VISCARIELLO v Macks (No 3)
[2008] SASC 225
•18 August 2008
SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
VISCARIELLO v MACKS (No 3)
[2008] SASC 225
Reasons of Judge Lunn a Master of the Supreme Court
18 August 2008
PROCEDURE
Amendment of pleadings - objection to proposed amendment of statement of claim that it included material obtained in other Court actions between different parties in breach of the implied undertakings in those actions against the use of documents and information disclosed in those actions - whether the undertaking could be waived by a party to such actions or only by leave of the Court - held where there was an arguable case that a proposed amendment involved a breach of an implied undertaking in another action the question of whether there was a breach should be dealt with in that action - whether implied undertaking discharged where documents inspectible under s 131(1) of the Supreme Court Act or s 51 of the Magistrates Court Act - application dismissed.
Discovery of documents - application by defendant for better discovery by the plaintiff of documents relating to his general financial affairs - plaintiff pleaded that proper particulars yet to be given of his loss and damage - held direct relevance of documents in question could not be assessed without such particulars - application adjourned until particulars given - held where further or continuing discovery made under 87RR 58.05 or 58.06 no requirement to refer in list to privileged documents or documents no longer held by the party unless discovery was then being made of such documents.
VISCARIELLO v MACKS (No 3)
[2008] SASC 225JUDGE LUNN:
Plaintiff’s application to file a new statement of claim.
Background
By an application of 24 June 2008 the plaintiff applied for leave to file a new statement of claim (“the ASOC”). It was filed in a sealed envelope because the defendant alleged part of its contents would be an unauthorised use of materials put forward in other actions which constituted an abuse of process. The defendant also apparently has other objections to the ASOC, but has not yet pursued them. These reasons are confined to what is necessary to deal with the issues raised on the present application for the filing of the ASOC.
The plaintiff is an admitted practitioner of this Court. He is a director of the legal firm, Commercial & General Law (“Commercial & General”), which represents him in this action. That firm is the successor to McNamara Business and Property Law (“McNamaras”) with which the plaintiff was associated and which represented him at an earlier stage of this action.
Paragraph 77 of the ASOC pleads:
77At all material times from November 2001, Tanya Hamilton-Smith (“Hamilton-Smith”) had a close personal relationship with the Plaintiff.
Nothing more is said about this relationship in the ASOC or the affidavits. In all the proceedings mentioned below Hamilton-Smith was represented by McNamaras.
The plaintiff was a director, employee and creditor of Bernsteen Pty Ltd (“Bernsteen”). This case is also concerned with the affairs of a connected company, Newmore Pty Ltd, which had a similar history to Bernsteen, but for the purpose of these applications its is sufficient to refer only to Bernsteen.
The defendant is an accountant and a liquidator. At various times up until 2001 he had given professional advice to the plaintiff and Bernsteen. As a result of alleged advice given by the defendant to the plaintiff on 5 December 2001 the plaintiff caused Bernsteen to appoint the defendant as its voluntary administrator. On 21 December 2001 the creditors of Bernsteen resolved that it be wound up. The defendant then became, and has remained, its liquidator. The ASOC pleads a number of causes of action relating to this winding up of Bernsteen, and the failure to implement a Deed of Company Arrangement, which are not relevant to the present applications.
The relevant parts of the ASOC commence at paragraph 77, which is quoted above. Set out below in chronological order are eight Court actions which are pleaded in the ASOC. (The numbers in [ ] are the paragraph numbers in the ASOC dealing with the particular action or topic).
“First action” [81]. Bernsteen sued Hamilton-Smith in the Adelaide Magistrates Court, 10039/02, claiming $27,733. There was a counterclaim for $27,769. Interim allocaturs for interlocutory costs were made in favour of Bernsteen against Hamilton-Smith on 23 March 2005 for $1,972 and on 4 April 2005 for $1,903. Bernsteen served a bankruptcy notice dated 7 April 2005 on Hamilton-Smith based on these allocaturs.
