Springfield Nominees Pty Ltd v Bridgelands Securities Ltd

[1992] FCA 720

Re: SPRINGFIELD NOMINEES PTY LTD; LIGON SEVENTY ONE PTY LTD; DONALD IVOR
ALEXANDER FRASER; ANNE PATRICIA FRASER AND OTHERS
And: BRIDGELANDS SECURITIES LTD; JOHN HYLA PRESTON; ESTATE MORTGAGE MANAGERS
LTD; ESTATE MORTGAGE FINANCIAL SERVICES LTD AND OTHERS
No. N G235 of 1991
FED No. 720
Practice
(1992) 110 ALR 685
(1992) 38 FCR 217

COURT

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Wilcox J.(1)

CATCHWORDS

Practice - Application for leave to use in subsequent proceeding a witness statement filed in an earlier proceeding pursuant to a Court direction - Whether leave necessary - Circumstances under which leave should be granted - Content of the test "special circumstances" - Factors pointing to leave in the instant case - Costs.

HEARING

SYDNEY

#DATE 22:9:1992

Counsel for Hongkong Bank of
Australia Limited: A.J.L. Bannon

Solcitors for Hongkong Bank of
Australia Limited: Allen Allen and Hemsley

Counsel for Aetna Pacific
Securities Limited: J.B. Simpkins

Solicitors for Aetna Pacific
Securities Limited: Philips Fox

JUDGE1

This action was instituted in the Supreme Court of New South Wales on 31 October 1990. In May 1991 Rogers J of that Court transferred the proceeding to this Court pursuant to the cross-vesting legislation, the reason being that related actions against the same respondents were pending in this Court. In July 1991 all the actions were settled. On 15 July I made consent orders disposing of this proceeding. On the same day the respondents discontinued cross-claims against eight persons. The costs of one party were subsequently taxed. The whole matter appeared complete. It has recently been revived, not by any of the original parties and not in relation to matters originally in issue, but in connection with the use of a document created for the purposes of the earlier litigation.

1. In the original proceeding the applicants, Springfield Nominees Pty Limited and others, complained of the conduct of the respondents, Bridgelands Securities Limited ("Bridgelands") and John Hyla Preston, in relation to prospective investments by the applicants in the Estate Mortgage trusts. Bridgelands was an investment adviser controlled by Mr Preston.

2. Whilst the matter was still before the Supreme Court, on 12 March 1991, Mr Preston made a statement setting out the evidence he proposed to give in defence of the claim. This was done pursuant to a direction for witnesses' statements to be exchanged before trial. Had the matter come to trial, it is likely that the statement would have been tendered as an exhibit in open court and, in that way, entered the public domain. As the matter was settled, this did not occur.

3. On 27 July 1992, over twelve months after the disposal of the principal proceeding, a notice of motion was filed by a stranger to the original action, Hongkong Bank of Australia Limited ("Hongkong Bank"). Three respondents were named, Mr Preston, Bridgelands and Aetna Pacific Securities Limited ("Aetna"). The principal order was stated as follows:
   

"That leave be granted to Hongkong Bank of Australia Limited to use the Statement of John Hyla Preston dated 12 March 1991 in and in relation to the conduct of Supreme Court Proceedings No. 50586 of 1991."

1. It appears from the evidence adduced in support of the notice of motion that there is an action pending in the Supreme Court of New South Wales (no. 50586 of 1991) wherein Aetna sues Hongkong Bank to recover the sum of $53,434,200 together with interest. According to the particulars stated in the originating Summons, between April 1988 and April 1990 Aetna drew cheques, made payable to Burns Philp Trustee Co Limited or bearer and crossed "not negotiable", in support of applications to purchase units in the Estate Mortgage trusts. Burns Philp was the trustee of the Estate Mortgage trusts. Aetna claims that the cheques were presented for payment by Estate Mortgage Financial Services Limited and that Hongkong Bank collected each cheque and credited its value to the account of that company, not the named payee. On these facts, Aetna claims that the cheques were wrongfully converted by the bank; or, alternatively, that the proceeds are recoverable by it as monies had and received. The Defence filed by Hongkong Bank raises numerous issues, some of which depend on the course of transactions between the parties and their associates.

2. A copy of Mr Preston's statement of 12 March 1991 came to the attention of Hongkong Bank's solicitors. According to an affidavit sworn by one of them, the statement included an account of Mr Preston's association with investments in the Estate Mortgage trusts. It seems that Mr Preston was responsible for the day-to-day management of Aetna from May 1988, when Aetna purchased his stockbroking business, until May 1989 when he resigned from Aetna and became a director of Bridgelands. The statement indicates that, during that twelve-month period, Mr Preston had substantial contact with persons associated with the various Estate Mortgage companies.

