Federal Court of Australia

Introduction

5.6 This section of the chapter examines the existing requirement to obtain leave of the Court to serve a notice for discovery in Federal Court proceedings, as a means of regulating parties’ access to discovery mechanisms. Here the ALRC puts forward its views, within the context of the principles for reform outlined in Chapter 2, on establishing a new threshold test by which litigants would be required to justify, and the Court would be required to scrutinise, the need for discovery in each case.

5.7 This section also considers the efficiency and effectiveness of a right to inspect key documents prior to discovery in proceedings before the Federal Court, while maintaining the Court’s control over broader discovery of additional documents.

5.8 The range of documents generally discoverable under the Federal Court Rules (Cth) is also examined. In this regard, the ALRC provides its views on the need to limit the scope of general discovery allowed under existing Rules.

Regulating access to discovery by leave of the Court

5.9 Discovery is an important part of the litigation process as it provides access to information required to resolve or determine the issues in dispute.^[5] However, in some cases, the costs associated with discovery can present a distinct barrier to justice. Therefore, any restrictions on parties’ access to discovery—to avoid the costs, but also foregoing the information that discovery provides—need to be responsive to the interests of the administration of justice in each case. This point was made in the ALRC’s report on the civil justice system in Australia, Managing Justice: A Review of the Civil Justice System (2000) (ALRC Report 89) (Managing Justice):

The process needs supervision and control but, in setting such controls courts should note that discovery is an essential part of the process. The information obtainable through discovery is required to facilitate settlement as well as to present at trial.^[6]

5.10 In its report, Civil Justice Review, the Victorian Law Reform Commission (VLRC) also formed the view that ‘discovery plays a vital role in the administration of justice’.^[7] Moreover, notwithstanding many submissions that the discovery process should be viewed as a privilege and maintained for appropriate cases by leave of the Court,^[8] the VLRC concluded that discovery in Victorian courts should continue to be available to the parties as of right.^[9] Consequently, the Supreme Court (Chapter 1 Amendments No 18) Rules 2010 (Vic), which implemented some of the VLRC’s recommendations, made no changes to limit the availability of discovery—so that parties may continue to serve notice on another party requiring discovery of documents, without leave of the Court.^[10]

5.11 By way of contrast, in line with the commentary in Managing Justice about the need for court supervision and control over the use of discovery,^[11] the Federal Court amended the Federal Court Rules in 2002 to introduce the requirement for leave of the Court to serve a notice for discovery.^[12]

5.12 Doubts have emerged, however, as to whether the leave requirement is working as an effective control on the availability of discovery. In a March 2008 conference paper, the Hon Justice Ray Finkelstein observed that:

Although leave is nominally required and general discovery is frowned upon, the reality is that the leave requirement is a formality rather than a substantive limitation on a party’s ability to obtain discovery. That is to say, there is no general practice of requiring a party to justify a request for leave to obtain discovery by showing need or cause.^[13]

5.13 Justice Finkelstein took into account comments from practitioners in the Law Council’s Final Report in Relation to Possible Innovations in Case Management, which called for judges to take a much stronger role control discovery.^[14] He noted that ‘[t]he concern, particularly with respect to large and complex cases, is that the Court has abdicated responsibility, resulting in excessive costs for very little return’.^[15]

5.14 Similar concerns were raised with the ALRC during this Inquiry. In some cases, parties might seek discovery as a matter of course, or just to ‘shake the tree trunk’, rather than out of necessity or with any real prospects of discovering significantly relevant documents.^[16] At the same time, the extent to which the Court will scrutinise the need for discovery orders sought by a party in a proceeding may vary between different judges and different court registries—leading to inconsistent practice and uncertainty for practitioners and litigants.

5.15 Some judges hearing matters in the Federal Court’s ‘Fast Track List’ have promoted an activist approach to judicial scrutiny of requests for discovery. The Fast Track List aims to reduce the costs and time of commercial litigation conducted in that list. By limiting discovery, introducing scheduled pre-trial conferences and resolving most interlocutory disputes on the papers, the Fast Track List is an attempt to respond to commercial disputes in a more timely and cost-effective manner.^[17] The attitude which a Fast Track List judge should adopt when considering discovery applications was described by the Hon Justice Michelle Gordon at a conference in November 2009:

The general presumption is not just that discovery will be limited, but that there will be no discovery unless a party can identify with specificity particular documents or materials (not simply categories) that they require, the reasons that they require those documents, and why no alternative, cheaper means of obtaining the information is available (such as inspection, a summary created pursuant to s 50 of the Evidence Act 1995 (Cth), a letter or admission from the other side, or an affidavit from a witness with the relevant knowledge).^[18]

Submissions and consultations

5.16 In the Consultation Paper, the ALRC asked whether the requirement to obtain leave of the Court to serve a notice for discovery effectively regulates the use of discovery in Federal Court proceedings, and whether the law is sufficiently clear on when the Court should grant leave for discovery of documents.^[19]

5.17 A number of submissions expressed the view that, while current law was sufficiently clear on when the Court should grant leave for discovery, the Court did not necessarily apply this law in a formal and consistent manner.^[20] Some suggested that judges rarely gave serious consideration to the specific factors set out in the relevant lines of authority.^[21] Others noted that parties often prepare consent orders for discovery to be filed at a directions hearing and that such orders are usually made by the Court without argument or scrutiny.^[22]

5.18 In contrast, the Commissioner of Taxation for the Commonwealth of Australia (Tax Commissioner) submitted that:

In the Commissioner’s experience, the requirement for leave of the Court does effectively regulate the use of discovery. The Court actively engages with the parties in determining what, if any, discovery orders are appropriate and carefully examines the categories of documents to be discovered.^[23]

5.19 The Tax Commissioner noted, however, that his observations in respect of discovery in tax appeal proceedings were linked with the case management protocols spelled out in the applicable practice note.^[24]

5.20 One submission suggested that greater and more consistent judicial consideration of existing leave requirements for discovery may eventuate following the introduction of the overarching purpose provision, s 37M of the Federal Court of Australia Act 1976 (Cth).^[25] This requires the Court to apply civil procedure provisions in a manner that best promotes the overarching purpose of civil practice and procedure—namely, the just resolution of disputes according to law, as quickly, inexpensively and efficiently as possible.^[26] This provision ‘may make the discussion about discovery at direction hearings more fulsome or more searching but that provision has only been in place for a relatively short time’.^[27]

ALRC’s views

5.21 The different experiences of litigants outlined in submissions echoes the views put forward during consultations in this Inquiry. The ALRC was advised that there is a degree of inconsistency across the Federal Court as to how thoroughly judges scrutinise the need for discovery in proceedings, and require parties seeking discovery to justify such requests.

5.22 The close judicial scrutiny of discovery applications in the Federal Court’s Tax List, as experienced by the Tax Commissioner, is consistent with the approach taken in the Court’s Fast Track List—as described by Justice Gordon above.^[28] This reflects the fact that similar case management protocols are prescribed in both Practice Note Tax 1—Tax List and Practice Note CM 8—Fast Track. However, every judge across the Federal Court might not be as stringent in testing a party’s need for discovery in each case.

