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- Cassimatis v Axis Specialty Europe Ltd[2013] QSC 237
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Cassimatis v Axis Specialty Europe Ltd[2013] QSC 237
Cassimatis v Axis Specialty Europe Ltd[2013] QSC 237
SUPREME COURT OF QUEENSLAND
PARTIES: | |
FILE NO: | |
Trial | |
PROCEEDING: | Application |
DELIVERED ON: | 6 September 2013 |
DELIVERED AT: | Brisbane |
HEARING DATE: | 9 August 2013 |
JUDGE: | Jackson J |
ORDER: | The order of the court is that:
|
CATCHWORDS: | PROCEDURE – DISCOVERY AND INTERROGATORIES – DISCOVERY AND INSPECTION OF DOCUMENTS – PRODUCTION AND INSPECTION – GROUNDS FOR RESISTING PRODUCTION – OTHER GROUNDS – where a notice of non-party disclosure includes documents provided to and generated by ASIC in the course of ASIC’s enquires and investigations under the Australian Securities and Investments Commission Act 2001 (Cth) – where ASIC resists production of documents on the grounds there is insufficient particularity in the notice, documents are of no direct relevance, and some documents are confidential in nature – whether the court should exercise its discretion and make a direction limiting the disclosure under a notice of non-party disclosure issued to ASIC Australian Securities and Investments Commission Act 2001 (Cth), s 25, s 127 Uniform Civil Procedure Rules 1999 (Qld), r 5, r 242, r 244, r 245, r 367 Johns v Australian Securities Commission & Ors (1993) 178 CLR 408; [1993] HCA 56, cited |
COUNSEL: | S Russell (Solicitor) for the plaintiffs L Kelly SC and M Johnston for the first defendant S J Forrest for ASIC |
SOLICITORS: | Russell Solicitors for the plaintiffs Sparke Helmore for the first defendant ASIC for ASIC |
[1] JACKSON J: The plaintiffs apply for an order setting aside the notice of non-party disclosure issued to the Australian Securities & Investment Commission (“ASIC”) dated 26 June 2013 (“the notice”). The notice was issued by the court upon the certificate of the solicitor for the first defendant as the requesting party’s solicitor dated 26 June 2013.
[2] The notice requires the production of the following documents:
Number | Date | Description |
1 | Various between 1 September 2008 and 30 December 2008 | Any correspondence (including letters, faxes, emails), notices, memoranda of file notes regarding ASIC’s enquires and investigations of/or reporting requirements of Storm Financial Ltd |
2 | Various between 1 September 2008 and 30 December 2008 | Any files notes, internal memoranda or other documents regarding meetings with Storm Financial Ltd and/or its directors and officers. |
Background
[3] The plaintiffs’ claim against the first defendant is upon a policy of insurance in respect of directors and officers liability. The first defendant defends the claim on the ground that, at the time of entry into the contract of insurance, the plaintiffs had represented to the first defendant that the position of Storm Financial Limited (“Storm”) was sound and was in accordance with the description found in its annual report and there were no known factors which might give rise to claims personally against any directors of Storm in their capacities as directors. The first defendant alleges that each of the representations was false and a reasonable person in the circumstances would not have held the belief that they were true.
[4] As well, the first defendant alleges that the plaintiffs had a duty to disclose every matter: known to the plaintiffs that the plaintiffs knew to be relevant to the first defendant’s decision whether to accept the risk and, if so, on what terms; or a reasonable person in the circumstances could be expected to have known to be a matter so relevant. The first defendant alleges several distinct non-disclosures of those kinds, including material changes to the financial position and financial soundness of Storm, facts which gave rise to a real risk and potential for claims to be made against the plaintiffs as directors and that Storm was in breach or in potential breach of its Australian Financial Services licence placing its licence in potential jeopardy.
[5] The particular matters alleged include in particular par 23(d) of the amended defence that there was a meeting between Storm and ASIC arranged evidenced by an email dated 17 November 2008.
[6] On 1 October 2008, it appears that ASIC began investigating Storm. In December 2008, the plaintiffs received a notice of examination from ASIC and gave notice of a claim under the policy. In December 2010, ASIC commenced proceedings in the Federal Court of Australia against the plaintiffs.
[7] This proceeding was started on 23 December 2011. Disclosure is complete or substantially so, summaries of evidence have been exchanged and mediation was due by the end of August.
