FEDERAL COURT OF AUSTRALIA Fletcher and Barnet, in the matter of Octaviar Limited (Receivers and Managers Appointed) (In Liq) and Octaviar Administration Pty Ltd (In Liq) (No 3) [2011] FCA 494 Citation: Fletcher and Barnet, in the matter of Octaviar Limited (Receivers and Managers Appointed) (In Liq) and Octaviar Administration Pty Ltd (In Liq) (No 3) [2011] FCA 494 Parties: WILLIAM JOHN FLETCHER AND KATHERINE ELIZABETH BARNET, OCTAVIAR LIMITED (ACN 107 863 436) (RECEIVERS AND MANAGERS APPOINTED) (IN LIQ) and OCTAVIAR ADMINISTRATION PTY LTD (ACN 101 069 390) (IN LIQ) File number: NSD 149 of 2011 Judge: STONE J Date of judgment: 13 May 2011 Catchwords: PRACTICE AND PROCEDURE – interlocutory application to vary non-disclosure order made under s 50 Federal Court Act – application made in contemplation of litigation instituted by liquidators – non-disclosure order made on application of liquidators in exercise of powers under s 477 Corporations Act – application to vary non-disclosure order made by defendant in contemplated litigation – requirements of s 50 – order must be 'necessary' to prevent prejudice to administration of justice – disclosure has potential to compromise litigation – order necessary for administration of justice Legislation: Corporations Act 2001 (Cth) s 477(2B) Federal Court of Australia Act 1976 (Cth) s 50(1) Cases cited: Finance Corporation Ltd v Newpage Pty Ltd (No 6) (2007) 160 FCR 423 HIH Insurance Ltd [2007] NSWSC 498 Hogan v Australian Crime Commission (2010) 240 CLR 651 Re Octaviar Limited ( Receivers and Managers Appointed) (In Liq) and Octaviar Administration Pty Ltd (In Liq)(No 2) [2011] FCA 315 Re Octaviar Limited (Receivers and Managers Appointed) (In Liq) and Octaviar Administration Pty Ltd (In Liq) [2011] FCA 132 Date of hearing: 11 May 2011 Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 18 Counsel for the Plaintiffs: B Coles QC with J Taylor Solicitor for the Plaintiffs: Henry Davis York, Lawyers Counsel for Fortress Credit Corporation (Australia) II Pty Limited F Kunc SC with C Bova Solicitor for Fortress Credit Corporation (Australia) II Pty Limited Baker & McKenzie, Solicitors IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 149 of 2011 IN THE MATTER OF OCTAVIAR LIMITED (RECEIVERS AND MANAGERS APPOINTED) (IN LIQ) AND OCTAVIAR ADMINISTRATION PTY LTD (IN LIQ) WILLIAM JOHN FLETCHER AND KATHERINE ELIZABETH BARNET First Plaintiffs OCTAVIAR LIMITED (ACN 107 863 436) (RECEIVERS AND MANAGERS APPOINTED) (IN LIQ) Second Plaintiff OCTAVIAR ADMINISTRATION PTY LTD (ACN 101 069 390) (IN LIQ) Third Plaintiff JUDGE: STONE J DATE OF ORDER: 13 MAY 2011 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The application made in the originating process filed on 9 May 2011 by Fortress Credit Corporation (Australia) II Pty Limited be dismissed. 2. Fortress Credit Corporation (Australia) II Pty Limited pay the plaintiffs' costs of the application. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court's website. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 149 of 2011 IN THE MATTER OF OCTAVIAR LIMITED (RECEIVERS AND MANAGERS APPOINTED) (IN LIQ) AND OCTAVIAR ADMINISTRATION PTY LTD (IN LIQ) WILLIAM JOHN FLETCHER AND KATHERINE ELIZABETH BARNET First Plaintiffs OCTAVIAR LIMITED (ACN 107 863 436) (RECEIVERS AND MANAGERS APPOINTED) (IN LIQ) Second Plaintiff OCTAVIAR ADMINISTRATION PTY LTD (ACN 101 069 390) (IN LIQ) Third Plaintiff JUDGE: STONE J DATE: 13 MAY 2011 PLACE: SYDNEY REASONS FOR JUDGMENT 1 By interlocutory process filed on 9 May 2011, Fortress Credit Corporation (Australia) II Pty Limited (Fortress) has applied for a variation of a confidentiality order made in this proceeding on 18 February 2011. The confidentiality order applied to Exhibit "JHW-1" to the affidavit of John Henry Williams sworn on 18 February 2011 and required that, until further order, the Exhibit be kept confidential and not disclosed to any person without the leave of the Court. It was made at the behest of the plaintiffs. The first plaintiffs, William John Fletcher and Katherine Elizabeth Barnet (Liquidators) brought the application in their capacities as liquidators of both the second and third plaintiffs. 