5.23 In the ALRC’s view, the existing requirement in O 15 r 1 of the Federal Court Rules, to obtain leave of the Court to serve a notice for discovery, is an important control over the use of discovery in Federal Court proceedings. This rule reflects the gatekeeper role of the Court to ensure that discovery obligations are not imposed on litigants unnecessarily. The rule promotes the principle of consistency in the types of cases for which discovery mechanisms are reserved. There is ample guidance in current Practice Note CM 5 and relevant case law for judges considering whether discovery is necessary or appropriate in proceedings. This guidance also promotes the principle of consistency—in the way judges determine applications for leave to serve a notice of discovery.

5.24 The Court will continue to play this gatekeeper role under the proposed new Rules, which provide that a party may give discovery only after the Court has so ordered.^[29] The proposed rules would also impose a costs sanction if parties give discovery without being ordered to do so by the Court.^[30] However, the effectiveness of court rules will be undermined if some judges grant leave or make discovery orders as a matter of course—without specific consideration of whether discovery is necessary. Such inconsistency in the way judges determine applications for discovery orders would lead to inconsistencies between the types of cases where discovery mechanisms are used, which in turn would create uncertainty for litigants as to whether discovery is appropriate in their case.

5.25 The potential for reform to facilitate greater consideration by the Court and the parties, on a more consistent basis, as to whether discovery is necessary in proceedings is discussed below.

A new threshold test to regulate access to discovery

5.26 The Consultation Paper discussed the possibility of prescribing a specific threshold test for the granting of leave for discovery in Federal Court proceedings.^[31] This would be one way to ensure that judges scrutinise more thoroughly and consistently whether discovery is necessary in proceedings. The Consultation Paper outlined two precedents where stricter controls are placed over the use of discovery mechanisms in litigation:

• Federal Magistrates Act 1999 (Cth) s 45, which provides that discovery is not allowed unless the Court declares that it is appropriate, in the interests of the administration of justice; and

• Federal Rules of Civil Procedure 2009 (US) r 26(b)(2)(C), which requires the court to limit the frequency or extent of discovery if it determines that the burden or expense of the discovery outweighs its likely benefit.

5.27 The latter option was proposed for adoption in the Federal Court by Justice Finkelstein,who suggested that ‘good cause’—based on a cost-benefit analysis—should be ‘a bedrock principle and condition precedent’ for the granting of any leave for discovery.^[32] Justice Finkelstein noted that:

it seems difficult to avoid the conclusion that the current discovery regime is defective because it does not explicitly force litigants to justify discovery requests (by reference to the costs and benefits) nor does it constrain the trial judge to reject requests not so justified.^[33]

Submissions and consultations

5.28 The Consultation Paper asked whether s 45 of the Federal Magistrates Act should be adopted in the Federal Court—so that discovery would not be allowed unless the Court declared it was appropriate in the interests of the administration of justice—or whether another threshold test should be adopted, and what that should be.^[34]

5.29 A number of submissions expressed ‘in principle’ support for the idea of a specific threshold test to regulate the use of discovery in the Federal Court—on the grounds that it would ensure the Court made a positive decision on whether discovery was necessary and, if so, for what purpose.^[35] However, submissions expressed differing views as to what would be an appropriate threshold test. Some suggested that—if any threshold test were to be introduced at all—‘the interests of justice’ should be the benchmark for scrutinising discovery applications, along the lines of s 45 of the Federal Magistrates Act.^[36] Others supported Justice Finkelstein’s proposal for the introduction of a ‘good cause’ standard including, in particular, a cost/benefit analysis of the proposed discovery.^[37]

5.30 The Commercial Bar Association of Victoria submitted that, while there would be additional cost incurred in meeting a threshold test for discovery, ‘avoiding the need for discovery in some cases and significantly limiting it in others would substantially outweigh any added expense’.^[38]

5.31 On the other hand, some expressed the view that discovery is a vital part of civil litigation in the Federal Court and, as such, additional restrictions on access to discovery would impede the just determination of disputes.^[39] Others argued that leave for discovery is already appropriately limited by the requirements of s 37M of the Federal Court of Australia Act, effective from 1 January 2010.^[40]

ALRC’s views

5.32 Consistent with s 37M of the Federal Court of Australia Act, the proposed r 20.11 of the Federal Court Rules 2010provides that ‘a party may apply for discovery only if it is necessary for the just determination of the issues in the proceeding’.^[41] The ALRC supports the introduction of this proposed rule.

5.33 In the ALRC’s view, this provision would impose a clear obligation on litigants to justify an application for discovery orders—even when those orders are sought by consent of the parties—by explaining to the Court why discovery is necessary for the just determination of issues in the proceedings. In turn, this provision would ensure that the Court scrutinises the need for discovery and makes a conscious decision as to whether discovery is necessary in each case.

5.34 Such reform would not further restrict litigants’ access to discovery procedures, any more than the requirements of s 37M of the Federal Court of Australia Act already limit leave for discovery. The ALRC considers that the inclusive definition of the overarching purpose of civil practice and procedure in s 37M of the Act is reflected in the proposed r 20.11, and will inform judges’ consideration of parties’ applications for discovery orders under the proposed Rules.

5.35 In particular, the legislative intent for the Court to resolve disputes ‘at a cost that is proportionate to the importance and complexity of the matters in dispute’,^[42] should be taken into account when the Court considers the requirements of the proposed r 20.11. The Explanatory Memorandum to the Access to Justice (Civil Litigation Reforms) Amendment Bill 2009, which introduced s 37M, provides that:

This provision is intended to be a reminder to litigants that costs should be proportionate to the matter in dispute. It is not only the cost to the parties that is relevant. The efficient use of the Court’s resources needs to be taken into account. However, at the same time, due process will be observed so that justice may be done in the individual case. These objectives will support the intention that both the Court’s and the litigant’s resources are spent efficiently.^[43]

5.36 Any additional resources required of the parties and the Court, in complying with and enforcing the requirements of the proposed r 20.11, would be proportionate to the importance and complexity of each application for discovery orders. For example, where discovery orders are clearly necessary for the determination of issues in proceedings and the orders sought are fashioned to suit the issues in dispute, the amount of time and money invested by the parties and the Court in addressing the requirements of proposed r 20.11 would reflect these circumstances. Equally, where a party seeks orders for discovery that may be considered unnecessary or overly burdensome, greater effort would be required of the party to justify the need for such orders and more detailed consideration would be required of the Court before making such orders. In dealing with the requirements of the proposed r 20.11, the new Federal Court Rules would provide that:

(1) The Court may in making any order in the proceeding have regard to the nature and complexity of the proceeding;

(2) The Court may deal with the proceeding in a manner that is proportionate to the nature and complexity of that proceeding.^[44]

5.37 In any event, the proposed r 20.11 would require all applications for discovery orders specifically to address the need for the orders sought and require the Court in all cases to make a determination as to whether discovery was necessary. In this way, imposing discovery obligations in Federal Court proceedings should be the result of conscious judicial decision making.

5.38 Restricting the use of discovery to cases where it is necessary for the just determination of issues is consistent with the principle of appropriateness—that the justice system should be structured to create incentives to encourage people to resolve disputes at the most appropriate level.^[45] The proposed r 20.11 of the Federal Court Rules intends that parties who may litigate their case in the Federal Court appropriately without the use of discovery mechanisms do not apply for discovery orders. This ruleshould draw attention to cases where discovery obligations could be minimised or avoided all together, by requiring the parties and the Court to consider whether discovery is necessary in each case.

