Re Holpitt Pty Limited v Varimu Pty Limited; Stephen Michael Larkin; Brent Roderick Potts and Theodore William Rigall West [1991] FCA 269; 29 FCR 576 103 ALR 684 (21 June 1991)

FEDERAL COURT OF AUSTRALIA

Re: HOLPITT PTY LIMITED
And: VARIMU PTY LIMITED; STEPHEN MICHAEL LARKIN; BRENT RODERICK POTTS and
THEODORE WILLIAM RIGALL WEST
No. N G624 of 1990
FED No. 354
Practice and Procedure
[1991] FCA 269; 29 FCR 576
103 ALR 684

COURT

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Burchett J.(1)

CATCHWORDS

Practice and Procedure - implied undertaking to the court that documents produced on discovery will not be used for any purpose other than the proper conduct of the action in which the discovery takes place - principles relating to the grant of the court's leave to use such documents for the purposes of a separate proceeding - conflicting obligations where documents the subject of the implied undertaking also fall within the terms of an order for discovery of documents made in a separate proceeding.

Federal Court Rules, Order 15 r. 6(2)

HEARING

SYDNEY
21:6:1991

Counsel for the Third and Fourth
Respondents: Mr R.M. Smith

Solicitors for the Third and

Fourth Respondents: Messrs Clayton Utz

Counsel for the Bank of New Zealand: Mr A.S. Martin

Solicitors for the Bank of

New Zealand: Messrs Kemp Strang and Chippindall

ORDER

Brent Roderick Potts and Theodore William Rigall West have the leave of the court to use the documents the subject of the motion being more fully described in the submission dated 13 June 1991 filed in matter number G624 of 1990 in and in relation to the conduct of that matter.

There be no order, as between the said Brent Roderick Potts and Theodore William Rigall West of the one part and the Bank of New Zealand of the other part, as to the costs of and incidental to this motion.

NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

DECISION

By notice of motion filed in these proceedings, the third and fourth respondents sought the court's leave to use in the proceedings documents in their possession which had been produced to them on discovery in certain other proceedings in the court. The notice of motion was served on the Bank of New Zealand, which had produced the documents in the other proceedings. The Bank was represented before me, and opposed the relief sought in the motion. It relied on the implied undertaking, given by Messrs Potts and West (to whom I shall refer as the applicants) in the action in which they obtained access to the documents, not to use them nor allow them to be used for any purpose other than the proper conduct of that action: Harman v Secretary of State for the Home Department (1983) 1 AC 280; Crest Homes Plc v Marks (1987) AC 829 at 853.

2. It seems to me that the notice of motion should properly have been taken out in the proceedings in which the implied undertaking to the court was given. This is the course which was pursued in Crest Homes, as appears at 854. However, the parties were in agreement that I should deal with the matter on the footing that the motion was properly before me. As all the relevant proceedings were brought in the Federal Court, there seems to be no problem about this.

3. It is necessary to say something about the circumstances. The applicants are respondents to proceedings brought by a disappointed vendor in respect of a sale of an hotel for 4.6 million dollars, which the purchaser, a trading corporation, is alleged to have failed to complete. It is further alleged that the respondents misrepresented, and aided and abetted the purchaser (in which they had substantial interests) in misrepresenting, that it had or would have the funds necessary to complete the agreement in accordance with its terms. The applicants deny these allegations, but also rely, in the alternative, on a plea that they had reasonable grounds to make the representations alleged. In earlier proceedings, which involved a much larger amount of money, a loan by the Bank of New Zealand of about 48 million dollars in respect of the Crest Hotel at Kings Cross, documents were produced on discovery by the Bank of New Zealand, copies being taken by the applicants, which the applicants wish to use in support of their defence of reasonable grounds to believe the necessary funds would be available to the purchaser. These documents fall into three categories: (1) documents which related directly to the proposed provision of finance by the bank for the purchase in question; (2) documents recording the course of dealings between the bank and the applicants and a Dr Larkin, who is also a party to the current proceedings, prior to the alleged making of the representations, that course of dealings being related to the loan of about $48 million for the purposes of the Crest Hotel, which was approved somewhere about six months earlier, and also, as I understand it, to certain other loan transactions; (3) documents concerning dealings after the alleged making of the representations, but within a period of some three or four months of the making of them, referring again to the availability or possible availability of finance from the bank for the purposes of the applicants.

4. Having regard to the issues raised by the pleadings in the current action, it seems to me the applicants are in something of a dilemma. An order has been made for discovery of documents by them. Plainly, documents of the nature of those which have been referred to, including, for example, a recommendation by the State Manager Corporate Banking of the bank, made in the recent past, describing the applicants as "extremely well regarded business men", of "high net worth", with "an excellent track record of turning around and/or improving existing cashflows in hotels", would have relevance to their defences and would fall within their obligation, under Order 15 r. 6(2), to include in their list of documents "documents which are or have been in the possession, custody or power of the party making the list". They have had, and have, copies of these documents. Equally plainly, the implied undertaking to the court, for which I have already cited authority, given in the earlier proceedings, permits them to do no such thing.

