Federal Court of Australia MCL 105 Pty Ltd v The Agency Group Australia Ltd [2021] FCA 264 File number: WAD 7 of 2021 Judgment of: COLVIN J Date of judgment: 22 March 2021 Catchwords: PRACTICE AND PROCEDURE - application for suppression order pursuant to s 37AF of the Federal Court Act 1976 (Cth) over parts of affidavits on basis of commercial sensitivity - whether suppression order necessary to prevent prejudice to proper administration of justice - where order sought to prevent disclosure of names of clients - where order sought would exclude director of cross-respondent from accessing certain evidence - application dismissed Legislation: Federal Court of Australia Act 1976 (Cth) ss 37AE, 37AF, 37AG, 37AJ Cases cited: Australian Competition and Consumer Commission v Air New Zealand (No 3) [2012] FCA 1430 Australian Competition and Consumer Commission v Oakmoore Pty Ltd (No 2) [2018] FCA 1170 Betfair Pty Limited v Racing New South Wales (No 5) [2009] FCA 1011 Clime Capital Limited v UGL Pty Limited (No 2) [2020] FCA 257 Frigger v Trenfield (No 5) [2020] FCA 827 Hearne v Street [2008] HCA 36; (2008) 235 CLR 125 Hogan v Australian Crime Commission [2010] HCA 21; (2010) 240 CLR 651 The Country Care Group Pty Ltd v Commonwealth Director of Public Prosecutions (No 2) [2020] FCAFC 4; (2020) 275 FCR 377 Division: General Division Registry: Western Australia National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Number of paragraphs: 33 Date of hearing: 19 March 2021 Counsel for the Cross-Claimant and Magnolia Capital Pty Ltd: Mr P Russell Solicitor for the Cross-Claimant an Magnolia Capital Pty Ltd: Ashurst Australia Counsel for the Cross-Respondent: Ms C Spencer Solicitor for the Cross-Respondent: Tottle Partners ORDERS WAD 7 of 2021 BETWEEN: MCL 105 PTY LTD (ACN 638 967 218) Cross-Claimant AND: THE AGENCY GROUP AUSTRALIA LTD (ACN 118 913 232) Cross-Respondent order made by: COLVIN J DATE OF ORDER: 19 March 2021 THE COURT ORDERS THAT: 1. The interlocutory application dated 11 March 2021 brought by the cross-claimant and Magnolia Capital Pty Ltd be dismissed. 2. By 23 March 2021, the cross-claimant do provide to the cross-respondent unredacted versions of the affidavits of Mr Atkins dated 8 March 2021 and 11 March 2021. 3. Any request by a person who is not a party to the proceeding for access to or a copy of the unredacted affidavits of Mr Atkins dated 8 March 2021 or 11 March 2021 shall be referred to the case managing judge for these proceedings. 4. The unredacted affidavits of Mr Atkins dated 8 March 2021 and 11 March 2021 be marked confidential in the electronic court file. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT COLVIN J: 1 In February 2020, MCL 105 Pty Ltd (MCL) agreed to provide finance to The Agency Group Australia Ltd (The Agency) on the terms set out in a written offer. Finance was not provided. The reason why finance was not provided is contentious as between MCL and The Agency. 2 MCL claims that it is entitled to the payment of certain fees by The Agency under the agreed terms. MCL has been pressing for its claim to be determined with urgency. 3 The Agency says that on the proper construction of the agreed terms and in the events which have occurred it is not liable to pay those fees. It also says that the arrangement with MCL was cancelled because MCL did not have the money available to provide the loan. 4 On 26 February 2021, I ordered that MCL provide discovery on 2 March 2021. At that time I also listed MCL's claim for hearing on 14, 15 and 16 April 2021. 5 MCL has provided an affidavit of Mr Mitchell Atkins by way of reply to matters raised by The Agency. The affidavit annexed a number of documents. Amongst other things, it described alleged communications with parties identified as MCL investors in relation to the provision of funds for the purposes of providing the loan to The Agency. In the affidavit Mr Atkins deposed to the affidavit being made on the basis that certain of the information in the affidavits and certain of the exhibited documents were confidential to Magnolia Capital Pty Ltd (an entity related to MCL) and were not to be made publicly available. 6 The basis for the claim concerning the alleged confidential information was expressed in the following terms: (1) the information included the names of clients of Magnolia Capital; (2) clients 'correspond and engage' with Magnolia Capital on the basis that all communications are confidential and are not to be made publicly available; (3) if Magnolia Capital was to release the names of the clients 'this is likely to cause Clients to stop trusting, promoting and doing business with Magnolia Capital'; (4) were these consequences to arise, it is likely that they would lead to Magnolia Capital's business failing; (5) Mr Adam Davey, a director of The Agency, is employed by Canaccord Genuity Capital Markets and Canaccord is a direct competitor of Magnolia Capital. 7 An additional claim was also made that certain information was confidential because it provided an overview of what was said to be the business processes and business model that Magnolia Capital implements in order to raise capital for borrowers and that the information might be appropriated by the business rivals of Magnolia Capital. That claim which, having regard to the evidence, was tenuous at best, was not maintained. 8 On 11 March 2021, Mr Atkins deposed an affidavit of discovery. At the time of doing so he claimed that the descriptions of certain of the documents should be redacted because they would identify clients of Magnolia Capital. 