Chapel Road Pty Limited v Australian Securities Investments Commission [2011] NSWSC 419 (16 May 2011)

Last Updated: 17 May 2011

Supreme Court New South Wales

Case Title:	Chapel Road Pty Limited v Australian Securities Investments Commission
Medium Neutral Citation:	[2011] NSWSC 419
Hearing Date(s):	9 May 2011
Decision Date:	16 May 2011
Jurisdiction:
Before:	Schmidt J
Decision:	For the reasons given, the orders which the plaintiff seeks must be made. The usual order as to costs, is that they should follow the event. The parties should approach if there is disagreement to costs. Otherwise, I order that: 1. The Defendant provides Discovery in accordance with the categories nominated by the Plaintiff: "Documents" include emails, correspondence, minutes, notes, files, contracts, reports, drafts, instructions and memoranda. All documents referable to the Defendant's investigations to the consideration of training, supervision and compliance issues during the period of 30 June 1998 to 30 June 2002 in respect of the following entities: (a) Financial Wisdom Ltd. (b) Count Financial Group Pty Ltd. (c) Greater Western Financial Services Co Pty Ltd. (d) AMP Financial Planning Pty Ltd. (e) Grosvenor Securities Pty Ltd.
Catchwords:	PROCEDURE - discovery - documents relating to third parties - whether documents sought was a fishing expedition - documents relevant to claim - orders made
Legislation Cited:	Corporations Act 2001
Cases Cited:	Associated Dominions Assurance Society Pty Ltd v John Fairfax & Sons Pty Ltd (1955) 72 WN (NSW) 250 Carroll v Attorney-General for New South Wales (1993) 70 A Crim R 162 Pharm-a-Care Laboratories Pty Ltd v Commonwealth of Australia (No 5) [2010] FCA 1204
Texts Cited:
Category:	Procedural and other rulings
Parties:	Chapel Road Pty Limited (Plaintiff) Australian Securities Investments Commission (Defendant)
Representation
- Counsel:	Counsel: Mr B Toomey QC (Plaintiff) Mr J Clarke (Defendant)
- Solicitors:	Solicitors: Creagh & Creagh (Plaintiff) Blake Dawson (Defendant)
File number(s):	2006/266784
Publication Restriction:

Judgment

1. By motion filed in October 2010, the plaintiff sought orders as to discovery. The motion was supported by an affidavit sworn by the plaintiff's solicitor, Ms Polin. The orders sought were opposed, the defendant relying for its part on an affidavit sworn by its solicitor, Ms Goodman.
   
2. The history of the proceedings include a decision given by Registrar Bradford in May 2008, where it was concluded that the defendant was not obliged to give discovery of documents relating to its investigation of a number of named corporate entities, which had resulted in them giving the defendant enforceable undertakings. The Registrar took the view that the documents sought were not relevant to the pleaded case and involved a fishing exercise.
   
3. Subsequently the pleadings were amended and in November 2008 a further request for discovery was made, albeit in relation to a number of different corporate entities. Thereby the plaintiff pursued discovery of documents relating to third parties to the proceedings, which the defendant again resisted.
   

The parties' cases

4. The plaintiff's case was that there was a real issue lying between the parties as to its claim that there had been differential or discriminatory treatment of the plaintiff by the defendant during the relevant period, in relation to policies which the defendant had implemented.
   
5. In written submissions it was explained that the plaintiff seeks to establish a factual matrix of the defendant's co-operation and dealings with other companies, at the same time and in relation to similar types of matters to those with which it dealt in relation to the plaintiff; namely, training, supervision and compliance matters; to make good its case of improper motive, bad faith and the defendant's exercise of regulatory powers in a discriminatory manner, in relation to the plaintiff. It was argued that the documents sought in relation to the third parties identified are relevant to establishing the factual foundation of the defendant's treatment of other companies, as well as to establish that the defendant was aware or reckless as to the inevitable and dire consequences of a misuse of its powers in relation to the plaintiff.
   
6. The plaintiff said that comparison was 'the essence of its case'.
   
7. In oral submissions, it was explained for the plaintiff that it was paragraph [13] of the further amended statement of claim to which the documents sought were presently relevant; that at present the plaintiff suspected, but could not prove that there had been inconsistent application of the practice relied on; and that if the documents, when produced, established such inconsistency, which the plaintiff wished to rely on at trial, the pleadings would have to be amended, to expressly advance that claim.
   
8. Even so, it was submitted that the discovery now sought involved no impermissible fishing exercise. The plaintiff had provided documents to the defendant, which explained why the third parties in question had been nominated. They were other companies in respect of which the defendant had similar, or even more serious concerns, to those held in relation to the plaintiff, but in respect of whom the defendant had accepted undertakings, rather than revoking their licenses. This would establish the practice alleged and, it was believed the inconsistent treatment suspected, which the plaintiff wished to rely on in advancing its case.
   