Plaintiffs’ “standing”
[8] The plaintiffs apply to set aside the notice relying on UCPR 245(2).
[9] Reasonably, the plaintiffs rely upon the circumstance that the documents sought by the notice include documents provided to ASIC and which were generated by ASIC in the course of ASIC’s enquires and investigations under the Australian Securities and Investments Commission Act 2001 (Cth) (“ASIC Act”) into the affairs with Storm and the plaintiffs’ involvement in Storm’s affairs. Under the provisions of the ASIC Act, and as illustrated by Johns v Australian Securities Commission & Ors,[1] the investigations must be conducted in private and information or documents received by ASIC and those generated by it are potentially sensitive and are to be kept confidential. Section 127 of the ASIC Act protects that confidentiality and is explicated by ASIC’s Regulatory Guide 107: Confidentiality and Release of Information.
[10] Accordingly, the plaintiffs are potentially affected by the notice in a way which may give them a basis for an application to object to production of all or some of the documents within the ambit of the notice.
[11] However, it is unnecessary to resolve any question of standing under that rule. Pursuant to UCPR 367 the court can make any order or direction about the conduct of a proceeding it considers appropriate, even though the order or direction may be inconsistent with another provision of these rules. Accordingly, the court can make a direction limiting the disclosure which is to be made by ASIC in compliance with the notice, if there is good reason to do so, whether or not UCPR 245(2) is engaged.
[12] ASIC sought leave to appear on the hearing of the plaintiffs’ application, notwithstanding the plaintiffs’ opposition. I determined that it would be appropriate to hear from ASIC as it only sought to make submissions about the operation of provisions of the ASIC Act in response to submissions which the plaintiffs advanced about that subject matter on the application. A consequence of ASIC having appeared is that it was present during argument about the scope of an operation of the notice and able to provide information about its proposed response to the notice.
The plaintiffs’ contentions
[13] In broad terms, the plaintiffs complain that the documents which are sought by the notice are described with insufficient particularity, that not all the documents are directly relevant to issues in the proceeding, and that at least some of the documents are confidential in nature. These points were made against the background of two overarching submissions: first, that any notice of non-party disclosure was unnecessary; and, secondly, that the disclosure sought was a fishing expedition.[2]
[14] In support of the contention that any notice of non-party disclosure was unnecessary, the plaintiffs submit that another reasonable, simple and inexpensive way of obtaining the documents existed under s 25 of the ASIC Act.
[15] Section 25(3) of the ASIC Act provides that: “ASIC may, subject to such conditions (if any) as it imposes, give to a person a copy of a written record of the examination, or of such a copy together with a copy of any related books”. The examination referred to is an examination made under Pt 3 Div 2 of the ASIC Act. It should be noted that the extent of s 25(3) is limited to the record of the examination and any “related books”.
[16] Section 127 of the ASIC Act provides, in part, that: “ASIC must take all reasonable measures to protect from unauthorised use or disclosure information given to it … in connection with the performance of its functions or the exercise of its powers under the Corporations Legislation …”.
[17] In Johns v Australian Securities Commission, an argument was directed to the width of the power under s 25(3). It was held that “the power conferred by s 25(3) must be exercised consistently with the provisions of s 127 so that the giving to a person of ‘a copy of a written record of the examination … together with a copy of any related book’ under s 25(3) is authorised only if it be for a purpose consistent with s 127.”[3] The plaintiffs did not identify what disclosure authorised by s 127 would have been available to the first defendant without issuing a notice of non-party disclosure. Accordingly, in my view, the plaintiffs’ first overarching submission fails.
[18] The second overarching submission made by the plaintiffs is that the notice of non-party disclosure was issued as a deliberate attempt in the nature of a fishing expedition. For that purpose, the plaintiffs rely upon an email from the first defendant’s solicitor to ASIC’s solicitor sent on 31 July 2013 in which she said “… we have adopted the agreed extension dates in advising the courts of the further time frames we require for amending our client’s defence, which are tight given the volume of material we anticipate receiving from you and other party …”. The plaintiffs’ submission is that this statement evidences the first defendant’s intention to use the disclosure obtained pursuant to the notice to fish out a further case by way of defence to be raised by amendment.
