FEDERAL COURT OF AUSTRALIA Cassidy & Anor v Medical Benefits Fund of Aust Ltd & Anor [2001] FCA 700 DISCOVERY – discovery sought by Australian Securities and Investments Commission of certain membership records of MBF in aid of claim that MBF had engaged in misleading or deceptive conduct in advertising waiver of time limits for payment of benefits to new members in contravention of s 12DA(1) of the Australian Securities and Investments Commission Act 1989 (Cth) – whether giving of discovery would be unduly onerous taking into account the significance of the discovery to the proceedings – admissibility and significance of evidence of persons that they were deceived or misled by the conduct complained of discussed – whether Federal Court Practice Note 14 relevant to the making of an order of discovery. Australian Securities and Investments Commission Act 1989 (Cth) ss 12DA(1), 12GD(1), 12GM(3) ACCC v Optell Pty Ltd (1998) ATPR 41-640 cited Happy Landings Pty Ltd v Magazine Promotions Australia Pty Ltd (1984) ATPR 40-459 cited Mulley v Manifold (1959)103 CLR 341 considered. Miller's Annotated Trade Practices Act 2000 21st ed. Cassidy & Anor v Medical Benefits Fund of Aust Ltd & Anor N 99 OF 2001 HILL J 12 JUNE 2001 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 99 OF 2001 BETWEEN: BRIAN CASSIDY FIRST APPLICANT AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION SECOND APPLICANT AND: MEDICAL BENEFITS FUND OF AUSTRALIA LTD (ACN 000 057 590) FIRST RESPONDENT JOHN BEVINS PTY LTD (ACN 002 003 572) SECOND RESPONDENT JUDGE: HILL J DATE OF ORDER: 12 JUNE 2001 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The first respondent discover all records of membership applications of persons who have made any complaints which relate to the television or other advertising referred to in the application and statement of claim. 2. Leave be given to Mr Cassidy, ASIC or a representative of ASIC to approach any of the persons who made complaints of the kind referred to in order 1 for the purpose of obtaining statements or affidavits of those persons for use in the present proceedings. 3. Mr Cassidy pay the first respondent's costs of the amended motion, not being costs already ordered and excluding the costs of the adjourned hearing on 7 June 2001. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 99 OF 2001 BETWEEN: BRIAN CASSIDY FIRST APPLICANT AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION SECOND APPLICANT AND: MEDICAL BENEFITS FUND OF AUSTRALIA LTD (ACN 000 057 590) FIRST RESPONDENT JOHN BEVINS PTY LTD (ACN 002 003 572) SECOND RESPONDENT JUDGE: HILL J DATE: 12 JUNE 2001 PLACE: SYDNEY REASONS FOR JUDGMENT 1 Before the Court is an amended notice of motion filed by the applicant, Mr Brian Cassidy, seeking discovery from the Medical Benefits Fund of Australia Ltd ("MBF") of certain membership records kept by MBF. To understand the motion it is necessary to say something both of the application and the history of the present interlocutory proceedings. 2 On 5 February 2001, an application was filed in the Court by Mr Cassidy who is the Chief Executive Officer of the Australian Competition and Consumer Commission and it seems a delegate of the Australian Securities and Investments Commission ("ASIC"), the second applicant, against MBF and John Bevins Pty Ltd. The application arose out of television advertisements said to have been placed by MBF and advertising health insurance products in the period between January 2000 and 1 July 2000. It is said that these television advertisements contained representations that MBF would waive waiting periods in relation to pregnancy so that pregnant women who joined MBF could make claims and would be reimbursed for certain medical and hospital expenses and obstetric procedures immediately upon joining MBF and without a waiting period being applicable. It is also alleged that MBF caused advertisements to be placed in newspapers circulating in New South Wales, the Australian Capital Territory, Queensland, Tasmania and the Northern Territory between mid August 2000 and late September 2000 containing similar representations. 3 In addition to injunctive relief Mr Cassidy sought ancillary relief including, inter alia, corrective advertising. 4 On 23 March 2001, a motion was filed on behalf of Mr Cassidy seeking orders that MBF provide a list of the names, addresses and other contact particulars of all persons who had purchased any of the health cover products of MBF in the period 28 May 2000 to 15 July 2000 inclusive and 13 August 2000 to 8 October 2000 inclusive, with the intent that Mr Cassidy could then communicate with such persons to advise them of the commencement and nature of the proceedings, inviting them to contact him with a view to giving evidence and also inviting them to give notice of any claim that they may have or consent to being named in representative proceedings to be brought under s 12GM(3) of the Australian Securities and Investments Commission Act 1989 (Cth) (the "Act"). 5 The motion also sought, pending the proceedings being determined, injunctive relief against MBF restraining it from refusing claims upon the ground that those seeking to claim under medical/hospital insurance were not entitled to claim because of a waiting period applicable to pregnant women. 