view by the fact that Rule 58A.03 refers to documents “directly relevant to any issue arising on the pleadings”, and the difficulties which may arise on an application for non‑party discovery before action, when there are obviously no pleadings. It is not necessary to resolve such a difficulty now, but it will obviously require some flexibility in approach and in the identification, as far as possible, of the issues likely to be raised in any such intended proceedings.
The question remains in this case whether the documents of which discovery is sought are “directly relevant to any issue arising on the pleadings”. I reject the plaintiff’s submission that merely because the audit work of Price Waterhouse has not been pleaded into issue, documents which are or have been in their possession, custody or power are not directly relevant to an issue arising on the pleadings. However, it is necessary for the defendant to identify an issue raised on the pleadings to which documents which are or have been in the possession, custody or power of Price Waterhouse are said to be directly relevant in the sense discussed by me in Southern Equities Corporation v Arthur Andersen & Co (No 5) (supra).
On the basis of these preliminary observations it is quite clear that paragraph 1.1 of the defendant’s present application has no prospect of success. There are some 19 transactions or assets of SECL or the SECL Group, the audit treatment of which is under challenge in these proceedings. It is already apparent from documents tendered in the hearing so far, particularly Exhibit P67, the 1988 Annual Report of SECL and the SECL Group, that there are many hundreds if not thousands of other transactions which were the subject of audit by the defendant in the 1988 financial year, and a similar number which would have been the subject of the Price Waterhouse audit for the previous year. The defendant is quite unable to show that “all audit workpapers and other documents maintained by Price Waterhouse” in respect of its audit of SECL and the SECL Group for the financial year ended 30 June 1987 are relevant to an issue arising on the pleadings in this case. Even if the relevant issue arising on the pleadings, as asserted by the defendant, is whether the audit procedures and audit conclusions in respect of a number of aspects of the defendant’s audit were inadequate and not in accordance with the standard expected of a reasonable auditor in 1988, it cannot be the case that all the documents created or maintained by Price Waterhouse in respect of the whole of Price Waterhouse’s audit of the group for the previous year are relevant to that issue. That would include documents which have not the remotest connection with any of the transactions in question. The claim based on paragraph 1.1 of the defendant’s application must therefore fail on this ground alone.
Some further necessary history
Before turning to other aspects of the application and of the plaintiff’s defence of it, it is necessary to recite some further relevant history.
The prospect of applications for non-party discovery against Price Waterhouse and other parties was raised by the defendant during a management conference before Debelle J on 30 October 1996. At that time, however, the defendant was persuaded that a Rule 60 application directed to Price Waterhouse might not be necessary.
In the management conference of 30 October 1996, counsel for the plaintiff explained that in seeking documents from a number of third parties, including Price Waterhouse:
“We are going down the track of using 596B of the Corporations Law rather than Rule 60. It has been the plaintiff’s solicitors’ experience that in fact that is a quicker and more expeditious process than utilising Rule 60. …[W]e are quite happy to agree that as soon as those documents come into the possession of the liquidator via this means that the plaintiff is adopting, that we will discover.”
At the management conference, the defendant suggested that it might need to make other Rule 60 applications. However as regards Price Waterhouse, the defendant was content to abide by the alternative process which the plaintiff had intended to pursue. It was clear that the defendant did not expect discovery to be made by the plaintiff of all documents obtained by it under the processes of the Corporations Law. Defendant’s counsel said:
“I had in mind that my friends would go through all the documents to try to ascertain what documents they considered to be relevant.”
Counsel for the plaintiff replied:
“We would obviously only discover, as part of the 596B process, relevant documents. It is not a case of a blanket.”
Debelle J said to the plaintiff, during the course of the conference:
“[O]nce those documents are produced, it seems to me that you should make available copies of everything you receive. You might, as a matter of formal discovery, discover only that which is relevant, but at the moment it seems, on the face of it, that you should really discover everything you get, because if the defendant would take the view it is going to proceed under Rule 60, it would have got all that material anyway.”
Counsel for the plaintiff explained and his Honour continued:
“What we are doing, to fill you in, is providing copies to my friend of all of the orders which have been made and complete schedules of the documents which are being -
HIS HONOUR: Proceeding in that way, you tell them who you are seeking documents from, you give them lists of documents you seek, once you receive them, then, it seems to me, you arrange some time for an inspection process. Once you have decided between yourselves what is relevant, then the documents can be formally discovered and it may be as between you, you will accept an exchange of letters as sufficient discovery.”

