FEDERAL COURT OF AUSTRALIA Ann Street Mezzanine Pty Ltd v Beck [2011] FCA 1304 Citation: Ann Street Mezzanine Pty Ltd v Beck [2011] FCA 1304 Parties: ANN STREET MEZZANINE PTY LTD (IN LIQUIDATION) (ACN 102 854 866) v CEDRIC RICHARD PALMER BECK & ORS (ACCORDING TO ATTACHED SCHEDULE); NORMAN PHILLIP CAREY & ORS (ACCORDING TO ATTACHED SCHEDULE); FREEHILLS and AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION File number: VID 485 of 2008 Judge: KENNY J Date of judgment: 15 November 2011 Catchwords: PRACTICE AND PROCEDURE – Interlocutory application – application to set aside a subpoena – expert witness unwilling to give evidence at trial – interlocutory application refused Legislation: Federal Court Rules 2011 (Cth) Cases cited: Application of Forsyth; Re Cordova v Philips Roxane Laboratories Inc [1984] 2 NSWLR 327 Witness v Marsden (2000) 49 NSWLR 429 Australian Rugby Union Ltd v Hospitality Group Pty Ltd (2000) 173 ALR 702 AG Australia Holdings Ltd v Burton (2002) 58 NSWLR 464 Seyfang v GD Searle & Co [1973] 1 QB 148 Commissioner for Corporate Affairs (Vic) v Harvey [1980] VR 669 Australian Securities and Investments Commission v Edge (2007) 211 FLR 137 Date of hearing: 14 November 2011 Place: Melbourne Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 25 Counsel for Mr S Read: Mr J Moore Solicitor for Mr S Read (applicant on this application): Clayton Utz Counsel for the First Cross-Respondent: Mr P Riordan SC with Mr Klempfner Solicitor for the First Cross-Respondent: Monahan + Rowell IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 485 of 2008 BETWEEN: ANN STREET MEZZANINE PTY LTD (IN LIQUIDATION) (ACN 102 854 866) AND: Plaintiff CEDRIC RICHARD PALMER BECK & ORS (ACCORDING TO ATTACHED SCHEDULE) Defendants NORMAN PHILLIP CAREY & ORS (ACCORDING TO ATTACHED SCHEDULE) Cross-Claimants FREEHILLS First Cross-Respondent AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION Second Cross-Respondent JUDGE: KENNY J DATE OF ORDER: 15 NOVEMBER 2011 WHERE MADE: MELBOURNE THE COURT ORDERS THAT: 1. The interlocutory application to set aside a subpoena issued on 8 November 2011 to Simon Andrew Read at the request of Freehills be refused. 2. The interlocutory application of Simon Andrew Read be otherwise dismissed. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 485 of 2008 BETWEEN: ANN STREET MEZZANINE PTY LTD (IN LIQUIDATION) (ACN 102 854 866) AND: Plaintiff CEDRIC RICHARD PALMER BECK & ORS (ACCORDING TO ATTACHED SCHEDULE) Defendants NORMAN PHILLIP CAREY & ORS (ACCORDING TO ATTACHED SCHEDULE) Cross-Claimants FREEHILLS First Cross-Respondent AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION Second Cross-Respondent JUDGE: KENNY J DATE: 15 NOVEMBER 2011 PLACE: MELBOURNE REASONS FOR JUDGMENT Application and evidence 1 This is an application under Rule 24.15 of the Federal Court Rules 2011 (Cth) by Simon Andrew Read to set aside a subpoena issued to him at the request of Freehills, the first cross-respondent, in this proceeding. The application to set the subpoena aside was foreshadowed on 11 November 2011 and was heard yesterday afternoon, 14 November 2011. 2 Having considered the matter overnight, for the reasons I am about to state, I would refuse Mr Read's interlocutory application to set aside the subpoena issued to him. 3 Mr Read relied on his own affidavit sworn on 14 November 2011 in support of his interlocutory application. Freehills, who opposed the interlocutory application, relied on an affidavit of Patrick Xavier Tuohey also sworn on 14 November 2011. 4 Mr Read has been a court-appointed liquidator of, among other entities, Westpoint Corporation Pty Ltd ("WPC") since 16 February 2006. Mr Andrew Birch is also a joint and several liquidator of WPC. The liquidation is not yet finalised. On 22 December 2009, Mr Read prepared an insolvency report to be used in unfair preference actions that Mr Read had initiated against the Commissioner of Taxation ("the Insolvency Report"). These actions were subsequently resolved on a confidential basis. 5 On 24 October 2011, Mr Read was informed that Freehills' solicitors, Monahan + Rowell, were exploring the possibility of him giving evidence in this proceeding in relation to the Insolvency Report. The subpoena issued to Mr Read at Freehills' request on 8 November 2011. The subpoena is to give evidence and to produce documents, including the Insolvency Report. 