6 Ultimately, the interlocutory relief sought in the motion was not pressed, inter alia, after a submission was put to the effect that the interlocutory injunctive relief would be tantamount to giving to Mr Cassidy final relief, particularly as it could prove impossible for MBF ultimately to recover amounts that it was required to pay out to persons making claims and who alleged they were misled by the advertising to which reference has already been made. 7 Ultimately, and at the suggestion of the Court, ASIC was joined as an additional applicant having regard, inter alia, to the provisions of Sub-division G of Division 2 of Part 2 of the Act. 8 Briefly, it may be said that s 12DA(1) of the Act prohibits in trade or commerce conduct in relation to financial services that is misleading or deceptive or is likely to mislead or deceive. Health insurance products of MBF qualify as financial services. By force of s 12GD(1) of the Act an application may be made, inter alia, by ASIC for injunctive relief against a person who has engaged in conduct which constitutes a contravention of s 12DA. Where proceedings have been instituted for an offence, inter alia, involving contravention of that section, the Court may compensate persons who are parties to the proceedings for loss arising out of the contravention. By virtue of s 12GM(3) if proceedings have been instituted by ASIC for injunctive relief and a court has found contravention, ASIC may make an application on behalf of persons identified who have suffered or who are likely to suffer loss or damage by reason of the conduct complained of. No such application may be made except with the consent in writing given before the application is made by persons who are in essence represented parties. 9 One of the reasons given initially for the motion being brought was to enable ASIC to ascertain persons who may have suffered loss by reliance on the television and newspaper advertising, on whose behalf ASIC could bring representative proceedings under s 12GM(3). Following the ultimate amendment of the motion that particular reason was no longer advanced although clearly enough the obtaining of the membership information sought by ASIC would facilitate ASIC bringing representative proceedings assuming that it was able to establish that MBF had indeed engaged in misleading or deceptive behaviour. 10 There have been at least two attempts at formulating the relief sought in the amended motion. One formulation was that MBF give discovery of its records of membership applications made, or received by it, in the period 28 May 2000 to 15 July 2000 in respect of any health cover product, containing or including hospital cover, where the application resulted in a new member joining MBF and one or more of the persons covered was a female of age between 15 and 45 years that being presumably regarded as the range of possible child bearing ages of women who became members. Leave was also sought for the material discovered to be used both in relation to evidence in the proceedings and the making of an application under s 12GM(3) of the Act. 11 Ultimately, the applicants did not seek to rely upon the need to use information discovered for the purpose of commencing representative proceedings under s 12GM(3). The sole purpose relied upon was that discovery was sought to enable ASIC to ascertain whether persons who became members in the period in question, and otherwise were of child bearing age, had in fact been misled or deceived by the advertising. It was hoped that evidence might then be led in the proceedings to this effect. 12 MBF claimed that the giving of discovery of its membership records as requested by the applicants would be unduly onerous. It claimed also that the giving of such information or, more accurately, the use of such information by ASIC to ascertain whether members had been misled, could be greatly damaging to its business. In support of the first of these propositions, an affidavit of Ms McCullough, a solicitor acting for MBF, was filed. Ms McCullough in that affidavit, made on information and belief, noted that membership application forms were "not all reliably available electronically and that in order to comply with proposed order 1, MBF would be required to physically source and review hard copy applications and related member material currently held in storage in the MBF's Brisbane offices." 13 Information referred to in that affidavit estimated that there could be some 81,250 persons falling within the category of women aged between 15 and 45 who became members after the relevant date. The affidavit noted that between 1 August 2000 and 30 April 2001 approximately 31,500 new members had joined MBF while 56,000 had left. 14 In support of the second matter Ms McCullough said that it was feared that persons who ultimately would be contacted by ASIC or the Australian Competition and Consumer Commission would tend to believe the truth of allegations made by a government regulatory body and as a result they might choose to switch to another provider of private health insurance. 