I presume that the references by counsel to s 596B were taken to include a reference to s 596D, enabling a summons for examination of a person to include a requirement that the person produce specified books, which by definition (s 9) includes any document.
What is clear from the exchanges to which I have referred is that the parties had agreed that the plaintiff would follow the section 569B (or 569D) procedure rather than the defendant pursue non‑party discovery in respect of Price Waterhouse; that the mechanics of the process were not fully spelled out; that the Judge had made some suggestion but no order as to how it might occur; and that both parties acknowledged that the documents which the plaintiff might obtain by that process were more extensive than those which would properly be the subject of discovery in this action.
It is also clear that documents produced pursuant to a summons under Part 5.9, Division 1 of the Corporations Law are produced to the Court, not to the liquidator. With the Court’s permission, the liquidator may, of course, copy all or some of the documents so produced. The original documents remain at all times in the custody and power of the Court. When lawfully copied, the copies are in the possession and power of the liquidator, and then may be the subject of discovery in litigation to which the liquidator or the company in liquidation is a party.
At the time of the management conference before Debelle J, the plaintiff had, five days earlier, on 25 October 1996, obtained from Master Bowen Pain of this Court an order directing Price Waterhouse to produce a great many documents.
Master Bowen Pain ordered Price Waterhouse to produce:
(a)The audit workpaper, correspondence and any general files maintained in respect of the Bond Corporation Holdings Limited group for the financial years ended 30 June 1987 and 30 June 1988.
(b)The audit workpaper, correspondence and any general files maintained in respect of Dallhold Investments Pty Ltd for the financial years ended 30 June 1987 and 30 June 1988.
(c)The audit workpaper, correspondence and any general files maintained in respect of Bond Media Limited for the financial years ended 30 June 1987 and 30 June 1988.
(d)A listing of all the files maintained by Price Waterhouse in respect of the audit of the Bond Corporation Holdings Limited group for the years ended 30 June 1987 and 30 June 1988, the audit of Dallhold Investments Pty Ltd for the years ended 30 June 1987 and 30 June 1988, and the audit of Bond Media for the years ended 30 June 1987 and 30 June 1988.
(e)All documents relating to the resignation of Price Waterhouse as auditors of the Bond Corporation Holdings Limited group.
The plaintiff’s solicitor has said in recent correspondence (to which I will return later) that Price Waterhouse fully complied with the Master’s order. However it says the liquidator, having had the opportunity to peruse all the Price Waterhouse documents the subject of the order, elected to copy only some of them.
From the set of papers copied by the plaintiff some (but not all) of the documents were discovered by the plaintiff. They are listed in the plaintiff’s 20^th List of Documents dated 13 October 1997. They are described by Ms Jones, solicitor for the plaintiff, in her most recent affidavit as documents “relevant to this Action”.
In her affidavit Ms Jones asserts that, prior to the 20^th list being filed and served, the Price Waterhouse documents described in the list were inspected by Maxwell Bonnell of Mallesons Stephen Jacques, the defendant’s then solicitors, on or about 2 October 1997.
The affidavit of Ms Merrick, solicitor for the defendant, does not refer to this event. Rather Ms Merrick deposes that these “Price Waterhouse discovered documents” were inspected by the defendant’s solicitors in “early 1998.”
Ms Jones’ affidavit exhibits a copy of a file note supporting the proposition that the Price Waterhouse documents were inspected on 2 October 1997. It also includes a copy of a covering note of 28 October 1997 accompanying the despatch to the defendant’s solicitors of “5 boxes containing the photocopies of the Price Waterhouse documents requested by you.”
Whatever may have been the position concerning the defendant’s inspection of the Price Waterhouse documents, it appears from the affidavit of Ms Merrick that in “early 1998”, the defendant was aware that the discovered documents “seemed to be incomplete”. Yet this did not, apparently, prompt any action on behalf of the defendant until 3 February 2000.
