State Bank of South Australia (Respondent) v Smoothdale No 2 Ltd (Appellant) No. SCGRG 91/2884 Judgment No. 4352 Number of Pages 8 Discovery and Interrogatories

[1993] SASC 4352

COURT IN THE FULL COURT OF THE SUPREME COURT OF SOUTH AUSTRALIA KING CJ (2), MILLHOUSE(3) and OLSSON(1) JJ

CWDS
Discovery and interrogatories - discovery and inspection of documents - appeal against interlocutory order requiring discovery - action against appellant for loss and damage incurred as a result of share purchase - discovery sought by respondent of indemnity given by appellant's former shareholders in favour of appellant - extent of power to order discovery under SCR 58.04 - no issue raised by pleadings in present form concerning indemnity - discovery desired in relation to consideration of joinder of other party and/or potential amendments to pleadings based on information as to indemnity disclosed in anual return filed after commencement of action - whether discovery of indemnity document proper - appellant unable to demonstrate error in exercise of discretion. Supreme Court Rules 1987 SCR 2.01, 3.04, 3.06, 58.01, 58.04, 60. J N Taylor Holdings Ltd (In Liquidation) and Anor v Bond and Ors (1993) 59 SASR 432; Mulley v Manifold (1959) 103 CLR 341; Cave Holdings Pty Ltd and Anor v Taperline Pty Ltd and Anor (1985) 4 IPR 476; McLean v Burns Philp Trustee Co Pty Ltd and Ors (1985) 2 NSWLR 623; Norwich Pharmacal Co and Ors v Customs and Excise Commissions (1974) AC 133 and Societe Romanaise de la Choussure S.A. v British Shoe Corporation Limited
(1991) FSR 1, considered.

HRNG ADELAIDE, 30 November 1993 #DATE 23:12:1993
Counsel for appellant:     Mr B Lander QC with Mr S Lane
Solicitors for appellant:    Mouldens
Counsel for respondent:     Mr T Gray QC with
   Mr R Whitington
Solicitors for respondent: Thomsons

ORDER
Appeal dismissed.