15 The information given by Ms McCullough left open the question whether there were at least some membership application forms that were reliably available electronically and whether they could be easily accessed even if other application forms were not reliably available electronically and could not be, as a consequence, easily accessed. The matter was stood over to enable further affidavit evidence to be filed. Ultimately, an affidavit of Ms Scaini, the National Membership Manager of MBF responsible for maintaining or supervising the maintenance of membership records, was filed by MBF. In a letter annexed to her affidavit and which contained information which she deposed to as being correct, she said that of the 125,000 new members who joined MBF during the period 28 May 2000 to 15 July 2000 inclusive approximately 5% of hard copy application forms received had not been scanned into a database and could only be located through paper-based records. Electronically scanned membership application forms also did not cover members who joined during the development period via the internet estimated to be approximately 5,000. While she estimated that approximately 113,750 application forms out of approximately 125,000 new members were theoretically available in scanned electronic form, it seemed that there was no way these could be electronically searched to ascertain membership applications lodged in a particular period by or including women of child bearing age. She said that to comply with the motion it would be necessary to physically review all 640,000 scanned images of membership applications in the computer system and then examine manually the relevant forms. 16 It is common ground, it may be said, that it was relevant for the Court in considering whether to order discovery to have regard both to the significance which the provision of information would have for the proceedings and the difficulties or burden which will be placed on the party required to give discovery in so doing. The more significant the material required for discovery was to the issues in the case the less weight the Court might place on the burdensome nature of the discovery process. Likewise, the less significant the material required to be discovered to the litigation the more significance the Court would place upon the burdensome nature of the discovery process. This general agreement, it must be said, was subject to an overall submission on the part of MBF that as a matter of principle in a case such as the present discovery should not be granted at all. It should be added here that MBF noted that some 18 persons had complained of being misled by either television or print advertisements relating to the waiver period and that MBF offered to give names and other information relating to persons who had complained. 17 I intend to consider first the significance to the litigation of access being available to ASIC to the names and addresses of persons who became members in the relevant periods and were women of child bearing age. 18 It will be apparent that s 12DA of the Act is in identical terms to s 52 of the Trade Practices Act 1974 (Cth) save that s 12DA applies only where the conduct in question relates to financial services. 19 There have been many cases brought under s 52 of the Trade Practices Act 1974 (Cth) which have made it clear that conduct may be found to contravene s 52 notwithstanding that no one was actually deceived or misled: cf Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191, McWilliam's Wines Pty Ltd v McDonald's System of Australia Pty Ltd (1980) 49 FLR 455. However, it is also well established that evidence of persons to the effect that they were deceived or misled by the conduct complained of will be admissible. Such evidence may indicate circumstances which make it clear why the conduct complained of was misleading and as Miller's Annotated Trade Practices Act 2000 (21st edition) at 1.52.155 discusses, it may also enable the judge to determine how the discretion should be exercised in relation to the grant of an injunction. While such evidence may in some cases be persuasive, it will never of itself be determinative of the issue whether conduct is misleading or deceptive. The question whether conduct is misleading or deceptive is, as O'Loughlin J pointed out in ACCC v Optell Pty Ltd (1998) ATPR 41-640 at 41,081 to be determined objectively. In Happy Landings Pty Ltd v Magazine Promotions Australia Pty Ltd (1984) ATPR 40-459 at 45,314 Lockhart J said: "A considerable body of evidence … was given before me, including evidence relating to knowledge of members of the public with respect to both publications. Ultimately, it is for the Court to determine whether the respondent's conduct contravenes the consumer protection provisions of the Trade Practices Act, and the evidence of attitudes or views of members of the public in the present case is of limited assistance." 20 In summary, therefore, it can be said that evidence from relevant persons who joined health funds conducted by MBF in the relevant period and relied upon the television or newspaper advertising in so doing would be of forensic utility because such evidence is relevant although not determinative of the issue whether conduct was misleading or deceptive. 21 The evidence led by MBF, to which reference has already been made, demonstrates the difficulty which MBF would necessarily experience in ultimately providing the material sought on discovery. One might have expected that an organisation of the size of MBF could readily access applications lodged in a relatively limited period and for that matter ascertain the persons covered by membership as a result of those applications. The evidence shows, however, that this is not the case. It is necessary, therefore, to weigh the degree of difficulty of accessing the material sought on the one hand against the limited forensic utility of the material on the other. No doubt it is also relevant to take into account the impact which any approach to customers of MBF by ASIC may have upon the business of MBF. That is a factor to be taken into account, although its relevance may not be great in a case where the forensic utility of the evidence was of significance. 