Seamus E. Byrne's - In Pursuit of Relevance

Austal Ships Pty Ltd v Incat Australia Pty Ltd [2009] FCA 368 (20 April 2009).

Preliminary

The recent decision of McKerracher J involves, amongst other things, an application for further discovery in a continuing dispute between two competing ship builders, Austal and Incat.

The dispute arose after internal research reports prepared by Austal were e-mailed from an Incat consultant to an active sales prospect for both ship builders. The Incat consultant had received the Austal reports from a former Austal employee, who was subsequently employed by Incat.

Unusual Circumstances

The proceeding is somewhat unusual, as Austal had already received the benefit of preliminary discovery under Order 15A of the Federal Court Rules and enjoyed the rare opportunity to examine Incat company officers prior to their application for further discovery.

At [24]:

As discussed, Austal has had the benefit of preliminary discovery, compulsory examination on oath of Incat officers and the provision of Incat witness statements and affidavits. It has had all of these sources of information before seeking further discovery.

It must be noted that His Honour's decision is based on a hearing held in October 2008, prior to the release of the Federal Court's revised Practice Note 17.

Application for Further Discovery

Applications for further discovery are made under Order 15 rule 8 of the Federal Court Rules.

Prior to making an order for further discovery, the Court must be satisfied that the benefit of the further discovery sought outweighs the cost and burden of the party giving such discovery. In addition, proceedings such as this one, involving confidential information and related commercial sensitivities are subject to special, and arguably more stringent, discovery considerations.

At [140]:

There are special considerations which arise in the context of confidential information cases. That circumstance has already been recognised in this litigation by the special orders that have been made, including preliminary discovery and, in particular, orders that have been sought, made and extensively acted upon, by Austal, for examination of officers of Incat. Unless I draw the inferences which Austal press me to draw, it seems relatively clear from Austal’s own submissions, that the outcome of those processes has been to identify very little more than the admissions already contained in the defence.

At [28-29], Austal contended that Incat failed to comply with their discovery obligations and had only produced a small volume of documents previously discovered during the preliminary discovery process. Austal largely expressed this contention on their expectation that Incat should have retained such discoverable documents as part of their statutory retention obligations under the Corporations Act 2001 (Cth).

At [87], Incat contended that the scope of discovery sought was excessive:

Mr Carter also swore an affidavit on 12 September 2008. Specifically in relation to the extensive further discovery sought by Austal, apart from the express admissions as to the usage of the Austal Report by emailing it to Master Ferries, he argues that the allegations in the statement of claim are vague and unsubstantiated especially given the fact that discovery has already been given and Austal sought and obtained orders permitting extensive oral examination of Mr Clifford, Mr Merrigan, Mr Thurlow and Mr Carter. He observes that the discovery categories in the application as currently formulated are extraordinarily wide and would encompass an enormous number of documents which have no relevance whatsoever to the pleaded issues. Compliance would require examination of documents which are highly confidential and commercially sensitive. The discovery as sought would effectively encompass all of the documentation relating to all of Incat’s design, production and marketing activities in the relevant period.

At [103-104], the burden arguably imposed on Incat by the discovery sought was supported by an affidavit from their IT Manager:

[103] Finally, Mr Cotton swore an affidavit on 16 September 2008. He is the Information Technology Manager for Incat. Essentially he confirms the financial and time burden to which Incat would be exposed in compliance with the discovery as sought. He gives a more detailed explanation in relation to that burden indicating that Incat currently has 95 personal computers with an average hard disc size of 80 GB. This equates to a total of 7600 GB of memory or 7.6 TB. It currently uses six servers containing a potential live storage of 2760 GB or 2.76 TB of information. That includes an email server with 70 GB total storage, a Blackberry/proxy server with 70 GB total storage used for communication between the Blackberry mobile phone devices and the email server. Incat have 24 Blackberry mobile phone devices. There is a file and print server with 680 GB total storage; an application server with 70 GB total storage; a storage/backup server with 1.6 TB total storage and an enterprise resource planning system server with 270 GB total storage. By way of clarification and expansion, he explains a one-page Microsoft word document is 40 KB. (There are one million kilobytes in a gigabyte and there are one thousand gigabytes in a terabyte.)

[104] He goes on to explain the enormous nature of the task which would be required to give discovery in accordance with the terms sought by Austal.

Whilst the referenced affidavit material of Incat's IT Manager highlights the technology infrastructure of Incat, it does not outline Incat's practices in relation to information management, nor any actual steps taken to form an assumption of the time and cost burden to comply with the discovery obligation. It is arguable that such tasks would need to be performed in proceedings where the scope of discovery sought is more refined.

At 152-154, His Honour ultimately rejected the application for further discovery:

[152] In my view, the enormity of the task and width of the documents listed and the lack of connection between those documents and the issues in the action is evident from the face of the list. Austal did not advance any specific argument to each of the topics on which it sought discovery. Rather it stressed the basis on which the inferences it asks the Court to draw are said to be reasonable.

[153] I consider the discovery sought by Austal would be a fishing expedition made in an effort to find some piece of information which could provide a basis for Austal's claims. But also it would be quite oppressive in that circumstance.

[154] At this stage, there is no significant evidence at all in relation to the allegations concerning Higashinihon Ferries, Spanish Acciona and PATT. The oppression involved in the proposed discovery, in my view, far outweighs the benefit that might be obtained from it. As to the burden and benefit principle, see also O 15 r 8 and Molnlycke AB v Proctor & Gamble Limited (No 3) [1990] RPC 498 at 503 and Slick [2006] FCA 1712 at [43].

Additional Orders

As analysed by His Honour at [130-132], it must also be noted that all respondents, including Incat, were ordered to file and serve discovery affidavits which complied with Order 15 rule 6(8) of the Federal Court Rules.