6 Mr Read deposed to the sources from which the Insolvency Report was prepared, being a copy of a Database and a Computer Image obtained from the second cross-respondent, ASIC. Mr Read further deposed that the documents upon which the Insolvency Report relied were all created before his involvement in WPC or the Westpoint group. 7 Mr Read deposed that he did not wish to give opinion evidence in relation to the state of insolvency of WPC in the period leading up to his appointment. He further deposed that, if required to do so, he would require at least seven days to re-familiarise himself with the Insolvency Report and the documents to which it refers. Mr Read stated that, having regard to his business responsibilities, "[w]ithout disrupting [his] professional obligations, [he is] not in a position to devote the required amount of time to re-familiarising [himself] with the Report and the documents referred to within it in the foreseeable future". 8 Mr Tuohey deposed that his firm, Monahan + Rowell retained Mr Laurence Fitzgerald on 1 September 2011 to give an expert report on insolvency on behalf of Freehills at trial. Mr Tuohey further deposed that the cross-claimants provided his firm with a copy of Mr Read's Insolvency Report on 12 October 2011 and that, shortly thereafter, a copy of the Insolvency Report was given to Mr Fitzgerald. According to Mr Tuohey, the filing of Mr Fitzgerald's report at a date that would permit the trial in this proceeding to proceed as scheduled is based on subpoenaing Mr Read to give evidence based on the Insolvency Report. Mr Tuohey deposed that: I have considered the material required to be provided to an expert to enable that expert to provide an opinion on the solvency of the Westpoint companies and the Mezzanine companies. I am unaware of how the necessary material could be compiled without the assistance of Mr Read. I do not believe it would be possible without a long delay and very substantial expense. Mr Tuohey further stated that Freehills accepted Mr Read's terms, as conveyed by letter, for giving evidence. Parties' submissions 9 In seeking to have the subpoena issued to him set aside, Mr Read relied on the proposition that, as a general rule, the courts will not require an expert to give evidence against his wishes in a case where he has had no connection with the facts or the history of the matter in issue, particularly where the expert could not give evidence without a breach of confidence, and where the preparation of the evidence required would call for considerable time and study. I accept this proposition, which has been affirmed in a number of Australian cases, including Application of Forsyth; Re Cordova v Philips Roxane Laboratories Inc [1984] 2 NSWLR 327 ("Application of Forsyth") at 335-6, Witness v Marsden (2000) 49 NSWLR 429 ("Witness v Marsden") at 442, Australian Rugby Union Ltd v Hospitality Group Pty Ltd (2000) 173 ALR 702 at 749, and AG Australia Holdings Ltd v Burton (2002) 58 NSWLR 464 at 502. The earlier authorities locate the source of this proposition in English cases such as Seyfang v GD Searle & Co [1973] 1 QB 148 at 152. 10 As acknowledged by Clarke J in Application of Forsyth at 335, it is clear that the rule is not absolute "and that not every application by an expert to set aside a subpoena will necessarily succeed. It is a general rule which carries significant weight in a determination of the appropriate exercise of a discretion". 11 The arguments at the hearing of the application to set aside the subpoena issued to Mr Read were principally devoted to the factors that might affect the appropriate exercise of discretion. 12 Amongst other things, counsel for Mr Read submitted that: The Court should give significant weight to the general rule stated at par [9] above, which applied in this case. Referring to Application of Forsyth at 336, counsel for Mr Read affirmed that this was a case in which Mr Read had no relevant connection with the facts or history of the case, noting that it was not enough that another expert (here, the cross-claimants' accounting expert) relied on his work: compare Application of Forsyth at 336. Mr Read would require considerable time and study to prepare himself for cross-examination at the trial. He would also need the further assistance including of Mr Land to re-familiarise himself with the material. It was not suggested that giving evidence would involve him in any breach of confidence. Mr Read had been contacted by Freehills' solicitors only last month. Freehills should be understood as trying "to get out of a hole" by the late retainer of Mr Fitzgerald. Mr Read would need considerable time to prepare, with the assistance of at least Mr Land; and his business and professional interests would suffer significant detriment (including intangible detriment) if he were required to devote time and effort to re-familiarising himself with the Insolvency Report. Mr Read's position was not relevantly different from that of another expert accountant unconnected with the history and the facts of the matter in issue. 