JUDGE1 OLSSON J This is an appeal, by leave, against an interlocutory order made by Duggan J on 13 August 1993. By that order he required the defendant/appellant to make discovery on oath of documents comprising or including an indemnity said to have been given to the appellant by its former shareholders, as adverted to in a note appended to the accounts of the appellant for the financial year ended 30 June 1992. 2. Various detailed grounds of appeal are pleaded, but the pith and substance of them is that the appellant asserts that the Supreme Court Rules did not empower the learned Judge to make the order in question and, even if there was a relevant power, it was an erroneous exercise of discretion to require the discovery to be made. It is also complained that, in any event, the application for joinder ought to have been disposed of on merit first. 3. I first turn to a consideration of the context within which the order was made. 4. The present action was commenced by summons issued on 5 December 1991. The associated statement of claim, in its current form, is a massive document, running to some 70 pages. 5. In essence it pleads details of a transaction whereby, on or about 6 December 1988, the respondent purchased certain shares from the appellant Company, following detailed negotiations to lead to the consummation of that transaction, and the earlier entry, on 8 November 1988, into heads of agreement in that regard. 6. Initially, the appellant traded under the name Security Pacific Limited. It was a corporation registered in New South Wales. 7. On 29 August 1985 an entity known as Security Pacific Bank New Zealand Limited ("SPBNZ") was incorporated in New Zealand and thereafter carried on a banking enterprise in that country. As at 6 December 1988 all of the issued shared in SPBNZ were beneficially owned by Security Pacific Limited. 8. The heads of agreement referred to contemplated the acquisition by the respondent of all issued shares in SPBNZ upon the footing that, in practical terms, the respondent was, in so doing, acquiring the bulk of the then current SPBNZ corporate loan portfolio. 9. The details of the negotiations leading up to the transaction and the transaction itself are lengthy and, to some extent, complex. They do not require recitation for present purposes. 10. Suffice it to say that, in its statement of claim, the respondent pleaded that, in entering into the transaction which I have briefly described, it suffered loss and damage as a consequence of breaches of duty, negligence, misrepresentations and misleading and deceptive conduct on the part of the appellant. 11. Subsequent to the initiation of the present proceedings the appellant caused its 1992 Annual Return to be filed with the Commissioner of Corporate Affairs. Annexed to it was its audited accounts for the financial year ended 30 June 1992. Those accounts disclosed a net asset value of the appellant of $7,040. 12. Following the filing of the Annual Return the respondent became aware of the existence of the following note to the accounts:-
    "Contingent Liabilities Details of contingent liabilities
    (for which no provisions are included in the accounts) arising
    in respect of Company A claim for unspecified damages was lodged
    against the Company during the year. The Company has been
    indemnified against any loss by the former shareholders of
    Smoothdale No 2 Limited. The Directors do not believe any loss
    will result from this claim." 13. I assume that the claim referred to is in fact that made in the present proceedings. 14. The discovery of that information prompted the respondent to file three separate interlocutory applications. These sought orders that:-
    (1) the former shareholders of the appellant be joined as
    defendants in this action;
    (2) the appellant preserve and retain in its possession the
    documents comprising the indemnity referred to in the
    accounts;
    (3) the appellant make discovery of those documents or,
    alternatively, the secretary of the appellant be examined on
    oath before a Master in relation to the indemnity. All three
    applications came before Duggan J. However, after some debate,
    only the second and third applications were dealt with
    initially, as the outcome of them was likely to bear on the
    proper disposal of the other application. 15. Having heard argument on behalf of the parties Duggan J expressed himself as being satisfied that, on the line of reasoning espoused by this Court in J N Taylor Holdings Ltd (in liquidation) and Anor v Bond and Ors (1993) 59 SASR
432, there was at least an arguable case for joinder and that the discovery application ought to be reviewed in that light. 16. I pause to comment that, in the course of arguing this appeal Mr Lander QC, of senior counsel for the appellant, questioned the validity of that conclusion. All that need be said on that score is that I entertain no doubt that Duggan J was correct in his assessment of the situation. Whether or not, in the event, such a proposition is actually upheld is for another day and, for present purposes, is irrelevant. 17. Be that as it may, the ultimate conclusion arrived at by Duggan J was that SCR 58.04 is sufficiently wide in its terms to authorise the making of an order for discovery as sought by the respondent. For reasons which he expressed, he was disposed to exercise his discretion in favour of the respondent as to the discovery sought. He was not satisfied as to the need, at this stage, either to make a formal order for preservation of the indemnity documentation or to summon the secretary of the appellant for examination. 18. In the event the formal order made by Duggan J (and now subject to appeal) was expressed as under:-
    "1. That the defendant make discovery on oath within twenty
    one (21) days of the documents comprising or including the
    indemnity referred to in the Note 14 of the defendant's
    Financial Accounts for the period from the 1st day of January
    1991 to the 30th day of June 1992 ('the indemnity') and any