In a letter from the defendant’s London solicitors of that date a number of questions were asked. They included:
“· Did Price Waterhouse produce to the Court, or to you, the entirety of the documents referred to in the Schedule to Master Bowen Pain’s order of October 1996?
….
·Have you discovered all documents produced by Price Waterhouse?
·If not, what criteria did you apply in determining what documents or categories of documents would not be discovered from those produced?”
The defendant’s solicitors also asserted that, on their view, all Price Waterhouse audit workpapers of the Bond group would be relevant at trial and should be discovered. They pointed out that discovery of those documents had been given before some quite substantial amendments to the defence. They concluded:
“We may need to pursue the production of further documents from Price Waterhouse. We will wish to gain access to all documents referred to in the Schedule to the Order referred to above. We also wish to obtain production of Price Waterhouse’s documents in respect of Dallhold Ltd and Bond Media Ltd for both the years ended 30 June 1987 and 30 June 1988. However before doing so, our client needs to understand the current position concerning documents obtained from Price Waterhouse and discovered in these proceedings to date. We wish to follow up this matter with Price Waterhouse without delay. Accordingly, we request an early response to this letter.”
The questions asked by the defendant’s solicitors could have been quite easily answered. The plaintiff’s reply of 4 February 2000 in relation to this issue was merely:
“The plaintiff has discovered all relevant material from the documents produced to the Liquidator by Price Waterhouse. No further discovery is required due to the amendments to the defence.”
After an unexplained delay of another 12 months the issue was raised again by the defendant’s solicitors, by letter of 29 January 2001. They requested that the plaintiff:
“1.provide us with a copy of the Summons filed and the Order obtained by your client for production of the 1987 Audit Work Papers.”
2.provide details of any arrangements that were made by your client and PriceWaterhouseCoopers concerning any limits on the scope production of the documents to your client; and
3.confirm that your client will provide full formal discovery of the 1987 Audit Work Papers forthwith.”
The plaintiff’s solicitors responded on 31 January 2001, asserting that a copy of the Master’s order of 25 October 1996 had been supplied to the defendant’s former solicitors at the time. They said:
“The plaintiff did not enter any arrangements with Price Waterhouse nor were any arrangements to limit the scope of production of documents entered with Price Waterhouse. To the extent that documents were obtained from Price Waterhouse, discovery has been provided long ago.”
On 2 March 2001, the defendant’s solicitors wrote once more to the plaintiff’s solicitors, confirming that they had a copy of the order, and pointing out that the plaintiff’s discovery did not contain a complete set of the materials referred to in the order. They gave particulars of the alleged omissions. They concluded:
“In your 31 January 2001 letter you have confirmed that no arrangements were entered into between the liquidator and Price Waterhouse to limit the scope of production of documents. We can only assume therefore, that Price Waterhouse complied with the order for production, but that the plaintiff has not discovered the entire set of materials produced by Price Waterhouse.
Would you please inform us whether the plaintiff has discovered the entirety of the material which was produced by Price Waterhouse pursuant to the s.596B orders. If the plaintiff has not, would you please inform us whether further discovery is to be given of Price Waterhouse materials, and if not, why not.”
Once again, the request was capable of a simple answer. The plaintiff’s solicitors responded on 5 March 2001, in the briefest possible terms:
“We confirm that the plaintiff has not discovered all documents produced by Price Waterhouse but only those which are relevant to these proceedings.”
A further letter from the defendant’s solicitors, on 23 April 2001, asked once more, concerning a number of third parties including Price Waterhouse:
“· so far as you are aware, did the relevant third party produce to the Court, or to the Liquidator, the entirety of the documents referred to in the respective Orders;
·if not, did the relevant third party produce a more limited selection of the documents pursuant to an agreement with the liquidator;
·if such an agreement was reached, what were the terms of the agreement and what documents or types of documents were included, and conversely excluded, from production;
·has your client discovered all documents produced by the relevant third party....”
The plaintiff’s solicitor’s response of 27 April 2001, was consistently curt:
“....
3.As stated in our letter dated 1 February 2001, all relevant documents produced pursuant to the 596B Orders have been discovered in this action by the plaintiff.
4.No arrangements or agreements were made to limit the scope of production of documents pursuant to the 596B Orders.”