2 Mr Williams' affidavit was made in support of the plaintiffs' application for, inter alia, the Court's approval under s 477(2B) of the Corporations Act 2001 (Cth) for the plaintiffs to enter into a litigation funding and indemnity agreement (Funding Agreement). The purpose of the Funding Agreement was to allow the second plaintiff, Octaviar Limited (receivers and managers appointed) (in liquidation) (OCV) to obtain, and the third plaintiff, Octaviar Administration Pty Ltd (in liquidation) (OA) to provide, funding for OCV to pursue claims against Fortress arising out of allegedly voidable transactions. I understand that proceedings for that purpose have been commenced in Queensland. 3 Exhibit "JHW-1" comprises an expert report prepared by Mr Williams for the purposes of the s 477(2B) application. The confidentiality order which was made at the conclusion of the hearing of the plaintiffs' application on 18 February 2011 in respect of Exhibit "JHW-1". On 23 February I approved the entry of the Liquidators into the Funding Agreement and gave written reasons: Re Octaviar Limited (Receivers and Managers Appointed) (In Liq) and Octaviar Administration Pty Ltd (In Liq) [2011] FCA 132 (first judgment). Those reasons include a description of Mr Williams' report and my reasoning in relation to confidentiality at [10] – [14] and [22] – [26]. 4 A brief account of what has occurred since the confidentiality order will provide useful context to my reasoning on the present application. That context is conveniently given in an affidavit sworn on 11 May 2011 by Jason Alexander Willi Munstermann, a solicitor who acts for the plaintiffs. In summary Mr Munstermann states that on 8 March 2011, in proceeding number BS3442/10 in the Supreme Court of Queensland (Queensland Proceedings), McMurdo J ordered that Fortress be required to preserve funds within the jurisdiction in an amount of $40,000,000. The statement of claim in the Queensland Proceedings was filed on 10 March 2011 by the Liquidators, OCV and OA. Fortress filed its Notice of Intention to Defend and Defence on 21 April 2011. 5 In the meantime, the first plaintiffs sought the Court's retrospective approval under s 477(2B) of the Corporations Act (Second Application) of their entry into an investigation funding agreement (Investigation Agreement). Approval was given at the conclusion of the hearing on 16 March 2011 and reasons published on 7 April 2011: Re Octaviar Limited (Receivers and Managers Appointed) (In Liq) and Octaviar Administration Pty Ltd (In Liq)(No 2) [2011] FCA 315 (second judgment). Mr Williams' report did not form part of the evidence in the Second Application. 6 Fortress has filed and served applications for leave to appeal to appeal from the first and second judgments, namely, the approval of the Funding Agreement and the Investigation Agreement on 15 and 30 March respectively. In his affidavit Mr Munstermann describes what followed: On 4 April 2011 Fortress by its solicitors, Baker & McKenzie wrote to the plaintiffs in respect of preparations for the hearing of the First and Second Leave Applications. In the 4 April Letter, Baker & McKenzie indicated that should my clients' submissions in relation to Fortress' applications for leave to appeal from the First Judgment and the Second Judgment: proceed down a course that in our view makes it necessary for us to have access to copies of the Litigation Funding Agreement, Investigation Funding Agreement and/or the Expert Report, then we anticipate making an application for leave to access those documents. On 20 April 2011 the First and Second Leave Applications came before her Honour Justice Katzmann for hearing. At no time did Fortress suggest that it could not proceed with the hearing of the applications because it required access to the Williams Report. Both parties had served written submissions in respect of the applications, briefed senior and junior counsel to appear, and were ready to proceed with the hearing of the applications. At the request of Fortress, her Honour Justice Katzmann made orders referring the applications to the Full Court. 7 The applications for leave to appeal, and if successful the appeals, have been listed for hearing before a Full Court on 18 May 2011. The plaintiffs have refused Fortress' request to provide a copy of the William Report. In response Fortress has filed the interlocutory process referred to in [1] above. At the hearing on 11 May 2011 counsel for Fortress, Mr Kunc SC, handed up Short Minutes of Order that are less extensive than those sought in the originating process. They seek the disclosure of Exhibit JHW-1 only to counsel and solicitors for Fortress in this proceeding and in the appeal proceedings and not to Fortress. The orders contemplate the Exhibit being provided in a redacted