    document or documents relating to the said indemnity which are
    or have been in the defendant's possession, custody or power.
    2. That the defendant make available for inspection by the
    plaintiff within forty eight (48) hours of making discovery any
    document or documents discovered pursuant to the Order made
    under paragraph 1 hereof and at the same time permit the
    plaintiff to take copies of any of the said documents.
    3. That the defendant pay the plaintiff's costs of and
incidental to this application." 19. The ground of appeal related to a failure to dispose of the application for joinder as an initial exercise is simply put to rest. As a matter of plain common sense this matter cannot fully be considered, nor could any sensible consequential pleading be finalised until the full details of the stated indemnity are known. Discovery of the material related to the indemnity is a necessary precursor to a consideration of that question. Duggan J was plainly correct in deferring consideration of that aspect. 20. The principal issues arising on the appeal necessitate a review of the salient features of the Supreme Court Rules ("SCR"). In embarking upon that exercise it is stating the obvious to say that the older published authorities (particularly those arising in other jurisdictions) bearing on the topic of discovery need to be read with considerable care, because they were patently the product of the rules environment in which they were decided. There have been recent dramatic changes in the SCR, both in form and in underlying philosophy. The concept of caseflow management has infused substantially new concepts. Moreover, the modern approach to practice and procedure in this court has been to focus on the most efficient and expeditious review of the merits of the case and to eschew undue technicality and, wherever possible, avoid any need for multiplicity of process and proceedings. 21. So it is that SCR 2.01 specifically states that:-
    "2.01 These Rules are made for the purpose of establishing
    orderly procedures for the conduct of litigation in the Court
    and of promoting the just and efficient determination of such
    litigation. They are not intended to defeat a proper claim or
    defence of a litigant who is genuinely endeavouring to comply
    with the procedures of the Court, and are to be interpreted and
applied with the above purpose in view." 22. It is also to be noted that the SCR invest the Judges of the Court with the widest possible discretions to facilitate the efficient conduct of proceedings. This facet finds particular expression in SCR 3.04, which (inter alia) stipulates:-
    "3.04 The Court shall have power to act at any time to give
     effect to the purpose of these Rules and, without limiting
    the generality of this power, it may in any case in which it
    thinks it just to do so:
    ...
    (g) do all or any acts or give any directions relating to
    the conduct of an action subject to such terms as to costs
or otherwise as it thinks proper;" 23. Furthermore SCR 3.06 renders it clear that the express provisions of the rules are in addition to and shall not derogate from, any inherent jurisdiction of the Court. 24. In that setting SCR 58 expresses various specific rules related to the question of discovery. 25. The fundamental obligation of parties as to discovery is expressed in SCR
58.01, which provides, in the traditional formulation, that:-
    "58.01(1) Unless the Court otherwise orders, each party
    shall within twenty-one days after the close of pleadings or
    affidavits file and deliver to the other party a list of
    documents in Form 16 that are, or have been, in his possession,
    custody or power, relating to any matter in question in the
    action. If the party claims that any document is privileged
    from discovery he shall specify the document and the ground upon
which privilege is claimed." 26. It is to be seen that the rule, as presently expressed, requires the parties to grant automatic discovery within a strict timeline, as part and parcel of the system of caseflow management currently in force. If disputes arise between the parties, SCR 58.04 provides a means of resolving them. 27. There can be no doubt that the concept of the primary obligation to give discovery - as articulated in SCR 58.01 - is, prima facie, not new. The essential duty imposed is to discover documents relating to any matter in question in the action. 28. It has been held that such a concept means that the duty certainly extends to all documents which can fairly be said to relate to those issues which are defined by the pleadings in the action and/or the ascertainment of facts material to the merits of a case, as fairly arise on the pleadings. As Menzies J expressed the principle in Mulley v Manifold (1959) 103 CLR 341 at 345:- "Only a document which relates in some way to a matter in issue is discoverable, but it is sufficient if it would, or would lead to a train of enquiry which would, either advance a party's own case or damage that of his adversary." (See also Cave Holdings Pty Ltd and Anor v Taperline Pty Ltd and Anor (1985) 4 IPR 476 at 480-1.) 29. However, other content of the SCR indicates the adoption by this Court of new approaches which are by no means so traditional. SCR 60 (which was enacted as portion of the new 1987 Rules and later revised in 1988) erects a comprehensive scheme of potential discovery before action (when, by definition, no issues have been defined by pleadings) and discovery against persons not parties to the proceedings at all. 30. SCR 58.04, which was revised as recently as this year, so far as is material for present purposes, is couched in these terms:
    "58.04 The Court may on application for discovery made at
    any stage of the proceedings:
    (a) order any party to file and deliver to any other party:
    (i) a list of documents;
    (ii) an affidavit verifying a list of documents;
    (b) order that -
    (i) discovery be limited to certain documents or classes of
    documents related to the matters specified in the order;
