Australian Commercial Research & Development Ltd v Commonwealth of Australia [1994] QSC 199

IN THE SUPREME COURT OF QUEENSLAND No. 858 of 1993 Brisbane Before Mr Justice Shepherdson [Aust. Comm. Research & Development Ltd v. Commonwealth of Australia] BETWEEN AUSTRALIAN COMMERCIAL RESEARCH AND DEVELOPMENT LIMITED Plaintiff and COMMONWEALTH OF AUSTRALIA Defendant JUDGMENT - SHEPHERDSON J Judgment delivered 11 August 1994 CATCHWORDS: DISCOVERY - whether heavy cost justifies refusal of order - Bray "Law of Discovery" (1885) p.299 COUNSEL: Mullins for applicant plaintiff Dutney Q.C. for defendant SOLICITORS: Bell Rapp & Partners for plaintiff Australian Government Solicitor for defendant HEARING DATE: 18 July 1994 -- 1 of 12 -- IN THE SUPREME COURT OF QUEENSLAND No. 858 of 1993 BETWEEN AUSTRALIAN COMMERCIAL RESEARCH AND DEVELOPMENT LIMITED Plaintiff and COMMONWEALTH OF AUSTRALIA Defendant JUDGMENT - SHEPHERDSON J Judgment Delivered 11 August 1994 On 18 July 1994 the above parties appeared before me on a chambers summons issued by the plaintiff on 13 December 1993, seeking primarily an order that the parties to the proceedings exchange affidavits of documents on or before 1 February 1994. In events which have subsequently happened, the defendant has completed part of its obligations on discovery but has, from the plaintiff's point of view, refused to acknowledge that it is obliged to discover certain documents and, further, says that if it has to discover those documents such discovery should occur in stages spread over a period of time. Before I go further I shall recount what, for present purposes appears to be the main basis of the plaintiff's claim against the defendant. There appears to be no dispute that the parties entered into a deed styled "Principal Projects Deed" dated 16 July 1987. Clause 1.4 of that deed (hereinafter called "PPD") reads:- "1.4 In respect of all projects or technologies for which the Commonwealth requires commercial funding for development within its defence research laboratories for non -- 2 of 12 -- 2 defence use of such projects or technologies, the company shall have first right of refusal both for provision of such funding pursuant to this Deed and the Research and Development Deed attached hereto, and subsequent to the research and development phase, the non defence commercial development pursuant to the Commercialisation Agreement attached hereto for that project or technology." In its amended statement of claim the plaintiff seeks a declaration that that clause 1.4 confers upon the plaintiff a first right of refusal and a further declaration that the phrase "commercial funding" in clause 1.4 has a meaning which is pleaded at some length in paragraph 21(a) of its amended statement of claim. In paragraph 22 of the amended statement of claim the plaintiff has alleged that the defendant has breached clause 1.4 in that:- (a) it has entered into agreements with parties other than the plaintiff for the provision of commercial funding for the development within the defendant's defence research laboratories of projects or technologies for non-defence uses; (b) The plaintiff was not provided with an opportunity to exercise its first right of refusal prior to the defendant entering any such agreements. Particulars have been provided in schedule A to the amended statement of claim. These particulars list projects which it is alleged the defendant has entered into with third parties in alleged breach of its agreement with the plaintiff. These particulars do not purport to be exhaustive. The matter of discovery in this action and more particularly its width and cost were the subject of evidence in an application for security for costs made by the defendant and heard by me on 6 April 1994. On 22 April 1994 I delivered judgment on that application. In the course of that application Mr Dutney Q.C. who appeared for the defendant argued that the wide extent of the meaning which the plaintiff seeks to place on the phrase "commercial funding" combined with the particulars in schedule A to the amended statement of claim will result in the defendant being put to huge expense, that huge expense being said to arise from the need of -- 3 of 12 -- 3 the defendant, in complying with its obligations on discovery to refer to thousands of projects of the type pleaded and in which it has been involved since 16 July 1987. It is apparent that the plaintiff's case is one in which it alleges that by reason of the defendant's claimed breaches it has lost opportunities to earn income which it otherwise would have earned. It appears that the recent decision of the High Court in Poseidon Limited v. Adelaide Petroleum NL.: Sellars v. Adelaide Petroleum NL. (1994) 68 ALJR 313 will be relevant for the Trial Judge in this case. Mr Mullins for the applicant plaintiff in supporting his present application relies particularly upon the following passages from the joint judgment of Mason CJ. Dawson Toohey and Gaudron JJ. at p.323 of the above report:- "... we consider that acceptance of the principle enunciated in Marlec requires the damages for deprivation of a commercial opportunity, whether the deprivation occurred by reason of breach of contract, tort or contravention of s.52(1) should be ascertained by reference to