Allstate Life Insurance Co v. Australia & New Zealand Banking Group Ltd
BC 9506523(Judgment by: Lindgren J)
Allstate Life Insurance Company
&
Others
v Anz Banking Group Ltd
&
Others
Judge:
Lindgren J
Judgment date: 22 August 1995
Judgment by:
Lindgren J
REASONS FOR JUDGMENT (No 15)
(motion by 1st, 2nd, 4th-9th and 11th-16th applicants - notice of motion filed on 21 July 1995)
NATURE OF PROCEEDINGS
The 1st, 2nd, 4th-9th and 11th-16th applicants move by notice of motion filed on 21 July 1995 for the following order:
"1. That the order made herein on 7 July 1995 being Order 1 set out in Short Minutes of Order of that date (the July Order) be discharged or varied as to discovery of the documents set out in the Schedule hereto on the ground that the order is oppressive."
In order to understand this, it is necessary to understand both the July Order (I will use the abbreviation adopted in the notice of motion) and the schedule to the notice of motion. Shortly, however, it can be said that those 14 applicants who move for the order (for convenience I will refer to them simply as "the applicants") seek to be relieved, in part, from the particular discovery required by the July Order on the ground that compliance would be oppressive.
GENERAL
The relevant parts of the July Order are as follows:
"1. Each of the applicants referred to in the Schedule (to the extent to which lists of documents have not already been filed) file verified lists of the documents referred to in the Schedule on or before 5 September 1995 and give inspection thereafter in Sydney.
2. .............................................
3. Suspend the operation of order 1 for fourteen (14) days and reserve liberty to the applicants to apply to discharge or vary the order on three days' notice on the ground that the order is oppressive."
The schedule which was annexed to the July Order listed 86 categories of documents. Different categories were listed under the names of the various applicants. By the motion, the applicants exercise the liberty reserved to them by para 3 quoted above.
It is now convenient to set out particulars of the applicants in question, the numbers of the categories of documents which they were respectively ordered to discover, and those of those categories to which the motion relates:
Categories the Categories subject of the Applicant | Ordered | motion |
Allstate Life Insurance Co (1st app) | 1-13 6, 8, 11. | |
Colonial Intermediate High Income Fund (2nd app) | 14-24 | 16, 20, 21. |
Executive Life Insurance Co (4th app) First Stratford Life Insurance Co (16th app) | 25-44 | 26, 27, 29, 40, 42. |
Life Insurance Co of the South West (5th app) | 45-56 | 51. |
"The Ariel Entities" (6th, 11th, 12th, 13th, 14th and 15th apps) | 57A-63 | 57A, 57B, 58, 60. |
Prospect Street High Income Portfolio Inc (7th app) | 64-72 | 65, 67. |
United High Income Fund Inc (8th app) United High Income Fund II Inc (9th app) | 73-86 | 81, 82. |
The motion was heard in respect of some of these applicants on Thursday 17 and Friday 18 August. I was told that the hearing on those days would not relate to the 2nd, 4th, 5th and 16th applicants. I was told further that an accord had been reached between the 1st applicant and the respondents in relation to the documents the subject of para 11, between the 4th and 16th applicants and the respondents in relation to the documents the subject of para 42, and between the 5th applicant and the respondents in relation to the documents the subject of para 51.
The 1st applicant ("Allstate") relied upon an affidavit of Jeffrey Mazer sworn 20 July 1995 to establish the oppressiveness of the July Order in its application to documents referred to in para 6 and 8 of the Schedule to that order. The Ariel Entities relied on an affidavit of Michael Harwood sworn 20 July 1995 to establish the oppressiveness of the July Order in its application to the documents the subject of paras 57A, 57B, 58 and 60 of the Schedule to the July Order. The 7th applicant ("Prospect Street") relied on an affidavit of Karen J Thelen sworn 20 July 1995 to establish the oppressiveness of the July Order in so far as it related to the documents the subject of paras 65 and 67 of the Schedule to the July Order. The 8th applicant ("United High Income Fund") and the 9th applicant ("United High Income Fund II Inc") relied on an affidavit of Louise Dawn Rieke sworn 20 July 1995 to establish the oppressiveness of the July Order in so far as it related to the documents the subject of paras 81 and 82 in the Schedule to the July Order.
