FEDERAL COURT OF AUSTRALIA Wellington Capital Limited v Waters (No 1) [2014] FCA 329 Citation: Wellington Capital Limited v Waters (No 1) [2014] FCA 329 Parties: WELLINGTON CAPITAL LIMITED ACN 114 248 458 AS RESPONSIBLE ENTITY OF THE PREMIUM INCOME FUND ARSN 090 687 577 v ANDREA JANE WATERS, KPMG, DAVID MARK ANDERSON, OCTAVIAR ADMINISTRATION PTY LTD (IN LIQUIDATION) ACN 101 069 390, FERNANDO ESTEBAN, RAY KELLERMAN, MANAGED INVESTMENTS PTY LIMITED (IN LIQUIDATION) ACN 101 634 146, MICHAEL CHRISTODOULOU KING, CRAIG ROBERT WHITE, GUY HUTCHINGS, STEVEN KRIS KYLING, STUART ROBERTSON PRICE, PAUL JOSEPH MANKA, MICHAEL GORDON HISCOCK, JOHN ARTHUR WHATELEY, JACK SIMON DIAMOND and DEBORAH BEALE File number: NSD 557 of 2013 Judge: PERRAM J Date of judgment: 2 April 2014 Catchwords: PRACTICE AND PROCEDURE – application for non-standard discovery – Federal Court of Australia Act 1976 (Cth) section 43(3)(h) – whether to make orders for payment of estimated costs of discovery in advance Legislation: Federal Court of Australia Act 1976 (Cth) s 43(3)(h) Date of hearing: 2 April 2014 Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 13 Counsel for the Plaintiff: Mr WAD Edwards and Mr JC Conde Solicitor for the Plaintiff: Johnson Winter & Slattery Counsel for the First and Second Defendants: Mr JRJ Lockhart SC and Mr JA Arnott Solicitor for the First and Second Defendants: Allens IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 557 of 2013 BETWEEN: WELLINGTON CAPITAL LIMITED ACN 114 248 458 AS RESPONSIBLE ENTITY OF THE PREMIUM INCOME FUND ARSN 090 687 577 Plaintiff AND: ANDREA JANE WATERS First Defendant KPMG Second Defendant DAVID MARK ANDERSON Third Defendant OCTAVIAR ADMINISTRATION PTY LTD (IN LIQUIDATION) ACN 101 069 390 Fourth Defendant FERNANDO ESTEBAN Fifth Defendant RAY KELLERMAN Sixth Defendant MANAGED INVESTMENTS PTY LIMITED (IN LIQUIDATION) ACN 101 634 146 Seventh Defendant MICHAEL CHRISTODOULOU KING Eighth Defendant CRAIG ROBERT WHITE Ninth Defendant GUY HUTCHINGS Tenth Defendant STEVEN KRIS KYLING Eleventh Defendant STUART ROBERTSON PRICE Twelfth Defendant PAUL JOSEPH MANKA Thirteenth Defendant MICHAEL GORDON HISCOCK Fourteenth Defendant JOHN ARTHUR WHATELEY Fifteenth Defendant JACK SIMON DIAMOND Sixteenth Defendant DEBORAH BEALE Seventeenth Defendant JUDGE: PERRAM J DATE OF ORDER: 2 APRIL 2014 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The parties bring in short minutes to give effect to these reasons. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 557 of 2013 BETWEEN: WELLINGTON CAPITAL LIMITED ACN 114 248 458 AS RESPONSIBLE ENTITY OF THE PREMIUM INCOME FUND ARSN 090 687 577 Plaintiff AND: ANDREA JANE WATERS First Defendant KPMG Second Defendant DAVID MARK ANDERSON Third Defendant OCTAVIAR ADMINISTRATION PTY LTD (IN LIQUIDATION) ACN 101 069 390 Fourth Defendant FERNANDO ESTEBAN Fifth Defendant RAY KELLERMAN Sixth Defendant MANAGED INVESTMENTS PTY LIMITED (IN LIQUIDATION) ACN 101 634 146 Seventh Defendant MICHAEL CHRISTODOULOU KING Eighth Defendant CRAIG ROBERT WHITE Ninth Defendant GUY HUTCHINGS Tenth Defendant STEVEN KRIS KYLING Eleventh Defendant STUART ROBERTSON PRICE Twelfth Defendant PAUL JOSEPH MANKA Thirteenth Defendant MICHAEL GORDON HISCOCK Fourteenth Defendant JOHN ARTHUR WHATELEY Fifteenth Defendant JACK SIMON DIAMOND Sixteenth Defendant DEBORAH BEALE Seventeenth Defendant JUDGE: PERRAM J DATE: 2 APRIL 2014 PLACE: SYDNEY REASONS FOR JUDGMENT (Revised from transcript) 1 The KPMG parties seek non-standard discovery from Wellington Capital in proceeding NSD 557 of 2013. In particular, they seek what are described as categories 37 and 38 in the schedule attached to their submissions, dated 28 March 2014, which are as follows: 37. All policies of insurance held by MFS, MFS Administration or MFSIM or any of their related parties during the Relevant Period that provided any coverage in relation to acts or omissions by MFSIM or its directors or officers in relation to their management of the Fund. 38. All documents evidencing or recording: (a) all claims made or notified under any insurance policy regarding the Alleged Loss Transactions; (b) all correspondence with any insurer in relation to all claims made or notified. 2 The application was put by Mr Lockhart SC, for KPMG, on two bases. First, it was said that if it were the case that the persons having the benefit of those policies had either paid to the fund the monies now claimed by the plaintiff, or that their insurers had paid to the fund the monies claimed by the plaintiff, then this would be relevant to the assessment of the fund's loss. The logic of that argument may be accepted. Indeed, Mr Edwards, of counsel, who appeared for Wellington Capital, did so. He submitted, however, that his client had already submitted to a regime of standard discovery which would provide for the production of material of that kind. 3 I pressed him as to whether it was accepted, from his side of the bar table, that the standard discovery regime which was in place under Order 19 of 19 March 2014 would, indeed, throw up material proving either payments by those entities or payments by those entities' insurers, and he accepted that it would. In that circumstance, I do not see that the further discovery foreshadowed in paragraphs 37 and 38 is necessary, for the material relevant to the argument is already to be produced. 