Trofeo Pty Ltd v Confederation of Australian Motor Sport Limited
[2021] VSC 90
•5 March 2021
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
COMMERCIAL LIST
S ECI 2020 04319
| TROFEO PTY LTD (ACN 109 136 656) | Plaintiff |
| v | |
| CONFEDERATION OF AUSTRALIAN MOTOR SPORT LIMITED (ACN 069 045 665) | Defendant |
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JUDGE: | Matthews AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 12 February 2021 |
DATE OF JUDGMENT: | 5 March 2021 |
CASE MAY BE CITED AS: | Trofeo Pty Ltd v Confederation of Australian Motor Sport Limited |
MEDIUM NEUTRAL CITATION: | [2021] VSC 90 |
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PRACTICE AND PROCEDURE – Preliminary discovery – Whether reasonable grounds to believe that plaintiff may have right to obtain relief against defendant – Whether plaintiff has already decided to commence proceedings against defendant – Whether sufficient information to enable plaintiff to decide whether to commence proceeding – Whether preliminary discovery available where plaintiff is contemplating proceedings against defendant and third parties – Preliminary discovery refused – Supreme Court (General Civil Procedure) Rules 2015, r 32.05 – Pandolfo v Finadri [2018] VSC 211 – Alex Fraser Pty Ltd v Minister for Planning [2018] VSC 391 – Glencore International AG v Selwyn Mines Ltd (rcs and mgrs apptd) (2005) 223 ALR 238 – O’Connor v O’Connor [2018] NSWCA 214.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr J A Ribbands | Hendersons Legal, as town agent for SWS Lawyers Pty Ltd |
| For the Defendant | Mr R T Wodak | Lex Sportiva |
HER HONOUR:
Introduction
By summons issued 25 November 2020, the plaintiff Trofeo Pty Ltd (‘Trofeo’) seeks orders for preliminary discovery by the defendant Confederation of Australian Motor Sport Limited (‘CAMS’) pursuant to r 32.05 of the Supreme Court (General Civil Procedure) Rules 2015 (‘Rules’).
Trofeo seeks discovery of four categories of documents, as follows:
All correspondence, documents and communications (including emails, texts and file notes in relation to correspondence, documents or communications) sent or received by or on behalf of the defendant, its servants and agents including without limitation Eugene Arocca and Michael Smith:
(a)in relation to the decision by the defendant to issue the EOI in respect of the GT Championship and the Endurance Championship; and
(b) to any person or entity in response to the EOI; and
(c)in relation to the appointment or potential appointment of any entity or person as Championship Manager of the Endurance Championship and GT Championship (other than Trofeo) for the period commencing after 31 December 2020; and
(d)in relation to the renewal or otherwise of Trofeo as the Championship Manager for the Endurance Championship or GT Championship.
I shall refer to each of these as Categories A, B, C and D where it is necessary to distinguish between them.
Trofeo’s application is supported by an affidavit sworn 19 November 2020 by Susan Moran, solicitor for Trofeo (‘Moran Affidavit’).
Trofeo’s application is opposed by CAMS, which relies on an affidavit sworn 27 January 2021 by Eugene Arocca, who is the chief executive officer and legal counsel of CAMS (‘Arocca Affidavit’).
On 18 December 2020, I made directions for the hearing of the application, listing the hearing for 12 February 2021 and ordering that:
(a) CAMS file any affidavit in opposition to the application by 28 January 2021;
(b) Trofeo file any affidavit in reply by 4 February 2021; and
(c) the parties file and serve written outlines of submissions by 10 February 2021.
Trofeo did not file any affidavit in reply. The parties provided written outlines on 10 February 2021 (respectively, ‘Trofeo’s Outline’ and ‘CAMS’ Outline’).
At the hearing, both parties relied on their respective written outlines and made short oral submissions.
For the reasons which follow, the application will be refused.
Evidence
Evidence advanced by Trofeo
On or around 9 July 2018, Trofeo was assigned the benefit of the following CAMS contracts by Australian GT Production Sportscar Group Pty Ltd, with the consent of CAMS:[1]
(a) Championship Management Agreement executed by Mr Arocca on behalf of CAMS on 19 November 2015 for the CAMS Australian GT Championship (‘GT Contract’); and
(b) Championship Management Agreement executed by Mr Arocca on behalf of CAMS on 19 November 2015 for the CAMS Australian GT Endurance Championship (‘Endurance Contract’).
[1]Moran Affidavit, [3].
On and from the assignment date, Trofeo became the holder of the Race Rights as defined in the GT Contract and Endurance Contract.[2] For convenience, I will refer to the events which Trofeo held the Race Rights in respect of as the ‘Championships’.
[2]Moran Affidavit, [3].
On or around 1 January 2020, CAMS changed its name and became known as Motorsport Australia.[3] To avoid confusion, I will refer to Motorsport Australia as CAMS throughout these reasons.
[3]Moran Affidavit, [4].
Clause 2(d) of each of the GT Contract and the Endurance Contract provide:[4]
The Agreement and its operation, including the conduct of the Championship, may be renewed by agreement between the parties in writing at any stage up to the end of the Term. Without derogating from anything in this clause 2(d), if the Term of the Agreement has been extended to end on 31 December 2020 (in accordance with clause 2(b)), then the parties agree that following processes shall apply:
(i)the Championship Manager shall notify CAMS no later than 30 June in the final year of the Term whether it wishes to try to negotiate a renewal of this Agreement; and
(ii)CAMS will negotiate exclusively and in good faith with the Championship Manager between 1 July and 30 September in the final year of the Term in relation to the proposed terms of the new agreement, and if agreement cannot be reached by 30 September in the final year of the Term, CAMS will have the right to seek out other interested parties.
[4]Moran Affidavit, [5]; Exhibit SM-1, pages 9 (GT Contract) and 38 (Endurance Contract).
At the time Trofeo was assigned the benefit of the contracts, both the GT Contract and the Endurance Contract were to expire on 31 December 2020.[5]
[5]Moran Affidavit, [6].
On 16 May 2020 Trofeo notified CAMS of its wish to negotiate a renewal of both contracts.[6]
[6]Moran Affidavit, [7].
On 18 June 2020, Trofeo submitted a proposal to CAMS in relation to each of the contracts (‘Trofeo Proposal’).[7] On 30 July 2020 Jim Manolios of Trofeo received an email from Michael Smith of CAMS[8] attaching a letter acknowledging receipt of the Trofeo Proposal. The letter advised that CAMS intended to issue an expression of interest to the market for both the GT Contract and the Endurance Contract.[9] On 31 July 2020, an article was published on headed “Expressions of Interest open for Australian GT commercial rights”.[10]
[7]Moran Affidavit, [8].
[8]Mr Smith is the Director – Motorsport & Commercial Operations for CAMS: Arocca Affidavit, [13].
[9]Moran Affidavit, [9].
[10]Moran Affidavit, [10].
On 31 July 2020, Mr Manolios sent an email to Mr Smith, expressing concerns that CAMS was not negotiating with Trofeo exclusively and in good faith as required by the GT Contract and the Endurance Contract.[11] Mr Smith replied on the same day, stating that CAMS would negotiate with Trofeo exclusively as required under the contracts.[12]
[11]Moran Affidavit, [11].
[12]Moran Affidavit, [12].
On 3 August 2020, Mr Manolios received an email from Mr Smith which attached CAMS’ calls for expressions of interest for both the GT Contract and the Endurance Contract (‘EOI Requests’).[13] The EOI Requests stated, inter alia:[14]
[13]Moran Affidavit, [13].
[14]Moran Affidavit, [14].
(a) expressions of interest (EOIs) were to be registered with CAMS by 4 September 2020;
(b) a discussion phase in response to any EOIs submitted would be undertaken and concluded by 2 October 2020; and
(c) the successful candidate(s) would be informed of their selection by 7 October 2020.
Given the exclusivity period under the contracts, CAMS had only the period Thursday 1 October and Friday 2 October 2020 to undertake and conclude the discussion phase in relation to any EOIs submitted by persons other than Trofeo. A discussion phase of two days, according to Mr Manolios, is wholly inadequate and must involve prior periods.[15]
[15]Moran Affidavit, [16].