In summary, the evidence was directed to establishing oppressiveness in four respects:
- (1)
- The burden, in terms of labour and cost, of identifying and listing the documents to be discovered;
- (2)
- the burden, in terms of labour and cost, of photocopying the documents to be produced for inspection, by reason of the necessity, as perceived, that inspection take place in Sydney;
- (3)
- the burden, in terms of labour and cost, of shipping documents to Sydney for production and inspection here;
- (4)
- (in the case of the 7th applicant) the fact that a subpoena has been issued by a United States court for production of documents falling within the categories of documents to be discovered.
The applicants submitted that in determining the question of oppressiveness I must carry out a balancing exercise which takes into account the degree of relevance and importance of the documents to the respondents and the burden of complying with the July Order. The applicants referred, in this regard, to the following passage from the decision of Mummery J in Molnlycke AB v Procter & Gamble Ltd (No 3) [1990] RPC 498 at 503:
"An order [for specific discovery] may be refused on the ground that it is unduly oppressive to the party giving discovery. The court takes account of such considerations as the value of the discovery to the person seeking it and the burden imposed on the party giving it, with a view to restricting the volume of documents and the labour and expense involved to that which is necessary for fairly disposing of the issues in the case."
The applicants also referred to Matthews, and Malek, Discovery (London, Sweet & Maxwell, 1992) at para 6.19, at p 139 where the learned authors refer to the refusal of the Court of Appeal to order discovery in Merchants' and Manufacturers' Insurance Co Ltd v Davies [1938] 1 KB 196 on the basis that the oppressive nature of the order sought outweighed the negligible probative value which the documents might have.
The respondents, on the other hand, submit that whatever the position may have been prior to the making of the July Order, it is not now open to me to take into account the probative value of the documents ordered to be discovered. They submit that the relevance (in the discovery sense) of the documents is established by that order, that to "weigh" the importance of the documents would be to go behind the July Order and that this is impermissible. They submit that the onus rests on the applicants to establish that compliance is unduly burdensome by reference only to the relationship between the burden of compliance and such factors as an applicant's capacity to pay and the amount which it seeks to recover in the proceedings.
The July Order was not made by way of a determination by Beaumont J of a contested hearing but the terms of it were agreed upon by the parties after a hearing before his Honour. I take the view that the intention revealed by it was that consideration of one of the elements normally relevant to the question whether particular discovery should be ordered was deferred. Accordingly, I take the view that the intention was that it should be open to the Court to carry out now the weighing exercise which would ordinarily have been carried out prior to the making of the July Order. In this respect I uphold the applicants' submission and reject that of the respondents. This does not mean, however, that the capacity of an applicant to bear the burden of complying with the July Order and the amount sought to be recovered by an applicant are irrelevant considerations to the issue of oppressiveness.
I think that they are relevant.
On the question of the importance to the respondents' case of the documents ordered to be discovered, the applicants point out that those documents do not relate to the acquisition of the bonds issued by Linter Textiles itself which are central to the proceedings. These bonds are of a high risk/high yield type which are commonly referred to as "junk bonds". I will use that expression. One basis of the relevance of at least some of the documents sought is that they may show that the applicants had a common practice of subscribing for such bonds without discrimination, and, in particular, without relying on the prospectuses issued in respect of them. According to the submission, if the documents produced demonstrate this, they will be relevant, at least in the discovery sense, to the issue whether the applicants relied upon Linter Textiles' prospectus. The applicants submit that the burden in terms of labour and cost of discovering and then producing in Sydney for inspection, voluminous documents when viewed in the context of the respondents' mere "hope" that such documents might enable the respondents to negate reliance, is excessive and should not be imposed.
It is not possible at this stage to determine the significance which the documents will be found to have for the respondents. The applicants say that they are substantial companies which often invested very substantial sums in junk bonds. They would have it accepted that for this reason the task of sifting through their records to identify documents falling within the various categories referred to in the Schedule to the July Order would be onerous. Yet this very submission is at least not inconsistent with the respondents' suggestion that the applicants acquired junk bonds indiscriminately, and in particular, without discerning between one issue and another by reference to prospectuses. I proceed on the basis that reliance is an important issue in the case and that the documents referred to may establish a common practice of acquiring junk bonds without reliance on the relevant prospectus, and so open up lines of inquiry and cross- examination pertinent to the issue of reliance in the present case.
It seems to me that an important consideration in the case is that if the applicants succeed in the proceedings and the usual order for costs follows, they will be entitled to recover their costs of compliance with the July Order. Normally, the order for costs would cover only party and party costs. However, as Matthews and Malek observe (supra at 139),
"Where a party has been put to unnecessary expense by his opponent's discovery demands, the Court does of course have the power to make an appropriate costs order."
