Colan Products Pty Ltd v Luxon Pty Ltd & Anor (No 1) [2002] FMCA 4 (15 January 2002)

Last Updated: 30 January 2003

FEDERAL MAGISTRATES COURT OF AUSTRALIA

COLAN PRODUCTS PTY LTD v LUXON PTY LTD & ANOR (No.1)

[2002] FMCA 4

PRACTICE AND PROCEDURE - Discovery - pre-trial discovery.

Federal Court Rules O 15A, r 6

Hooper v Kirella [1999] FCA 1584; (1999) 167 ALR 358

Alphapharm Pty Ltd v Eli Lilly Australia Pty Ltd [1999] FCA 391

Applicant:

COLAN PRODUCTS PTY LTD

Respondents:

LUXON PTY LTD & ANDREW JOHN LUCAS

File No:

SZ 762 of 2001

Delivered on:

15 January 2002

Delivered at:

Sydney

Hearing Date:

20 December 2001

Judgment of:

Raphael FM

REPRESENTATION

Counsel for the Applicant:

Mr B Connell

Solicitors for the Applicant:

John M Barbouttis

Counsel for the Respondent:

Mr A Lyons

Solicitors for the Respondent:

Burns Jameson Solicitors

ORDERS

(1) Parties to bring in short minutes of order reflecting the decision set out in paragraphs16, 17 and 18 of these reasons.

(2) Respondent to pay applicant's costs pursuant to part 21.10 of the Federal Magistrates Court Rules.

FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY

SZ 762 of 2001

COLAN PRODUCTS PTY LTD

Applicant

And

LUXON PTY LTD and ANDREW JOHN LUCAS

Respondents

REASONS FOR JUDGMENT

1. This application for pre-trial discovery was transferred to the Federal Magistrates Court by order of Moore J on 15 November 2001. The matter was heard on 20 December 2001.

2. Order 15A rule 6 of the Federal Court Rules is in the following form:

Discovery from prospective respondent

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 has been ascertained;

(b) after making all reasonable inquiries, the applicant has not sufficient information to enable a decision to be made whether to commence a proceeding in the Court to obtain that relief; and

(c) there is reasonable cause to believe that the person has or is likely to have or has had or is likely to have has possession of 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 in making the decision -

the Court may order that the person shall make discovery to the applicant of any document of the kind described in paragraph (c).

3. This rule was discussed in some detail by the Full Bench of the Federal Court in Hooper v Kirella [1999] FCA 1584; (1999) 167 ALR 358. At para 35 et seq their Honours discuss the nature of O 15A r 6 and say:

35 The power conferred by O 15A, r 6, if valid, is to be construed beneficially as befits remedial legislation: Paxus Services Ltd v People Bank Pty Ltd [1990] FCA 500; (1990) 99 ALR 728 (Burchett J), at 733. Within this framework, there are some features of the rule that are important for present purposes.

36 First, unlike identity discovery under O 15A r 3, information discovery under O 15A r 6 is available only against the person in respect of whom there is reasonable cause to believe that the applicant has or may have the right to obtain relief in the Court. That person must be someone whose description has been ascertained.

37 Secondly, it follows from the language of O 15A r 6 that the rule can apply only before substantive proceedings have been instituted. After proceedings have commenced, the rule ceases to apply: Ricegrowers Co-operative Ltd v ABC Containerline NV (1996) 138 ALR 480 (Tamberlin J), at 484.

38 Thirdly, an applicant must satisfy each of the three conditions specified in pars (a), (b) and (c) of O 15A r 6 in order to obtain an order for information discovery.

39 Fourthly, O 15A r 6(a) poses an objective test, namely whether there is reason to believe that the applicant has or may have the right to obtain relief from the prospective respondent: Minister for Health & Aged Care v Harrington Associates Ltd [1999] FCA 549 (Sackville J), at [28]. While it is not necessary for the applicant to demonstrate a prima facie case, it is not enough merely to assert that there is a case against the prospective respondent: CCA Beverages (Adelaide) Limited v Hansford (unreported, 15 November 1991, O'Loughlin J), at 12.

40 Fifthly, an order may be made in favour of an applicant who already has available evidence establishing a prima facie case for the granting of relief: Alphapharm Pty Ltd v Eli Lilly Australia Pty Ltd (unreported, 24 May 1996, Lindgren J), at 33. But the applicant, after having made all reasonable inquiries, must not have sufficient information to enable a decision to be made whether to commence a proceeding in the Court to obtain relief against the prospective respondent (see par (b)). The absence of sufficient information is to be assessed objectively: Alphapharm, at 31.

