Case: Brilliant Digital Entertainment Pty Ltd v Universal Music Australia Pty Ltd (2004) 63 IPR 373
Outcome: discussed
It was the Music companies' contention that the orders of Moore J, from which leave to appeal is now sought, determined matters of practice and procedure within the foregoing statements of principle, involving as they did the obligation of Ms Hemming to submit to cross-examination on affidavits made by her in early April of this year, and to file a separate affidavit disclosing the assets of Sharman Networks. Those obligations were said to be no different in principle to any other interlocutory procedural order of the court, whether made pre-trial or during a trial, requiring parties to swear affidavits, to answer questions in cross-examination and to provide documentation. On the question of what constitutes 'substantial injustice' for the purposes of determining an application for leave to appeal, counsel for the Music companies placed particular reliance upon the decision of the Full Federal Court delivered earlier in the primary proceedings, which denied leave to appeal from a decision by Wilcox J refusing to set aside Anton Piller orders that his Honour had earlier made: Brilliant Digital Entertainment Pty Ltd v Universal Music Australia Pty Ltd (2004) 63 IPR 373. I will refer further to that authority shortly. 13 The Music companies, for their part, placed particular reliance upon the joint reasons for judgment of Black CJ and Stone J in Brilliant Digital for the approach that they contended ought to be adopted in my consideration of the present application for leave to appeal. In refusing leave to appeal from Wilcox J's decision to decline to set aside earlier Anton Piller orders that had been made in the course of the subject litigation, their Honours were said not to have considered at all the merits of the contemplated appeal there in issue. The following passages appearing at [7]-[8] and [13]-[14] of their Honour's reasons for judgment in Brilliant Digital were asserted by the Music companies to be apposite to the present application: '[7] In our view these matters [the matters contended by the applicants to amount to substantial injustice] would not, either individually or cumulatively, occasion injustice to the applicants of such a character and to such a degree as to justify the grant of leave. While it is neither necessary nor appropriate to attempt to define the concept of substantial injustice some observations may be ventured. The flexibility of the principles governing the grant of leave to appeal indicates that the concept of substantial injustice must also be flexible. The requirement of leave to appeal indicates, however, that substantial injustice requires something more than that the subject decision is incorrect, otherwise the criterion would be superfluous. The qualification of "injustice" by "substantial" points to a detriment that, while not necessarily irreparable, is more than mere inconvenience or delay in the exercise of a right . [8] The distinction between interlocutory decisions concerning matters of practice and procedure and those that concern the substantive interests of the parties recognises both the greater likelihood of an incorrect decision as to a substantive right causing substantial injustice and the importance of preserving a judge's power to supervise the orderly preparation of a matter for trial. In determining whether there has been substantial injustice it is appropriate for the court to take these factors into account. The need to keep a tight rein upon interference with orders at first instance that do not determine substantive rights has even more force today in the context of procedural reforms and active case management undertaken with a view to the early identification of the real issues between the parties and the expeditious and efficient resolution of them... [13] The challenged orders were plainly directed to matters of practice and procedure and did not determine any substantive rights. They were directed to the capture and preservation of certain data and information and this purpose has now been effected. Importantly, the applicants for leave do not seek to reverse this by destruction of the material seized pursuant to the challenged orders. The primary judge has now made orders relating to the use of the material seized including its safekeeping by an independent party and, subject to appropriate confidentiality undertakings, the making of a safety or backup copy of the material. Orders have also been made granting preliminary access to the material for the purpose of any application that includes material not falling within the challenged orders. The music companies are to have only such access to the seized material as would be normally available on discovery. This shows that there is presently in train an orderly process for the management of the seized material in which the interests of both parties will receive due consideration. [14] In these circumstances we are far from satisfied that substantial injustice would follow from refusing the application for leave to appeal and, on that basis, we would refuse leave to appeal. That being so we do not propose to comment on the correctness or otherwise of the decision of the primary judge. Nothing we have said should be taken as suggesting that the making of the challenged orders was not a serious matter requiring very careful consideration by the primary judge; plainly, whether or not the applicants are correct in their contention that his decision was erroneous, the application for the challenged orders and the subsequent application to set them aside did receive consideration of that character.' (The emphasis appearing in [7] above in non-italics is mine). 