9. In its written submissions the defendant argued that the plaintiff's further amended statement of claim made no case by way of any comparison to other companies; that the documents sought were irrelevant to the case advanced; and that the productions sought involved a fishing exercise.
   
10. The defendant's case is that the documents sought should not be discovered, because they concern its investigations and dealings with third parties, only one of whom, Financial Wisdom Ltd, is even referred to in the pleadings. That reference is not made in such a way so as to make its circumstances relevant to the case which the plaintiff seeks to advance.
    
11. It was argued that the only relationship which could conceivably be seen to exist between the plaintiff and the third parties in respect of whom discovery was sought, was that the defendant had conducted investigations into those companies, at the same time as its investigation of the plaintiff. Any comparison of those investigations with that conducted in relation to the plaintiff were irrelevant to the issues raised in the pleadings.
    
12. The defendant argued that what was sought to be pursued was a fishing expedition, of the kind considered in Carroll v Attorney-General for New South Wales (1993) 70 A Crim R 162 where it was observed at 181:

"... the court must, in general, be satisfied that the documents are relevant to an issue for decision by the court in the litigation. It is not open to a party, as on a "fishing expedition", to subpoena documents merely in order to determine whether they may be relevant and may be of assistance to his case in the proceeding."

Registrar Bradford's decision

13. Registrar Bradford was dealing with the amended statement of claim, which took quite a different form to the pleading by which the plaintiff now advances its case. Registrar Bradford refused the discovery which the plaintiff was then pursuing, which related to a different set of companies (apart from one). The reason for the change in the third parties in respect of which discovery is now sought has not been explained, but for the defendant's part, is submitted to exemplify the impermissible fishing exercise which the plaintiff still seeks to pursue.
    
14. The Registrar relevantly took the view that the matters on which the plaintiff sought to rely had not been specifically pleaded; that the pleadings did not raise as an issue that the defendant had acted differently towards the plaintiff than towards others; nor had it been pleaded that it had failed to comply with its own guidelines. Accordingly, the documents sought to be discovered were not relevant to a fact in issue and the plaintiff was impermissibly engaged in a fishing exercise.
    

The amended pleadings

15. The proceedings are now pursued by a further amended statement of claim filed in November 2008. There the plaintiff claims damages for misfeasance in public office, including exemplary and aggravated damages. The claims relate to the plaintiff's security dealer's license and the business of a licensed security dealer, which it commenced conducting in October 1996. The plaintiff's claims concern alleged failures to provide it with copies of reports prepared about it by the defendant's National Compliance Officer in March and August 2000 until December 2000 and the provision of a November 2000 report, at the same time as it was issued with a 'Notice of Hearing' in relation to identified 'Areas of Concern'. The result was the adjournment of the hearing fixed in December 2000 until January 2001, so that the March and August reports could be provided to the plaintiff. The result of the decision made in April 2001, was the revocation of the plaintiff's license, with the result that the plaintiff went out of business. An appeal from that decision was later upheld by the AAT.
    
16. The plaintiff pressed discovery of the third party documents in issue as being relevant to its claim that:
    

"13 It was the usual practice of the Defendant as part of its policy aimed at promoting compliance an certainty to provide financial services businesses with feedback, information and/or reports."

17. The policy to which the pleadings refers is not identified. As the result of particulars provided and discussions between the parties, however, it appears that the parties have reached common ground as to the policy on which the plaintiff relies.
    
18. The claims are defended by a defence to the further amended statement of claim filed in July 2010. The defendant's response to paragraph [13] of the further amended statement of claim was:
    

"13 In relation to paragraph 13 of the Further Amended Statement of Claim the defendant does not admit that it was the usual practice of the defendant as part of its policy aimed at promoting compliance and certainty to provide financial services businesses with feedback information and/or reports."

19. It follows that there is an issue between the parties as to whether the defendant's usual practice in the application of the policy on which the plaintiff relies was to provide financial service businesses with 'feedback information and/or reports'.
    
20. Much of the rest of the plaintiff's further amended statement of claim outlines the defendant's conduct, which the plaintiff claims wrongly resulted in its licences being revoked in April 2010, inconsistently with the claimed practice.
    
21. It is also alleged in the further amended statement of claim that the defendant's officers did not hold an honest belief that the notice of hearing should be issued; or that the plaintiff's licences should be revoked; that in the circumstances a person of ordinary prudence and caution could not reasonably have made the decision which the defendant and its officers made; and that through its officers the defendant displayed bad faith in the performance of its functions and duties under the Corporations Act 2001, by:

"(a) Failing to honestly perform the functions of their office.

