Reported Decision : (2003) 45 ASCR 379 New South Wales Supreme Court CITATION : In the matter of Allstate Explorations NL [2003] NSWSC 626 HEARING DATE(S) : 30 June 2003 JUDGMENT DATE : 30 June 2003 JURISDICTION: Equity JUDGMENT OF : Austin J DECISION : Application to set aside examination summons dismissed; order for production varied. CATCHWORDS : CORPORATIONS - deed of company arrangement - deed administrators seek to examine officer of insurer after insurer withdraws from indemnifying entity in dispute with company - whether examination relates to examinable affairs and is an abuse of process Corporations Act 2001 (Cth) ss 596B, 596F(1)(a) LEGISLATION CITED : Law Reform (Miscellaneous Provisions) Act 1946 (NSW) s 6(4) Supreme Court Rules Pt 36 r 12 Trade Practices Act 1974 (Cth) s 52 Bailey v New South Wales Medical Defence Union (1995) 132 ALR 1 Gerah v Duke Group (In Liq) (1993) 12 ACSR 513 Leisure Development (Qld) (2002) 41 ACSR 276 CASES CITED : Re BPTC (In Liq) (1995) 14 ACSR 460 Re BPTC Ltd (In Liq) (1993) 10 ACSR 756 Re Clutha Ltd (2003) 44 ACSR 74 Schipp v Cameron Harrison [1998] NSWSC 997 PARTIES : Michael Joseph Patrick Ryan and Antony Lesley John Woodings as joint and several Deed Administrators of Allstate Explorations NL (P/R) QBE Insurance (Australia) Ltd and Mark Nicholls (A) FILE NUMBER(S) : SC 3156/03 COUNSEL : A P Coleman (P/R) N Kidd (A) SOLICITORS : Clayton Utz (P/R) Colin Biggers & Paisley (A) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION AUSTIN J MONDAY 30 JUNE 2003 3156/03 IN THE MATTER OF ALLSTATE EXPLORATIONS NL JUDGMENT (ex tempore; revised 7 July 2003) 1 HIS HONOUR: The plaintiffs are deed administrators of Allstate Exploration NL, appointed on 4 October 2001. A joint venture in which Allstate was involved initiated arbitration proceedings against Batepro Australia Pty Limited and Brown & Root Engineering & Construction Pty Limited. I shall refer to those companies together as "BBR". Allstate made a claim against BBR in respect of alleged faulty design and construction of a gold processing plant at the Beaconsfield Gold Mine in Tasmania and BBR correspondingly made a claim against QBE Insurance Ltd under a professional indemnity insurance policy issued by QBE to BBR. There is evidence to indicate that the professional indemnity insurance claim was current on 6 February 2001. Arbitration of the claim by the joint venture against BBR was listed to commence on 12 May 2003. 2 On 14 May 2003, QBE declined indemnity to BBR in the arbitration. This was done by letter from Freehills dated 14 May 2003, to relevant parties. In that letter Freehills said, "We can only reiterate as our client has no funds and as its insurer has withdrawn indemnity, our client will not be appearing at the arbitration defending the claims brought against it." 3 Some of the further history of the arbitration process is shown in a letter of John Tyrril & Associates Pty Limited to various parties dated 13 May 2003. From that letter it appears that the architect contemplated continuing arbitration on, in effect, an ex parte basis if there was no appearance by BBR. 4 Allstate, by its administrators, then made an application for the issue of an examination summons. On 6 June 2003 an order was made under s 596B of the Corporations Act for an examination of Mark Nicholls of QBE. Additionally, an order was made under Pt 36 r 12 of the Supreme Court Rules for production by QBE of various categories of documents. I shall return to the orders for production later. I note, however, that when the order for production was first returnable on 19 June 2003, only the policy of insurance was produced and no other documents have been produced. 5 By an interlocutory process filed on 26 June 2003, and made returnable today, QBE and Mr Nicholls seek to set aside the examination summons and order for production. It has been necessary for me to deal with the matter urgently and to deliver my reasons for judgment ex tempore, although some of the issues raised on hearing of the application are not easy. The urgency arises because the examination is set down for tomorrow, 1 July 2003. 6 A number of issues arise on the interlocutory application. First, the application seeks access to the affidavit filed in support of the summons for examination. There is now substantial case law dealing with the circumstances in which such an order will be made. I summarised the case law in my decision in Leisure Development (Qld) (2002) 41 ACSR 276. It is unnecessary to go fully into the cases for the purposes of the present application. The usual course is that such an application is refused unless there are good grounds for access to be granted and the applicant shows an arguable case for access. The Court takes into account the special position of a liquidator (or in this case the deed administrators in the examination process and the risk that access to the affidavit may frustrate the examination process. 