the courts assessment of the prospects of success of that opportunity had it been pursued ... the general standard of proof in civil actions will ordinarily govern the issue of causation and the issue whether the applicant has sustained loss or damage. Hence the applicant must prove on the balance of probabilities that he or she has sustained some loss or damage." The material read before me is mainly directed to proving damages and shows that save for Schedule A to its amended statement of claim the plaintiff really is entirely at the mercy of the defendant when it comes to attempting to ascertain and identify each party with whom it is alleged the defendant has since 16 July 1987 entered into agreement for the provision of commercial funding for the development within the defendant's defence research laboratories of projects or technologies for non defence uses and in respect of which it is said the plaintiff was not provided an opportunity to exercise its first right of refusal prior to the defendant entering any such agreement. These are matters which are solely within the knowledge of the defendant and of course the plaintiff bears the onus of proof on the issues of breach of contract and damages which are alive in this -- 4 of 12 -- 4 action. Obviously, Schedule A to the amended statement of claim shows the plaintiff has identified some of the above agreements. To identify any other relevant agreements the plaintiff must trust the defendant's discovery. The defendant's attitude to its obligations on discovery is set out in a letter dated 1 March 1994 written by Alex Bernoff, Principal Solicitor, Special Projects Legal Work Unit of the Brisbane Office of the Australian Government Solicitor to Mr Tony Garrett a Legal Costs Assessor of Brisbane (document 96 on the Court file). It appears from that letter that the defendant then proposed a schedule for discovery consisting of seven stages. Stages 1 and 2 have been completed. Stage 1 was headed "Communications DSTO - ACRD PRE-PPD" and Stage 2 was "Communications DSTO - ACRD POST-PPD". DSTO is Defence Science and Technology Organisation, ACRD is the plaintiff and PPD means as already mentioned "Principal Projects Deed." The discovery in respect of these stages has been completed by the Plaintiff. Stage 3 entitled "Schedule A Projects-excluding JORN" and Stage 4 entitled "Schedule A Projects - JORN" have not been completed. The Schedule A refers to Schedule A in the amended statement of claim and JORN means "Jindalee Operational Radar Network". As already mentioned, the list in "Schedule A" is not exhaustive and is based on what the plaintiff then knew. Mr Dutney Q.C., for the defendant does not object to his client making discovery of the matters the subject of these two Stages 3 and 4 but he did submit that it would need another six months from the hearing on 18 July. I told the parties on that day that I ordered the defendant to make discovery in respect of Stages 3 and 4 by 9 December 1994. I further stated that as discovery documents in respect of each agreement identified in each of stages 3 and 4 were being prepared by the defendant, that discovery would be made at intervals up to 9 December 1994 so that one would -- 5 of 12 -- 5 not see a situation where on 9 December 1994 the defendant made massive discovery in respect of all the documents which it had decided since 18 July 1994 should be discovered. Stages 5, 6 and 7 proposed by the defendant are as follows:- 1. STAGE 5 - DSTO - THIRD PARTY AGREEMENTS; 2. STAGE 6 - AGREEMENTS BY DEPARTMENT OF DEFENCE; 3. STAGE 7 - SECONDMENT OF DSTO/DEFENCE PERSONAL. In respect of each of stages 5 and 6, the defendant's attitude as expressed in the above letter of 1 March 1994 was:- "The Commonwealth submits such costs are excessive and oppressive and does not propose to make discovery in respect of this heading." and in respect of Stage 7 it adopted a similar attitude. In respect of Stage 5 the above letter said:- "The identifiable unit of work within DSTO is known as a task and an estimated 4,800 tasks have been undertaken within DSTO since July 1987. Each task generates at least three files which may each comprise several file covers of material. In respect of material within DSTO relating to any agreement with any third party which may be relevant on (sic) the meaning of the terms pleaded in the Statement of Claim, there is no organisation of records within DSTO to readily identify relevant agreements and it would be necessary to peruse material in respect of nearly every task to identify whether there has been any such arrangement ..." As to Stage 6 the above letter said:- "In respect of material within the Department of Defence relating to all agreements between the Department and third parties it is estimated that between 1987 to 1993 over 14,900 contracts over the public tender threshold of $20,000 were entered. There is no organisation of the records maintained by the Department in respect of the agreements which could identify an agreement containing an aspect within the meaning of terms pleaded or otherwise made relevant in this action. It would therefore be necessary to peruse material in respect of each individual agreement to ascertain whether there is any aspect or arrangement in the terms pleaded in