14 The Music companies contended that the orders made by Moore J were truly interlocutory in nature, rather than substantial in effect, being directed to 'the capture and preservation' of assets of the Sharman applicants pursuant to the Mareva relief granted. They pointed out that Moore J had reached his decision to impose those orders after careful application of the relevant legal principles, with due consideration of the lengthy evidence put before him by both parties. Moreover, Moore J was said to have made it clear in [39] of his reasons for judgment that any cross-examination would be subject to the control of the Court, thereby limiting any prejudice that may be suffered by Ms Hemming or the other applicants. In those circumstances, counsel for the Music companies further contended that the applicants had failed to show that the obligations imposed upon them by Moore J amounted to anything greater than 'mere inconvenience'. On that footing, the Music companies concluded that the Sharman applicants had failed to overcome the threshold requirement of establishing substantial injustice, and that leave to appeal should be refused on that basis alone. Acceptance of that proposition was said to have the consequence realistically that consideration of the draft grounds of appeal from Moore J's judgment as formulated by the Sharman applicants, would not be necessary. There is considerable force in those submissions of the Music companies. 15 The Sharman applicants submitted that Brilliant Digital was distinguishable from the present circumstances because in the former instance, the orders the subject of application for leave to appeal arose from an Anton Piller order that had already been executed, but in the present case, Ms Hemming was yet to be cross-examined and had not, as at the date of hearing of the application, sworn an affidavit for instance on behalf of Sharman Networks. I should interpolate to record that subsequent to reserving judgment on the question of leave to appeal, the Sharman applicants applied for a stay on Moore J's order requiring Ms Hemming to file that affidavit, and that I refused to grant that stay, but made orders requiring the affidavit to be left in a sealed envelope to be opened only upon further order of the Court. Because a Full Court on appeal is in a position to intervene in relation to the subjection of Ms Hemming to Moore J's orders, and because those orders were made, on the Sharman applicants' case, erroneously by his Honour, it was contended by the Sharman applicants to be unjust if leave to appeal was not to be granted in relation to his Honour's orders. 16 The Sharman applicants further submitted that the Full Court 'regularly' grants leave to appeal where it can be shown that the exercise of a discretion has miscarried, and where that miscarriage in the exercise of a discretion involves an important question of principle, citing as authority Wong at [22]. In Wong , the Full Federal Court held that the primary judge had failed to correctly apply the relevant legal test grounding the order made below. No mention was made by the Full Court of the need to establish 'substantial injustice' before a grant of leave to appeal is to be made. Counsel for the Music companies submitted in response that Wong was of no assistance, since it was a decision made as a result of the primary judge having ordered the filing of interrogatories in the absence of evidence from the party sought to be interrogated going beyond a 'mere allegation'. So much was said to stand in contrast with the considerable array of evidence provided respectively to Wilcox, Lindgren and Moore JJ at various interlocutory stages concerning Ms Hemming's control of the Sharman companies and a related and involved trust estate. In any event the Music companies submitted that the Court's decision in Wong must be read subject to the later reasons of the Full Court in Brilliant Digital , which required inter alia that 'substantial injustice' be shown. There is in my opinion clear force in those submissions of the Music companies. 34 With respect to the carefully as well as forcefully presented submissions made to the Court by senior counsel for the Sharman applicants, I am unable to distil material or significant error in the approach of the primary judge. It was readily to be inferred by the primary judge, from the material placed before his Honour, that Ms Hemming did exercise what his Honour described as a central role in relation to the business of Sharman Networks, and moreover that Mr Gee, who was put forward by the Sharman applicants as having performed that role, was '... only in form an appropriate person' to have provided the principal affidavit evidence on behalf of the Sharman companies. I have not found the observations appearing in the English authorities, to which I have been referred by the Sharman applicants, and which I have extracted, to be of assistance, at least in contextual circumstances such as here involved, where the Sharman applicants have resorted to offshore transactions bearing no evident commercial significance, at least of transparency, and did so, in part, co-incidentally upon the unsuccessful involvement of the Sharman parties and their entities in the very substantial Universal Music litigation which concluded on the question of liability on 5 September 2005. At least in circumstances such as those, the description 'Star Chamber interrogatory procedures' is inapposite. Moreover in line with the observations made in Brilliant Digital , the orders here complained of are in substance at least presently concerned with 'matters of practice and procedure', and not 'substantive interests of the parties'. 