A right to inspect critical documents prior to discovery

5.39 General discovery in state and territory courts, except New South Wales, is available to the parties as of right in most matters—usually by a party serving notice on another party—without leave or a court order.^[46]

5.40 While discovery in Federal Court proceedings is restricted by the requirement to obtain leave of the Court,^[47] there are provisions in the Federal Court Rules that give parties the right to inspect any document referred to in pleadings or affidavits filed in proceedings.^[48] In addition, O 15 r 13 allows the Court to order production of any document in a party’s possession, custody or power relating to any issue in the proceedings—at any stage of proceedings, including before discovery.^[49]

5.41 A number of commentators have suggested that parties to Federal Court proceedings should have a broader right to inspect their opponent’s ‘critical’ documents in the early stages of proceedings—prior to discovery of additional documents. In other words, parties should be required to produce the documents of core relevance to their case, without being ordered to do so by the Court.

5.42 For example, Peter Gordon of the law firm Slater and Gordon has suggested that ‘[t]here should be processes to identify and exchange the critical documents at an early date, which might spare much of the other discovery’.^[50] Similarly, the Hon Chief Justice Patrick Keane of the Federal Court has suggested that judges should make an order at an initial directions hearing ‘that before discovery, the plaintiff and defendant file the 10 documents they each consider most important to their case’.^[51]

5.43 In the context of Federal Court proceedings, this commentary suggests a hybrid system of discovery, whereby parties would have a right to discovery of critical documents early on in proceedings, but would require leave of the Court for further discovery of additional documents. A similar process is prescribed by the International Bar Association (IBA) in the Rules on the Taking of Evidence in International Arbitration 2010, which require each party to submit to the Arbitral Tribunal and to each other party all documents available to it on which it relies—before any party may make a request for the production of documents.^[52]

5.44 Similar procedures have been adopted in Fast Track proceedings in the Federal Court. While there is no express requirement in Practice Note CM 7 for the parties to produce key documents at a scheduling conference prior to discovery, Justice Gordon has said that this practice is often adopted or required in the Fast Track as a matter of course:

core documents relevant to the case are provided to the trial judge at this point. If the dispute is about the proper construction of a contract, a copy of the contract is provided to the judge. No more decisions on interlocutory issues in a vacuum.^[53]

5.45 A distinction between disclosure of critical documents and broader discovery of documents has also been adopted in Victorian courts. Without limiting or affecting a party’s discovery obligations, litigants in Victoria have an overarching obligation to disclose the existence of all documents that are or have been in the party’s possession, custody or control, of which the party is aware and considers or ought reasonably to consider critical to the resolution of the dispute.^[54] This disclosure must occur at the earliest reasonable time after the party becomes aware of the existence of the document.^[55] The test for ‘critical’ documents is discussed in the Explanatory Memorandum to the Civil Procedure Bill 2010 (Vic):

The term ‘critical documents’ is intended to capture a class of documents considerably narrower than those required to be discovered … The test is meant to capture those documents that a party would reasonably be expected to have relied on as forming the basis of the party’s claim when commencing the proceedings, as well as documents that the party knows will adversely affect the party’s case.

5.46 In recommending the introduction of this obligation in its Civil Justice Review,^[56] the VLRC commented that it would ‘accelerate disclosure of such information, provide the parties with an early opportunity to consider the strength of the other party’s position and help to facilitate settlement’.^[57]

5.47 From July 2010, the ‘Supervised Case List’ of the Queensland Supreme Court has been encouraging parties to seek directions that provide for the early exchange of ‘critical documents’, being a limited number of documents that are likely to be tendered at any trial and are likely to have a decisive effect on the resolution of the matter.^[58] In support of this process, the Hon Justice Peter Applegarth, in his work for the Queensland Supreme Court’s Better Resolution of Litigation Group, has argued that the early exchange of critical documents between the parties enhances the delivery of justice:

By the time litigation is commenced, usually after pre-action disputes in which parties have consulted lawyers and obtained advice, most parties should know the critical documents upon which they intend to rely at any trial, and also know some, if not most, of the documents upon which the other party intends to rely and which are adverse to the first party’s case. If the critical documents are identified and exchanged in a suitable format at a relatively early stage in litigation then this should facilitate the early resolution of cases which are capable of settlement, and the supervision of those that do not settle and which require case management.^[59]

5.48 Other countries are also considering reform to ensure the disclosure of key documents early in proceedings. In New Zealand, proposed amendments to the High Court Rules (NZ) would require parties to give ‘initial disclosure’ when filing a pleading by serving copies of documents referred to in that pleading, as well as any additional principal documents in the party’s control on which it intends to rely at trial.^[60] Parties need not comply with this requirement, when filing pleadings, if it would be impossible or impracticable.^[61] However, in that case, parties must file and serve a certificate signed by counsel for the party setting out the reasons why compliance is impossible or impractical^[62]—and, in any event, serve the required documents within 10 working days from filing the pleading or within any extended period the Court may allow.^[63]

5.49 In the United States, a joint project on discovery conducted by the American College of Trial Lawyers and the Institute for the Advancement of the American Legal System recommended that:

Shortly after the commencement of litigation, each party should produce all reasonably available non-privileged, non-work product documents and things that may be used to support that party’s claims, counterclaims or defences.^[64]

5.50 A number of practical and theoretical concerns, relating to the possible introduction of rules requiring early disclosure of key documents in proceedings, have been examined by Justice Finkelstein. In particular, he pointed to a tension with the nature of the adversarial system:

it is hardly to be expected that … parties will produce documents in such a distilled manner as to announce for practical purposes, ‘Here is my case and here are the holes in it’.^[65]

5.51 Justice Finkelstein expected that disputes would inevitably arise over whether such a rule has been properly complied with—for instance, what documents should be considered ‘critical’.^[66] In light of his concerns, Justice Finkelstein considered that ‘there must be real doubt whether mandatory discovery, even of a theoretically limited nature, would reduce the burden on the Court or litigants’.^[67]

Submissions and consultations

5.52 In the Consultation Paper, the ALRC asked whether parties to proceedings before the Federal Court should be required to discover key documents early in the proceedings.^[68] The ALRC also asked whether existing procedures, under O 15 rr 10 and 13 of the Federal Court Rules,were adequate to obtain production of key documents to the Court or a party.^[69]

5.53 Several submissions expressed support for the early disclosure of key documents in litigation—to facilitate the quick and efficient resolution of disputes.^[70] For example, the Law Council submitted that:

If the parties agree to exchange relevant documents, as quite often occurs, that can be beneficial in reducing the scope of discovery or eliminating the need for it entirely.^[71]

5.54 The Queensland Law Society advised that, pursuant to Queensland Supreme Court practice notes, directions are routinely being sought and obtained in the Supervised Case List for the early exchange of ‘critical’ documents.^[72] In support of introducing a similar process in the Federal Court, the Queensland Law Society submitted that:

It is unlikely to be problematic or onerous for the producing party, given such documents would have been gathered for the purposes of preparing that party’s case. It would assist the opposite party to plead in response. It may also facilitate earlier resolution. Finally, and more relevantly for present purposes, it may assist parties to better identify the types of documents (and their custodians) required for further discovery (if any is required).^[73]