the statement of claim rendering it discoverable. Over 380,000 files have been created in one Department of Defence Central Canberra Registry since 1987 ..." As to Stage 7 the above letter from Mr Bernoff said:- -- 6 of 12 -- 6 "The personnel records maintained by the Department of Defence which includes DSTO do not permit the extraction of material which may be relevant in this action by reference to the terms pleaded in the Statement of Claim. Estimates are that there have been over 5,000 people working for DSTO alone since July 1987 and the costs of review of the personal files of those personnel to ascertain whether there has been a period of secondment to a third party has not been estimated but would involve many hours of close perusal of each file. The extent of relevant material likely to be disclosed is considered to be negligible ..." The defendant's above attitude to discovery of the material referred in Stages 5, 6 and 7 has continued and this is evident from an affidavit by Ian Richard Ridgway the Director of DSTO sworn and filed on 4 May 1994 (document no.99 on file). I mention that an earlier affidavit of Mr Ridgway dated 22 February 1994 had said:- "I verily believe that the Defence Contracting Organisation arranged 7,454 contracts (for amounts greater than the public tender threshold of $20,000) in the years 1987- 1990 worth a total of 7.97 billion ..." "... I would estimate that the contracts entered into in the period 1990 to 1993 is similar to the previous years." (These extracts are apparently the source of the above figure of 14,900 in extract from the letter of 1 March 1994 relating to Stage 6). The plaintiff argues that any such discovery must not relate only to projects over $20,000, but submits that all transactions regardless of whether or not they are above the $20,000 threshold entered into by the Commonwealth in relation to its projects must be disclosed in accordance with the Mulley v. Manifold (104 CLR 341 at p. 345) principle and that no dollar amount be set to limit the discovery in any way. I accept the correctness of this submission in the circumstances of this case. In my view, the defendant's basis on which it seeks to avoid its discovery obligations in respect of Stages 5, 6 and 7 is not sustainable. Mr Mullins has relied on the following passage in Bray "Law of Discovery" (1885) at p. 299:- "It was said that the court would not enforce or would exercise a proper control over -- 7 of 12 -- 7 any attempt on a party's part to press for discovery which would be vexatious or oppressive: ... but here again if the discovery was clearly material at that stage it was not in that sense vexatious or oppressive however much expense time and trouble the giving of it might involve." The defendant's submission that its costs of making discovery of the documents referred to in Stages 5, 6 and 7 will be excessive and oppressive cannot succeed in the circumstances of this case. The defendant in the present case has virtually unlimited financial and human resources for carrying out its discovery tasks. In this case when giving discovery it has a heavy burden to behave in a proper and fair manner and I would expect it to do so. It will be obliged to apply the Mulley v. Manifold test to each of the very large number of files and the documents therein or formerly therein and then decide whether or not that file and document is discoverable. As I have said the plaintiff is really in the hands of the defendant and the defendant can ill afford, given its great position of financial strength and enormous power in the Australian community, to be accused of failing to discover material which the plaintiff may wish to use as showing a lost opportunity. I recognise the difficulties which will confront the defendant in making discovery in this case. Some of these difficulties are illustrated in the affidavit of Simon Kenneth Treloar, Solicitor in the Office of the Australian Government Solicitor at South Australia, filed by leave on 18 July 1994 and relied on by the defendant. Matters not to be overlooked are the fact that the contract in question still has some three years to run and the further fact that after the contract was entered into in July 1987, it seems that only one project was formally submitted to the plaintiff for funding under that agreement. Further, the agreement on which the plaintiff has sued the defendant has been the subject of critical comment in the Commonwealth Auditor-General's report to Federal Parliament dated 14 October 1992 and that comment recognised the contractual dispute between the present parties and foreshadowed litigation between the present parties arising out of the contract. The dispute is therefore within the -- 8 of 12 -- 8 public arena and the Australian community may very well watch and observe with interest the manner in which Australia's arguably most powerful litigant honours its obligations on discovery towards an independent corporation who has sued it. On 18 July 1994, I told the parties that I ordered the defendant to make discovery in respect of each of Stages 5 and 6 by 9 December 1994 and that I had not then made up my mind about Stage 7. I then said I would later decide and give my reasons. I have considered Stage 7. Mr Bernoff considers that