4. The "matter" in respect of which this application was made was alleged to be a breach of s 52 of the Trade Practices Act 1974 (Cth) on the part of the second and first respondents in respect of their business relationship with the applicant. The first respondent is a company associated with the second respondent whose services were supplied to the applicant by another company and who then acted as the applicant's sales manager. It is alleged that during the period of this relationship which existed for some considerable time, the respondents wrongfully utilised business opportunities which were made known to them as a result of the contractual relations with the applicant to benefit themselves and not the applicant. It does not seem to be disputed at this stage that some form of claim could be pleaded under s 52 of the Trade Practices Act in respect of these allegations, although even the applicant's counsel conceded that additional claims in the nature of breach of fiduciary duty and possibly deceit would be included.

5. The applicant relied on an affidavit of its solicitor, Mr John Barbouttis, who set out briefly the history of the parties' relationship and the knowledge of the possible breaches and the manner in which they had come the attention of the applicant. Exhibited to the affidavit was a number of documents, including some which appeared to establish the fact that the first respondent entered into business dealings on its own account during the period the services of the second respondent were being supplied to the applicant. The exhibits also appeared to establish that the second respondent instigated some of those business dealings at a time when he was overseas, ostensibly on the applicant's business.

6. The affidavit also contains copies of correspondence between Mr Barbouttis' firm and the respondents and their solicitors. That correspondence from Mr Barbouttis seeks the type of information which is now being requested in these proceedings. The initial request was met by what can only be described as a detailed request for further and better particulars. That request related to the claims which the applicant said it wished to investigate. It did not really respond to the request for the provision of documentation. Many of the questions could only have been answered by the applicant with the benefit of the documentation that the applicant had asked for. Notwithstanding this, the applicant did its best to provide some particulars in a letter of

18 June 2001 and then repeated its request for documentation. There was further correspondence culminating in a letter of 16 July 2001 from the respondents' solicitors, which contained, inter alia, the following statements:

"Our client regards the particulars provided as completely inadequate" ... "In view of the lack of particularity provided by you and the other matters raised herein, our client regards your client's applicant as completely without foundation and outside of the scope of the Federal Court Rules. We submit that an application of this nature is inappropriate in the circumstances."

The applicant, having obtained no assistance, commenced these proceedings in the Federal Court on 5 October 2001.

7. The respondent relied on an affidavit filed on 19 December 2001, although sworn on 14 November 2001. This affidavit, apart from refuting a number of allegations made in Mr Barbouttis' affidavit, also provided some background of the personal and marital relationships between some of the parties or their directors. There was a definite suggestion that these proceedings may have been connected to certain family law proceedings but the respondents did not go so far as to allege an improper purpose nor did they provide evidence which would have supported such an allegation. The main thrust of respondents' argument was that I should find that the applicant had not satisfied the Court that it had complied with all three subparagraphs of rule 6 of O 15A.

8. It is now clear that courts have a responsibility to manage matters that come before them. One of the many purposes of this form of management is to ensure that cases are dealt with expeditiously. Given the limited resources available to a Court, the only way this can happen is if lists are not crowded out by unmeritorious actions. One of the ways in which parties can avoid becoming involved in unmeritorious actions is if they have enough information prior to commencing proceedings to make a reasonable decision as to whether or not those proceedings are worth commencing. I see this purpose as having an important bearing on the use to which O 15A, r 6 may be put. It seems to me that it is far better for a party to be inconvenienced by being required to produce documents pursuant to an order made under this rule than being involved in an expensive proceeding which might well terminate when the same documents are produced at the discovery stage. This is not to say that I would give parties carte blanche to make applications of this type, I would not. But it does mean that where such an application is made and the applicant has met the tests required under subparas (a), (b) and (c) of r 6 then the Court should look sympathetically on such an application.

9. In Alphapharm Pty Ltd v Eli Lilly Australia Pty Ltd [1996] FCA 391, Lindgren J set out ten propositions which he used to test the strength of the case before him. He came to the conclusion that Alphapharm had not, after making all reasonable enquiries, come up against an obstacle consisting of the lack of key information which it reasonably needed to enable it to decide whether to commence proceedings; "rather, it hopes to be comforted in taking the decision which it already has sufficient information to enable it to take".