5.55 However, most submissions that addressed this issue were opposed to a rule of general application requiring the early disclosure of key documents in every case.^[74] The Law Council, for example, submitted that ‘this may not be appropriate in all cases and may increase costs unnecessarily’.^[75] One pointed out that such costs would be higher in larger cases, where the volume of key documents was also likely to be quite large.^[76] A group of large law firms suggested that the additional expense would not come with any significant reward:

A procedure that requires the exchange of key documents after pleadings and before discovery is, in our view, unlikely to significantly reduce applications for discovery orders. … On balance we think, it will only add a further (and unnecessary) step to the litigation process with little or no practical benefit.^[77]

5.56 A number of submissions expressed concern that enforcing a vague requirement to disclose ‘key’ or ‘critical’ documents would be unwieldy and lead to satellite litigation as to what constitutes such documents.^[78] One suggested this issue could be avoided by focusing on documents relied upon to draft pleadings:

a party must have ready access to those documents in any event and so there is not additional costs in terms of seeking to gather or find the documentation. Further, it would seem to be highly unlikely that a document could be regarded as ‘key’ and yet not be referred to in the process of preparing the pleadings.^[79]

5.57 Many submissions also advised that existing provisions of the Federal Court Rules adequately provided the means to obtain documents of significant relevance to a proceeding, prior to discovery.^[80] For example, a group of large law firms submitted that:

Documents which are relevant to the proceeding should be referred to in the claim or at the very least particularised and production of them can be sought under the Rules.^[81]

5.58 Others suggested, however, that current O 15 r 10 was deficient to the extent that it did not enable parties to obtain important documents the existence of which may be implied, but are not actually mentioned, in the pleadings.^[82] Michael Legg noted that O 15 r 10 required some ‘direct allusion’, and he suggested expanding this provision to capture any document relied upon to draft pleadings.^[83] However, existing procedures may already provide a practical way to seek the production of documents indirectly referred to in pleadings, as a group of large law firms pointed out:

To the extent that the particulars are inadequate and do not refer to relevant documents, this can be dealt with in the usual course by a request for further and better particulars.^[84]

5.59 Legg pointed out that, while current O 15 r 13 of the Federal Court Rules was broad enough to enable the production of particularly important documents in proceedings—prior to discovery—it did not appear to have been used extensively.^[85]

ALRC’s views

5.60 The production of significantly probative documents for inspection by the parties in the early stages of proceedings is broadly consistent with the principle of efficiency—that litigation should resolve disputes in the most efficient way possible, which in many cases will involve early assistance and support to prevent disputes from escalating.^[86] Mechanisms that enable parties to inspect documents directly relevant to the crucial facts in issue, as early as possible in proceedings, are likely to support early settlement or assist the parties to expedite the determination of their dispute.

5.61 In addition, in many cases parties are likely to have ready access to their own critical documents from an early stage in proceedings—as parties typically collect such documents early on, both for the purpose of drafting pleadings and to assess the likelihood of success should the matter proceed to trial. Therefore, a requirement for parties to produce these documents to other parties for inspection, early in proceedings, is unlikely to carry much additional expense.

5.62 However, imposing a uniform rule that requires litigants to disclose critical documents at an early stage would not be an effective way to achieve efficiencies in all cases before the Federal Court. Litigation is most efficient when its processes are tailored to suit the circumstances of each case. In some cases, it will be ‘impossible or impractical’ for parties to produce critical documents in the early stages of proceedings.^[87] Such documents are defined in some jurisdictions to include those on which the parties intend to rely at trial.^[88] For some parties, the documents which they will eventually rely upon at trial might not be apparent until the later stages of proceedings, for example, after discovery has been given.

5.63 An efficient system of litigation should also avoid the cost of satellite litigation. A vague obligation to disclose ‘critical’ documents would be difficult to define with certainty. Those jurisdictions that have defined this term demonstrate a measure of subjectivity in its meaning. In Victoria, for example, ‘critical’ documents are those which the disclosing party ‘knows will adversely affect the party’s case’.^[89] Similarly, in Queensland, ‘critical’ documents are those which ‘are likely to have a decisive effect on the resolution of the matter’.^[90]

5.64 Some parties may have differing views as to whether a document affects one party’s case and what its effect is—for example, whether it is decisive. The decision that must be made, in relation to a document’s status as ‘critical’, may lead to incidental disputes between the parties over this side issue and delay the determination of substantive matters in proceedings. This is the kind of satellite litigation that should be avoided.

5.65 The ALRC is unaware as to whether such satellite litigation has ensued in Victoria following the enactment of s 26 of the Civil Procedure Act 2010 (Vic), which establishes an overarching obligation to disclose critical documents in proceedings. Concerns about the potential inefficiencies of this approach, in the context of Federal Court proceedings, might be borne out by experience in Victoria. However, the Victorian provision has not been in operation long enough for the ALRC to assess properly its suitability for introduction in the Federal Court. Therefore, the ALRC recommends that the Federal Court should monitor the impact of s 26 of the Civil Procedure Act to assess whether an overarching obligation on parties to disclose critical documents would be effective and efficient in Federal Court proceedings. This might involve, for example, ongoing discussions between the Federal Court and the Supreme Court of Victoria about the operation of s 26 of the Civil Procedure Act as part of the Supreme and Federal Court Judges’ Conferences organised by the National Judicial College of Australia.

5.66 By comparison, the ALRC was advised that the approach taken in the Queensland Supreme Court Supervised Case List has been operating successfully.^[91] Practice notes in this jurisdiction encourage parties to seek directions for the exchange of critical documents early in proceedings.^[92] Importantly, this establishes judicial control over any obligation on parties to produce documents prior to discovery—as the Court will make and tailor such directions in the circumstances of each case—rather than impose uniform disclosure obligations on parties in all cases. This is the ALRC’s preferred approach to achieving the early production of critical documents for inspection by the parties to litigation before the Federal Court. Consistent with the principle of effectiveness and the facilitative model described in Chapter 2, court-ordered production of critical documents involves active judicial case management which, in the ALRC’s view, is essential to achieving the best outcome for parties to litigation.

5.67 Existing Federal Court Rules adequately enable the Court to make orders, such as those that parties are encouraged to seek in Queensland’s Supervised Case List, for the exchange of critical documents in appropriate cases. This includes current O 15 r 13, which is expressed broadly enough for the Court to make orders, at any stage of proceedings, for the production of documents in another party’s control that relate to the matters in question.^[93]

5.68 Current O 15 r 10 also provides an appropriate mechanism for parties to access, early in proceedings, important documents held by another party. This rule gives a party the right, upon the service of notice on another party, to inspect documents referred to in that other party’s pleadings or affidavits.^[94] The issue of whether a document is referred to in pleadings or affidavits can be determined with relative certainty—compared to the issue of whether a document is ‘critical’—which in turn makes transparent the issue of compliance with a duty to produce such documents. This measure of certainty and transparency promotes the principle of efficiency in litigation by avoiding the costs of satellite litigation arising in the face of uncertainty, for example, in relation to a document’s ‘critical’ status.

5.69 For this reason, the ALRC does not support reform to expand O 15 r 10 beyond documents mentioned in pleadings—to include documents that were relied upon to draft pleadings but not directly referred to in them. In the ALRC’s view, such reform would introduce elements of subjectivity and uncertainty into the operation of this Rule, which may in turn create potential for disputes between the parties over compliance with the requirement to produce these documents.