the records referred to in Stage 7 may well contain material "relevant in this action by reference to the terms pleaded in the statement of claim". The Mulley v. Manifold test describes a discoverable document as "sufficient if it would, or would lead to a train of enquiry which would, either advance a party's own case or damage that of his adversary." It appears that no person for the defendant has yet attempted to examine the personnel records referred to in Stage 7 for the purposes of discovery. Mr Bernoff's statement that "the extent of relevant material likely to be disclosed is considered to be negligible" appears to be speculation. In my respectful view it must be rejected in any event and the Mulley v. Manifold test applied to the records. If in the event the extent of the material were negligible, it may transpire that that material although very limited in extent, is very helpful to the case of either party. In my view "extent" is an irrelevant consideration for me. Because of the defendant's obligations on making discovery in this case and Mr Bernoff's belief that relevant material may be found either in or to have been in the records referred to in Stage 7, I have concluded that the defendant must make discovery of documents in the records referred to Stage 7 of the above letter of 1 March 1994, which comply with the Mulley v. Manifold test but I shall defer the giving of such discovery until 31 January 1995. I would add that the various stages set out in the letter of 1 March 1994 are repeated in an exhibit which is document No. 100 on the -- 9 of 12 -- 9 Court file. In the result my orders are:- 1. That the defendant do on or before 9 December 1994 make discovery on oath in respect of each of the files and documents referred to in Stage 3 in the document Ex.A to the affidavit of Ian Richard Ridgway filed 4 May 1994 which document is file document no. 100; 2. That the defendant do on or before 9 December 1994, make discovery on oath in respect of the contract for JORN referred to in Schedule A to the amended statement of claim including but not limited to each of the files and documents referred to in Stage 4 of the said document no. 100; 3. That the defendant do on or before 9 December 1994 make discovery on oath in respect of all agreements which since 16 July 1987, the defendant has entered into with parties other than the plaintiff for the provision of commercial funding for the development within the defendant's defence research laboratories of projects or technologies for non-defence uses other than those set out and referred to in Stages 3 and 4 of the said document No. 100 and including but not limited to those referred to in Stages 3, 4, 5 and 6 of the said document No.100; 4. That the defendant do on or before 31 January 1995 make discovery on oath in respect of those documents which are or have been in the personnel records referred to in Stage 7 of the said document No. 100 which documents relate to issues in question in this action; 5. That in addition to the discovery ordered in paragraphs 1, 2, 3 and 4 of this order the defendant do on or before 31 January 1995 make discovery on oath of all documents which are or have been in its possession or power relating to any matter in issue in this action. -- 10 of 12 -- 10 6. Liberty to apply. As to the costs of this application, Mr Mullins has sought an order that the defendant do pay the plaintiff's costs including reserved costs. The application has been before the Court several times. One such occasion was 12 May 1994 when I adjourned it because pleadings were not then closed. I made no order as to costs on that day which meant that each party bore its own costs of the day. Before me, the parties disputed the circumstances surrounding their appearance before Mr Justice Mackenzie on 4 May 1994 when His Honour reserved the costs. I cannot at this stage resolve that dispute. Mr Dutney submitted that costs should be costs in the cause because the matter always had to come to court. It is in my view important that the defendant's attitude to the material in Stages 5, 6 and 7, expressed in early March 1994, had a significant bearing on the need to have a judicial determination as to discovery of those materials. There was a dispute between the parties as to whether or not the defendant should be required to give staged discovery. Recognising the width of its discovery obligations, that ordered approach has much to commend it and in the event, discovery thus far has been staged. However, the discovery I have ordered is wider than that envisaged by the defendant in its proposed staged discovery. I have, in these reasons, emphasised what I see to be a heavy onus on the defendant in respect of its discovery obligations and my orders I trust reflect that, particularly order number 5. Taking into account all the matters on which argument was addressed and the material before me I order the defendant to pay the plaintiff's costs of and incidental to the summons filed 13 December 1993 to be taxed save that:- (a) costs of the appearance before Mackenzie J. on 4 May 1994 continue to be reserved; -- 11 of 12 -- 11 (b) costs of the appearance on 12 May 1994 before me are excepted, the order there being "no order as to costs" of that day. -- 12 of 12 --