A further letter on the same subject came from the defendant’s solicitors, on 6 June 2001, asking again (so far as is relevant):
“(a)Insofar as you are aware, did the relevant third party produce to the Court, or to the Liquidator the entirety of the documents referred to in the respective Orders?
(b)has the scope of your client’s discovery of documents obtained from third parties (rather than the scope of the s596B Orders obtained) been revisited subsequent to the Court granting the Defendant leave to amend the Defence? and
(c)to the extent that you do not consider that documents produced by third parties are relevant, please confirm whether those documents have been retained by your client or whether they have been returned to the relevant third party.”
This time on 3 July 2001, the plaintiff’s solicitors relevantly responded:
“In relation to the questions…. we respond as follows:
(a) Yes
(b) No
(c)In some instances the Liquidator has retained copies of documents potentially relevant to other aspects of his administration.”
On 21 August 2001, the defendant’s solicitors again wrote:
“[I]n our view, all the PW audit work papers for SECL and the SECL group for the 1987 and 1988 audits are relevant; as are the Dallhold 1987 and 1988 audit papers, and the Bond Media 1988 audit work papers. … We understand that Price Waterhouse produced to you all such documents pursuant to a s.596B order. … We remain of the view that all such documents should be discovered.”
They also proffered what they considered to be justification for the wider discovery.
The plaintiff’s solicitors responded, relevantly, on 23 August 2001:
“· To the extent that any documents obtained from Price Waterhouse pursuant to section 596 orders are relevant, discovery has been provided of those documents. Discovery was provided by the plaintiff’s 20^th list dated 13 October 1997.
·In addition to discovery of copy documents obtained by SECL directly from Price Waterhouse (source 87), discovery has also been made by SECL of copies of documents provided to the Australian Securities Commission in the course of the Sulan Inquiry by Price Waterhouse (source 29). Discovery of these documents was also provided by the plaintiff’s 20^th list dated 13 October 1997. We suggest that a review of these documents may assist you in the queries that you raise.
·Our client does not have and never has had a complete set of Price Waterhouse audit workpapers for Dallhold, SECL and the SECL group, and Bond Media for the 1987 and 1988 years.
·Your client has at all times been able to make an application pursuant to Rule 60 for discovery by Price Waterhouse. For reasons known only to yourselves, your client has not done so despite asserting the inadequacy of the plaintiff’s discovery of documents sourced from Price Waterhouse from as early as 3 February 2000.”
And on 24 August 2001:
“We reject the assertion that you have been misled in any way. Our response in relation to the relevance and discoverability of copies of Price Waterhouse documents has been consistently stated. That you have chosen not to exercise the defendant’s rights under Rule 60 since discovery was made by the plaintiff in October 1997 is a circumstance entirely of the defendant’s own making.
It does not follow from the fact of production of documents by Price Waterhouse to the Court that copies were taken by our client of all of the files produced. To the extent that you have assumed otherwise, that assumption was inappropriate.
We confirm that our client holds copies of documents provided by Price Waterhouse which are not relevant to this matter and in respect of which it has no discovery obligations.”
It only remains to note that the defendant, on 10 May 2001, made an application for further and better discovery by the plaintiff of documents which included PriceWaterhouse audit papers for the audits of Dallhold, SECL, the SECL Group and Bond Media Ltd for the years ended 30 June 1987, 31 December 1987, 30 June 1988 and 31 December 1988. By order dated 21 September 2001 I dismissed the application for reasons then published: [2001] SASC 335. I dealt with that part of the application at paragraphs [28] ‑ [30]. The basis of rejection of that part of the application was that the defendant had not shown that the plaintiff had in his custody power or possession any documents additional to those of which discovery had already been given which were directly relevant to any issue arising on the pleadings.
It should also be mentioned that between February 1997 and December 1998 the defendant made in excess of 35 applications for non‑party discovery, most of which were granted. They included an order for discovery against Dallhold made on 30 June 1997 and an order, on the application of the defendant, that the Australian Securities Commission make available for inspection to both parties a large number of documents relating to its investigation into the affairs of the plaintiff and associated entities following the collapse of the Bond group of companies.
I have set out only the essential parts of the correspondence concerning this issue. As I observed in the course of argument, the correspondence reflects no credit on the solicitors for either party in the conduct of this aspect of the litigation. Much of the correspondence, particularly on behalf of the plaintiff, is acrimonious, verging on the belligerent. Generally, the correspondence reflects little attempt to identify, let alone to get to the heart of, the several important interlocutory issues confronting the parties.