5.70 In addition, the ALRC does not support reform to require the production of documents referred to in pleadings in every case. Such documents would form part of the ‘initial disclosure’ in all cases under proposed amendments to the High Court Rules (NZ).^[95] Similarly, in Victoria, ‘critical’ documents that must be disclosed in every case include those which ‘a party would reasonably be expected to have relied on as forming the basis of the party’s claim when commencing the proceedings’.^[96] However, in the ALRC’s view, the production of documents referred to in pleadings should only be required at the request of a party—as currently provided in O 15 r 10. This helps to avoid an unnecessary burden on the party producing documents, by restricting this mechanism to cases where the requesting party considers the production of documents to be appropriate. A blanket obligation to produce documents referred to in pleadings would carry a costs burden even in cases where the party to whom documents are produced does not require them.

5.71 The ALRC is concerned that existing provisions in the Federal Court Rules for the production and inspection of documents are under-utilised by parties and the Court, when such orders or requests for disclosure of documents prior to discovery might be an effective and efficient way to resolve some disputes. Therefore, the ALRC recommends that practice notes in the Federal Court should encourage parties to use existing rules and to seek appropriate orders for the production and inspection of documents, prior to discovery, in the early stages of appropriate cases. For example, Practice Note CM 5 currently asks whether the purposes of discovery might be achieved by less expensive means.^[97] This might expressly include orders for the production of documents under O 15 r 13 or requests to inspect documents under
O 15 r 10.

5.72 The explicit recognition in practice notes of these available mechanisms would serve an educative function, by alerting parties to the potential benefits of utilising these procedures before discovery. The production and inspection of particularly important documents, in the early stages of appropriate cases, may help to mitigate the subsequent discovery of documents and minimise the costs involved. This guidance in practice notes is especially important if the disclosure of critical documents prior to discovery is not to be required under Federal Court Rules in all cases, as the benefits of such disclosure might only be realised if parties seek and judges make targeted orders in appropriate cases. Complementing the reform recommended below, Chapter 7 considers the need for judicial education and training in relation to case management of discovery issues.

Limiting the scope of discovery by ‘relevance’

The ‘direct relevance’ test

5.73 The ‘train of inquiry’ test, established in Compagnie Financière et Commerciale du Pacifique v Peruvian Guano Co^[98] (Peruvian Guano), requires discovery of documents that either ‘directly or indirectly’ relate to the matters in question in an action.^[99] However, in his 1996 review of access to justice in England and Wales, Lord Woolf recommended that discovery should normally be restricted to ‘directly relevant’ documents and ‘indirectly relevant’ documents should be disclosed only by court order.^[100]

5.74 In the wake of Lord Woolf’s recommendation, a number of jurisdictions have moved away from the Peruvian Guano ‘train of inquiry’ test for discovery to adopt a standard test of ‘direct relevance’.^[101] The Federal Court adopted this reform in O 15 of the Federal Court Rules, commencing in December 1999. The same changes took place in the Victorian Supreme Court on 1 January 2011, on the commencement of the Supreme Court (General Civil Procedure) Rules 2010 (Vic).^[102] The High Court Amendment Rules (No 1) 2011 (NZ) also propose to adopt the ‘direct relevance’ test for standard discovery in the High Court of New Zealand.^[103]

5.75 The ALRC described the objectives of the ‘direct relevance’ test in Managing Justice as follows:

The move away from the Peruvian Guano test to the test of ‘direct relevance’ and discovery by categories of documents are attempts to streamline the process of discovery so that discovered documents are directly relevant to the issues in a case and the costs of discovery proportionate to the value of the claim.^[104]

5.76 Lord Woolf’s reform was an attempt to mitigate the overbroad discovery of irrelevant documents occurring under the Peruvian Guano test, which he said was ‘disproportionate, especially in larger cases where large numbers of documents may have to be searched for and disclosed, though only a small number turn out to be relevant’.^[105]

5.77 However, doubts have been expressed as to whether introducing a test of ‘direct relevance’ has achieved its objectives. Lord Jackson’s 2009 Review of Civil Litigation Costs in England and Wales found that, 10 years after the Woolf reforms, there had been no difference in practice from the old Peruvian Guano test.^[106] Lord Jackson reported that solicitors simply continued to disclose everything that might be in any way relevant:

In other words, they continue to follow the old rules, thus saving costs (on their own side) but disclosing a greater quantity of documents than should be disclosed.^[107]

5.78 In Australia, the VLRC has acknowledged similarly that ‘there is little evidence to support the contention that a narrower test will necessarily confine the scope of discovery, thereby saving costs and time’.^[108] Nevertheless, the VLRC supported the intention behind a narrower test for discovery:

Although narrowing the discovery test will not necessarily reduce the time and expense incurred in the review of potentially discoverable documents, it does reflect an important shift in the approach to discovery and litigation generally … We believe that a narrower discovery test, combined with our other discovery recommendations, will encourage important cultural change and assist parties to focus their attention on the main purpose of discovery in the litigation process.^[109]

5.79 Concerns about the excessive discovery of irrelevant documents often look to Seven Network Limited v News Limited (C7) as a prime example. In that case, Sackville J observed that:

The outcome of the processes of discovery and production of documents in this case was an electronic database containing 85,653 documents, comprising 589,392 pages. Ultimately, 12,849 ‘documents’, comprising 115,586 pages, were admitted into evidence.^[110]

5.80 Justice Finkelstein has pointed out that, in the C7 case, only 15% of the millions of pages of documents that were searched and reviewed were put before the Court and only about 15% of those documents ultimately went into evidence. In other words, the overall yield of discovery (in terms of the admitted evidence produced) was well below 5% of the documents discovered.^[111] Justice Sackville, reflecting on this extra-curially, commented that:

far too often, the search for the illusory ‘smoking gun’ leads to squadrons of solicitors, paralegals and clerks compiling vast libraries of materials, most of which is of no significance to the issues in the proceeding.^[112]

Refining the ‘relevance’ test

5.81 In the Consultation Paper, the ALRC compared a number of jurisdictions that impose a narrower test than ‘direct relevance’ for the discoverability of documents and considered examples of practice from within the Federal Court.^[113] Refining the ‘relevance’ test might be one way to vet documents in discovery.

5.82 The Rules applicable to proceedings in the Fast Track List in the Federal Court limit discovery to the following documents of which the party is aware or discovers after a good faith proportionate search:

(a) documents on which the party intends to rely, and

(b) documents that have significant probative value adverse to a party’s case.^[114]

5.83 The phrase ‘significant probative value’ is also used in the Evidence Act 1995 (Cth), which defines ‘probative value’ as the extent to which the evidence could rationally affect the assessment of the probability of the existence of a fact in issue.^[115]

5.84 In the Federal Court’s Tax List, the documents required to be disclosed must have a ‘material’ adverse effect on the party’s own case or another party’s case, or ‘materially’ support another party’s case.^[116] However, this scope of discovery may be expanded or limited by the Tax List Coordinating Judge or the judge to whose docket the case is allocated.^[117]

5.85 The concept of ‘materially’ relevant documents is defined in Practice Note Tax 1 as ‘documents that would enable a judge to reach a sound, complete and just decision in the case’.^[118]

5.86 By comparison, the requirement of ‘materiality’ may also be found in the IBA’s Rules on the Taking of Evidence in International Arbitration, which limit discovery to documents that are ‘relevant to the case and material to its outcome’.^[119]

