New South Wales Supreme Court CITATION : Bio Transplant Inc v Bell Potter Securities Ltd [2008] NSWSC 694 HEARING DATE(S) : 07/07/08 JUDGMENT DATE : 7 July 2008 JURISDICTION : Equity Division Corporations List JUDGMENT OF : Barrett J EX TEMPORE JUDGMENT DATE : 7 July 2008 DECISION : Order for preliminary discovery. Order that plaintiff pay defendant's costs. CATCHWORDS : PROCEDURE - costs - application for preliminary discovery - no opposition by agent of whom discovery sought - agent unwilling to disclose identity of principal without compulsion - what costs order should be made? LEGISLATION CITED : Uniform Civil Procedure Rules 2005, rules 1.4, 5.2, 5.3 United States Bankruptcy Code, Chapter 11 CATEGORY : Procedural and other rulings Airways Corporation of New Zealand v Koenig [2002] NSWSC 521 CASES CITED : Norwich Pharmacal Co v Customs and Excise Commissioners [1974] AC 133 Totalise plc v Motley Fool Ltd & Anor [2002] 1 WLR 1233 TEXTS CITED : Bowstead on Agency, para 9-016 PARTIES : Bio Transplant Incorporated - Plaintiff Bell Potter Securities Limited - Defendant FILE NUMBER(S) : SC 3058/08 COUNSEL : Mr G Lucarelli - Plaintiff Mr J C Hewitt - Defendant SOLICITORS : Minter Ellison - Plaintiff Speed & Stracey - Defendant IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST BARRETT J MONDAY, 7 JULY 2008 3058/08 BIO TRANSPLANT INCORPORATED v BELL POTTER SECURITIES LIMITED JUDGMENT 1 The plaintiff makes application for an order for preliminary discovery. The application is said to be based on both rule 5.2 and rule 5.3 of the Uniform Civil Procedure Rules 2005 and, for the moment, I need not distinguish between them. 2 The plaintiff is a United States corporation which is subject to a plan of reorganisation under Chapter 11 of the United States Bankruptcy Code. Among the assets of the plaintiff was a parcel of shares it held in an English company, Stem Cell Sciences plc. Under the auspices of the plan trustee, the plaintiff sold some of these shares. Thereafter there was correspondence and discussion between the plan trustee and the defendant, an Australian stock broking firm, regarding the sale of the balance of this share parcel consisting of 900,000 shares. Shares in Stem Cell Sciences plc are listed for quotation on the stock market of the Australian Securities Exchange. 3 The outcome of the correspondence and discussions may be regarded as to some extent controversial or unsettled but there are grounds for thinking that a contract for sale may have been concluded between the plaintiff and the defendant in respect of the 900,000 shares. 4 The evidence suggests that the defendant was acting as an agent for another party in its dealings with the plaintiff but the identity of that other party has not been disclosed. In fact, the defendant says that it is constrained by an obligation of confidentiality not to disclose the identity of the other person. 5 This, the plaintiff says, put difficult obstacles in the way of initiating proceedings based on alleged breach of the alleged contract which it maintains has been concluded. Mr Lucarelli, counsel for the plaintiff, drew my attention to the discussion in Bowstead On Agency at paragraph 9-016 about the dilemma faced by someone who has contracted with an acknowledged agent but in circumstances where the agent's principal is unidentified. 6 It is for this reason that the plaintiff seeks the order for preliminary discovery. More precisely, it seeks an order that the defendant give discovery of all documents in two defined categories: first, files and documents evidencing, recording, referring to or related to "the Agreement"; and, second, documents in the possession of the defendant which refer or relate to the identity or whereabouts of the client referred to in "the Agreement", including but not limited to certain particular documents. The references here to "the Agreement" are references to a particular letter and any agreement, arrangement or understanding under which any transaction of the kind described in the letter was proposed or contemplated. 7 The defendant does not oppose the application for orders that it discover these documents. The argument before me has been confined to the matter of costs. 8 The plaintiff does not seek an order that the defendant pay its costs of the discovery application. The plaintiff says that each party to the application should bear its own costs, adding, however, that it might be appropriate to add the rider that if any substantive proceedings related to the alleged contract are commenced within, say, 90 days, the costs of the discovery application should follow the event of those proceedings. 9 The defendant's position, by contrast, is that it should have an order for costs against the plaintiff in respect of the discovery application. 10 In making that submission Mr Hewitt of counsel on behalf of the defendant relied on the decision of the English Court of Appeal in Totalise plc v Motley Fool Ltd & Anor [2002] 1 WLR 1233. That was a case in which discovery was sought according to equitable principles associated with Norwich Pharmacal Co v Customs and Excise Commissioners [1974] AC 133. In New South Wales, by virtue of rule 1.4 of the Uniform Civil Procedure Rules, the equitable procedure co-exists with those created by the rules themselves. I am satisfied that there is a close similarity between a Norwich Pharmacal application and an application under rule 5.2. 11 Having said that, however, I must bear in mind that the present application is based on both rule 5.2 and 5.3. 12 The plaintiff wishes to discover the identity of the defendant's supposed principal with a view to suing that principal in contract. It also wishes to find out more about the documents associated with the contract, no doubt with a view to suing the defendant itself. 