7 In the present case, counsel for the applicants submits that since it appears the examination will relate to the question whether there are causes of action against QBE, fairness requires access to the deed administrator's affidavit. In my opinion, that argument does not justify an access order being made. The applicant's evidence does not point to any specific case for the granting of access. The mere fact that the investigation will relate to possible proceedings against the company of which the examinee is an officer, would not, as a general proposition, entitle the examinee to access to the affidavit, for reasons given in the authorities summarised in the Leisure Development case. If it were otherwise so, access would be granted on most occasions where the application is under s 596B. The grounds advanced for an order for access are insufficient and so that application is denied. 8 Secondly, the applicants contend that the examination summons and the accompanying order for production constitute an abuse of process or are otherwise unjustified. It is conceded that the existence and availability of insurance in respect of a chose in action of the company in question against the third party is part of the company's examinable affairs. This is on the basis that the chose in action is property of the company. The existence and availability of insurance cover is relevant to the value of the chose in action. 9 There is now ample authority to support the general proposition that the "examinable affairs" of a company are broadly defined (see, for example, Gerah v Duke Group (In Liq) (1993) 12 ACSR 513) and specific authority with respect to the existence and value of a chose in action against a third party (See, in particular, Re Clutha Ltd (2003) 44 ACSR 74). 10 The applicants contend, however, that in the present case nothing has been identified falling properly within the description, chose in action. At most, there is a mere right to make an application for leave under s 6(4) of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW), which cannot be treated as property until leave is granted. 11 In my opinion, the authorities to which I have referred give the respondents to the application the right to seek orders to conduct an examination of an officer of a third party entity such as QBE, where the subject matter of the examination goes to the existence and value of insurance in respect of a chose in action of the company, and the third party in question is the insurer. This is so, at any rate, in circumstances such as the present where the evidence indicates a longstanding process leading to arbitration, planned to be conducted on the basis, until 14 May 2003, that QBE's policy would indemnify the defendants to the arbitration. 12 It is unnecessary for me to consider in this case whether a liquidator or a deed administrator could use the examination process to probe the relationship between insured and insurer at large. In the present case, there are specific concerns arising out of the evidence that make it permissible for the deed administrators to be permitted to have an examination of an officer of QBE. Those concerns arise, as I have said, out of what appears to have been a change of heart by QBE after a long period of dealing in which, at least arguably, others including Allstate acted on an assumption that indemnity would be provided having regard to the conduct of QBE. It is, therefore, not necessary for me to make any findings as to the general breadth of the Court's power to authorise a deed administrator or liquidator to conduct an examination into the relationship between insured and insurer. 13 The specific facts to which I have referred give rise, in my opinion, to at least two prospects worthy of further investigation by the deed administrators. One prospect is that, by virtue of conduct or acquiescence of some kind, QBE may have created the foundation for a cause of action by Allstate against it framed in estoppel, or under s 52 of the Trade Practices Act 1974 (Cth) or the State equivalent. The other is that there may be a proper basis, on the merits, after the examination has been carried out, for Allstate to make an application under s 6(4), the provision to which I have referred. 14 It is unnecessary for me, at the present time, to make a determination as to whether s 6(4) is available to Allstate. Counsel for the applicants took me to some authorities with respect to the general scope of s 6(4) and s 6(1): Schipp v Cameron Harrison [1998] NSWSC 997 (9 July 1998) Einstein J, at paragraphs 812 - 893; and Bailey v New South Wales Medical Defence Union (1995) 132 ALR 1, at 10 and 30-38 (especially at 37). The issues of principle raised by those authorities are issues appropriate to be explored if an application for leave is made. 15 At the present time, the issue for consideration is only whether it is appropriate for the Court to intervene to prevent an examination from taking place in which the deed administrators would be able to explore the factual basis for an application for leave, before making an assessment of their prospects of success. The fact that leave would be required before a plaintiff in the position of Allstate could proceed against a company in the position of QBE, does not, in my opinion, mean that the prospect of that proceeding must be excluded from the examinable affairs of the company concerned. A claim contingent upon the granting of leave, is no less a chose in action and, therefore, property forming part of the examinable affairs of the company, than a claim which can be pursued without leave being attained. 