4 Mr Lockhart then submitted that the further discovery should be provided on a second basis. This second basis turned on the existence of a letter dated 21 April 2008 from the solicitors for Octaviar Investment Management Pty Limited ('MFSIM') to the solicitors acting for Octaviar Limited. In that letter the solicitors for MFSIM foreshadowed making claims on policies which existed and of which MFSIM, or the parties upon whom the claims might be made, would have the benefit. Mr Lockhart submitted that the documents which might have been generated in the process of dealing with those claims would throw light on the potential liabilities of various parties involved in the transactions the subject of this litigation. 5 I accept that if there is such correspondence, it may well contain statements by various lawyers and/or insurers about the underlying events in this case. However, I am to conduct the trial of what actually happened in this case later in the year and it does not seem to me that the views of those people, coming as they do after the event, are likely to add much to the current debate. Accordingly, I do not accept the second argument. In those circumstances, I dismiss the first part of KPMG's application for non-standard discovery. 6 The KPMG parties also seek non-standard discovery of categories 41 and 42 in the schedule attached to their submissions. Categories 41 and 42 are as follows: 41. All minutes of, and papers or packs circulated in advance of or received or considered at, meetings of the board of Wellington or any of the board committees held in the period from and including 1 January 2008 to date referring or relating to the Fund and/or the management of it by MFSIM or Wellington. 42. All documents recording any decision or resolution made by the board of Wellington or any of the board committees in the period from and including 1 January 2008 to date referring or relating to the Fund and/or the management of it by MFSIM or Wellington. 7 Mr Lockhart submitted that these would be relevant to two issues, namely, damages and causation. 8 Part of the losses claimed in the representative proceeding include losses which will be calculated by reference to the value of the units as at the date of trial. Mr Lockhart submitted that, that being so, it was a legitimate line of inquiry to ask whether or not some other transactions, not being the transactions the subject of the proceedings, might be seen as either contributing to or being the cause of that present value of the units; i.e. the value of the units might have been degraded not only by the impugned transactions but by the general manner in which the fund was administered. It seems to me that that argument is sound, at least for the purposes of a discovery application. 9 Mr Edwards sought to persuade me to the contrary by reference to the manner in which the applicants in the representative proceeding will prove their case, and particularly by reference to their expert. However, I do not think it is appropriate for issues of that kind to be decided on a discovery application. In that circumstance, I conclude that there should be discovery in the form sought. 10 I have given consideration to whether I should exercise the power in s 43(3)(h) of the Federal Court of Australia Act 1976 (Cth), to order the party seeking discovery to pay in advance some or all of the estimated costs of discovery. I would not accept that this is a power to be exercised upon a premonition emerging that the discovery sought is somehow inappropriate or improper. Rather, the purpose of s 43(3)(h) appears to be to equip the Court with an ability to align the economic interests of those who must provide discovery with those who are seeking it. 11 That represents a substantial departure from prior practice, although it reflects in some important respects the rules of the United Kingdom Supreme Court of Judicature, made in 1883, after the fusion of equity and law in 1873 and the introduction of the Judicature Acts. Rules allowing for security for the provision of discovery were in place in those rules until 1942 when they were removed. The current section appears to be a reintroduction of that practice. It will ordinarily be proper, in my opinion, to make an order where there is some reason to believe that it would be of assistance to those seeking discovery to know that the cost would be at their doorstep in the first instance. 12 This is a case where I would have made such an order, except that the extensive conduct of these proceedings to date has involved discovery applications by both sets of parties against each other and it would be unfair, at this late stage of the proceedings, to introduce such an arrangement. Accordingly, I do not do so. 13 I will direct the parties to bring in short minutes of order giving effect to these reasons. Both parties have had a measure of success and there should be no order as to costs. I certify that the preceding thirteen (13) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Perram. Associate: Dated: 9 April 2014