22 In the present circumstances, I am of the view that as a matter of discretion an order for discovery should not be given save insofar as the order encompasses applications lodged by persons who have already complained to MBF about the relevant advertisements. In reaching this conclusion, I take into account also the fact that ASIC has access to evidence of at least one couple who claim to have been misled by reading an advertisement or viewing a television advertisement of the kind complained of. 23 Senior Counsel for MBF, in the course of submissions, made reference to Practice Note 14 published in December 1999 which it was submitted limited discovery, except in the exceptional case, to matters that were directly relevant, excluding from discovery material which might lead to a chain of inquiry and ultimately to material that might or might not be relevant to litigation. 24 That Practice Note was issued in response to concerns in the Court, in the profession and in the community over the costs incurred in granting discovery being out of all proportion to the relevance of the material discovered. The traditional process of discovery which required a detailed affidavit of documents that were or had been in the possession or power of a party divided into categories of documents in respect of which privilege was claimed and documents where no privilege was claimed and which included correspondence in the ordinary course passing between the parties to the litigation not being privileged, was often enormously burdensome. In the interests both of expedition and cost, the Court indicated, by its Practice Note, its view that general discovery should not ordinarily be directed but rather that discovery be limited to particular issues of significance in the case. Discovery will ordinarily be limited beyond the general principle articulated by Menzies J in Mulley v Manifold (1959) 103 CLR 341 at 345. However, the Practice Note should not be taken as indicating that discovery will now no longer be ordered in cases where documents sought are not of direct relevance but merely may be seen to initiate a chain of inquiry towards relevant material. Ultimately, each case will need to be determined by reference to its own facts. For example, it would be relevant to know whether the material of which discovery is sought is material the contents of which are wholly within the peculiar knowledge of the person against whom discovery is sought. In the present case, had the grant of discovery not been so burdensome, as it became obvious it was, I might well have been prepared to make an order for discovery on the motion. 25 Senior Counsel for MBF, in the course of submissions, suggested that it would be open to ASIC to place an advertisement inviting persons who may have seen the television or print advertisements to contact ASIC. It was obvious in the course of debate that the threat of defamation echoed in the courtroom. The fact that ASIC might be able to place an advertisement of the kind indicated is not an answer to an application for discovery. 26 Subject to two matters, the parties are in agreement that the costs of the adjourned motion should follow the outcome of it. The two matters to which reference must be made are, first, the question of whether the costs the subject of the order should exclude the costs of the additional hearing time made necessary because the affidavit of Ms McCullough left it unclear whether access to some or perhaps most of the information sought might be electronically available with the result that additional evidence was sought and the matter adjourned to allow that to happen. I am of the view that this submission should be accepted and that an order for costs against Mr Cassidy should not include the costs of the adjourned hearing on 7 June 2001. The second matter to which Senior Counsel for MBF referred was the offer which had been made by MBF to give discovery referable to persons who had complained to MBF of being misled as a result of the advertisements. That matter certainly reinforces my view that Mr Cassidy should bear the costs of the motion, notwithstanding that it is in my view appropriate for orders to be made incorporating the subject matter of that offer. 27 Accordingly, I would order that: 1. The first respondent discover all records of membership applications of persons who have made any complaints which relate to the television or other advertising referred to in the application and statement of claim. 2. Leave be given to Mr Cassidy, ASIC or a representative of ASIC to approach any of the persons who made complaints of the kind referred to in order 1 for the purpose of obtaining statements or affidavits of those persons for use in the present proceedings. 3. Mr Cassidy pay the first respondent's costs of the amended motion, not being costs already ordered and excluding the costs of the adjourned hearing on 7 June 2001. I certify that the preceding twenty-seven (27) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Hill. Associate: Dated: 27 June 2001 Counsel for the Applicant: D J Fagan SC with M Painter Solicitor for the Applicant: Australian Government Solicitor Counsel for the Respondent: A J Sullivan QC Solicitor for the Respondent: Blake Dawson Waldron Date of Hearing: 26-27 April, 24 May and 7 June 2001 Date of Judgment: 12 June 2001