3. When they read the statement, the solicitors for Hongkong Bank considered it might be helpful to their defence of the action brought by Aetna. They contacted the solicitors for Mr Preston seeking permission to use the statement in the Aetna-Hongkong Bank litigation. Permission was refused. Mr Preston's solicitor said that his client "could be cross-examined on it" and "this entire Estate Mortgage thing has been very traumatic for him. He wants to stay out of it".

4. Following Mr Preston's refusal of permission, this motion was filed. The applicant's advisers took the view that notice ought to be given to the parties on whose behalf the statement was originally prepared, Mr Preston and Bridgelands, as well as the party against whom it might now be used, Aetna. Accordingly, these three persons were made respondents and served. Neither Mr Preston nor Bridgelands appeared to contest the order sought. Aetna did.

5. When the application first came before the Court, counsel for Aetna submitted that the fact that strangers to the earlier litigation had possession of the statement suggested that they (Hongkong Bank and/or their solicitors) had committed a contempt of court. Counsel submitted that I ought to require an explanation of that possession before dealing with the merits of the motion. Counsel for Hongkong Bank replied by denying any improper conduct. Without conceding the need to do so, he volunteered to procure evidence concerning the provenance of the statement. The hearing was adjourned for two weeks to allow further affidavits to be filed.

6. The further affidavits reveal that the statement was amongst documents delivered to Robin Ramsay, the liquidator of Estate Mortgage Financial Services. That company was a cross-respondent in the original litigation and entitled to have the statement. In October 1991, shortly after the institution of the Aetna proceeding, Matthew King, a legal adviser employed by Hongkong Bank, spoke to Mr Ramsay seeking information. Mr Ramsay gave him a copy of the statement. Mr King passed this on to his company's solicitors. The solicitors referred the statement to counsel. Counsel advised that there may be a difficulty in using the statement if it had not previously been tendered or read in open Court. Accordingly, the solicitors set about seeking consent to its use.

7. When this evidence was read, counsel for Aetna did not press the suggestion that there had been a contempt of court. I think his reaction was correct. Hongkong Bank and its solicitors received the document from the liquidator. They appreciated a possible restriction on its use. Far from ignoring that restriction, they took steps to obtain removal of the restriction, either from the author of the statement or the Court. So far as Mr Ramsay is concerned, he knew the statement was filed in the Supreme Court. He believed, therefore, that it was a document available to Mr King. On that basis, he saw no harm in giving him a copy. It is not necessary to deal with the correctness of Mr Ramsay's belief that the statement could be made available to Mr King. Mr Ramsay clearly had no intention of flouting any restriction on its use.

8. I have not read the statement but it is clear from the summary in the affidavit that it involves matters likely to arise in the Aetna-Hongkong Bank litigation. During 12 out of the 24 months with which that litigation was concerned, Mr Preston apparently controlled Aetna's investments. At least during that period, it would seem proper to attribute to Aetna his knowledge of the structure of the Estates Mortgage companies, a subject dealt with in the statement. Mr Preston is apparently unwilling to assist Hongkong Bank in relation to the Aetna claim. He may or may not assist Aetna. If he does, he may be called by Aetna as a witness, in which case the statement would be useful in constructing cross-examination. Counsel for Hongkong Bank mentioned the possibility of calling Mr Preston, using the statement as his evidence in chief. Whether that course will eventually commend itself, I do not know. But, even if Mr Preston is not called by either party, it is possible that the statement will prove useful in opening up avenues of inquiry. Without wishing to predict the most likely form of use, I think it probable that the statement will assist Hongkong Bank in relation to the Aetna claim. No doubt that is why Aetna opposes the order now sought.

9. Before turning to the merits of the matters advanced by counsel in relation to the orders, I should say that I do not see any difficulty about the fact that the statement was compiled pursuant to a direction of the Supreme Court, rather than this Court, and originally filed in the Supreme Court. The effect of the transfer order made by Rogers J was to commit the future conduct of all aspects of the matter to this Court. Section 11(3) of the Jurisdiction of Courts (Cross-vesting) Act 1987 requires a transferee court to "deal with the proceeding as if, subject to any order of the transferee court, the steps that had been taken for the purposes of the proceeding in the transferor court (including the making of an order), or similar steps, had been taken in the transferee court". For this purpose the transferee court has all necessary jurisdiction: see s.4(3). The concept behind the legislation is that, as nearly as is possible, the position be the same as if the proceeding was instituted in the transferee court. Consistently with that concept, I can and should approach the present question on the same basis as if the statement had been filed in this Court pursuant to a direction made by a member of this Court.