The days have long since gone in this Court where there is any reason for civil litigation at the interlocutory stage to be conducted as tactical warfare designed to obfuscate and conceal real issues and to frustrate and to cause tactical disadvantage to an opponent. Litigation, especially commercial litigation, should be conducted in a manner which promotes and facilitates ready identification of points at issue and the means of resolving them in a timely, efficient and economical manner. Regrettably, that has not been the case in this litigation, at least in the aspect of it with which I am now concerned.
On the part of the defendant, the correspondence reveals an extraordinary and unexplained delay of more than three years of bringing the matter to a head, and then on the eve of the commencement of the trial. It shows, in the early stages, an incomplete understanding of the true status of the documents produced under compulsion of the Corporations Law. It shows a failure to act on the concession of the defendant’s own counsel before Debelle J that not all documents produced to the Court and inspected by the liquidator would properly be discoverable by the plaintiff. It shows a failure of those responsible for drafting the letters to the plaintiff’s solicitors properly to review the previous relevant actions of themselves and of the defendant’s previous solicitors. All this led to a failure to ask the right questions of the plaintiff in a timely fashion.
But the fault is not all that of the defendant’s solicitors. The plaintiff’s solicitors did nothing to assist the resolution of the defendant’s continuing dilemma. At an early stage, with no disadvantage to their client’s case, they could have pointed out that Price Waterhouse had, so far as they could ascertain, complied with the Court’s order to produce documents; that the liquidator had not copied all the documents produced by Price Waterhouse to the Court; that they had not given discovery of all documents copied, and could have stated quite simply the reasons, thus avoiding accusations of incomplete discovery, or at least of having them resolved in a timely fashion. Instead, they either misled the defendant or failed, at an early stage, to correct obvious misconceptions that the plaintiff had possession of a complete set of the Price Waterhouse documents produced to the Court, that there may have been some default by Price Waterhouse in compliance with the Master’s order and that the plaintiff’s discovery was in some way incomplete.
Although these events have no bearing on whether it can be shown that PricewaterhouseCoopers may have in their possession documents directly relevant to any issue arising on the pleadings, they do have some bearing on questions of delay and other discretionary considerations.
Relevance to an issue arising on the pleadings
I think it is no over‑simplification of the defendant’s argument that it sought to justify paragraph 1.1 of its application and most of the particularised requests by reference to the plaintiff’s plea that, in respect of all the audit failures alleged against the defendant, the defendant’s audit work and conclusions were either not in accordance with the applicable legislation or audit standards, or were not in accordance with the standard to be expected of a reasonable auditor in 1988. Of course, there are different ways in which it is alleged that such failures occurred and how they arose. They include recognition of allegedly non‑existent profits, the accounting treatment and the effect of sales of assets, the carrying value of assets, audit independence and a range of other issues. But in each case it is alleged that there was a failure of the type identified.
In those circumstances, it is argued that evidence of what Price Waterhouse did, as a firm of reputable auditors, and their audit approach in 1987 for the same group of companies provides contemporary evidence of the practice and approach of an auditor to the type of issues the subject of the present proceedings.
Mr Sullivan QC, for the defendant, cited a number of examples by reference to the details in paragraph 1.2 of the application and subsequent paragraphs, where the transaction or carrying value in question had its origin in events the subject of Price Waterhouse’s audit for the financial year ended 30 June 1987, and where the defendant’s alleged lack of independence had its parallel in situations confronting Price Waterhouse in 1987. He referred to parts of the plaintiff’s opening and intended experts’ reports where the plaintiff has indicated its reliance on the difference in audit approach of the two firms as evidence of the breach of duty of the defendant. He pointed to passages where the plaintiff has criticised the defendant for relying on the audit treatment of Price Waterhouse for the previous year. For those reasons, he submitted, the Price Waterhouse audit papers for 1987 of SECL and the SECL Group were directly relevant to an issue arising on the pleadings.

I reject that submission. In the first place, whether a document is discoverable is not going to be determined by what the plaintiff says in opening or what it is expected that one of the plaintiff’s experts may say in evidence. The primary consideration is whether the documents are directly relevant to an issue arising on the pleadings.
