Reported Decision : (2003) 44 ACSR 734 (2003) 21 ACLC 1232 New South Wales Supreme Court CITATION : Re Clutha Limited (In Liquidation) [2003] NSWSC 235 HEARING DATE(S) : 28/03/03 JUDGMENT DATE : 31 March 2003 JUDGMENT OF : Gzell J DECISION : Directions limiting scope of examination and covering up material said to be privileged or confidential in documents produced. Interlocutory process otherwise dismissed. CATCHWORDS : CORPORATIONS - Winding up - Application to set aside summons for examination and order for production - Inquiry as to remaining level of indemnity under policy indemnifying officers of the corporation - Proceedings by liquidator against officers - Whether inquiry oppressive - Order for production issued to insurer and summons for examination to its officer - Whether inquiry limited to defendants or potential defendants - A creditor funding liquidator and acquiring debts from other creditors - Whether inquiry in aid of third party - Whether abuse of process - Directions as to matters to be inquired into at examination. - PROCEDURE - Discovery - Whether access to affidavit in support of summons for examination should be granted - Covering up portions of documents said to be privileged or confidential Corporations Act 2001 (Cth) LEGISLATION CITED : Partnership Act 1892 Evidence Act 1995 Supreme Court Rules 1970 Grosvenor Hill (Qld) Pty Ltd v Barber (1994) 48 FCR 301 Re BPTC Ltd (in liquidation) (1993) 10 ACSR 756 Kelly v Murphy (1993) 12 ASCR 365 Re Interchase Corp Ltd (in liquidation) (No 2) (1993) 47 FCR 253 Gerah Imports Pty Ltd v The Duke Group Ltd (in liquidation) (1993) 12 ASCR 513 CASES CITED : Gerah Imports Pty Ltd v The Duke Group Ltd (in liquidation) (1994) 12 ASCR 600 Re BPTC Pty Ltd (in liquidation) (1994) 14 ASCR 460 Flanders v Beatty (1995) 16 ACSR 324 Boys v Quigley [2002] WASCA 99 Re Laurie Cottier Productions Pty Ltd (In Liquidation) (1992) 9 ACSR 513 Re BPTC Ltd (in liquidation), unreported, 16 March 1995 PARTIES : Timothy James Cuming as Liquidator of Clutha Limited (In Liquidation) - Plaintiff/Respondents David abbey and Pacific Indemnity Underwriting Agency Pty Ltd - Applicants FILE NUMBER(S) : SC 1834/03 COUNSEL : Mr RC Newlinds - For the Plaintiff/Respondent Mr SD Rares SC/ Mr G Lucarelli - Defendant/Applicant SOLICITORS : Piper Alderman Lawyers - Plaintiff/Respondent Minter Ellison - Applicant/Defendant IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION GZELL J MONDAY 31 MARCH 2003 1834/03 Re Clutha Ltd (In Liquidation) JUDGMENT 1 The liquidator obtained a summons for the examination of David Abbey under the Corporations Act 2001 (Cth), s 596B. The liquidator also obtained under s 597(9) an order for production directed to Pacific Indemnity Underwriting Agency Pty Ltd to produce records concerning all costs charged against a directors' and officers' liability corporate reimbursement insurance policy issued by it in favour of the former officers of Clutha Ltd (in liquidation). 2 The policy was issued by Pacific Indemnity as agent for CGU Insurance Ltd. Mr Abbey is the manager, claims systems at CGU Professional Risks, a division of CGU. The liquidator and Clutha have brought proceedings against its former officers. The policy covers their liability. Mr Abbey supervises the claims manager with the day to day responsibility for cover with respect to the pending litigation. 3 The policy has a liability limit and the costs incurred by Minter Ellison, the solicitors on the record for the defendants in the pending proceedings, will diminish the extent of the cover. The liquidator sought the summons for examination and order for production in order to assess the extent of the available indemnity of the defendants. 4 Pacific Indemnity and Mr Abbey seek orders that the summons and order for production be set aside or, alternatively, that directions concerning the conduct of the proposed examination be given pursuant to s 596F of the Corporations Act 2001 (Cth) and that the order for production be varied. 5 Mr Rares SC, who with Mr Lucarelli appeared for the applicants, argued that a line of cases to the effect that an examination may relate to the level of indemnity available to a defendant to enable the liquidator to decide whether or not a claim is worth pursuing, should not be followed because the Court of Appeal in this State decided to the contrary and I am bound by that decision. Secondly, he argued that the investigation was not for the benefit of the liquidator but for the benefit of a creditor funding the liquidator and constituted an abuse of process. 6 Prima facie the liquidator is entitled to conduct an examination and require the production of documents with respect to the level of indemnity available to the former officers of Clutha. Section 596B(1)(b)(ii) of the Corporations Act 2001 (Cth) provides for the examination of a person who may be able to give information about examinable affairs of the corporation. Section 53(a) includes in the examinable affairs, the property of the corporation and the definition of property in s 9 includes a thing in action. The chose in action against the former officers of Clutha forms part of the property of the corporation and its relative value is an important aspect of it. The available level of indemnity under the policy is a matter going to the value of the property of the corporation. 