On 29 August 2020 Trofeo submitted by email to Mr Smith a document headed ‘Financial Proposal’ in relation to the renewal of both contracts. Between 2 and 15 September 2020, Mr Smith and Mr Manolios engaged in email communications in relation to Trofeo’s proposals. On 15 September 2020, Trofeo received an email from Mr Smith in which he stated that CAMS refused to continue negotiations with Trofeo.[16]
[16]Moran Affidavit, [16]–[17].
On 22 September 2020, Trofeo issued two dispute notices to CAMS in relation to the contract negotiations. On 24 September 2020, Trofeo’s solicitors SWS Lawyers received correspondence from CAMS enclosing a checklist which CAMS required Trofeo to complete in relation to the contract negotiations. On the same date, Ms Moran responded to CAMS and sought advice of a date for the continued negotiations.[17]
[17]Moran Affidavit, [18]-[20].
On 13 October 2020, SWS Lawyers sent a letter to CAMS on behalf of Trofeo (’13 October Letter’).[18] I will later refer to the content of this letter in detail, suffice to say for now that it set out a number of allegations against CAMS, including a failure to negotiate the renewal of the contracts in good faith.
[18]Moran Affidavit, [21]; Exhibit SM-1, pp. 128-131.
On 5 November 2020, an article was published in relation to the likely granting of the GT Contract and the Endurance Contract to another party.[19] It is unnecessary for me to set out further details of that publication.
[19]Moran Affidavit, [24].
Ms Moran deposes that on 20 October 2020 she sent a letter to CAMS requesting that it supply certain documentation to her so that she could advise Trofeo in relation to the conduct of CAMS “and potentially other parties” (’20 October Letter’). Ms Moran deposes that she sent this letter in order to advise Trofeo on whether to commence proceedings.[20] I observe here that the categories of documents sought by that letter were essentially the same as the Categories set out in this application. On 2 November 2020, SWS Lawyers received a letter from Lex Sportiva, solicitors for CAMS, refuting Trofeo’s allegations and stating that it would not be supplying any documentation.[21]
[20]Moran Affidavit, [22]. A copy of that letter is at Exhibit SM-1, pp.132-133.
[21]Moran Affidavit, [23]; Exhibit SM-1, p.134.
Ms Moran deposes that by reason of the contract negotiation process that the grant of the rights in the EOI process necessarily entails, it is likely that CAMS will have in its possession documents that reveal the extent of its discussions and negotiations with other parties. In particular, any such documents will also disclose the time from when those discussions and negotiations commenced.[22]
[22]Moran Affidavit, [27].
Ms Moran further deposes that by reason of the positions held by Mr Arocca and Mr Smith, they are likely to be significantly involved in the discussions and negotiations in relation to the awarding of the GT Contract and the Endurance Contract. She also deposes that it is common for Mr Arocca and Mr Smith to communicate through text messages and it is likely that they may have in their possession text messages relating to the awarding of either or both contracts.[23]
[23]Moran Affidavit, [28].
Ms Moran then deposes as follows:
29.At present Trofeo considers that it may have a potential claim to be brought against CAMS and possibly Eugene Arocca and Michael Smith but it is unable to determine whether to commence such a claim. The provision of the requested discovery will enable Trofeo to consider what defences might be open to these potential defendants and whether the costs and risks of litigation is worthwhile.
30.By the disclosure of these documents Trofeo will be able to consider, and I will be able to advise it, as to the merits of any potential claim that might be brought against CAMS for a breach of its contract with Trofeo. In addition, there is also the potential that no formal contract has as yet been executed with a third party. That fact, if evident from the requested discovery, will also enable Trofeo to consider, and myself to advise, as to what litigation options are open to Trofeo.
31.There are no other avenues of inquiry that are open to Trofeo to seek access to the documents that are sought by the application. Trofeo is unable to make a decision as to whether or not there is merit in the pursuit of any action against CAMS without first considering what documents might be produced pursuant to this application.
Evidence advanced by CAMS
For brevity, I will describe only those parts of the Arocca Affidavit where Mr Arocca disputes matters as described by Ms Moran as I have summarised above or where he deposes to matters not referred to by Ms Moran.
CAMS is the peak body for motorsport in Australia, and holds the rights to conduct various categories of motor racing. It contracts the right to conduct these categories of racing to other organisations.[24]
[24]Arocca Affidavit, [6]-[7].
Mr Arocca sets out, in some detail, concerns which CAMS had about Trofeo’s performance as manager under the two contracts since around March 2019 and discussions/correspondence which CAMS had with Trofeo about them since that time. Mr Arocca deposes that the Moran Affidavit does not refer to any of these matters.[25] It is unnecessary for me to set out the details of CAMS’ concerns, but suffice to say that it included:
[25]Arocca Affidavit, [24], [30], [33].
(a) emails and meetings between Trofeo and CAMS between March and May 2019 regarding matters as stated in the affidavit;[26]
[26]Arocca Affidavit, [14]-[17].
(b) notices of breach issued in respect of each of the contracts in July 2019 by CAMS to Trofeo, concerning non-payment of fees payable to CAMS;[27]
[27]Arocca Affidavit, [19].
(c) concerns raised by competitors in the two Championships covered by the contracts directly with Trofeo, in March and July 2019;[28]
[28]Arocca Affidavit, [11]-[12], [18].
(d) concerns raised by competitors in the two Championships covered by the contracts directly with CAMS, which CAMS raised with Trofeo in August 2019;[29]
[29]Arocca Affidavit, [21].
(e) further notices of breach issued by CAMS to Trofeo in September 2019;[30]
[30]Arocca Affidavit, [22].
(f) CAMS’ concerns regarding a breach of confidentiality in October 2019 by Trofeo;[31]
[31]Arocca Affidavit, [23].
(g) in June 2020, CAMS notified Trofeo of its significant concerns regarding public statements by Trofeo about running a Championship under another sanctioning entity, in breach of the contracts Trofeo had with CAMS;[32]
[32]Arocca Affidavit, [25].
(h) in July 2020, CAMS contacted Trofeo to seek payment of moneys owing to CAMS which were at that time 118 days past due;[33]
(i) Mr Arocca learned, in July 2020, of a dispute between Trofeo and the official tyre supplier to the two Championships covered by the contracts, Pirelli. Pirelli informed CAMS that it was owed more than $1m by Trofeo and would not supply any more tyres until it was paid. Mr Arocca deposes that a refusal by Pirelli to supply tyres, while it remained the official tyre supplier, would be disastrous to the two Championships. Pirelli also provided substantial sponsorship support to the two Championships, and CAMS was concerned that if Pirelli and Trofeo were in dispute and obtained a further period of rights, then Pirelli may not continue to support the Championships;[34]
(j) Mr Arocca and Mr Smith met with Mr Manolios via Zoom on 24 August 2020, during which meeting they expressed CAMS’ concerns regarding Trofeo’s management of the Championships, its financial status and the ongoing Pirelli dispute. They informed Mr Manolios that CAMS could not and would not entertain concluding negotiations with Trofeo while the Pirelli dispute remained on foot; they raised the CAMS invoices unpaid by Trofeo; and they provided feedback to Mr Manolios about Trofeo’s proposal for future management of the Championships, in particular that it did not state the fees which Trofeo proposed to pay for them. Following that feedback, Trofeo submitted its financial proposal for the future contracts to CAMS.[35]
[33]Arocca Affidavit, [26].
[34]Arocca Affidavit, [27]-[28].
[35]Arocca Affidavit, [41]-[42].
Mr Arocca deposes that in his 8 years as chief executive officer of CAMS, it had never been necessary that he be so involved in the ongoing management of an event as proved necessary of Trofeo’s management of its Championships. He says that by July 2020, his experience was that Trofeo’s management was inadequate; it was frequently necessary to express those concerns to Trofeo, whose responses were inadequate; Trofeo breached its agreements with CAMS on multiple occasions; and Trofeo’s poor management caused much work for CAMS.[36]
[36]Arocca Affidavit, [31]-[32].
Mr Arocca deposes that as at July 2020, CAMS held serious concerns regarding Trofeo’s management of the Championships, many of which were long-standing and either had been repeated or not resolved despite being raised with Trofeo. He states that he held the view that there was a serious prospect that the negotiations with Trofeo would not result in agreement being reached and that it was necessary to ensure it was possible to promptly appoint a new manager for 2021 and beyond, and to be prepared to move quickly in October 2020 if agreement was not ultimately reached with Trofeo. Consequently, in July 2020 CAMS decided to continue negotiations with Trofeo and conduct an EOI campaign to identify persons interested in managing the Championships beyond 2020 and to obtain information as to their suitability.[37]
[37]Arocca Affidavit, [35]-[37].