9 MCL and Magnolia Capital together brought an application for a suppression order on the ground that such an order was necessary to prevent prejudice to the proper administration of justice as provided for by s 37AF and s 37AG(1)(a) of the Federal Court of Australia Act 1976 (Cth). Any such order could only be made for a specified period to ensure that it operated only for so long as the ground justified the continuation of the order: see s 37AJ. 10 After hearing submissions in support of the application, I made orders dismissing the application and informed the parties that I would publish my reasons. These are my reasons. Principles to be applied 11 It is insufficient that the making of a suppression order appears to be convenient, reasonable or sensible. Further, consideration by the Court as to whether to make a suppression order does not involve a balancing exercise in which views as to what may be in the public interest are weighed against each other. Rather, the question is whether the Court is satisfied that the suppression order is necessary. If it is so satisfied, the order should be made. If not, it should be refused: Hogan v Australian Crime Commission [2010] HCA 21; (2010) 240 CLR 651 at [31]-[33]. 12 In context, the use of the word 'necessary' to describe the criterion to be met for making a suppression order is a strong word: Hogan at [30]. Whether the order is necessary is to be measured by reference to the fact that it is to be made as part of the procedures to be followed in the exercise of judicial power, a task that is fundamentally one that should take place openly such that it can be subjected to public scrutiny. In deciding whether to make a suppression order the Court must take into account that a primary objective of the administration of justice is to safeguard the public interest in open justice: s 37AE. 13 Commercial sensitivity can be a basis for making a suppression order: Australian Competition and Consumer Commission v Air New Zealand (No 3) [2012] FCA 1430 at [35] (Perram J). Where the value of commercial information as an asset would be seriously compromised by disclosure, orders are made to ensure that 'the Court's processes do not result in the value of confidential information being destroyed or diminished. Otherwise, members of the public might lose confidence in the Court and the Court's processes "might open the way to abuse" by competitors or other persons': Clime Capital Limited v UGL Pty Limited (No 2) [2020] FCA 257 at [17] (Anastassiou J). It is by reasoning of that kind that it may be said that a suppression order is necessary to prevent prejudice to the proper administration of justice. 14 The principles to be applied were recently summarised in The Country Care Group Pty Ltd v Commonwealth Director of Public Prosecutions (No 2) [2020] FCAFC 44; (2020) 275 FCR 377 (Allsop CJ, Wigney and Abraham JJ) at [7]-[9]: The relevant principles in relation to the making of suppression or non-publication orders under s 37AF of the FCA Act are fairly well settled. Suppression or non-publication orders should only be made in exceptional circumstances: Rinehart v Welker (2011) 93 NSWLR 311; [2011] NSWCA 403 at [27]; Rinehart v Rinehart (2014) 320 ALR 195; [2014] FCA 1241 at [23]. That is both because the operative word in s 37AG(1)(a) is 'necessary' and because the court must take into account that a primary objective of the administration of justice is to safeguard the public interest in open justice: Rinehart v Welker at [32]; Rinehart v Rinehart at [25]. The paramount consideration is the need to do justice; publication can only be avoided where necessity compels departure from the open justice principle: Rinehart v Welker at [30]; Rinehart v Rinehart at [26]. The critical question is whether the making of a suppression or non-publication order is 'necessary to prevent prejudice to the proper administration of justice'. The word 'necessary' in that context is a 'strong word': Hogan v Australian Crime Commission (2010) 240 CLR 651; [2010] HCA 21 at [30]. It is nevertheless not to be given an unduly narrow construction: Fairfax Digital Australia and New Zealand Pty Ltd v Ibrahim (2012) 83 NSWLR 52; [2012] NSWCCA 125 at [8], citing Hodgson JA in R v Kwok (2005) 64 NSWLR 335; [2005] NSWCCA 245 at [13]. The question whether an order is necessary will depend on the particular circumstances of the case. Once the court is satisfied that an order is necessary, it would be an error not to make it: Hogan at [33]. There is no exercise of discretion or balancing exercise involved: Australian Competition and Consumer Commission v Air New Zealand Limited (No 3) [2012] FCA 1430 at [21]. 15 The nature of the requirement that the order be 'necessary' has led to the description of the onus on the application for a suppression order being described as a heavy one: Australian Competition and Consumer Commission v Oakmoore Pty Ltd (No 2) [2018] FCA 1170 at [22] (Gleeson J). The nature of what must be advanced to support such a claim was described by Perram J in Betfair Pty Limited v Racing New South Wales (No 5) [2009] FCA 1011 in the following terms at [9]: … it is well-established that confidentiality on its own is insufficient to attract a confidentiality order. Instead, if a party wishes to achieve greater protection than that afforded by the implied undertaking, it is for that party to establish that the character of each document is such that it should attract that additional protection: Mobil Oil Australia Ltd v Guina Developments Pty Ltd [1996] 2 VR 34 … at 38 per Hayne JA (with whom Winneke P and Phillips JA agreed). That proposition is not obscure or difficult but has been applied on a large number of occasions. Gordon J collected many of those decisions in Cadbury Pty Ltd v Amcor Limited (No. 2) [2009] FCA 663 at [7] to which I would add, only to underscore how basic and well-expounded the principle is, the decision of Jacobson J in ICAP Australia Pty Ltd v BGC Partners (Australia) Pty Ltd [2007] FCA 467 at [13]- [14] and my own decision in Media Ocean Ltd v Optus Mobile Pty Ltd (No. 1) [2009] FCA 421 at [2]. 