7 In Grosvenor Hill (Qld) Pty Ltd v Barber (1994) 48 FCR 301 at 311 a Full Court of the Federal Court held that the power to order production of documents under s 597(9) of the Corporations Act 2001 (Cth) was sufficiently broad to enable information to be sought from a defendant or potential defendant as to the ability of that person to satisfy any reasonable judgment which might be obtained in litigation instituted by the liquidator. In that context, the court said, it was within power to order the production of relevant documents, including insurance policies, to ascertain whether or not the person had an enforceable right to indemnity from an insurer or another person. The obtaining of that information was to facilitate the realisation of the chose in action to the best advantage of the company and its creditors. The realisation of the chose in action was, in the view of the court, an examinable affair in terms of the statute. 8 Mr Rares submits that the judgment is limited to production by a defendant or potential defendant and Pacific Indemnity and Mr Abbey are neither defendants nor potential defendants. I do not regard the gravamen of the decision as limited to that circumstance. Section 596B(1) of the Corporations Act 2001 (Cth) extends to any person who may be able to give information about examinable affairs. Furthermore, in arriving at its conclusion, the court at 307 pointed out that the courts had always allowed a third party or a banker to be examined as to the financial affairs of a contributory including requiring the production of banker's books relating to any account that the contributory had with the bank, the purpose being to ascertain the worth of the contributory as a matter incidental to making a decision to pursue the contributory for the amount due by way of contribution. 9 In Re BPTC Ltd (in liquidation) (1993) 10 ACSR 756 Bryson J considered an application for production of documents in aid of an examination under the Supreme Court Rules 1970, Pt 36 r 12. Proceedings against the directors of the company and the partners of the firm of solicitors to which one director belonged, were in the early stages. The documents sought with respect to the firm of solicitors were those dealing with the appointment of the partner as a director of the company, any practice or policy of the firm with respect to partners acting as directors, any partnership agreement, documents relating to directors' fees, contracts of retainer between the company and firm, any policy of professional indemnity insurance and any registers recording directorships. At 767, Bryson J regarded the call for production of any indemnity insurance policy as within power having regard to the possibility of examination of the partner/director as to the significance and circumstances of the appearance or absence of any reference in the policy and endorsements to liability incurred in connection with directorships. Bryson J allowed production of documents in a limited number of the categories the subject of the application, including any indemnity insurance policy. 10 Bryson J delivered a second judgment on 16 August 1993. He made an order enabling the deletion from production of any copy documents of the identity of the insurer and the amount of the insurance provided under the policy on the basis that the identity of the insurer and the quantum of insurance could not play any part in the useful examination of the partner/director on relevant matters. 11 In Kelly v Murphy (1993) 12 ASCR 365 the Court of Appeal upheld both judgments of Bryson J. The cross-appeal with respect to the non-revelation of insurer and quantum of insurance was dismissed in short reasons. At 373 Sheller JA, with whom Meagher and Handley JJA agreed, said: "I do not think his Honour's conclusion involves any error in the exercise of his admitted discretion. In any event I am not satisfied that provision of the information the respondents seek would not be oppressive. The appellant's argument, taken to its logical conclusion, would mean that all the many partners of FHP should be required to produce whatever professional indemnity insurance they may have so as to indicate the funds which might be available to meet the claims. There is no error of principle demonstrated which should lead us to interfere with his Honour's decision to exclude this material from the documents to be produced." 12 Mr Rares submitted that I was bound by that observation to treat the subject of the examination as oppressive and to set aside both the summons and the order for production. I decline to do so. Bryson J withheld the identity of the insurer and the amount of the insurance in the context of an inquiry as to the potential liability of the partner/director's co-partners with respect to his directorship of the company in question, and at an early stage in the litigation before discovery and interrogatories had been given and administered. In that context, his Honour took the view that the identity of the insurer and the quantum of cover were irrelevant to the inquiry. I do not regard his Honour as laying down a general principle that the examination of the extent of insurance cover is not an examinable affair. Nor do I regard the remarks of Sheller JA as laying down such a proposition. His Honour's statement of oppression was given in the specific context of whether the primary judge was in error in his exercise of discretion in the particular circumstances before him. 13 I am fortified in this conclusion by subsequent authority on the topic. In Re Interchase Corp Ltd (in liquidation) (No 2) (1993) 47 FCR 253 Drummond J took the view that the ascertainment of the value of a claim that a corporation in liquidation might have against another was part of the affairs of the corporation and, accordingly, documents relating to policies of professional indemnity insurance formed part of the examinable affairs of the corporation. 