In respect of negotiations with Trofeo regarding the management rights, Mr Arocca deposes that:
(a) during May and June 2020, CAMS was notified by and corresponded with Trofeo regarding Trofeo’s intention to negotiate a renewal of the rights for the Championships. He does not dispute the matters referred to by Ms Moran, summarised in paragraphs 15 to 18 above;[38]
(b) CAMS negotiated with Trofeo in respect of the management rights in the months July to September 2020. He says that these negotiations included receiving, considering and providing feedback on proposals received from Trofeo; and informing Trofeo of issues which caused CAMS concern;[39]
(c) the statement in the Moran Affidavit that Mr Smith said on 15 September that CAMS refused to continue negotiations with Trofeo is incorrect.[40] Mr Arocca says that there was an exchange of emails on 3 September then further emails on 15 September. The 15 September emails from Mr Smith to Mr Manolios stated that CAMS would not proceed with negotiations with Trofeo while the Pirelli dispute remained unresolved but once it was CAMS would be happy to recommence discussions.[41] Mr Arocca deposes that negotiations with Trofeo did not result in any agreement by 30 September 2020.[42]
[38]Arocca Affidavit, [34].
[39]Arocca Affidavit, [44].
[40]See paragraph 20 above.
[41]Arocca Affidavit, [46].
[42]Arocca Affidavit, [47].
In respect of the EOI Requests and the appointment of new managers, Mr Arocca deposes that:
(a) a CAMS employee, Annii Mansell, summarised responses received to the EOI Requests in a spreadsheet. Mr Arocca saw the spreadsheet in September 2020 but did not view any of the detailed proposals submitted until October 2020;[43]
[43]Arocca Affidavit, [48].
(b) in early October 2020, Mr Smith provided him with a summary of his views on the EOIs submitted in response to the EOI Requests. They agreed that they would meet with four parties which had submitted proposals and these meetings were held by video conference on 6, 8, 9 and 13 October 2020;[44]
[44]Arocca Affidavit, [49].
(c) neither he nor Mr Smith entered into or held discussions with any other party with respect to securing the management rights before the meetings in October 2020;[45]
(d) on 28 October 2020, two of the parties who had submitted EOIs were invited to enter into an agreement to manage the Championships jointly and to enter into further negotiations as to the financial terms. These negotiations were concluded by Mr Smith on 6 November 2020;[46]
(e) on 18 November 2020, the CAMS board approved the appointment of two parties as the joint commercial rights holders of the Championships.[47]
[45]Arocca Affidavit, [50].
[46]Arocca Affidavit, [51].
[47]Arocca Affidavit, [52].
Applicable law and principles
Rule 32.05 of the Rules provides for discovery from a prospective defendant, as follows:
Where –
(a)there is reasonable cause to believe that the applicant has or may have the right to obtain relief in the Court from a person whose description the applicant has ascertained;
(b)after making all reasonable inquiries, the applicant has not sufficient information to enable the applicant to decide whether to commence a proceeding in the Court to obtain that relief; and
(c)there is reasonable cause to believe that that person has or is likely to have or has had or is likely to have had in that person’s possession any document relating to the question whether the applicant has the right to obtain the relief and that inspection of the document by the applicant would assist the applicant to make the decision –
the Court may order that that the person shall make discovery to the applicant of any document of the kind described in paragraph (c).
In Vestas – Australian Wind Technology Pty Ltd v Lal Lal Wind Farm Nom Co Pty Ltd,[48] Delany J summarised this by saying that three components must be satisfied by the applicant before an order for preliminary discovery will be made:[49]
(a)first, there is reasonable cause to believe the applicant has or may have the right to obtain the relief;
(b)second, after making all reasonable inquiries, the applicant does not have sufficient information to enable it to decide whether to commence a proceeding to obtain that relief;
(c)third, there is reasonable cause to believe the respondent has or is likely to have documents the inspection of which by the applicant would assist the applicant to make the decision.
[48][2020] VSC 554 (‘Vestas’).
[49]Vestas, [24].
In Pandolfo v Finadri,[50] Derham AsJ summarised the relevant principles governing the application of r 32.05, as set out below:
[50][2018] VSC 211, [18]-[23] (‘Pandolfo’) (citations in original); followed in Vestas, [27].
18.The rule must be given the fullest scope its language will reasonably allow.[51]
[51]Paxus Services Ltd v People Bank Pty Ltd (1990) 99 ALR 728, 733 (Burchett J); Beston Parks Management Pty Ltd v Sexton [2008] VSC 392 [52] (Hollingworth J) (‘Beston Parks’).
19.An applicant does not have to prove that there will be a real benefit in making the order, but simply that there may be some benefit. The benefit may be the preparation of an appropriate pleading and the avoidance of substantial amendments following discovery. Alternatively, the avoidance of unnecessary litigation.[52]
[52]Beston Parks [2008] VSC 392 [53]; see also Australian Football League v Stadium Operations Ltd [2009] VSC 264 [3] (Warren CJ) (‘AFL v SOL’).
20. The principles relevant to the first criterion are as follows:
(a)the applicant is not required to show it that has a prima facie case that it has a right to relief;[53]
[53]Plzen v Wharf Management [2007] VSC 318 [17(e)]
(b)it is also not necessary to show precisely what cause of action the applicant may have; such a requirement would defeat the object of the rule;[54]
[54]Schmidt v Won [1998] 3 VR 435, 465; Beston Parks [2008] VSC 392 [53]; United Energy [1998] VSC 133 [32].
(c)rather, it merely needs be shown that the facts are such that it may reasonably be believed that the applicant may have a right to obtain relief;[55]
[55]Schmidt v Won [1998] 3 VR 435, 465; Beston Parks [2008] VSC 392 [53].
(d)the test for determining whether the applicant has ‘reasonable cause to believe’ is an objective test;[56]
[56]Plzen v Wharf Management [2007] VSC 318 [17(c)].
(e)the word “may” indicates that the applicant’s belief does not have to amount to a firm view that there is a right to relief.[57]
[57]Beston Parks [2008] VSC 392 [53].
21. The second criterion is governed by the following principles:
(a)the requirement is primarily concerned with whether, as an objective fact, an applicant has sufficient information to determine whether to commence proceedings.[58] The fact that an applicant for preliminary discovery already has enough evidence to establish a prima facie case against a proposed defendant does not mean that the applicant has sufficient information to enable it to decide whether to commence a proceeding.[59] An applicant in that position may nevertheless ‘need information to know whether the cost and risk of litigation is worthwhile.’[60] For example, an applicant with sufficient information to plead a prima facie case may prudently wish to obtain preliminary discovery about ‘what defences are available to the respondent and the possible strength of those defences, or to determine the extent of the respondent’s breach and the likely quantum of any damages award’.[61]
[58]Beston Parks [2008] VSC 392 [55].
[59]B J Bearings Pty Ltd v Whitehead [2016] VSC 44 [19(2)] (‘B J Bearings’).
[60]Optiver Australia Pty Ltd v Tibra Trading Pty Ltd (2008) 169 FCR 435, 443; B J Bearings, [19(2)].
[61]St George Bank Ltd v Rabo Australia Ltd (2004) 211 ALR 147, 154 [26(f)] (citations omitted); B J Bearings, [19(2)].
(b)it is for the court to determine whether an applicant has sufficient information available to it; the applicant’s own assertion that it does not is neither determinative nor strictly necessary;[62]
[62]Beston Parks [2008] VSC 392 [81].
(c)accordingly, an application cannot succeed if the applicant has sufficient information (objectively assessed) but is unable to determine whether to commence proceedings due to subjective factors, for example, an overly cautious nature;[63]
(d)courts have, however, approved litigants taking a cautious, conservative or prudent approach by applying for preliminary discovery under the rule.[64] This approach is consistent with the policy underlying the rule.[65] It is also consistent with the policy underlying the Civil Procedure Act 2010 (Vic) (‘CPA’) generally, and the ‘proper basis certification’ requirements in s 42 of the CPA in particular.[66]
(e)if there is evidence that an applicant has in fact decided to commence proceedings, the application must fail.[67] In determining whether an applicant has in fact already decided to commence a proceeding, irrespective of the outcome of the application, the Court should not give too much weight to posturing in correspondence prior to the making of the application, particularly correspondence alleging the existence of a strong case but nevertheless seeking preliminary discovery by letter prior to making a formal application to the Court;[68]
(f)what constitutes ‘reasonable inquiries’ is a question of fact, to be considered in all the circumstances of the particular case.[69]
22.For the purpose of the third criteria, ‘possession’ means ‘possession, custody or power’.[70] Little more need be said about the third criteria, which sets out express requirements, the satisfaction of which will turn on the particular facts.