The learned authors refer to RSC Ord 62 rr 10, 11, 28 of the Rules of the Supreme Court. Order 62 rr 19 and 36 of the Federal Court Rules are different but also give relevant discretions on costs. If it should be found that discovery and production for inspection have involved unwarranted expense, the Court could make a special order as to costs, such as an order that the respondents pay the applicants' costs of compliance with the July Order on an indemnity basis. The respondents include Australian banks and other entities whose capacity to pay is not in question.
I do not find it necessary to do more than to make brief reference to the evidence relied on by the respective applicants. What emerges is that except in the case of the Ariel Entities most of the burden arises from the production of the documents in Sydney for inspection on behalf of the respondents. The applicants propose to cause the discovered documents to be photocopied and the originals or the photocopies to be shipped to Sydney for production and inspection here. The reason for this is that the documents or photocopies of them must be retained in the United States in connection with the carrying on of the applicants' businesses there and for reference purposes.
Subject to one variation in favour of the Ariel Entities noted below, I have formed the view that discovery in the proper sense of that term, that is to say, the supplying of a verified list of documents, should proceed in accordance with the July Order, but that it should remain possible to review, in the light of the content of the lists, the procedure by which and the place at which the documents should be produced for inspection. It may well be appropriate that the applicants have the option of paying for a legal representative of the respondents to attend at their offices in the United States to carry out the inspection, that is to say, for the travel and accommodation expenses of such a person. This aspect of the matter was not explored fully on the hearing before me.
A decision on the question of discovery strictly so called is urgent. The July Order requires that the filing of the verified lists of the documents occur on or before 5 September 1995.
ASPECTS OF THE EVIDENCE OF OPPRESSIVENESS IN RELATION TO THE RESPECTIVE APPLICANTS.
It was submitted for the 54th respondents that I was not obliged to accept, and in fact should not accept, the affidavit evidence read for the applicants at face value, even though the deponents were not cross-examined. In particular, they submitted that I should take into account evidence suggested to be inconsistent with those affidavits, contained in certain written statements of officers of the applicants which they had served on the respondents earlier in the proceedings. The applicants, on the other hand, submitted, citing Ghazal v Government Insurance Office of New South Wales (1992) 29 NSWLR 336 (CA) at 344-346 (Kirby P with whom Mahoney and Clarke JJA agreed), that the statements should not be admitted and that the submission should not be acceded to, because the suggested inconsistencies had not been put to the deponents in cross-examination. The statements were admitted into evidence over objection and subject to argument on the point.
In the event, I have reached a conclusion favourable to the respondents to the submission without reference to the statements. Therefore I do not need to decide whether it would have been proper to take them into account.
Allstate Life Insurance Co (1st applicant) - documents in categories 6 and 8.
The documents described in paras 6 and 8 were as follows:
"6. All records relating to, or recording, any consideration by any officer of Allstate to the acquisition of any proposed high yield debenture issue by Drexel Burnham Lambert ('DBL') in the period 1 January 1987 to 31 December 1989, including any prospectuses or draft prospectuses provided to, or considered by, any officer of Allstate.
8. All documents recording, or relating to, any investment decisions made by or considered by Mr Senkpiel relating to high yield bonds in the period 1 January 1988 to 31 December 1988."
I was told that Allstate seeks to recover $5,000,000 plus interest in the proceedings.
Mr Mazer's affidavit shows that in the years 1987, 1988 and 1989, Allstate had a total of approximately US$354,000,000, US$767,000,000 and US$984,000,000 respectively invested in high yield bonds, spread amongst approximately 115 companies in respect of which approximately 100 files are held by Allstate, stored at premises at Northbrook. The files are maintained in separate filing systems for present investments and for past investments. The files contain from as few as three documents (totalling 50 pages) up to as many as hundreds of documents (totalling thousands of pages).
According to the affidavit, in order to give discovery of the documents referred to in para 6, it will be necessary for all of the investment files to be retrieved and searched in order to determine whether or not the investment was underwritten by Drexel Burnham Lambert ("DBL"). Mr Mazer estimates that this exercise would take one person three days at an approximate cost of US$1,000. He estimates, on inquiry of a copying service, that it would cost approximately US$25,000-US$30,000 to photocopy the files before they or copies of them are sent to Sydney. He estimates on inquiry of a shipping service that it would cost approximately US$15,000-US$20,000 to transport the documents to Sydney.
