Supreme Court New South Wales Medium Neutral Citation: Webster & Ors v Super Smart Strategies Pty Ltd & Anor [2013] NSWSC 1399 Hearing dates: 5 September 2013 Decision date: 23 September 2013 Before: Barr AJ Decision: 1.Leave granted to the defendants; 2.Costs of Motion are to be costs in the proceedings. Catchwords: PRACTICE AND PROCEDURE - civil -application for leave to use documents produced to court in other proceedings - whether special circumstances existed Cases Cited: Blanch v Deputy Commissioner of Taxation [2004] NSWCA 461 Esso Australia Resources Ltd v Plowman [1995] HCA 19;(1995) 183 CLR 10 Global Medical Solutions Australia Pty Ltd v Axiom Molecular Pty Ltd [2013] NSWSC 665 Hearne v Street [2008] HCA 36; (2008) 235 CLR 125 Liberty Funding Pty Ltd v Phoenix Capital Ltd [2005] FCAFC 3; (2005) 218 ALR 283 Category: Principal judgment Parties: Richard Webster (First Plaintiff) Loris Webster (Second Plaintiff) Richard Webster and Loris Webster as trustees for the Webster Superannuation Fund (Third Plaintiff) Super Smart Strategies Pty Ltd (First Defendant) Rick Manietta (Second Defendant) Representation: Counsel: C Carrol (Plaintiffs) A Fernon (Defendants/ Applicants) D Harris by leave for Suncorp- Metway Pty Ltd Solicitors: Clarke Kann (Plaintiffs) Yates Beaggi (Defendants) Linklaters (Suncorp-Metway Pty Ltd) File Number(s): 2013/78666 Publication restriction: None Judgment 1This is a Motion for a grant of leave to use in the present proceedings documents produced to the court in other proceedings. 2The plaintiffs in the present proceedings are Richard Webster, Loris Webster and Richard Webster and Loris Webster as Trustees for the Webster Superannuation Fund. The Defendants are Super Smart Strategies Pty Ltd and Rick Frank Alfred Manietta. The plaintiffs' case is that they were investors who sought the advice of the first defendant, which carried on the business of providing financial services, including financial advice to investors. The second defendant was and is a director and effective controller of the first defendant. He also controlled Rick Manietta Investments Pty Ltd ("RMI"). 3The plaintiffs retained the first defendant to act as their financial adviser. The defendants offered advice and, acting on it, the plaintiffs made a number of investments. The investments turned out badly and the plaintiffs lost a lot of money. The RMI Proceedings 4RMI was the plaintiff in proceedings in the Equity division of this Court against Welcome Hotel Pty Ltd & Others ("the RMI Proceedings"). That suit concerned RMI's taking the assignment of a loan and various securities, including a guarantee of Mr Paul Misan, from Suncorp-Metway Pty Ltd ("Suncorp") in consideration of the payment of $2.915M. $2M of that sum was paid to the Australian Taxation Office and the Office of State Revenue on behalf of various entities and persons associated with Mr Damian Silk ("The Suncorp-Silk Transaction"). 5In the Suncorp-Silk Transaction RMI and the second defendant were represented by HWL Ebsworth Lawyers. Mr Silk and related entities were represented by Mr Paul Hunt, then a partner in the firm Clarke Kann Lawyers. It was the second defendant's case that it was only after RMI entered the Suncorp-Silk Transaction that he discovered that:- (a) the loan and the securities assigned to RMI by Suncorp, including the guarantee by Mr Paul Misan, had been the subject of litigation in the Queensland Supreme Court, which were current during the negotiations of the Suncorp/Silk Transaction, (b) one of the securities provided, which included a Charge over Australian Independent Brewers Pty Limited which operated a brewery from premises in Smeaton Grange, was defective in that the lease of the premises to AIB had already expired; and (c) Mr Misan was a person of limited financial means and could not satisfy his obligations under the guarantee. 6He asserted that in entering the Suncorp-Silk Transaction he relied on representations made by Mr Silk and Mr Hunt. They did not disclose to him the matters (a) (b) and (c) above. If they had, he would not have entered the transaction. 7The loans assigned in the Suncorp-Silk Transaction were not repaid. No return was received from the assigned securities. 8The RMI proceedings have been finalised. An Issue in the Present Proceedings. 9As appears from paras [32] - [71] of the Amended Statement of Claim, the plaintiffs assert that, relying on the advice, recommendation and certain representations of the defendants they invested $1M in a short-term loan ("the Silk Investment"). The loan was to be secured by a brewery, two hotels, and a residential property. There were other subsequent transactions which it is unnecessary to detail here. The substance of this part of the plaintiffs' claim is that although three months' interest was paid as required by the terms of the transaction, the principal sum of $1M was never repaid. The securities turned out to be ineffective. 