16 Even though the determination of an application for a suppression order does not involve a balancing process, where (as here) the application is made on the grounds that such an order is necessary to prevent prejudice to the proper administration of justice, consideration should be given to whether the making of the order might itself prejudice the ability of a party to fairly present its case thereby prejudicing the proper administration of justice. Statutory standard for making a suppression order not met in this case 17 The proposed orders would have confined the disclosure of the names of clients of Magnolia Capital and the organisations that they work for to the directors of The Agency (excluding Mr Davey) and its solicitors and counsel. It would mean that Mr Davey would not have access to those parts of the documents relied upon by MCL to support its case that it did have access to money to provide the loan, but not the identity of those persons. 18 Whether orders of the kind sought are necessary is to be evaluated in a context where there is a substantive obligation upon any party to litigation not to disclose documents or information obtained by compulsion under a rule of procedure or a specific order of the Court not to use it for any purpose other than that for which it was given unless it is received into evidence: Hearne v Street [2008] HCA 36; (2008) 235 CLR 125 at [96] (Hayne, Heydon and Crennan JJ, Gleeson CJ and Kirby J agreeing). The substantive obligation is often referred to as the 'implied undertaking', even though the term undertaking may not be an entirely apt description of the nature of the obligation. 19 In my view, a proper basis for the making of an order of that kind has not been demonstrated because: (1) the evidence in support of the application does not establish a sufficient basis upon which the Court could conclude that the order is necessary to prevent prejudice to the proper administration of justice; (2) the order may prejudice the proper administration of justice by hampering Mr Davey as a director of The Agency in assisting in the forensic preparation of its defence to the claims made by MCL; and (3) the existence of the substantive obligation provides adequate protection for Magnolia Capital given the general nature of the claim. 20 There were two aspects to the evidence relied upon in support of the application for a suppression order. First, a suggestion that clients of Magnolia Capital would no longer do business with Magnolia Capital if it were to release the names of the clients in the proceedings. Second, a concern that Mr Davey worked for Canaccord (an entity described by Mr Atkins as 'a direct competitor of Magnolia Capital') and that Mr Davey or Canaccord could contact or connect with the clients causing them to withdraw from Magnolia Capital. 21 The evidence from Mr Atkins was expressed in the most general of terms. Further, the evidence appeared to be infected with a view that public disclosure would flow if the affidavits of Mr Atkins were provided to the solicitors acting for MCL. It was expressed as a concern that the information about clients of Magnolia Capital not be made 'publicly available'. However, there was no suggestion that the information would be made available to the public. 22 Also, the evidence provided no factual basis for the conclusion formed by Mr Atkins that clients of Magnolia Capital would be likely to stop trusting, promoting and doing business with Magnolia Capital if their names were to be released publicly. 23 Evidence to the effect that Magnolia Capital's business would fail if its clients stopped doing business with it presupposed that discovery of the documents subject to the implied undertaking would lead to public disclosure of the identity of the clients. Concerns as to the consequences of public disclosure of the names of the clients could be addressed by taking steps in relation to the conduct of court hearings and the form in which reasons were published. 24 The evidence was unclear as to whether the persons with whom Magnolia Capital made contact in relation to the provision of funds for the proposed loan to The Agency were anything more than contacts of Mr Atkins (on the one hand) or were persons with whom Magnolia Capital had actual business dealings (on the other hand). Mr Atkins described the business of Magnolia Capital as being part of a group by which he and his wife were 'to use our networks to raise funds from corporate and high net-worth individuals to make investments' through various activities including providing loans. He described the group as having established a number of debt and equity funds. He said that the group had a 'network of over 200 active investors including a number of ultra-high net-worth individuals'. 25 It was not suggested that the members of the network did not have dealings with other parties or that for some reason they wished to keep their interest in investing secret as between themselves and Magnolia Capital. Indeed, the alleged further concern that they might be enticed away by Mr Davey or someone else if their identities were made public suggested that they were perfectly willing to have their identity known to others and to receive information about investment opportunities from others. 