23.Where each element of the rule is satisfied, the Court will ordinarily exercise its discretion in favour of the applicant.[71]
[63]Beston Parks [2008] VSC 392 [55].
[64]AFL v SOL [2009] VSC 264 [59]-[61]; United Energy [1998] VSC 133 [103].
[65]AFL v SOL [2009] VSC 264 [61]; B J Bearings, [19(3)].
[66]B J Bearings, [19(3)].
[67]Beston Parks [2008] VSC 392 [56].
[68]AFL v SOL [2009] VSC 264 [59]–[62]; B J Bearings Pty Ltd v Whitehead [2016] VSC 44 [19(4)].
[69]Hatfield v TCN Channel Nine Pty Ltd (2010) 77 NSWLR 506, 528 [86]; B J Bearings, [19(5)].
[70]Rule 32.01 of the Rules.
[71]AFL v SOL [2009] VSC 264 [76].
In Alex Fraser Pty Ltd v Minister for Planning,[72] Riordan J observed that:
[72][2018] VSC 391, [53]-[54] (‘Alex Fraser’) (citations in original).
53.The proper test is revealed by the words of r 32.05(a). What is required is the following:
(a)There is cause for a belief in the relevant proposition — a belief being an inclination of the mind towards assenting to a proposition.[73]
[73]See Alex Fraser, at [49].
(b)The relevant proposition is (on the second limb) that there ‘may be the right’ to relevant relief. The use of the word ‘may’ bespeaks possibility.[74] Given the purpose of the Rule is to advance the administration of justice,[75] r 32.05 should be interpreted as requiring a real (as opposed to a fanciful or remote possibility). However, even a real possibility may be highly improbable.[76]
(c)The test is qualified by a requirement that the cause for the belief in the proposition must be reasonable. It is trite to say that what is reasonable in a particular case will depend upon all of the circumstances of the case.
54.Accordingly, the jurisdictional threshold under r 32.05 is low.[77] This is consistent with the following:
(a)The primary purpose of the rule is to advance the administration of justice by allowing a prospective plaintiff to make an informed decision on proper material about whether or not to bring a claim.[78] The importance of this rule to the advancement of the administration of justice has been accentuated by the certification requirements on filing of civil proceedings under Part 4.1 of the Civil Procedure Act 2010.[79] It is well established that the rule should be interpreted benevolently.[80]
(b)It would be incongruous if the jurisdiction to order preliminary discovery could not be enlivened because of the lack of evidence, which is the very cause of the application. The purpose of the Rule is to allow an applicant, who has inadequate proof of any cause of action, to discover whether or not evidence is available[81] that will impact (positively or negatively) on the possible proceeding. [82]
[74]The relevant definition of ‘may’ in the Macquarie Dictionary is ‘to be possible: this may be achieved in various ways.’ (Emphasis in the original).
[75]Unity Energy Ltd v Energy Risk Management Pty Ltd [1998] VSC 133 [36] (Gillard J).
[76]Inland Revenue Commissioners v Trustees of Sir John Aird’s Settlement [1982] 2 All ER 929, 940 (Nourse J) quoted with approval in Australian Securities and Investments Commission v Carey (No 6) (2006) 153 FCR 509 (French J); which was in turn cited with approval in Smith v R (2017) 259 CLR 291 [88] Edelman J.
[77] Glencore International AG v Selwyn Mines Ltd (recs and mgrs apptd) (2005) 223 ALR 238 [16] (Lindgren J).
[78]Unity Energy Ltd v Energy Risk Management Pty Ltd [1998] VSC 133 [36] (Gillard J).
[79]BJ Bearings, [19] (Hargrave J).
[80]Schmidt v Won [1998] 3 VR 435, 445 (Ormiston JA, with whom Charles and Batt JJA agreed).
[81] Ibid; Paxus Services Ltd v People Bank Pty Ltd (1990) 99 ALR 728, 733 (Burchett J).
[82]Telstra Corporation Ltd v Minister for Broadband, Communications and the Digital Economy and Another (2008) 166 FCR 64, 80 [60] (French, Weinberg and Greenwood JJ). See also Optiver Australia Pty Ltd v Tibra Trading Pty Ltd (2008) 169 FCR 435, 442 [31]–[32] (Heerey, Gyles and Middleton JJ).
Riordan J also considered principles relevant to the exercise of the Court’s discretion in respect of r 32.05. In Alex Fraser, his Honour stated:[83]
[83]Alex Fraser, [54(c)].
Although the jurisdictional threshold is low, its satisfaction only empowers the Court to exercise its discretion.[84] In the exercise of its discretion, the Court can control any excesses;[85] and assess whether there may be real benefit in making the order.[86] It will be entitled to weigh the full range of relevant matters in determining whether an order is in the interests of justice – including the following:
Glowatzky v Insultech Group Pty Ltd (1997) 39 IPR 215 (Branson J), 220; Australian Football League v Stadium Operations Ltd [2009] VSC 264 [5] (Warren CJ).
[85]St George Bank Ltd v Rabo Aust Ltd (2004) 211 ALR 147 [26(a)] (Hely J).
[86]Australian Football League v Stadium Operations Ltd [2009] VSC 264 [5] (Warren CJ); Scarletti Pty Ltd v Milwood Printing Co Pty Ltd (Unreported, Supreme Court of Victoria, Court of Appeal, Phillips CJ, Crockett and Southwell JJ, 28 July 1994) BC9400965, 12.
(i)The level of inconvenience and cost that will be caused to the respondent.
(ii)Whether discovery may cause commercial or other damage to the respondent.
(iii) Whether the respondent will be reimbursed for its costs.
(iv)Whether an order would be inutile because the documents are privileged.[87]
(iv)The prospect of the documents sought providing the information required by the applicant.
(v)Whether the fact that there is no real prospect of success is apparent or discovery will not serve any useful purpose.[88] However, delving extensively in the merits of the existence of a possible cause of action will usually not be appropriate.[89]
[87]Murdesk v Secretary to the Department of Business and Innovation [2011] VSC 436 [17] (John Dixon J).
[88]Ibid [63].
[89]Telstra Corporation Ltd v Minister for Broadband, Communications and the Digital Economy (2008) 166 FCR 64, 78 [53] (French, Weinberg and Greenwood JJ).
Submissions and consideration
It is convenient, and less repetitive, for me to deal with the key issues arising from the parties’ submissions on an issue by issue basis.
Trofeo relied upon the summary of principles set out in Pandolfo, as referred to in paragraph 37 above.
CAMS does not cavil with the summary of principles from Pandolfo which Trofeo relied upon, but submits that it is not complete. I will deal with these additional matters below, where it is convenient to discuss them.
Has Trofeo established that it has, or may have, a right to relief from CAMS?
This question, which effectively encapsulates the requirements of r 32.05(a), did not appear to me to be particularly controversial between the parties.
Trofeo submits that the evidence before the Court satisfies the test summarised in Pandolfo. In particular, in relation to r 32.05(a), it says that:
(a) the Moran Affidavit supports an inference that CAMS has been dealing with third parties potentially in contravention of the exclusivity reserved to Trofeo by clause 2(d) of the contracts; and
(b) the Arocca Affidavit tends to support the concerns held by Trofeo as to the contravention of the exclusivity provision.
CAMS made no submissions that r 32.05(a) had not been satisfied. The purpose of leading evidence as to its concerns regarding Trofeo’s performance of its contractual obligations was not stated by CAMS. Although these concerns were also dealt with extensively in CAMS’ Outline, that outline does not set out the point of that material. Rather, CAMS’ Outline and its oral submissions were directed more to the matters raised in the next section of these reasons.
Trofeo does not set out, in terms, what cause(s) of action it relies on to contend that there is reasonable cause to believe that it has or may have the right to obtain relief from CAMS. In Trofeo’s Outline, breaches of contract are obliquely referred to, in terms of a breach of the exclusivity provision and requirement to negotiate in good faith in clause 2(d) of each contract. The same possible actions were referred to in Trofeo’s oral submissions.