10. Turning to the merits of the matter, counsel for Aetna contends that there exists a fundamental principle that a document created as a result of the exercise of the coercive powers of a court is entitled to confidentiality. Counsel says that the document may only be used for the purposes for which it was created, except where contrary leave is granted; and leave should only be granted in special circumstances. He says that the evidence does not disclose special circumstances in this case.

11. In support of those submissions counsel cites a number of authorities. The earliest of them is Home Office v Harman (1983) AC 280. That case involved a complaint of contempt of court against a solicitor who made available to a journalist documents which had been produced on discovery by the opposing party. The House of Lords divided on the question whether there was a contempt, the reason for the division being that the relevant documents were read in open court by counsel between the time they were delivered into the solicitor's possession and the time when she showed them to the journalist. The majority (Lord Diplock, Lord Keith of Kinkel and Lord Roskill) held this made no difference. Lord Simon of Glaisdale and Lord Scarman thought it did. But all their Lordships agreed that there was a principle of law that an order for discovery is subject to an implied undertaking by the solicitor obtaining that order not to use or allow the documents, or copies of them, to be used for any collateral or ulterior purpose; that is, otherwise than for the purposes of the litigation in which discovery is given.

12. (It is interesting to note that, by a circuitous route, the Harman minority view ultimately prevailed. After she lost in the House of Lords, Ms Harman took the matter to the European Commission of Human Rights. Before the Commission a settlement was reached whereby the United Kingdom government undertook to change the relevant law so as to make the undertaking inoperative after the document was read out in open court unless the judge made an order restricting its disclosure to the parties to the action. The change was effected by a new rule of court: see Bibby Bulk Carriers Ltd v Cansulex Ltd (1989) 1 QB 155 at 158-159).

13. The general principle applied in Harman was re-affirmed in Crest Homes PLC v Marks (1987) 1 AC 829. That case concerned the use, in contempt proceedings, of documents discovered in connection with an Anton Piller order, the allegation being that these documents should have been produced in response to an earlier Anton Piller order. In re-affirming Harman Lord Oliver of Aylmerton, with whom the other members of the House agreed, said at 854 that the implied undertaking "applies not merely to the documents discovered themselves but also to information derived from those documents whether it be embodied in a copy or stored in the mind". But he added that "the implied undertaking is one which is given to the court ordering discovery and it is clear and is not disputed by the appellants that it can, in appropriate circumstances, be relieved or modified by the court". At 860 Lord Oliver referred to a general principle "that the court will not release or modify the implied undertaking given on discovery save in special circumstances and where the release or modification will not occasion injustice to the person giving discovery".

14. The principles relating to discovery were applied to answers to interrogatories in Ainsworth v Hanrahan (1991) 25 NSWLR 155. Kirby P, with whom Samuels and Handley J.J.A agreed on this point, referred not only to the close historical relationship between discovery and compulsory interrogatories but also privacy principles concerning the collection and dissemination of personal data. His Honour did not suggest that all information in discovered documents and answers to interrogatories falls within the category of personal data. And he did acknowledge the presence of counteracting considerations. Amongst those considerations was the distinction between pre-existing documents, the subject of discovery, and answers to interrogatories produced in the course of the instant litigation.
    

"The latter are provided under oath or affirmation. The deponent must necessarily contemplate their possible use, at least in the litigation for which they are secured. And the very provision of the oath or affirmation ensures that, ordinarily, the deponent will have thought carefully and seriously about what is said. Such will not necessarily be the case in business or commercial documents. The risks of private, hurtful, extraneous or secret information being given in answer to interrogatories is considerably reduced when compared to the risk that discovery will produce to the public eye material which is private or confidential to the holder of the document. There is much greater opportunity ex post to control the supply of information than in document produced without a moment's thought to its subsequent public disclosure;"

See at 167.