What is under scrutiny is the audit work of the defendant in respect of the financial year ended 30 June 1988 and in respect of certain post balance date events. What is not under scrutiny is the audit work of Price Waterhouse for the previous or any other year or in respect of any other company. The Price Waterhouse audits may or may not have been prepared negligently. I am not concerned with that. But once the Price Waterhouse audits, albeit in similar circumstances and of the same companies, is placed in issue as a standard by which the defendant’s audit might be judged, it immediately invites analysis of the competence or otherwise of the Price Waterhouse audits, and an inevitable inquiry into the relevant facts and circumstances giving rise to those audit opinions in respect of a particular transaction or state of affairs. We would then have a trial within a trial, the subject of which would be the competence of the Price Waterhouse audit.
In relation to each challenge to the defendant’s audit, what is under scrutiny in this case is the actual or presumed state of knowledge of the defendant of a great many and detailed circumstances relating to a particular transaction or state of affairs as those circumstances stood at 30 June 1988, or in some cases shortly after that date, and the validity of the defendant’s audit treatment of that transaction or state of affairs. Even if the audit in 1988 relates to the same transaction or state of affairs as pertained in 1987, it is inevitable that the circumstances in which the audits were conducted in 1988 will not be identical with the circumstances which may have been relevant at the end of June 1987. Different factors will be brought to bear on the state of knowledge of the defendants and on the inquiries that they made or failed to make. Thus, what one auditor did in 1987 can have no relevant bearing, for the purpose relied on, on what another auditor did in respect of the same transaction in 1988. As Lucas CJ said in the Californian Supreme Court in Bily v Arthur Young & Co (1992) 834 P 2d 745 at 763, cited with approval by McHugh J in Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241 at 283 ‑ 284:
“[A]n audit report is not a simple statement of verifiable fact that, like the weight of [a] load of beans..., can be easily checked against uniform standards of indisputable accuracy. Rather, an audit report is a professional opinion based on numerous and complex factors. ...[T]he report is based on the auditor’s interpretation and application of hundreds of professional standards, many of which are broadly phrased and readily subject to different constructions. Although ultimately expressed in shorthand form, the report is the final product of a complex process involving discretion and judgment on the part of the auditor at every stage.”
The numerous complex factors referred to will inevitably vary from year to year as other events unfold and as different inquiries and disclosures are made. The various stages at which the discretion and judgment of an auditor are exercised and the effects of the exercise of that discretion and judgment will inevitably create different situations against which the ultimate opinion must be judged. The circumstances can never be the same from one audit to another.
In most cases, however, the challenge to the defendant’s audit treatment of the relevant transactions and situations concerns transactions and situations which occurred or which were subsequently affected by events which happened in the 1988 financial year, thus rendering the Price Waterhouse treatment of the earlier events comprising the transaction or affecting the situation of even less relevance.
Whether the defendant was in breach of its duty to the plaintiff will not depend on what another particular auditor did in possibly similar but never identical circumstances. It will be for the Court to determine, with the assistance of the evidence of appropriately qualified expert witnesses led before it, what the appropriate standard of audit practice should have been in the circumstances, and whether, in the circumstances which then prevailed, that standard was breached by the defendant.
For these reasons the documents for which discovery is sought by the defendant cannot be directly relevant to an issue arising on the pleadings.
Other reasons to reject the application
There are, however, other reasons why I would reject the defendant’s present application. So far as the Price Waterhouse documents concerning its audit of SECL and SECL Group are concerned, the defendant has had discovery from the plaintiff of all Price Waterhouse documents which the plaintiff’s advisers consider to be directly relevant to an issue arising on the pleadings. Indeed, they have probably had inspection of a greater number of documents than would be the case if such discovery were being given now. That is because, at the time when discovery of these documents was given, Rule 58.01 applied, and the obligation to give discovery was based on the requirements of the Peruvian Guano Case (supra). Such is not the case now.
As I have already decided in Southern Equities Corporation Ltd (In Liquidation) v Arthur Andersen & Co (No 5) [2001] SASC 335, given the strict professional obligation on the plaintiff’s solicitors to ensure complete discovery, nothing has been put to me, apart from the relevance argument, to suggest that the plaintiff’s discovery of the Price Waterhouse documents is inadequate.