    (ii) discovery be made by phases in relation to any class or
    classes of documents in such manner as may be specified in
    the order;
    (iii) notwithstanding Rule 58.01, a party be exempted from
    making discovery of any specified document or class or
    classes of document either conditionally or unconditionally
    and wholly or to a specified extent or for a specified time.
    Factors to be considered in making or refusing any order
    under this subrule shall include the likely time, cost and
    inconvenience of making discovery of any documents or
    classes of documents by way of comparison with the amount
    involved in the action, the relative importance or likely
    relevance of them in relation to any issue or issues in the
    action and the probable effect on the outcome of the action
    of a party obtaining access to the document or class of
document." 31. It is at once to be noted that this rule is expressed in the widest possible terms. Indeed that was the clear intention when it was enacted. Whilst there is a superficial attraction in the argument advanced on behalf of the appellant that it ought to be read down in light of SCR 58.01, that is not indicated by the rule itself and is inconsistent with the patent intention of the Judges to invest the individual judicial officer with an unfettered judicial discretion to make any order which, in the specific case, is considered necessary and appropriate to ensure that all questions to be litigated between the parties are addressed in the most efficacious manner; and that undue multiplicity of proceedings is avoided. SCR 58.01 now needs to be read in such a setting. Furthermore, the fallacy of the contention of counsel for the appellant that SCR 58.04 is strictly limited in its operations to the Mulley v Manifold formulation is instantly revealed by the fact that, in terms, the rule permits an application to be made at any stage of an action. It may well be that an order is sought before any issues at all have been defined by formal pleadings between the parties. 32. I consider that SCR 58.04 is an apt vehicle for and was intended to permit the making of any order which, in the circumstances, is warranted to deal with all matters which either arise on existing pleadings in a case or those which fall to be determined in relation to the proper disposal of any pending issue arising out of interlocutory proceedings in the case - in the present context, the application for joinder and the basis on which it is being pursued. Moreover, it is also available as a vehicle for the exercise by the Court of its inherent powers, as preserved by SCR 3.06. 33. In the instant case the question of joinder of additional parties, on the extended principle of J N Taylor Holdings Ltd (in liquidation) and Anor v Bond and Ors, is an important and substantial issue. Its resolution will require consideration of the material sought to be discovered. Discovery of that material could obviously be obtained in separate proceedings instituted, but that would lead to a multiplicity of actions, which the present SCR concepts seek to avoid. 34. Moreover, at least one of the parties said, potentially, to have participated in the indemnity is an overseas corporation. It is desirable to avoid the incurring of undue costs by clarifying the true situation by the simplest and most economic means, an end result which is achieved by the order appealed against. It is desirable that it be ascertained, at the earliest possible moment, which of the former shareholders of the appellant have provided indemnity and to what extent, so that the joinder application can proceed in relation to them. It is only the intransigence of the appellant which is causing an obstacle to the resolution of that aspect. 35. Quite apart from the provisions of SCR 58.04 standing alone, I am of opinion that Duggan J was entitled to make the order now sought to be impugned in exercise of the inherent powers of the Court, both generally and also those of the nature of the ancient Bill of Discovery. With respect I agree with Young J where, in McLean v Burns Philp Trustee Co Pty Ltd and Ors (1985) 2 NSWLR 623 at 646 he commented that, in any event, it is unwise to seek to restrict the inherent power of the court to order discovery to the type of situation strictly falling within Norwich Pharmacal Co and Ors v Customs and Excise Commissions (1974) AC 133 (the so called "name" cases), or to cases that would have been covered by the old Bill of Discovery procedure. The power does clearly extend further to cover any situation in which, in the opinion of the court, the justice 11 and practicalities of the situation require particular procedural relief to be granted. 36. I am quite unmoved by the "floodgates" argument sought to be advanced by counsel for the appellant in relation to the foregoing lines of reasoning. It seems to me that a cautious exercise of judicial discretion, coupled with the practical realities of the conduct of most litigation will effectively combine to ensure that powers of the type outlined above will not become the subject of oppression and abuse. In many insurer situations, for example, no issue of a possible refusal to indemnify arises. 37. It must be emphasized that what is here in issue is not a potential mere investigation of the assets and solvency of a defendant, per se, but a reasonable desire, based upon specific information, to ensure that parties are joined in a manner which, at the same time, assures to the plaintiff potential fruits of litigation and avoids multiplicity of proceedings. As to this, the type of comments made by Millett J in Societe Romanaise de la Choussure S.A v British Shoe Corporation Limited (1991) FSR 1 at 5, albeit in a different setting, are apposite. 38. For the reasons which I have expressed I consider that the appellant has failed to demonstrate any error on the part of the judge at first instance. 39. I would dismiss the appeal.

JUDGE2 KING CJ In my opinion this appeal should be dismissed for the reasons given by Olsson J.

JUDGE3 MILLHOUSE J I agree.