ASIC v Rich [2003] NSWSC 297

New South Wales Supreme Court

CITATION : ASIC v Rich [2003] NSWSC 297 HEARING DATE(S) : 28 March, 1, 8 & 9 April 2003 JUDGMENT DATE : 11 April 2003 JURISDICTION: Equity JUDGMENT OF : Austin J DECISION : See under heading "Conclusion"

CATCHWORDS : COSTS - longstanding dispute over various discovery issues - plaintiff asserted no obligation to obtain documents in possession of third parties for discovery to defendants - consent orders made giving substantial success to defendants - whether plaintiff should be required to pay defendants' costs of application - whether plaintiff should reimburse defendants for their costs and expenses liabilities to a third party LEGISLATION CITED : Supreme Court Rules Pt 52A r 9 ASIC v Rich [2003] NSWSC 257 CASES CITED : Gambro Pty Ltd v Fresenius Medical Care of Australia Pty Ltd [2002] FCA 581 Sabre Corporation v Russ Kalvin's Hair Care (1993) 46 FCR 428 Australian Securities and Investments Commission (P/R) John David Rich (D1/A1) PARTIES : Bradley William Keeling (D2) John Huyshe Greaves (D3) Mark Allen Silberman (D4/A2) FILE NUMBER(S) : SC 5934/01 COUNSEL : D Williams (A1, A2) P Durack with N Beaumont (R) SOLICITORS : Joanne Kelly, Solicitor (A1, A2) Jan Redfern, Solicitor (R)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

