While Queensland revised its rules with respect to the preliminary disclosure process midway through 2022, the recent decision of Blue Dog Group Pty Ltd v Glaucus Research Group California LLC [2024] QSC 37 is the first Queensland Supreme Court decision on their application and provides helpful guidance as to how those rules should be applied going forward.
Preliminary disclosure in Queensland: the two key rules
In Queensland, the preliminary disclosure process is set out in rules 208C and 208D of the Uniform Civil Procedure Rules 1999 (Qld).
An application under rule 208C is for seeking documents that may ascertain the identity or whereabouts of prospective defendants. An applicant must show:
- they may have a right to relief against a prospective defendant;
- they have made reasonable inquiries and are unable to sufficiently ascertain the identity of the prospective defendant; and
- another person may have information, or possession or control of a document or thing, that may assist in identifying the identity or whereabouts of the prospect defendant.
For someone seeking documents relevant to a decision to commence proceedings against a defendant, there's rule 208D. They must show:
- they may have a right to relief against a prospective defendant;
- it is impracticable to start a proceeding against the prospect defendant without reference to a document;
- there is an objective likelihood that the prospective defendant has, or is likely to have, possession or control of the document;
- inspection of the document would assist the applicant to make the decision to start the proceeding; and
- the interests of justice require the order to be made.
It should be noted that there are subtle differences between the preliminary discovery rules between across each of the states and territories as well as under the Federal Court Rules.
Blue Dog vs Glaucus: a test of the new preliminary discovery rules
Blue Dog Group Pty Ltd is an ASX-listed company which is in the business of raising and managing funds and investments. Glaucus Research Group California LLC is an activist short seller – that is, it takes positions in companies on the basis that it believes the share price will fall.
In March 2018, Glaucus published a report in which it made several assertions about Blue Dog. Blue Dog's position was that those assertions:
- were false and/or misleading;
- were made for the purpose of causing the Blue Dog share price to fall.
- were made on the basis of Glaucus having access to, or receiving, insider information.
Blue Dog therefore applied under rules 208C and 208D seeking, amongst other things, the production of documents from Glaucus, and two trading firms involved in the short-selling activity following publication of the relevant report.
Against Glaucus
Blue Dog contended that it may have a right to relief under rule 208C to obtain documents from the Glaucus parties recording any individual or entity that:
- provided information that was used to prepare the report;
- was involved in preparing the report;
- received a draft prior to publication; and
- discussed the report prior to its publication within a particular period.
It argued that it may have a right of relief against any persons associated with Glaucus who communicated the alleged inside information to the brokerage clients, and any persons who traded in the product after having received the alleged inside information.
In support of its application, Blue Dog relied upon an affidavit from an expert who reviewed the trading data just prior to, and after, the release of the report. The expert noted peculiarities which might have suggested that those involved in that activity had knowledge of the report. Blue Dog also pointed to a comment within the report that observed Glaucus and related parties stand to gain if the Blue Dog stock price declined.
While the Court noted that this evidence was not "overly compelling", it was sufficient to demonstrate that Blue Dog may have a right to relief, and was therefore satisfied that Blue Dog had overcome that hurdle. Blue Dog also noted that:
- Glaucus had been asked for the information, which had been rebuffed, and thus reasonable inquiries had been undertaken;
- the Glaucus parties could reasonably be expected to have information that may assist in ascertaining the identity or whereabouts of a prospective defendant; and
- having regard to the above matters, it submitted the order should be granted.
Against the two brokerage firms
Blue Dog contended that it may have a right to relief against the brokerage firms' clients as a result of unusual trading activity that had been identified just prior to the release of the relevant report. It said the coincidence of such activity just before the report's release shows that at least some of the clients may have been aware that Glaucus would or may publish the report.
The Court noted that Blue Dog had filed an affidavit identifying the basis upon which Blue Dog might have a claim against such clients, and observed that rule 208C only required that the applicant "may" have a right of relief against such clients – thus, the threshold was not a high one. It added:
- the affidavit had shown that Blue Dog had made inquiries of the brokerage firms as to the identity of clients, both of which had declined to provide the information on the basis of privacy and / or confidentiality obligations. The Court was therefore satisfied that Blue Dog had shown that "reasonable inquiries" had been made;
- both brokerage firms could reasonably be expected to have information that may assist in ascertaining the identity or whereabouts of a prospective defendant; and
- given all of this, the order should be granted.
Key takeaways for preliminary disclosure in Queensland
There are three matters to be drawn from this decision.
First, the requirement that an applicant demonstrate that they may have a right to relief sets a reasonably low threshold. It is not necessary for an applicant to show that it has an iron-clad case before commencing proceedings, only that there is a cause of action that is above the level of speculation.
Second, while the bar is low, it is important to demonstrate that is the cause of action is, in fact, not spurious. Blue Dog satisfied this by engaging an expert to review trading data, and piecing together the matters that were known to it to be able to point to actual potential causes of action. It is not enough to broadly state that something is "misleading and deceptive" and expect the Court to grant an order for disclosure – one must actually show that there are sufficient facts upon which to frame a cause of action.
Third, it is important for an applicant to show that that the document is required, or at least important, in the context of deciding whether to start the proceeding. If a person has already formed an intention to commence proceedings against a party, it is likely to be difficult to show that they need further documents or information to inform that decision. Here, Blue Dog was able to make it clear that it needed to know who had received / had access to the report before it knew who to sue, and on what basis.
Although not addressed in the decision, arguably in light of the relatively low bar for securing an order for preliminary discovery, an additional point which should be kept in mind by potential applicants is rule 208E. It allows an order for preliminary discovery to be made, subject to a condition that the applicant give security for costs and expenses of the person against whom the order is to be made. Similarly, rule 208G (the Court's power to make orders for the costs of the application) is a factor which may act to focus the scope of the application.
All in all, it is clear that the barriers for obtaining an order for preliminary disclosure in Queensland are significantly lower than might have been the case previously. Potential litigants should be alert to the benefits that might be obtained in framing their pleading from getting access to documents early through the preliminary disclosure process.