In the 13 October Letter, Trofeo’s lawyers were more fulsome in describing Trofeo’s allegations against CAMS, and by inference the causes of action it may have.
These allegations included:
(a) at the time negotiations were conducted for the assignment of the GT Contract and the Endurance Contract to Trofeo, CAMS represented to Trofeo that renewal of the contracts was a mere formality (‘Representation’);
(b) CAMS has acted in a way to undermine Trofeo’s performance of its obligations under the contracts. The letter gives several examples of this, which are said to amount to a breach of the contracts by CAMS;
(c) CAMS engaged in a pattern of co-ordinated conduct with third parties in pre-determining that it would not renew Trofeo as the manager under the contracts;
(d) CAMS had not been negotiating the renewal of the contracts with Trofeo in good faith; and
(e) during the exclusivity period, CAMS had been in negotiations with at least one respondent to the EOI process.
The 13 October Letter went on to state that SWS Lawyers expected to ‘obtain instructions to commence proceedings’ against CAMS, Mr Arocca and Mr Smith in relation to:
(a) the Representation, insofar as it was misleading and deceptive;
(b) CAMS’ failure to negotiate a renewal of the contracts in good faith;
(c) conduct by CAMS, Mr Arocca and Mr Smith that indicate a premeditated intention to refuse to renew the contracts irrespective of performance or CAMS’ obligations under the contracts;
(d) conduct by CAMS, Mr Arocca and Mr Smith that is detrimental to Trofeo’s business; and
(e) CAMS’ breaches of the GT Contract and the Endurance Contract.
It should be noted that an applicant for preliminary discovery is not required to identify the precise causes of action upon which it may be able to rely; rather, the test is whether the facts are such that it may reasonably be believed that the applicant may have a right to obtain relief.[90]
[90]Pandolfo, [20(b), (c)].
It seems to me, from the evidence as summarised earlier in these reasons, that r 32.05(a) is satisfied in this case. At its most fundamental, CAMS was obliged to negotiate exclusively and in good faith with Trofeo once notified of Trofeo’s desire to renew the contracts and could only approach other parties if no agreement was reached with Trofeo by 30 September 2020. There is no contest between the parties that CAMS commenced the EOI process by issuing the EOI Requests well before that date. This is reasonable cause for a belief that Trofeo may have a right to obtain relief from CAMS.
Does Trofeo need preliminary discovery from CAMS in order to decide whether to commence proceedings against it?
It is fair to say that this question was hotly disputed by the parties, and it comprises two sub-questions or elements, as discussed below.
Has Trofeo already decided to issue proceedings against CAMS?
CAMS submits that if the evidence establishes that the applicant has in fact decided to commence a proceeding, then preliminary discovery will not be available, relying on Pandolfo.[91] This is because inspection of the documents sought would not assist the applicant to decide whether to commence a proceeding. Trofeo did not dispute this exposition of the principle. The dispute between the parties, however, is its application to the facts in this case.
[91]Pandolfo, [21(e)].
CAMS relies primarily on the 13 October Letter to submit that it is plain that Trofeo has already decided to commence a proceeding. In particular, it relies on the statements in the letter that ‘Our client [ie Trofeo] takes the conduct of [CAMS], Mr Arocca and Mr Smith seriously and we [ie SWS Lawyers] expect instructions to commence proceedings against both [CAMS], Mr Arocca and Mr Smith’, and ‘Any proceedings commenced by our client will be seeking damages which we are instructed are likely to exceed $4 million’. CAMS says that SWS Lawyers, in the 13 October Letter, did not suggest that Trofeo was unable, by a lack of documents, to decide whether to commence a proceeding.
Trofeo rejects the proposition that at any point it has or had already decided to commence proceedings against CAMS. It says that the 13 October Letter does not say a decision has been made, and that it does not evince such a decision.
Further, Trofeo says that the 13 October Letter was akin to posturing about what it may do in the future. In this regard, Trofeo relies on B J Bearings, where Hargrave J (as his Honour then was) stated:[92]
In determining whether an applicant has in fact already decided to commence a proceeding, irrespective of the outcome of the application, the Court should not give too much weight to posturing in correspondence prior to the making of the application, particularly correspondence alleging the existence of a strong case but nevertheless seeking preliminary discovery by letter prior to making a formal application to the Court.
[92]B J Bearings, [19(4)] (citations omitted).
Trofeo submits that more important than the 13 October Letter is what Ms Moran, also the writer of that letter, says in her affidavit at paragraph 30, which is set out at paragraph 27 above.
In my view, there are aspects of the 13 October Letter which suggest that Trofeo may have already decided to commence proceedings. In particular:
(a) there is no equivocation or sense of equivocation expressed in the letter. The allegations are made and expressed firmly and in conclusionary terms, against CAMS and Messrs Arroca and Smith. It is more than saying Trofeo believes it may have a strong case;
(b) the letter does not request preliminary discovery; and
(c) indeed, the purpose of the 13 October Letter is not readily discernible. It does not make any demands or require anything of CAMS. The letter raises various allegations against CAMS, as described above, states that the lawyers expect to receive instructions to commence proceedings against CAMS, Mr Arocca and Mr Smith; the damages sought are likely to exceed $4 million; and Trofeo is considering including claims against the consortium reported to be taking over the relevant Championships. The 13 October Letter concludes with Trofeo reserving all of its rights.
The 13 October Letter was followed one week later by the 20 October Letter, wherein Trofeo requested preliminary discovery for the first time. The 20 October Letter refers to the 13 October Letter and says that Trofeo is ‘presently considering whether it should commence proceedings against’ CAMS, Mr Arocca and Mr Smith, and that it believes CAMS has documents in its possession ‘which would enable [Trofeo] to decide whether to commence proceedings’. The 20 October Letter foreshadowed making an application for preliminary discovery if CAMS did not provide the documents requested by Trofeo.
Ms Moran describes the 20 October Letter in her affidavit as having been sent so that she could advise Trofeo on whether to commence proceedings.[93] However, a solicitor wanting documents so as to advise a client is not a basis for the application of r 32.05. Both the 13 and 20 October Letters were written by Ms Moran. It is curious that the first of these was written in firm and unequivocal terms, making no request for documents and not saying that Trofeo had not yet made a decision, yet it was followed by a letter a week later stating that Trofeo needed documents to make a decision.
[93]Moran Affidavit, [22].
However, it is important to note that the allegations made in the 13 October Letter were wide-ranging and refer only once and in general terms to the exclusivity period, without alleging a breach of the exclusivity provision, whereas the matters referred to in the 20 October Letter are confined to clause 2(d) of the contracts, being the exclusivity period and good faith obligation.
The question of whether an applicant has already decided to commence proceedings is a factual one. I have also had regard to the admonition expressed in many cases, such as B J Bearings as set out above, not to place too much weight on posturing in correspondence. I do not consider it appropriate to approach the two letters in the way that one would approach statutory construction, for example. In light of these matters, along with the matters deposed to by Ms Moran, I do not think that the evidence establishes, on the balance of probabilities, that Trofeo has already decided to commence proceedings.
Does Trofeo already have sufficient information to decide whether to commence proceedings against CAMS?
Trofeo emphasises that the test is not just whether the discovery is required to determine whether it has or may have a cause of action, but critically it also involves whether it has enough information to decide whether to commence a proceeding.
It says that there is a clear benefit in ordering preliminary discovery, as it will enable Trofeo to determine whether or not there is any merit in the pursuit of litigation. In particular:
(a) Trofeo was aware that the EOI Requests to third parties had been made, but that of itself does not constitute a breach of the obligation to negotiate exclusively and in good faith with Trofeo;
(b) to the extent Trofeo’s concerns may be supported by the Arocca Affidavit, Trofeo says that it remains insufficient for Trofeo to make a determination as to whether or not it should commence proceedings;
(c) Trofeo has no basis to determine whether or not the nature and extent of any possible breach is such that it should commence proceedings;
(d) Trofeo has made reasonable inquiries but the only source of information which would demonstrate a breach of the exclusivity provision is CAMS. There is no other way for Trofeo to ascertain whether or not the nature of any breach by CAMS is such that it may warrant the commencement of proceedings as Trofeo has no way of satisfying itself as to what third parties CAMS may have in fact dealt with.