AUSTIN J

FRIDAY 11 APRIL 2003

5934/01 AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION V JOHN DAVID RICH & ORS JUDGMENT 1 HIS HONOUR: On 20 February 2003 the first and fourth defendants filed an interlocutory application ("the Defendants' Application") for a variety of orders against the plaintiff concerning discovery, including orders with respect to documents in the possession of third parties but allegedly within the control of the plaintiff. For the sake of simplicity, I shall refer to the first and fourth defendants simply as "the defendants" since the other defendants were not parties to the application. 2 The discovery issues in dispute, leading to the application of 20 February 2003, were as follows: · access to a large quantity of hard copy documents stored in boxes in the possession of the liquidators of One.Tel Limited; · obtaining a copy of the Adept database; · obtaining a copy of the SAS database; · obtaining a copy of the billing directory on the computer system "I" drive; · access to the "proof of debt files" in the possession of the liquidators; · access to certain documents in the hands of the purchasers of One.Tel's overseas subsidiaries; · access to documents collected by Minter Ellison; · access to documents in the hands of PricewaterhouseCoopers. 3 The application was initially opposed by the plaintiff, but on 8 April 2003 the plaintiff and the defendants agreed upon a complex set of orders that disposed of the application, except for the question of costs. I have heard substantial argument about costs. 4 The defendants say that the plaintiff should be ordered to pay their costs of the application, that those costs should be assessed and paid forthwith, and that the costs should include reimbursement to the defendants of costs and expenses they have become liable to pay to Minter Ellison. Their argument is that the plaintiff took the attitude over many months that it was not obliged to make discovery of documents in the possession of third parties, or otherwise to seek to obtain those documents in order to provide them to the defendants. They say that this attitude was abandoned and reversed by the plaintiff when it agreed to the orders made on 8 April 2003, and that those orders amounted to complete success for the defendants. Their contention is that if the plaintiff had taken, at an earlier stage, the attitude eventually adopted in the consent orders, it would not have been necessary for the defendants to make the application of 20 February 2003, or to engage in a contest with Minter Ellison about access to documents claimed to be privileged (a contest that eventually led to a costs order against the defendants, and is likely to lead also to an order for reimbursement of Minter Ellison's expenses of complying with a subpoena issued by the defendants to the partners of that firm). 5 The plaintiff has vigorously resisted the application for costs, submitting that if one considers the history of the "discovery issues" between the parties, it is evident that the defendants did not (notwithstanding the plaintiff's requests that they do so) provide any reasoned request for access to various categories of documents in the hands of third parties until their solicitor, Joanne Kelly, filed her affidavits of 21, 24, and 26 March and 1 April 2003, in support of the application of 20 February 2003. The plaintiff contends that the proper order is either that the costs of the application be reserved, or that they be costs of the proceedings. Judging from the evidence before me, it appears likely that the amount of costs in contest is a substantial sum. Background facts 6 The plaintiff filed a statement of claim on 12 December 2001, and subsequently amended it twice. The plaintiff contends that the defendants contravened the statutory duty of care of company directors and officers of One.Tel Limited now found in s 180(1) of the Corporations Act 2001 (Cth), and consequently that the Court should make declarations of contravention, disqualification orders and compensation orders (ss 206C, 1317E and 1317H). Voluntary administrators were appointed to One.Tel on 29 May 2001 and the company went into liquidation in July 2001. 7 The plaintiff's allegations relate to the first five months of the year 2001, and they raise for detailed consideration the financial position of the One.Tel Group of companies during that period. The general business and financial position of the company in the first five months of 2001 was described in the affidavit of Joanne Kelly made on 21 March 2003. She said: "… One.Tel was one of the top 100 largest publicly listed companies in Australia. It had about 3000 employees and about 2 million subscribers. It operated in seven countries around the world. It had divisions concerned with local and long distance telephone calls, mobile phones and the Internet. It had revenues in excess of $1 billion. It had extremely complex and sophisticated accounting and software packages designed to deal with customer revenues of about $130 million a month involving 13 bill runs a month. It had significant relationships with telephony carriers involving monthly payments to Telstra and Optus for call costs of over $20 million. It was in the midst of rolling out a $1 billion mobile phone network being built by Lucent Technology. Its UK subsidiary was significant. It had 400 employees, in excess of 700,000 subscribers and revenues of $350 million a year." 8 In response to directions of the Court, the plaintiff served affidavits or outlines of the evidence of its witnesses in May and June 2002. One of the affidavits was by Paul Carter, a partner in PricewaterhouseCoopers. The affidavit comprised a 157 page report with approximately 200 pages of appendices, an 84 page index of sources of information and 12 ring binder folders of annexures comprising about 3000 documents ("the Carter Report"). The documents identified in the Carter Report were partly documents in the possession of the plaintiff and partly documents in the possession of the liquidators of One.Tel. 9 A supplementary affidavit and report by Mr Carter was served on 18 December 2002 ("Supplementary Carter Report"). The Supplementary Carter Report was a 54 page report, with approximately 50 pages of appendices, a 34 page index of sources of information and two ring binders of annexures comprising approximately 670 pages. The sources of documents identified in the Supplementary Carter Report included the One.Tel Group computer system and Minter Ellison Lawyers. 10 Over the first three months of the year 2002 the plaintiff provided, in several tranches, a draft tender bundle in hard copy and electronic form. The documents in the tender bundle include some board papers, some "flash" and management accounts, financial information including some creditors lists and collection statistics and trial balances and bank account statements, and select e-mails and correspondence from some employees and third parties. The draft tender bundle also includes voluminous transcripts of s 19 examinations and copies of documents referred to by the examinees. The final content of the tender bundle has not yet been settled. On 13 December 2002 the plaintiff responded to a request by the solicitors for the first and fourth defendants, saying that the tender bundle would also include the documents referred to in the Carter Report and the Supplementary Carter Report (which had not been served at that stage). 11 What is evident from this brief outline is that the case against the defendants will concern the detailed financial position and circumstances of the One.Tel Group over a fairly short period of time, focusing on the period January-May 2001, and that the plaintiff's evidence will involve a close analysis of financial matters. Mr Carter's two reports are likely to be a critically important component of the plaintiff's case. To respond to the plaintiff's case, the first and fourth defendants need to have access to the documentary evidence upon which the plaintiff and its witnesses will rely. The defendants have indicated an intention to obtain their own expert evidence, and they will wish to make available to their expert the documents to which Mr Carter has had access. They will also need access to documents so as to assess the adequacy of the draft tender bundle. 12 There has been correspondence between the plaintiff and the defendants regarding "issues" emerging out of the discovery process from at least August 2002. To a large degree, the correspondence (to the extent that I have been taken to it by counsel) relates to the machinery of identifying relevant documents and making them available for inspection and then discovery. On the whole, the solicitors for the parties appear to have worked co-operatively to achieve an efficient and relatively quick procedure, subject of course to their dispute in principle as to whether the plaintiff has any obligation to obtain access for the defendants to documents in the possession of third parties. Some issues of potential dispute have been resolved after constructive negotiation. I do not detect any evidence of general lack of co-operation on the part of the plaintiff, nor evidence of unreasonably onerous demands by the defendants or any attempt on their part to delay the discovery process and hence the ultimate hearing. That the hearing of the matter has not yet taken place is a consequence of the complexity and volume of the evidence. 13 Even so, the discovery process has been affected by pressure being brought to bear by the plaintiff to secure at least provisional hearing dates from the Court. The plaintiff has urged the Court to fix provisional hearing dates several times, when the proceedings came before the Court for mention during the year 2002, most recently on 16 December 2002. By an application dated 10 February 2003, the plaintiff has sought (inter alia) orders for the fixing of provisional hearing dates. Not surprisingly, the defendants' response has consistently been that the matter is just not ready for the allocation of hearing dates, because of the large amount of work still to be done by both sides in case preparation, including the work to be done on the discovery issues, and the consequent difficulty in assessing the likely length of the hearing. 14 The correspondence discloses that in November 2002 the plaintiff made some determined efforts to bring all of the discovery issues to a conclusion. It served its first verified list of documents on 20 December 2002. When it became clear that the defendants did not agree with the plaintiff on certain issues, the correspondence between the respective solicitors became more terse and less co-operative.