Van Stokkum v The Finance Brokers Supervisory Board - [2001] WASC 59

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: VAN STOKKUM -v- THE FINANCE BROKERS SUPERVISORY BOARD [2001] WASC 59

CORAM: MASTER BREDMEYER

HEARD: 24 JANUARY 2001

DELIVERED : 7 MARCH 2001

FILE NO/S: CIV 2704 of 2000

BETWEEN: BERNARDUS HUBERTUS VAN STOKKUM
Plaintiff
AND
THE FINANCE BROKERS SUPERVISORY BOARD
Defendant

Catchwords:

Discovery from a potential party - Applicant seeks discovery in a representative capacity

Legislation:

Finance Brokers Control Act 1975 (WA), s 88

Rules of the Supreme Court (WA), O 26 r 4

Result:

Application allowed

Representation:

Counsel:

Plaintiff: Mr D H Solomon
Defendant: Mr P B O'Neal

Solicitors:

Plaintiff: Solomon Brothers
Defendant: Ms E C J Needham, Ministry of Fair Trading

Case(s) referred to in judgment(s):

Carnie v Esanda Finance Corporation Ltd (1995) 182 CLR 398

Case(s) also cited:

Australasian Memory Pty Ltd v Brien [2000] HCA 30; (2000) 172 ALR 28
Birch Investments Pty Ltd v Lim, unreported; SCt of WA; Library No 7396; 12 July 1988
Bright v Femcare Ltd [2000] HCA 1179
Canadian Pacific Tobacco Company Ltd v Stapleton (1952) 86 CLR 1
Cohen v Walthamstow Pty Ltd, unreported; SCt of WA; Library No 980148; 30 March 1998
Crimmins v Stevedore Industry Finance Committee [1999] HCA 59; (1999) 167 ALR 1
Davis v Sagar Pty Ltd, unreported; SCt of WA; Library No 980443; 10 August 1998
Federal Commissioner of Taxation v Nestle Australia Ltd (1986) 69 ALR 445
Hill v National Australia Bank Ltd, unreported; SCt of WA (Master Sanderson); Library No 980676; 24 November 1998
John v Rees [1970] Ch 345; [1969] 2 All ER 274
Johnson Tiles Pty Ltd v Esso Australia Ltd [1999] FCA 56; (1999) ATPR 41‑679
Jovista Pty Ltd v FAI General Insurance [1999] WASC 44
McCarthy v Dolpag Pty Ltd [2000] WASCA 106
Perre v Apand Ltd [1999] HCA 36; (1999) 198 CLR 180
Prudential Insurance Co Ltd v Newman Industries Ltd [1981] Ch 229
Riley v Jubilee Goldmines NL [2000] WASC 114
Tipperary Developments Pty Ltd v Western Australia [1999] WASC 62; (1999) 21 WAR 250