form which would disclose: (i) the letter of instruction to Mr Williams; (ii) the issues Mr Williams was asked to address in the Williams Report …; (iii) the premium payable to the Second Plaintiff ("OA") pursuant to the Funding Agreement … ; (iv) the assumptions concerning the likelihood of proceedings against our client being successful …; (v) the assumptions concerning the funds available from both OA and the Third Plaintiff ("OCV") …; (vi) the assumptions concerning the creditor claims …; (vii) the assumptions concerning the First Plaintiffs' fees …; (viii) the assumptions concerning the disposition of any resolution amount …; (ix) the five scenarios which, together, encompass every likely outcome of entering into the Funding Agreement and commencing proceedings or of not doing so …; (x) why, in Mr William's opinion, there would be an improved return for creditors of OA and OCV in the event that the proceedings against Fortress were to succeed … including the reasoning underlying his opinion; (xi) what would be the improved return for creditors of OA and OCV in the event that the proceedings against our client were to succeed … including the reasoning underlying this matter; (xii) why, in Mr William's opinion, it was in the interests of the creditors of both OA and OCV (other than Fortress) that OCV pursue its claims against our client and OA provide funding … including the reasoning underlying his opinion; (xiii) the consideration, if any, by Mr Williams of the provision of external litigation funding to OCV so that OCV would pursue its claims against Fortress; and (xiv) the conclusions of Mr Williams, including summary tables, save insofar as the disclosure to Fortress of the matters referred to in (i) to (xiv) above would disclose the following: (a) details of OCV's claim against Fortress …; (b) the key terms of the Funding Agreement …, save for the premium payable to OA and details of the disposition of the resolution amount; and (c) details of legal advice provided to the First Plaintiffs in relation to the claims against Fortress, over which a claim for legal professional privilege is made. 8 At the conclusion of the hearing on 11 May Mr Coles SC, who appeared for the plaintiffs, submitted that if I were minded to discharge or to vary the confidentiality order the plaintiffs should be given the opportunity to be heard on the content of the order. As I have decided that the confidentiality order should be neither discharged nor varied it is not necessary to receive any further submissions. 9 The confidentiality order was made pursuant to s 50(1) of the Federal Court of Australia Act 1976 (Cth) which provides: The Court may, at any time during or after the hearing of a proceeding in the Court, make such order forbidding or restricting the publication of particular evidence … as appears to the Court to be necessary in order to prevent prejudice to the administration of justice or the security of the Commonwealth. 10 In his oral submissions, Mr Kunc SC, who appeared for Fortress said that since the confidentiality order was made the landscape had changed in that Fortress is now seeking leave to appeal from both judgments in this proceeding. It was therefore necessary to revisit the confidentiality order and again apply the criterion laid down in s 50. 11 The confidentiality order was made pursuant to an application made by the Liquidators in exercise of the powers conferred on them under s 477 of the Corporations Act 2001 (Cth) and pursuant to the requirements of s 477(2B). Fortress was not a party to that application. It had no right to be informed of the application or to be heard on it. It does not, however, follow that Fortress has no right to seek a variation or discharge of the confidentiality order. As Mr Kunc pointed out, such an application in respect of an order made under s 50 may, and commonly is, made by non-parties to the relevant proceeding, for instance, by members of the press. I accept that Fortress has a right to bring the present application. 12 I also accept Mr Kunc's submission that it is appropriate that the confidentiality order be revisited. In Hogan v Australian Crime Commission (2010) 240 CLR 651 at [29] the High Court said: It has been assumed, no doubt correctly, that an order made under s 50 of the Federal Court Act may be made until further order and, in any event, may be vacated if the continuation of the order no longer appears to the Court to be necessary in order to prevent prejudice to the administration of justice or the security of the Commonwealth. As a general proposition, a court remains in control of its interlocutory orders and a further order will be appropriate, for example, where new facts and circumstances appear or are discovered, which render unjust the enforcement of the existing order. 