Trofeo also submits that even if the matters deposed to in the Arocca Affidavit as to the reasons CAMS did not renew its contracts with Trofeo are correct,[94] that does not excuse CAMS from breaching the GT Contract and the Endurance Contract. Trofeo goes on to submit that it may have some relevance to issues such as the measure of damages that Trofeo may have suffered, but until such time as Trofeo can assess the nature and extent of any breaches it remains hamstrung in determining whether any action that might be brought by it has merit.
[94]Being the concerns I have summarised at paragraphs 30 and 31 above.
On the other hand, CAMS submits that Trofeo does not require the documents sought so as to determine whether to commence a proceeding against it. CAMS submits that the claim is for breach of the contracts. It says that the essential elements of this are:
(a) the existence of the contracts, which is not disputed;
(b) a breach of the contracts by failing to negotiate exclusively and in good faith between 1 July 2020 and 30 September 2020. In this regard, CAMS does not dispute that it undertook the EOI campaign by which it solicited the interest of persons interested in managing the Championships beyond 2020 and obtained information as to their suitability;
(c) negotiations between CAMS and Trofeo broke down by mid-September 2020 and agreement was not reached by the end of the exclusivity period; and
(d) it is admitted that in October 2020, Mr Arocca and Mr Smith met with parties who had submitted EOIs, and in November 2020 the board of CAMS approved the appointment of parties other than Trofeo.
CAMS also refers to the detailed Arocca Affidavit setting out the history of CAMS’ concerns with Trofeo’s performance and says that Trofeo is well aware of CAMS’ position, both through its contemporaneous dealings and from the Arocca Affidavit.
CAMS submits that Trofeo can rely on the Arocca Affidavit, to the extent it contains relevant concessions, and it has substantial relevant documentation available to it. On this basis, Trofeo is capable of determining whether to commence a proceeding against CAMS for breach of the contracts and does not require further documents so as to determine how to proceed.
In oral submissions in response to this, Counsel for Trofeo submitted that the Arocca Affidavit is not enough for Trofeo to decide whether to commence proceedings. In support of this, Counsel relied on paragraph 33 of B J Bearings. While Counsel did not go into detail on this, I have read that decision and note that in that paragraph, his Honour referred to the information available to the applicant as being ‘hearsay, double-hearsay, inference from suspicious circumstances’ and that a bold plaintiff in those circumstances may choose to start proceedings and seek discovery, but the applicant in that case should not be criticised for adopting a cautious approach before deciding to embark upon costly litigation.
In oral submissions, Counsel for CAMS submitted that there was no affidavit from Trofeo in reply to the Arocca Affidavit to say that it still does not have enough information, and that while the question is to be determined objectively, it is relevant that there was no reply affidavit in light of the factual material contained in the Arocca Affidavit.
As a starting point, I would observe that the parties do not appear to have grappled with the provisions of clause 2(d) of the GT Contract and the Endurance Contract. The submissions and, indeed, the Categories of documents sought, are directed to the negotiations which CAMS held with other parties during the exclusivity period. They are not confined to this, as the documents also appear to go to the good faith obligation, however this aspect was emphasised.
However, clause 2(d) requires exclusive and good faith negotiations between 1 July and 30 September 2020 and it is only if agreement cannot be reached by 30 September that CAMS has the ‘right to seek out other interested parties’. It is therefore not just exclusive and good faith negotiations which are required, as CAMS cannot even seek out other interested parties before 30 September 2020. It is not disputed that CAMS sought out other interested parties before that date: Mr Arocca concedes that the EOI Requests were issued by 31 July 2020,[95] and he states that his view was that CAMS needed to be ready to move forward quickly in October 2020 if agreement had not been reached with Trofeo and that CAMS decided in July 2020 to continue negotiating with Trofeo and at the same time conduct an EOI campaign.[96]
[95]Arocca Affidavit, [34].
[96]Arocca Affidavit, [36]-[37].
I do not accept Trofeo’s submissions as summarised in paragraph 69 above. While it may well be that the Arocca Affidavit does not give Trofeo everything it wants, it can hardly be said that the information currently available to Trofeo is only hearsay, double-hearsay or inference from suspicious circumstances.
Trofeo’s submissions are vague as to what it says constitutes CAMS’ alleged lack of good faith. However, the 13 October Letter makes several allegations of a lack of good faith, including CAMS having already decided not to renew the contracts with Trofeo, which are based on conduct set out in detail in that letter and which are within Trofeo’s knowledge. It seems to me that Trofeo does not need preliminary discovery in respect of the good faith point in order to decide whether to commence proceedings: it is clear that it already considers there have not been good faith negotiations. I am aware that the question of whether Trofeo has sufficient information to enable it to decide is to be determined objectively, not subjectively, but in circumstances where its subjective view is that there has been a lack of good faith it is difficult to see why an objective view should be any different. Here, it is clear from the number of matters Trofeo has referred to in correspondence that it has sufficient information available to it to decide whether to commence proceedings based on a lack of good faith.
Trofeo submits that it is entitled to preliminary discovery so as to assess what defences may be available to CAMS, as part of its consideration of whether to commence proceedings. Trofeo did not make any submission as to what those defences may be.
To the extent that CAMS’ concerns about Trofeo’s performance of its contractual obligations, as set out in detail in the Arocca Affidavit, touch upon any possible defence open to CAMS, I do not see how Trofeo needs preliminary discovery in order to decide whether to commence proceedings. Such matters are already within Trofeo’s knowledge, as there has been previous communications about them. I accept that it may not have all documents in respect of such matters, but that is not the purpose of preliminary discovery.
Trofeo’s Outline states that CAMS’ concerns may have relevance to issues such as the measure of damages it has suffered, and it relies on paragraph 21(a) of Pandolfo in that regard. However, I do not see why Trofeo needs preliminary discovery to ascertain the likely or possible impact of CAMS’ concerns on the non-renewal of the contracts on the amount of any damages claim, be it in respect of causation or the quantum of damages. It knows about CAMS’ concerns. It can be readily inferred from the Arocca Affidavit, which Trofeo has not refuted, that it has detailed information about those matters.
Rather, Trofeo already appears to have enough information available to it to contend that its damages are likely to exceed $4 million. There was no explanation as to how this contention could have been made if Trofeo needed preliminary discovery to decide whether the quantum of any claim is worth it commencing proceedings. After all, the impact of CAMS’ alleged conduct and alleged breaches on Trofeo in terms of loss and damage is something peculiarly within Trofeo’s knowledge.
It seems to me that the only aspect which Trofeo is unlikely to have information about is whether negotiations, whatever is envisaged by that term in the contracts but assuming for these purposes it involves more than issuing the EOI Requests and receipt of the responses, occurred with other parties before October 2020. Trofeo’s Outline states that without preliminary discovery it has no way of satisfying itself as to what third parties CAMS may have in fact dealt with. However, it is not clear to me why the identity of such parties is relevant to whether Trofeo has sufficient information to commence proceedings against CAMS. At no point in Trofeo’s Outline or in its oral submissions has this been articulated.
In light of these matters, and in particular paragraph 72 above, on balance I do not consider that the preliminary discovery sought by Trofeo is required for it to decide whether to commence proceedings. I accept that Trofeo may not have information available to it at this time as to the extent of any negotiations between CAMS and third parties during the exclusivity period, but I do not consider that this means Trofeo does not have sufficient information to decide whether to commence proceedings. I accept that if Trofeo issues proceedings it may not be able to fully particularise its allegations of breach of the exclusivity provision until after discovery in that proceeding, but that is hardly a novel position for a plaintiff to be in.
On the basis that preliminary discovery is not required by Trofeo to decide whether to commence proceedings, as I have found that it has sufficient information available to it for that purpose, preliminary discovery will not be ordered. In case I am incorrect about this conclusion, and in deference to the submissions made by the parties, I will address the further issues raised on the application.
Can preliminary discovery be obtained from the named respondent where the applicant intends to use it to decide whether to commence proceedings against other persons, in addition to the named respondent?