13 As to this, Freehills submitted that: Mr Read had been subpoenaed to prove the financial information on which the Insolvency Report was based and to adduce expert evidence of his opinion as expressed in the Insolvency Report. The identity and the role of the putative expert witness were relevant. Mr Read was in a special position. Mr Read was a court-appointed liquidator of WPC and, as such a representative of the court and entrusted with the reputation of the court for the impartial discharge of his duties: see Commissioner for Corporate Affairs (Vic) v Harvey [1980] VR 669 at 696 and Australian Securities and Investments Commission v Edge (2007) 211 FLR 137 ("ASIC v Edge") at 151. Mr Read, as liquidator of Westpoint Corporation since 2006, was the person best placed to provide an opinion as to its solvency or insolvency. Mr Read was no stranger to the matters for which his opinion was sought since he prepared the Insolvency Report which, by his own admission, complied with the requirements for an expert report. The Insolvency Report went to a central issue in dispute – the solvency or otherwise of WPC. The importance of the Insolvency Report was highlighted by the fact that the cross-claimants' own expert accountant was specifically instructed to consider the Insolvency Report in answering the questions posed of her by the cross-claimants' solicitors. The proposed use of Mr Read's evidence was important to Freehills at the forthcoming trial (as discussed in greater detail below). Freehills, through their solicitors, offered to pay Mr Read's reasonable expenses of preparing for and attending at trial. Consideration 14 I accept that, as Freehills submitted, the mere fact that Freehills seeks to adduce expert opinion evidence from Mr Read against his wishes is not necessarily determinative of his application to set aside the subpoena. The rule set out in par [9] above must be borne in mind, but its application depends on the circumstances of the case. Further, I accept that, whilst it would have been better if Freehills had made contact with Mr Read earlier, the relevant delay is not of Freehills' own making. I accept that, as Mr Tuohey deposed, Freehills' solicitors only received Mr Read's report from the cross-claimants' solicitors on 12 October 2011. There is nothing to indicate that Freehills knew of the existence of the Insolvency Report at an earlier date. 15 Further, I accept that Mr Read's role as liquidator of WPC is relevant. As Dodds-Streeton J said in ASIC v Edge at 151, a liquidator's essential functions are to identify, take possession of and realise the company's assets, to investigate and determine the claims against the company, and to apply the assets to the satisfaction of those claims in accordance with the statutory scheme of priority. Thus, I accept, as counsel for Mr Read said, that these functions do not generally extend to the provision of expert opinion evidence in an action between third parties, such as the cross-claimants and the cross-respondents. At the same time, however in his or her capacity as liquidator, a liquidator must form an opinion about the solvency of the company in liquidation in order to discharge the liquidator's responsibilities as such. Whilst there is commonly a shortfall of assets with which to satisfy creditors' claims against a company wound up in insolvency, if there is a surplus, the liquidator must distribute it to members, as well as carry out the necessary steps for the company's dissolution. This entails forming a view on insolvency. Furthermore, in the case of WPC, it was a view formed more near in time to the collapse of company than now, upon the basis of the company's books and records as made available to the liquidator. 