In relation to the documents referred to in para 8, Mr Mazer is informed by Mr Senkpiel and believes that he considered a large majority if not all of the investments made by Allstate in high yield bonds during 1988, with the result that the file of each company in which Allstate invested during that year probably contains a document which records or relates to Mr Senkpiel's investment decision. An extension of the "retrieval and search" exercise referred to above in relation to para 6 will be necessary to encompass, in respect of 1988 investments, those considered by Mr Sankpiel and underwritten by entities other than DBL. Mr Mazer estimates that this would increase the cost by approximately US$8,000-US$10,000.
In summary, the cost figures for discovery, photocopying and shipping range from US$49,000 to US$61,000.
Although the task of retrieving, searching and listing documents may last longer than three days may cost more than US$1,000, particularly if an allowance is made for the cost of the time of Allstate staff and legal fees, it is clear that Mr Mazer attributes most of the cost to photocopying and shipping.
The Ariel Entities (6th, 11th, 12th, 13th, 14th and 15th applicants) - documents in categories 57A, 57B, 58 and 60. The documents described in paras 57A, 57B, 58 and 60 were as follows:
"57A All documents evidencing, or relating to, the acquisition by any one or more of the Ariel Entities, or any agent on their behalf, of high yield bonds 'in distressed companies', being companies of the kind referred to by Mr J N Mayer in his witness statement of 1 March 1995 in the period 1 January 1987 to 31 December 1994.
57B All documents (except those the subject of any proper claims for legal professional privilege) relating to or recording all suits by any one or more of the Ariel Entities which were commenced or sought to be brought against any party in connection with rights alleged to be associated with high yield bonds in distressed companies (as defined in paragraph 57A in the period 1 January 1987 to 31 December 1994.
58 All accounts and tax returns recording or relating to the conduct of any businesses of the Ariel Entities in the period from 1 January 1987 to 31 December 1994 involving the purchase or attempted purchase in high yield bonds in distressed companies (as defined in paragraph 57A).
60. All documents relating to, or recording, the establishment, ownership or constitution of the partnerships entered into in the period 1 January 1987 to 31 December 1994 in or between any of the entities described as the Ariel Entities, involving the purchase or attempted purchase of high yield bonds in distressed companies (as defined in paragraph 57A)."
I was told that the Ariel Entities seek to recover $100,000,000 plus interest in the proceedings. Mr Harwood, referred to earlier, is a member of the law firm, Kasowitz Hoff Benson Torres & Friedman of New York and acts for the Ariel Entities in "various litigation in which those entities are involved relating to their investment in the Linter Textiles bonds."
His evidence is that he inspected the Ariel Entities' filing system and consulted with the Ariel Entities' Chief Financial Officer in respect of both that system and the business documents which the Ariel Entities maintain. According to his affidavit, the Ariel Entities have invested and do invest in both "distressed securities" and "all types of publicly traded securities".
Although he treats the July Order as relating only to "distressed securities", Mr Harwood points out that the Ariel Entities' filing system does not distinguish between the two classes. It is therefore necessary, in order for the July Order to be complied with, for each day's trading records for the entire eight year period from 1 January 1987 to 31 December 1994 referred to in paras 57A, 57B, 58 and 60 to be retrieved and examined in order that it might be determined which, if any, "trades" relate to distressed securities. He says that during that period there were approximately 1,900 trading days, that the Ariel Entities engage in trading activities each day, and that there would be a computer printout of ten pages or more for each day - 19,000 pages or more over the eight-year period.
From 1 January 1987 to 31 December 1994, the Ariel Entities stored records both at their office premises and in an off- premises warehouse storage facility. In their office premises, the Ariel Entities have approximately 15 five-drawer cabinets of research files, each drawer containing an average of 20 files (some 1500 files in all) ranging from 1 inch to 6 inches in thickness. Most files contain a prospectus, annual and quarterly reports, SEC filings, press releases, news clippings and independent agency research reports, and that in some cases there are bankruptcy filings and transaction documents. He says that there are approximately 1,000 research files held by the Ariel Entities at present.
Mr Harwood says that compliance with the July Order would necessitate that an employee who had knowledge of each Fund's business throughout the eight year period to examine each of the 19,000 or so pages of computer printout to determine whether the page contains information in respect of distressed securities. The printouts for the current year are maintained in the Ariel Entities' office premises and those for previous years are held in 60 boxes at an off-premises warehouse maintained by an independent storage service company in the northern suburbs of New York City.