(b) Wilfully turning a blind eye to the truth regarding the Plaintiff's activities, and at the very least displaying a reckless disregard of the inevitable consequences of their conduct.

(c) The Defendant having previously published a "Hearing Procedure Manual" setting out in clear, unambiguous and relatively particularised form, the manner in which it sought to exercise its powers, duties and functions in following a practice of enforcement, encouragement and certainty and in doing so, causing least disruption to the business community - then failed to follow its own guidelines and in doing so denied the Plaintiff procedural fairness and natural justice.

(d) Breach of its statutory obligation to observe procedural fairness.

(e) Failure to provide natural justice, in withholding information from the Plaintiff regarding their investigations, knowing that the Plaintiff could have quite easily addressed all relevant issues of concern had they been informed, and by such a deliberate and consistent course of conduct displaying malice and lack of any honest attempt to perform the functions of its office.

(f) The Defendant was motivated by a purpose extraneous to the purpose for which the duties bestowed upon it under "the statutory scheme" was given, in that the Defendant acted maliciously.

(g) The Defendant acted with the intention of causing the Plaintiff harm."

22. The further amended statement of claim does not allege that the defendant acted differently towards the plaintiff than towards others, in the application of the policy identified in paragraph [13]. Nor does it allege that the defendant applied the policy differently to any of the third parties in respect of whom the plaintiff now seeks discovery. Nor has it been expressly pleaded that the defendant had failed to comply with its own guidelines or policies, so far as the plaintiff is concerned. Inferentially that is what the matters dealt with in [11], [12] and [14] to [29] of the further amended statement of claim assert.
    
23. There the plaintiff pleads that it was investigated by the defendant and that in March 2000 the defendant prepared a report as to the plaintiff's training and compliance regimes, after receiving a complaint about the plaintiff (at [9] - [11]); the plaintiff repeatedly sought a copy of the report, which, unbeknownst to the officer who had prepared the report, was not provided until December 2000 (at [14] - [15]); a further report of August 2000 identified that there were still issues with the plaintiff's training and compliance regimes (at [20)); that report was also not provided until December 2000 (at [22]); there was a further report prepared in November, which the plaintiff was provided with, at the same time as it was given the notice of the hearing fixed for December (at [23] - [25]). The hearing on 21 December was adjourned and the defendant ordered to serve the plaintiff with the reports. The hearing continued in January and in April 2001, the defendant's delegate delivered a decision revoking the plaintiff's license (at [26] - [29]). On 26 April the plaintiff ceased trading.
    

Conclusion

24. The plaintiff does not presently rely on pleadings which raise inconsistent treatment of the plaintiff by way of comparison to other companies. In paragraph [13] there is a claim that the defendant had a practice as to how the policy in question was applied. The plaintiff wishes to argue that the defendant's policy described a pyramid of offences. Its breach was at the bottom of the pyramid, being of the least serious kind and for which publicised sanctions involved fining, reprimanding and in more serious cases, enforceable undertakings. Instead, the plaintiff's license was revoked for what the defendant had identified to be a trivial breach.
    
25. The plaintiff also wishes to pursue a case that at the same time the defendant treated others involved in similar breaches by encouraging them to take steps which the plaintiff also undertook and accepting from them enforceable undertakings. Thereby the plaintiff wishes to establish that the differential treatment was undertaken maliciously, with the result that it had to cease trading and was unable to recommence trading, even when the AAT restored its license some 26 months later. The difficulty with that explanation of the second part of its case, is that it is one which is not, as yet, advanced on its pleadings. The plaintiff asserts, however, that what is raised on the pleadings is sufficient to permit it to pursue of the discovery which it seeks.
    
26. The plaintiff relied on Pharm-a-Care Laboratories Pty Ltd v Commonwealth of Australia (No 5) [2010] FCA 1204 where Flick J, who was also dealing with a claim of misfeasance in public office, had to consider motions concerning particulars provided in relation to pleadings on foot. In concluding that certain particulars should be struck out, his Honour observed at [18] - [19]:
    

"18 Although it may be a mistake to focus too much attention upon the phrase "standard TGA policy" or even the word "policy" itself, there nevertheless remains an unacceptable uncertainty as to whether the Applicant is truly referring to an administrative policy or merely an administrative practice. Departure from a formally adopted policy, for no relevant reason, may assist the Applicant's case more than a mere departure from an administrative practice as to how officers of the Therapeutic Goods Administration may conduct themselves in some circumstances. The Respondents, however, should be informed as to such basic matters as:

• if the "standard TGA policy" is indeed a formally adopted policy that has some administrative force, where such a policy is to be found and any administrative "imprimatur" that has been given to it;
• whatever may be the status of the "standard TGA policy", when and in what circumstances it is applied and whether all officers or only some of the officers of the Therapeutic Goods Administration apply the policy; and
• in the event that it is not uniformly applied, the facts and circumstances taken into account when not applying it.
  