“Second action” [83]. On 4 May 2005 Hamilton-Smith commenced proceedings in the Federal Magistrates Court, 94/05, to set aside the bankruptcy notice. On 31 August 2005 it was set aside and Bernsteen was ordered to pay the costs of Hamilton-Smith.
“Third action” [85]. Heidi George (“George”) commenced an action against Hamilton-Smith in the Magistrates Court at Mt Barker, 720/02, for $4,250. On 25 August 2003 she obtained a judgment against Hamilton-Smith for $4,079. She served a bankruptcy notice on Hamilton-Smith based on this judgment [92].
“Fourth action” [93]. On about 21 July 2005 Hamilton-Smith instituted proceedings in the Federal Magistrates Court, ADG 159/05, to set aside the bankruptcy notice. On 22 September 2005 that action was dismissed and Hamilton-Smith was ordered to pay the costs of George [95].
“Fifth action” [96]. On 26 September 2005 George commenced proceedings against Hamilton-Smith in the Federal Magistrates Court, ADG 237/05, seeking her bankruptcy. On 19 July 2006 a final sequestration order was made against Hamilton-Smith [103-105].
“Sixth action” [99]. On 25 October 2005 Hamilton-Smith commenced an action against George in the Magistrates Court, 9644/05, seeking a declaration that she had fully satisfied the judgment in the third action. On 13 June 2006 judgment was given in this action for George with costs against Hamilton-Smith.
“Seventh action” [106]. On 17 July 2006 Hamilton-Smith instituted an appeal in this Court, 883/06, against the judgment in the sixth action. There were several hearings before Gray J, but the appeal was never adjudicated upon and it was later discontinued after a settlement was reached.
“Eighth action” [107]. On 8 August 2006 Hamilton-Smith appealed to the Federal Court, SAD 147/06, against the sequestration order made in the fifth action. On 21 November 2006 Besanko J allowed the appeal, published reasons [2006] FCA 1551, set aside the sequestration order and remitted the proceedings back to the Federal Magistrates Court.
The legal firm of Minter Ellison (“Minters”) represented Bernsteen in the first 2 actions and George in the other 6 actions. The plaintiff pleads that the defendant paid the substantial legal costs of George of the third to eighth actions out of the funds of Bernsteen and expended the funds of Bernsteen on the 8 actions for improper and personal purposes and in breach of his duties as the liquidator of Bernsteen. Such allegations had been raised by Hamilton-Smith in several of the later actions. In paragraphs 113-115 of the ASOC the plaintiff alleges that counsel for George in hearings before Gray J in the seventh action gave false and misleading information to the Court about the alleged interest of the defendant in that proceeding.
The Law.
(After preparing a 1st draft of these reasons, I received a communication from counsel for the plaintiff drawing my attention to a very recent judgment of the High Court of Australia in Hearn v Street [2008] HCA 36, delivered on 6 August 2008. I do not consider that anything in that judgment affects the conclusions which I have reached and I declined to re-open the argument to hear submissions on the effect of that High Court judgment).
There was no dispute that there was an implied undertaking by all parties to an action in any Court that documents disclosed in the course of that action by the other party, and the information in them, were not to be used by the party obtaining them for any purpose unrelated to that action without first obtaining the leave of that Court to do so. There was a major dispute about the extent and the scope of this principle, but for the reasons set out below it is not necessary for me to attempt to resolve it.
While conceding that not everything associated with proceedings cannot be used in other proceedings: British American Tobacco Australia Services Pty Ltd v Cowell (No 2) (2003) 8 VR 571 (“Cowell’s case) at [28] the defendant espoused a wide view of the scope of the principle and the plaintiff a narrow one. The authorities are unclear and in some conflict. They are summarised in an article by Matthew Groves The Implied Undertaking Restricting The Use of Material Obtained During Legal Proceedings in (2003) 23 Australian Bar Review 314.