Submissions and consultations

5.87 In the Consultation Paper, the ALRC asked whether the categories of documents required to be disclosed under O 15 r 2 of the Federal Court Rules were too broad and, if so, where the parameters for general discovery should be set. In particular, the ALRC asked whether the test of ‘direct relevance’ should be narrowed by adopting the Fast Track criteria of ‘significant probative value’ in the Federal Court Rules.^[120]

5.88 The majority of submissions that addressed this issue expressed the view that the scope of general discovery under O 15 r 2 was appropriate, and the ‘direct relevance’ test was conducive to a proportionate discovery process.^[121] For example, Allens Arthur Robinson submitted that:

The test strikes an appropriate balance between, on the one hand, the need for a functional and transparent system of disclosure and, on the other hand, the need to avoid imposing unrealistic expectations and disproportionate costs on commercial parties.^[122]

5.89 Others expressed the view that the current scope of general discovery was overbroad and supported a narrower test for ‘relevance’ in line with the Fast Track rules.^[123] One suggested that the limited discovery provisions of the Fast Track system should not apply in all cases, as some litigation was conducted under an information imbalance between the parties and requires more expansive discovery.^[124]

5.90 However, most submissions on this issue did not support reform to limit the scope of discovery obligations by reference to a new ‘relevance’ test.^[125] Some pointed out that parties would still be required to conduct a full-scale document review to identify all documents of sufficient relevance and, as such, this reform would not be effective in reducing litigation costs.^[126]

5.91 Those opposing such reform argued that, rather than narrow discovery obligations in a uniform manner, the better approach was for the Court to tailor discovery orders to suit the issues in each case.^[127] However, some noted that this required a greater level of judicial involvement than was the current practice in determining what measure of limitation is appropriate.^[128]

5.92 One submission also raised an issue about the application of the test for ‘relevance’ when the Court makes an order for discovery of specific types of documents pertinent to the issues in that case. This issue is explored further below.

ALRC’s views

5.93 The percentage of discovered documents that are not subsequently relied upon at trial may create a misleading perception of the utility of discovery in litigation. In the context of certain proceedings, it is possible that a single discovered document may turn out to be crucial—while many more discovered documents are less relevant. However, pursuant to the ‘overarching purpose’ provision, the just resolution of disputes must be sought as quickly, inexpensively and efficiently as possible.^[129] This objective might be compromised by the discovery of largely irrelevant documents—even if a so-called ‘smoking gun’ were to lie amongst them.

5.94 However, the ALRC considers that reforms to narrow the test of ‘direct relevance’ for standard discovery in the Federal Court would not be consistent with the principle of effectiveness—that an effective justice system should be directed towards the resolution of disputes and delivering fair outcomes.^[130] Changes to narrow the test of ‘relevance’ for discovery in all cases may impede the judicial determination of some issues and increase the costs of litigation in some proceedings.

5.95 Concepts such as ‘materiality’ or ‘significant probative value’ in the test for discoverability of documents might not be straightforward for legal practitioners to interpret, since there is little judicial guidance. This undermines the principle of certainty—that the expectations, both of parties and of the Court, should be made clear. Uncertainty in the extent of a party’s discovery obligations may lead to incidental litigation between the parties over compliance with discovery orders. For example, a party might assume their opponent unfairly withheld relevant documents on the basis that the documents lacked the requisite ‘probative value’.

5.96 These kinds of arguments and concerns about satellite litigation were also current when the present test of ‘direct relevance’ was introduced in the Federal Court. In Managing Justice, the ALRC reported with respect to O 15 that practitioners felt ‘the real temptation when documents adverse to the case are found, to seek to rationalise that the documents are outside the discoverable categories and therefore not required to be disclosed to the other side’.^[131]

5.97 In some cases, non-disclosure may occur even where the discovering party acts genuinely and in good faith. The parties might differ as to how ‘material’ or ‘probative’ a document is to one side’s case, and parties are not always in agreement about the significance of a particular point.

5.98 In the ALRC’s view, tightening the ‘direct relevance’ test would not be an effective means of controlling the cost of discovery. The ALRC doubts that such reform would minimise the expense of discovery in practice, since litigants may still be required to review the same volume of documents to identify those of sufficient relevance for discovery.

5.99 Imposing a stricter ‘relevance’ test might result in parties incurring higher legal fees in some cases. Such concerns are borne out by findings in Lord Jackson’s Review of Civil Litigation Costs, which found that parties who strictly complied with the test of ‘direct relevance’ would disclose fewer documents, but incur higher costs, as it required lawyers to evaluate the relevance of discoverable documents in any given case.^[132] Lord Jackson pointed out that, ‘because of the continuing obligation [of discovery], the exercise may have to be repeated if the pleadings are amended’ and additional costs would be incurred.^[133]

5.100 For these reasons, the ALRC supports the approach taken in the proposed Federal Court Rules 2010that would not change the ambit of general discovery.^[134] Instead, if a different test of ‘relevance’ were appropriate in any case, the new rules suggest that parties should expressly identify what criteria should apply instead of ‘direct relevance’.^[135] This means that the Court may tailor any specific requirements for ‘relevance’ in discovery to suit the circumstances of each case.

5.101 The potential for reform to court practice and procedure, to facilitate careful consideration by the Court and parties of the precise terms of discovery obligations in each case, is explored in Chapter 6. The ALRC considers that reforms recommended in that chapter will, for example, enhance the effectiveness of discovery obligations by facilitating court orders that tailor a ‘relevance’ test to suit the issues in dispute, and enhance efficiency and certainty in the discovery process by facilitating court orders that specify in precise terms the applicable test of ‘relevance’ in discovery.

5.102 In particular, Chapter 6 considers the need for best-practice guidelines for the parties and the Court to refer to in relation to discovery issues. This guidance would be especially important for judges if the parameters of general discovery were to remain as broad as the Federal Court Rules currently provide, as the benefits of tailoring standard discovery criteria to suit the issues in dispute might only be realised if judges made targeted orders in appropriate cases.

Clarifying the application of ‘relevance’ in discovery

5.103 In the Consultation Paper, the ALRC asked how lawyers decided whether to discover documents that were relevant but potentially fell outside the scope of discovery orders.^[136] A group of large law firms submitted that this issue arose in part due to ambiguity in the Federal Court Rules themselves.^[137] The submission suggested that the law was uncertain as to whether the test of ‘direct relevance’ in O 15 r 2(3) applied when the Court orders discovery of particular categories of documents pursuant to O 15 r 3:

It is not clear whether an order for discovery of specific documents or categories of documents requires the party giving discovery simply to produce all documents falling within the description of documents or categories of documents, or whether the party must also test each document against paragraphs (a)–(d) of rule 2(3).^[138]

5.104 The submission cited Australian Competition and Consumer Commission v Advanced Medical Institute Pty Ltd (ACCC v AMI)^[139] as authority for the view that, when discovery is ordered to be given by reference to categories, all of the documents falling within the categories must be discovered, regardless of whether those documents are relevant or whether they fall within the classes of documents set out in O 15 r 2(3). In that case, the parties agreed to discovery of specific categories of documents—which the Court ordered by consent. Justice Lindgren observed that:

it is the Court’s order of the kind made here, coupled with the undisputed descriptions of the categories, that define the discovery régime and obligations in the particular proceeding, rather than O 15 r 2(3).^[140]