10The plaintiffs' claim over the Silk Investment includes a claim for $1M and interest. The plaintiffs assert that the defendants breached the terms of the agreement, breached their duty of care and engaged in misleading and deceptive conduct in contravention of the Australian Securities and Investments Commission Act 2001 (Cth), the Trade Practices Act 1975 (now the Competition and Consumer Act 2010 (Cth)), the Fair Trading Act 1987 (NSW) and the Corporations Act 2001 (Cth). 11It appears that the plaintiffs' claim over the Silk Investment and the defendants' complaints in the RMI proceedings about the Suncorp-Silk Transaction are based on the same transaction. 12The second defendant wishes to bring Cross-Claims in the present proceedings against various parties, including HWL Ebsworth, Clarke Kann Lawyers, Mr Hunt and Mr Silk, concerning their involvement in the Suncorp-Silk Transaction and in claims that have arisen subsequently. He wishes also to bring proceedings against the defendants' professional indemnity insurer and broker in respect of the claim brought in the present proceedings. 13Documents produced in the RMI proceedings are summarised in and exhibited to the affidavit made by Mr Amirbeaggi on 2 September 2013. The documents are voluminous. The parties did not refer to individual documents or desire the Court to do so. They are described thus in the Notice of Motion: - (a) Six folders of copy documentation produced by HWL Ebsworth to Yates Beaggi Lawyers on or around 31 January 2013; (b) Documentation produced by Suncorp Metway Limited to Yates Beaggi Lawyers, via Aliens Arthur Robinson and/or Aliens Linklaters, as it is now known, on the following dates: i. 3 October 2011 under cover letter of even date; ii. 17 October 2011 via email; iii. 8 November 2011 under cover letter of even date; iv. 21 December 2011 under cover letter of even date; v. 15 May 2013 under cover letter of even date; vi. 29 May 2013 via email; (c) Documentation produced by Suncorp to the Supreme Court of New South Wales, under cover letter dated 5 March 2013, pursuant to a subpoena issued in the RMI Proceedings on 20 February 2013. 14An agreement has been reached between the defendants and HWL Ebsworth over the documents referred to in para (a) and the defendants no longer seek leave in that respect. 15The solicitors for the defendants have written to Suncorp seeking its consent to the use of the documents in these proceedings. Suncorp does not consent. The "Implied Undertaking" 16In Hearne v Street [2008] HCA 36; (2008) 235 CLR 125, Hayne, Heydon and Crennan JJ, with whose judgment Gleeson CJ agreed, said:- [96] Where one party to litigation is compelled, either by reason of a rule of court, or by reason of a specific order of the court, or otherwise, to disclose documents or information, the party obtaining the disclosure cannot, without the leave of the court, use it for any purpose other than that for which it was given unless it is received into evidence. The types of material disclosed to which this principle applies include documents inspected after discovery, answers to interrogatories, documents produced on subpoena, documents produced for the purposes of taxation of costs, documents produced pursuant to a direction from an arbitrator, documents seized pursuant to an Anton Piller order, witness statements served pursuant to a judicial direction and affidavits. The appellants did not dispute the existence of this principle, and in particular did not dispute its potential application to the affidavit of Mrs Hesse and the witness statement of Dr Tonin. [97] It is common to speak of the relevant obligation as flowing from an "implied undertaking". ... [106] The fact that the role of the word "undertaking" is merely to indicate the way in which an "obligation" which is "imposed by law" as a "condition" of discovery binds the disclosee highlights the substantive nature of the obligation. There is nothing voluntary about the "undertaking": The implied undertaking not to make collateral use of documents disclosed on discovery arises automatically as an incident of the discovery process. It is in no sense implied as a result of dealings between the parties. The discloser may well not have thought of the implications of giving discovery and the disclosee may well not have turned his mind to the matter of what use he can make of the documents outside the action. Had he thought of it, he might well have wanted full freedom to do what he liked with the material, particularly if his own discovery is non-existent or very limited. So the obligation is not to be likened to a term implied in a contract between the parties to the litigation. On the contrary, it is an obligation to the court, not the other party, which is implied. It is for that reason that its breach is treated as contempt. The obligation is imposed as a matter of law. [107] The expression "implied undertaking" is thus merely a formula through which the law ensures that there is not placed upon litigants, who in giving discovery are suffering "a very serious