Importantly for this matter there is a fundamental conflict of authority on the nature of the undertaking and its source, and whether it is more akin to an obligation that arises by operation of the law rather than by an undertaking given by each of the parties. There are authorities that the obligation is owed to the Court, and therefore it is only the Court which can release the parties from it: Prudential Assurance Co Ltd v Fountain, Page Ltd [1991] 3 All ER 878; Hamersley Iron Pty Ltd v Lovell, (1998) 19 WAR 316 at 321; Home Office v Harman [1983] 1 AC 280 at 308 . There are other authorities that the parties from whom the documents emanated can waive the undertaking: Dagi v BHP [1996] 2 VR 567 at 572; Sentry Corporation v Peat Marwick Mitchell & Co (1990) 95 ALR 11 at 23 and 38, which was cited with apparent approval by Mullighan J in Duke Group v Pilmer, 12 March 1993, [1993] SASC 4407 at [7]. The former is based on the wide view espoused by the defendant and the latter on the narrow view espoused by the plaintiff.
The implied undertaking extends to any person who receives documents or information to which it applies: Distillers Co (Bioe Chemicals) Ltd v Times Newspapers Ltd [1975] QB 613 at 621. Here neither the plaintiff nor the defendant were parties to any of the 8 actions referred to above. However, it is clear that the implied undertakings in respect of all of the actions are enforceable against them. The plaintiff was in McNamaras as the solicitors for Hamilton-Smith in each of the actions. The defendant was the liquidator of Bernsteen and it is undisputed that he had some association with George which made him aware of the actions to which she was a party.
On the defendant’s wider view the operation of the undertaking applied to the plaintiff not only in respect of the documents and information disclosed by Bernsteen and George, but also in respect of the documents and information disclosed in those actions by Hamilton-Smith. (Even if she could have consented to the plaintiff using documents and information disclosed by her in the actions, there is no evidence here that she did so consent). The plaintiff’s counsel did not suggest that much of what had been pleaded against the defendant on the topic of these actions did not come from documents and information put forward by Hamilton-Smith in those actions of which the plaintiff was aware because of his involvement in McNamaras. His contention was that the principle only applied in respect of documents and information disclosed by Bernsteen and George. (The issue of the material pleaded by the plaintiff in the ASOC which emanated from Hamilton-Smith may also be relevant on whether she should be a party to this action. Paragraph 89.2 of the ASOC pleads a settlement was reached between Hamilton-Smith, the defendant and others, but neither the pleadings nor the evidence tells me whether it would bar Hamilton-Smith from bringing any civil action against the defendant based on similar facts to those now sought to be pleaded by the plaintiff. If she does have such causes of action available to her but does not join in this action, it may well be that any consent which she has given to the plaintiff for him to use that material in this action would bar her from independently pursuing in the future such claims as were not then statute barred. There may also be an issue whether any such consent, if given by Hamilton-Smith, would be binding on her in the absence of her having received independent legal advice).
There are 2 inter-related, but separate, questions raised by the application. The primary question is whether any of the material sought to be pleaded by the plaintiff in the ASOC is in breach of the implied undertaking in any of the 8 actions. The secondary question is whether this Court in this action should exercise its discretion to refuse to allow the plaintiff to amend to plead material which may be in breach of the implied undertakings. It needs to be clearly recognised that the primary question is one for the Court in which the action was conducted and involves the interests of the parties to the particular action in that Court who are not the parties to this action. If there has been a breach of the implied undertaking in any of the 8 actions, it is a potential contempt of the Court in which the action proceeded. That is very much a matter for that Court to determine for itself. (Insofar as that Court is the Supreme Court it is not for me as a Master to adjudicate on any such contempt: 87R 106.3). It is not for this Court in other proceedings, and between other parties, except as is unavoidably necessary to determine these proceedings, to decide whether there has been such a breach of an implied undertaking and a potential contempt in that other Court. Wherever possible that primary issue should be resolved in the action concerned, and as between the parties to the action in that Court.
Here I am dealing with an application to amend an existing statement of claim and not an application to strike out an existing pleading. It is the proper exercise of my discretion about amendment to hold that once an arguable case has been made out for a proposed amendment being in breach of an implied undertaking in another Court, the application to amend should be refused or adjourned until that other Court has determined whether the necessary leave should be granted or not. If it is decided in the other action that leave is not required, the plaintiff is then free to renew his application to amend in this action. This course is consistent with what was said in Cowell’s case at [37].
