The Supreme Court in Bensons Property Group Pty Ltd v Commonwealth Bank of Australia Ltd & Anor [2018] VSC 666 granted an order for preliminary discovery.  In considering the application the court considered the issues relating to Harman undertakings.

FACTS

Bensons,  a property developer,  engaged the Marcus Group Pty Ltd  “Marcus” as its builder on projects. On 19 April 2018, Bensons received an email, purportedly from the Marcus Group, directing that a payment due to it be made to a Commonwealth Bank of Australia account  (the CBA Account) [5]. On 19 April 2018, Bensons electronically transferred $917,900 to the Relevant CBA Account. As this was not an account maintained by Marcus Bensons was defrauded by person(s) unknown [6].

Bensons reported the fraud to Victoria Police and determined that the funds from the the CBA Account were paid to an Australian and New Zealand Banking Group account (the ANZ Account) in three separate tranches during April 2018 [7].

On 6 August 2018 Benson’s issued this  proceeding against both CBA and ANZ seeking declarations that the banks held monies in the relevant bank accounts on constructive trust amd for orders under r 37A.03 to obtain documents eliciting information relating to assets which might be the subject of a freezing order [8].

The court made orders on:

• 7 September 2018 for the defendant banks to provide relevant documents concerning the Relevant CBA Account and Relevant ANZ Account [9].
• on 5 October 2018 for:
  • the defendants to make discovery of further documents.
  • the plaintiff also was given leave to amend its writ to convert the proceeding into an application for preliminary discovery to identify a prospective defendant pursuant to r 32.03 [10].

Discovery showed that :

• On 29 March 2018, Mr O’Brien incorporated a company, Densford Civil Constructions Pty Ltd (Densford), of which he was the sole director.
• Densford opened the the CBA Account and the ANZ Account, of which O’Brien was the only authorised signatory.
• on 19 April the sum of $917,900 was credited to the  CBA Account.
• on 20 and 24 April 2018, O’Brien attended the CBA branch at the Seven Hills Shopping Centre, and requested that the funds in the  CBA Account be transferred to the  ANZ Account in New South Wales, which was done.
• O’Brien then arranged for the funds to be transferred from the Relevant ANZ Account in four separate transactions:
  • first, $422,258.77 to Retiva Investments Ltd into an account with Union Bank UK Plc;
  • secondly, $36,719 to Robert Aziz into a CBA account in Fairfield, Victoria;
  • thirdly, $438,890.98 to Caerus Investments Ltd into an account with Santander UK Plc;
  • fourthly, $18,928 to Robert Aziz into a CBA account in Fairfield, Victoria.
• on 26 April 2018, Mr O’Brien withdrew $1,000 at an ATM from the ANZ, effectively exhausting the funds in that account.

The plaintiff obtained transcript of a telephone conversation between an ANZ fraud investigator and O’Brien where O’Brien:

(a) admitted to allowing the incorporation of Densford under his name;

(b) admitted to receiving around $1 million in funds from the United Nations which he said was sent to purchase machinery for the United Nations;

(c) stated that he was instructed to pay invoices for equipment which he believed had originated from the United Nations;

(d) admitted attending the ANZ ATM at the Seven Hills branch and withdrawing $1000, which he said was to reimburse him for the costs associated with incorporating the company; and

(e) stated that he was assisting what he believed to be the United Nations so that he could collect his inheritance from an overseas benefactor (which would otherwise be blocked by the United Nations).

DECISION

The documents produced to the plaintiff were subject to the principles underpinning the ‘Harman Undertaking’ as set out by the High Court in Hearne v Street, at [22],as follows:

Where one party to litigation is compelled, either by reason of a rule of court, or by reason of a specific order of the court, or otherwise, to disclose documents or information, the party obtaining the disclosure cannot, without the leave of the court, use it for any purpose other than that for which it was given unless it is received into evidence. The types of material disclosed to which this principle applies include documents inspected after discovery, answers to interrogatories, documents produced on subpoena, documents produced for the purposes of taxation of costs, documents produced pursuant to a direction from an arbitrator, documents seized pursuant to an Anton Piller order, witness statements served pursuant to a judicial direction and affidavits.