13 In the Totalise plc case, the Court of Appeal emphasised that preliminary discovery applications are not generally adversarial proceedings. A person of whom discovery is sought usually does not resist. That is the position here. In such a situation, it was held inappropriate to apply the rule that costs should follow the event unless some other outcome is shown to be warranted. I consider that to be the position here as well. 14 In the Totalise plc case the Court of Appeal went on to consider the position of a defendant to such an application "who reasonably agrees to keep information confidential and private". There was then reference to part of the speeches in the House of Lords in the Norwich Pharmacal case, recognising that a just outcome on costs in such matters will often be that the applicant for discovery should pay the costs of the person against whom discovery is sought. Lord Cross of Chelsea said in Norwich Pharmacal that in "any case in which there was the least doubt as to whether disclosure should be made, the person to whom the request was made would be fully justified in saying that he would only make it under an order of the court". And that person should have his costs. 15 The matter was put more broadly in the Totalise plc case: "The court when considering its order as to costs, after a successful Norwich Pharmacal application should consider all the circumstances. In a normal case the applicant should be ordered to pay the costs of the party making the disclosure including the costs of making the disclosure. There may be cases where the circumstances require a different order, but we do not believe they include cases where: (a) the party required to make the disclosure had a genuine doubt that the person seeking the disclosure was entitled to it; (b) the party was under an appropriate legal obligation not to reveal the information, or where the legal position was not clear, or the party had a reasonable doubt as to the obligations; or (c) the party could be subject to proceedings if disclosure was voluntary; or (d) the party would or might suffer damage by voluntarily giving the disclosure; or (e) the disclosure would or might infringe a legitimate interest of another." 16 The rationale for this approach was explained by Simpson J in Airways Corporation of New Zealand v Koenig [2002] NSWSC 521. Her Honour made reference to the unenviable position often occupied by a person against whom preliminary discovery is sought: "A party who is defendant to an application for preliminary discovery is, in one sense, in a difficult position. That party ordinarily has no involvement in what is intended or anticipated to be the substantive proceedings, and is, often enough, caught up in a skirmish between two other parties. One can sympathise with such a position. However, that does not, in my opinion, reflect the reality in the present case." 17 In the Airways Corporation case Simpson J did not think it appropriate to take the approach on costs indicated in the Totalise plc case. This was because the persons who there occupied the position occupied here by the defendant had "persistently refused to co-operate". As her Honour pointed out, those persons defended the discovery application on two bases that were not upheld. There was in truth an adversarial situation. 18 It is submitted on behalf of the present defendant that it has co-operated to the maximum extent practicable. I accept that submission. There is evidence that the defendant frankly answered questions and provided documents for inspection, stopping short only when disclosure of the identity of the client was involved. And in relation to that matter there is evidence that the defendant sought permission to disclose the client's identity and that permission was unequivocally refused. That, in my opinion, justified the course the defendant took of, in effect, wanting to be compelled by court order to make the discovery to which it offered no opposition. 19 It was put against the defendant that it had not shown that it was subject to a legal or equitable obligation to maintain confidentiality. It is true that it did not do this but I am not satisfied that it was required to do so. I refer in that respect to the passage from the Totalise plc judgment which I have quoted. That, I might say, was accepted by Simpson J, although not found applicable to the case before her. Constraints of a practical nature and involving commercial difficulties falling short of legal obligation are referred to in the passage quoted. 20 Mr Lucarelli on behalf of the plaintiff also submitted that the defendant should not be regarded as an innocent party in the sense referred to in the earlier cases because it was itself, as agent, a party to the alleged contract which has allegedly been breached. That, it is said, distinguishes it from a person sitting in the middle, as it were, with no interest to protect. That, however, is not of significance here. The co-operation given has, I think, brought to light as much as could be brought to light about the defendant's own actions and involvement. The area of darkness (and a darkness forced on the defendant, in practical terms) is that surrounding the identity of the client. 21 I think there is a convincing parallel between the Norwich Pharmacal and Totalise plc circumstances and those of this case, so that the outcome on costs here should be as there indicated. 22 The outcome is as follows: 1. I order that within 14 days the defendant give discovery in accordance with rules 5.2 and 5.3 of the Uniform Civil Procedure Rules 2005 of all documents in accordance with the categories of documents specified in annexure A to the summons. 2. I order that the plaintiff pay the defendant's costs of the summons. 3. I order that the plaintiff also pay the defendant's costs of complying with order 1. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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