On 26 March 2012, a New Practice Note on disclosure of documents (discovery) commenced for proceedings in the Equity Division of the NSW Supreme Court.
In accordance with earlier procedure, the Court will not order disclosure unless it is shown to be necessary for the resolution of the real issues in dispute in the proceedings. However, unless there are "exceptional circumstances", orders for discovery will not be made until parties have served their evidence.
The stated aim of the new procedure is to “significantly reduce the financial burden on litigants, particularly in … commercial litigation” and to better enable parties to identify what is really in issue before undertaking an expensive discovery process1. Delaying disclosure until after the exchange of evidence is intended to limit discovery to the real issues in dispute.
The Practice Note applies to all new and existing proceedings in the Equity Division, including matters in the Corporations List, Commercial List and Technology and Construction List. It does not apply to proceedings in the Commercial Arbitration List.
In all cases where disclosure is sought, even by consent, the party applying for a disclosure order must provide an affidavit explaining:
- why disclosure is necessary;
- the classes of documents sought; and
- the likely cost of such disclosure.
Notably, for those involved in document intensive proceedings, including class actions, the Court may impose a limit on the amount of recoverable costs in respect of disclosure.
The new procedure departs markedly from previous practice in several respects:
- Under the old regime, parties could see their opponents’ documents before finalising their evidence. Now, unless "exceptional circumstances" apply, parties will have to rely on the information already in their possession and perhaps run the risk that later discovery will contradict their evidence. While discovery will still be based on the issues raised in the pleadings, it will now also be influenced by witness statements, affidavits and experts’ reports.
- Those who seek documents may now be required to shoulder a greater proportion of the costs involved, regardless of the ultimate outcome of the case.
To get discovery before the exchange of evidence, a party must demonstrate that there are "exceptional circumstances". This will be relatively difficult to do, but in some cases (e.g. where the claim is one of solicitor negligence and a client is unable to formulate their claim without being given access to the solicitor's file, or a party does not know the extent of the defendant’s contravening conduct) disclosure before exchange of evidence is likely to be appropriate. In May, Perram J in the Federal Court2 allowed discovery of certain categories of documents before service of the applicant’s evidence in chief. His Honour made the following comments about circumstances where postponing discovery until after the exchange of evidence may be inappropriate (or, in NSW Supreme Court Equity Division parlance, where ‘special circumstances’ might permit early discovery):
Where the progress of a proceeding does not or is not expected to lead to a process of issue distillation postponing discovery may be ineffective. In such cases delaying discovery until after evidence may lead to increased expense because aspects of the evidence may have to be attended to twice; once on the first pass and again on the second. Such cases are the minority but they are not non-existent. A rigid approach forbidding discovery in every case prior to the delivery of evidence would, for that reason, be unwise.
What does this mean for class action litigants?3
In class actions, particularly in relation to financial services and securities related claims, plaintiff lawyers go to great lengths to seek volumes of documents from defendant companies, many with marginal or no connection to the crux of the plaintiff’s true complaint. In theory, the new disclosure requirements should:
- shift the focus of witness evidence so that it is a "recollection" of events, rather than a "reconstruction" based on material obtained through discovery;
- force those seeking disclosure to specify the particular types of documents their opponent should produce and to justify that production, having regard to the evidence already filed;
- curtail the vast number of documents parties have previously been required to produce under wide-reaching discovery categories, particularly when incorporating email and other electronic communications;
- prevent plaintiffs from invariably front-ending the costs of defendants by forcing them to give wide-ranging discovery of documents before the plaintiffs are required to incur the cost of preparing their evidence;
- go some way to introducing a form of “user pays” system with the cost burden of discovery being shifted to those who seek disclosure;
- by requiring a supporting affidavit to justify a discovery order, better allow the decision maker to see the true issues in the proceedings, permitting them to take a tough stance on speculative requests and ‘fishing’ expeditions;
- force plaintiffs, including class actions litigants, to think through proposed claims and more clearly define their case at an earlier stage of the proceedings;
- help parties reach settlement of a dispute, by clarifying issues at an earlier stage of proceedings; and
- allow proceedings to reach trial quicker and hearings to be shorter and ‘cheaper’, in turn easing pressure on the Court system.
On the flip side, the unintended consequences of the new procedure may be:
- an increased number of discovery battles in class actions, which are already much criticised by plaintiff law firms;
- new disputes about what constitutes "exceptional circumstances", where parties seek disclosure before evidence is exchanged;
- parties seeking another bite of the evidence cherry once documents are produced (particularly in cases where expert evidence is put on), causing proceedings to be slowed by a second round of evidence. Experts’ reports in particular may, in the first instance, become shopping lists for discovery, with the expert proposing a theory and method of analysis and identifying the categories of documents the expert requires to undertake the analysis. In itself, this may be no bad thing, but it may prolong the pre-trial process;
- more applications for preliminary discovery, subpoena and notices to produce (although the Court has indicated that it will be vigilant to any use of these processes as an alternative to disclosure); and
- litigants seeking to ‘forum shop’ and issue proceedings in the Court that is at the time deemed to have a more favourable document disclosure regime.
A pilot scheme for the new procedure was run in the Commercial List earlier this year and Bergin CJ in Eq has observed that the new procedure has been ‘embraced’ by the profession4. Her Honour noted that in all cases where parties applied for early discovery on the basis of "exceptional circumstances", the parties ultimately conceded that discovery after exchange of evidence was appropriate.
The Federal Court’s ball is already rolling
The Federal Court introduced changes to its discovery regime in mid-2011 and more are on the way.
On 1 August 2011, in conjunction with the commencement of the Federal Court Rules 2011 (Cth), the Federal Court issued a new Practice Note with the aim of “eliminating or reducing the burden of discovery” (Practice Note CM 5).5 CM 5 states that the Court will not order discovery as a matter of course and only if necessary for the determination of issues in the particular case. Parties need to address the Court as to why discovery is necessary and whether its stated purpose can be achieved by less expensive means, or by limited or tailored document production.
The Access to Justice (Federal Jurisdiction) Amendment Bill (Bill), currently before the Senate, proposes additional amendments to the Federal Court of Australia Act 1976 (Cth), which are designed to aid the Federal Court to control discovery more tightly. Once passed, the amendments will allow the Court to order:
- the party requesting discovery to pay in advance for some or all of the estimated costs of discovery;
- the party requesting discovery to give security for the payment of the cost of discovery; and
- a maximum cost that may be recovered for giving discovery or inspecting discovered documents.
The Court will also be able to make orders for pre-trial oral examination about discovery.
The Committee Report on the Bill was released on 29 March 2012. The second reading of the Bill has been adjourned and no date has been set for its resumption.