10. I have taken Lindgren J's relevant propositions into account when considering whether or not the applicant satisfies the objective tests under para 6(a) and (c) and the subjective and objective test under subpara (b).

11. I am satisfied that there is reasonable cause for the applicant to believe that it has or may have a right to obtain relief in the Court from the respondent. The evidence contained in Mr Barbouttis' affidavit indicates activity on the part of the respondents which may well involve a breach of s 52 of the Trade Practices Act. That will allow the applicant to claim the ancillary relief under the associated jurisdiction of this Court or the Federal Court.

12. I also accept the provisions of subpara 6 (c) have been satisfied on an objective basis. Some documentation has already been produced and if the breaches of the Trade Practices Act which are alleged have occurred then other documentation will be found. The non-existence of such documentation may well assist the applicant in making a decision as to whether or not to proceed.

13. The major concern which I have in this case is whether or not the applicant can be said, on an objective basis, to have made all reasonable enquiries and still not have had sufficient information to enable him to make a decision. The evidence reveals that some enquiries have certainly been made. Documents evidencing orders and even the second respondent's passport have been produced. There is no evidence of further enquiries of third parties or a third party's refusal to provide information. There is evidence of the request being made to the respondents for information and that request being declined.

14. The applicant responded to my queries concerning its enquiries by suggesting that it was unreasonable to expect that third parties doing business with the respondents would reply, particularly when some of them were overseas. The applicant's counsel also pointed out that any documents that it might obtain from making enquiries of the companies with which it suspected the respondents were doing business could much more easily be provided by the respondents themselves. In other words, it would only be from the respondents that the applicant could obtain information about the nature and breadth of the alleged activity. The applicant pointed out that the time period during which the conduct complained of occurred was not a long one and, in effect, the balance of convenience would lie in the information being obtained from the respondents rather than from unknown or suspected business associates.

15. I think this argument gains strength from the requirement of the applicant to establish objectively that it has not sufficient information to enable a decision to be made. In the Alphapharm case, Lindgren J refused the application because he believed the decision had already been made. That case involved the distribution of pharmaceuticals and large sums of money. In this case, the quantum of any loss is completely unknown. The alleged breaches which have been detailed may not have involved substantial loss of profit. Litigation today is expensive and one of the reasons a party may advance for not proceeding is that it would not recover sufficient to justify its costs. I think the applicant would be perfectly justified in saying it is unable to make a decision as to whether or not to commence proceedings until it has more knowledge of the nature and extent of any other alleged breaches. On any reasonable assessment of the balance of convenience it must be more convenient for the respondents to be required to provide details of their business activities over a short period prior to any proceedings being commenced against it, than at some stage after those proceedings have been commenced and substantial legal costs have been incurred.

16. I am satisfied that the applicant has established the matters required by O 15A, r 6. I am satisfied that it is not merely seeking to obtain comfort for a decision already taken and I am satisfied that the provision of the information required by the applicant is reasonable. The applicant in its claim listed twelve categories of documents which it required. I would ask that the applicant bring in short minutes of order which take into account the following:

a) Subparas (b), (c), (d) (e), (f) and (i) the addition of the words "entered into for commercial purposes" should be made after the word "correspondence";

b) In subpara (g) there should be deleted the words "or any company purporting to be the supplier of Aramid fibre";

c) In subpara (h) there should be deleted the words "and any company purporting to be the supplier of glass fibre";

d) Subpara (j) should be deleted.

17. The short minutes of order should also note that "any documents produced pursuant to these orders shall be kept confidential to the solicitors for the applicant and counsel save for the purposes of obtaining instructions from the directors of the applicant. Information provided to Ms Coughlan is provided to her solely in her position as employed solicitor to the applicant's solicitor".

18. Otherwise the short minutes of order should be in the form of the draft provided to me by the applicant's solicitors save only that the verified lists of documents shall be filed on or before 30 January 2002 and inspection to take place on or before 14 February 2002. I order that the respondents pay the applicant's costs pursuant to Part 21.10 of the Federal Magistrates Court Rules. I certify pursuant to Part 21.15 that it was reasonable for the applicant to employ an advocate.

I certify that the preceding eighteen (18) paragraphs are a true copy of the reasons for judgment of Raphael FM

Associate:

Date: 15 January 2002