CAMS emphasises that r 32.05 operates so that an applicant may obtain documents to determine whether it is entitled to relief against a person named as a respondent to the application, but it cannot obtain preliminary discovery so as to determine whether it has a cause of action against a third party.[97] In this regard, CAMS relies on the text of r 32.05 itself: sub-paragraph (a) refers to the prospective defendant, ie ‘relief from a person whose description the applicant has ascertained’, and sub-paragraph (c) refers to there being ‘reasonable cause to believe that that person has or is likely to’ have or had documents (emphasis added). Rule 32.05 then provides that if the Court is satisfied that (a) to (c) of the rule have been met, then ‘the Court may order that that person shall make discovery’ (emphasis added). CAMS also relies on Glencore, where Lindgren J, dealing with a similar rule under the Federal Court Rules, stated that ‘the provision does not allow for third party discovery: discovery may be ordered only against the person from whom there is reasonable cause to believe that the applicant is or may be entitled to obtain relief’.[98] His Honour went on to deny Glencore from obtaining preliminary discovery against a group of named respondent companies (collectively referred to as ‘Selwyn’) to the application, as Glencore would be using that discovery not to enable it to decide whether it has a right to obtain relief against Selwyn, but to decide whether it has a right to obtain relief from other named respondents to the application.[99]
[97]Headnote (i) of Glencore International AG v Selwyn Mines Ltd (2005) 223 ALR 238 (‘Glencore’).
[98]Glencore, [11].
[99]Glencore, [108].
Trofeo accepts this proposition.
In this instance, CAMS submits that Trofeo has said that it has a potential claim against CAMS, Mr Arocca and Mr White, but has only made its application against CAMS. Its use of CAMS’ discovery to probe potential claims against Mr Arocca and Mr White is not incidental use of the documents, but use of them for purposes other than what r 32.05 applies to.
In response, Trofeo concedes that discovery is sought only from CAMS, but says that as employees/officers Mr Arocca and Mr Smith may have documents which CAMS will have to discover.
In my view, Trofeo’s response to CAMS’ submission in this regard misses the point. True it is that in meeting any obligation to give discovery CAMS would have to source documents from relevant employees, but this is not the vice complained of by CAMS. The point is that Trofeo’s purpose in seeking documents from CAMS is not just to determine whether to commence proceedings against CAMS, but also to commence proceedings against Mr Arocca and Mr Smith, when no application for preliminary discovery against them has been made.
That purpose is evident from the contents of the 13 October Letter and the 20 October Letter, as well as the contents of the Moran Affidavit (which refers to CAMS, Mr Arocca and Mr Smith as ‘potential defendants’). The relevant portions of these have been set out above. Not only is it clear that the purpose of seeking preliminary discovery is to consider whether to issue proceedings against Mr Arocca and Mr Smith as well as CAMS, it is also clear that Trofeo is contemplating issuing proceedings against other persons. The 13 October Letter refers to Trofeo considering including in any proceedings it issues claims against the consortium headed by Scott Taylor and Kurt Sakzewski for inducing breaches of the GT Contract and the Endurance Contract.
The issue, then, is whether the procedure at r 32.05 permits an order for preliminary discovery in circumstances where Trofeo has adverted to an intention to use discovered documents to inform consideration of whether to commence proceedings against third parties as well as the respondent, CAMS. The text of r 32.05 does not specifically deal with this issue, though it does require that the person from whom preliminary discovery is sought be the same person in respect of whom the applicant has identified a reasonable cause to believe they may have a right to relief.
As set out above, Lindgren J in Glencore refused to order discovery against Selwyn as it would have been used to enable Glencore to decide whether it had a right to obtain relief not from that respondent but from another respondent. Critically, Glencore admitted that it had no intention of pursuing Selwyn due to the latter’s insolvency. Lindgren J’s decision has been taken as indicating that preliminary discovery will not be ordered for the purpose of consideration of the commencement of proceedings against a third party.[100] However, the present case is distinguishable from Glencore as there is no evidence before me indicating that Trofeo does not intend to pursue CAMS.
[100]Williams, Civil Procedure Victoria, [I32.05.0].
In Morton v Nylex,[101] White J of the Supreme Court of New South Wales considered a relevantly similar rule to Glencore and to the present case, and a relevantly similar factual matrix to the present case. In particular, the applicant for preliminary discovery in Morton had also put in evidence that they were considering commencing proceedings against a number of parties related to the respondent, as well as to the respondent.[102] White J stated that the rule allowing for preliminary discovery:[103]
does not authorise the making of an order to enable a plaintiff to decide whether to sue third parties. The order can only be made against a prospective defendant where it appears that the applicant may be entitled to make a claim against that person.
[101][2007] NSWSC 562 (‘Morton’).
[102]Morton, [26].
[103]Morton, [27].
However, his Honour did not refuse the application on the basis of this principle, nor does this principle necessarily stand in the way of the relief sought by Trofeo in the present case. In Morton, White J acknowledged that there was reasonable cause to believe that the applicant may have a right to relief against the respondent,[104] but the applicant had failed to show that it had been unable to obtain sufficient information otherwise than by the preliminary discovery procedure.[105]
[104]Morton, [31].
[105]Morton, [40] – [41].
In Timoney Technology Limited v ADI Limited,[106] Hargrave J (as his Honour then was) stated that:[107]
The procedure under r 32.05 cannot be used to obtain discovery for the purposes of determining whether the applicant has or may have the right to obtain relief against a third party, in particular an unnamed third party. The procedure is limited to obtaining discovery in respect of a possible right to obtain relief against the respondent to the application.
[106][2007] VSC 402 (‘Timoney’).
[107]Timoney, [43].
The factual situation in Timoney is not analogous to the present case and, in any event, his Honour’s statement on this point is obiter dicta.
In O’Connor v O’Connor,[108] the New South Wales Court of Appeal granted an order for preliminary discovery in circumstances where the applicant had indicated an intention to consider proceedings against two persons who were not named as respondents (‘the Non-Parties’), in addition to the three named respondents. The Non-Parties were the wife and brother of the first defendant, and were respectively a 25% and, later, 50% shareholder of the second defendant, and a director of the second defendant.[109] The applicant’s proposed categories of preliminary discovery included correspondence between the first defendant, second defendant, and the Non-Parties.[110] Further, the applicants had acknowledged their contemplation that documents produced by the respondents might give them a basis on which to proceed against one or both of the Non-Parties.[111]
[108][2018] NSWCA 214 (‘O’Connor’).
[109]O’Connor, [98].
[110]O’Connor, [95]
[111]O’Connor, [97].
In O’Connor, the Court of Appeal rejected the respondents’ contention that the application for preliminary discovery ought be dismissed as it would, in the circumstances, amount to an abuse of process by exposing the two Non-Parties to potential future proceedings.[112] First, the non-parties’ positions with respect to the second defendant meant that proper discovery by the second defendant could reasonably be contemplated to disclose correspondence between it and the Non-Parties, without necessarily exposing either to liability.[113] Moreover:
unless there was some evidence sufficient to make it appear to the court that either [Non-Party] may have had possession of relevant documents, naming them as prospective defendants would have been an abuse of process.
[112]O’Connor, [67], [92].
[113]O’Connor, [98].
As a decision of an intermediate appellate court, the decision of the Court of Appeal of New South Wales in O’Connor is one I should follow unless persuaded that it is plainly wrong.[114] I am not so persuaded; rather, the decision is highly relevant and persuasive. In particular, the position of the Non-Parties in O’Connor closely aligns with the positions of Mr Arocca and Mr Smith in the present case. The outcome in O’Connor means that, where preliminary discovery would be ordered against a respondent company, the position of such closely related non-parties and their potential exposure to proceedings is not of determinative significance and should not bar an otherwise good application for preliminary discovery. I respectfully agree. I also note that this case was closest to the present case in respect of the relevant factual matrix and question before the Court. That is, it concerns an application for preliminary discovery where the contemplated action in respect of which preliminary discovery is needed is against the respondent and third parties, not just third parties, and where the judgment specifically turned on this issue.
[114]Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22, (2007) 230 CLR 89 at [135]. See also ACN 115 918 959 Pty Ltd v Hoeys Lawyers Pty Ltd [2021] VSC 79, [915].
In the present case, the potential for Trofeo to use documents discovered by CAMS to determine whether to commence proceedings against it and possibly Mr Arocca and Mr Smith is not a barrier to ordering preliminary discovery against CAMS. As in O’Connor, where there is a genuine intention to consider commencement of proceedings against the respondent, consideration of proceedings against other persons should not be prohibited. It would be an undue limitation on the rule if preliminary discovery could not be ordered in circumstances where there is also a prospect of proceedings against other related persons.
Other matters concerning the exercise of the discretion
Given my conclusions expressed above, it is not necessary for me to deal with other matters concerning the exercise of the Court’s discretion in respect of this application. However, in deference to the parties having made submissions about these matters and in case I am incorrect as to not ordering preliminary discovery, I will set out in brief terms my views as to those aspects.