Mr Harwood also gives evidence as to the documents which exist relating to the Ariel Entities' daily trading activities and as to their accounting, tax and financial records. Two of the Ariel Entities, Ariel Fund and Carmel Fund, are Cayman Island corporations which maintain separate records in the Cayman Islands. Mr Harwood says that he is informed by an employee of the Cayman facility that there is one cabinet of materials for each of those two Funds which contains corporate records.
During the eight year period in question, the Ariel Entities have commenced or sought to bring suits in connection with rights allegedly associated with high yield bonds in distressed companies as referred to in para 57B. Mr Harwood gives particulars of these.
Finally, he says that the Ariel Entities have no clerical employees, that they employ only one secretary and one receptionist, and that the remaining 15 employees are all professional staff. He says that in consequence, in order for the July Order to be complied with, it would be necessary for either the Ariel Entities' Chief Financial Officer, Michael Autera, or their Financial Analyst, Jack Mayer, to work with specially engaged clerical staff to retrieve, review and collate the information required by the July Order. He estimates that it would take approximately three clerical staff working with one or other of these officers approximately four weeks to perform that task, and that during much of that time Mr Autera or Mr Mayer would be obliged to give his full time assistance to the clerks which would preclude him from attending to his normal duties. He says that Mr Mayer informs him, and he believes, that this could be extremely prejudicial to the management of the Ariel Entities' investments. Mr Harwood makes a "rough estimation" of the cost of outside staff to be engaged, of US$50,000.
He also deposes to the necessity of photocopying and shipping, if the documents are to be produced in Sydney and as to the cost of this. He estimates the photocopying cost at US$10,000 and shipping cost at US$10,000. Accordingly, his rough estimate of the total cost is US$70,000. I note that this does not take into account "internal costs" such as the costs associated with the diversion of the energies of Mr Autera or Mr Mayer or legal fees.
Clearly, in the case of the Ariel Entities, most of the cost to be incurred is in the retrieval, inspection and listing of documents.
As I indicated earlier, I think that I am entitled to weigh the degree of importance of the documents against the cost. The Ariel Entities were not original debenture holders: they became the holders of debentures by assignment from others. According to paras 63 and 64 of the second further amended statement of claim, the assignments extended over a period from 17 April 1990 to 15 March 1994. Many of the documents sought relate to a particular defence pleaded in para 44 of the defence. This paragraph pleads that the assignments constituted contraventions of s 489 of the Judiciary Law of the State of New York. Section 489 is as follows:
"No person or co-partnership, engaged directly or indirectly in the business of collection and adjustment of claims, and no corporation or association, directly or indirectly, itself or by or through its officers, agents or employees, shall solicit, buy or take an assignment of, or be in any manner interested in buying or taking an assignment of a bond, promissory note, bill of exchange, book debt, or other thing in action, or any claim or demand, with the intent and for the purpose of bringing an action or proceeding thereon; provided however, that bills receivable, notes receivable, bills of exchange, judgments or other things in action may be solicited, bought or assignment thereof taken, from any executor, administrator, assignee for the benefit of creditors, trustee or receiver in bankruptcy, or any other person or persons in charge of the administration, settlement or compromise of any estate, through court actions, proceedings or otherwise. Nothing herein contained shall affect any assignment heretofore or hereafter taken by any moneyed corporation authorised to do business in the state of New York or its nominee pursuant to a subrogation agreement or a salvage operation, or by any corporation organized for religious, benevolent or charitable purposes.
Any corporation or association violating the provisions of this section shall be liable to a fine of not more than five thousand dollars; any person or co-partnership, violating the provisions of this section, and any officer, trustee, director, agent or employee of any person, co- partnership, corporation or association violating this section who, directly or indirectly, engages or assists in such violation, is guilty of a misdemeanor."
I was told that the Ariel Entities paid US$2,000,000 for Linter Textiles bonds, and, as noted above, that they seek to recover US$100,000,000 plus interest. Many of the documents sought from the Ariel Entities are sought with a view to establishing that they were "engaged ... in the business of collection and adjustment of claims ... ".