35 Largely upon the footing of the foregoing findings, and his Honour's further findings as to the Sharman companies' principal deponent of affidavit evidence (being Mr Gee) having been '... only in form an appropriate person', though not in substance, and instead his having been essentially 'a cipher', I am unable to accept otherwise than that the primary judge was correct in his view that '[i]t is not possible to be affirmatively satisfied that [the disclosure]... is now complete', and further, in pointing out that Mr Myers' testimony did '... not provide sufficient assurance that Mr Gee's affidavits can, on their face, be accepted as constituting a full disclosure'. 36 In the light of my preceding discussion and analysis I also think that his Honour was right to have concluded in the following terms at [39] in the course of rejecting the Sharman applicants' contention that the subjection of Ms Hemming to cross-examination amounted to an abuse of the Court's process: 'I accept that the [Music companies] would wish to ascertain who are the real and effective controllers of the Sharman companies. I also accept that this may become a matter about which questions might be asked if the orders sought by the applicants are made. However if that becomes a legitimate area of cross examination (bearing in mind that any cross examination will be subject to the control of the Court) it will be for a legitimate purpose and not an illegitimate and collateral one. I do not accept the criticisms of the way the [Music companies] identified and characterised the breaches of the disclosure order. In particular, [Sharman License and Sharman Networks] elected to provide the disclosure affidavits required of them from a person appropriate in form but not in substance. The [Music companies], who necessarily cannot be certain from their own knowledge of the matters to which the disclosure affidavits related, were entitled to review critically the affidavits proffered by [those Sharman companies]. All the more so given the opaque structure reflected in the Sharman trust and the arrangements in Vanuatu more generally and referred to above. While some of the criticisms were not significant, they included the failure to disclose significant sums held by lawyers on trust. I am not satisfied that the application should be dismissed for the reasons advanced by the [Sharman applicants].' 37 In making order 3 on 17 November 2005, it was submitted that Moore J also fell into error. The effect of order 3 was said to extend the 'freezing order' to the assets of Sharman Licence, which was erroneous because his Honour had overlooked the implications of the circumstance that Wilcox J had found in the main proceedings that such company had been completely successful and the claims made against it had been wholly dismissed. Thus at [40], his Honour held as follows: 'In view of (Wilcox J's) conclusions concerning the liability of [Sharman License], no such order should be made concerning that company.' It was apparently common ground moreover that Sharman Licence was a wholly owned subsidiary of Sharman Networks. So much was said by the Sharman parties to have been 'entirely overlooked' when his Honour concluded at [40] of his reasons as follows: '... the proposed order is intended to bind existing respondents and prohibiting them from "causing or permitting any wholly-owned subsidiary" from dealing with its assets subject to the exceptions in the order as originally formulated. This appears to me to be an appropriate extension of the original Mareva order and will ensure that assets of the respondents held, indirectly, through wholly-owned subsidiaries, will be controlled in the same way and for the same purpose as assets directly held to which the Mareva order presently applies.' I am unable however to comprehend why Sharman License's subsidiary status in relation to Sharman Networks should exclude it from the operation of the order of the Court below, which understandably was so framed as to extend to 'any wholly owned subsidiary.' As pointed out by the Music companies, such an order does not have the effect of extending the Mareva order to Sharman License's assets, per se , but rather, the order prevents 'Sharman Networks from causing its subsidiaries to dispose of their assets'. 38 In the result, I am of the opinion that the application of the Sharman parties for leave to appeal addressed in these reasons must be dismissed with costs. I certify that the preceding thirty-eight (38) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Conti. Associate: Dated: 5 January 2006 Counsel for the First, Second and Third Applicants: J M Ireland QC Solicitor for the First, Second and Third Applicants: Clayton Utz Counsel for the First to Thirtieth Respondents: R Cobden SC and J M Hennessy Solicitor for the First to Thirtieth Respondents: Gilbert + Tobin Date of Hearing: 30 November and 1 December 2005 Date of Judgment: 5 January 2006 AustLII: Copyright Policy | Disclaimers | Privacy Policy | Feedback URL: http://www.austlii.edu.au/au/cases/cth/FCA/2006/1.html