There is a further reason why it is undesirable that the issue of any breach of an implied undertaking in another action should be decided on an application to amend pleadings. If it had to be decided in this action on the present application, all that this Court is considering is the terms of a proposed pleading. It is not directly concerned with all of the evidence which the plaintiff might adduce at the trial to prove the material facts which he has pleaded. Under 87R 46A.02(b) the plaintiff is precluded from pleading his evidence. Whether the use of documents and information in breach of the implied undertaking in other actions can be deduced from the face of the proposed pleading in this action is not always clear. There is certainly a risk that the issue pleaded may be found not to be in breach of the implied undertaking in other actions, but at trial the Judge may be confronted with evidence in support of the plea which can be shown to be in breach of the implied undertaking. It is in the interests of the administration of justice that if the plaintiff wants to plead on a topic which arguably involves a breach of an implied undertaking in another action, he should seek the necessary leave in that action, and disclose to the other Court both what his pleaded case and his evidence will be on the topic, before he pleads his case in this action. Otherwise, there is a risk that this Court will have to deal with the same issue twice in inconsistent ways.
There is a further factor to be considered which is that the implied undertaking ceases to operate once the documents or the information have passed into the public domain. However, there is some uncertainty in South Australian Courts about when this might occur. In respect of the Federal Court and the Federal Magistrates Court the matter is governed by rules which provide:
An order for an undertaking, whether expressed or implied, not to use a document for any purpose other than for the proceeding in which it is disclosed does not apply to the document after it has been read to or by the Court or referred to in open Court in such terms as to disclose its contents. (Federal Court Rules Order 15 Rule 18, Federal Magistrates Court Rules Rule 14.11(1).
Counsel for the plaintiff submitted that s 131(1) of the Supreme Court Act and s 51 of the Magistrates Court Act, which are in similar terms, had a like effect. Although they were not cited in argument, there are apparently inconsistent authorities on the point in this State. In Channel Seven Adelaide Pty Ltd v Draper (2004) 90 SASR 60 Gray J, with whom Nyland J concurred, said at [69]:
….. s 131 of the Supreme Court Act 1935 (SA). This section allows the public inspection of processes relating to proceedings. However, the Court retains the residual discretion to refuse to allow inspection. ….. s 131 does not restrict or limit the inherent jurisdiction of a Court to protect its processes from abuse. s 131 is in aid of and does not impede the administration of justice.
This is consistent with, although not explicit on, s 131 not necessarily discharging the implied undertaking. However, in the following year, but without referring to Channel Seven v Draper, Debelle J in K & S Corporation Ltd v Number 1 Betting Shop Ltd, (2005) 240 LSJS 398 held that the implied undertaking was discharged once documents were inspectible under s 131(1). I do not need to pursue this apparent conflict of authority any further. Although the plaintiff said that a number of matters relating to the actions were obtainable from public sources, he did not say that he had obtained that information from those sources rather than through McNamara’s involvement in the actions for Hamilton-Smith. If it was obtained from that involvement, he may very well need leave of the Court concerned to use it in this action, even if it was potentially available from other sources.
I need not take the matter further and go into each of the passages in the ASOC to which objection is taken. It is inappropriate for me to comment on what may be the subject of argument in other actions involving additional parties. The defendant has made out a sufficient case on its objection to enough of the ASOC to justify refusing the application to amend. It is now for the plaintiff what applications for leave, if any, he makes and/or whether he brings a further application for leave to amend in varied terms.
Defendant’s application for better discovery by the plaintiff.
On 7 May 2008 the defendant issued an application for directions seeking the following orders:
2That the plaintiff provide further and better discovery of any documents relevant to his claim for damage and loss, specifically:
2.1Any personal tax returns relating to the plaintiff’s occupation as a solicitor;
2.2Any business records relating to the plaintiff’s income as a solicitor;
2.3Any business records or tax returns relating to the plaintiff’s income derived from any other source;
2.4Any documents for which privilege is claimed;
2.5Any documents which have been, but are no longer, in the possession, custody or power of the plaintiff and directly relevant to the issues on the pleadings.