In carrying out the balancing exercise to which I referred earlier, it seems to me, in the light of the evidence as to the burden in terms of labour and cost, that it is appropriate to reduce the period referred to in paras 57A, 57B, 58 and 60 from the existing eight year period from 1 January 1987 to 31 December 1994, to a period of five years from 1 January 1990 to 31 December 1994, but that otherwise the July Order should remain intact. The variation which I have mentioned does not signify that documents relating to the first three years of the eight year period are not relevant in the discovery sense, but merely that they are not likely to be as significant as are the documents showing the Ariel Entities' practices over the period in which acquisition of Linter Textiles bonds took place.
Prospect Street High Income (7th applicant) - paras 65 and 67. The documents described in paras 65 and 67 of the Schedule to the July Order are as follows:
"65 All documents relating to, or recording, any proposed acquisition by Prospect International High Income Portfolio NV of junk or high yield bonds in the period 1 January 1987 to 31 December 1988.
67 All documents recording, or relating to, any consideration by the applicant of bonds underwritten by DBL in the calendar years 1987, 1988 and 1989."
I was informed that Prospect Street seeks to recover US$1,000,000 plus interest in the proceedings. Karen J Thelen, referred to earlier, is the Vice President and Secretary of Prospect Street. She deposes that Prospect Street is a closed-end leverage investment company which invests primarily in public United States high yield debt securities. It began operating on 5 December 1988, and during that month US$178,250,688 was invested in a diversified portfolio of high yield securities representing approximately 45 issues in various industries. Prospect Street retains records at its premises at Exchange Place, Boston, Massachusetts where she works and at a storage facility at North East Archives, Lawrence, Massachusetts, which is 20 miles away.
In September 1992, Prospect Street moved offices from "One Financial Centre" in Boston, Massachusetts to Exchange Place in that city. Some materials from Prospect Street's high yield bond files were discarded and others were placed in boxes for storage at that time.
Ms Thelen says that the high yield bond files which are located at Prospect Street's offices are stored in filing cabinets, there being eight of these containing about 50 to 60 files each - a total of 400 to 480. The high yield bond files at the storage facility are on shelves in boxes and there are 28 boxes in storage containing approximately 30 files each - a total of approximately 840 files. She says that the files range from an eighth of an inch to two inches in thickness. She says that compliance with the July Order would require all 1,240 to 1,320 files to be examined.
She gives further evidence of the detail of the records and of the cost of complying with the July Order. The shipping costs would be some US$11,235 and the photocopying cost would total some US$4,460. She estimates that the cost of complying with the July Order in so far as it relates to the documents referred to in para 67 would be at least US$15,000 and that the cost of complying with the July Order in so far as it relates to the documents referred to in para 65 would be at least US$15,000. The total of US$30,000 apparently includes the photocopying and shipping costs of US$15,695 (the giving of inspection in Sydney was ordered in the July Order). It follows that the balance of US$14,005 represents the estimated cost of discovery itself.
Finally, Ms Thelen says that at present Prospect Street is unable to forward original documents to Australia because its management company, Prospect Street Investment Management Co Inc, has been served with a subpoena issued by Citibank NA and Citibank Limited requiring the production of certain documents in the United States District Court, District of Massachusetts.
Although the costs deposed to of discovery itself are substantial, it seems to me that the case is not made out for relieving Prospect Street from the obligation at least to file and serve its verified list of documents.
In relation to the subpoena, it is not deposed that the documents have yet gone out of the possession, custody and control of Prospect Street in response to the subpoena. If they have, the affidavit of discovery will say so and accommodate this fact. If they have not, the July Order can be complied with, at least in so far as it provides for the filing of a verified list of documents.
United High Income Fund (8th applicant) and United High Income Fund II Inc (9th applicant) - paras 81 and 82.
The documents described in paras 81 and 82 of the Schedule to the July Order are as follows:
"81 All documents recording, or relating to, any communications relating to the purchase or proposed purchase of high yield bonds between either of the funds, or any officer or employee of the funds, and any servant, officer or agent of Waddell and Reed Inc in the calendar years 1988 and 1989.
82 All documents recording, or relating to, any investigation or analysis undertaken by any servant, officer or agent of the funds for the acquisition of any high yield bonds underwritten by DBL in the calendar years 1988 and 1989."
I was told that these two applicants seek to recover $19,700,000 plus interest in the proceedings.