5.105 The submission also noted that this approach—where categories displace relevance—is supported by decisions in the Supreme Court of New South Wales.^[141] In that jurisdiction, the Uniform Civil Procedure Rules 2005 provide that ‘[a]n order for discovery may not be made in respect of a document unless the document is relevant to a fact in issue’.^[142] In Owen v Barclays Bank Plc, Hislop J held that, by consenting to an order for discovery by categories, the parties had accepted that the documents falling within the identified categories were relevant to facts in issue.^[143] Justice Hislop concluded that it was wrong for the defendant to apply a ‘dual test’ in determining whether to discover particular documents—namely: does the document fall within a category; and is it relevant to an issue.^[144]

5.106 However, the approach adopted by Lindgren J in ACCC v AMI was further considered in Aveling v UBS Capital Markets Australia Holdings Ltd (Aveling)^[145] and University of Sydney v ResMed Ltd.^[146] In Aveling, Lindgren J held that:

It may be appropriate for parties to describe categories in terms which do not expressly incorporate the language of O 15 r 2(3), but that subrule should nonetheless govern the formulation of the categories. Alternatively, of course, the categories may be defined so as to incorporate expressly the terms of the subrule. Whatever approach is taken, it is important to understand that when, as happened in the present case, the Court orders discovery by categories to be notified by one party to another, the Court does not intend that the notifying party be at liberty to widen the discovery obligation beyond the four classes of documents referred to in O 15 r 2(3).^[147]

5.107 Similarly, in The University of Sydney v ResMed Ltd, Lindgren J held that:

Any description of categories of documents to be discovered should be arrived at, whether by the Court or by the parties, in the light of the standard laid down in the rules set out above [O 15 r 2(3), (4), (5) and (6)]. It is not clear to me that the parties have approached the question in this way. The question for me on the present motion is whether the disputed categories satisfy the rules.^[148]

5.108 These decisions suggest that the Court should not make orders for discovery of specific categories of documents, unless the documents that would fall within those categories are ‘directly relevant’ for the purposes of O 15 r 2(3). However, once the Court has made orders for discovery of specific categories of documents, it is not clear whether the ‘direct relevance’ test has any further application.

5.109 A group of large law firms noted that, where discovery is carried out in strict accordance with identified categories of documents, regardless of whether those documents are relevant, discovery can be unnecessarily voluminous and burdensome:

If categories are not carefully considered, or where the existence of certain types of documents was not necessarily contemplated when the categories were formulated and approved by the Court, this often leads to the discovery of irrelevant documents or types of documents, sometimes in substantial numbers. No legitimate criticism can be made of the parties (or their lawyers) for producing such documents, given that (as noted above) current authority indicates that where discovery categories are used, the parties are obliged to produce all documents falling within the categories, regardless of relevance. This increases the burden and cost of discovery, with no significant benefit to the parties or the Court.^[149]

5.110 The group suggested that reform is necessary to clarify that a ‘dual test’ applies to discovery by categories—so that discoverable documents would have to fall within an identified category, and also be ‘directly relevant’ to the issues in dispute—to reduce the burden of discovery by vetting documents.

ALRC’s views

5.111 The ALRC notes that the proposed amendments to the Federal Court Rules would clarify whether a test of ‘relevance’ applies when the Court orders discovery by categories of documents. Proposed r 20.14 would establish the criterion that applies when the Court orders ‘standard discovery’. This would include a requirement for documents to be ‘directly relevant’ to the issues in dispute.^[150]

5.112 A party may seek ‘non-standard discovery’ under proposed r 20.15, in which case the party must identify what ‘standard’ criteria should not apply and any other criteria that should apply. If any ‘non-standard’ criteria would be more extensive than ‘standard discovery’, the party must explain to the Court why the order should be made.^[151]

5.113 Under the proposed Rules, the parameters of ‘standard discovery’—including the criterion of ‘direct relevance’—would apply generally in all proceedings pursuant to the Federal Court Rules, unless expressly displaced by court orders. For example, discovery orders might specify a narrow criterion of relevance, such as ‘significant probative value’.^[152] Conversely, discovery orders might specify a broad test of relevance, such as the Peruvian Guano ‘train of inquiry’ test. Equally, discovery orders could expressly exclude any test of relevance—so that any document falling within an identified category is discoverable regardless of its relevance. However, unless ‘standard’ criteria are displaced in this way, they would continue to apply to discovery orders under proposed new Federal Court Rules.

5.114 This clarification to discovery laws under the proposed Federal Court Rules 2010 is consistent with the principles of accessibility and certainty—that underpin the objective that justice initiatives should reduce the net complexity of the justice system.^[153] Uncertainty in current discovery laws, as to whether a test of ‘relevance’ applies when the Court orders discovery by categories, creates complexity and inconsistency in legal practice. Clarifying this aspect of the law will create a more accessible discovery process and enhance certainty in discovery obligations in Federal Court proceedings.

Limiting the scope of discovery by ‘possession, custody or power’

5.115 In the Consultation Paper, the ALRC asked whether the parameters of general discovery were too broad.^[154] In response, two submissions raised concerns about the existing obligation on parties to discover documents that have been—but are no longer—in their possession, custody or power.^[155] Currently, a party must enumerate such documents in a list of discoverable documents, state when they parted with the documents and what has become of them.^[156]

5.116 Allens Arthur Robinson suggested that documents no longer in a party’s possession, custody or power should generally be excluded from discovery obligations, unless the Court ordered otherwise.^[157] A group of large law firms submitted that the preferable approach was that taken in New South Wales,^[158] where a party was only required to enumerate documents that are not, but that within the last six months prior to the commencement of the proceedings have been, in the possession, custody or power of the party.^[159]

5.117 Allens Arthur Robinson submitted that the obligation to discover documents no longer in a party’s possession, custody or power, imposed a significant administrative burden and was adhered to inconsistently in practice.^[160] Likewise, a group of large law firms submitted that:

It is unrealistic for a party to account for documents that ceased to be in its possession, custody or power for an indefinite period prior to the commencement of the proceedings.^[161]

5.118 At the same time, Allens Arthur Robinson acknowledged that an alternative approach might be to clarify the obligation to conduct a ‘reasonable search’—so that parties need not take positive steps to search for relevant documents no longer in their possession, custody or power.^[162]

5.119 The group of large law firms also proposed that any document which wholly came into existence after the commencement of proceedings should be excluded from discovery obligations.^[163] This is the approach taken in r 21.1 of the Uniform Civil Procedure Rules 2005 (NSW). In support of adopting this rule in Federal Court proceedings, the group submitted that:

Many (if not most) of these documents would be the subject of legal professional privilege, and it is arguable that the probative value of the remainder would be negligible.^[164]

5.120 The group acknowledged the importance of an ongoing obligation to discover pre-existing documents as they came to a party’s attention, but argued that discovery of documents that came into existence after proceedings have commenced created confusion and uncertainty in the discovery process, increased litigation costs and delayed preparation for trial.^[165]

ALRC’s views

5.121 The ALRC notes that the proposed Federal Court Rules 2010would maintain the current obligation to discover documents that are, or have been, in a party’s possession, custody or power.^[166] However, a party may be relieved of this obligation, or it may be modified in any way by court orders for ‘non-standard discovery’, under the proposed r 20.15. For example, a party may seek an order that documents only be discovered if they were last in the party’s control within the six months prior to the commencement of proceedings—in line with r 21.3 of the Uniform Civil Procedure Rules (NSW).