The court noted that:

• the undertaking may be released or modified by a court; however, such an exercise is not undertaken lightly.
• the relevant circumstances here are where the applicant is able to demonstrate ‘special circumstances’ as described in Deputy Commissioner of Taxation v Karas with the court referreing specifically to the statements by Vickery J in Ambridge Investments Pty Ltd v Baker (No 3):

“special circumstances” may arise where there are special features (or a special feature) of the case which afford good reason for modifying or releasing the undertaking, being circumstances which are of sufficient gravity to override the private and public interest in protection of the confidentiality of a person’s private documents which are required by law to be produced to a court. [25]

• there is no requirement for ‘some extraordinary factors’ before the discretion is exercised. [26]
•  there can be a public interest in favour of disclosure in respect of information that is relevant to the investigation and prosecution of a criminal offence, which can override the public interest in the administration of justice in the preservation of the confidentiality of discovered documents [27]
• the relevant factors in the exercise of any discretion include:

(a) the nature of the offence alleged;

(b) the cogency of the evidence sought to be adduced in support of it;

(c) the authority to which the documents are sought to be disclosed;

(d) the manner of the authority’s intended use and the possibility of misuse by that authority;

(e) any prejudice, actual or potential, which may be occasioned to the respondent by the disclosure; and

(f) whether the application has been brought for some personal advantage or improper purpose rather than to advance the public interest.

In considering the evidence in light of the authorities the court stated:

•  the potential offences in this case are extremely serious involving a monetary sum of some $1 million including:
  • theft,
  • obtaining financial advantage by deception,
  • falsification of documents and
  • knowingly deal with proceeds of crime.

which involve punishment of a maximum of some 10 to 15 years imprisonment [35]

• it is also relevant to consider that:
  • the sum is substantial;
  • the offences have international aspects; and
  • the conduct involves a high degree of sophistication (which matters were generally accepted by Counsel for CBA) [36].
• the documentation obtained identifies the flow of funds, including to overseas account holders. It is thereby cogent and of potential benefit to any investigation [37].
• the various police agencies are also clearly the appropriate authorities to whom to provide the documents, and it was not suggested that there was any possibility of misuse by those authorities [38].
• there was no prejudice to CBA or ANZ in the provision of the documents [39].
• the order will serve a broader purpose in assisting an investigation into large-scale electronic fraud [40].
• Although the duty of confidentiality will be somewhat eroded, that will be true in any case where an exception is identified. It is significant in this context, however, that  O’Brien, whose privacy may be most directly affected, has chosen not to participate or make submissions against the making of the orders [43].
• there is nothing to suggest that the police will issue search warrants given the state of the investigation to date [45].
• the order is necessary since the production of court orders, or even the first affidavit, is of very limited use to a police investigation absent the further documentation now provided [45].
•  it is appropriate to make an order for modification of the implied undertaking given the existence of special circumstances [46].

Regarding the disposition of costs the court acknowledged that a party who seeks an indulgence may be generally ordered to pay the other party’s costs [48] however the plaintiff was seeking an indulgence in seeking modification of its obligations and considered whether costs were unnecessarily incurred [49] as well as the overarching principle contained in the Civil Procedure Act 2010 (Vic).  Because the court was not satisfied that the banks ought be penalised for the actions they were entitled to take given their apparent concern for the precedential value of this decision but equally the extra time taken ought be imposed on the plaintiff her Honour decided that the costs incurred after 5 October 2018 ought lie where they fall [52].

That was ordered to pay the defendants’ costs of the proceeding save for the costs of and incidental to this application incurred after 5 October 2018 [53].

ISSUE

This case raises two issues relating to my practice area, commercial litigation and privacy and data protection.  It is a useful decision in analysing the process the court goes through in considering a preliminary discovery and, in this case, Home Office v Harman obligation.  Given the facts involved it was always likely that the court would make an order in favour of the plaintiffs.

The facts highlight a reasonably common form of breach of data security to effect a fraud.  Obtaining sufficient information to convince a party to transfer money to a specially opened account is a common form of internet fraud.  Often times the necessary information comes from phishing, contacting staff in an organisation with a request that seems quite genuine to get waht seems to be relevant information for a legitimate purpose.  The approach can be by phone or email or even text.  Sometimes the information is gleaned from social media.  The ease with which staff can give up that information often quite surprising and bespeaks a poor data security culture and often poor, if any, training.  In the world of mandatory data breach notifications this is an issue that companies need to consider. Here Bensons lost almost a million dollars falling for a well known and effective con.