[19] Whilst I consider the language of the email to be a little concerning and it is expressed in an unfortunate way, it does not seem to me that it sufficiently evidences the broad or improper intent which the plaintiffs seek to draw from it.
Confidential documents
[20] The plaintiffs rely upon UCPR 245(4)(e) as a ground of objection, namely the “confidential nature of the documents or their contents.”
[21] Although that is discretionary ground for objection, it is not an absolute bar. In the circumstances of this case, it is reasonably likely that documents which are in ASIC’s possession as a result of the investigation, and which may be confidential, are directly relevant to the issues raised by the first defendant’s amended defence as to the plaintiffs’ alleged misrepresentations or non-disclosures, as stated in summary form above. As between the plaintiffs and the first defendant, in my view, the general confidential nature of any documents or their contents does not form the basis for setting aside the notice.
Service
[22] I note that the plaintiffs relied upon absence of service of the notice as a ground for it being set aside in the written submission but during the oral hearing that point was abandoned and I need not consider it further.
[23] However, I note UCPR 244(1)(a) and that the provisions of Pt 2 of Ch 7 of the UCPR otherwise do not require generally that a notice of non-party disclosure be served on the other parties.
Direct relevance
[24] The plaintiffs submit that the documents sought by the notice are not directly relevant. The right to require a person to produce a document under UCPR 242 is limited to a “document that is directly relevant to an allegation in issue in the pleadings.”
[25] Item 1 of the notice targets documents described as “[v]arious between 1 September 2008 and 30 December 2008” comprising “[a]ny correspondence (including letters, faxes, emails), notices, memoranda of file notes regarding ASIC’s enquires and investigations of/or reporting requirements of Storm Financial Ltd.” The plaintiffs submit that they are not all directly relevant.
[26] The first defendant responds by pointing to the allegation in par 23(m) of the amended defence that, in the premises of pars 23(a) to (l), ASIC were investigating Storm’s business practices and there was a real risk of the plaintiffs being exposed to formal investigation and enquiry in the capacity of directors of Storm. That allegation is denied in par 26(i) of the reply to the amended defence for the reasons which are pleaded in that paragraph. They include denial of the effect of some of the subject matters alleged in pars 23(a) to (l) of the amended defence.
[27] In my view, having regard to that issue, the scope of item 1 is potentially justifiable, but still perhaps too widely expressed, because it is only confined to documents “regarding ASIC’s enquiries and investigations of and/or reporting requirements of Storm Financial Ltd.” It is concerning that a large number of documents could be caught by the notice, including documents that are not directly relevant. It is not consistent with the objective of UCPR 5 that more documents than are necessary should be required to be produced for proof of the issue raised by paragraph 23(m).
[28] Item 2 of the notice targets documents described as “[v]arious between 1 September 2008 and 30 December 2008” comprising “[a]ny files notes, internal memoranda or other documents regarding meetings with Storm Financial Ltd and/or its directors and officers” when only one meeting which took place between them and ASIC is per se clearly directly relevant on the face of the issues raised by the amended defence.
[29] These matters of concern as to the width of the description of the documents required to be produced under the notice are not theoretical. ASIC has informed the parties that there are about 1000 documents which come within the scope of items 1 and 2 of the notice. It is likely that in identifying that number ASIC has not concerned itself with whether any of the documents within those descriptions are directly relevant to any issue.
[30] It is relevant that this and other courts are making serious efforts to reduce the oppression and expense of the observed trend towards voluminous disclosure or discovery. Rules of court, directions and practice directions are changing to address the concern. It may also be observed that the right of a party without leave to require production of documents from non-parties by non-party disclosure can be used to circumvent the restrictions upon disclosure between the parties to directly relevant documents, as non-parties may not be as likely as parties to see that the production of documents is minimised, thereby saving expense and delay.
[31] I hasten to add that there is no evidence here of any abuse of that kind, save for two concerns. First, there is the concern that so many documents appear to fall within the broad classes of documents as described in the notice. Secondly, in a letter written by the first defendant’s lawyers dated 5 August 2013, it was stated that: “Your clients have made very limited disclosure in this proceeding. Our client is forced to seek relevant disclosure from non-parties…” In case the obvious needs to be stated, I should make it clear that non-party disclosure ought not to be used as a method of testing the adequacy of a party’s disclosure.