MASTER BREDMEYER: This is an application by the plaintiff for discovery from a potential party under O 26A r 4 of the Rules of the Supreme Court which provides:
"4.(1) This Rule applies if a person who may have a cause of action against a person whose description has been ascertained ("the potential party") wants -
(a)to commence proceedings against the potential party; or
(b)to take proceedings against the potential party in the course of an action to which the person is a party,
but the person, after reasonable enquiries, has not been able to obtain sufficient information to enable a decision to be made as to whether to commence or take the proceedings.
(2)If there are reasonable grounds for believing that the potential party had, has, or is likely to have had or to have, possession of documents that may assist in making the decision, the person may apply for an order under this Rule.
(3)The application shall be supported by an affidavit and a copy of both shall be served on the potential party.
(4)On the application the Court may order the potential party to give discovery of all documents that are or have been in the potential party's possession and that may assist the applicant in making the decision."
The orders sought are as follows:
"1.The defendant do provide discovery, on affidavit, pursuant to Order 26A Rule 4 of the Supreme Court Rules of all documents in its possession, custody or control relating to:-
1.1each and every complaint received by the defendant or its officers or anyone authorised or permitted by the defendant or its officers to receive a complaint about any of the finance brokers who trade or traded as Graeme Grubb Finance Broker, Clifton Partners (now Knightsbridge Finance), Blackburne & Dixon, Global Finance, Peter Fermanis (now Trust Mortgages) Leon K Jamieson, MFA Finance, Gamel Ward or First Charter Mortgages (the "Brokers");
1.2all other information received by the defendant, its officers or any other person authorised or permitted by the defendant or its officers to investigate or receive information about any of the Brokers which shows any fraud, theft, default, breach of trust, breach of the Finance Brokers Control Act 1975 or the Code of Conduct promulgated under the Finance Brokers Control Act 1975 or improper conduct by any of the Brokers;
1.3any investigation conducted by the defendant or its officers or any other person authorised or permitted by the defendant or its officers to make an investigation into any of the Brokers; and
1.4any other information available to the defendant or its officers concerning any of the Brokers and which show fraud, theft, default, breach of trust, breach of the Finance Brokers Control Act 1975 or the Code of Conduct promulgated thereunder or improper conduct by any of the Brokers.
2.The plaintiff do pay the defendant's costs of providing discovery, to be taxed on an indemnity basis.
3.The defendant do pay the plaintiff's costs of this application in any event."
The affidavit in support, is that of Ms Bartley, an articled clerk in the plaintiff's solicitors office. Surprisingly, it is not from the plaintiff himself. The affidavit is based on information and belief and states in summary that the plaintiff has lost approximately $50,000 through investing money through Blackburne & Dixon Pty Ltd ("Blackburne & Dixon"). The plaintiff has obtained advice from Solomon Brothers that he, and an as yet an unascertained class of people, may have a claim against the defendant for negligence. The affidavit annexes the lengthy reports of the Gunning Committee of Inquiry into the Finance Brokers Supervisory Board ("the Gunning Report") and of the Legislative Council Select Committee into the finance broking industry in Western Australia ("the Travers' Report"). The deponent further states that despite the information and findings contained in those reports the plaintiff does not know what information the Board had on the seven or eight brokers named in the application. Also he does not know if the defendant was negligent in relation to failing to investigate, or continuing to licence, any or all of the brokers. The plaintiff does not know when the defendant acquired information which could have led or, which should have led, to a broker losing his licence. The plaintiff would like to commence a representative action against the Board, the details of which are set out in a long letter from Mr Solomon to the Board of 24 November 2000. I quote from parts of that letter:
"It is now plain that many licensed finance brokers in Western Australia have engaged in theft, fraud and gross negligence on many occasions. The affairs of Global Finance and Graeme Grubb, Finance Broker have been the subject of court proceedings and the Board - appointed supervisors. Documents read into evidence in those proceedings showed that over an extended period of time both brokers operated their trust accounts in flagrant breach of trust. Further, the report of the Gunning Inquiry refers to substantial further evidence of fraud, theft and gross negligence by finance brokers. Disturbingly, evidence referred to in the report of the Gunning Inquiry shows that the Finance Brokers Supervisory Board (the Board) and its officers were aware of much of that evidence … .
The findings of the Gunning Inquiry and some of the evidence before the Supreme Court in the various proceedings relating to Global Finance and Graeme Grubb Finance Broker showed that the Board and its officers had notice of the fraudulent and grossly negligent activities of various finance brokers for a long time. Rather than exercising its broad and intrusive powers to fully investigate the many complaints and much adverse information apparently provided to the Board and its officers in relation to many, if not all, of the abovenamed Brokers, and where appropriate cancel those Brokers licences, the Board continued over many years to renew the Brokers licences without condition or investigation. In doing so, the Board granted those Brokers the imprimatur of its approval: many, if not all, of our clients invested through brokers materially induced by them holding themselves out as being 'licensed" under State legislation."
The first requirement of O 26A r 4(1) is that the applicant must be "a person who may have a cause of action against the potential party". Mr Van Stokkum, the applicant in this case, seeks discovery from the Board on behalf of a wide class of persons, namely all persons who lost money in recent years through investing with finance brokers in this State who were the subject of complaints made to the Board and the Board failed to cancel their licences. The plaintiff has not referred me to any case in which discovery under this rule, or its equivalent in other jurisdictions, has been granted to a representative of a class. That is not necessarily fatal to the application but it does make me cautious. This is not an application for a representative order under O 18 r 12 but I consider I should look at that rule at least by way of analogy. If, for example, Mr Van Stokkum has a good chance at a later stage of getting a representative order in his favour that may assist his present application to get a representative discovery order. Order 18 r 12(1) states:
"Where numerous persons have the same interest in any proceedings, not being such proceedings as are mentioned in r 13, the proceedings may be begun, and, unless the court otherwise orders, continued, by or against anyone or more of them as representing all or as representing all except one or more of them."
I was referred by the plaintiff's counsel to Carnie v Esanda Finance Corporation Ltd (1995) 182 CLR 398. In that case Mr and Mrs Carnie had obtained finance through Esanda to purchase a machine for their farm. They entered into a loan contract and a credit mortgage. They claimed that Esanda had not complied with certain provisions of the Credit Act 1984 (NSW). They sought a representative order allowing them to bring the proceedings on behalf of themselves and all other persons who after 28 February 1985 had entered into a loan or credit sale contract with the defendant which was regulated by the Credit Act. They sought a declaration that no representative debtor was required to pay any amount on account of credit charges in relation to those contracts. The High Court on appeal approved the making of a representative order. The High Court held that the plaintiffs and the represented parties had the same interest in the proceedings and the relevant rule authorised their joinder in a representative action.
I consider the facts are different in this case. Although I am not called upon to decide whether this plaintiff should be given a representative order or not, as that application is not before me, I see considerable difficulties in his way. He seeks to represent, for the purposes of this discovery action, all investors who have been cheated by finance brokers in Western Australia who were the subject of complaints to the Board and who did not have their licences cancelled by the Board. The fact that, for example, a serious complaint of misconduct was made against Blackburne & Dixon to the Board, and the Board took no action, may benefit Mr Van Stokkum if his investment was made after the date when the Board should have taken action; and it may equally benefit other investors with Blackburne & Dixon around that time. But it seems to me all that is irrelevant to a group of investors cheated by say Graeme Grubb Finance Broker. I consider the investors with the one broker do not have the same interest as investors with another broker. If Mr Van Stokkum succeeds in an action against the Board in negligence for its failure to cancel the licence of Blackburne & Dixon, then that may be a test case which applies, or perhaps extends, the law of negligence into this new factual situation, and it may well help an investor seeking to sue the Board for similar negligence in relation to another broker. But, in terms of O 18 r 12 the two investors do not have the same interest so that they should be represented by the one representative plaintiff. I will not allow this application in relation to any finance broker other than Blackburne & Dixon. However, I will allow this application to be for the benefit of other investors through Blackburne & Dixon who suffered through the failure of the Board to cancel the licence of this broker.
The second matter required by O 26A r 4(1) is that the plaintiff "after reasonable enquiries" has not been able to obtain sufficient information to enable a decision to be made as to whether to commence the action or not. I consider the plaintiff has met that test. His solicitors sent a detailed letter of 24 November 2000 to the Board already mentioned. The plaintiff represented by Mr Jeremy Giles and Ms Bartley of Solomon Brothers met with the new chairman of the Board, Mr Peter Jooste QC, Mr O'Neal and Mrs Elizabeth Needham the Registrar of the Board on 15 January 2001, for discussions on the documents required. The details of those discussions are set out in Mr Jooste's affidavit. Although the discussions were useful, and the Board is not totally opposed to pre‑action discovery, the Board expressed a number of concerns which could not be resolved in those discussions and hence have led to this application. In order to assist the plaintiff's solicitor to narrow down his request somewhat the Board supplied copies of its annual reports from 1995 onwards to Mr Giles. The Board was concerned that, despite two lengthy enquiries into the Finance Brokers Board, the request for discovery was very general in its terms. Despite those two lengthy enquiries the plaintiffs were not able to identify any particular documents which they wanted other than to say all complaints made against the brokers. The chairman was concerned that if the current request was granted it would have the potential to result in a third unlimited private enquiry which would for the most part be likely to duplicate what has already been done and would put the Board to the time, trouble and expense of assembling the relevant files. I consider that reasonable enquiries have been made however by the plaintiff and that that requirement of the rule has been met.
The third requirement is that the plaintiff has not been able to ascertain sufficient information to enable a decision to be made whether to commence proceedings or not. I do not agree with the defendant's submission that the plaintiff could commence an action against the Board and plead in general terms that a complaint was made against Blackburne & Dixon to the Board, that the Board failed to investigate the complaint properly, and failed to cancel the licence of Blackburne & Dixon; and say that particulars of this complaint, and the Board's failure in relation to it, will be supplied after discovery and interrogatories. That to my mind, would be a wrong pleading. It would be a "fishing" pleading where in the plaintiff pleads a cause of action not knowing whether it has evidence to sustain a vital element of it, or not. It is much better that the plaintiff uses the pre‑trial discovery procedure of O 26A r 4.
A further element of the rule is that the plaintiff has reasonable grounds for believing that the potential party has possession of documents which may assist the plaintiff make his decision. I have no doubt on that score.
The defendant's counsel argued that any order made should seek to reserve the confidentiality required by s 88 of the Finance Brokers Control Act 1975 (WA) so as not to "divulge … any information concerning the affairs of any other person acquired by (officers of the defendant) by reason of (their) employment". I do not consider that section is a bar to a discovery order. That section headed "Secrecy" imposes a duty on members of the Board and inspectors and officers of the Board not to divulge any information concerning the affairs of any person acquired by reason of his office or employment. That section must surely be subject to the exception of a court order. A member of the Board could not be fined for obeying an order of a court even though it involves communicating, for example, information about a complainant and a broker. I understood that the Board cooperated fully before the two official enquiries mentioned and did not rely on this section to hide information.
By O 26A r 7 the plaintiff under this order seeking discovery is required to provide security for the costs and expenses of the defendant complying with the order. The plaintiff is willing to do that in this case and has collected a sum of $15,000 from affected investors.
I propose to make orders along the lines asked but in relation to Blackburne & Dixon only. I will hear the parties on the precise form of orders.