invasion of the privacy and confidentiality of [their] affairs", any burden which is "harsher or more oppressive ... than is strictly required for the purpose of securing that justice is done. " To that statement by Lord Keith of Kinkel of the purpose of the "implied undertaking" may be added others. In Riddick Lord Denning MR said: Compulsion [to disclose on discovery] is an invasion of a private right to keep one's documents to oneself. The public interest in privacy and confidence demands that this compulsion should not be pressed further than the course of justice requires. The courts should, therefore, not allow the other party - or anyone else - to use the documents for any ulterior or alien purpose. Otherwise the courts themselves would be doing injustice. ... In Watkins v A J Wright (Electrical) Ltd Blackburne J said: In my judgment, a serious inroad into [the safeguards referred to by Lord Diplock] and, therefore, into the utility of the discovery process in the just disposal of civil litigation would occur if it were open to a litigant (or his solicitor) to enjoy the fruits of discovery provided by the other side, but avoid the risk of committal for contempt for acting in breach of the countervailing implied obligation on the ground that he was unaware of the existence of the undertaking. I take the view that it does not lie in the mouth of a person to plead ignorance of the legal consequences of the discovery process. To speak in terms of "undertaking" serves: ... a useful purpose in that it confirms that the obligation is one which is owed to the court for the benefit of the parties, not one which is owed simply to the parties; likewise, it is an obligation which the court has the right to control and can modify or release a party from. It is an obligation which arises from legal process and therefore is within the control of the court, gives rise to direct sanctions which the court may impose (viz contempt of court) and can be relieved or modified by an order of the court. Staughton LJ said: "[A]lthough described as an implied undertaking it is a rule which neither party can unilaterally disclaim." The importance with which the courts have viewed the obligation under discussion is indicated by the fact that although it can be released or modified by the court, that dispensing power is not freely exercised, and will only be exercised where special circumstances appear: Circumstances under which that relaxation would be allowed without the consent of the serving party are hard to visualise, particularly where there was any risk that the statement might be used directly or indirectly to the prejudice of the serving party. (Footnotes omitted) 17In Blanch v Deputy Commissioner of Taxation [2004] NSWCA 461 Giles JA, with whom Hodgson and Ipp JJA agreed, said that the implied undertaking is an endeavour to balance the intrusion into privacy by the compulsory production of documents necessary to do justice with the maintenance of privacy otherwise (at [14]). 18The court may release a party from the obligation. In Esso Australia Resources Ltd v Plowman [1995] HCA 19; (1995) 183 CLR 10 Brennan J said at 37:- ... But such an undertaking "can, in appropriate circumstances, be released or modified by the court". That dispensing power is not freely exercised, but it will be exercised when special circumstances appear. In the Federal Court, special circumstances have been held to exist where "there is a special feature of the case which affords a reason for modifying or releasing the undertaking and [the feature] is not usually present". It is unnecessary to consider whether the dispensing power should be so broadly defined. It is relevant to note only that the obligation enforceable as an undertaking to the court in the case of a curial order is not unqualified. 19In Liberty Funding Pty Ltd v Phoenix Capital Ltd [2005] FCAFC 3; (2005) 218 ALR 283 Branson, Sundberg and Allsop JJ said at [31]:- [31] In order to be released from the implied undertaking it has been said that a party in the position of the appellants must show "special circumstances": see, for example, Springfield Nominees Pty Ltd v Bridgelands Securities Ltd (1992) 38 FCR 217; 110 ALR 685. It is unnecessary to examine the authorities in this area in any detail. The parties were not in disagreement as to the legal principles. The notion of "special circumstances" does not require that some extraordinary factors must bear on the question before the discretion will be exercised. It is sufficient to say that, in all the circumstances, good reason must be shown why, contrary to the usual position, documents produced or information obtained in one piece of litigation should be used for the advantage of a party in another piece of litigation or for other non-litigious purposes. The discretion is a broad one and all the circumstances of the case must be examined. 