5. I was referred to a line of cases in England which culminated in the decision of the House of Lords in Crest Homes. I do not think it is necessary to discuss the earlier decisions because Lord Oliver of Aylmerton, in Crest Homes at 860, dismissed them as "no more than examples". He went on to say that
"they illustrate no general principle beyond this, that the court will not release or modify the implied undertaking given on discovery save in special circumstances and where the release or modification will not occasion injustice to the person giving discovery. ... (E)ach case must turn on its own individual facts."

6. Counsel for the Bank laid great emphasis on the expression "special circumstances", and on the onus, acknowledged at 859, upon an applicant for release from the implied undertaking "to demonstrate cogent and persuasive reasons why it should be released". That was said in the context of a case where release was sought, not in order to enable an obligation to make discovery in an existing action to be performed, but in order to facilitate the bringing of a charge of contempt of court. As appears at 857-858, Lord Oliver was concerned to meet an argument (which had the support of A.J. Bekhor and Co Ltd v Bilton (1981) QB 923) that "the court will not order a defendant to discover documents for the purpose of incriminating him" - to which, it was urged, grant of the relief sought would be tantamount. In those circumstances, it is easy to understand why it may have been thought the reasons required to be cogent and persuasive. As far as the expression "special circumstances" is concerned, it is an expression which is liable to be misunderstood unless care is taken to ask and answer the question, special in relation to what? "Special" is one of those words which derive almost all their meaning from the context. In relation to animals generally, any man is special; but when you are speaking of poets, he may need to be a Milton. If all that is required is that, among the great number of cases in the court in which documents have been discovered, this one must evince some special feature which affords a reason for releasing or modifying the undertaking, there will be no difficulty. Circumstances in which there is a legitimate reason why documents discovered in one proceeding should be made available in another will, viewed in this way, be rare. In the ordinary course, the ordinary rule should apply, there being no special circumstance to suggest otherwise. Cf. Jess v Scott (1986) 12 FCR 187, where the full court was concerned with the construction of order 52 r. 15(2), by which leave to file an appeal out of time could be granted "for special reasons". At 195, the joint judgment described the expression "special reasons" in this rule as

"an expression describing a flexible discretionary power, but one
requiring a case to be made upon grounds sufficient to justify a
departure, in the particular circumstances, from the ordinary rule
prescribing a period within which an appeal must be filed and served."

7. Of course, if Lord Oliver should be taken to have required the circumstances to be special, not in relation to all the various circumstances of the actions in which the relevant implied obligation has arisen, but in relation to the very small number of cases in which a reason appears why the undertaking might be relaxed, the discretion of the court would be entangled in a rule of quite uncertain import. I do not know on what footing one would say that a particular circumstance among these relatively rare circumstances would be "special" and another not. I do not think his Lordship intended to fetter the court's discretion in this way. I think he was using the words "special circumstances" to express the same idea which is expressed in the rule discussed in Jess v Scott by the words "for special reasons", of which the full court said (at 195):

"What is needed to justify an extension of time is indicated ... by
the words `for special reasons'. It is that there be shown a
special reason why the appeal should be permitted to proceed, though
filed after the expiry of twenty-one days. In that context, the
expression `special reasons' is intended to distinguish the case
from the usual course according to which the time is twenty-one
days. But it may be so distinguished (not necessarily will, for the
rule gives a discretion) wherever the Court sees a ground which does
justify departure from the general rule in the particular case.
Such a ground is a special reason because it takes the case out of
the ordinary. We do not think the use of the expression `for
special reasons' implies something narrower than this."

The approach taken by the full court in that case was supported by citation of authority, including R. v Secretary of State for the Home Department; Ex parte Mehta (1975) 1 WLR 1087 and Palata Investments Ltd v Burt and Sinfield Ltd (1985) 1 WLR 942, where each of the expressions "special circumstances" and "exceptional cases" was treated as no more confining in its effect.

8. In my opinion, the court's duty, in an application of this kind, is to consider whether the applicant has shown some circumstance which takes the matter out of the ordinary course, according to which production of documents pursuant to an obligation to make discovery involves the implied undertaking to the court; and, if so, whether an exercise of the court's discretion in favour of the application would be in the interests of justice. Although the present case is clearly distinguishable from the English cases because of the conflicting obligation pursuant to the order for discovery, I do not think I should decide it upon so narrow a footing as that distinction. I think the interests of justice in the current litigation require that an order should be made in the applicants' favour, and that the order I shall make will not occasion injustice to the bank. Accordingly, I shall make an order granting leave to the applicants to use the documents referred to in the application, and described in the Submission dated 13 June 1991 filed in matter number G624 of 1990 on their behalf, in and in relation to that proceeding.

9. The final question is what order I should make in respect of the costs of this motion. On the one hand, the applicants came to the court seeking an indulgence, and if the bank had confined itself to questions necessarily arising upon the application for that indulgence, I should have thought its costs would have had to be met by the applicants. On the other hand, in this case the bank has taken up the position of an adversary, thereby greatly lengthening the hearing of the motion and making the applicants incur further costs, and raising and pursuing issues upon which it has lost. For the bank, it was submitted that the motion was in any event precipitate; but, as against that, when the time arrived at which a decision had to be made, the bank continued to oppose the grant of relief. Weighing these considerations as best I can, I think the appropriate order is that each party should bear his or its own costs, but, as regards the costs of the applicants, this order is not intended to prevent those costs forming part of their costs of the action number G624 of 1990, should that be otherwise appropriate.