19 Further deficiencies which it is considered warrant paragraph "JJ" being struck out are the failure to identify:

• the terms of the "policy" or the circumstances in which the "policy" was applied;
• the facts or circumstances which brought other companies within the reach of the "policy"; and
• the facts or circumstances that brought the Applicant within the terms of the "policy".
  

What has to be made clear is the manner in which it is alleged that:

• a failure to apply this "policy" to the Applicant, in circumstances where it has been applied to others, assists in a resolution of the honesty or bona fides of the individual Respondents. So much, it is considered, is not assisted by the provision of the existing particulars in respect to paragraph [81(a)].
  

The existence of a "policy" and a departure from that "policy" - without more - says nothing of relevance to the tort of misfeasance in public office. A "policy" that does not apply to the Applicant, without more, provides little (if any) assistance in resolving any fact relevant to the tort of misfeasance. A departure from a policy which has been applied to other companies in a like position to that occupied by the Applicant, may - if properly pleaded - go some way to making out the "intentional" element of the tort. But as presently particularised, they remain irrelevant."

27. The particulars with which his Honour was concerned were particulars provided in relation to the pleadings on foot. Here, I am concerned with the question of whether or not the documents sought to be discovered are relevant to the issues presently raised in the pleadings and whether or not the plaintiff is engaged in a fishing exercise.
    
28. The plaintiff relied on documents it had provided to the defendant, which showed, it was submitted, that it was not engaged in a fishing exercise. Thereby, it had identified "the fish" it was seeking (as discussed in Associated Dominions Assurance Society Pty Ltd v John Fairfax & Sons Pty Ltd (1955) 72 WN (NSW) 250 at 254). Those documents were said to be publicly available documents concerning the third parties, including media releases issued by the defendant, which dealt with their breaches of the law, including in relation to supervision and training, and undertakings accepted by the defendant, rather than seeking the revocation of their licenses.
    
29. The documents sought to be discovered it was argued, are relevant to establishing whether or not the plaintiff had the usual practice claimed in [13] of the further amended statement of claim, namely providing 'financial service businesses with feedback information and/or reports'. It may also reveal, it was submitted, that the defendant treated the plaintiff differently, in the implementation of this practice. If that appears from the documents, the plaintiff will seek to further amend its pleadings to rely on such inconsistent treatment to establish the case it seeks to advance.
    
30. That being so, it is clear, that the plaintiff is not, as yet, advancing what it said in its written submissions is 'the essence of its case'; namely, that the defendant applied the policy in question inconsistently. Were the plaintiff to amend its pleadings, to make this allegation, there could be no question that the documents sought were relevant to a fact in issue. Does it follow, as the defendant argued, that it must therefore be concluded that the plaintiff is still pursuing the fishing exercise which Registrar Bradford concluded that it could not engage in under the Rules? Discovery may not be pursued in order to establish that the plaintiff has a case. It may only be pursued in order to advance the case which it has made in the pleadings it has brought.
    
31. I accept that, albeit not very clearly, failure to apply the practice identified in [13] is alleged in the further amended statement of claim. That was not a claim made in the earlier pleadings considered by Registrar Bradford. It has been explained that the third party documents in issue are sought to establish that the defendant had that practice, the existence of which is in issue. That, it seems to me, must be accepted, given the defence to the further amended statement of claim. Application of such a practice to other companies with which the defendant dealt at the relevant time, is capable of establishing the existence of the claimed practice. That providing the documents sought may also establish that the plaintiff has a basis on which to advance the other claim it wishes to advance against the defendant, inconsistent treatment, is not a reason for concluding that the discovery sought ought not to be given.
    
32. On the material now before the Court, I am satisfied that the discovery sought is relevant to what is presently in issue between the parties, and may throw light on the cases which they presently advance on their pleadings.
    

Orders

33. For the reasons given, the orders which the plaintiff seeks must be made. The usual order as to costs, is that they should follow the event. The parties should approach if there is disagreement to costs. Otherwise, I order that:
    

1. The Defendant provides Discovery in accordance with the categories nominated by the Plaintiff:

"Documents" include emails, correspondence, minutes, notes, files, contracts, reports, drafts, instructions and memoranda.

All documents referable to the Defendant's investigations to the consideration of training, supervision and compliance issues during the period of 30 June 1998 to 30 June 2002 in respect of the following entities:

(a) Financial Wisdom Ltd.

(b) Count Financial Group Pty Ltd.

(c) Greater Western Financial Services Co Pty Ltd.

(d) AMP Financial Planning Pty Ltd.

(e) Grosvenor Securities Pty Ltd.

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