16 The liquidator is bound to form an opinion as to solvency or insolvency, having regard to the company's books and records, which must be delivered to the liquidator, and other relevant information. In this connection too, it must be borne in mind that the liquidator has extensive powers to obtain information and is entitled to the assistance of the company's officers. Thus, an opinion formed by the liquidator in the discharge of his functions as such as to the solvency or insolvency of the company ought to be well-based. I do not accept the submission made by counsel for Mr Read that Mr Read was in no different position from any other expert retained to give an opinion on the solvency of WPC. The fact that, in the case of WPC, Mr Read worked from an electronic version of the company's books and records obtained from ASIC does not, in my opinion, diminish the force of this consideration. 17 Whether or not an expert is considered relevantly connected with the facts and history of a matter will depend on all the circumstances of the case, and will frequently involve an assessment of the degree of connection. In the present case, Mr Read, as liquidator, formed a view as to the insolvency of WPC, which is set out in the Insolvency Report. The insolvency of WPC is a key issue in the litigation and will be an issue at the trial. Of course, there will be circumstances in which an expert accountant will have a greater or less relevant connection with the case at hand than Mr Read does here. Whilst Mr Read was not retained for this case, the nature of the evidence that Mr Read (see below) might give is more directly connected with the history of the matter in issue than the evidence of scientific research that might be given by a scientist, as discussed in Application of Forsyth. Mr Read's connection is, in this case, relevant and sufficient, in my view, to justify him being required by subpoena to be a witness at trial. 18 I accept that, as counsel for Freehills submitted, the evidence that Mr Read might give is likely to be significant to Freehills at the trial. The present case is, therefore, distinguishable from Application of Forsyth, where Clarke J thought is unlikely that the expert's deposition would be tendered at the trial: see Application of Forsyth at 336. As counsel for Freehills stated (and I accept), amongst other things, Freehills wishes to have Mr Read give evidence as to the financial documents that came into his possession as liquidator. The reasons for this need relate to the voluminous nature of the company records and the apparent difficulty encountered by the parties' respective witnesses in identifying the relevant documents for determining insolvency. This need puts Mr Read in a different position from an expert witness without relevant connection with the matter in issue. No-one apparently disputes the fact that the books and records of WPC are voluminous, and that this compounds the difficulties facing the expert accountants retained by the parties in identifying the relevant documents on which to base their opinions as to insolvency. 19 Further, Freehills wishes to rely on Mr Read's own expert opinion as to WPC's insolvency and how its insolvency should be assessed. As stated hereafter, this is, in the circumstances of this case, apparently an appropriate and reasonable approach. Given that Mr Read prepared the Insolvency Report apparently in conformity with this Court's requirements as to expert witnesses, this is not, in the circumstances of this case, as heavy a burden as it might be in other cases. 20 The significance of Mr Read's earlier work is highlighted by the fact that the cross-claimants' expert witness, Ms Tamara Lindsay, has herself referred to and discussed Mr Read's Insolvency Report. I accept that there may be a "large lacuna" in the evidence, to use counsel for Freehills' words, in the event that Mr Read is absent from the trial. 21 Furthermore, the task confronting an expert who sought to replicate the work undertaken by Mr Read is apparently a complex and difficult one. Mr Fitzgerald was said by counsel for Freehills to be having difficulty identifying the appropriate documents – a product of the voluminous record. Mr Fitzgerald has, it seems, identified different documents from Ms Lindsay as central to the issue of insolvency. As counsel for Freehills said, in this circumstance, the WPC's liquidator, Mr Read, should be of considerable practical assistance. 