Louise Dawn Rieke, referred to earlier, is the Vice President of both United High Income Fund and United High Income Fund II Inc. Her affidavit shows that those corporations are registered investment companies more commonly known as "mutual funds" in the United States, which invest in high yield securities. Ms Rieke says that during the years 1988 and 1989, the two corporations traded over US$6.9 billion (or US$6,960,126,795) par value of high yield bonds in several hundred companies. She says that in particular, the 8th applicant conducted 889 total trades of high yield bonds with a value of over US$6 billion (or US$6,050,377,691) in 1988 and 1989, and that the 9th applicant conducted 681 trades of high yield bonds with a par value of over US$900,000,000 (or US$909,749,104) in 1988 and 1989.
She gives evidence that in December 1991 there was a fire in a storage facility in Kansas City in which some of the records of the two corporations for 1988 and 1989 were destroyed. The remaining high yield bond files from 1988 and 1989 are located at offices of the two corporations at Shawnee Mission, Kansas, and at a storage facility several blocks away.
Ms Rieke gives detailed evidence as to the manner in which the high yield bond files are stored and the steps which would have to be taken if the documents referred to in the relevant paragraphs of the Schedule to the July Order are to be identified.
Ms Rieke deposes that removal of original documents is restricted because the US Securities and Exchange Commission has issued rules which require investment companies to maintain some records permanently and others for a period of six years from the end of the year in which there has occurred any transaction to which records pertain.
She summarises the cost of complying with, apparently, paras 77, 78, 81 and 82 of the Schedule to the July Order as follows:
"Photocopying | US$6,377 |
Shipping | US$9,682 |
Labour | US$5,250 |
--------- | |
Total | US$21,309" |
========= |
The cost applicable to paras 81 and 82, which alone remains in contention, are not separately identified.
Ms Rieke says that compliance with the July Order would require that she be significantly involved in that she would have to oversee the work of a temporary employee and make sure that only materials responsive to the July Order, but that all such materials, are gathered. This would of course divert her attention from the ongoing business of the two corporations.
I do not think it necessary to give an account of every aspect of the evidence in Ms Rieke's affidavit. I accept that compliance with the July Order would impose a significant burden. However, although the initial task of identifying and listing the documents which respond to the July Order is itself no doubt a substantial one, it seems to me that the carrying out of that first step is not shown to be oppressive.
CONCLUSION
I have read carefully all four affidavits and have had regard to the general factors which I mentioned earlier as well as the detail of the affidavits. Subject to the variation referred to in the case of the Ariel Entities, I am not satisfied that there is such oppressiveness in compliance with the July Order that the applicants should be relieved from compliance with the first step called for by that order, namely the filing of the verified lists of documents.
There will be orders as follows:
1. Subject to Order 2 below, I decline to make the order sought in the notice of motion filed on 21 July 1995 at this stage.
2. I order that the order made on 7 July 1995 being order 1 set out in the short minutes of order of that date ("the July order") be varied in so far as it relates to the 6th, 11th, 12th, 13th, 14th and 15th applicants ("the Ariel Entities") and to paras 57A, 57B, 58 and 60 of the Schedule to the July order by deleting the date "1 January 1987" wherever it appears and substituting for it the date "1 January 1990".
3. I grant leave to the following applicants to have the motion re-listed on 8 September 1995 on three days' prior notice in so far as it relates to the words "and give inspection thereafter in Sydney" in the July order:
1st applicant | Allstate Life Insurance Co. |
6th, 11th, 12th, 13th, 14th and 15th applicants | The Ariel Entities. |
7th applicant | Prospect Street High Income Fund. |
8th and 9th applicants | United High Income Fund Inc and United High Income Fund Inc. |
4. I note that if the applicants are successful in the proceedings, it may, depending on the circumstances, be appropriate to consider the making of an order that any costs order in their favour, in so far as it includes the costs of giving discovery or of production for inspection (or both) of the documents in question, shall be paid on an indemnity basis.
5. I order that the costs of the hearing of the motion on
Thursday 17 and Friday 18 August 1995 be reserved pending determination of the motion in so far as it remains outstanding.
I certify that this and the preceding 27 pages are a true copy of the Reasons for Judgment of the Honourable Justice Lindgren.
Associate:
Dated: 31 August 1995
Heard: | 17, 18 August 1995 |
Place: | Sydney |
Decision: | 22 August 1995 |
Appearances: |
Mr W G Muddle with Mr D Stack of counsel instructed by Sly & Weigall appeared for the applicants. Mr T E F Hughes QC with Mr R M Smith of counsel instructed by Norton Smith & Co appeared for the 54th respondents. |
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