5.122 This is the ALRC’s preferred approach to dealing with discovery of documents that have been, but are no longer, in a party’s control. The ALRC does not support the introduction of a rule of general application to limit discovery of such documents in all cases. Such reform would be inconsistent with the principle of effectiveness. In some cases, litigation might be resolved effectively without discovery of documents that have been outside a party’s control for more than six months.^[167] However, in other cases, the fact that a party had control of a document at one time may itself be an important issue. Excluding classes of documents from discovery in a uniform and arbitrary manner might not be effective in all cases. The Court’s tailoring of discovery obligations on a case-by-case basis is, in the ALRC’s view, a more effective system.

5.123 The potential for reform to court practice and procedure, to facilitate careful consideration by the Court and parties as to whether documents no longer in a party’s control should be discovered, is explored in Chapter 6. The ALRC considers that the reforms recommended in that chapter will enhance the effectiveness of discovery obligations—for example, by facilitating court orders that tailor any discovery of documents no longer in a party’s control, to suit the issues in dispute.

5.124 Chapter 6 also examines the need for best-practice guidelines in Federal Court practice notes to inform the parties when considering the scope and process of any discovery. In particular, Chapter 6 discusses the potential for guidelines to direct the parties to identify any documents or repositories of documents that should be excluded from the conduct of a reasonable search for discoverable documents. This might, for example, encourage parties and the Court to exclude from discovery, in appropriate cases, any documents that have not been in the parties’ control for more than six months prior to the commencement of proceedings. This guidance would be especially important if the Federal Court Rules maintained the obligation on parties to discover documents no longer in their control, as the inefficiencies of complying with this obligation might only be avoided if parties sought and judges made targeted orders in appropriate cases. Complementing the guidelines discussed in Chapter 6, Chapter 7 considers the need for judicial education and training in relation to case management of discovery issues.

5.125 Subject to the comments made below, the ALRC does not support the introduction of a rule of general application to exclude from discovery in the Federal Court any documents that wholly came into existence after the commencement of proceedings. A blanket exclusion of such documents in discovery would be inconsistent with the principle of effectiveness. In some cases, the probative value of documents created after the commencement of proceedings might be negligible—and in these cases litigation might be conducted effectively without regard to such documents. In other cases, however, documents created after the commencement of proceedings could be significantly relevant to issues in dispute—including, for example, issues about the quantum of damages. If such documents were not privileged or otherwise exempt from an order for production, their discovery may be an important and effective step towards the conclusion of the proceeding.

5.126 However, the ALRC considers that further consideration is warranted in relation to discovery of documents which wholly came into existence after the commencement of the proceeding—where the documents are protected by the litigation limb of legal professional privilege arising in the proceedings before the Court. In most cases, communications between a party and a lawyer in the course of litigation—for the dominant purpose of providing legal services in those proceedings—are likely to generate a certain volume of privileged documents. These documents may be privileged from production to another party, but privileged documents must still be enumerated in the discovering party’s list of documents.^[168] Since discovery is a continuing obligation,^[169] the party would have to discover such documents every time it communicates with its lawyer.

5.127 Excluding these documents from discovery in the Federal Court might promote the principle of efficiency in litigation—that the costs of dispute resolution should be proportionate to the issues in dispute.^[170] Importantly, the party giving discovery would avoid the cost of discovering these privileged documents throughout the course of the proceedings. In addition, the exclusion of these documents from discovery would not necessarily harm the interests of justice, as the party to whom discovery is given cannot compel the production of the documents in any event.

5.128 On the other hand, excluding privileged documents from discovery obligations might open the way for some parties to frustrate the administration of justice by making unmeritorious claims for privilege over otherwise discoverable documents. If these documents were not discovered then the party seeking discovery might not know of the existence of the documents or the fact that privilege was claimed in respect of them. This might mean that the party seeking discovery is denied the opportunity to test the claim for privilege and to assert a right to discovery of the documents.

5.129 The ALRC does not make any recommendation for reform in relation to the discovery of privileged documents that wholly came into existence after the commencement of proceedings. This issue was not raised in the Consultation Paper and so any recommendation would not be supported by the evidence base in response. The ALRC expects that current consultations on proposed amendments to the Federal Court Rules may consider the possibility of a new rule to exclude from discovery any documents to which litigation privilege applies in the course of proceedings before the Court, which wholly came into existence after the commencement of proceedings.

Discovery of documents already in another party’s control

5.130 The proposed Federal Court Rules 2010do not include provisions equivalent to O 15 r 2(4) of the current Rules, which provides that a party giving discovery is not required to disclose a document that is reasonably believed to be already in the possession, custody or control of the party to whom discovery is given. This Rule is intended to reduce the burden of discovery and, as such, its omission may appear to broaden the scope of discovery obligations—by requiring discovery of documents already in another party’s control.

5.131 However, in practice, current O 15 r 2(4) may generate the incursion of costs in a number of ways. First, this Rule requires the party giving discovery to make an assessment as to whether another party already has control of a particular document. Secondly, the application of the Rule can lead to satellite litigation over whether it was reasonable for the party giving discovery to believe that another party already had control of the document. Thirdly, O 15 r 2(4) may be open to abuse by a party who seeks to avoid discovering a document, when found to have withheld it, by falsely claiming that the party believed the document was already in the other party’s control.

ALRC’s views

5.132 The ALRC considers that the omission of current O 15 r 2(4) from the Federal Court Rules would promote the principle of effectiveness. Discovery of documents that might already be in each party’s control is managed most effectively by the Court on a case-by-case basis—rather than a blanket rule applicable in all cases. For example, in cases where a party’s state of knowledge is an issue, discovery of documents that each party already possesses may facilitate a determination of whether the discovering party had the requisite knowledge.

5.133 The ALRC also considers that omitting current O 15 r 2(4) would be consistent with the principle of efficiency. Rather than making discovery obligations more onerous in general, the omission of these provisions may help to avoid incidental disputes and associated costs which can be incurred in the current operation of this rule. In some cases, discovering documents already in another party’s control, such as invoices, might be unnecessarily duplicative and inefficient. However, in these circumstances, a party may seek court orders to be relieved of the obligation to discover such documents.

5.134 The potential for reform to court practice and procedure, to facilitate careful consideration by the Court and parties of the precise terms of discovery obligations in each case, is explored in Chapter 6. The ALRC considers that the reforms recommended in that chapter will, for example, enhance the efficiency and effectiveness of discovery of documents already in each party’s control, by facilitating court orders that tailor discovery obligations to suit the issues in each case.

5.135 Chapter 6 also examines the need for best-practice guidelines in Federal Court practice notes to inform the parties when considering the scope and process of any discovery. In particular, the potential for guidelines to direct the parties to identify any documents or repositories of documents that should be excluded from the conduct of a reasonable search for discoverable documents is discussed. This might, for example, encourage parties and the Court to exclude from discovery in appropriate cases any documents that are already in the control of the party to whom discovery is given. This guidance would be especially important if current O 15 r 2(4) is to be omitted from the Federal Court Rules, as the inefficiencies of discovering documents already in another party’s control might only be avoided if parties sought and judges made targeted orders in appropriate cases. Complementing the guidelines discussed in Chapter 6, Chapter 7 considers the need for judicial education and training in relation to case management of discovery issues.