(The 1987 Rules apply to this action.)
Subparagraphs 2.1-2.3 of the application turn on whether the plaintiff’s general financial affairs are directly relevant to any issue raised by the pleadings. This is to be determined under the original statement of claim filed on 13 February 2006. The argument proceeded in part on the basis it would be determined under the proposed ASOC, but as that is not to be allowed I must determine the application on the original statement of claim. (Subject to one matter mentioned below, there is no material difference on this point between the original statement of claim and the proposed ASOC.)
The relevant paragraphs in the original statement of claim are:
1 The Plaintiff:
…..
1.5has since about December 1993, been and still remains a creditor of Bernsteen and Newmore in relation to:
…..
1.5.2unpaid wages, superannuation and other employee entitlements due and payable to the Plaintiff by Bernsteen and Newmore;
…..
71.3The Plaintiff has been suffered (sic) loss and damage by reason of:
71.3.1being denied his share in the monies to be allocated to unsecured creditors pursuant to the DOCA;
71.3.2being denied his share of what a competent sale of the Companies’ business, assets and property would have returned;
71.3.3being denied the opportunity to continue as director and employee of the Companies that would have continued pursuant to the DOCA;
71.3.4being recorded as the director of two Companies placed into liquidation potentially enlivening the banning provisions of the Act and also thereby affecting, inter alia, his future access to credit;
71.3.5being liable to payout various amounts due under certain guarantees executed by the Plaintiff in favour of the companies creditors which amounts would have been paid by Bart and/or the Companies if the Companies entered into the proposed DOCA and continued to trade:
PARTICULARS
71.3.5.1the plaintiff was called on to pay and did pay to the Commonwealth bank all monies secured under the Bank’s Security as referred to in paragraph 29.1 herein;
71.3.5.2the plaintiff was called upon to pay and did pay to the Commonwealth Bank Finance Corporation monies due under various lease agreements as referred to in paragraph 21.5 herein;
71.3.5.3the plaintiff was sued in the Supreme Court of Victoria by ARL in action number 7119 of 2002 under various alleged guarantees executed by the plaintiff in favour of ARL and has paid to ARL monies in settlement of that action;
71.3.6being liable for all consequential loss and damage to the Companies arising as a direct result of the Companies being placed into liquidation which loss and damage would not otherwise have arisen and/or in the alternative debts would have been paid by the Companies if the Companies had entered into the proposed DOCA and continued to trade;
PARTICULARS
71.3.6.1the Plaintiff has been joined as a Third Party by the Commissioner of Taxation pursuant to section 588FGA(2) of the Act in proceedings commenced by the Defendant, Peter Ivan Macks against the Commissioner of Taxation in his capacity as Liquidator of Bernsteen in Action Number 564 of 2004 and in his capacity as Liquidator of Newmore in Action number 560 of 2004;
71.3.6.2The plaintiff is being sued by the Commissioner of Taxation in District Court of South Australia Action Number 1766 of 2004 in relation to the Companies liability to the Commissioner of Taxation which would have been paid by Bart and/or the Companies as pleaded in paragraph 21.3 herein;
…..
78.4That the Defendant pay to the Plaintiff his loss and damages as herein pleaded to be assessed, full particulars of which will be the subject of an expert report and will be provided before trial;
The plaintiff has now indicated that he abandons subpara 71.3.3. If it had remained, the orders sought would have been clearly justified.
Paragraph 78.4 acknowledges that proper particulars have not yet been given of the plaintiff’s loss and damage. I am not sure how the heads of damage in paragraph 71.3 can be the subject of expert evidence, properly so called. I infer that what is contemplated is some form of accounting report showing how the various heads of loss are calculated (which would not be an expression of opinion, and therefore not expert evidence).