16 It seems to me that matters arising in an application for leave under s 6(4) may well be the proper subject of questioning in an examination. I have in mind in particular the proviso to subsection (4) which states that leave is not to be granted where the Court is satisfied that the insurer is entitled under the terms of the contract of insurance to disclaim liability and that proceedings including arbitration proceedings necessary to establish the insurer is so entitled to disclaim have been taken. I do not agree with the submission made on behalf of the applicants that the issues arising in an application for leave are confined to matters arising out of the terms of the policy and the nature of the claim. 17 Some reliance was placed by counsel for the applicants on the decision of McLelland CJ in Eq in Re BPTC (In Liq) (1995) 14 ACSR 460. In that case, examination summonses required the production of copies of insurance policies available to indemnify relevant firms against claims in specified proceedings, and also copies of correspondence between the relevant firm and the insurer or insurance broker in relation to the extent of cover, the existence of other claims falling within the period of the policy and any disclaimer of liability in respect of the claims. McLelland CJ in Eq said (at 463) that the requirement to produce those documents was oppressive as going beyond the legitimate requirements of the occasion. He said he would not regard as oppressive a requirement that the examinee produce any written communication from an insurer or insurance broker to the firm (a) stating the limit of the cover, (b) stating the conditions of the policy and (c) denying liability under the policy or stating the agreement of any such denial of liability. In the circumstances of the case before his Honour, the view was taken that only a relatively limited disclosure of that kind was required, but the circumstances of that case were quite different from the circumstances of the case before me now. 18 The present case is distinguished by its relatively exceptional facts. In the period from at least February 2001 to May 2003 the claim progressed up to the point of commencement of arbitration. At that point, the insurer withdrew indemnity to the defendants in the arbitration. It seems to me the company pursuing the arbitration, now under a deed of company arrangement, is entitled to conduct an investigation by examination summons and notice of production with a view to understanding what appears to have been a change of heart in order to inform itself as to whether any proceedings should be taken. 19 My conclusion, therefore, is there is no adequate ground for setting aside the examination summons and in my view, the examination of Mr Nicholls should proceed tomorrow as stipulated. 20 The order for production under Pt 36 r 12 is, of its nature, an order supplementary to the examination process. The nature of the order in this context was explored by Bryson J in Re BPTC Ltd (In Liq) (1993) 10 ACSR 756. His Honour pointed out (at 762) that this ancillary power can only be exercised where the production of documents is required for the purpose of exercising of the power to conduct an examination. He added (at 763) that an order for production of documents which had the effect of requiring a production of documents which were not required for the examination would be oppressive. 21 Counsel for the applicants submitted that the order for production in the present case went beyond what was required for the purposes of the examination and was, therefore, oppressive and should be set aside. That general proposition was elaborated by reference to the drafting of the paragraphs of the orders for production. 22 Suffice it to say now that I expressed the view during argument that paragraphs 1 and 4 were drafted too widely to be necessary for that purpose. After negotiation between bench and bar, some narrower wording was settled. Importantly, for present purposes, the drafting was altered to make it clear that there is an overriding limitation that the documents to be produced should be documents relating to provision of insurance in respect of the subject matter of what the order for production refers to as the BBR claim. I took the view that it was not appropriate for the orders to entitle the deed administrators to, as it were, range at large over the documentary relationship between QBE and BBR without any restriction to the BBR claim. 23 Paragraph 5, which sought production of directors' affairs, officers' liability insurance policy seemed to me to be problematical, and after "further negotiation" between bench and bar, the deed administrators withdrew their claim to that paragraph. 24 What this means, of course, is that the order for production should be varied in the ways indicated between bench and bar and to that extent, the interlocutory process has been successful. 