14 In Gerah Imports Pty Ltd v The Duke Group Ltd (in liquidation) (1993) 12 ASCR 513 a Full Court of the Supreme Court of South Australia dismissed an appeal from a master ordering an examination as to whether former partners of an accounting firm were part of a national partnership and whether professional indemnity insurance cover was held. The court held that the chose in action comprising the potential liability of the accountants to the company and the ancillary aspect of facilitating the available means of getting in that property by first obtaining a declaration of liability against an insurer, were examinable affairs. 15 In dismissing an application for special leave to appeal to the High Court, Dawson J in Gerah Imports Pty Ltd v The Duke Group Ltd (in liquidation) (1994) 12 ASCR 600 at 603 Dawson J cited Interchase and said: "The decision of the Court of Appeal in New South Wales in Kelly v Murphy is to be explained upon the basis that the trustees only sought information for a limited purpose, which did not extend to discovering the capacity of the partners of the firm of solicitors in question to satisfy any judgment. In any event, the question of oppression was raised in relation to the extended examination eventually sought in that case, a question which is now raised in these proceedings." 16 In Grosvenor Hill at 305-306 the court took the view that it was settled by authority that information with respect to the probability of success in litigation contemplated by the corporation was information with respect to the examinable affairs of that corporation in the sense that it bore upon the question whether the corporation had a cause of action as its property. It followed that an inquiry into the existence and value of any property a corporation might possess was a relevant inquiry in relation to the production of documents under the forerunner of the Corporations Act 2001 (Cth), s 597(9). At 312 the court distinguished Kelly on the basis that the production of the professional indemnity insurance policy was sought in the context of an allegation of vicarious liability, on the relationship between the partner/director, the firm of solicitors and the company in question and the extent to which the partner/director's activities were carried out as part of the business of the solicitors' firm. It was said that the issue before the Federal Court was neither open nor argued before Bryson J or the Court of Appeal. 17 With the aid of access to the record, the submissions of counsel and the transcript of proceedings in BPTC and Kelly, Windeyer J pointed out in Re BPTC Ltd (in liquidation), unreported, 16 March 1995 that the question of the extent of the insurance cover was a matter for consideration before Bryson J, albeit he failed to be persuaded of its relevance. Windeyer J was dealing with the question whether examination of the managing partner of the solicitors' firm had already been ordered or ought to have been ordered. His Honour refused to order a further examination on the topic. As Windeyer J pointed out, the basis for distinguishing Kelly in Gerah Imports and in Grosvenor Hill was misconceived. Nonetheless, Bryson J rejected the relevance of an inquiry as to the extent of cover under the indemnity insurance policy in the context of an examination directed towards the liability of the solicitors' firm under the Partnership Act 1892, s 10 for the activities of the partner/director. Neither his Honour's decision nor that of the Court of Appeal can be taken to stand for the proposition that an inquiry as to the existence of insurance cover and its quantum is never an examinable affair or that such an inquiry is always oppressive. 18 In Re BPTC Pty Ltd (in liquidation) (1994) 14 ASCR 460 McLelland CJ in Eq took the view that the nature and value of claims brought against various defendants were examinable affairs of the corporation and the extent to which those against whom the claims were made were insured against liability was relevant to the value of those claims. At 463 his Honour said that he was not persuaded that it was oppressive or otherwise inappropriate that a partner in the firm of accountants should be required to attend for examination on the matter of the extent of the insurance cover of the firm in respect of liability for claims made by the new trustees of the corporation. 19 In Flanders v Beatty (1995) 16 ACSR 324 an application to set aside an order for examination and production of insurance policies was dismissed on appeal. In Boys v Quigley [2002] WASCA 99 the court dismissed an appeal from an order for examination of partners of an accounting firm with respect to their professional indemnity insurance. It was held that it was for the benefit of the receiver and manager in the discharge of his duties to know what amount was likely to be recovered in actions by the company against persons who were considered liable to compensate the company for losses sustained by reason of their breach of duty and it was within the contemplation of the Corporations Act 2001 (Cth), s 596B to conduct an examination for that purpose. 20 The applicants' argument that examination and order for production were an abuse of process was based upon the proposition that in was in aid of a third party and not for the benefit of the creditors generally. 