[32] On the oral hearing of the application, I expressed concern as to the apparent volume of the documents which according to ASIC would come within the notice and the lack of any connection between the descriptions of the documents in items 1 and 2 and the issues upon the pleadings.
[33] I suggested that the classes could be narrowed by reference to the relevant issues, acknowledging that in general a notice should not require the person who is required to produce the documents to form judgments about whether a document within a class sought by a notice is or is not directly relevant. Still, I suggested that something should be done in this case to narrow the scope of the notice.
[34] The parties exchanged proposals. The first defendant proposed that ASIC produce the documents described in the items 1 and 2:
“…which are directly relevant to the following issues in dispute:
(a) whether “ASIC were investigating or at least reviewing Storm’s business practices” and whether “there was a real risk of the plaintiffs being exposed to formal investigation and inquiry in their capacity as directors of Storm” (as alleged at paragraph 23(m) of the first defendant’s amended defence);
(b) whether the plaintiffs were exposed to the prospect of “formal investigation and inquiry as directors of Storm with respect to professional services and advice provided to clients, margin calls, gearing and in the performance of their duties as directors” (as alleged in paragraph 23 of the first defendants amended defence);
(c) whether Storm’s directors were exposed to the prospect of investigation by reason of a reportable breach of Storm’s AFS licence (as alleged at paragraph 24 of the first defendant’s amended defence); and
(d) the knowledge of the plaintiffs or any of Storm’s directors, employees or representatives of any of the matters in sub-paragraphs (a) to (c).”
[35] The plaintiffs objected to this formulation on the bases that the documents required to be produced by reference to proposed para (b) would go beyond the scope of paras 23(a) to 23(m) of the amended defence and proposed para (d) is too wide because it goes to the knowledge of Storm’s employees or representatives.
[36] The plaintiffs propose that the notice be amended by altering the description of the documents required to be produced to the following:
Number | Date | Description |
1 | September 2008 to 30 December 2008 | Any correspondence (including letters, faxes, emails), notices, memoranda of file notes showing whether “ASIC were investigating or at least reviewing Storm’s business practices” (as alleged at paragraph 23(m) of the first defendant’s amended defence) |
2 | 1 September 2008 to 30 December 2008 | Any correspondence (including letters, faxes, emails), notices, memoranda of file notes showing whether “there was a real risk of the plaintiff being exposed to formal investigation and inquiry in their capacity as directors of Storm” (as alleged at paragraph 23(m) of the first defendant’s amended defence) |
3 | 1 September 2008 to 30 December 2008 | Any correspondence (including letters, faxes, emails), notices, memoranda of file notes showing whether the plaintiffs were aware of any of the matters in [items] 1 and 2 above |
4 | 1 September 2008 to 30 December 2008 | Any correspondence (including letters, faxes, emails), notices, memoranda of file notes in relation to the notice by Storm to ASIC of a breach of condition 7(c) of its AFS licence (as alleged at paragraph 24(b) of the first defendant’s amended defence) |
5 | 1 September 2008 to 30 December 2008 | Any file notes or internal memoranda or other documents regarding the meeting referred to in the email dated 17 November 2008 from Mr Chris Anderson of ASIC addressed to the plaintiffs |
[37] The first defendant objected that the plaintiffs’ proposed items 1 and 2 are narrower in operation than the first defendant’s proposed para (b). If they are, in my view, proposed items 1 and 2 conform to the pleaded issue more precisely. They will identify the directly relevant documents.
[38] The first defendant objected to the plaintiffs’ proposed item 5 because “meetings may be directly relevant to paragraphs (a) to (c) of the first defendants proposed schedule.” It seems to me that states the wrong test. The existing wide form of item 2 set out earlier in these reasons is not justified by saying that documents in those categories “may” be directly relevant to one or more of the issues set out in the pleadings. If any files notes, internal memoranda or other documents relating to a meeting show whether ASIC were investigating or at least reviewing Storm’s business practices or that there was a real risk of the plaintiff being exposed to formal investigation and inquiry in their capacity as directors of Storm, they will be within the plaintiffs proposed items 1 or 2. They do not need to be identified again, or as broadly as any documents regarding any meetings within the relevant period.
Conclusion
[39] For those reasons, I propose to order that the notice be amended to delete the description of the documents required to be produced in the existing items 1 and 2 and substituting the plaintiffs’ proposed items 1 to 5 for the deleted description.