25 There was a general assault made on the orders for production on the ground that many of the documents falling within the description of the various paragraphs would be the subject of a claim for legal professional privilege. Referring to the observations of Bryson J in the BPTC case, counsel for the applicants submitted that the Court ought not to make an order for production of any documents that would be the subject of a claim of legal professional privilege. Reference was made to an observation by Bryson J at 759 to the effect that "more formal procedure" would be appropriate in an instance where it could be foreseen there would be likely some claim for legal professional privilege. His Honour did not say, as I read his judgment, that the Court ought not to make an order for the production of a class of documents where it appeared possible or probable that some of those documents would be the subject of a claim for privilege, but rather that some formality would be needed in the production process. It seems to me adequate formality is given if the order for production contemplates a process similar to the procedure followed where documents are produced on subpoena or upon discovery subject to a claim to privilege. The fact that a document is privileged does not in that context, and ought not in this context, entitle the party to whom the order is addressed to decline to produce the document. The proper procedure is that the document should be produced, but the claim for privilege should be identified when it is produced and then the question of privilege can be adjudicated when a claim to access is made. 26 The fact that the orders for production, even as modified, will involve production of a large volume of material, a substantial portion of which will be subject to a claim to legal professional privilege, does not alter the application of the principles that I have outlined. I do not agree with the submission that it would be futile to require that privileged documents be extracted, copied and produced, because the effect of imposing a requirement for production of such documents is that the ultimate adjudication as to what is or is not privileged is an adjudication made by the Court rather than the producing party. 27 Finally, the applicants contended that, given the limitations on the scope of the orders for production to which I have referred, there should be a similar limitation on the scope of the examination of Mr Nicholls imposed by orders under s 596F(1). That section authorises the Court to make orders of various kinds, including in sub-paragraph (a) a direction about the matters to be inquired into in an examination. 28 For the same reasons that the deed administrators are not entitled to production of documents except those relating to insurance in relation to subject matter of the BBR claim, it seems to me their examination of Mr Nicholls should be limited to matters relevant to the provision of insurance in respect of the BBR claim. That limitation will not prevent the deed administrators from asking questions relating to the conduct of QBE with respect to any aspect of the BBR claim, after an insurance claim was made against QBE by BBR. The limitation, therefore, would not prevent the deed administrators from asking questions designed to assist them to determine whether Allstate has a cause of action in respect of any conduct or acquiescence by QBE during the process of managing the claim, from the time that it was made until and after the time of the decision to withdraw indemnity. But it would prevent the deed administrators from asking questions irrelevant to that process. 29 I make the following orders - (1) I vary the order for production made on 6 June 2003 by altering paragraphs 1 and 4 in the manner shown in the handwritten alterations to the examination orders initialed and dated by me for identification and by deleting paragraph 5. (2) Under s 596F(1)(a) of the Corporations Act I direct that the matters to be inquired into in the examination of Mr Mark Nicholls commencing on 1 July 2003 be limited to matters relating to the provision of insurance by QBE Insurance Group in respect of the subject matter of the BBR claim as defined in the Court's orders for production. (3) Subject to those orders, the interlocutory process filed on 26 June 2003 is dismissed. 30 As to costs, there were three matters in issue, that is to say, access to the affidavit supporting the issue of the examination summons (that was lost by the applicants); an order setting aside the examination summons (that was lost); and an order setting aside the order for production (where the finding was that the wording of the order for production was too wide). In one sense, that would suggest that the applicants should have costs of one issue and the other side should have costs of two issues. But I regard the respondents as having substantial success and, therefore, they are entitled to an order for costs in their favour. I do think, however, because of their lack of complete success, there ought to be some limit on their recoverable costs. In terms of the time of hearing, about one-third was taken up on the order for production. Therefore: (4) I order that the applicants pay two-thirds of the respondent's costs of the application. (5) Liberty to apply to me on 24 hours' notice. ********** Last Modified: 07/15/2003 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.