22 There are also other practical considerations to bear in mind. The cost of the Insolvency Report was, so Mr Read deposed, $400,000. The cost of replicating the exercise may well be greater, and is unlikely to be less. The time to repeat the task is also likely to be considerable and to adversely affect the trial date, which, subject to modifications, has been in place for some considerable time. 23 It seems to me clear that the interests of justice are best served in this case by declining to set aside the subpoena. 24 I appreciate that Mr Read may be inconvenienced by having to attend court as the subpoena requires him to do, and that his own reasonable desire to prepare himself for cross-examination may trespass on the time he would otherwise devote to his business and professional interests. For the reasons stated, I am persuaded, however, that, in the exercise of discretion, I should not set aside the subpoena issued to him. Further, it seems to me that the burden on Mr Read is lessened a little by Freehills' acknowledgement that he is unlikely to be required before 6 February 2012. It ought to be possible for Mr Read to lay aside a week in the interim to prepare himself for the trial. 25 The parties will have an opportunity to be heard on costs. I certify that the preceding twenty-five (25) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Kenny. Associate: Dated: 15 November 2011 SCHEDULE OF PARTIES ANN STREET MEZZANINE PTY LTD ( IN LIQUIDATION) (ACN 102 854 866) Plaintiff CEDRIC RICHARD PALMER BECK First Defendant JOHN NORMAN DIXON Second Defendant GRAEME JOHN RUNDLE Third Defendant NORMAN PHILLIP CAREY Fourth Defendant LYNETTE ROCHELLE SCHIFTAN Fifth Defendant NEEDLERS END NOMINEES PTY LTD (ACN 008 828 324) Sixth Defendant KEBBEL CAPITAL PTY LTD (ACN 106 196 481) Seventh Defendant PALENTIA PTY LTD (ACN 099 289 326) Eighth Defendant NORMAN PHILLIP CAREY First Cross-Claimant QUARTZ NOMINEES PTY LTD (ACN 008 859 103) Second Cross-claimant HECA NOMINEES PTY LTD (ACN 053 581 874) Third Cross-claimant ACEBID PTY LTD (ACN 074 566 046) Fourth Cross-claimant ANDRIANNI PTY LTD (ACN 005 458 720) ATF THE ANDRIANNI TRUST Fifth Cross-claimant ANN STREET BRISBANE PTY LTD (ACN 101 943 711) ATF THE ANN STREET BRISBANE TRUST Sixth Cross-claimant BENNALONG HOLDINGS PTY LTD (ACN 008 741 008) Seventh Cross-claimant DOSIUS PTY LTD (ACN 009 449 450) Eighth Cross-claimant EARLMIST PTY LTD (RECEIVER & MANAGER APPOINTED) (CONTROLLER APPOINTED) (ACN 069 056 926) ATF THE EARLMIST UNIT TRUST Ninth Cross-claimant ETNAS PTY LTD (ACN 056 599 350) ATF THE ENTAS TRUST Tenth Cross-claimant HEALTHCARE PROPERTIES PTY LTD (ACN 074 501 955) ATF THE HEALTHCARE PROPERTIES TRUST Eleventh Cross-claimant HUNTINGDALE VILLAGE PTY LTD (RECEIVER & MANAGER APPOINTED) (ACN 085 048 531) ATF THE HUNTINGDALE VILLAGE UNIT TRUST Twelfth Cross-claimant JEVWOOD PTY LTD (ACN 074 525 321) Thirteenth Cross-claimant K.I.S. REALTY PTY LTD (ACN 100 871 314) Fourteenth Cross-claimant KEEP IT SIMPLE INVESTMENTS (GLOBAL) PTY LTD (ACN 100 871 270) Fifteenth Cross-claimant NORTH SYDNEY DEVELOPMENT PTY LTD (CONTROLLER APPOINTED) (ACN 107 037 838) ATF THE NORTH SYDNEY DEVELOPMENT TRUST Sixteenth Cross-claimant PAQUERO PTY LTD (ACN 003 530 556) Seventeenth Cross-claimant PARAGON APARTMENTS LTD (RECEIVER & MANAGER APPOINTED) (ACN 087 200 413) Eighteenth Cross-claimant RENAISSANCE MEZZANINE PTY LTD (ACN 110 978 491) Nineteenth Cross-claimant ROMPRIDE PTY LTD (ACN 074 524 824) ATF THE ERLEY UNIT TRUST Twentieth Cross-claimant SCOTS CHURCH DEVELOPMENT LTD (RECEIVER & MANAGER APPOINTED) (ACN 091 686 323) Twenty-first Cross-claimant SILKCHIME PTY LTD (RECEIVER & MANAGER APPOINTED) (ACN 066 849 429) ATF THE SILKCHIME UNIT TRUST Twenty-second Cross-claimant VANNIN PTY LTD (RECEIVER & MANAGER APPOINTED) (ACN 067 610 271) ATF THE HAY FAMILY TRUST Twenty-third Cross-claimant WARWICK ENTERTAINMENT CENTRE PTY LTD (RECEIVER & MANAGER APPOINTED) (ACN 054 246 918) ATF THE WARWICK ENTERTAINMENT CENTRE UNIT TRUST Twenty-forth Cross-claimant WESTPOINT FINANCIAL SERVICES PTY LTD (ACN 074 148 324) Twenty-fifth Cross-claimant WESTPOINT MANAGEMENT (CENTREWAYS) PTY LTD (ACN 082 349 068) ATF THE CENTREWAYS REFURBISHMENT SYNDICATION TRUST Twenty-sixth Cross-claimant FREEHILLS First Cross-respondent AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION Second Cross-respondent COMMONWEALTH OF AUSTRALIA Third Cross-respondent