1. Nonetheless Kirby P thought the same undertaking should apply to both discovery and interrogatories. He said at 168:
   

"The history and characteristics of each are not sufficiently distinguishable to permit the principled adoption of a different rule: ... Furthermore, the general privacy rule is one which should be respected. That rule can be applied without injustice in the case of the use of answers to interrogatories. It is always open to a party wishing to secure the use of such answers for other purposes to seek the permission of the court in whose process the answers have been given under compulsion. Once the answers are tendered or read in open court, ... the liability in contempt for their later use will evaporate: ... In many cases, if approached, the deponent to answers to interrogatories would probably consent to the use of the answers because other means of proving them may, in any case, be available to the party seeking to have their use. But if the deponent does not, the interposition of the court's power to absolve a party of the implied undertaking not to use the answers and to permit such use will permit a just balancing of the competing claim to privacy (on the one hand) and access to information (on the other). It is said in Simpson, Bailey and Evans ("Discovery and Interrogatories", 2nd ed (1990), Butterworths, at 79) that permission will rarely be given by the courts. This need not be so, including for some of the considerations which I have listed suggesting the need, on occasion, to relax an overly rigid application of the rule."

1. In reaching his conclusions Kirby P referred to a decision directly relevant to this case. In Central Queensland Cement Pty Ltd v Hardy (1989) 2 Qd R 509 McPherson J was asked to restrain the publication of a witness statement prepared and delivered pursuant to a Court direction. The proceeding related to a controversial matter which had attracted publicity. There was evidence suggesting a copy of the statement had been passed on to journalists and was being used in connection with media items. The party who delivered the statement sought an injunction restraining its opponent and two named individuals from using or permitting the use of the statement for any collateral or improper purpose. McPherson J observed at 510 that the claim was founded "on the analogy with the use of a document produced on discovery in an action". The respondents argued that the rules relating to discovery should not be applied to witness statements. McPherson J disagreed. He thought the underlying principle plain enough: "It is that a document furnished for use for one purpose may not legitimately be used for another"; see at 510. In a foretaste of Ainsworth he went on:
   

"I am therefore in no doubt that the undertaking applies equally to the witness statement by Mr Town as it would to any other document produced by one side to the other for the purpose of litigation. Indeed, one can very well see how it would apply with equal force to the answer or answers to interrogatories delivered in an action, that being a form of compulsory disclosure commonly resorted to in proceedings in this Court. I cannot see any distinction in nature or substance between such an answer and the present witness statement of Mr Town. At one time, of course, the practice in equity was such that the answers to interrogatories were the only form of evidence used in those proceedings. One has only to look at the Practice Direction and use the experience that all of us have in trying actions in the commercial causes jurisdiction to realise that these procedures are available and are intended for use only for the purpose of properly conducting the litigation, and for no other."

1. I respectfully agree with McPherson J. In addition to the points made by his Honour I add that a witness statement fulfils a function very similar to that of an affidavit or an admission of facts. In this Court there is a rule (Order 46 rule 6) limiting the documents on Court files which may be inspected without leave of the Court or a Judge. They include affidavits, interrogatories and answers to interrogatories, lists of documents given on discovery and admissions. All are documents brought into existence for the purpose of the instant litigation which may contain confidential or personal information and which may, or may not, ultimately be read in open court. There is every reason for subjecting their use to the same constraints. Conformably with Central Queensland Cement and the position of both the present parties, I hold that the statement of Mr Preston may not be used by Hongkong Bank in its defence to the Aetna proceeding without his consent or leave of the Court.

1. It will be recalled that in Crest Lord Oliver spoke of the need for "special circumstances" if leave was to be granted. Burchett J discussed this requirement in Holpitt Pty Ltd v Varimu Pty Limited (1991) 29 FCR 576 at 578-579. His Honour pointed out that the question in Crest was whether leave ought to be granted to use the discovered documents in contempt proceedings. He commented at 578 that, "(i)n those circumstances, it is easy to understand why it may have been thought the reasons required to be cogent and persuasive". He went on:
   

"As far as the expression 'special circumstances' is concerned, it is an expression which is liable to be misunderstood unless care is taken to ask and answer the question, special in relation to what? 'Special" is one of those words which derive almost all their meaning from the context. ... If all that is required is that, among the great number of cases in the court in which documents have been discovered, this one must evince some special feature which affords a reason for releasing or modifying the undertaking, there will be no difficulty. Circumstances in which there is a legitimate reason why documents discovered in one proceeding should be made available in another will, viewed in this way, be rare. In the ordinary course, the ordinary rule should apply, there being no special circumstance to suggest otherwise. Cf Jess v Scott

(1986) 12 FCR 187, where the Full Court was concerned with the construction of O.52, r.15(2), by which leave to file an appeal out of time could be granted 'for special reasons'. The joint judgment described (at 195) the expression 'special reasons' in this rule as: 'an expression describing a flexible discretionary power, but one requiring a case to be made upon grounds sufficient to justify a departure, in the particular circumstances, from the ordinary rule prescribing a period within which an appeal must be filed and served.'