20In Global Medical Solutions Australia Pty Ltd v Axiom Molecular Pty Ltd [2013] NSWSC 665, Stevenson J said at [21]:- [21] For "special circumstances" to exist, what must be shown is that there is a special feature of the case, not usually present, that affords a good reason for modifying or releasing the relevant party from its obligation to use the documents only for the purpose of the proceedings. All factors must be considered but, "perhaps most important of all, [is] the likely contribution of the document to achieving justice in the second proceeding": Springfield Nominees Pty Ltd v Bridgelands Securities Ltd (1992) 38 FRC 217 at 225 per Wilcox J; applied in Liberty Funding Pty Ltd v Phoenix Capital Ltd [2005] FCAFC 3; (2005) 218 ALR 283 at [31] per Branson, Sundberg and Allsop JJ. The Submissions 21Mr Fernon, for the defendants, observed that the plaintiffs were asserting that the defendants were negligent in advising them to provide money for investment in the assignment. RMI tried to enforce the assignment in the proceedings in which the Suncorp documents were produced. Mr Misan filed pleadings in that suit alleging that he had been induced to enter into his guarantee and that misleading information had largely been provided by Mr Silk, the principal behind the Welcome Hotel and the Australian Independent Brewery, as a consequence of which, he asserted, the guarantee should have been set aside. 22It also emerged that there had been earlier proceedings in Queensland in which Suncorp had sued defendants, including Mr Misan. There were allegations of fraud and misleading conduct in relation to the provision of finance and the security which was assigned to RMI. Allegations were made against Mr Silk. The defendants learned about the Queensland proceedings during the course of the RMI proceedings. Documents produced by Suncorp related to the loan, the securities, the assignment and the Queensland proceedings. The solicitors for RMI reviewed a large number of documents in the RMI proceedings, including the Queensland file. The Queensland proceedings had been resolved by deed of settlement before the assignment to RMI. Those facts were never disclosed. 23Mr Fernon submitted that the special circumstances in the case were that the second defendant, a director of RMI, the plaintiff in the relevant proceedings, is being sued in the present proceedings, as is a related company of his, in relation to the very transaction that was the subject of the subpoena. The defendants are entitled to bring and assert cross-claims if appropriate and entitled to seek legal advice in relation to cross-claims to determine whether or not such cross- claims may be validly brought, and, if so, the nature of such cross-claims, how they should be pleaded and how they should be structured. That was an avenue of enquiry the defendants were entitled to pursue in relation to possible claims against the cross-defendants identified in Mr Amirbeaggi's affidavit who were largely involved in the transactions that were the subject of the Suncorp subpoena and the documents produced under it. The defendants' solicitors are the solicitors who acted in the RMI proceedings, who issued the subpoenas and who inspected the documents. The knowledge of what is contained within the documents produced rests with those solicitors. They cannot forget it. 24Mr Carroll, for the plaintiffs, submitted in writing that no conclusion could be reached as to the probative value of the material desired to be used so as to determine whether special circumstances existed until the defendants' cross-claims were properly and clearly articulated in a pleading and the documents sought to be relied on were reviewed by the Court so as to determine whether they were required to achieve justice in those claims. Mr Carroll repeated orally that the cross-claims should be drafted and questions of relevance and leave should be answered only after that had been done. 25 Mr Harris, for Suncorp, read the affidavit of Kelly Anne Lloyd, solicitor for Suncorp, filed in Court during the hearing. Relying on it, he submitted that:- (a) the documents are not relevant to an issue between the parties in the present proceedings; (b) the defendants seek to use the documents of a non-party (Suncorp) to formulate a proposed cross-claim, though the defendants have not outlined how Suncorp's documents could be relevant to those cross-claims; and (c) the documents, being documents relating to Suncorp's former customer, are subject to banker-customer confidentiality. 26It was put on the evidence of Mr Lloyd that according to the Amended Statement of Claim and the Amended Defence there was no issue in the present proceedings about the existence or the terms of the Suncorp-Silk Transaction and that the documents evidencing it were therefore irrelevant to any Cross-Claim. 