The plaintiff’s obligation to give discovery extended to all relevant documents, copies of which the liquidator obtained as the result of the order of Master Bowen Pain. There is nothing to suggest that that order was not complied with. The documents required to be produced under that order included audit papers and files of Price Waterhouse not only in respect of SECL and the SECL Group but in respect of Dallhold and Bond Media Ltd for the financial year ending June 1987 and June 1988.
Insofar as the defendant now seeks to have discovery of Price Waterhouse documents relating to particular aspects of its audit of Dallhold (paragraphs 4 and 7) and Bond Media Ltd (paragraph 5), I repeat what I have just said. Furthermore, I note that the defendant has already sought and obtained an order for non‑party discovery in these proceedings against Dallhold. There is no complaint that that discovery was incomplete or inadequate. In particular, that must have a significant influence against the exercise of the Court’s discretion in respect of paragraph 7 of the application, and to a large extent in respect of paragraph 4.
There is no complaint that the liquidator’s discovery of documents of SECL or the SECL Group, and in particular of documents concerning Bond Media Ltd, which became a subsidiary of SECL in the financial year ended June 1988, has been incomplete or inadequate. That must have a significant influence on the exercise of the Court’s discretion in respect of paragraph 5.
The defendant supports its application for discovery of the Price Waterhouse documents in respect of some of the transactions by reference to allegations of fraud or concealment of material facts from the defendant, being facts which existed during the period of Price Waterhouse’s audit, and which might have come to their attention. In some cases, it argues that Price Waterhouse audit workpapers are relevant to the plaintiff’s knowledge of the true financial position of SECL and the SECL Group, rather than that disclosed in the accounts audited by the defendant. In other words, it is suggested that documents were in the possession of Price Waterhouse which might possibly throw some light on the truth or otherwise of some of the allegations pleaded by the defendant.
It is not a material part of the plea that any relevant information was given to or withheld from Price Waterhouse. That would obviously give rise to a proper application for non‑party discovery against Price Waterhouse. It is not a material part of the plea that, by virtue of any information given or held by Price Waterhouse, the directors of SECL were aware of the group’s true financial position.
The defendant has had discovery of the plaintiff’s documents and of all relevant subsidiaries. It has sought and obtained non‑party discovery orders against all relevant companies which were not subsidiaries. Any complaints it might have had about the adequacy of any of that discovery have either not been made or have been resolved. The basis on which the defendant now seeks discovery of all the documents the subject of the application appears in Ms Merrick’s affidavit:
(a)they will or may reveal information concerning elements or aspects of transactions considered by the defendant during the course of the 1988 audit or otherwise the subject of these proceedings;
(b)they will or may reveal information concerning the plaintiff’s knowledge of transactions or elements or transactions considered by the defendant during the course of the 1988 audit or otherwise the subject of these proceedings, and/or the appropriate accounting treatment for such transactions and/or the reliability of the 1988 BCHL and BCHL Group accounts;
(c)they will or may contain material which was or should have been available to the defendant during the course of the 1988 audit; and
(d)they will or may reveal the relatively contemporaneous view taken by another auditor of transactions considered by the defendant during the course of the 1988 audit.”
Whether or not there are or have been documents held by Price Waterhouse which might be relevant to the various pleas of the defendant referred to above is, at this late stage, no more than speculation. No‑one has deposed to a belief that such documents exist. This aspect of the defendant’s claim, in those circumstances, is no more than fishing - trying to see if something might turn up which would assist the defendant’s case or destroy the plaintiff’s case, or “seeking to find whether anything exists and.... speculating as to its possible existence”: Santos Ltd v Pipelines Authority of SA (1996) 66 SASR 38 per Debelle J at 57.
When there is added to all these additional factors extraordinary delay in bringing this application and the almost inevitable disruption to the present trial that will occur if discovery and inspection on the scale presently sought is given, I have no hesitation in dismissing the application on these additional grounds.
Conclusion
The defendant’s application for non‑party discovery against PricewaterhouseCoopers is dismissed. I will hear the parties and PricewaterhouseCoopers on the question of costs of the application.

[2002] SASC 20

31 January 2002