13 I noted in the first judgment in this proceeding, that an order under s 50 must be 'necessary' before it is made. This prompts the rhetorical question, "Necessary for what?" to which the answer relevant in the present circumstances is "necessary in order to prevent prejudice to the administration of justice". As the High Court commented in Hogan, at [30]: "the administration of justice" spoken of in s 50 is that involved in the exercise by the Federal Court of the judicial power of the Commonwealth; this is a more specific discipline than broader notions of the public interest. 14 In the winding up of a company, liquidators are charged with extensive responsibilities which include ascertaining the assets and liabilities of a company, converting the assets into money, discharging the liabilities and distributing the net assets to creditors and any surplus to shareholders or proprietors of the company. These responsibilities and their proper discharge have implications that go well beyond the interests of debtors, creditors and members of the company and extend to the regulation of corporations and their role in the economy of the society. Those concerns involve "broader notions of the public interest" which, the High Court tells us, is not sufficient to sustain an order under s 50. 15 In this case, however, the confidentiality order was made to prevent prejudice to the administration of justice in the proceedings brought by the plaintiffs against Fortress. In my view, the possible prejudice to the administration of justice that led me to make the confidentiality order on February 18 still exists and is determinative of the application made by Fortress. The comment of Barrett J in HIH Insurance Ltd [2007] NSWSC 498 at [6] which I quoted in the first judgment in this proceeding, bears repeating here: There is a clear public interest in the due administration of justice, in that in litigation in the normal course an ordinary litigant would keep close to the chest, as it were, the matters that the liquidators, because of their position see fit to bring to court. The liquidators, because of their position, should not be set aside from other litigants and be placed to a disadvantage when, as I say, they are acting for the benefit of many thousands of creditors whose interests are very much to the fore. 16 Although his Honour spoke of the public interest, it is clear from the comment that the public interest he identified concerned prejudice to the administration of justice; see also Elderslie Finance Corporation Ltd v Newpage Pty Ltd (No 6) (2007) 160 FCR 423 at [43]. In the first judgment I stated at [22], that the "details of the proposed proceedings and the assumptions that Mr Williams was asked to make in preparing his expert report all have the potential to compromise the proposed proceedings if disclosed". I remain of that opinion. Moreover, the potential for prejudice would be greater in the case of disclosure to Fortress. 17 There has been no change of any significance in the relevant circumstances. Fortress has applied for leave to appeal from the first and second judgments. The plaintiffs vigorously oppose the granting of leave on grounds that include that Fortress' standing to appeal is strongly disputed. The application for leave has not yet been heard. Whether or not some disclosure of the Exhibit should be permitted if Fortress is given leave is not the issue now and I express no opinion on the point. However, it is not for me to anticipate the grant of leave by varying the confidential order at this stage. Should Fortress obtain leave the issue of disclosure would be a matter for the appeal court. 18 Having once more reviewed the Exhibit for the purpose of the present application, I remain of the view that it is necessary to prevent prejudice to the administration of justice that the application made by Fortress be dismissed. I see no reason why costs should not follow the event in the usual way and therefore Fortress should bear the plaintiffs' costs of this application. I certify that the preceding eighteen (18) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Stone. Associate: Dated: 13 May 2011