Questions as to whether some of the documents may exist
In respect of text messages, Mr Arocca deposes that he believes there are no text messages that he has ever forwarded to or received from Mr Smith on matters relevant to the question of whether Trofeo would be granted the management rights in respect of 2021 and beyond. He says that he does not as a general practice text his colleagues at CAMS on work related matters other than for urgent or critical matters.[115]
[115]Arocca Affidavit, [58]-[59].
Trofeo submits that the fact that some text messages may not exist does not obviate the need to discover them.
I accept this submission and do not see Mr Arocca’s evidence on this point as a reason not to order preliminary discovery.
Some of the documents may be the subject of claims to legal professional privilege
Mr Arocca deposes that he has provided legal advice to CAMS in respect of its rights and obligations under the GT Contract and the Endurance Contract, and CAMS does not waive privilege in that legal advice. If ordered to make discovery, CAMS intends to claim legal professional privilege in respect of certain documents.[116]
[116]Arocca Affidavit, [53]-[54].
Trofeo says the fact that privilege may be claimed in respect of some documents does not operate to avoid discovery – rather, it can be expected that in an affidavit of documents claims of privilege can be made.
Mr Arocca does not say that all, or even the majority or a substantial number of the documents responsive to the Categories may be privileged. In my view, the likelihood of privilege claims in this instance is not at a level likely to render an order for preliminary discovery inutile.[117] Any privilege claim in respect of particular documents could be made in the usual way.
[117]See Alex Fraser, [54(c)(iv)].
Some of the documents may be confidential
Mr Arocca deposes that among the categories of documents sought by Trofeo are EOIs submitted by parties, communications with parties who submitted expressions of interest, and communications in relation to the appointment of other persons as managers. He states that these documents contain confidential information regarding the commercial affairs of persons who are not parties to the present application and are competitors or potential competitors of Trofeo. Mr Arocca says that he believes that these confidential documents are not relevant to the question of whether CAMS breached its obligations to Trofeo, but if ordered to make discovery of them, CAMS intends to seek a confidentiality regime so as to limit inspection to Trofeo’s lawyers and to prevent the disclosure of their contents to Trofeo.[118]
[118]Arocca Affidavit, [55]-[57].
Trofeo submits that confidentiality is not a basis to object to discovery, noting that the Harman undertaking will apply. In oral submissions, Counsel for Trofeo indicated that Trofeo would be amenable to a confidentiality regime.
In my view, if preliminary discovery was ordered and CAMS wished to make a claim for confidentiality in respect of particular documents, those should be identified. If the parties were not able to agree upon a suitable confidentiality regime, then that is something that could be raised with the Court and dealt with pursuant to any liberty to apply.
Scope of the discovery sought, including analysis of the Categories
CAMS contends that even if successful in obtaining an order for preliminary discovery, Trofeo would not be entitled to obtain all documents which may be discoverable in the resulting proceeding, assuming there is one. The entitlement is to ‘such information as will establish all elements of the right to relief and enable the claim to it to be pleaded with sufficient particularity’.[119]
[119]Knowledge Partners v Kapish [2009] VSC 664, [19].
CAMS submits that if discovery is to be ordered, then it should be confined to the period 1 July to 30 September 2020, being the exclusivity period.
Trofeo says that it stands by the Categories as drafted, although it conceded that there should be a time period in respect of the documents to be discovered. It says that time period should be 1 June 2020 to 30 November 2020, ie just past the time when CAMS decided to appoint new managers of the Championships. The earlier starting date was not explained, but it was submitted that the period should go beyond 30 September 2020 as it was possible that some of the parties with whom CAMS negotiated after that date may refer to negotiations prior to then.
If I was to order discovery, I would confine it to documents between 1 July and 18 November 2020, which is the date when CAMS’ board decided to appoint two other parties to jointly manage the Championships after 31 December 2020.
CAMS’ responses to the Categories is set out in some detail in the CAMS’ Outline. I have summarised these below, along with Trofeo’s response and my views. It should be noted that a finding that a category is not required for preliminary discovery does not mean that such documents would not be discoverable in the ordinary way should a proceeding be issued.
In respect of Category A:
(a) CAMS submits that this category is directed at its decision to conduct the EOI campaign, and the relevance of its internal deliberations or its motivations for conducting the campaign is not apparent. What is relevant is that it conducted the EOI campaign during the exclusivity period, which is not disputed.
(b) Trofeo submits that this category is relevant and necessary for preliminary discovery as documents within that category may demonstrate an intention by CAMS to ignore its contractual obligations to Trofeo.
(c) My view is that documents going to the decision to conduct the EOI campaign during the exclusivity period may be relevant to CAMS’ contractual obligation to negotiate with Trofeo during the exclusivity period in good faith. Accordingly, these documents go to the good faith obligation and would be discoverable, if my above conclusions are incorrect. The applicable time period should be 1 July to 18 November 2020.
In respect of Category B:
(a) CAMS submits that communications and documents received by it from respondents to the EOI campaign are not relevant and that Trofeo does not require these documents to determine whether it has a cause of action against it. If preliminary discovery is ordered, it should be limited to documents sent by CAMS between 1 July and 30 September 2020.
(b) Trofeo submits that this category goes to the good faith obligation and that it is fundamental to the breadth of CAMS’ breaches of clause 2(d) of the contracts.
(c) I do not accept CAMS’ submission that documents received by CAMS during the period are not relevant per se. I see no reason to distinguish documents received by CAMS from documents sent to CAMS in the way that CAMS has done in opposing this category. If my conclusions are incorrect and preliminary discovery was to be ordered, then I would allow this category, with the time period 1 July to 18 November 2020.
In respect of Category C:
(a) CAMS refers to the evidence given by Mr Arocca that in October 2020 he and Mr Smith met with respondents to the EOI process, on 28 October 2020 two parties were invited to enter into an agreement to manage the Championships jointly and to enter into further negotiations as to financial terms, and that CAMS’ board approved the appointment of these parties on 18 November 2020. CAMS submits that preliminary discovery ought not be ordered for the purpose of verifying Mr Arocca’s evidence, and that to the extent he has made admissions, they can be relied upon by Trofeo against CAMS. CAMS also submits that it has already conceded that it has decided to appoint persons other than Trofeo to manage the Championships after 31 December 2020.
(b) Trofeo submits that this category is relevant and necessary for the same reasons as for Category B.
(c) If my conclusions are incorrect and preliminary discovery was to be ordered, then I would order discovery of this category for the time period 1 July to 18 November 2020.
In respect of Category D:
(a) CAMS submits that this category seems to be a ‘catch-all’ category and that there is no explanation as to why it is needed. It contends that Category D represents fishing to an impermissible extent. CAMS also submits that the evidence establishes that it negotiated with Trofeo during the July-September period and Trofeo does not suggest that CAMS wholly refused or failed to engage in negotiations, so that if Trofeo commences a proceeding it appears inevitable that its claim will allege that CAMS failed to negotiate exclusively and/or in good faith during that period. Therefore, discovery should be confined to that period, if it is ordered at all.
(b) Trofeo does not cavil with the proposition that Category D is a ‘catch-all’ category, but says that it is permissible as it goes to the manner in which CAMS has approached its obligations to Trofeo.
(c) My view is that Category D is too broad and that it goes way beyond what would be required for Trofeo to decide whether to commence proceedings. I accept the submission that this is a ‘catch-all’ category, which was conceded by Trofeo, and I would not allow preliminary discovery of Category D, regardless of whether my earlier conclusions are correct or not.
Conclusion
For the reasons set out above, my view is that:
(a) r 32.05(a) has been established;
(b) r 32.05(b) has not been established; and
(c) in terms of r 32.05(c), while I am satisfied that CAMS has or is likely to have documents going to the right to obtain relief, I am not satisfied that they will assist Trofeo to decide whether to commence proceedings against CAMS, as I consider that Trofeo already has sufficient information to make that decision.
Since all three elements have to be established,[120] and they have not been, Trofeo’s application for preliminary discovery will be dismissed.
[120]Pandolfo, [23]; Vestas, [24]-[27].
The parties are requested to confer regarding the form of orders to give effect to this decision, including the question of costs, and to either send proposed consent orders to my Chambers or advise that consent has not been reached by 12 March 2021. If consent is not reached, the proceeding will be listed for 19 March 2021 to deal with those matters.
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