Of course, if Lord Oliver should be taken to have required the circumstances to be special, not in relation to all the various circumstances of the actions in which the relevant implied obligation has arisen, but in relation to the very small number of cases in which a reason appears why the undertaking might be relaxed, the discretion of the court would be entangled in a rule of quite uncertain import. I do not know on what footing one would say that a particular circumstance among these relatively rare circumstances would be 'special' and another not. I do not think his Lordship intended to fetter the court's discretion in this way. I think he was using the words 'special circumstances' to express the same idea which is expressed in the rule discussed in Jess v Scott by the words 'for special reasons' ..."

1. This approach was followed by Lockhart J in a recent case with features similar to that before me: Sweetman v Australian Thoroughbred Finance Pty Limited (23 July 1992, not reported). There were two motions before Lockhart J, one in each of two separate proceedings which involved some common respondents, though entirely different applicants. Each of the actions involved horse breeding syndicates, although for different financial years. There was some commonality of fact between the two actions and the same solicitors acted for each set of applicants. In relation to each proceeding, they sought to use for the purposes of that proceeding the documents discovered by the respondents in the other proceeding. Lockhart J granted the applications, holding that the extent of commonality constituted special circumstances and that the respondents would not be prejudiced by leave. In coming to that conclusion his Honour took into account that the documents had been compulsorily discovered but also the fact that they were not documents which would ordinarily attract a confidentiality order.

2. The degree of commonality between the proceeding in which Mr Preston's statement was filed and the Aetna-Hongkong Bank is probably less than in the matters before Lockhart J. But there is some commonality. Each case involves Mr Preston's association with the Estate Mortgage companies and, in particular, his knowledge of their structure and methods of operation. The relevant periods of time overlap. Like the discovered documents in Sweetman, Mr Preston's statement is not one which would normally attract a confidentiality order, as for example under s.50 of the Federal Court of Australia Act 1976. Nor is it a document containing personal data, as to which special privacy issues arise.

3. Counsel for Aetna argues that the Court should not adopt the "special circumstances" test laid down in Crest. According to his contention, the underlying principle is the prevention of abuse of Court process; for example, by a person commencing proceedings for the purpose of obtaining access to documents intended to be used for a collateral purpose. He rightly says that is not this case; Hongkong Bank did not commence either proceeding. He also argues that the critical question is whether leave is conducive to the achievement of justice in the later proceeding; here the document was relevant and potentially important to the achievement of justice. Finally, he contends that, to the extent that prejudice is ever relevant, this factor has little relevance to a case where the use of the document is not opposed by the author of the statement. By its very nature, according to counsel, the statement had a high degree of voluntariness. It was prepared in the expectation of use in open court.

4. I have reservations about the width of counsel's proposition concerning prejudice. But, generally, I accept these submissions, with the exception of the first. Especially having regard to the adoption by Burchett and Lockhart JJ. of the "special circumstances" formula stipulated in Crest, I am not prepared to reject that test in favour of counsel's alternative reference to abuse of process. In saying that, of course, I adopt the explanation of that term given by Burchett J and applied by Lockhart J. 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 commercially sensitive information), the circumstances in which the document 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.

5. Consideration of these factors leads me to the conclusion that it is proper to give leave in the present case. Mr Preston's statement was prepared for use in litigation; it was not pre-existing. It does not contain personal data or commercially sensitive material. Although the author of the document does not consent, and would prefer it not used, he does not resist leave or advance any argument of prejudice. The document came into the possession of the present applicant under circumstances which reflect no discredit on it or its representatives. I cannot say that the document will be important to the achievement of justice in the Aetna-Hongkong Bank case; much depends upon the course of that case and the evidence given in it. But it deals with matters relevant to that proceeding. It is a statement made by a person involved in transactions the subject of that proceeding. It has at least the potential to be important to the proper determination of that case. I propose to grant leave.

6. Counsel for Aetna submits that, even if leave is granted, there ought to be no order for costs against his client. He says that Hongkong Bank brought his client to the Court seeking an indulgence; prima facie it ought to pay the costs, or at worst there ought to be no order for costs.

7. I do not accept this submission. It is true that Hongkong Bank served the notice of motion upon Aetna, taking the view that it ought to have the opportunity to put submissions on the matter. But it was not bound to do so. If Aetna had not opposed the motion, there would be no question of making an order for costs against it. But Aetna not only chose to oppose the motion. By questioning the provenance of the statement it, in effect, forced an adjournment and a second day's hearing. Aetna has vigorously defended the application, but failed. The usual rule should apply. It should pay the applicant's costs.