On the present pleading (and the proposed ASOC) it is impossible to know the precise nature of the loss and damage being claimed by the plaintiff. This presumably will be elucidated by further particulars and/or an expert report. The defendant contends that some of the items of damage require a comparison between what moneys the plaintiff actually received and what he would have received if he was to be placed in the position in which he would have been if the defendant had not breached his duty. He also contends that part of the award of damages would be net of income tax. If those contentions are correct, at least some documents of the classes now sought by the defendant would be discoverable. The plaintiff argues that the various heads of damage left in paragraph 71.3 do not require in their assessment a comparison of the type alleged by the defendant or attract an award of damages net of tax. On what is presently pleaded it is impossible to determine the issue. The application is premature until proper particulars and/or an expert report have been supplied by the plaintiff. Accordingly, I intend to adjourn the application in paragraphs 2.1-2.3 until this has occurred.
The defendant’s counsel also relied upon paragraph 1.5.2, but this does not assist him unless it is tied in with a claim for loss flowing from it. Paragraph 71.10.3 of the ASOC contains a different claim, and says:
7.10.3Not being paid his entitlements as at 21 December 2005 as referred to in paragraph 1.5.2 hereof which exceeded $200,000 for each of the Companies, which he would have been paid if the DOCA had been implemented and/or the Companies were not liquidated.
I do not see how such unpaid wages or superannuation make the plaintiff’s other financial affairs directly relevant. Further particulars would be needed of the “other employee entitlements” as to whether they may show them to be directly relevant.
On 15 August 2006 the plaintiff filed a list of documents in Form 19. That list gave a general description of documents for which privilege was claimed and set out a number of the documents which had been, but which were no longer, in his possession. On 6 November 2007 he filed a supplementary list of documents. Paragraphs 2.4 and 2.5 of the application are based on this supplementary list not containing any references to documents no longer in the plaintiff’s possession and not referring to any privileged documents. RR 58.05 and 58.06 dealing with supplementary discovery and continuing discovery, which are applicable by virtue of R 58A.10, do not prescribe any form for making such supplementary or continuing discovery. There are no rules requiring that they must refer to documents no longer possessed or privileged documents. If the plaintiff was not making supplementary or continuing actual discovery of documents no longer possessed by him or privileged documents, he was not obliged in his list of 6 November 2007 to refer to either of those categories. Paragraph 2.4 is not pursued on the basis of any better description being required of the privileged documents referred generally in the list of 15 August 2006. Accordingly, subparagraphs 2.4 and 2.5 of the application will be dismissed.
Any duty of the defendant to seek directions of the Court?
During argument there was an exchange between counsel for the plaintiff and myself about whether the defendant as a liquidator was under a duty to seek directions of this Court about matters of difficulty arising in the liquidation. The plaintiff’s counsel has since supplied me with references to authorities on the point. However, those references relate to applications for directions under s 479(3) of the Corporations Act 2001 which only applies where the company is being wound up by order of the Court. In that case the liquidator is acting as an officer of the Court. Here, the liquidations were voluntary and the defendant’s right to apply to the Court for directions was under s 511 of that Act. By virtue of his appointment he was not acting as an officer of the Court. It is not necessary for me to make any ruling on the point to dispose of the present applications. I say no more than that authorities under s 479(3) may not apply to s 511 of the Act: see generally McPherson’s Law of Company Liquidation, loose-leaf edition, para [8.1630].
I have today made the following orders:
1The plaintiff’s application of 24 June 2008 is dismissed.
2The plaintiff is to pay to the defendant his costs of that application.
3That application is certified for fit counsel.
4Leave reserved to the defendant to apply for supplementary costs orders and certification for Queen’s Counsel of that application.
5Subparagraphs 2.1-2.3 of the application of 7 May 2008 are adjourned to a date to be fixed.
6Subparagraphs 2.4 and 2.5 of that application are dismissed.
7Costs of that application are reserved.
8Directions hearing fixed for 11 September 2008 at 12 noon (with liberty to the parties to apply by e-mail to adjourn that hearing if the plaintiff requires more time to apply for leave in other actions).
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