27The solicitor for the defendants wrote to Hugh and Associates, solicitors for Mr Misan. Those solicitors replied on 4 September 2013, stating that they neither consented nor objected to a grant of the relief sought and that they did not intend to participate in the Motion. They asked the defendants' solicitors to bring their letter to the attention of the Court. Their observations included these:- 1. our client is not a party to the Motion; 2. your clients in the Webster Proceedings, namely Super Smart Strategies Pty Ltd and Rick Manietta, were not parties to the Supreme Court of NSW proceedings commenced by Rick Manietta Investments Pty Ltd ("RMI") against Welcome Hotel Pty Ltd and others, including our client, being Supreme Court Case Number 2011/260446 ("RMI Proceedings"); 3. RMI is not, as far as our client is aware, a party to the Webster Proceedings; 4. it is apparent from Mr Amirbeaggi's Affidavit that RMI, Mr Manietta (as Director of RMI) or your firm has already disclosed and/or made use of the documents produced by Suncorp Metway Limited in the RMI Proceedings by informing Super Smart Strategies Pty Ltd and Mr Manietta of same. Our client is concerned that such disclosure, to enable the Defendants in the Webster Proceedings to bring the present Application, may constitute a breach of the usual undertaking regarding the use of the Suncorp Subpoenaed documents; 5. Mr Amirbeaggi states at paragraph 14 of his Affidavit that potential cross-claims are to be pursued against "various parties", including those persons or entities referred to in paragraph 14. We note that our client is not referred to as a potential cross-defendant. Subject to issues of confidentiality addressed in paragraph 6 below, the application would therefore not appear to directly affect our client's interests, which is material to the position our client is taking on the matter; and 6. our client has not accessed such of the Suncorp Subpoenaed documents produced by Suncorp in the RMI Proceedings as were produced to the Court, and is accordingly not aware of the contents of same. To the extent that any confidential documents are contained within such material, we respectfully suggest that the grant of access should be subject to a right of first access by our client, to preserve our client's right to press any confidentiality claims in respect of the documents. 28The letter is Exhibit A. Resolution 29In my opinion the state of affairs pointed to by Mr Fernon constitutes special circumstances, justifying a grant of the relief sought. It is significant that the subject-matter underlying the documents produced is the transactions in respect of which the defendants are now sued. I accept that the solicitors for the defendants have read the documents and have thereby learned things they would not have otherwise have known. I accept that at least in their opinion the documents are relevant to the question whether any cross-claim should be prepared and against whom. But apart from their opinion it seems probable that the documents produced will contain matters of relevance to potential cross-claims. I think that inspection will be a proper avenue of enquiry. 30It does not appear to me why, because the parties agree about the existence and terms of an agreement, evidence of the agreement should cease to be relevant at least to a proper enquiry into the question whether and how any cross-claim might be brought against any other person contemplated or affected by the agreement. 31I regard the submissions of the plaintiffs as unrealistic. Those advising the defendants cannot be expected to forget what they have learned. It would be unreasonable to expect them to advise the defendants without giving effect to their knowledge. It would be impossible for them to draft cross-claims as though they had never read the documents. Paragraph 4 of the letter Exhibit A draws attention to the same problem. 32I do not regard the facts that the documents are subject to banker-customer confidentiality as a reason not to grant the leave sought. Neither do I regard the other matters raised in opposition by the plaintiffs and Suncorp as speaking against a grant of leave. 33I make the following orders:- (1)Grant leave to the defendants to use for the purposes of these proceedings documents produced by Suncorp Metway Limited in proceedings Rick Manietta Investments Pty Ltd v Welcome Hotel Pty Ltd and Others NSWSC 2011/260446, such documents identified as follows- (i) Documentation produced by Suncorp Metway Limited to Yates Beaggi Lawyers, via Allens Arthur Robinson and/or Allens Linklaters on the following dates: i. 3 October 2011 under cover letter of even date; ii. 17 October 2011 via email; iii. 8 November 2011 under cover letter of even date; iv. 21 December 2011 under cover letter of even date; v. 15 May 2013 under cover letter of even date; vi. 29 May 2013 via email; (ii) Documentation produced by Suncorp to the Supreme Court of New South Wales, under cover letter dated 5 March 2013, pursuant to a subpoena issued in the RMIProceedings on 20 February 2013. (2)As between the plaintiffs and the defendants, the costs of Motion are to be costs in the proceedings. 34I make no order as to the costs of Suncorp. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 23 September 2013