26 Further, there was no effort to identify the significance for the business of Magnolia Capital of the particular individuals with whom there had been communication in relation to the funds needed to lend to The Agency or the extent to which they had engaged in business dealings with Magnolia Capital in the past if at all. 27 The issue as to whether MCL through Magnolia Capital actually had access to funds that it could lend to The Agency under the agreed terms is an important forensic issue in the proceedings. For The Agency it is said that Mr Davey is best placed to consider and respond to the evidence concerning fundraising. This was not disputed by MCL. Rather, it said that there were three other directors who could provide instructions on behalf of The Agency. However, the significance of the position of Mr Davey is that he is the person with relevant experience who can readily provide an assessment of the evidence. Knowledge of the identity of particular persons may be a significant part of evidence that enables that assessment to be undertaken. The case is proceeding with urgency at the instigation of MCL. Ready access to forensic assistance from directors of The Agency is no doubt important for the conduct of its defence to the claim by MCL. 28 Magnolia Capital says that Mr Davey works for one of its competitors and could contact persons who are described as clients of Magnolia Capital. It is by no means clear that the network of individuals with whom Magnolia Capital has dealings are of a kind that means they are aptly described as clients. Nor is there any evidence to suggest that they have a particular affiliation or association with Magnolia Capital. 29 There is evidence to indicate that Mr Davey is associated with Canaccord and that The Agency engaged Canaccord to act as a corporate adviser in respect of debt refinancing and potential equity raising by The Agency. The letter of engagement identifies Canaccord as a 'Corporate Advisor and potential Lead Manager and broker' for the capital raising. Amongst other things, its task was to identify suitable potential investors. It appears that it was ultimately successful in doing so. Therefore, on the limited evidence available on the application, Canaccord appears to be in the business of finding sources of funds for clients whereas Magnolia Capital is itself a fund manager and lender, albeit a lender who looks to third parties as the source of funds. Indeed, Mr Atkins evidence is that 'Canaccord is a financial services firm that provides wealth management advice and are not fund managers'. Therefore, it appears that Canaccord and Magnolia Capital have different business models. 30 Plainly, Mr Davey could not disclose to Canaccord the information about the names of the individuals and the entities contacted by Magnolia Capital. Nor could he use the information for the purposes of undertaking his responsibilities with Canaccord. As was accepted in the written submissions by The Agency the implied undertaking would prevent that occurring. As to the extent of the obligation imposed, see the careful analysis of the nature and extent of the implied undertaking by Jackson J in Frigger v Trenfield (No 5) [2020] FCA 827. 31 It was suggested that the information about the identity of the individuals could not be put to one side by Mr Davey and he would use the information in any event. However, the information was not in the character of pricing information or some secret process or formula. Assuming that it was information that had the requisite confidential character (a matter not established to the necessary standard on the available evidence for reasons already given), it was not information of a kind that could be used unconsciously. It would require Mr Davey taking active steps to contact particular individuals based on their identification in the documents. There was no reason to believe that he would take those active steps in breach of the implied undertaking. 32 In all of the above circumstances, the evidence failed to demonstrate that disclosure on the basis of the implied undertaking to The Agency and Mr Davey of the affidavit material and the documents to be discovered by Magnolia Capital would lead to such a compromise to the value of confidential information or other commercial prejudice to Magnolia Capital that such an order was necessary to prevent prejudice to the proper administration of justice. 33 For the above reasons I dismissed the application for a suppression order. I made orders that would ensure that inspection of the relevant affidavits in unredacted form by third parties would not occur without the question of access being referred to the case managing judge and also for the unredacted documents to be marked as confidential in the Court's electronic court file. In my view those steps were sufficient to allay any concerns about disclosure of the identity of the persons who were said to be clients of Magnolia Capital to the public in general. Whether the names of any of those persons were disclosed in the course of the future conduct of the proceedings was a matter that could be considered at the time that general disclosure might otherwise occur. I certify that the preceding thirty-three (33) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Colvin. Associate: Dated: 22 March 2021