In a recent decision, Athena Investment Holdings LLC v AJ Lucas Group Ltd1 , (Athena v AJL) the issue of preliminary discovery was clarified where Robb J found in favour of Athena Investment Holdings LLC (Athena), ordering AJ Lucas Group Ltd(AJL) to give discovery to Athena in the each of the categories sought by Athena.

This is a reminder of the ability of a claimant to determine its claim for relief, prior to issuing a statement of claim or summons.

The law is set out in Rule 5.3(1) Uniform Civil Procedure Rules 2005 (NSW) (UCPR) that states as follows:

  1. If it appears to the court that:
    1. the applicant may be entitled to make a claim for relief from the court against a person (the prospective defendant) but, having made reasonable inquiries, is unable to obtain sufficient information to decide whether or not to commence proceedings against the prospective defendant, and
    2. the prospective defendant may have or have had possession of a document or thing that can assist in determining whether or not the applicant is entitled to make such a claim for relief, and
    3. inspection of such a document would assist the applicant to make the decision concerned.

    The court may order that the prospective defendant must give discovery to the applicant of all documents that are or have been in the person's possession and that relate to the question of whether or not the applicant is entitled to make a claim for relief.

However the application ofRule 5.3(1) by the court is subject to the following key principles (omitting references to authorities and citations):2

  1. It is not necessary for the applicant to show a pleadable or prima facie case for an applicant to have a right to a claim for relief;
  2. A mere assertion, however, is not sufficient; there needs to be reasonable cause to believe that the application has a right of action against the respondent resting on some recognised legal ground;
  3. Belief must be more than suspicion, conjecture or of mere possibility. That is,thereshould bean inclination towards the existence of a right of action, as opposed to a rejecting of the belief. There needs to be evidence directing the court to the facts in question. A more rigid view on the interpretation of Rule 5.3(1) is that if there is no reasonable cause for belief in the existence of one of the elements to the potential cause of action, the application would fail on that particular cause of action. The word "may" provides the court with the latitude to accept that it does not have to reach the view that there is a right to relief;
  4. Note that Rule 5.3 of UCPR can be wider than the Federal Court Rules O15A r6 "reasonable cause to believe". Whilst uncertainty with regard to one cause of action may not undermine a the reasonableness of a cause to believe, if uncertainty taints multiple elements then the validity of reasonable belief may be questioned;
  5. The question to be determined by the court is whether the applicant has sufficient information to commence proceedings in the court. An applicant is not prevented to bring an application because it already has available evidence that is sufficient to establish the prima facie case for granting relief, as it may be that the granting of the application could assist the applicant in determining the defences available to the respondent and strength of their case.
  6. The rule is to be given the broadest possible scope subject to the court, in its discretion, preventing any misuse.

  7. In Athena v AJL, Athena claimed its entitlement was based on the ground that AJL made a number of misleading or deceptive representations to Athena upon which Athena had acted to its detriment. The cause of action would be s18 of the Australian Consumer Law, and also possible cause for the breach of a loan agreement in which AJL warranted that they had not provided misleading and deceptive information. The damage suffered by Athena was likely to be that had Athena been aware of AJL's true position it may have been able to place some additional protection in its agreement with AJL to ensure its efforts were not wasted, "a so called lost opportunity".

AJL submitted that:

  1. Athena was a separate entity from the entity with which they had been communicatingand as a consequence there was no evidence to support their claim. It should be noted that Athena was a special purpose company vehicle and it was the strategic advisor through which all communications with AJL occurred.
  2. Athena's case of lost opportunity was optimistic.

AJL focused its argument on the basis that if there is not reasonable cause to believe that each of the necessary elements of a potential cause of action exists then an end should be put to the application. The court, however, reminded AJL that such a view fails to give appropriate weight to the fact that it is not necessary for the applicant to show a prima facie or pleadable case, and indeed that it is sufficient for the applicant to believe there is a cause of action.

Whilst there was evidence submitted to argue that AJL was aware that Athena was a likely recipient of the alleged representations, and this was the court's finding at this application, the court noted this may not be the case in the final hearing.

Interestingly, AJL argued that the court's discretion should be applied to reject the application as the lost opportunity was optimistic, but the court did not accept this argument on the basis that in the "interests of commercial morality" the court should assist Athena to explore whether it does have a right of relief. Onewonders if this pleading has been filed, whether the court would have imported the same morality.

It should be noted that the court did not discuss the issue of relevance to the items being sought for discovery.It is a constant factor for an applicant seeking discovery of a document to consider that the applicant needs to show that there is a legitimate forensic purpose.

The quandary that the court faces is how to determine the legitimate forensic purpose if there is an element of the cause that remains unclear. The answer could come from Robb J in Athena v AJL at [65] where the evidence will need to be sufficient to establish a real probability of major elements of the claim.

As a side note, if the requested documents are of a confidential nature the court may adopt a procedure by which the document is be produced to the court in the form of a "Confidential Exhibit ". Consideration is then given to access to the document, throughrequirement that the applicant first demonstrate a legitimate forensic purpose for seeking access at this stage of the proceedings: see, by analogy, Ritchie's Uniform Civil Procedure NSW, [33.9.7].

It is for the Court to determine whether, when and in what circumstances, a document should be made available to the parties: National Employers Mutual General Insurance Assn Ltd v Waind [1978] 1 NSLR 372.

The court left it open to the parties to make written submissions on costs. In preliminary discovery, the traditional rule of costs following the event may not be applicable or accepted by the court. In cases where the documents are confidential, it is consistent that the applicant pays the costs: See, Richie's Uniform Civil Procedure [5.3.25]

Footnotes

1[2013] NSWSC 1837
2Hatfield v TCN Channel Nine Pty Ltd (2010) 77 NSWLR 506 at [47]-[52]

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