21 There was evidence before me that Jarbin Pty Ltd had agreed to fund the liquidator to the extent of 1.25 times normal scheduled rates and that Jarbin had been taking assignments of debts from other creditors and had acquired approximately one third of all the debts of Clutha. Jarbin is to seek the benefit of s 564 of the Corporations Act, 2001 (Cth) which provides that where in a winding up, property is recovered under an indemnity for costs of litigation given by certain creditors, or has been protected or preserved by the payment of money or the giving of indemnity by the creditors, or expenses in relation to which a creditor has indemnified a liquidator has been recovered, the court may make such orders as it deems just with respect to the distribution of that property and the amount of those expenses so recovered with a view to giving those creditors an advantage over others in consideration of the risks assumed by them. Jarbin is to seek at least 66% of the net funds of Clutha. 22 Mr Rares submitted that the examination and order for production were in aid of Jarbin and, on that basis, an abuse of process. I reject that submission. In Re Laurie Cottier Productions Pty Ltd (in liquidation) (1992) 9 ACSR 513 Waddell CJ in Eq rejected such a submission. It did not follow that because the funder of the liquidator was to advance its own interests, the liquidator sought to conduct the examination solely in the interests of that party. 23 It was submitted that in correspondence, the liquidator had indicated that if the solicitors for the former officers of Clutha stated the available level of indemnity under the insurance policy, the examination and order for production would be abandoned. It was submitted that in this context, the applications constituted an abuse of process. I reject that submission. In my view the liquidator is entitled to ascertain the value of the chose in action the subject of the litigation and the remaining available level of indemnity under the insurance policy is vital to that inquiry. The solicitors for the former office holders have refused to state that amount. In those circumstances, I am of the view that the liquidator is entitled to have Mr Abbey examined and to have Pacific Indemnity produce documents relevant to the ascertainment of that amount. 24 It was next submitted that the liquidator has information from which he can make his own calculations of the costs thus far incurred by the solicitors. A bill of costs from earlier proceedings has been provided and the solicitors have given an estimate of those costs at $280,000. Since the purpose of these procedures is to provide the liquidator with information and he has the means of ascertaining the relevant information, it was submitted that the procedure is an abuse of process. I reject that submission. The liquidator is not required to guess at the level of indemnity available to the former officers of Clutha. He is entitled to have that information. 25 It is said that records concerning costs and charges and other outgoings will reveal information the subject of client legal privilege and information which is confidential in terms of the Evidence Act 1995, s 126B. That is not immediately apparent to me. However, the liquidator has volunteered to restrictions under the order for production so that any information which is claimed to be privileged or confidential may be covered up. In my view that is sufficient protection to the applicants. 26 In the course of his argument, Mr Rares called upon a notice to produce all documents with respect to any funding arrangement between Jarbin and the liquidator and all documents with respect to the proposed application in favour of Jarbin under the Corporations Act 2001 (Cth), s 564. Mr Newlinds, who appeared for the liquidator, then filed in court by leave, interlocutory process to set aside the notice to produce. For the reasons set out above for my rejection of the submissions that funding by Jarbin constituted an abuse of process as did the prospective application under s 564, I propose to set aside the notice to produce of 21 March 2003 directed to the liquidator, being an annexure to the liquidator's interlocutory process, and I propose to order Mr Abbey and Pacific Indemnity to pay the costs of that process. 27 Section 596C(2) of the Corporations Act 2001 (Cth) provides that an affidavit in support of a summons for examination is not available for inspection except so far as the court orders. In the course of his submissions, Mr Rares sought access to that affidavit. I reject that application for the reasons set out above. The applicants have not shown a sufficient basis to set aside the summons for examination that would warrant access to the affidavit in support. 28 The interlocutory process of Mr Abbey and Pacific Indemnity seeks, in the alternative, directions concerning the proposed examination of Mr Abbey under s 596F of the Corporations Act 2001 (Cth). The summons issued to Mr Abbey is unlimited. I propose to give directions limiting the scope of the examination to the balance remaining under the policy of insurance. In light of the liquidator's offer to allow documents produced under the order for production to have covered up matters claimed to be confidential or the subject of client legal privilege, I propose that the order for production be so varied. In other respects I propose to dismiss the interlocutory process of Mr Abbey and Pacific Indemnity. I will hear the parties on the costs of that process. I will stand the matter over to a suitable date to allow the parties to bring in short minutes of orders in accordance with these reasons. Last Modified: 04/01/2003 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.